SECURITIES AND EXCHANGE COMMISSION
________________________
FORM10-K________________________
| ☒ | | | | |
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20202023
| ☐ | | | | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
________ to ________
toCommission file number:
001-36274
Intra-Cellular Therapies, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 36-4742850 |
| | |
(State or other jurisdiction of
incorporation or organization)
| | |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (646)
440-9333
Securities registered pursuant to Section 12(b) of the Exchange Act:
| | | | | | | | | | | | | | |
| | Trading Symbol(s) | | | | Name of each exchange on which registered |
Common Stock, $0.0001 Par Value Per Share | | ITCI | | | The Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒x No ☐
oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐o No ☒
xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐
oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T
(§ (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒x No ☐o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
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| Large accelerated filer | | x | | ☒ | Accelerated filer | | ☐o |
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Non-accelerated filer | | o | | ☐ | Smaller reporting company | | ☐o |
| | | |
| | | | | Emerging growth company | | ☐o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
xIf securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2
of the Exchange Act). Yes ☐o No ☒x The aggregate market value of the registrant’s voting and
non-voting
common stock held by
non-affiliates
of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately
$1.5$6.0 billion.
As of February
22
, 2021,20, 2024, the registrant had
80,917,01396,807,191 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into the following parts of this
Form 10-K:
Certain information required in Part III of this Annual Report on Form
10-K
is incorporated by reference from the Registrant’s Proxy Statement for the
20212024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission.
All brand names or trademarks appearing in this report are the property of their respective holders. Use or display by us of other parties’ trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” refer to Intra-Cellular Therapies, Inc. and its wholly-owned subsidiaries,subsidiary, ITI, Inc. and ITI Limited.
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/(42 mg/day) and we initiated the commercial launch of CAPLYTA in late March 2020. In December 2021, CAPLYTA was approved by the FDA for the treatment of bipolar depression in adults (42 mg/day). We initiated the commercial launch of CAPLYTA for the treatment of bipolar depression in December 2021. Additionally, in April 2022, the FDA approved two additional 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.schizophrenia and bipolar depression.
In December 2019, CAPLYTA was approved by the FDA for the treatment of schizophrenia in adults (42mg/(42 mg/day) and we initiated the commercial launch of CAPLYTA in late March 2020. In support of our commercialization efforts, we employ a national sales force consistingforce. In December 2021, CAPLYTA was approved by the FDA for the treatment of approximately 240 sales representatives. This sales force focuses on promotion to physicians. Ourbipolar depression in adults (42 mg/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 team is comprisedlaunch of experienced professionalsCAPLYTA for the treatment of bipolar depression in marketing, accessDecember 2021. In addition, the FDA approved two additional dosage strengths, 10.5 mg and reimbursement, managed markets, market research,21 mg, for special populations of patients, in April 2022. We initiated the commercial operations, and sales force planning and management.launch for these special population doses in August 2022.
The efficacy of CAPLYTA 42 mg in schizophrenia was demonstrated in two placebo-controlled trials, showing a statistically significant separation from placebo on the primary endpoint, the Positive and Negative Syndrome Scale, or PANSS, total score. The most common adverse reactions (>5% and twice the rate of placebo) for the recommended dose of CAPLYTA versus placebo were somnolence/sedation (24% vs. 10%) and dry mouth (6% vs. 2%). In pooled data from short term studies, mean changes from baseline in weight gain, fasting glucose, triglycerides and total cholesterol were similar between CAPLYTA and placebo. The incidence of extrapyramidal symptoms was 6.7% for CAPLYTA and 6.3% for placebo.
The efficacy of CAPLYTA 42 mg in bipolar depression was demonstrated in two positive Phase 3 placebo-controlled bipolar depression studies, which evaluated the effects of CAPLYTA on depression in adult patients with bipolar I or bipolar II disorder both as monotherapy (Study 404) and as adjunctive therapy with lithium or valproate (Study 402). In these studies, the efficacy of CAPLYTA 42 mg was established by demonstrating statistically significant improvements over placebo for the change from baseline in the Montgomery-Asberg Depression Rating scale, or MADRS, total score at Week 6. CAPLYTA 42 mg also showed a statistically significant improvement in the key secondary endpoint relating to clinical global impression of bipolar disorder in each study. In addition, CAPLYTA demonstrated a favorable tolerability and safety profile consistent with findings in prior clinical studies in schizophrenia. The most common reported adverse reactions (occurring at a rate of 5% or more and at least twice the rate of placebo) were somnolence/sedation, dizziness, nausea, and dry mouth. Mean changes from baseline in weight, fasting glucose, total cholesterol, triglycerides, and LDL cholesterol were similar between CAPLYTA and placebo.
Our pipeline includes several product candidates in clinical development and additional product candidates in preclinicalnon-clinical testing. We believe that our product candidates offer innovative therapeutic approaches and may provide advantages relative to current therapies. The following table summarizes our product candidates and programs:
The safety and efficacy of investigational agents and/or investigational uses of approved products have not been established.
Lumateperone Development Program
The efficacy of lumateperone could be mediated through a combination of antagonist activity at central serotonin
5-HT2A
receptors and postsynaptic antagonist activity at central dopamine D2 receptors. In terms of pharmacodynamics, lumateperone has high binding affinity for serotonin
5-HT2A
receptors and moderate binding affinity for dopamine D2 receptors, serotonin transporters, dopamine D1 receptors, dopamine D4 receptors and adrenergic alpha 1A and alpha 1B receptors. It lacks biologically relevant interactions with other receptors including muscarinic and histaminergic receptors. As a result, we believe lumateperone may represent a potential treatment across multiple therapeutic
indications including the treatment of bipolar disorder, including bipolar depression, other disorders withco-morbidindications.
depression, and/or as a stand-alone treatment for major depressive disorder (MDD).Lumateperone for the Treatment of Depressive Episodes Associated with Bipolar Disorder (Bipolar Depression)
The pharmacological profile of lumateperone offers the potential to treat bipolar mania, depression, and mixed features at doses similar to those targeted for the treatment of schizophrenia. We believe that lumateperone may be effective alone or in combination with mood stabilizers. Given that many patients with bipolar disorder also experience disturbed sleep and cognitive impairment similar to that observed in schizophrenia, we believe that lumateperone may have the potential treat a wide array of symptoms in patients with bipolar disorder, including improvement of cognition and sleep.
Lumateperone is in Phase 3 clinical development as a novel treatment for bipolar depression. Our lumateperone bipolar depression clinical program consists of three monotherapy studies and one adjunctive
study. In September 2020, we announced positive topline results from Study 402, conducted globally, evaluating lumateperone as adjunctive therapy to lithium or valproate in the treatment of major depressive episodes associated with Bipolar I or Bipolar II disorder. In Study 402, once daily lumateperone 42 mg met the primary endpoint for improvement in depression as measured by change from baseline versus placebo on the Montgomery-Åsberg Depression Rating Scale, or MADRS, total score (p=0.0206; effect size = 0.27). Lumateperone 42 mg also met the key secondary endpoint, the Clinical Global Impression Scale for Bipolar for Severity of Illness, orDepression Score (p=0.0082; effect size = 0.31). The lower lumateperone dose, 28 mg, showed a trend for a dose-related improvement in symptoms of depression but the results did not reach statistical significance. In the first quarter of 2020, we initiated our third monotherapy Phase 3 study, Study 403, evaluating lumateperone as monotherapy in the treatment of major depressive episodes associated with Bipolar I or Bipolar II disorder. Following the positive results in 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 major depressive disorder, or MDD. We expect to complete Study 403 in the second half of 2022 and following completion we intend to discuss the results with the FDA to determine whether Study 403, as amended, will provide supportive data of a potential future regulatory filing for this indication.In July 2019, we announced topline results from our first monotherapy study, Study 401, conducted in the United States, and our second monotherapy study, Study 404, conducted globally, evaluating lumateperone as monotherapy in the treatment of major depressive episodes associated with Bipolar I or Bipolar II disorder. In Study 404, lumateperone 42 mg met the primary endpoint for improvement in depression as measured by change from baseline versus placebo on the MADRS total score (p<0.0001; effect size = 0.56). These benefits were statistically significant in both Bipolar I and Bipolar II patients. Study 404 also met its key secondary endpoint, Clinical Global Impression Scale for Bipolar for Severity of IllnessTotal Score (p<0.001; effect size = 0.46). Study 401 tested two doses of lumateperone, 42 mg and 28mg along with placebo. In this trial, neither dose of lumateperone met the primary endpoint of statistical separation from placebo as measured by change from baseline on the MADRS total score. There was a high placebo response in this trial. Lumateperone was generally well-tolerated in all three bipolar depression studies, with a favorable safety profile.In addition, while our Phase 3 bipolar depression trials were powered for the overall patient population and not powered for subpopulation analyses, statistically significant benefit versus placebo was seen in the subgroup of patients with Bipolar I and Bipolar II disorder in Study 404 and in patients with Bipolar I disorder in Study 402, but the Bipolar II subgroup was not statistically significant in Study 402. In February 2021, we submitted supplemental new drug applications, or sNDAs, to the FDA for potential regulatory approval of lumateperone for the treatment of bipolar depression in patients with Bipolar I or II disorder as monotherapy and adjunctive therapy. Assuming the sNDA submissions are accepted by the FDA, we anticipate an FDA target action date for the sNDAs in the second half of 2021.Lumateperone for the treatment of major depressive disorder and other mood disorders
As a potent
5-HT2A
receptor antagonist and serotonin reuptake inhibitor, we believe that lumateperone could improve symptoms of
depression with fewer side effects than currently marketed antipsychotics and antidepressants.depression. Dopamine modulation by lumateperone may also reduce irritability and aggression that can accompany many mood disorders. Lumateperone, as a standalone agent, indirectly enhances glutamatergic neurotransmission through both AMPA and NMDA channels in the prefrontal cortex via lumateperone’s dopamine D1 receptor activation. By enhancing AMPA neurotransmission, lumateperone also activates key proteins in the mTOR pathway which has shown antidepressant effects. As such, lumateperone may represent a potential treatment for mood disorders including
major depressive disorder, or MDD.Lumateperone is in Phase 3 clinical development as a novel treatment for MDD. Clinical conduct in Study 501, Study 502 and Study 505, global Phase 3 clinical trials evaluating lumateperone 42 mg as an adjunctive therapy to antidepressants for the treatment of MDD, post-traumatic stress disorder and intermittent explosive disorder. We have commenced our programis ongoing. Study 505 is intended to serve as a potential additional registration trial in support of lumateperone in MDD evaluatinga supplemental New Drug Application, or sNDA, for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD, if needed. This is a common strategy employed in mood disorder development programs. We expect to announce topline results from Study 501 in April of 2024 and Study 502 late in the second quarter of 2024 and, subject to the results of these studies, we expect to initiatefile an sNDA with the FDA for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD in the second half of 2024.
In the first quarter of 2020, as part of our lumateperone bipolar depression clinical conduct in twoprogram, we initiated our third monotherapy Phase 3 trialsstudy, Study 403, evaluating lumateperone as monotherapy in 2021.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. In March 2023, we announced positive topline results from Study 403 as lumateperone 42 mg given once daily met the primary endpoint in the study by demonstrating a statistically significant and clinically meaningful reduction in the Montgomery-Asberg Depression Rating Scale (MADRS) total score compared to placebo at Week 6 in the combined patient population of MDD with mixed features and bipolar depression with mixed features (5.7 point reduction vs. placebo; p<0.0001; Cohen’s d effect size (ES) of 0.64). Robust results were also seen in the individual patient population of MDD with mixed features (5.9 point reduction vs. placebo; p<0.0001; ES= 0.67), and in the individual patient population of bipolar depression with mixed features (5.7 point reduction vs. placebo; p<0.0001; ES= 0.64). Additionally, lumateperone 42 mg met the key secondary endpoint in the study by demonstrating a statistically significant and clinically meaningful reduction in the clinician’s assessment of improvement in the overall severity on the Global Impression of Severity Scale (CGI-S) score compared to placebo at Week 6 in the combined patient population of MDD with mixed features and bipolar depression with mixed features (p<0.0001; ES= 0.59) and in the individual patient population of MDD with mixed features (p=0.0003; ES= 0.57), as well as the individual patient population of bipolar depression with mixed features (p<0.0001; ES=0.61).
TableWe also have an ongoing study, Study 304, evaluating lumateperone for the prevention of Contentsrelapse 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.Other Indications for Lumateperone
Within the lumateperone portfolio, we are alsoconducting, or are in the process of initiating, studies with pediatric patients in schizophrenia, bipolar disorder and irritability associated with autism spectrum disorder. In addition, we are 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 a long-acting injectable formulation and in December 2020 we initiatedconducted a Phase 1 single ascending dose study of lumateperonewith an LAI a formulation of lumateperone designed to be administered subcutaneously and to maintain therapeutic levels of lumateperone for at least one month.formulation. This study will evaluateevaluated the pharmacokinetics, safety and tolerability of a lumateperone LAI in patients with stable symptoms of schizophrenia.schizophrenia and was generally safe and well-tolerated. We anticipate topline results fromare evaluating several additional formulations of a lumateperone LAI with treatment durations of one month and longer. We have completed all non-clinical studies to support the initiation of a Phase 1 study with four additional formulations of our LAI. We expect to commence clinical conduct in this study will be available in the secondfirst half of 2021. Results from this study will inform the dosing strategy for future studies.2024. Given the encouraging tolerability dataefficacy and favorable safety profile to date with oral lumateperone, we believe that a long-acting injectablean LAI option, in particular, may lend itself to being an important formulation choice for certain patients.
We hold exclusive, worldwide commercialization rights to lumateperone and a family of compounds from Bristol-Myers Squibb Company pursuant to an exclusive license.
Other Product Candidates
We are developing
ITI-1284
ITI-1284-ODT-SL for the treatment of
behavioral disturbancesgeneralized anxiety disorder, the treatment of agitation in patients with dementia,
and the treatment of dementia-related
psychosis and for the treatment of certain depressive disorders in the elderly. ITI-1284psychosis. ITI-1284-ODT-SL is a deuterated form of lumateperone, a new molecular entity formulated as an oral disintegrating tablet for sublingual administration.
ITI-1284ITI-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.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
studies,results, we
plan to initiatehave initiated Phase 2
studiesprograms evaluating
ITI-1284ITI-1284-ODT-SL for the treatment of
behavioral disturbancesgeneralized anxiety disorder, psychosis in
dementia, dementia-related psychosis,Alzheimer's disease and
certain depressive disordersagitation in patients with Alzheimer’s disease. 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 conducted additional toxicology studies. These studies have been completed and we expect to commence clinical conduct in our Phase 2 studies in the
elderly.We have another major program calledITI-002
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 andnon-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 othernon-CNS
disorders.ITI-214
Lenrispodun (ITI-214) is our lead compound in this program. We believeITI-214
is the first compound in its class to successfully advance into Phase 1 clinical trials. Following the favorable safety and tolerability results in our Phase 1 program, we initiated our development program forITI-214
lenrispodun for Parkinson’s disease and commenced patient enrollment in the third quarter of 2017 inconducted a Phase 1/2 clinical trial ofITI-214
lenrispodun in patients with Parkinson’s disease to evaluate safety and tolerability in this patient population, as well as motor andnon-motor
exploratory endpoints. In the fourth quarter of 2018, we announced that the Phase 1/2 clinical trial ofITI-214
has been completed and topline results demonstratedITI-214
this study, lenrispodun was generally well-tolerated with a favorable safety profile and clinical signs consistent with improvements in motor symptoms and dyskinesias. We plan to initiate aOur Phase 2 clinical trial with ITI-214 for Parkinson’s diseaseof lenrispodun evaluating improvements in 2021. In addition,motor symptoms, changes in the second quarter of 2020, we announced topline results from Studya Phase 1/2 translational study of single ascending doses ofITI-214
cognition, and inflammatory biomarkers in patients with chronic systolic heart failure with reduced ejection fraction. In this study,ITI-214
improved cardiac output by increasing heart contractility and decreasing vascular resistance. Agents that both increase heart contractility (inotropism) and decrease vascular resistance
(vasodilation) are called 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 leadParkinson’s disease is ongoing.We expect to mortality.ITI-214,
which acts through a novel mechanism of action, was not associated with arrhythmiascomplete patient enrollment in this study and was generallywell-tolerated
in all patients.late 2024 with topline results anticipated in the first half of 2025. We also have an active Investigational New Drug application to evaluate our newest candidate within the PDE 1 inhibitor program, ITI-1020, as a novel cancer immunotherapy. Our Phase 1 program with ITI-1020 in healthy volunteers is ongoing.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 safe, effective,
non-addictive
treatments to manage pain.
ITI-333
is a novel compound that uniquely combines activity as an antagonist at serotonin
5-HT2A
receptors and a partial agonist at µ-opioid receptors. These combined actions support the potential utility of
ITI-333
in the treatment of opioid use disorder and associated comorbidities (e.g., depression, anxiety, sleep disorders) without opioid-like safety and tolerability concerns.
In December 2020, we initiatedWe 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 also have an ongoing multiple ascending dose study with ITI-333 in healthy volunteers. 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 also have our ITI-1500 program focused on the development of novel non-hallucinogenic psychedelics. Compounds in this series interact with serotonergic (5-HT2a) receptors in a unique way, potentially allowing the development of this new drug class in mood, anxiety and other neuropsychiatric disorders without the known limitations of psychedelics including the hallucinogenic potential and risk for cardiac valvular pathologies. Our lead compound in this program, ITI-1549, is currently being evaluated in IND enabling studies.
Our Drug Discovery Platform and Capabilities
Based on the pioneering efforts of our lateco-founder
and Nobel laureate, Dr. Paul Greengard, we have developed a detailed understanding of intracellular signaling pathways and intracellular targets. We have used that knowledge to develop several state of the art technology platforms, including one called CNSProfileTM
. This technology monitors the phosphoprotein changes elicited by major psychotropic drug classes and subclasses, and generates a unique molecular signature for drug compounds. By monitoring how the levels of these phosphoproteins change, we identify intracellular signaling pathways through which several major drug classes operate. Along with what we believe to be state of the art drug discovery efforts, we have used, and may continue to use, this information as a tool to validate our selection of preclinicalnon-clinical candidate molecules. Given the nature of our research and development and business activities, we do not expect that compliance with federal, state and local environmental laws will result in material costs or have a significant negative effect on our operations.
Disease and Market Overview
Our programs for small molecule therapeutics are designed to address various CNS and other diseases that we believe are underserved or unmet by currently available therapies and that represent large potential commercial market opportunities for us. Background information on the diseases and related commercial markets that may be addressed by our programs is set forth below.
Schizophrenia is a disabling and chronic mental illness that is characterized by multiple symptoms during an acute phase of the disorder that can include
so-called
“positive” “positive” symptoms, such as hallucinations, hearing voices, grandiose beliefs and suspiciousness or paranoia. These symptoms can be accompanied by additional, harder to treat symptoms, such as social withdrawal, blunted emotional response and speech deficits, collectively referred to as “negative” symptoms, difficulty concentrating and disorganized thoughts, or cognitive impairment, depression and insomnia. Such residual symptoms often persist even after the acute positive symptoms subside, and contribute substantially to the social and employment disability associated with schizophrenia.
According to the American PediatricPsychiatric Association and the National Institute of Mental Health, about 1% of the population or 2.4(2.4 million Americans sufferadults in the United States) suffers from schizophrenia in any given year. The U.S. market value of antipsychotic drugs exceeded $12 billion in 2020. These drugs have been used by physicians to address a range of
disorders in addition to schizophrenia, including bipolar disorder, depression and a variety of psychoses and related conditions. Antipsychotic treatments can have significant side effects like extrapyramidal symptoms, weight gain, dyslipidemia and other metabolic abnormalities. A landmark study funded by the National Institute of Mental Health, the Clinical Antipsychotic Trials of Intervention Effectiveness, also referred to as CATIE, which was published in The New England Journal of Medicine in September 2005, found that 74% of patients taking typical or atypical antipsychotics discontinued treatment within 18 months because of side effects or lack of efficacy.
Bipolar disorder, sometimes referred to as manic-depressive illness, is characterized by extreme shifts in mood. Individuals with bipolar disorder may experience intense feelings of over-excitement, irritability, impulsivity with grandiose beliefs and racing thoughts, referred to as a manic episode. Symptoms of depression may include feeling tired, hopeless and sad, with difficulty concentrating and thoughts of suicide. Some people experience both types of symptoms in the same “mixed” episode. Severe symptoms of bipolar disorder can be associated with hallucinations or delusions, otherwise referred to as psychosis.
There are overAccording to the National Institute of Mental Health, an estimated 4.4% of adults in the United States (approximately 11 million adult Americans living with bipolar disorder. Decision Resources Group estimated global sales for therapeutics used to treatadults in the United States) experience bipolar disorder to be approximately $6 billionat some time in 2020.
their lives. Bipolar disorder is often treated with antipsychotic medications alone or in combination with mood stabilizers. The side effects and safety risks associated with antipsychotic drugs in patients with bipolar disorder are similar to those experienced by patients with schizophrenia. Moreover, a large national research program conducted from 1998 to 2005 called the Systematic Treatment Enhancement Program for Bipolar Disorder, or
STEP-BD,
followed 4,360 patients with bipolar disorder long term and showed that about half of patients who were treated for bipolar disorder, still experienced lingering and recurrent symptoms, indicating a clear need for improved treatments.
Behavioral Disturbances in Dementia7
The World Health Organization estimates that approximately 50 million people worldwide have dementia, and this number is expected to increase to 152 million by 2050. The Alzheimer’s Association estimates 5.8 million Americans are living with Alzheimer’s dementia (AD) in 2020. While the diagnostic criteria for AD and other dementias mostly focus on the related cognitive deficits, it is often the behavioral and psychiatric symptoms that are most troublesome for caregivers and lead to poor quality of life for patients. Several behavioral symptoms are quite prevalent in patients with dementia, including patients with AD. In view of the potential multiple effects of lumateperone on aggression, agitation, sleep disorders and depression, and its safety profile to date, we believe that lumateperone may provide a novel therapy for treating the behavioral disturbances accompanying dementia, including AD.
The FDA has not approved any drug to treat the behavioral symptoms of dementia, including AD. We believe there is a large unmet medical need for a safe and effective therapy to treat the behavioral symptoms in patients with dementia, including AD.
Parkinson’s disease is a chronic and progressive neurodegenerative disorder that involves malfunction and death of neurons in a region of the brain that controls movement. This neurodegeneration creates a shortage of an important brain signaling chemical, or neurotransmitter, known as dopamine, thereby rendering patients unable to direct or control their movements in a normal manner. Parkinson’s disease is characterized by well-known motor symptoms, including tremors, limb stiffness, slowness of movements, and difficulties with posture and balance, as well as bynon-motor
symptoms, which include sleep disturbances, mood disorders, cognitive impairment and psychosis. Parkinson’s disease progresses slowly in most people and the severity of symptoms tends to worsen over time.
According to the National Parkinson Foundation, about 1 million people in the United States and approximately 10 million people worldwide suffer from this disease. Parkinson’s disease is more common in people over 60 years of age, and the prevalence of this disease is expected to increase significantly as the average age of the population increases. Parkinson’s disease patients are commonly treated with dopamine replacement therapies, such as levodopa, commonly referred to asL-DOPA,
which is metabolized to dopamine, and dopamine agonists, which are molecules that mimic the action of dopamine. According to Decision Resources Group, global sales of therapeutics such asL-DOPA,
and dopamine agonists used to treat the disease were approximately $3.5 billion in 2020.Non-motor
symptoms can be particularly distressing and even more troublesome to patients with Parkinson’s disease than the primary motor disturbances.Non-motor
symptoms substantially contribute to the burden of Parkinson’s disease and deeply affect the quality of life of patients and their caregivers.Non-motor
symptoms of Parkinson’s disease are associated with increased caregiver stress and burden, nursing home placement, and increased morbidity and mortality.Treatment ofnon-motor
symptoms associated with Parkinson’s disease poses a challenge to physicians. Current dopamine replacement drugs used to treat the motor symptoms of Parkinson’s disease do not help, and sometimes worsen, thenon-motor
symptoms. We believe there is a large unmet medical need for the treatment ofnon-motor
symptoms associated with Parkinson’s disease.Major Depressive Disorder
Major depressive disorder, or MDD is a brainmood disorder that can be associated with symptoms of sadness, hopelessness, helplessness, feelings of guilt, irritability, loss of interest in formerly pleasurable activities, cognitive impairment, disturbed sleep patterns, and suicide ideation or behavior. Different people may experience different symptoms, but everyone with major depression experiences symptoms that are severe enough to interfere with everyday functioning, such as the ability to concentrate at work or school, social interactions, eating and sleeping. Sometimes the depressive episode can be so severe it is accompanied by psychosis (hallucinations and delusions).
According to the National Institute of Mental Health, approximately 7%8.3% of adults in the United States experience MDD each year. According to Decision Resources Group, global sales of therapeutics to treat the depression was approximately $6 billion in 2019. The antidepressantanti-depressant market is primarily composed of selective serotonin reuptake inhibitors such as escitalopram and selective norepinephrine reuptake inhibitors, or SNRIs, such as duloxetine. Antipsychotics such as quetiapine, aripriprazolearipiprazole, Rexulti® and RexultiVraylar®
are also used as adjunctive treatments with antidepressant treatment. The National Institute of Mental Health-funded Sequenced Treatment Alternatives to Relieve Depression, or STAR*D, study showed that onlyone-third
of treated patients experience complete remission of depressive symptoms. Nearlytwo-thirds
of patients with depression do not fully recover on an anti-depressant medication. Generalized Anxiety Disorder Heart failureGeneralized anxiety disorder (GAD) is a chronic disease characterized by excessive, persistent, and uncontrollable worry about everyday life events or activities that is accompanied by nonspecific physical and psychological symptoms such as restlessness, fatigue, difficulty concentrating, irritability, muscle tension, or sleep disturbance. It is a highly prevalent condition with approximately 10 million diagnosed adults in the U.S. About half of the patients with GAD were estimated to not respond adequately to existing pharmacological interventions. There are currently no approved adjunctive treatments for GAD.
Given that a considerable proportion of patients with GAD fail to adequately respond to currently available pharmacological treatments, there is a high unmet need for effective therapies with a favorable safety profile.
Behavioral Disturbances in Dementia
The World Health Organization estimates that approximately 55 million people worldwide have dementia, and there are nearly 10 million new cases every year. The Alzheimer’s Association estimates more than 6 million Americans are living with Alzheimer’s dementia, or AD, in 2023. While the diagnostic criteria for AD and other dementias mostly focus on the related cognitive deficits, it is often the behavioral and psychiatric symptoms that are most troublesome for caregivers and lead to poor quality of life for patients. Several behavioral symptoms are quite prevalent in patients with dementia, including patients with AD. We believe that ITI-1284 may provide a novel therapy for treating the behavioral disturbances accompanying dementia, including AD.
We believe there is a large unmet medical need for a safe and effective therapy to treat the behavioral symptoms in patients with dementia, including AD.
Parkinson’s Disease
Parkinson’s disease is a chronic and progressive conditionneurodegenerative disorder that involves malfunction and death of neurons in whicha region of the heart muscle isbrain that controls movement. This neurodegeneration creates a shortage of an important brain signaling chemical, or neurotransmitter, known as dopamine, thereby rendering patients unable to pump enough blood to meet the body’s needs for blooddirect or control their movements in a normal manner. Parkinson’s disease is characterized by well-known motor symptoms, including tremors, limb stiffness, slowness of movements, and oxygen. In some types of heart failure, the left ventricle loses its ability to contract normally. The heart is unable to pumpdifficulties with enough force to push enough blood into circulation (heart failure with reduced ejection fraction). Eventually the heartposture and body cannot compensate,balance, as well as by non-motor symptoms, which include sleep disturbances, mood disorders, cognitive impairment and psychosis. Parkinson’s disease progresses slowly in most people and the person experiences fatigue, breathing problems or other symptoms.
severity of symptoms tends to worsen over time.Approximately 6.5According to the National Parkinson Foundation, about 1 million adultspeople in the United States have heart failure. Oneand more than 10 million people worldwide suffer from this disease. Parkinson’s disease is more common in eight deaths in 2018 included heart failure as contributing cause. About half of people who develop heart failure die within 5over 60 years of diagnosis. Heart failure costsage, and the nation anprevalence of this disease is expected to increase significantly as the average age of the population increases. Parkinson’s disease patients are commonly treated with dopamine replacement therapies, such as levodopa, commonly referred to as L-DOPA, which is metabolized to dopamine, and dopamine agonists, which are molecules that mimic the action of dopamine. Global Data estimated $30.7 billion each year. This total includes the costglobal sales of health care services, medicationstherapeutics such as L-DOPA, and dopamine agonists used to treat heart failure, and missed days of work. Current treatments prolong life
the disease to be approximately $3.9 billion in 2023.
Non-motor symptoms can be particularly distressing and improveeven more troublesome to patients with Parkinson’s disease than the heart’s function, butprimary motor disturbances. Non-motor symptoms substantially contribute to the burden of Parkinson’s disease and deeply affect the quality of life of patients and their caregivers. Non-motor symptoms of Parkinson’s disease are associated with increased caregiver stress and burden, nursing home placement, and increased morbidity and mortality. Treatment of non-motor symptoms associated with Parkinson’s disease poses a challenge to physicians. Current dopamine replacement drugs used to treat the motor symptoms of Parkinson’s disease do not help, and sometimes worsen, the non-motor symptoms. We believe there is no cure. There is a pressinglarge unmet medical need for improved treatments to improve and reverse these changes in cardiac function.the treatment of non-motor symptoms associated with Parkinson’s disease.
According to the 2019 CDC annual surveillance report of drug-related risks and outcomes, opioid misuse is widespread with over 10 million Americans reporting opioid misuse and nearly 50,000 opioid overdose deaths reported in the United States. The opioid crisis was declared a public health emergency in 2017. According to the 2021 National Survey on Drug Use and Health, opioid misuse is widespread with over 9 million Americans reporting opioid misuse. The rate of drug overdose deaths involving opioids in the United States remains high, with more than 80,000 deaths reported in 2021.
Opioids are a class of drugs that include the illegal drug heroin, synthetic opioids such as fentanyl, and pain relievers available legally by prescription, including oxycodone, hydrocodone, codeine and morphine. Opioids produce high levels of positive reinforcement, increasing the odds that people will continue using them despite negative consequences. Opioid use disorder is a chronic lifelong disorder, with serious potential consequences including disability, relapses, and death. While medications including methadone, buprenorphine and naltrexone are approved to treat opioid use disorder, these medications do not effectively treat psychiatric comorbidities (e.g., mood and anxiety disorders) that may drive opioid use/abuse or dysphoria or the dysphoria and mood disturbances (e.g., depression and anxiety) that often accompany opioid withdrawal and abstinence.
Our goal is to discover, develop and commercialize novel small molecule therapeutics for the treatment of CNS diseases and other diseases in order to improve the lives of people suffering from such illnesses. Using our key understanding of intracellular signaling, we seek to accomplish our goal, using
our in-house expert
drug discovery and clinical development teams, in two ways:
•we seek to have the capability todevelop first-in-class medications
•we seek to develop drugs that either can differentiate themselves in competitive markets by addressing aspects of CNS diseases and other diseases which are not adequately treated by currently marketed drugs or can be effective with fewer side effects.
The key elements of our strategy are to:
•continue to commercialize CAPLYTA, which has been approved by the FDA for the treatment of schizophrenia and bipolar depression in adults, in the United States;
commercialize lumateperone for the treatment of bipolar depression, if approved by the FDA;
•complete the development of lumateperone for additional neuropsychiatric indications, such as bipolar disorder and MDD;
•expand the commercial potential of lumateperone by investigating its usefulness in additional neurological areas, such as autism spectrum disorder, and in additional neuropsychiatric indications, such as sleep disorders associated with neuropsychiatric and neurological disorders;
•continue to advance our other product candidates in clinical development, such asITI-214,
PDE1 inhibitors, including lenrispodun for the treatment of CNS and other disorders;ITI-1284,
for the treatment of neuropsychiatric disordersgeneralized anxiety disorder, psychosis in Alzheimer's disease and behavioral disturbancesagitation in dementia;patients with Alzheimer's disease; andITI-333,
for substance use disorders, pain and psychiatric comorbidities including depression and anxiety; and •advance the earlier stage product candidates in our pipeline.pipeline, such as ITI-1500, for mood and other neuropsychiatric disorders.
As of February 1, 2021,2024, we owned or controlled approximately 112134 patent families filed in the United States and other major markets worldwide, including approximately 94136 issued or allowed U.S. patents, 4170 pending U.S. patent applications, 305563 issued or allowed foreign patents and 232335 pending foreign patent applications, directed to novel compounds, formulations, methods of treatment, synthetic methods, and platform technologies.
Lumateperone tosylate is nowFDA-approved
as CAPLYTA®
for the treatment of schizophrenia.schizophrenia and for the treatment of bipolar depression. We have extensively characterized this compound and related compounds and filed additional patent applications on salt forms, polymorphs, pharmaceutical formulations, new indications, improved methods of manufacture, metabolites, derivatives, and structurally related novel compounds. As of February 1, 2021,2024, our lumateperone program consisted of approximately 3139 patent families that we own or control, filed in the United States and other major markets, including 3456 issued or allowed U.S. patents, 2334 pending U.S. patent applications, 121240 issued or allowed foreign patents and 106143 pending foreign patent applications. Seven18 patents are currently Orange Book listed in the United States, which providesStates. During 2023, the further benefit ofRE48,839 patent was selected for Patent Term Extension, extending its term by 215 days, through August 2033. Other pending U.S. and foreign patent applications may protect additional indications and formulations through 2043. In addition to patent protection, lumateperone has five years of new chemical entity data exclusivity with the FDA.FDA, until December 2024. Patent protection for lumateperone includes: | | | | | | | | | | | | | | |
Summary Description of Patent | | | | |
ITI-007 Product Patent (approved drug product—lumateperone tosylate—in any pharmaceutical form) | | | | March 12, 2028 (US: does not include expected 6-month extension in US for pediatric studies) |
| | | | |
ITI-007 Crystal Form Patent (approved drug product—lumateperone tosylate—in solid crystalline form) | | US (8,648,077*; 9,199,995*; 9,586,960*; RE48,825*), EP (AT, BE, BG, CH, CZ, DE, DK, EE, ES, FI, FR, GB, GR, HR, HU, IE, IT, LT, LU, LV, NL, NO, PL, PT, RO, SE, SI, SK, TR), AU, CA, CN, KR, HK, JP and MX Pending in IL, IN | | December 1, 2029 (US; does not include expected 6-month extension for pediatric studies; additional patent term extension possible through 2033**)studies); |
| | | | |
| | Pending in IL, IN | | |
| | |
ITI-007 Dosage and Method of Treatment Patents (including schizophrenia, bipolar depression, sleep disorder indications) | | US (8,598,119*; 9,186,258*; 9,616,061*; 10,117,867*; 10,702,522; RE48,839*), AU, CA (allowed), CN, JP, KR, MX Pending: US (continuation), (divisional), EP, IN, KR (divisional), MX (divisional) | | December 28, 2029August 19, 2033** (US; does not include expected 6-month extension for pediatric studies; additional patent term extension possible through 2033**)studies); |
| | | | |
ITI-007 Residual Symptoms Patent (treatment of negative/residual symptoms of schizophrenia) | | US (9,956,227*; 10,960,009*; 11,026,951*), AU, CA, JP, KR, IL (allowed), IN, MX, RU Pending: US (continuation), AU (divisional), JP (divisional), EP, (allowed)KR (divisional), IN, KR, MX (divisional), CA (divisional), BR, IL, CN | | December 3, 2034 (US and ex-US; does not include expected US6-month extension for pediatric studies;)studies) |
| | | | |
Patents for Additional Compositions and Dosage Forms | | US (10,695,345*; 11,052,084*, 11,690,842*, 11,753,419*, 11,806,348*) Pending: US (continuation), AU, CA, CN, EP, IN, IL, JP, KR, MX, RU | | 2037-2039 |
| | | | 2037-2040 |
| Summary Description of Patent
| | | |
Patents for Additional Indications (including post-traumatic stress disorder, impulse control disorder, symptoms associated with dementia, acute depression, and acute anxiety) | | Granted: US (11,053,245; 11,124,514) Granted or pending in US, EP, JP, and other countries | | 2033-20342033-2043 |
*Orange-Book listed U.S. patents (NB: U.S. 8,598,119 and U.S. 9,586,960 have been requested for delisting as they have been superseded by RE48,839 and RE48,825, respectively)
* | Orange-Book listed U.S. patents
|
** | We have filed patent term extension applications on two U.S. patents. The U.S. Patent and Trademark Office, or USPTO, has not completed its review of these applications. In the United States, we are permitted to extend the term of one U.S. patent for lumateperone or the use thereof. Accordingly, on completion of the USPTO’s review of our patent term extension applications, we must select one of the two patents to which any patent term extension granted will attach. Patent terms may be subject to change not only due to potential patent term extensions but also to any terminal disclaimer that reduces patent term, as well as other factors. Because the U.S. patent laws and related judicial interpretations change, modifications or new interpretations of the laws may impact our patent terms.
|
**In the United States, we are permitted to extend the term of one U.S. patent for lumateperone or the use thereof. U.S. Patent RE48,839 was selected for patent term extension. Patent terms may be subject to change not only due to potential patent term extensions but also to any terminal disclaimer that reduces patent term, as well as other factors. Because the U.S. patent laws and related judicial interpretations change, modifications or new interpretations of the laws may impact our patent terms.
Our
ITI-1284
program relates to novel lumateperone derivatives for the treatment of behavioral disturbances associated with dementia, and other central nervous system disorders.
SixEight families of patent applications have been filed which
provide coverage for ITI-1284, which have already resulted in
five10 U.S. patents and
eight70 foreign patents. The
ITI-1284
molecule has composition of matter protection to 2037, with possible extensions and additional Orange Book-listable protection to 2042.
Our program on PDE1 inhibitors for cognition, dopamine-mediated and other disorders,
cardiovascular disorders, as well as several others, includes patent protection across
2757 families, including 31 families for the lead molecule,
ITI-214,
lenrispodun, as well as a wide range of filings on other proprietary compounds and indications. The
ITI-214
lenrispodun lead molecule has composition of matter protection to 2029, with possible extensions and additional Orange Book-listable protection to 2034. Additionally, we expect to have data exclusivity in the European Union
(EU) for up to 11 years from commercial launch. We
have obtained patent coverage forITI-214
in the treatment of cardiovascular disorders, including heart failure, that extends to 2034. We are also evaluating potential
follow-on
compounds for
ITI-214
lenrispodun which would have patent protection beyond 2030.
Our
ITI-333
program relates to novel compounds for the
non-addictive
treatment of pain and for the treatment of opiate use disorder.
1418 families of patent applications have been filed, including
twosix families which have already resulted in
threeeight U.S. patents and
one EP grant.69 foreign patents. These patent families will protect the lead compound, as well as many other analogs under development, beyond 2037 (exclusive of any patent term extensions and regulatory exclusivities).
Our early-stage ITI-1500 program relates to novel compounds as non-hallucinogenic psychedelics for the treatment of a variety neuropsychiatric disorders, including depression and anxiety. Composition of matter patent protection will extend to at least 2043, with possible extensions and additional Orange Book-listable protection to 2048.
We have also filed patent applications on novel proprietary targets and lead compounds for AD, which would provide compound protection beyond 2028 or beyond 2034, depending on which compound is ultimately selected for development.
The Bristol-Myers Squibb License Agreement
On May 31, 2005, we entered into a worldwide, exclusive License Agreement with Bristol-Myers Squibb Company, or BMS, pursuant to which we hold a license to certain patents and
know-how
of BMS relating to lumateperone and other specified compounds. The agreement was amended on November 3, 2010. The licensed rights are exclusive, except BMS retains rights in specified compounds in the fields of obesity, diabetes,
metabolic syndrome and cardiovascular disease. However, BMS has no right to use, develop or commercialize lumateperone and other specified compounds in any field of use. We have the right to grant sublicenses of the rights conveyed by BMS. We are obliged under the licenseagreement to use commercially reasonable efforts to develop and commercialize the licensed technology. We are also prohibited from engaging in the clinical development or commercialization of specified competitive compounds.
Under the agreement, we
have made
an upfront paymentpayments of
$1.0$10.8 million to BMS
a milestone payment of $1.25 million in December 2013, and a milestone payment of $1.5 million in December 2014 following the initiation of our first Phase 3 clinical trial for lumateperone for patients with schizophrenia. Upon FDA acceptance of an NDA filing for lumateperone, we were obligated to pay BMS a $2.0 million milestone payment. The FDA accepted our NDA filing for lumateperone for the treatment of schizophrenia in the third quarter of 2018 and, as a result, we paid the milestone payment in the first quarter of 2019. The FDA approved our NDA filing on December 23, 2019 and as a result, we accrued $5.0 million related to
that milestone in the fourth quarter of 2019 which was paid in the first quarter of 2020. Remaining potentialmilestones achieved through December 31, 2023 for lumateperone. Possible milestone payments
under the agreement with respect to lumateperoneremaining total $5.0
million if approvals to market the product are received in certain countries outside the U.S.million. Under the agreement, we may be obliged to make other milestone payments to BMS for
each licensed
products other than lumateperone,product of up to an aggregate of approximately $14.75 million. We are also obliged to make tiered single digit percentage royalty payments ranging between 5 – 9% on sales of licensed products. We are obliged to pay to BMS a percentage of
non-royalty
payments made in consideration of any sublicense.
The agreement extends, and royalties are payable, on a
and
basis, through the
laterlatter of ten years after first commercial sale of a licensed product in such country, expiration of the last licensed patent covering a licensed product, its method of manufacture or use, or the expiration of other government grants providing market exclusivity, subject to certain rights of the parties to terminate the agreement on the occurrence of certain events. On termination of the agreement, we may be obliged to convey to BMS rights in developments relating to a licensed compound or licensed product, including regulatory filings, research results and other intellectual property rights.
Manufacturing
We do not own or operate manufacturing facilities for the production of CAPLYTA or any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on third-party contract manufacturers for all of our required raw materials inclusive of active pharmaceutical ingredient, or API, and its intermediates, as well as finished product for commercial sales of CAPLYTA and for our preclinicalnon-clinical research and clinical trials, including our ongoing Study 403 Phase 3 trial for lumateperone for the treatment of bipolar depression.and anticipated trials. We believe that we would be able to contract with other third-party contract manufacturers to obtain API, if our existing sources of API were no longer available, but there is no assurance that API would be available from other third-party manufacturers on acceptable terms, on the timeframe that our business would require, or at all.
The Siegfried Supply Agreement
On January 4, 2017, we entered into a supply agreement or the Siegfried Agreement, with Siegfried Evionnaz SA, an affiliate of Siegfried AG, or Siegfried. Following the automatic expiration of the agreement on January 4, 2023, we entered into a new supply agreement with Siegfried effective January 5, 2023, or the Siegfried Agreement. Under the Siegfried Agreement, Siegfried has agreed to manufacture and supply the API for lumateperone in commercial quantities. We agreed to provide Siegfried with a rolling forecast.forecast of our anticipated requirements for supply of the API. Under the agreement, our purchase prices for supply of the API from Siegfried are specified prices based on the volume of API produced. The initial term of the Siegfried Agreement extendsis three years until January 5, 2026. The Siegfried Agreement will automatically renew on an evergreen basis for five years.a consecutive one-year period, unless either party notifies the other party of its election to not renew the agreement at least 12 months prior to the end of the initial term or any renewal period then in effect. Either party may terminate the agreement prior to its expiration upon an uncured material breach by the other party, the liquidation or dissolution of the other party, the commencement of insolvency procedures or other bankruptcy-related proceedings that are not dismissed within a certain period of time, the appointment of any receiver, trustee or assignee to take possession of the properties of the other party, the cessation of all or substantially all of the other party’s business operations, or a continuing force majeure event
affecting the other party, or the debarment or certain other events involving the other party’s employees, affiliates or agents.party. Under the Siegfried Agreement, we have the right to and may purchase the API for lumateperone from other suppliers, including if Siegfried cannot fulfill our requirements.suppliers. As of December 31, 2020,2023, the Company has committed to purchasing a production campaigncampaigns of API and intermediate product from Siegfried that isare expected to be delivered in the first half of 2022.2024.
The Lonza Manufacturing Services Agreement
On January 10, 2017, we entered into a manufacturing services agreement, as amended on December 19, 2022, or the Lonza Agreement, with Lonza Ltd., or Lonza. Under the Lonza Agreement, Lonza has agreed to manufacture and supply the API for lumateperone, with purchase prices determined in each project plan.specified based on the volume produced. We agreed to provide Lonza with a written forecast of our estimated quarterly requirements. TheOn December 19, 2022, the Lonza Agreement was amended to, among other items, extend the current term of the Lonza Agreement ends on the later of the seventh anniversary of the effective date of the agreement or five years after the first marketing approvaluntil December 31, 2028 and provide for certain minimum annual purchase commitments by the FDA or European Medicines Agency, or EMA, of lumateperone fromCompany for the Lonza facilityyears 2025 through 2028 for commercial supply.delivery in 2026 through 2029. Either party may terminate the agreement prior to its expiration upon a prior written notice, an uncured material breach by the other party, the insolvency, liquidation, dissolution or bankruptcy of the other party, or a continuing force majeure event affecting the other party, and may be extended by mutual consent. We may terminate the agreement prior to its expiration if we receive notice that the NDA for lumateperone has been rejected, suspended indefinitely or terminated by the FDA. As of December 31, 2020,2023, the Company has committed to purchasing a production campaigncampaigns of API from Lonza that isare expected to be delivered in the second half of 2022.2024 and 2025.
Development and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, that comply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal resources to manage our manufacturing contractors.
We initiated the commercial launch of CAPLYTA for the treatment of schizophrenia in adults in the United States in late March 2020. In December 2021, we launched CAPLYTA for the treatment of bipolar depression in adults. In support of our commercialization efforts we hiredemploy a national sales force consisting of approximately 240 sales representatives. We have substantially completed the hiring of our U.S. sales force. In the future, we may choose to commercialize CAPLYTA or any other products, in markets outside of the United States, if approved for sale in such markets, by establishing one or more strategic alliances.
Customers
We are currently approved to sell CAPLYTA for the treatment of schizophrenia in adults and for the treatment of bipolar depression in adults in the U.S. market. At the time of launch,United States. CAPLYTA is priced in line with other currently marketed branded antipsychotics indicated for the treatment of schizophrenia.schizophrenia and bipolar depression. We distribute CAPLYTA principally through three third partythird-party wholesale drug distributors. We do not have a disproportionatedistributors whose concentration with any oneare each between 29% and 36% of these distributors and we expect our sales volume to be distributed relatively evenly across these distributors.total sales.
We face, and will continue to face, intense competition from pharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies, both in the United States and abroad. We compete, or will compete, with existing and new products being developed by our competitors. Some of these competitors are pursuing the development of pharmaceuticals that target the same diseases and conditions that our research and development programs target.
Even if we are successful in commercializingexpanding the commercialization of CAPLYTA and developing and obtaining approval of our product candidates, we would compete with a variety of established drugs in the areas of our targeted CNS therapeutic indications. CAPLYTA for the treatment of schizophrenia competes and lumateperone for the
treatment of bipolar
disorder, if approved, would competedepression competes with, among other branded products,
LatudaFanapt®
, marketed by Sunovion,Vanda Pharmaceuticals, Lybalvi®, marketed by Alkermes, Rexulti®
, marketed by Otsuka Pharmaceutical, VRAYLARand Vraylar®
, marketed by Allergan, Saphris®
, marketed by Allergan, and Fanapt®
, marketed by Vanda Pharmaceuticals.AbbVie. In addition, CAPLYTA competes and our product candidates, if approved, would compete with, among other generic antipsychotic products, aripiprazole, clozapine, haloperidol, lurasidone, olanzapine, paliperidone, risperidone, quetiapine/XR olanzapine and clozapine.risperidone.In addition, the companies described above and other competitors may have a variety of drugs in development or be awaiting FDA approval that could reach the market and become established before our approved product is established in the market or before we are able to sell our product candidates, if approved. Our competitors may also develop alternative therapies that could further limit the market for any drugs that we may develop. Many of our competitors are using technologies or methods different or similar to ours to identify and validate drug targets and to discover novel small molecule drugs. Many of our competitors and their collaborators have significantly greater experience than we do in the following:
•identifying and validating targets;
•screening compounds against targets;
preclinical•non-clinical studies and clinical trials of potential pharmaceutical products; and
•obtaining FDA and other regulatory clearances.
In addition, many of our competitors and their collaborators have substantially greater advantages in the following areas:
•research and development resources;
•manufacturing capabilities; and
Smaller companies also may prove to be significant competitors, particularly through proprietary research discoveries and collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of our competitors have products that have been approved by the FDA or are in advanced development. We face competition from other companies, academic institutions, governmental agencies and other public and private research organizations for collaborative arrangements with pharmaceutical and biotechnology companies, in recruiting and retaining highly qualified commercial, scientific and management personnel and for licenses to additional technologies. Our competitors, either alone or with their collaborators, may succeed in developing technologies or drugs that are more effective, safer, and more affordable or more easily administered than ours and may achieve patent protection or commercialize drugs sooner than us. Developments by others may render our product candidates or our technologies obsolete. Our failure to compete effectively could have a material adverse effect on our business.
Government Regulation
United States—FDA Process
The research, development, testing, manufacture, labeling, promotion, advertising, import and export, distribution and marketing, among other things, prescription of drug products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply with the applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, clinical holds, warning letters, fines, civil penalties, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution.
None of our drug product candidates may be marketed in the United States until the drug has received FDA approval. Such approval can take many years to obtain and may be rejected by the FDA at a number of steps. The steps required before a drug may be marketed in the United States generally include the following: •completion of extensive preclinicalnon-clinical laboratory tests, potentially 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 an NDA after completion of all clinical trials;
•satisfactory completion of an FDApre-approval
inspection of the manufacturing facility or facilities at which the 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 the product candidatescandidate 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.
PreclinicalNon-clinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The Consolidated Appropriations Act for 2023, signed into law on December 29, 2022, (P.L. 117-328) amended the FDCA to specify that non-clinical testing for drugs may, but is not required to, include in vivo animal testing. According to the amended language, a sponsor may fulfill non-clinical testing requirements by completing various in vitro assays (e.g., cell-based assays, organ chips, or microphysiological systems), insilico studies (i.e., computer modeling), other human or non-human biology-based tests (e.g., bioprinting), or in vivo animal tests. The conduct of the preclinicalnon-clinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinicalnon-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about the conduct of the trial, such as whether human research subjects will be exposed to an unreasonable health risk. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. The FDA, the trial’s sponsor or an Institutional Review Board, or IRB, overseeing the trial also may place a study on hold at any time during development.its execution.
Clinical trials involve administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be provided to the FDA as part of a separate submission to the IND. Further, an IRB, for each
medical centersite proposing to conduct the clinical trial, must review and approve the study protocol and informed consent information for study subjects for any clinical trial before it commences at that center, and the IRB must monitor the study until it is completed. There are also requirements governing reporting of
on-going
clinical trials and clinical trial results to public registries.
Failure to timely register a covered clinical study or to submit study results as provided for in the law can give rise to civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. The ClinicalTrials.gov registration and reporting final rule became effective in 2017, and the government has brought enforcement actions against clinical trial sponsors that failed to comply with such requirements. Study subjects must
sign anprovide informed consent
form before
participatingbeing enrolled to participate in a clinical trial.
Clinical trials necessary for product approval typically are conducted in three sequential phases, but the phases may overlap.
•Phase 1 usually involves the initial introduction of the investigational drug into a limited population, typically healthy humans, to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its effectiveness.
•Phase 2 usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible adverse effects and safety risks; and (iii) evaluate
| preliminarily the efficacy of the drug for specific targeted indications. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.
|
•Phase 3 trials, commonly referred to as pivotal studies, are undertaken in an expanded patient population at multiple, geographically dispersed clinical trial centers to further evaluate clinical efficacy and test further for safety by using the drug in its final form.
The FDA or an IRB may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. The FDA may approve an NDA for a product candidate, but require that the sponsor conduct additional clinical trials to further assess the drug after NDA approval under a post-approval commitment. Post-approval trials are typically referred to as Phase 4 clinical trials.
Congress also recently amended the FDCA, as part of the Consolidated Appropriations Act for 2023, in order to require sponsors of a Phase 3 clinical trial, or other “pivotal study” of a new drug to support marketing authorization, to design and submit a diversity action plan for such clinical trial. The action plan must include the sponsor’s diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor will meet them. Sponsors must submit a diversity action plan to the FDA by the time the sponsor submits the relevant clinical trial protocol to the agency for review. The FDA may grant a waiver for some or all of the requirements for a diversity action plan. It is unknown at this time how the diversity action plan may affect Phase 3 trial planning and timing or what specific information the FDA will expect in such plans, but if the FDA objects to a sponsor’s diversity action plan, it may delay trial initiation.
During the development of a new drug, sponsors are given an opportunity to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach an agreement on the next phase of development. Sponsors typically use the end of Phase 2 meeting to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support approval of the new drug. A sponsor may request a Special Protocol Assessment, or SPA, to reach an agreement with the FDA that the protocol design, clinical endpoints, and statistical analyses are acceptable to support regulatory approval of the product candidate with respect to effectiveness in the indication studied. If such an agreement is reached, it will be documented and made part of the administrative record, and it will be binding on the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining the safety or effectiveness of the product after clinical studies begin, or if the sponsor fails to follow the protocol that was agreed upon with the FDA. There is no guarantee that a study will ultimately be adequate to support an approval even if the study is subject to an SPA.
Concurrent with clinical trials, companies usually complete additional animal safety studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and the manufacturer must develop methods for testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
Assuming successful completion of the required clinical testing, the results of
preclinicalnon-clinical studies and of clinical studies, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. An NDA must be accompanied by a significant user fee,
whichand the sponsor of an approved NDA is
waived for the first NDA submitted by a qualifying small business.also subject to an annual program fee. These fees are typically adjusted annually, but exemptions and waivers may be available under certain circumstances. The NDA is subject to a
sixty-day
acceptance period, and if sufficiently complete to permit substantive review, will be filed by the FDA at the end of that period. For NDAs that are assigned a standard review designation, the FDA’s goal is to complete its review ten months from the date the FDA files the NDA and, for
NDAs determined by the agency to be eligible for priority review,
of those NDAs, six months from the date the FDA files the NDA. These goals can be extended by the FDA through requests for additional information from the sponsor.
The testing and approval process requires substantial time, effort and financial resources. The FDA will review the NDA to determine, among other things, whether the product candidate is safe and effective for its intended use. FDA may deem itrefuse to be inadequate to support approval,approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data and we cannot be sure that any approval will be granted on a timely basis, if at all.information. The FDA may also refer the application to the appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee, but it typically follows such recommendations.
Before approving an NDA, the FDA inspects the facility or the facilities at which the drug and/or its active pharmaceutical ingredient is manufactured and will not approve the product unless the manufacturing is in compliance with cGMPs.
IfOn the
FDA evaluatesbasis of the FDA’s evaluation of the NDA and
accompanying information, including the results of the inspection of the manufacturing facilities,
are deemed acceptable, the FDAit may issue an approval letter or
in some cases a Complete Response Letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA may require post-marketing testing and surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.conditions, as discussed further below. A Complete Response Letter indicates that the review cycle of the application is complete and the application
iswill not
ready for approval.be approved in its current form. A Complete Response Letter
outlines the deficiencies in the submission and may require additional clinical data and/or additional clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials,
preclinicalnon-clinical studies or manufacturing.
If a Complete Response Letter is issued, the applicant may choose to either resubmit the NDA addressing all of the deficiencies identified in the letter or withdraw the application. Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials is not always conclusive and the FDA may interpret data differently than we or our collaborators interpret data. Alternatively, the FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy,
or REMS, to mitigate risks of the drug, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools. Once the FDA approves a drug, the FDA may withdraw product approval if
on-going
regulatory requirements are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing, including Phase 4 clinical trials, and surveillance programs to monitor the safety
effects of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs or other information.
Post-Approval Requirements.
If post-approval conditions are not satisfied, the FDA may withdraw its approval
In addition, holders of an approved NDA are required to (i) report certain adverse reactions to the FDA and maintain pharmacovigilance programs to proactively look for these adverse events; (ii) comply with certain requirements concerning advertising and promotional labeling for their products; and (iii) continue to have quality control and manufacturing procedures conform to cGMPs after approval. The FDA periodically inspects the sponsor’s records related to safety reporting
and/orand the approved drug’s manufacturing facilities, which includes assessment of
on-going
compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. We intend
to continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and future FDA inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in
new restrictions on a product, manufacturer or holder of an approved NDA, including recall of the product from the market,
imposition of a REMS program, or withdrawal of approval of the NDA for that
drug.drug, among other potential consequences.Moreover, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or the PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription drug product samples and impose requirements to ensure accountability in distribution. The Drug Supply Chain Security Act, or DSCSA, was enacted in 2013 with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a ten-year period that culminated in November 2023. Most recently, the FDA announced a one-year stabilization period to November 2024, giving entities subject to the DSCSA additional time to finalize interoperable tracking systems and to ensure supply chain continuity. From time to time, new legislation and regulations may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. It is impossible to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.
Patent Term Restoration and Marketing Exclusivity.
one-half
the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and
the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the extension must be requested prior to expiration of the patent. Also, the approval must be the first permitted commercial marketing or use of the active ingredient under the relevant provision of law. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. We have applied for, and in the future we intend to apply for, restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.
Data and market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of
non-patent
data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or
non-infringement.
The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the
conditionsdata and information associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to all of the
preclinicalnon-clinical studies
adequate and
well-controlled clinical trials necessary to demonstrate safety and effectiveness. The FDCA also provides seven years of market exclusivity for a drug designated for a rare disease or condition (e.g., a disease or condition that affects less than 200,000 people in the United States)
. that begins to run after the drug’s marketing approval for that disease or condition. The exclusivity prohibits the approval of the same drug for the same disease or condition unless there is a showing of clinical
superiority.superiority or other exceptions are triggered.In addition to regulations in the United States, we will bemay become subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials and approval of foreign countries or economic areas, such as the European Union, before we maycan commence clinical trials or market products in those countries or areas. The approval processprocesses and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Pricing and Reimbursement
In the United States and internationally, sales of any approved products, and our ability to generate revenues on such sales, are dependent, in significant part, on the availability of adequate coverage and reimbursement from third-party
payors,payers, such as state and federal governments, managed care providers and private insurance plans. Private insurers, such as health maintenance organizations and managed care providers, have implemented cost-cutting and reimbursement initiatives and likely will continue to do so in the future. These include establishing formularies that govern the drugs and biologics that will be offered and the
obligations of member patients for such products. We may need to conduct pharmacoeconomic studies to demonstrate the
cost-effectiveness
of our products for formulary coverage and reimbursement. Even with such studies, our products may be considered less safe, less effective or less cost-effective than existing products, and third-party
payorspayers may not provide coverage and reimbursement for our product candidates, in whole or in part.
In addition, particularly in the United States and increasingly in other countries, we are required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities. It is possible that future legislation in the United States and other jurisdictions could be enacted to potentially impact reimbursement rates for the products we are developing and may develop in the future and could further impact the levels of discounts and rebates paid to federal and state government entities. Any legislation that impacts these areas could impact, in a significant way, our ability to generate revenues from sales of any approved product that we bring to market. Most recently, on August 16, 2022, President Biden signed into the law the Inflation Reduction Act of 2022, or the IRA. Among other things, the IRA has multiple provisions that may impact the prices of drug products that are both sold into the Medicare program and throughout the United States. Starting in 2023, a manufacturer of drugs or biological products covered by Medicare Parts B or D must pay a rebate to the federal government if their drug product’s price increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate owed to the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, starting for payment year 2026, the Centers for Medicare & Medicaid Services (CMS) will negotiate drug prices annually for a select number of single source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue generated from such drug will decrease. CMS has begun to implement these new authorities and entered into the first set of agreements with pharmaceutical manufacturers to conduct price negotiations in October 2023. However, the IRA’s impact on the pharmaceutical industry in the United States remains uncertain, in part because multiple large pharmaceutical companies and other stakeholders (e.g., the U.S. Chamber of Commerce) have initiated federal lawsuits against CMS arguing the program is unconstitutional for a variety of reasons, among other complaints. Those lawsuits are currently ongoing.
In addition to the IRA’s drug price negotiation provisions, President Biden’s Executive Order 14087, issued in October 2022, called for CMS to prepare and submit a report to the White House on potential payment and delivery modes that would complement to IRA, lower drug costs, and promote access to innovative drugs. In February 2023, CMS published its report which described three potential models focusing on affordability, accessibility and feasibility of implementation for further testing by the CMS Innovation Center. As of January 2024, the CMS Innovation Center’s testing of the proposed models is still in progress.
Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental changes. There have been, and we expect there will continue to be, legislative and regulatory proposals to change the health care system in ways that could significantly affect our future business. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, or collectively, the ACA, enacted in March 2010, substantially changed the way health care is financed by both governmental and private insurers. Certain legislative changes to and regulatory changes under the ACA have occurred
inover the
115th United States Congresspast few years and
under the Trump Administration. For instance, the Bipartisan Budget Act of 2018 increased the ACA required manufacturerdiscount from 50% to 70% off the negotiated price for Medicare Part D beneficiaries during their coverage gap period beginning in 2019. Furtherfurther legislative changes to and regulatory changes under the ACA remain possible. We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that may be charged for any of our product candidates, if approved.
Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, in recent years, several states have formed prescription drug affordability boards (PDABs). Much like the IRA’s drug price negotiation program, these PDABs have attempted to implement upper payment limits (UPLs) on drugs sold in their respective states in both public and commercial health plans. For example, in August 2023, Colorado’s PDAB announced a list of five prescription drugs that would undergo an affordability review. The effects of these efforts remain uncertain pending the outcomes of several federal lawsuits challenging state authority to regulate prescription drug payment limits. Furthermore, in December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers (PBMs) and other members of the health care and pharmaceutical supply chain, an important decision that appears to be leading towards further and more aggressive efforts by states in this area. The Federal Trade Commission in mid-2022 also launched sweeping investigations into the practices of the PBM industry that could lead to additional federal legislative or regulatory proposals targeting such entities’ operations, pharmacy networks, or financial arrangements. Significant efforts to change the PBM industry as it currently exists in the U.S. may affect the entire pharmaceutical supply chain and the business of other stakeholders, including pharmaceutical companies like us.
It is uncertain whether and how future legislation or regulatory changes could affect prospects for our product candidates or what actions federal, state, or commercial payers for pharmaceutical products may take in response to any such healthcare reform proposals or legislation. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and reforms may prevent or limit our ability to generate revenue, attain profitability or commercialize our product candidates.
Sales and Marketing
The FDA, in conjunction with the U.S. Federal Trade Commission, or FTC, regulates all advertising and promotion activities for products under FDA’s jurisdiction prior to and after approval, including standards and regulations for
advertising, dissemination of
off-label
information, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label.
Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new or supplemental NDA, which may require us to collect additional data or conduct additional preclinical studies and clinical trials. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties available to the
FDA.FDA and the U.S. Department of Justice. There are also continuing annual user fee requirements that are now assessed as program fees for certain NDA-approved drugs.Physicians may prescribe legally available drugs for uses that are not described in the drug’s labeling and that differ from those tested by us and approved by the FDA. Such
off-label
uses are common across medical specialties, and often reflect a physician’s belief that the
off-label
use is the best treatment for the patient. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers’ communications regarding
off-label uses.off-label
uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decreesOur commercial marketing of CAPLYTA and
the full range of civil and criminal penalties available to the FDA.Outside the United States, our ability to market a product is contingent upon obtaining marketing authorization from the appropriate regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from country to country.
At such time as we market, sell and distribute any products for which we obtain marketing approval, it is possible that ourrelated business activities could bebecome subject to scrutiny and enforcement under one or more federal or state health care fraud and abuse laws and regulations. These fraud and abuse laws, and other applicable health care laws include:
•The federal Anti-Kickback Law, which prohibits, among other things, knowingly or willingly offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or in kind, to induce or
| reward the purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any health care items or service for which payment may be made, in whole or in part, by federal health care programs such as Medicare and Medicaid;
|
•The federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government;
•The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense, or knowingly and willfully making false statements relating to healthcare matters;
•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
•The federal Physician Payment Sunshine Act, being implemented as the Open Payments Program,which requires certain pharmaceutical manufacturers of FDA-approved drugs (among others) covered by Medicare or Medicaid to engage in extensive tracking ofreport to CMS, on an annual basis, information related to payments and other transfers of value to physicians, and teaching hospitals, and to submitcertain advanced non-physician health care practitioners and physician ownership and investment interests, with such data to the Centers for Medicare and Medicaid Studies (“CMS”), which will then make all of this databeing made publicly available on thea website maintained by CMS website;called Open Payments; and
•Analogous state and foreign laws and regulations, including state anti-kickback and false claims laws, which may apply to items or services reimbursed under Medicaid and other state programs or, in several states, apply regardless of the payer, as well as other state laws that require pharmaceutical companies to report expenses related to the marketing and promotion of pharmaceutical products, prohibit certain gifts or payments to health care providers in the state, and/or require pharmaceutical companies to implement compliance programs or marketing codes of conduct.
Violations of fraud and abuse
laws, or other health care laws may be punishable by significant criminal and/or civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal health care programs (including Medicare and Medicaid) and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties also may be imposed upon executive officers and employees, including criminal sanctions against executive officers under the
so-called
“responsible “responsible corporate officer” doctrine, even in situations where the executive officer did not intend to violate the law and was unaware of any wrongdoing. Given the penalties that may be imposed on companies and individuals if convicted, allegations of such violations often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government was to allege or convict us or our executive officers, employees or consultants of violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions under some of the fraud and abuse laws described above. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and extensive enforcement of them by law enforcement authorities. Further, federal and state laws that require manufacturers to make reports on pricing and marketing information could subject us to penalty provisions.
As of February 1, 2021,2024, we employed 383610 employees all of whom were full-time. We consider our relations with our employees to be good. To successfully commercialize CAPLYTA and develop our drug candidates, we must be able to attract and retain highly skilled personnel. We anticipate hiring a number of additional employees for sales and marketing, research and development, clinical and regulatory affairs, and general and administrative
activities during
2021.2024. We continually evaluate the business need and opportunity and balance
in-house
expertise and capacity with outsourced expertise and capacity. Currently, we outsource substantial clinical trial work to clinical research organizations and drug manufacturing to contract manufacturers.
Compensation and Benefits
We believe that our future success largely depends upon our continued ability to attract, train, and retain highly skilled employees. Pharmaceutical companies both large and small compete for a limited number of qualified applicants to fill specialized positions. To attract qualified applicants, we offer a total rewards package consisting of base salary and cash target bonus, a comprehensive benefit package and equity compensation for every employee. Bonus opportunity and equity compensation increase as a percentage of total compensation based on level of responsibility. Actual bonus payout is based on performance.
We also provide employees with opportunities to develop and grow professionally. The success of our human capital management investments is evidenced by our relatively low employee turnover.Diversity, Equity and Inclusion
Much of our success is rooted in the diversity of our teams and our commitment to inclusion. We value diversity at all levels. We believe that our business benefits from the different perspectives a diverse workforce brings, and we pride ourselves on having a strong, inclusive and positive culture based on our shared mission and values.
At all times we strive to distinguish ourselves as a respected biopharmaceutical company that is differentiated by top talent and innovative research to develop products that address underserved medical needs.
Communication is critical in our ability to continuously enhance our company culture and create a more inclusive environment. The implementation of an announcement board allowed us to share what is important and impactful to us as a business. It also allows for us to host events that affect our employees on both a personal and professional level.
Health, Wellness and Safety
We believe that the safety and health of our employees and their families is essential to our business. Our culture is driven by a desire to do what is right, and we strive to support the well-being of our employees. We prioritize the safety and well-being of our employees as they face both mental and physical challenges. We identify potential workplace risks and continue to provide resources to support our employees’ well-being and to mitigate possible hazards.
Our financial, medical, and mental health benefits are designed to support our employees, and, during the COVID-19 pandemic, we further expanded our offerings to create appropriate “work from home” conditions for success and wellness, including purchasing additional IT equipment and office supplies and increasing communications related to our mental health benefits. In particular, we offered sessions on seasonal stress to further support the mental health of our employees.
Environmental, Social and Governance
Our commitment to integrating sustainability across our organization begins with our Board of Directors, or the Board. The Nominating and Governance Committee of the Board has oversight of strategy and risk management related to Environmental, Social and Governance, or ESG. The Board and, in some cases, Board committees oversee ESG strategy considering impacts on resources, product demand, and operations due to climate change and extreme weather events. Applying Nasdaq’s listing standards for independence, four of our five directors are independent.
At the management level, we have implemented a cross-functional Sustainability Working Group. The Sustainability Working Group plays a crucial part in assigning roles, promoting accountability, and providing regular
reporting to senior leadership and the Board.
All employees are responsible for upholding our core values, including to communicate, collaborate, innovate and be respectful, as well as for adhering to our Code of Ethics and Business Conduct, including our policies on bribery, corruption, conflicts of interest and our whistleblower program. We encourage employees to come to us with observations and complaints, ensuring we understand the severity and frequency of an event in order to escalate and assess accordingly. Our Chief Compliance Officer strives to ensure accountability, objectivity, and compliance with our Code of Ethics and Business Conduct. If a complaint is financial in nature, the Audit Committee Chair is notified concurrently, which triggers an investigation, action and report.
We are committed to protecting the environment and attempt to mitigate any negative impact of our operations. We monitor resource use, improve efficiency, and at the same time, reduce our emissions and waste.
In order to reduce the overall impact of our product on the environment, we have taken steps to enhance the sustainability of our manufacturing processes for our drug substances. Our supply chain planning, focusing on reliability, spend management, and patient access, all aid in emissions reduction. Further, our supply chain encompasses geographic
diversity to strengthen our contingency strategies to help ensure resilience. These strategies include maintaining a safety stock capable of sustaining manufacturing, even amid global disruptions such as geopolitical changes, labor or resource shortages, market fluctuations, or extreme weather events.
We are systematically addressing the environmental impacts of the buildings we rent as we make improvements, including adding energy control systems and other energy efficiency measures. Our labs minimize greenhouse gas (GHG) emissions by utilizing electricity for reactions. Smart design elements contribute to reduced energy consumption. Waste in our own operations is minimized by our commitment to reducing both single-use plastics and operating primarily in a paper-free, digital environment. We have safety protocols in place for handling biohazardous waste in our labs, and we use third-party vendors to ensure proper disposal of biohazardous and chemical waste.
We published our inaugural 2022 ESG report on our website that highlights our commitment to patients, communities, employees, and society. Our ESG report can be found on our website at www.intracellulartherapies.com/about-us/sustainability/. This website reference is provided for convenience only and the content on the referenced website is not incorporated by reference into this Annual Report on Form 10-K. We plan to publish our 2023 ESG Report in 2024.
Corporate Information
We were originally incorporated in the State of Delaware in August 2012 under the name “Oneida Resources Corp.” Oneida Resources Corp. was a “shell” company registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, with no specific business plan or purpose until it began operating the business of Intra-Cellular Therapies, Inc. (now
re-named
ITI, Inc., or ITI) through a reverse merger transaction on August 29, 2013,
(the “Merger”).or the Merger. ITI was incorporated in Delaware in May 2001 to focus primarily on the development of novel drugs for the treatment of neuropsychiatric and neurologic diseases and other disorders of the central nervous system. Effective upon the Merger, a wholly owned subsidiary of the Company merged with and into ITI. ITI
and ITI Limited continuecontinues as the operating
subsidiariessubsidiary of the Company. As used herein, the words the “Company,” “we,” “us,” and “our” refer to Intra-Cellular Therapies, Inc. and its wholly owned
subsidiaries,subsidiary, ITI, Inc.
and ITI Limited.Our corporate headquarters and laboratory are located at 430 East 29th Street, New York, New York 10016, and our telephone number is(646) 440-9333.
We also have an office in Towson, Maryland. We maintain a website at www.intracellulartherapies.com, to which we regularly post copies of our press releases as well as additional information about us. We make available free of charge through the Investors section of our web site our Annual Reports on Form10-K,
Quarterly Reports on Form10-Q,
Current Reports on Form8-K
and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The Securities and Exchange Commission maintains an internet site (http://www.sec.gov
) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission. We include our web site address in this Annual Report on Form10-K
only as an inactive textual reference. Information contained in our website does not constitute a part of this report or our other filings with the SEC.
Except for the historical information contained herein, this report contains forward-looking statements that involve risks and uncertainties. These statements include projections about our finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results could differ materially from those discussed in this report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the following section, as well as those discussed in Part II, Item 7 entitledtitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this report.
You should consider carefully the following risk factors, together with all of the other information included or incorporated by reference in this report. If any of the following risks, either alone or taken together, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment.
Our business is subject to numerous risks and uncertainties, including those highlighted in this section below, that represent challenges that we face in connection with the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in more detail in the risk factors below, alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition and results of operations. Such risks include, but are not limited to:
•In order to execute our business plan and achieve profitability, we need to effectively commercializeexpand the commercialization of CAPLYTA, which receivedhas been approved by the FDA approval in December 2019 for the treatment of schizophrenia in adults. We initiatedadults and for the commercial launchtreatment of CAPLYTAbipolar depression in March 2020.
•If we do not obtain regulatory approval of lumateperone for other indications in the United States, or for any indication in foreign jurisdictions, we will not be able to market lumateperone for other indications or in other jurisdictions, which will limit our commercial revenues.
•If the sales and marketing capabilities we are establishinghave established or our third-party relationships for the commercialization of lumateperoneCAPLYTA are not effective, lumateperoneCAPLYTA may not be successfully commercialized.
•We have generated limited revenuerevenues from product sales andbut there is no guarantee that our revenue from the sale of CAPLYTA or other product candidates, if approved, will be substantial.
•There is no guarantee that our planned clinical trials for lumateperone or our other product candidates will be successful.
•We expect our net losses to continue for at least several years and are unable to predict the extent of future losses or when we will become profitable, if ever.
•We willmay require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease our operations.
•Our management has broad discretion over the use of our cash and we may not use our cash effectively, which could adversely affect our results of operations.
Even though the FDA has granted approval of CAPLYTA for the treatment of schizophrenia, the terms of the approval may limit its commercial potential. Additionally, CAPLYTA is still subject to ongoing regulatory requirements.
•Delays, suspensions and terminations in our clinical trials or the need to conduct additional clinical trials or non-clinical studies could result in increased costs to us, delay our ability to generate product revenues and therefore may have a material adverse effect on our business, results of operations and future growth prospects.
•Even though the FDA has granted approval of CAPLYTA for the treatment of schizophrenia and bipolar depression, the terms of the approval may limit its commercial potential. Additionally, CAPLYTA is still subject to ongoing regulatory requirements.
•Safety issues with our product candidates or approved product, or with product candidates or approved products of third parties that are similar to our product candidates, could give rise to delays in the regulatory approval process, restrictions on labeling or product withdrawal after approval.
•Preliminary and interim data from our clinical studies that we may announce or publish from time to time may change as more patient data become available.
•We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing our product candidates.
•Even if we successfully complete the clinical trials of one or more of our product candidates, the product candidates may fail for other reasons.
•We are subject to ongoing regulatory obligations and restrictions with regard to lumateperoneCAPLYTA and, following regulatory approval of any of our product candidates, we will be subject to ongoing regulatory obligations and restrictions with regard to such product candidates, which may result in significant expense and limit our ability to commercialize lumateperone and our other potential products.
•CAPLYTA and our product candidates, if approved, may not gain acceptance among physicians, patients, or the medical community, thereby limiting our potential to generate revenues, which will undermine our future growth prospects.
CAPLYTA has only recently been, and our other product candidates have never been, manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale. In particular, we will need to develop larger scale manufacturing processes that are more efficient and cost-effective to commercialize our product candidates which may not be successful.
•We rely on third-party manufacturers to manufacture and supply lumateperone and our other product candidates for us. If one of our suppliers or manufacturers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find new suppliers or manufacturers. We may also face significant delays in our clinical trials, regulatory approvals and product introductions and commercialization.
We will need to continue•As our business expands and evolves, we may find that our current staffing is not adequate in size or capability to manage our organizationthese changes and we may encounter difficulties with our staffing and any future transitions, which could adversely affect our results of operations.
•Our ability to compete may be undermined if we do not adequately protect our proprietary rights.
•Our ability to generate product revenues will be diminished if lumateperone or any of our other potential products doesdo not sell for adequate prices, receive coverage from payors or sell for inadequate prices,payers or if patients are unable to obtain adequate levels of reimbursement.
•Public health threats could have a material impact on our business, financial condition and results of operations, including our commercial operations and sales, clinical trials and non-clinical studies.
•CAPLYTA and future product candidates for which we obtain approval may face competition sooner than anticipated. •Many of our competitors have greater resources and capital than us, putting us at a competitive disadvantage. If our competitors develop and market products that are more effectivewidely accepted in the marketplace than lumateperone or our other product candidates, they may reducenegatively affect or eliminate our commercial opportunity.
The outbreak of the novel strain of coronavirus,or similar public health crises, could have a material adverse impact on our business, financial condition and results of operations, including our commercial operations and sales, clinical trials and preclinical studies.•Numerous factors could result in substantial market volatility in the trading price of our stock.
The price of our common stock could be subject to volatility related or unrelated to our operations.stock.
Our management has broad discretion over the use of our cash and we may not use our cash effectively, which could adversely affect our results of operations.
Risks Related to Our Business
In order to execute our business plan and achieve profitability, we need to effectively commercializeexpand the commercialization of CAPLYTA, which receivedhas been approved by the FDA approval in December 2019 for the treatment of schizophrenia in adults and for the treatment of bipolar depression in adults.
CAPLYTA is our only drug that has been approved for sale and it has been approved only for the treatment of schizophrenia in adults and bipolar depression in adults in the United States.States only. We are focusing a significant portion of our activities and resources on CAPLYTA, and we believe our prospects are highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully commercialize CAPLYTA for the treatment of schizophrenia in adults and for the treatment of bipolar depression in adults in the United States.
Successful commercialization of CAPLYTA is subject to many risks. We have never, as an organization, launched or commercialized any other product, and there is no guarantee that we will be able to successfully commercialize CAPLYTA for its approved indication.indications. There are numerous examples of failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than us. We continue to build our commercial organization and have hired our U.S. sales force and will need to further develop our commercial organization in order to successfully commercialize CAPLYTA. We expect that continued commercial success of CAPLYTA for the treatment of schizophrenia and bipolar depression will depend on many factors, including the following:
•the efficacy, cost, approved use, and side-effect profile of CAPLYTA regimens relative to competitive treatment regimens for the treatment of schizophrenia;
•the effectiveness of our commercial strategy for the marketing of CAPLYTA, including our pricing strategy and the effectiveness of our efforts to obtain adequate third-party reimbursements;
•maintaining and successfully monitoring commercial manufacturing arrangements for CAPLYTA with third-party manufacturers to ensure they meet our standards and those of regulatory authorities, including the FDA, which extensively regulate and monitor pharmaceutical manufacturing facilities;
•our ability to meet the demand for commercial supplies of CAPLYTA;
•the acceptance of CAPLYTA by patients, the medical community and third-party payors;payers; and
•the effect of recent or potential health care legislation in the United States.
While we believe that CAPLYTA for the treatment of schizophrenia and bipolar depression has a commercially competitive profile, we cannot accurately predict the amount of revenue that will be generated from the sale of CAPLYTA. If we do not effectively commercialize CAPLYTA, we will not be able to execute our business plan and may not be able to achieve profitability. If our revenues, market share and/or other indicators of market acceptance of CAPLYTA do not meet the expectations of investors or public market analysts, the market price of our common stock would likely decline.
If we do not obtain regulatory approval of lumateperone for other indications in the United States, or for any indication in foreign jurisdictions, we will not be able to market lumateperone for other indications or in other jurisdictions, which will limit our commercial revenues.
While CAPLYTA has been approved by the FDA for the treatment of schizophrenia and bipolar depression in adults, lumateperone has not been approved by the FDA for any other indications, and it has not been approved in any other jurisdiction for this indicationthese indications or for any other indication. In order to market lumateperone for other indications or in other jurisdictions, we must obtain regulatory approval for each of those indications and in each of the applicable jurisdictions, and we may never be able to obtain such approval. Approval of CAPLYTA by the FDA for the treatment of schizophrenia and bipolar depression does not ensure that foreign jurisdictions will also approve CAPLYTA for that indication,those indications, nor does it ensure that lumateperone will be approved by the FDA for any other indication.additional indications or populations. Lumateperone is in Phase 3 clinical development as a novel treatment for bipolar depression and as an adjunctive
therapy for the treatment of MDD. For example, in the first quarter of 2021,we submitted sNDAs to the FDA for potential regulatory approval of lumateperone for the treatment of bipolar depression in patients with Bipolar I or II disorder as monotherapy and adjunctive therapy, but there can be no assurance that the FDA will approve lumateperone for those indications. There is no guarantee that any ongoing or future studies of lumateperone in other indications will be successful, or that the FDA or any regulatory authority in foreign jurisdictions will approve lumateperone for any of those indications. The research, testing, manufacturing, labeling, approval, sale, import, export, marketing, and distribution of pharmaceutical product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, whose regulations differ from country to country.the FDA and from each other. We will be required to comply with different regulations and policies of the jurisdictions where we seek approval for our product candidates, and we have not yet identified all of the requirements that we will need to satisfy to submit lumateperone for approval for other indications or in other jurisdictions. This will require additional time, expertise and expense, including the potential need to conduct additional studies or development work for other jurisdictions beyond the work that we have conducted to support our NDA submission in schizophrenia.schizophrenia or our sNDA submissions in bipolar depression. In addition, strategic considerations need to be taken into account when determining whether and when to submit lumateperone for approval in other jurisdictions. If we do not receive marketing approval for lumateperone for any other indication or from any regulatory agency outside of the United States, we will never be able to commercialize lumateperone for any other indication in the United States or for any indication in any other jurisdiction. Even if we do receive additional regulatory approvals, we may not be successful in commercializing those opportunities.
If the results or timing of regulatory filings, the regulatory process, regulatory developments, clinical trials or preclinicalnon-clinical studies, or other activities, actions or decisions related to lumateperone do not meet our or others’ expectations, the market price of our common stock could decline significantly.
If the sales and marketing capabilities we have established or our third-party relationships for the commercialization of lumateperoneCAPLYTA are not effective, lumateperoneCAPLYTA may not be successfully commercialized.
Prior to the commercial launch of CAPLYTA in late March 2020, we had no experience as a company in marketing drugs or with respect to pricing and obtaining adequate third-party reimbursement for drugs. We continue to build our commercial organization and capabilities in the United States in order to market CAPLYTA for the treatment of schizophrenia.schizophrenia and bipolar depression. We will need to successfully complete the expansion of our capabilities and/or enter into arrangements with third parties to sell and market CAPLYTA for the treatment of schizophrenia and bipolar depression and, if approved, to sell and market our other product candidates. If our sales and marketing capabilities or our third-party relationships for the commercialization of our products are not effective, our business could be materially harmed.
We have generated limited revenuerevenues from product sales andbut there is no guarantee that our revenuerevenues from the sale of CAPLYTA will be substantial.result in us achieving profitability.
Our ability to generate revenue from product sales and achieve profitability depends on our ability to successfully commercialize CAPLYTA for the treatment of schizophrenia and bipolar depression in adults in the United States andas well as our ability to complete the development of and obtain regulatory approvals necessary to commercialize lumateperone in other indications or to manufacture and market our other product candidates. We have a limited operating history on which to evaluate our business and prospects. To date,While we have generated limited product revenues from CAPLYTA, and we cannot guarantee that CAPLYTA will be successfully commercialized or that any of our product candidates currently in development will ever become marketable products.
We must demonstrate that our product candidates satisfy rigorous standards of safety and efficacy for their intended uses before the FDA and other regulatory authorities in the European Union and elsewhere will approve them for commercialization. Significant additional research,
preclinicalnon-clinical testing and clinical testing is required before we can
filesubmit applications
withto the FDA or other regulatory authorities for approval of our drug candidates. In addition, to compete effectively, our drugs must be easy to administer,
cost-effective
and economical to manufacture on a commercial scale. We may not achieve any of these objectives.
Our lumateperone bipolar depressionLumateperone is in Phase 3 clinical
program currently consists of three monotherapy studiesdevelopment as a novel treatment for MDD. Clinical conduct in Study 501, Study 502, and
one adjunctive study.In September 2020, we announced topline results from Study
402, conducted globally,505, global Phase 3 clinical trials evaluating lumateperone
42 mg as
an adjunctive therapy to
lithium or valproate inantidepressants for the treatment of
major depressive episodes associatedMDD, is ongoing. Subject to the results of Study 501 and Study 502, we expect to file an sNDA with
Bipolar I or Bipolar II disorder. In July 2019, we announced topline results from our first monotherapy study, Study 401, conducted in the
United States, and our second monotherapy study, Study 404, conducted globally, evaluating lumateperone as monotherapy in the treatmentFDA for approval of
major depressive episodes associated with Bipolar I or Bipolar II disorder. In addition, we have commenced our Phase 3 clinical program evaluating lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD
and we expect to initiate clinical conduct in
two Phase 3 trials in 2021.2024.In addition, we intend to pursue the development of our PDE program, including
ITI-214
lenrispodun for the treatment of several CNS and
non-CNS
conditions, including cardiovascular disease. conditions. Following the favorable safety and tolerability results in our Phase 1 program, we initiated our development program for
ITI-214
lenrispodun for Parkinson’s disease.
In the fourth quarter of 2018, we announced that theWe have an ongoing Phase
1/2 clinical
trial ofITI-214
has been completed and topline results demonstratedITI-214
was generally well-toleratedprogram with
a favorable safety profile and clinical signs consistent with improvements in motor symptoms and dyskinesias. In addition, inlenrispodun for Parkinson’s disease. We also have an active Investigational New Drug application to evaluate our newest candidate within the
second quarter of 2020, we announced topline results from Studya Phase 1/2 translational study of single ascending doses ofITI-214
in patients with chronic systolic heart failure with reduced ejection fraction. In this study,ITI-214
improved cardiac output by increasing heart contractility and decreasing vascular resistance. Agents that both increase heart contractility (inotropism) and decrease vascular resistance (vasodilation) are called inodilators. Inodilators in current clinical use are associated with the development of arrhythmias, which are abnormal heart rhythms that when serious can impair heart function and lead to mortality.ITI-214,
which acts throughPDE 1 inhibitor program, ITI-1020, as a novel
mechanism of action, was not associatedcancer immunotherapy. Our Phase 1 program with
arrhythmiasITI-1020 in
this study and was generally well-tolerated in all patients.healthy volunteers is ongoing.We cannot be certain that the clinical development of these or any other drug candidates in preclinicalnon-clinical testing or clinical development will be successful, that we will receive the regulatory approvals required to commercialize them or that any of our other research and drug discovery programs will yield a drug candidate suitable for investigation through clinical trials.
There is no guarantee that our planned clinical trials for lumateperone or our other product candidates will be successful.
The historical rate of failures for product candidates in clinical development and late-stage clinical trials is high. We are conducting and plan to conduct further clinical trials in lumateperone in indications beyond schizophrenia and bipolar depression as well as clinical trials of our other product candidates, and there is no guarantee that we will have the same level of success in these trials as we have had in certain of our previous clinical trials, or be successful at all. In our Study 401 for the treatment
In addition, although we believe that lumateperone and
follow-on
compounds may also have clinical utility in indications other than schizophrenia
such asand bipolar depression,
behavioral disturbances in dementia, intermittent explosive disorder,non-motor
disorders associated with Parkinson’s disease, obsessive compulsive disorder and anxiety disorders and post-traumatic stress disorder, we have never tested lumateperone in Phase 3 clinical trials in the patient populations for these other indications, except for our
three Phase 3 monotherapyongoing studies in
bipolar depression for which we announced topline results in July 2019MDD and
September 2020 and our
Phase 3 trial study in patients with a clinical diagnosis of probable AD and clinically significant symptoms of agitation, which we determined to discontinue following our independent data monitoring committee’s,
or DMC’s, recommendation that the study should be stopped for futility.
If we do not successfully complete clinical development and obtain approval of lumateperone in indications beyond schizophrenia and bipolar depression, we will be unable to market, sell and generate revenue from lumateperone in any of these other indications. Even though we have successfully completed certain clinical trials for CAPLYTA in patients with schizophrenia and bipolar depression, those results are not necessarily predictive of results of future trials that may be needed before we may submit an NDAsNDA to the FDA for any indication beyond schizophrenia.schizophrenia and bipolar depression. Of the vast number of drugs
in development, only a small percentage result in the submission of an NDA to the FDA, and even lessfewer result in the NDA ultimately being approved by the FDA for commercialization.
We expect our net losses to continue for at least several years and are unable to predict the extent of future losses or when we will become profitable, if ever.
We have experienced significant net losses since
our inception. As of December 31,
2020,2023, we had an accumulated deficit of approximately
$937.1 million.$1.6 billion. We expect to
continue to incur net losses
over the next several years as we advance our programs and incur significant clinical development costs. To date, we have received
limitedproduct revenues
only from the commercialization of CAPLYTA. Prior to our commercial launch of CAPLYTA in
late March 2020, substantially all of our revenues were from our license and collaboration agreement with Takeda and our agreements with various U.S. governmental agencies and other parties, including our research and development grants.
In October 2014, we entered into the Takeda Termination Agreement, which terminatedTo continue to grow our
license and collaboration agreement with Takeda, pursuant to which all rights with respect toITI-214
that we previously granted to Takeda were returned to us. We will not, therefore, receive any further milestone payments from Takeda and we cannot be certain that we will enter into additional collaboration agreements. To obtain revenues from lumateperone, we must successfully commercialize lumateperone in its approved
indication.indications. To obtain revenues from our product candidates, we must succeed, either alone or with others, in developing, obtaining regulatory approval for, and manufacturing and marketing drugs with significant market potential. We may never succeed in these activities, and may never generate revenues that are significant enough to achieve profitability.
We willmay require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease our operations.
We have consumed substantial amounts of capital since our inception. Our cash, cash equivalents,
, investment securities and restricted cash
totaled
$658.8$499.7 million at December 31,
2020. In January 2020, we completed an underwritten public offering of shares of our common stock resulting in net proceeds to us of approximately $277.0 million, after deducting underwriting discounts and commissions and offering expenses. In June 2020, we sold shares of our common stock under ourequity program generating approximately $5.6 million in net proceeds. In the third quarter of 2020, we sold additional shares of our common stock under ourequity program generating approximately $12.3 million in net proceeds. In September 2020, we completed an underwritten public offering of shares of our common stock resulting in net proceeds to us of approximately $357.8 million, after deducting underwriting discounts and commissions and offering expenses.2023. With our cash, cash equivalents and investment securities,
including the net proceeds from our public offerings in January and September 2020, we intend to fund
the following: commercialization activities in connection with the commercialization of CAPLYTA for the treatment of schizophreniaour drug development programs and
if approved, bipolar depression; the development of lumateperone in our
late stage clinical programs; the development of our other product candidates, includingITI-1284,
ITI-214
andITI-333;
working capital needs in connection with the commercialization of
CAPLYTA; and the remaining proceeds, if any, to fund new and ongoing research and development activities, manufacturing activities in connection with new products, general corporate purposes, including general and administrative expenses, capital expenditures, working capital and prosecution and maintenance of our intellectual property.CAPLYTA. Accordingly, we
will continue tomay require
substantial additional capital
beyond the net proceeds from our January and September 2020 offerings to continue our clinical development and commercialization activities. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize our products under development.
Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:
•the amount of product sales from lumateperone;
•the costs of maintaining and developingexpanding our sales and marketing capabilities for lumateperone;
the amount of product sales from lumateperone;
•the costs of preparing applications for regulatory approvals for lumateperone in additional indications other than inbeyond schizophrenia and bipolar depression, and potentially in jurisdictions other than the United States, and for other product candidates, as well as the costs required to support review of such applications;
•the costs of manufacturing and distributing lumateperone for commercial use in the United States;
•our ability to obtain regulatory approval for, and subsequently generate product sales from, lumateperone in additional indications other than inbeyond schizophrenia and bipolar depression or in jurisdictions other than the United States;
•the progress in, and the costs of, our preclinicalnon-clinical studies and clinical trials and other research and development programs;
•the scope, prioritization and number of our research and development programs;
•our ability to enter into new, and to maintain any existing, collaboration and license agreements;
•the ability of any future collaborators and us to reach the milestones, and other events or developments, triggering payments under any future collaboration agreements or to otherwise make payments under such agreements;
our ability to enter into new, and to maintain any existing, collaboration and license agreements;
•the extent to which any future collaborators are obligated to reimburse us for clinical trial costs under any future collaboration agreements;
•the costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
•the costs of maintaining or securing manufacturing and supply arrangements for clinical or commercial production of lumateperone or our other product candidates;
•the costs of preparing applications for regulatory approvals for our product candidates;
•the costs of preparing for and establishing, or contracting for, sales and marketing capabilities if we obtain regulatory approvals for our product candidates;
•the costs involved in maintaining and expanding the accounting and data management systems to support commercial operations;
•the costs of acquiring products and
•the costs associated with litigation, including the costs incurred in defending against any product liability claims that may be brought against us related to lumateperone or our other product candidates.
Until we can generate significantsufficient continuing revenues, we expect to satisfy our future cash needs through our existing cash, cash equivalents and investment securities, strategic collaborations, private or public sales of our securities, debt financings, grant funding, or by licensing all or a portion of our products, product candidates or technology. Turmoil and volatility in the financial markets have adversely affected the market capitalizationscapitalization of many biotechnology companies, and generally made equity and debt financing more difficult to obtain. This, coupled with other factors, may limit our access to additional financing. This could have a material adverse effect on our ability to access sufficient funding. We cannot be certain that additional funding will be available to us on acceptable terms, or at all. If we do obtain additional funding through equity offerings, the ownership of our existing stockholders and purchasers of shares of our common stock in any such offering will be diluted, and the terms of any financing may adversely affect the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline. If funds are not available, we will be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts. We also could be required to seek funds through arrangements with collaboration partners or otherwise that may require us to relinquish rights to some of our technologies, products or product candidates or otherwise agree to terms unfavorable to us.
Our management has broad discretion over the use of our cash and we may not use our cash effectively, which could adversely affect our results of operations.
Our management has significant flexibility in applying our cash resources and could use these resources for corporate purposes that do not increase our market value, or in ways with which our stockholders may not agree. We may use our cash resources for corporate purposes that do not yield a significant return or any return at all for our stockholders, which could adversely affect our future growth prospects.
Delays, suspensions and terminations in our clinical trials or the need to conduct additional clinical trials or non-clinical studies could result in increased costs to us, delay our ability to generate product revenues and therefore may have a material adverse effect on our business, results of operations and future growth prospects.
The commencement of clinical trials can be delayed for a variety of reasons, including delays in: demonstrating sufficient safety and efficacypharmacological activity to obtain regulatory approvaljustify seeking to commence a clinical trial; reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites; manufacturing sufficient quantities of a product candidate; obtaining clearance from the FDA to commence clinical trials pursuant to an IND; obtaining institutional review board approval to conduct a clinical trial at a prospective clinical trial site; and patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical trial sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial.
Once a clinical trial has begun, it may be delayed, suspended or terminated due to a number of factors, including: ongoing discussions with regulatory authorities regarding the scope or design of our clinical trials or requests by them for supplemental information with respect to our clinical trial results; failure to conduct clinical trials in accordance with regulatory requirements; lower than anticipated screening or retention rates of patients in clinical trials; serious adverse events or side effects experienced by participants; and insufficient supply or deficient quality of product candidates or other materials necessary for the conduct of our clinical trials.
In the fourth quarter of 2018, a DMC completed apre-specified
interim analysis of ourPhase 3 trial in patients with a clinical diagnosis of probable AD and clinically significant symptoms of agitation, concluded that the trial is not likely to meet its primary endpoint upon completion and therefore recommended the study should be stopped for futility. As a result, we determined to discontinue thetrial.Many of these factors may also ultimately lead to denial of regulatory approval of a current or potential product candidate. If we experience delays, suspensions or terminations in a clinical trial or are required to conduct additional clinical trials or non-clinical studies, our costs will increase, the commercial prospects for the related product candidate will be harmed, and our ability to generate product revenues will be delayed.
Even though the FDA has granted approval of CAPLYTA for the treatment of schizophrenia and bipolar depression, the terms of the approval may limit its commercial potential. Additionally, CAPLYTA is still subject to ongoing regulatory requirements.
Even though the FDA has granted approval of CAPLYTA, the scope and terms of the approval may limit our ability to commercialize CAPLYTA and, therefore, our ability to generate substantial sales revenues. The FDA has approved CAPLYTA only for the treatment of schizophrenia and bipolar depression in adults. The label for CAPLYTA also contains a “boxed” warning that elderly patients with dementia-related psychosis treated with antipsychotic drugs are at an increased risk of death and that CAPLYTA is not approved for the treatment of patients with dementia-related psychosis.
The manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for CAPLYTA will also continue to be subject to extensive and ongoing regulatory requirements. These requirements include, but are not limited to, submissions of safety and other post-marketing information and reports registration, as well as continued complianceand manufacturing establishment registration. We will also have to continue to comply with current good manufacturing
processes, good clinical practices, international council for harmonization guidelines and good laboratory practices, which are regulations and guidelines enforced by the FDA for all of our nonclinicalnon-clinical and clinical development and for any clinical trials that we conduct post-approval.
Discovery of any issues post-approval, including any safety concerns, such as unexpected side effects or drug-drug interaction problems, adverse events of unanticipated severity or frequency, or concerns over misuse or abuse of the product, problems with the facilities where the product is manufactured, packaged or distributed, or failure to comply with regulatory requirements, may result in, among other things, restrictions on CAPLYTA or on us, including:
•withdrawal of approval, addition of warnings or narrowing of the approved indication in the product label;
•requirement of a Risk Evaluation and Mitigation Strategy, or REMS, program to mitigate the risk ofoff-label
use in populations where the FDA may believe that the potential risks of use may outweigh its benefits; •voluntary or mandatoryFDA-requested recalls;
•suspension of any ongoing clinical studies;
•refusal by the FDA or other regulatory authorities to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;
•restrictions on operations, including restrictions on the marketing or manufacturing of the product or the imposition of costly new manufacturing requirements; or
•seizure or detention, or refusal to permit the import or export of products.
If any of these actions were to occur, we may have to delay or discontinue the commercialization of CAPLYTA, limit our sales and marketing efforts, conduct further post-approval studies, and/or delay, discontinue or change any other ongoing or planned clinical studies, which in turn could result in significant expense and delay or limit our ability to generate sales revenues.
Safety issues with our product candidates or approved product, or with product candidates or approved products of third parties that are similar to our product candidates, could give rise to delays in the regulatory approval process, restrictions on labeling or product withdrawal after approval.
Problems with product candidates or approved products marketed by third parties that utilize the same therapeutic target or that belong to the same therapeutic class as our product candidates or approved product could adversely affect the development and regulatory approval and commercialization of our product candidates or commercialization or our approved product. In 2012, the FDA released draft guidance recommending that prospective suicidality assessments be performed in clinical trials of any drug being developed for a psychiatric indication. Our development programs are focused on psychiatric indications. Our PDE program is a novel target and may have unexpected safety effects that do not appear until late in clinical development or after commercial approval. As we continue the development and clinical trials of our product candidates and continue to commercialize our approved product, there can be no assurance that our product candidates or approved product will not experience significant safety issues.
Discovery of previously unknown class effect problems may prevent or delay clinical development and commercial approval of product candidates or result in restrictions on permissible uses after their approval, including withdrawal of the medicine from the market. Many drugs acting on the CNS include boxed warnings and precautions related to suicidal behavior or ideation, driving impairment, somnolence/sedation and dizziness, discontinuation, weight gain,
non-insulin
dependent (type II) diabetes, cardiovascular side effects, sleep disturbances, and motor disturbances. The label for CAPLYTA contains a “boxed” warning that elderly patients
with dementia-related psychosis treated with antipsychotic drugs are at an increased risk of death and that CAPLYTA is not approved for the treatment of patients with dementia-related psychosis. If we or others later identify undesirable side effects caused by the mechanisms of action or classes of our products or product candidates or any specific products or product candidates:
•we may be required to conduct additional clinical trials or implement a Risk Evaluation and Mitigation StrategiesREMS program prior to or following approval;
•regulatory authorities may not approve our product candidates or, as a condition of approval, may require specific warnings and contraindications;
•regulatory authorities may withdraw their approval of the product and require us to take our drug off the market;
•we may have limitations on how we promote our drugs;
•sales of products may decrease significantly;
•we may be subject to litigation or product liability claims; and
•our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase our commercialization costs and expenses, which, in turn, could delay or prevent us from generating significant revenues from its sale.
Finally, if the FDA determines that a drug may present a risk of substance abuse, it can recommend to the Drug Enforcement Administration, or DEA, that the drug be scheduled under the Controlled Substances Act.Act, or the CSA. Controlled substances are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA that are separate and apart from the FDA’s regulatory requirements. The DEA classifies controlled substances into five schedules. Schedule I substances by definition have a high potential for abuse, have no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use by the FDA may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for our product candidates would delay commercializationdecision that one of our product candidates should be controlled under the CSA would create additional operational, financial, and severely harmcommercialization burdens for such a product, which could affect our business results of operations, financial condition and cash flows.
If we seek to enter into strategic alliances for our drug candidates, but fail to enter into and maintain successful strategic alliances, we may have to reduce or delay our drug candidate development or increase our expenditures.
An important element of a biotechnology company’s strategy for developing, manufacturing and commercializing its drug candidates may be to enter into strategic alliances with pharmaceutical companies or other industry participants to advance its programs and enable it to maintain its financial and operational capacity. We may face significant competition in seeking appropriate alliances. If we seek such alliances, we may not be able to negotiate alliances on acceptable terms, if at all. In addition, these alliances may be unsuccessful. On October 31, 2014, we entered into the Termination Agreement with Takeda, which terminated the Takeda License Agreement, pursuant to which all rights granted under the Takeda License Agreement were returned to us. If we seek such alliances and then fail to create and maintain suitable alliances, we may have to limit the size or scope of, or delay, one or more of our drug development or research programs. If we elect to fund drug development or research programs on our own, we will have to increase our expenditures and will need to obtain additional funding, which may be unavailable or available only on unfavorable terms.
To the extent we are able to enter into collaborative arrangements or strategic alliances, we will be exposed to risks related to those collaborations and alliances.
Biotechnology companies at our stage of development sometimes become dependent upon collaborative arrangements or strategic alliances to complete the development and commercialization of drug candidates, particularly after the Phase 2 stage of clinical testing. If we elect to enter into collaborative arrangements or strategic alliances, these arrangements may place the development of our drug candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
Dependence on collaborative arrangements or strategic alliances would subject us to a number of risks, including the risk that:
•we may not be able to control the amount and timing of resources that our collaborators may devote to the drug candidates;
•our collaborators may experience financial difficulties;
•we may be required to relinquish important rights, such as marketing and distribution rights;
•business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
•a collaborator could independently move forward with a competing drug candidate developed either independently or in collaboration with others, including our competitors; and
•collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of developing our drug candidates.
Preliminary and interim data from our clinical trials that we may announce or publish from time to time may change as more patient data become available.
From time to time, we may announce or publish preliminary or interim data from our clinical trials. Preliminary and interim data of a clinical trial are not necessarily predictive of final data. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. As a result, preliminary and interim data should be viewed with caution until the final data are available. Material adverse changes in the final data compared to the interim data could affect our planned clinical path for our product candidates, including increasing costs of and/or causing delays in such development, and could significantly harm our business prospects.
We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing our product candidates.
Although we design and manage our current preclinicalnon-clinical studies and clinical trials, we do not nowcurrently have the ability to conduct clinical trials for our product candidates on our own. In addition to our collaborators, we rely on contract research organizations, medical institutions, clinical investigators, and contract laboratories to perform data collection and analysis and other aspects of our clinical trials. In addition, we also rely on third parties to assist with our preclinicalnon-clinical studies, including studies regarding biological activity, safety, absorption, metabolism, and excretion of product candidates.
Our preclinicalnon-clinical activities or clinical trials may be delayed, suspended, or terminated if: the quality or accuracy of the data obtained by the third parties on whom we rely is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or if for other reasons, these third parties do not successfully carry out their contractual duties or fail to meet regulatory obligations or expected deadlines, or these third parties need to be replaced.
The third-party service providers we contract with are not our employees and, except for remedies available to us under our agreements with such third parties, we have less control over the timing, quality and other aspects of such non-clinical studies and clinical trials than we would have if we were to conduct them on our own. If the third parties on whom we rely fail to perform, our development costs may increase, our ability to obtain regulatory approval, and consequently, to commercialize our product candidates may be delayed or prevented altogether. We currently use several contract research organizations to perform services for our preclinicalnon-clinical studies and clinical trials. While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays or incurring additional expenses.
Even though our reliance on third parties for development activities reduces our control over such activities, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards, and our reliance on third parties does not relieve us of our oversight and regulatory responsibilities. For example, we must ensure that our non-clinical studies are conducted in accordance with GLP requirements, as appropriate. In addition, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocol for each trial. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with established Good Clinical Practice standards for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. In addition, our clinical trials must be conducted with product candidates produced under cGMP conditions. Regulatory authorities enforce these requirements through periodic inspections of trial sponsors, clinical and non-clinical investigators, manufacturers and trial sites. If we or any of our third-party service providers fails to comply with applicable regulatory requirements, we or they may be subject to enforcement or other legal actions, the data generated in our trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional studies, which may significantly delay our clinical development plans and the regulatory approval process. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that we or our third-party service providers or clinical trial sites are in substantial compliance with the applicable regulatory requirements.
Further, we are currently conducting clinical trials for our product candidates in many countries, including the United States, Europe, Asia, and South America 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 political instability or conflict. Political instability and conflict in areas in the world where we have clinical operations, may delay our trials and negatively affect our business and operations in those regions.
Our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA; manufacturing standards; federal and state health care fraud and abuse laws and regulations; or laws that require the true, complete and accurate reporting of financial information or data. In addition, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials or creating fraudulent data in our non-clinical studies or clinical trials, which could result in regulatory sanctions and serious harm to our reputation.
It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished potential profits and future earnings, and curtailment of our operations, any of which could adversely affect our business, financial condition, results of operations or prospects.
Even if we successfully complete the clinical trials of one or more of our product candidates, the product candidates may fail for other reasons.
Even if we successfully complete the clinical trials for one or more of our product candidates, the product candidates may fail for other reasons, including the possibility that the product candidates will:
•fail to receive the regulatory approvals required to market them as drugs;
•be subject to proprietary rights held by others requiring the negotiation of a license agreement prior to marketing;
•be difficult or expensive to manufacture on a commercial scale;
•have adverse side effects that make their use less desirable; or
•fail to compete with product candidates or other treatments commercialized by our competitors.
If we are unable to receive the required regulatory approvals, secure our intellectual property rights, minimize the incidence of any adverse side effects or fail to compete with our competitors’ products, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
We are subject to ongoing regulatory obligations and restrictions with regard to CAPLYTA and, following regulatory approval of any of our product candidates, we will be subject to ongoing regulatory obligations and restrictions with regard to such product candidates, which may result in significant expense and limit our ability to commercialize lumateperone and our other potential products.
With regard to CAPLYTA and our product candidates, if any, approved by the FDA, or by another regulatory authority, we are held to extensive regulatory requirements over product manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping. Regulatory approvals may also be subject to significant limitations on the indicated uses or marketing of the product candidates. Potentially costly
follow-up
or post-marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific issues of interest to the regulatory authority.
Previously unknown problems with the product candidate, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the drug, and could include withdrawal of the drug from the market.
In addition, the law or regulatory policies governing pharmaceuticals may change. New statutory requirements or additional regulations may be enacted that could prevent or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market our drugs and our business could suffer.
CAPLYTA and our product candidates, if approved, may not gain acceptance among physicians, patients, or the medical community, thereby limiting our potential to generate revenues, which will undermine our future growth prospects.
The degree of market acceptance by physicians, health care professionals and third-party payorspayers of CAPLYTA, and any product candidate for which we obtain regulatory approval, and our profitability and growth will depend on a number of factors, including:
•our ability to provide acceptable evidence of safety and efficacy;
•the scope of the approved indication(s) for the product;
•the inclusion of any warnings or contraindications in the product label;
•pricing and cost effectiveness, which may be subject to regulatory control;
•our ability to obtain sufficient third-party insurance coverage or reimbursement;
•effectiveness of our or our collaborators’ sales and marketing strategy;
•relative convenience and ease of administration;
•patient adherence to treatment;
•prevalence and severity of any adverse side effects; and
•availability of alternative treatments.
If any product that we develop does not provide a treatment regimen that is at least as beneficial as the current standard of care or otherwise does not provide some additional patient benefit over the current standard of care, that product will not achieve market acceptance and we will not generate sufficient revenues to achieve profitability.
The failure to attract and retain skilled personnel and key relationships could impair our drug development and commercialization efforts.
We are highly dependent on our senior management and key clinical development, sales and marketing, scientific and technical personnel. Competition for these types of personnel is intense. The loss of the services of any member of our senior management, clinical development, sales and marketing, scientific or technical staff may significantly delay or prevent the achievement of drug development, commercialization and other business objectives and could have a material adverse effect on our business, operating results and financial condition. We also rely on consultants and advisors to assist us in formulating our strategy. All of our consultants and advisors are either self-employed or employed by other organizations, and they may have conflicts of interest or other commitments, such as consulting or advisory contracts with other organizations, that may affect their ability to contribute to us. We intend to expand and develop new drug candidates, and willmay need additional funding to grow our business. We will need to hire additional employees in order to continue our research and clinical trials and to market our drugs when approved. This strategy willmay require us to recruit additional executive management and clinical development, regulatory, scientific, technical and sales and marketing personnel. There is currently intense competition for skilled executives and employees with relevant clinical development, regulatory, scientific, technical and sales and marketing expertise, and this competition is likely to continue. The inability to attract and retain sufficient clinical development, scientific, technical, sales and marketing, and managerial personnel, due to intense competition and our limited resources, would limit or delay our product development and commercialization efforts, which would adversely affect the development of our drugproduct candidates and commercialization of CAPLYTA and our product candidates, if approved, and growth of our business.
We may not be able to continue or fully exploit our partnerships with outside scientific and clinical advisors, which could impair the progress of our clinical trials and our research and development efforts.35
We work with scientific and clinical advisors at academic and other institutions who are experts in the field of CNS disorders. They advise us with respect to our clinical trials. These advisors are not our employees and may have other commitments that would limit their future availability to us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services, which may impair our reputation in the industry and delay the development or commercialization of our approved product or product candidates.
Our product candidates have never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale. In particular, we will need to develop a larger scale manufacturing process that is more efficient and cost-effective to commercialize our potential products, which may not be successful.
Our product candidates have never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale including, among others, cost overruns, potential problems with processscale-up,
process reproducibility, stability issues, lot consistency and timely availability of raw materials. There is no assurance that our manufacturers will be successful in establishing a larger-scale commercial manufacturing process for our product candidates which achieves our objectives for manufacturing capacity and cost of goods. In addition, there is no assurance that our manufacturers will be able to manufacture our product candidates to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of such products or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities of lumateperone for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.We rely on third-party manufacturers to manufacture and supply lumateperone and our other product candidates for us. If one of our suppliers or manufacturers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find new suppliers or manufacturers. We may also face significant delays in our clinical trials, regulatory approvals and product introductions and commercialization.
We have no manufacturing facilities and have limited experience in the manufacturing of drugs or in designing drug-manufacturing processes. We have contracted with third-party manufacturers to produce, in collaboration with us, our product candidates, including lumateperone, for clinical trials and to produce lumateperone for commercial sales. For example, in January 2017, we entered into a supply agreement with Siegfried and entered into a new supply agreement with Siegfried in January 2023, under which Siegfried has agreed to manufacture and supply the APIactive pharmaceutical ingredient (API) for lumateperone in commercial quantities. Each month, we will provide Siegfried with a rolling forecast of our anticipated requirements for supply of the API. Under the Siegfried Agreement, we have the right to and may purchase the API for lumateperone from other suppliers, including if Siegfried cannot fulfill our requirements.suppliers. In addition, in January 2017, we entered into a manufacturing services agreement with Lonza, as amended in December 2022, under which Lonza has agreed to manufacture and supply the API for lumateperone in commercial quantities, with purchase prices determined in each project plan.quantities. We agreed to provide Lonza with a written forecast of our estimated quarterly requirements. While we believe that there are alternative sources available to manufacture our product candidates, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays or additional expenditures. We cannot estimate these delays or costs with certainty but, if they were to occur, they could cause a delay in our development and commercialization efforts. If our existing or planned third partythird-party manufacturing arrangements are terminated or if the sources of supply from such arrangements are inadequate and we must seek supply agreements from alternative sources, we may be unable to enter into such agreements or do so on commercially reasonable terms, which could delay a product launch or subject our commercialization efforts to significant supply risk.
Manufacturers of our product candidates are obliged to operate in accordance with
FDA-mandated
current good manufacturing practices, or cGMPs. The manufacture of pharmaceutical products in compliance with the cGMPs requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs and yields, quality control, including stability of the product or product candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements, other federal and state regulatory requirements and foreign regulations. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations to us or under applicable regulations, our ability to provide product for commercial
sale or product candidates in our clinical trials would be jeopardized. Any delay or interruption in the supply of commercial quantities of approved product could have a material adverse impact on our revenue from product sales and any delay or interruption in the supply of clinical trial materials could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at significant additional expense or terminate the clinical trials completely.
In addition, the facilities used by our contract manufacturers or other
third partythird-party manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections conducted following our request for regulatory approval for our product candidates from the FDA.
TheseDrug manufacturing facilities are also subject to periodic inspections by FDA and other regulatory authorities. The pre-approval and periodic inspections are intended to confirm compliance with cGMP requirements
include,including, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. The FDA or similar foreign regulatory agencies may also implement new standards at any time, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. We have little control over our manufacturers’ compliance with these regulations and standards. A failure of any of our current or future contract manufacturers to establish and follow cGMPs
andor to document their adherence to such practices may lead to significant delays
in clinical trials or in obtaining regulatory approval of product candidates or the ultimate launch of products, if approved, into the market. Failure by our current or future third-party manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of the government to grant
pre-market
marketing approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of products, operating restrictions, and criminal prosecutions. If the safety of any product supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may
not be able to obtain regulatory approval for or successfully commercialize our products and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical studies, regulatory submissions, approvals or commercialization of our product candidates or approved product, entail higher costs or impair our reputation.
As our business expands and evolves, we may find that our staffing is not adequate in size or capability to manage these changes and to perform under the new circumstances.
As our organizationbusiness expands and evolves, we may encounter difficulties with our staffing and any future transitions, which could adversely affect our results of operations.
We will need to manage our operations and facilities effectively in order to advance our drug development programs (including lumateperone,
ITI-1284,
ITI-214
lenrispodun, ITI-333, and
ITI-333) ITI-1500),
facilitate any future collaborations, and pursue other development
activities.activities as we may find that our staffing is not adequate in size or capability to manage these changes and to perform under the new circumstances. It is possible that our infrastructure may be inadequate to support our future efforts and growth. In particular, we will need to further develop information technology systems and internal sales, marketing, and distribution capabilities for any drug that we may successfully develop, including
CAPLYTAadditional indications for
the treatment of schizophrenia.lumateperone. We may not successfully manage our operations and, accordingly, may not achieve our research, development,
commercialization, and
commercializationprofitability goals.
Our ability to generate product revenues will be diminished if lumateperone or any of our other potential products doesdo not sell for adequate prices, receive coverage from payors or sell for inadequate prices,payers or if patients are unable to obtain adequate levels of reimbursement.
Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party
payorspayers to reimburse all or part of the costs associated with their prescription drugs. Adequate coverage and reimbursement from governmental health care programs, such as Medicare and Medicaid, and commercial
payors ispayers are critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Even if we obtain coverage for lumateperone or other potential products, the resulting reimbursement payment rates might not be adequate or may require
co-payments
that patients find unacceptably high. Patients are unlikely to use lumateperone or other product candidates, if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of those products.
In addition, the market for lumateperone or any product candidate for which we may receive regulatory approval will depend significantly on access to third-party payors’payers’ drug formularies, or lists of medications for which third-party payorspayers provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payorspayers may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available, even if not approved for the indicationindications for which lumateperone is approved.
Third-party payors,payers, whether foreign or domestic, governmental or commercial, are developing increasingly sophisticated methods of controlling health care costs.
The current environment is putting pressure on companies to price products below what they may feel is appropriate. Selling lumateperone at less than an optimized price could impact our revenues and overall success as a company. We do not know if the price we have selected, or may select in the future, for lumateperone is or will be the optimized price. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors.payers. Therefore, coverage and reimbursement for drug products such as lumateperone may differ significantly from payorpayer to payor.payer. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our drug products such as lumateperone to each payorpayer separately, with no assurance that coverage will be obtained. If we are unable to obtain and maintain coverage of, and adequate payment levels for, our products from third-party payors,payers, physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize any approved products and thereby adversely impact our profitability, results of operations, financial condition, and future success.
Health care legislation may make it more difficult to receive revenues from CAPLYTA or future products.
In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals in recent years to change the health care system in ways that could impact our ability to sell our products profitably. In March 2010,For example, on August 16, 2022, President Biden signed into the Patient Protection and Affordable Care Act, as amended bylaw the Health Care and Education Affordability ReconciliationInflation Reduction Act of 2010,2022, or collectively, ACA, became law inthe IRA. Among other things, the IRA has multiple provisions that may impact the prices of drug products that are both sold into the Medicare program and throughout the United States. The ACA substantially changedStarting in 2023, a manufacturer of drugs or biological products covered by Medicare Parts B or D must pay a rebate to the way health carefederal government if their drug product’s price increases faster than the rate of inflation. This calculation is financedmade on a drug product by both governmentaldrug product basis and private insurersthe amount of the rebate owed to the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue generated from such drug will decrease. CMS has begun to implement these new authorities and significantly affectsentered into the health care industry. Amongfirst set of agreements with pharmaceutical manufacturers to conduct price negotiations in October 2023. However, the provisions of ACA of importance to lumateperone and our other potential products areIRA's impact on the following:
imposition of an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government health care programs;
an increasebiopharmaceutical industry in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23% and 13% of the average manufacturer price for most branded and generic drugs, respectively;
expansion of health care fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;
a Medicare Part D coverage gap discount program,U.S. remains uncertain, in
which manufacturers agreed to offer 50%discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the Public Health Servicepart because multiple large pharmaceutical pricing program;
requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting any “payments or transfers of value” made or distributed to prescribers, teaching hospitalscompanies and other health care providers and reporting any ownership and investment interests held by physicians and their immediate family members and applicable group purchasing organizations duringstakeholders (e.g., the preceding calendar year;
U.S. Chamber of Commerce) have initiated federal lawsuits against CMS arguing the program is unconstitutional for a requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
Somevariety of
the details regarding the implementation of the ACAreasons, among other complaints. Those lawsuits are
yet to be determined and, at this time, it remains unclear what the full effect that the ACA will have on our business. Moreover, certain legislative changes to and regulatory changes under the ACA have occurred over the past few years. For instance, the Bipartisan Budget Act of 2018 increased the ACA required manufacturerdiscount from 50% to 70% off the negotiated price for Medicare Part D beneficiaries during their coverage gap period beginning in 2019.currently ongoing. Further legislative changes to
health care and
regulatory changes underpharmaceutical laws in the
ACAUnited States remain possible. We expect that
healthcarehealth care reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that may be charged for lumateperone or any of our other product candidates, if approved.
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other health care reforms may prevent us from being able to generate revenue, attain profitability, or commercialize CAPLYTA or any other products for which we receive regulatory approval.In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some
non-U.S.
jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. We may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceutical products.
In addition, there may be importation of foreign products that compete with any products we may market, which could negatively impact our profitability.We expect that the ACA, in its current form or as it may be amended, as well as other health care reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other health care reforms may prevent us from being able to generate revenue, attain profitability, or commercialize CAPLYTA or any other products for which we receive regulatory approval.
We currently have very limited experience as a company in marketing and distributing pharmaceutical products and rely on third-party distributors to distribute CAPLYTA. If we are unable to continue to effectively commercialize CAPLYTA, we may not be able to generate adequate product revenues.
CAPLYTA, which was approved by the FDA in December 2019 by the FDA for the treatment of schizophrenia in adults in the United States and in December 2021 for the treatment of bipolar depression in adults in the United States, is our only drug that has been approved for sale by any regulatory body. We initiated the commercial launch of CAPLYTA in late March 2020. As such, as an organization, this was the first time we have launched or commercialized any pharmaceutical product. In order to continue to successfully market
commercialize CAPLYTA, we must continue to develop our sales, marketing, managerial, compliance, and related capabilities or make arrangements with third parties to perform these services. If we are unable to maintain and develop adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to continue to appropriately commercialize and generate revenue from sales of CAPLYTA and may not become profitable.
We are employing our own internal sales force to commercialize CAPLYTA for the treatment of schizophrenia and bipolar depression as part of our commercialization strategy in the United States. We are competing with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. These efforts will continue to be expensive and time-consuming, and we cannot be certain that we will be able to successfully complete the hiring of our U.S. sales force and refinemaintain and further develop our sales force.
Additionally, our strategy in the United States includes distributing CAPLYTA through third-party distributors. While we have entered into, or will attempt to enter into, agreements with these distributors to distribute CAPLYTA in the United States, they may not perform as agreed or they may terminate their agreements with us. Also, we may need to enter into agreements with additional distributors, and there is no guarantee that we will be able to do so on commercially reasonable terms or at all. If we are unable to maintain and, if needed, expand, our network of distributors, we would be exposed to substantial distribution risk.
In the event we are unable to effectively develop and maintain our commercial team, including our U.S. sales force, or maintain and, if needed, expand, our network of distributors, our ability to effectively commercialize CAPLYTA and generate product revenues would be limited.
The FDA has granted marketing approval of CAPLYTA for the treatment of schizophrenia in adults and the treatment of bipolar depression in adults, and we could face liability if a regulatory authority determines that we are promoting CAPLYTA for any “off-label” uses.
A company may not promote “off-label” uses for its drug products. An off-label use is the use of a product for an indication or patient population that is not described in the product’s FDA-approved label in the United States or for uses in other jurisdictions that differ from those approved by the applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from pharmaceutical companies or their sales forces with respect to off-label uses of products for which marketing clearance has not been issued. A company that is found to have promoted off-label use of its product may be subject to significant liability, including civil and criminal sanctions. We intend to comply with the requirements and restrictions of the FDA and other regulatory agencies with respect to our promotion of CAPLYTA, and any other products we may market, but we cannot be sure that the FDA or other regulatory agencies will agree that we have not violated their restrictions. As a result, we may become subject to criminal and civil liability should an agency determine that such violations occurred. In addition, our management’s attention could be diverted to handle any such alleged violations. A significant number of pharmaceutical companies have been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice, or DOJ, and various U.S. Attorneys’ Offices, the Health and Human Services Office of Inspector General, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims asserting antitrust violations, violations of the FDCA, the civil False Claims Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. If the FDA, DOJ, or any other governmental agency initiates an enforcement action against us, or if we are the subject of a qui tam suit under the False Claims Act and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects, and reputation.
There are possible limitations on our use of net operating losses.
As of December 31, 2020,2023, we had net operating loss carryforwards, or NOLs, of approximately $323.0$528.4 million, which are available to reduce any future federal and state taxable income, andof which $73.6 million will begin to expire at various dates through 2037 and $191.9$454.8 million do not expire. The use of our NOLs may be restricted due to changes in our ownership, including as a result of our public offerings.
Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, changes in our ownership (as defined by the foregoing sections of the Code) may limit the amount of NOLs and tax credit carryforwards that could be utilized annually in the future to offset taxable income.
For the years ended December 31, 2020, 2019 and 2018,2015 through 2022, we performed a Section 382 ownership analysis and determined that no ownership change occurred (within the meaning of Section 382 of the Code) as a result of our public offeringsoffering in 2020.2022. Our previous ownership analysis through December 31, 2015 reflected an ownership change occurred as a result of our 2015 public offerings. Based on the analysis performed through December 31, 2020, however, we do not believe that the Section 382 annual limitation will impact our ability to utilize the tax attributes that existed as of the date of the ownership change in a material manner.
In September 2016, we licensed certain intellectual property rights to our wholly-owned subsidiary, ITI Limited, which was formed in the third quarter of 2016. The costs to develop, test, manufacture and perform other activities related to the lumateperone program will be the responsibility of ITI Limited and will be incurred outside of the United States. Historically, the majority of our losses incurred did not result in additional NOLs in the United States as the majority of our expenditures related to the lumateperone program. However, as our commercialization efforts continue, we will see more NOLs in the United States to be carried forward and used against future net income of the U.S. operations as the percentage of research and development costs decline as compared to our total expenditures.
Changes in tax reform billlaws could adversely affect our business and financial condition.
On December 22, 2017, the “Tax Cuts and Jobs Act,” or TCJA, was signed into law and significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to
U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. In addition, the TCJA repealed the alternative minimum tax, or AMT, and provides for a refund of AMT paid or a reduction of future taxes payable over a prescribed period of years between 2018 and 2021. With the passing of the TCJA, the Company would receive a refund in future periods for AMT paid in prior years. As of December 31, 2020, the Company received all of these refunds.
On March 27, 2020,August 9, 2022, the United States enacted The Coronavirus Aid, Reliefthe CHIPS and Economic Security (CARES)Science Act which provides an investment tax credit for 25% of qualified investments primarily used for manufacturing of semiconductors and related equipment in the U.S. On August 16, 2022, the United States enacted the Inflation Reduction Act (“IRA”) which includes several significant businessa provision for a 15% corporate alternative minimum tax on companies with average annual adjusted financial statement income over $1 billion effective for tax years ending after December 31, 2022. In addition to other provisions of which the immediate relevance to the Company is the acceleration of refunds of previously generated corporate AMT credits. The CARES Act also adds an employee retention credit to encourage employers to maintain headcounts even if employees cannot report to work because of issues related to the coronavirus, a temporary provision allowing companies to defer remitting to the government the employee share of some payroll taxes, among other things. The Companyincluded such as stock buy-back and prescription drug pricing, we reviewed the provisions and there was not a material tax impact on itsour financial statements for the year ended December 31, 2020. The Company did reclassify its deferred tax asset related to the AMT tax credit carryforward of $265,000 to a current tax receivable in the first quarter of 2020 upon the filing of its tax return for year ended December 31, 2019 and received the refund in July 2020.2023.
We continue to examine the impact this tax reform legislation may have on our business and depending on possible foreign operations, among other things, the impact of this tax reform is uncertain and could be adverse. This report does not discuss any such tax legislation or the manner in which it might affect holders of our common stock. We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.
Security breaches,Cybersecurity incidents, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical information, impact our ability to manufacture, distribute and sell CAPLYTA and any future products, or expose us to liability whichand reputational harm. Any of these risks could adversely affect our business and our reputation.
We rely upon information technology systems for our business, many of which are licensed from, and therefore operated and hosted by, third parties who process, transmit and store our electronic information. These systems, some of which are native cloud technologies, are used to manage or support our research and operational activities. We continue to work in a hybrid working model where the majority of our employees and contingent workers operate from locations other than our corporate offices. As a result, we are increasingly dependent upon our information technology systems to operate our business. We are dependent on adequate security to ensure the availability, reliability, and integrity of our technology systems and data.
In the ordinary courseAs part of our business, we or our third party providers collect sensitive personal health information during the development of drug products, the execution of clinical research organizationstrials, and as part of our patient incentive programs.
Breakdowns, invasions, corruptions, destructions, denial of service, unauthorized access to our data and information, and/or breaches of our information technology systems, including our cloud technologies, could subject us to legal liability, financial penalties and remediation costs, operational down time, and reputational loss, which would negatively impact our business operations. Recovery from any such cybersecurity incident could require replacement of technology, extensive remediation work, and/or ransomware payments.
Our information technology systems, including our cloud technologies, continue to increase in multitude and complexity, increasing our vulnerability to breakdowns and cybersecurity incidents. At the same time, techniques used in cybersecurity attacks to obtain unauthorized access, disable or sabotage information technology systems are evolving rapidly with data breaches and other third parties on which we rely collectcybersecurity events becoming commonplace. This is a direct result of the intensification of state-sponsored cybersecurity attacks and storethe monetary gain by cyber criminals.
Cybersecurity incidents also pose a risk that sensitive data, including
legally intellectual property, trade secrets or personal data, and/or personal/protected
patient health information
personally identifiable information about our employees, intellectual property, and proprietarybelonging to us, patients, customers or other business
information. We manage and maintain a portion of our applications and data utilizingon-site
systems. These applications and data encompass a wide variety of business critical information, including research and development information and business and financial information. The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructurepartners, may be vulnerableexposed to unauthorized persons or to the public.
Cybersecurity incidents and attacks by hackers, viruses, breaches, interruptions due to employee error, malfeasance or other disruptions, lapsesare increasing in compliance with privacytheir frequency, sophistication and security mandates, or damage from natural disasters, terrorism, war and telecommunication and electrical failures. Any such event could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. We have measures in place thatintensity, are designedbecoming increasingly difficult to detect, and respondthey can impact vendors, customers or companies, including vendors, suppliers and other companies in our supply chain. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with careless or malicious intent. Cyber-attacks include deployment of harmful malware and key loggers, ransomware, a denial-of-service attack, a malicious website, the use of social engineering and other means to such security incidentsaffect the confidentiality, integrity and breachesavailability of privacyour technology systems and security mandates. Any such access, disclosuredata. Cyber-attacks also include manufacturing, hardware or software supply chain attacks, which could cause a delay in the manufacturing of products or products produced for contract manufacturing or lead to a compromise of data or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the Health Insurance Portabilitycybersecurity incident. Our key business partners face similar risks and Accountability Act, or HIPAA, government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, any of whichcybersecurity incident affecting their systems could adversely affect our business.security posture. In addition, our increased use of dispersed technologies heightens these and other operational risks, and any failure by cloud or other technology service providers to adequately safeguard their systems and prevent cyber-attacks under the shared responsibility model could disrupt our operations and result in misappropriation, corruption or loss of confidential or trade secret information, personal data and/or personal/protected health information. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, there can be no assurance that we
will promptly detect any such disruption or security breach,cybersecurity incident, if at all. To the extent that any disruption or security breachcybersecurity incident were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the commercialization of our approved product and the further development of our product candidates could be delayed or otherwise adversely impacted.
We have invested and continue to invest in security initiatives, information technology risk management, third party risk management, and disaster recovery. The development and maintenance of these measures is costly and requires ongoing monitoring and updating as efforts by threat actors to overcome security measures become increasingly more frequent, intense, and sophisticated. There can be no assurance that our efforts will prevent disruptions or cybersecurity incidents in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, operational or reputational harm to us, loss of competitive advantage or loss of consumer confidence.
Our business is subject to complex and evolving U.S. federal and state, and foreign laws and regulations, imposing obligations on how we collect, use disclose, store and process personal data. We are also subject to information security policies and contractual obligations relating to privacy and data protection, including the use, processing, and cross-border transfer of personal data. The actual or perceived failure by us, or vendors to comply with these laws and regulations, policies and contractual obligations could harm our business and/or reputation, and subject us to significant fines and liability.
A growing body of increasingly stringent domestic and foreign laws and regulations governs the collection, use, disclosure, transfer and other processing of personal data, many of which differ from each other in significant ways and often are not preempted by HIPAA. Privacy laws in the United States are becoming increasingly complex and changing rapidly. California was the first U.S. state to enact a comprehensive privacy law, California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020. The CCPA requires covered companies to provide new disclosures to California residents and honor their requests to access, delete and opt-out of certain sharing of their personal data. The CCPA provides for civil penalties for violations and statutory damages for certain data breaches. The CCPA has also been substantially amended by a voter-approved ballot initiative called the California Privacy Rights Act, or the CPRA. The CPRA went into full effect on January 1, 2023, and, among other things, creates a new administrative agency to implement and enforce California’s privacy laws and extended rights to California-based employees. In addition to California, more U.S. states are enacting similar legislation, increasing compliance complexity and increasing risks of failure to comply. In 2023, comprehensive privacy laws in Virginia, Colorado, Connecticut, and Utah all took effect, and laws in Montana, Oregon, and Texas will take effect in 2024. While certain clinical trial activities are exempt from some state privacy law requirements, other personal data that we handle may be subject to these various laws, which may increase our compliance costs, exposure to regulatory enforcement action and other liabilities.
Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Data protection laws and data protection worldwide is, and is likely to remain, uncertain for the
novel strainforeseeable future. While we strive to comply with applicable data protection laws, external and internal privacy and security policies, and contractual data protection obligations to the extent possible, we may at times fail to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our personnel, collaborators, partners or vendors do not comply with applicable data protection laws, external and internal privacy and security policies, and contractual data protection obligations. Actual or perceived failure to comply with U.S. and international data protection laws could result in government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity, penalties and other liabilities, claims for damages by affected individuals, and damage to our reputation, any of
which could materially and negatively affect our operating results and business, financial condition, and growth prospects. Moreover, clinical trial subjects about whom we or
similar publicour potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individual’s privacy rights, even if we are found not liable, could be expensive and time consuming to defend and could result in adverse publicity that could harm our business. We are also subject to the terms of our external and internal privacy and security policies, representations, certifications, publications and frameworks, and contractual obligations to third parties related to privacy, information security and processing. Failure or a perceived failure to comply with these policies, or if these policies are, in whole or part, found or perceived to be inaccurate, incomplete, deceptive, unfair, or misrepresentative of our actual practices, could result in reputational harm; result in litigation; cause a material adverse impact to business operations or financial results; and otherwise result in other material harm to our business.
Public health crises,threats could have a material adverse impact on our business, financial condition and results of operations, including our commercial operations and sales, clinical trials and preclinicalnon-clinical studies.
PublicThe COVID-19 worldwide pandemic, which was recently declared no longer a public health
crises, suchemergency both globally and in the United States, presented substantial public health and economic challenges and affected our employees, customers, patients, physicians and other healthcare providers, communities and business operations, as
pandemicswell as the U.S. and global economies and financial markets. International and U.S. governmental authorities in impacted regions took multiple and diverse actions in an effort to slow the spread of COVID-19 and variants of the virus, including issuing varying forms of "stay-at-home" orders. Such measures taken by the governmental authorities to respond to any future epidemic or
similarpandemic disease outbreaks could
adversely impact our business. In December 2019, a novel strain ofwhich causes coronavirus disease2019 (COVID-19), surfaced
in Wuhan, China. Sincethen, SARS-CoV-2 and COVID-19 have
spread to multiple countries, including the United States.The COVID-19 pandemic
is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. In response to the spreadof SARS-CoV-2 and COVID-19, we
have instructed the majority of our office-based employees to work from home. In connection with our commercial launch of CAPLYTA, which is approved by FDA for the treatment of schizophrenia in adults, our commercial organization and sales force and medical organization are having significantly reduced personal interactions with physicians and customers and increasingly conduct promotional activities virtually, and elected to ceasein-person
interactions with physicians and customers entirely for some period of time in the interest of employee and community safety. Even though certain of our sales force and medical organization have begun to have personal interactions with physicians and customers, we may have to cease such personal interactions depending onthe COVID-19 situation.
In addition,the COVID-19 situation
has resulted in a decrease in the number of patient visits to healthcare providers. As a result ofthe COVID-19 pandemic,
or similar pandemics, we may experience disruptions that could severely impact
our business, including our ability to successfully commercialize
our only commercial product, CAPLYTA in the United States,
disrupt the supply chain and
these disruptions could negatively impact our salesthe manufacture or shipment of
CAPLYTA. Business interruptions from the current or future pandemics may also adversely impact the third parties we rely on to sufficiently manufacture CAPLYTAdrug substances and
to produce our product candidatesfinished drug products for use in
quantities we require, which may impair the commercialization and our research and development activities.We are currently conducting clinical trials for our product candidates in many countries, including the United States, Europe and Russia 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 bythe COVID-19 pandemic
or other pandemics. Some factors from theCOVID-19
pandemic that have or may adversely affect the timing and conduct of our clinical trials and
adversely impactresearch and non-clinical studies and, delay, limit or prevent our
business generally, include but are not limited to delays or difficulties inemployees from continuing research and development activities, impede our clinical
sitetrial initiation
diversion of healthcare resources away from clinical trials to pandemic concerns, limitations on travel, regulatory delays and
supply chain disruptions.In response tothe COVID-19 pandemic,
on March 10, 2020, the FDA announced its intention to temporarily postpone most inspections of foreign manufacturing facilitiesrecruitment and
products. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials, which has since been further updated. As of June 23, 2020, the FDA noted it was continuing to ensure timely reviews of applications for medical products duringthe COVID-19 pandemic
in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. As of July 2020, utilizing a rating system to assist in determining when and where it is safest to conduct such inspections based on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments, FDA is either continuing to, onconduct only mission critical inspections, or, where possible to do so safely, resuming prioritized domestic inspections, which generallyinclude pre-approval inspections.
Foreign pre-approval inspections
that are not deemed mission-
critical remain postponed, while those deemed mission-critical will be considered for inspection onFDA will use similar data to inform resumption of prioritized operations abroad as it becomes feasible and advisable to do so. The FDA may not be able to maintain this pace and delays or setbacks are possible in the future. Should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, FDA may defer action on the application until an inspection can be completed. Additionally, regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response tothe COVID-19 pandemic.
If global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of
the FDApatients to
timely reviewcontinue in clinical trials, including due to measures taken that may limit social interaction or prevent reopening of high-transmission settings, impede testing, monitoring, data collection and
processanalysis and other related activities, any of which could delay our
regulatory submissions, which couldnon-clinical studies and clinical trials and increase our development costs, and have a material adverse effect on our
business.Thebusiness, financial condition and results of operations. Any future epidemic or pandemic disease outbreak, including any resurgence of COVID-19, pandemic
continues to rapidly evolve, andcould also potentially further affect the
severity and durationoperations of the
pandemic remain uncertain. The extentFDA or other regulatory authorities, which could result in delays in meetings related to
our planned clinical trials. Any future epidemic disease outbreak may have an adverse impact on global economic conditions which
the pandemic impactscould have an adverse effect on our business
and financial condition, including
impairing our
commercial results, clinical trials, and preclinical studies will depend on future developments, which are highly uncertain.ability to raise capital when needed.
Risks Related to Our Intellectual Property
Our ability to compete may be undermined if we do not adequately protect our proprietary rights.
Our commercial success depends on obtaining and maintaining proprietary rights to our products,
and product candidates and technologies and their uses, as well as successfully defending these rights against third-party challenges. We will only be able to protect our products and product candidates, proprietary technologies, and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, or effectively protected trade secrets, cover them. We have patent rights under issued patents in many cases covering our lumateperone,
ITI-214
lenrispodun, ITI-1284, ITI-333, ITI-1020, and
ITI-333
ITI-1500 development programs. Nonetheless, the issued patents and patent applications covering our primary technology programs remain subject to uncertainty and continuous monitoring and action by us due to a number of factors, including:
•we may not have been the first to make the inventions covered by our pending patent applications or issued patents;
•we may not have been the first to file patent applications for our products, product candidates or the technologies we rely upon;
•others may independently develop similar or alternative technologies or duplicate any of our technologies;
•our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;
•any or all of our pending patent applications may not result in issued patents;
•we may not seek or obtain patent protection in all countries that will eventually provide a significant business opportunity;
•any patents issued to us or our collaborators may not provide a basis for commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties;
•our proprietary technologies may not be patentable;
•others may design around our patent claims to produce competitive products which fall outside of the scope of our patents;
•others may identify prior art which could invalidate our patents; and
•changes to patent laws may limit the exclusivity rights of patent holders.
Even if we have or obtain patents covering our products, product candidates or technologies, we may still be barred from making, using and selling our products, product candidates or technologies because of the patent rights of others. Others have or may have filed, and in the future are likely to file, patent applications covering compounds, assays, genes, gene products and therapeutic products that are similar or identical to ours. There are many issued U.S. and foreign patents relating to genes, nucleic acids, polypeptides, chemical compounds or therapeutic products, and some of these may encompass reagents utilized in the identification of candidate drug compounds or compounds that we desire to commercialize. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the area of CNS disorders and the other fields in which we are developing product candidates. These could materially affect our ability to develop our product candidates or sell our products. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents that our products, product candidates or technologies may infringe. These patent applications may have priority over patent applications filed by us.
We regularly conduct searches to identify patents or patent applications that may prevent us from obtaining patent protection for our proprietary compounds or that could limit the rights we have claimed in our patents and patent applications. Disputes may arise regarding the ownership or inventorship of our inventions. It is difficult to determine how such disputes would be resolved. Others may challenge the validity, enforceability, scope and term of our patents. Additionally, any patent term extensions that we seek may not be granted on a timely basis, if at all. If our patents are found to be invalid, we will lose the ability to exclude others from making, using or selling the inventions claimed in our patents.
Some of our academic institutional licensors, research collaborators and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or protect our proprietary information will be impaired. Additionally, any employee whose employment with us terminates, whether voluntarily by the employee or by us in connection with restructurings or otherwise, may seek future employment with our competitors. Although each of our employees is required to sign a confidentiality agreement with us at the time of hire, we cannot guarantee that the confidential nature of our proprietary information will be maintained in the course of such future employment. In addition, technology that we may
license-in
may become important to some aspects of our business. We generally will not control the patent prosecution, maintenance or enforcement of
in-licensed technology.in-licensedIn addition, generic drug companies have in the past and may in the future file abbreviated new drug applications, or ANDAs, with the FDA seeking approval to market generic versions of CAPLYTA, or any of our other product candidates that receive marketing approval, if any, before the expiration of the patents covering such products, which may trigger Hatch-Waxman litigation over the associated patent. For example, we have received notices of ANDA filings seeking approval to market generic versions of CAPLYTA and alleging that certain of our patents covering CAPLYTA are invalid and/or will not be infringed by such generic drug companies' manufacture, use or sale of the medicine for which the ANDA was submitted. Refer to Item 3, Legal Proceedings. Similarly, another applicant may submit a 505(b)(2) NDA referencing the approved CAPLYTA marketing application, which would also trigger Hatch-Waxman litigation, depending upon the types of certifications made by the applicant for any of our listed patents. Settlements and related licensing agreements resulting from Hatch-Waxman litigation can be challenged and have the potential to generate additional litigation which can be costly. The success of such litigation depends on the strength of the patents covering our branded products and our ability to prove that the follow-on applicant's product would infringe one or more such patents. The outcome of such litigation is inherently uncertain and may result in potential loss of market exclusivity for any of our approved products, including CAPLYTA, which may have a significant financial impact on our product revenue. Furthermore, the Federal Trade Commission, or FTC, has brought successful lawsuits challenging Hatch-Waxman litigation settlements as anti-competitive, and such decisions have been upheld by federal circuit courts. If we engage in Hatch-Waxman litigation, we may also face an FTC challenge with respect to any proposed settlement related to such litigation, which may result in additional expense or penalty. The FTC also has more recently been questioning pharmaceutical company patent listings in the Orange Book and raising concerns about "improper" listings that may be intended to discourage competition by generic drug developers, and certain members of Congress have been investigating similar issues. Accordingly, there could be future changes to federal laws, regulations, or guidelines related to Hatch-Waxman requirements or procedures that could have a material adverse impact on all pharmaceutical innovators, including us.
technology.CAPLYTA and future product candidates for which we obtain approval may face competition sooner than anticipated.
CAPLYTA and our future pharmaceutical products that gain marketing approval may face direct competition from generic and other follow-on drug products. In addition, CAPLYTA may face competition from generic products earlier or more aggressively than anticipated, depending upon how well it performs in the United States prescription drug market. Our ability to compete may also be affected in many cases by insurers or other third-party payers seeking to encourage the use of generic products.
The Hatch-Waxman Amendments to the FDCA authorized the FDA to approve generic drugs that are the same as drugs previously approved for marketing under the NDA provisions of the statute pursuant to ANDAs, and also created the Section 505(b)(2) NDA pathway. An ANDA relies on the pre-clinical and clinical testing conducted for a previously approved reference listed drug and must demonstrate to the FDA that the generic drug product is identical to the reference listed drug with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug and also that it is “bioequivalent” to the reference listed drug. In contrast, Section 505(b)(2) enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy data for an existing product, or published literature, in support of its application. Section 505(b)(2) provides an alternate path to FDA approval for new or improved formulations or new uses of previously approved products; for example, a follow-on applicant may be seeking approval to market a previously approved drug for new indications or for a new patient population that would require new clinical data to demonstrate safety or effectiveness. Such products, if approved and depending upon the scope of the changes made to the reference drug, may also compete with CAPLYTA or any other product candidates from which we receive approval.
The FDA is prohibited by statute from approving an ANDA or 505(b)(2) NDA when certain marketing or data exclusivity protections apply to the reference listed drug. If any such competitor or third party is able to demonstrate bioequivalence without infringing our patents, then this competitor or third party may then be able to gain approval of an ANDA and introduce a competing generic product onto the market. In addition, CAPLYTA is protected by new chemical entity (“NCE”) exclusivity that expires on December 20, 2024. Reduction or loss of this period of marketing exclusivity could negatively affect our business, operating results and financial condition. FDA is also blocked from approving any follow-on applications that rely on the CAPLYTA NDA until that NCE exclusivity ends.
Furthermore, bipartisan legislation called the Creating and Restoring Equal Access to Equivalent Samples Act (the “CREATES Act”) was signed into law in late 2019. The CREATES Act was intended to address concerns articulated by both the FDA and others in the industry that some brand manufacturers have improperly restricted the distribution of their products, including by invoking the existence of a REMS for certain products, to deny generic product developers access to samples of brand products. Because generic product developers need samples to conduct certain comparative testing required by the FDA, some have attributed the inability to timely obtain samples as a cause of delay in the entry of generic and other follow-on products. To remedy this concern, the CREATES Act established a private cause of action that permits a generic product developer to sue the brand manufacturer to compel it to furnish the necessary samples on “commercially reasonable, market-based terms.” Therefore, a generic developer may request samples of CAPLYTA, or our other product candidates that receive marketing approval, if any, in order to conduct comparative testing to support an ANDA for a generic version of our products, and if we refuse any such request, we may be subject to litigation under the CREATES Act. Although lawsuits have been filed under the CREATES Act since its enactment, those lawsuits have settled privately; therefore to date no federal court has reviewed or opined on the statutory language and there continues to be uncertainty regarding the scope and application of the law.
We cannot predict the interest of potential follow-on competitors or how quickly others may seek to come to market with competing products, whether approved as a direct ANDA competitor or as a Section 505(b)(2) NDA referencing CAPLYTA or one of our future product candidates. If the FDA approves generic versions of CAPLYTA in the future, should they be approved for commercial marketing, such competitive products may be able to immediately compete with us in each indication for which our product has received approval, which could negatively impact our future revenue, profitability and cash flows and substantially limit our ability to obtain a return on our investments.
Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete.
Because we operate in the highly technical field of drug discovery and development of small molecule drugs, we rely in part on trade secret protection in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality and intellectual property assignment agreements with our corporate partners, employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties any confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.
A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and costly, and an unfavorable outcome could harm our business.
There is significant litigation in our industry regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that our products, product candidates, technologies or activities infringe the intellectual property rights of others. If our drug development or commercialization activities are found to infringe any such patents, we may have to pay significant damages or seek licenses to such patents. We may need to resort to litigation to enforce a patent issued to us, protect our trade secrets or determine the scope and validity of third-party proprietary rights. From time to time, we may hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We also may not be able to afford the costs of litigation.
The patent applications of pharmaceutical and biotechnology companies involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. The standards of the U.S. Patent and Trademark Office’s,Office, or USPTO’s, standardsUSPTO, are uncertain and could change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to reexamination proceedings in the USPTO (and foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent office), which proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. Similarly, opposition or invalidity proceedings could result in loss of rights or reduction in the scope of one or more claims of a patent in foreign jurisdictions. In addition, such interference, reexamination and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.
In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use our discoveries or to develop and commercialize our technology, products and product candidates without providing any compensation to us or may limit the number of patents or claims we can obtain. In particular, there have been proposals to shorten the exclusivity periods available under U.S. patent law that, if adopted, could substantially harm our business. Our approved product and the product candidates that we are developing are protected by intellectual property rights, including patents and patent applications. For our approved product and any of our product candidates that become a marketable product, if any, we will rely on our exclusivity under patents to sell the compound and recoup our investments in the research and development of the compound. If the exclusivity period for patents is shortened, then our ability to generate revenues without competition will be reduced and our business could be materially adversely impacted. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws, and those countries may lack adequate rules and procedures for defending our intellectual property rights. For example, some countries, including many in Europe, do not grant patent claims directed to methods of treating humans and, in these countries, patent protection may not be available at all to protect our products or product candidates. In addition, U.S. patent laws may change, which could prevent or limit us from filing patent applications or patent claims to protect our products, product candidates and/or technologies or limit the exclusivity periods that are available to patent holders. For example, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was
recently signed into law
in 2011 and includes a number of significant changes to U.S. patent law. These include changes to transition from a
“first-to-invent” system to a
“first-to-file” system and to the way issued patents are challenged. These changes may favor larger and more established companies that have more resources to devote to patent
application filing and prosecution. The USPTO has been in the process of implementing regulations and procedures to administer the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act may affect our ability to obtain, enforce or defend our patents. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will ultimately have on the cost of prosecuting our patent applications, our ability to obtain patents based on our discoveries and our ability to enforce or defend our issued patents.
If we fail to obtain and maintain patent protection and trade secret protection of our products, product candidates, proprietary technologies and their uses, we could lose our competitive advantage and competition we face would increase, reducing our potential revenues and adversely affecting our ability to attain or maintain profitability.
We may not be able to protect our intellectual property and proprietary rights throughout the world, which could negatively impact our business.
Filing, prosecuting and defending patents relating to our products, product candidates and technologies in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as U.S. laws. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors or other third parties may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection or licenses but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant difficulties in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult, costly or impossible for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us or any of our future licensors. We may not prevail in any lawsuits or other adversarial proceedings that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Further, many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
Risks Related to the Transfer of Certain Intellectual Property Rights to our Foreign Subsidiary
We may need to utilize all of our available net operating losses, and we may be subject to additional income taxes in connection with our transfer of certain intellectual property rights to our foreign subsidiary.
In September 2016, we licensed certain intellectual property rights to our wholly-owned Bermuda subsidiary, ITI Limited for $125 million and other consideration. The fair value of the intellectual property rights
was determined by an independent third party. The proceeds from this license represented a prior year gain for U.S. tax purposes which was offset partially by prior year losses. However, the Internal Revenue Service, or IRS, could challenge the valuation of the intellectual property rights and assess a greater valuation, which would require us to utilize a portion, or all, of our available NOLs at such time. If an IRS valuation exceeds our available NOLs, we could incur additional income taxes in the future. Our ability to use our NOLs is generally subject to the limitations of Code Section 382, as well as expiration of federal and state net operating loss carryforwards.
Risks Related to Our Industry
We are subject to stringent regulation in connection with the marketing of CAPLYTA and any other products derived from our product candidates, which could delay the development and commercialization of our products.
The pharmaceutical industry is subject to stringent regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Neither we nor our collaborators can market a pharmaceutical product in the United States until it haswe or they have completed rigorous preclinicalnon-clinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product, and requires substantial resources. Even if regulatory approval is obtained, it may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, and/or marketing of such products, and requirements for post-approval studies, including additional research and development and clinical trials. For example, the label for CAPLYTA contains a “boxed” warning that elderly patients with dementia-related psychosis treated with antipsychotic drugs are at an increased risk of death and that CAPLYTA is not approved for the treatment of patients with dementia-related psychosis. These limitations may limitreduce the size of the market for the product or result in the incurrence of additional costs. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues and continue our business.
Outside the United States, the ability to market a product is contingent upon receiving approval from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing, and reimbursement vary widely from country to country. Only after the appropriate regulatory authority is satisfied that adequate evidence of safety, quality, and efficacy has been presented will it grant a marketing authorization. Approval by the FDA does not automatically lead to the approval by regulatory authorities outside the United States and, similarly, approval by regulatory authorities outside the United States will not automatically lead to FDA approval.
Many of our competitors have greater resources and capital than us, putting us at a competitive disadvantage. If our competitors develop and market products that are more effectivewidely accepted in the marketplace than lumateperone or our other product candidates, they may reducenegatively affect or eliminate our commercial opportunity.
Competition in the pharmaceutical and biotechnology industries is intense and increasing. We face competition from pharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies, both in the United States and abroad. Some of these competitors have products or are pursuing the development of drugs that target the same diseases and conditions that are the focus of our drug development programs.
For example, CAPLYTA for the treatment of schizophrenia and if approved, lumateperone for the treatment of bipolar depression would competecompetes with, among other branded products, LatudaFanapt®
, marketed by Sunovion,Vanda Pharmaceuticals, Lybalvi®, marketed by Alkermes, Rexulti®
, marketed by Otsuka Pharmaceutical, VRAYLARand Vraylar®
, marketed by Allergan, Saphris®
, marketed by Allergan, and Fanapt®
, marketed by Vanda Pharmaceuticals.AbbVie. In addition, lumateperoneCAPLYTA competes and our other product candidates, if approved, willwould compete with, among other generic antipsychotic products, aripiprazole, clozapine, haloperidol, lurasidone, olanzapine, paliperidone, risperidone, quetiapine/XR olanzapine and clozapine.risperidone.
Many of our competitors and their collaborators have significantly greater experience than we do in the following:
•identifying and validating targets;
•screening compounds against targets;
preclinical•non-clinical studies and clinical trials of potential pharmaceutical products;
•obtaining FDA and other regulatory approvals; and
•commercializing pharmaceutical products.
In addition, many of our competitors and their collaborators have substantially greater capital and research and development resources, manufacturing, sales and marketing capabilities, and production facilities. Smaller companies also may prove to be significant competitors, particularly through proprietary research discoveries and collaboration arrangements with large pharmaceutical and established biotechnology companies. Many of our competitors have products that have been approved or are in advanced development and may develop superior technologies or methods to identify and validate drug targets and to discover novel small molecule drugs. Our competitors, either alone or with their collaborators, may succeed in developing drugs that are more effective, safer, more affordable, or more easily administered than ours, have fewer side effects than ours, and may achieve patent protection or commercialize drugs sooner than us. Our competitors may also develop alternative therapies that could further limit the market for any drugs that we may develop. Our failure to compete effectively could have a material adverse effect on our business.
Our business involves the use of hazardous materials, and we and our third party manufacturers and suppliers must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do, or interrupt, our business. Any claims relating to improper handling, storage, or disposal of biological, hazardous, and radioactive materials used in our business could be costly and delay our research and development and commercial efforts.
Our business, including our research and development activities, involveinvolves the controlled use of potentially harmful hazardous materials, including volatile solvents, biological materials such as blood from patients that have the potential to transmit disease, chemicals that cause cancer, and various radioactive compounds.compounds, which requires us and our third party manufacturers and suppliers to comply with environmental, health and safety laws and regulations. Our operations also produce hazardous waste products. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials composition of many of our product candidates. We face the risk of contamination or injury from the use, storage, handling or disposal of these materials.
We are subject to federal, state, local, and localforeign laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations could be significant, and current or future environmental regulations may impair our research, development, or production efforts. If one of our employees were accidentally injured from the use, storage, handling, or disposal of these materials, the medical costs related to his or hertheir treatment would be covered by our workers’ compensation insurance policy. However, we do not carry specific biological or hazardous waste insurance coverage and our general liability insurance policy specifically excludes coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be subject to criminal sanctions or fines or be held liable for damages, our operating licenses could be revoked, and we could be required to suspend or modify our operations and our research and development efforts.
We are subject, directly and indirectly, to federal, state and foreign healthcare laws and regulations, including healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Our operations are directly, and indirectly through our customers and third-party payers, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, our clinical research, sales, marketing, grants, charitable donations, and education programs and constrain the business or financial arrangements with healthcare providers, physicians, charitable foundations, and other parties that have the ability to directly or indirectly influence the prescribing, ordering, marketing, or distribution of our products for which we obtain marketing approval. In addition, we and any potential future collaborators, partners or service providers are subject to data privacy and security laws and regulations by both the U.S. federal government and the states in which we conduct our business as discussed more fully above. Finally, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:
•the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•the U.S. federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalties laws, which impose criminal and civil penalties on individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
•HIPAA, and its implementing regulations, and as amended again by the Final HIPAA Omnibus Rule, Modifications to the HIPAA Privacy, Security, Enforcement and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to the HIPAA Rules, published in January 2013, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payer (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•we are not directly subject to HIPAA, however, we could be subject to penalties, including criminal penalties if we knowingly obtain or disclose individually identifiable health information from a HIPAA-covered health care provider, or a research institution that has not complied with HIPAA’s requirements for disclosing such information. Furthermore, the number of government investigations related to data security incidents and privacy violations continue to increase and government investigations typically require significant resources and generate negative publicity, which could harm our business and our reputation;
•the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;
•the U.S. federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act”, which was enacted as part of the ACA and its implementing regulations and requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to certain payments and other transfers of value made to physicians (as defined to include doctors of medicine, dentists, optometrists, podiatrists and chiropractors under such law), and, teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members, which was expanded beginning in 2022, to require applicable manufacturers to report such information regarding its relationships with physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year; and
•analogous state and local laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payer, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities and/or the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of personal data and protected / personal health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA.
Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government-funded healthcare programs, such as Medicare and Medicaid, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, additional reporting requirements and/or oversight, and the curtailment or restructuring of our operations. Moreover, while we do not bill third-party payers directly and our customers make the ultimate decision on how to submit claims, from time-to-time, for CAPLYTA, and any other product candidates that may be approved, we may provide reimbursement guidance to patients and healthcare providers. If a government authority were to conclude that we provided improper advice and/or encouraged the submission of a false claim for reimbursement, we could face action against us by government authorities. If any of the physicians or other providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of CAPLYTA, or any other product candidates that may be approved, outside of the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of lumateperone or any other product for which we obtain regulatory approval, or development or commercialization of our product candidates.
We face an inherent risk of product liability as a result of commercial sales of lumateperone in the United States and the clinical testing of our product candidates, and will face an even greater risk following commercial launch of lumateperone in additional jurisdictions, if approved, or if we engage in the clinical testing of new product candidates or commercialize any additional products.
For example, we may be sued if lumateperone or any other product we develop allegedly causes injury or is found to be otherwise unsuitable for administration in humans. Any such product liability claims may include
allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection laws. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
•decreased demand for our products or product candidates that we may develop;
•injury to our reputation;
•withdrawal of clinical trial participants;
•initiation of investigations by regulators;
•costs to defend the related litigation;
•a diversion of management’s time and our resources;
•substantial monetary awards to trial participants or patients;
•product recalls, withdrawals or labeling, marketing or promotional restrictions;
•exhaustion of any available insurance and our capital resources;
•the inability to commercialize our products or product candidates; and
•a decline in our stock price.
Although we currently have product liability insurance that covers our clinical trials and the commercialization of CAPLYTA for the treatment of schizophrenia and bipolar depression, we may need to increase and expand this coverage, including if lumateperone is approved for the treatment of indications beyond schizophrenia and bipolar depression or if other product candidates are approved for commercial sale. This insurance may be prohibitively expensive or may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of products that we or our collaborators develop. If we determine that it is prudent to increase our product liability coverage, we may be unable to obtain such increased coverage on acceptable terms or at all. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. Our liability could exceed our total assets if we do not prevail in a lawsuit from any injury caused by our drug products. Product liability claims could have a material adverse effect on our business and results of operations.
Unfavorable domestic or global economic conditions could adversely affect our business, financial condition, or results of operations.
Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, foreign currency, interest rates and overall economic conditions and uncertainties, failures and instability in U.S. and international banking systems, downgrades of the U.S. credit rating, slower economic growth or recession, and other unfavorable changes resulting from the current and future conditions in the global financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass price increases on to our customers due to the process by which healthcare providers are reimbursed for our product by the government. Interest rates, the liquidity of the credit markets and the volatility of the capital markets has and could continue to also affect the value of our investments and our ability to liquidate our investments in order to fund our operations. We purchase or enter into a variety of financial instruments and transactions, including high-grade corporate bonds and commercial paper. If any of the issuers or counter parties to these instruments were to default on their obligations, it could materially reduce the value of the transaction and adversely affect our cash flows. Interest rates and the ability to access credit markets could also adversely affect the ability of our customers and distributors to purchase, pay for and effectively distribute our products. Similarly, these macroeconomic factors could affect the ability of our suppliers and manufacturers to supply or manufacture our product.
Risks Related to Owning Our Common Stock
Numerous factors could result in substantial market volatility in the trading price of our common stock.
The trading price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to meet our growth projections and expectations, operating results of other companies in the same industry, trading volume in our common stock, and other developments affecting our business and the business of others in our industry. During the year ended December 31, 2020,2023, the price per share of our common stock on the Nasdaq Global Select Market has ranged from a high of $34.31$74.17 to a low of $10.94.$42.01. We have several stockholders, including affiliated stockholders who hold substantial blocks of our stock. Sales of large numbers of shares by any of our large stockholders could adversely affect our trading price. If stockholders holding shares of our common stock sell, indicate an intention to sell, or if it is perceived that they will sell, substantial amounts of their common stock in the public market, the trading price of our common stock could decline.
In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:
•the success of our commercialization of CAPLYTA in the United States for the treatment of schizophrenia;
•timing and announcement of regulatory developments, submissions and approvals or preliminary, interim or final results of clinical trials;
•actual or anticipated quarterly variation in our results of operations or the results of our competitors;
•announcements of medical innovations or new products or product candidates by our competitors;
•issuance of new or changed securities analysts’ reports or recommendations for our stock;
•developments or disputes concerning our intellectual property or other proprietary rights;
•commencement of, or our involvement in, litigation;
•market conditions in the biopharmaceutical industry;
•any future sales of our common stock or other securities in connection with raising additional capital or otherwise;
•possible acquisitions or business combinations and possible or perceived collaborations;
•any major change to the composition of our board of directors or management; and
•general market, economic, and political conditions and slow or negative growth of our markets.markets, both domestically and globally.
The stock market in general, and market prices for the securities of biotechnology companies like ours in particular, are subject to extreme fluctuations and have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations have had a significant effect on the market price of securities issued by many companies for reasons related and unrelated to their operating performance and may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a securities class action lawsuit against us, such as the purported class action lawsuits brought against us and certain of our executive officers in May 2017, consolidated in July 2017 and voluntarily dismissed in November 2017, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.
Following the closing of our September 2020 underwritten public offering of common stock, we have a limited number of authorized shares of common stock available for future issuance that are not already issued or reserved for issuance. We have 100.0 million authorized shares of common stock. As of December 31, 2020, we had 80.5 million shares of common stock outstanding, 7.2 million shares of common stock issuable upon the exercise of outstanding stock options, or the vesting of outstanding time-based and milestone restricted stock units, and 7.5 million shares of common stock reserved for future issuance under our equity compensation plans. As a result, as of December 31, 2020, we had approximately 4.9 million authorized shares of common stock available for issuance. We will remain limited by the number of additional shares available for future capital raising transactions or strategic transactions unless we obtain stockholder approval to amend our restated certificate of incorporation to increase the number of authorized shares of common stock. This may cause a delay in our future capital raising, collaboration, partnership or other strategic transactions, and may have a material adverse effect on our business and financial condition.
Raising additional capital may cause dilution to existing stockholders, restrict our operations or require us to relinquish rights.
We willmay need to satisfy our future cash needs through public or private sales of our equity securities, sales of debt securities, the incurrence of debt from commercial lenders, strategic collaborations, licensing a portion or all of our products, product candidates and technology and, to a lesser extent, grant funding, although there can be
no assurances such financing can be obtained.
We filed a universal shelf registration statement on FormS-3
with the SEC, which was declared effective on September 12, 2019, on which we registered for sale up to $350 million of any combination of our common stock, preferred stock, debt securities, warrants, rights, and/or units from time to time and at prices and on terms that we may determine, including up to $75 million of common stock which we could offer and sell, from time to time at our sole discretion, under ourprogram sales agreement that we entered into with SVB Leerink LLC in August 2019. In the quarter ended June 30, 2020, we sold 230,000 shares of common stock underequity program which resulted in our receiving net proceeds of $5.6 million in July 2020. In the quarter ended September 30, 2020, we issued an additional 512,791 shares of common stock underequity program and received approximately $12.3 million of net proceeds. On September 10, 2020, we terminatedequity program agreement with SVB Leerink LLC. In addition, on January 6, 2020, we filed an automatic shelf registration statement on FormS-3
with the SEC, which became effective upon filing, on which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights, and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules. These registration statements will remain in effect for up to three years from the respective dates they became effective. 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 collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or grant licenses on terms that are not favorable to us.
The price of our common stock could be subject to volatility related or unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to meet our growth projections and expectations, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our business and the business of others in our industry. In addition, the stock market itself is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons related and unrelated to their operating performance and could have the same effect on our common stock.
We will incur increasedsubstantial costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our operating results.
As a public company, we have incurred and will incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the SEC or the Nasdaq Global Select Market or any other stock exchange or inter-dealer quotations system on which our common stock may be listed in the future. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically in recent years.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
We are required to comply with Section 404 of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to maintain effective internal control over financial reporting. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting. In addition, we are
required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluatedre-evaluated frequently. Additional financial controls have been assessed and implemented to address the increased complexity of revenue recognition associated with commercial sales of a pharmaceutical product. We currently do not have anoutsource the internal audit group,function. We have hired and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.knowledge to establish an internal audit function. If we fail to maintain the effectiveness of our internal controls or fail to comply in a timely manner with the requirements of the Sarbanes-Oxley Act, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, this could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our independent registered public accounting firm as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets.
If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock is and will be influenced by whether industry or securities analysts publish or continue to publish research and reports about us, our business, our market or our competitors and, to the extent analysts do publish such reports, what they publish in those reports. We may not continue to have or to obtain analyst coverage in the future. Any analysts that do cover us may make adverse recommendations regarding our stock, adversely change their recommendations from time to time, and/or provide more favorable relative recommendations about our competitors. If any analyst who covers us or may cover us in the future were to cease coverage of us or fail to regularly publish reports on us, or if analysts fail to cover us or publish reports about us at all, we could lose, or never gain, visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Provisions of the Delaware law, our restated certificate of incorporation and our restated bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.
The provisions of Delaware law and our restated certificate of incorporation and restated bylaws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of our
control.the Company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. Such provisions also may have the effect of preventing changes in our management.
We do not anticipate paying cash dividends in the foreseeable future.
We currently intend to retain any future earnings for funding growth. We do not anticipate paying any cash dividends in the foreseeable future. As a result, you should not rely on an investment in our securities if you require dividend income. Capital appreciation, if any, of our shares may be your sole source of gain for the foreseeable future. Moreover, you may not be able to
re-sell
your shares at or above the price you paid for them.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,” “will,” “would,” “could,” “should,” “continue,” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. The description of our Business set forth in Item 1, the Risk Factors set forth in this Item 1A and our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 as well as other sections in this report, discuss some of the factors that could contribute to these differences. These forward-looking statements include, among other things, statements about:
•the accuracy of our estimates regarding expenses, future revenues, uses of cash, cash equivalents and investment securities, capital requirements and the need for additional financing;
•our expectations regarding our commercialization of CAPLYTA, including the impact ofCOVID-19
on the commercialization of CAPLYTA and our ability to adapt our approach as appropriate; CAPLYTA;the duration and severity of theCOVID-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 size and growth of the markets for lumateperone and our other product candidates and our ability to serve those markets;
•the rate and degree of market acceptance of any current or future products;
•the success of competing drugs that are or become available;
•regulatory developments in the United States and other countries;
•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;
•any restrictions on our ability to use our net operating loss carryforwards;
•our exposure to investment risk, interest rate risk, andinflation risk, capital market risk;risk, foreign currency fluctuations, and
•disruptions resulting from the impact of public health pandemics or epidemics (including, for example, the COVID-19 pandemic), man-made or natural disasters, cybersecurity incidents or other causes; and
•our ability to attract and retain key scientific, management, or sales and marketing personnel.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important cautionary statements in this report, particularly in the Risk Factors set forth in Item 1A of this Annual Report on Form
10-K,
that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this report are made as of the date of this report, and we do not assume, and specifically disclaim, any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C.
Cybersecurity Risk Management Strategy and Approach
Our cybersecurity policies, standards, practices and risk management strategy are based on recognized frameworks established by the National Institute of Standards and Technology (NIST) and other applicable industry standards. We currently utilize the NIST Cybersecurity Framework (CSF) to define and build master controls and processes. The NIST CSF presents leading practices and addresses many aspects of cybersecurity risk management. The CSF defines a comprehensive set of cyber security controls to manage risk and also defines an approach for the identification and remediation of risks to ensure our assets are hardened to resist potential attacks. Our assets are continually scanned for vulnerabilities and remediation measures are put in place to remediate them. We utilize the processes and procedures defined in the NIST Computer Security Incident Handling Guide to manage, contain, eradicate and recover from and improve our defenses, detection and remediation processes to help prevent future incidents. Additionally, we have implemented a governance model to oversee the creation and execution of our Cybersecurity Strategy embodied in our policies, standards, practices, incident response plans, risk management actions and improvement roadmap.
To identify and assess material risks from cybersecurity threats, we maintain a comprehensive cybersecurity program to ensure our systems are effective and prepared for information security risks, including regular oversight of our programs for security monitoring for internal and external threats to ensure the confidentiality and integrity of our information assets. We consider risks from cybersecurity threats alongside other company risks as part of our overall risk assessment process.
We use specific control measures and processes developed from the NIST CSF that may be technical, procedural, or human in nature and that are designed to protect availability, integrity and confidentiality of critical data and systems, maintain regulatory compliance, assess, identify and manage our material risks from cybersecurity threats, and protect against and respond to cybersecurity incidents. These controls and processes are reviewed periodically for effectiveness in light of the ever-changing threat environment as part of our active cybersecurity risk management process. That review includes an external assessment of control coverage and effectiveness. We undertake the following activities:
•monitor emerging data protection laws and implement changes to our processes that are designed to comply with such laws;
•through our policies, practices and contracts (as applicable), require employees, as well as third parties that provide services on our behalf, to treat confidential information and data with care;
Item 1B.
•employ technical safeguards that are designed to protect our information systems from cybersecurity threats, including hardening all devices to reduce attack surface as well as implement the following: encryption of data in flight and at risk, firewalls, managed detection and response systems, endpoint detection and response including anti-malware functionality and access controls including centralized entitlement and authentication management; •provide regular, mandatory training for our employees and contractors regarding cybersecurity threats as a means to equip them with effective tools to identify and address cybersecurity threats, and to communicate our evolving information security policies, standards, processes and practices; •conduct regular phishing email simulations for all employees and contractors with access to our email systems to enhance awareness and responsiveness to possible threats; •conduct cybersecurity management and incident training for employees involved in our systems and processes that handle sensitive data; •run tabletop exercises to simulate a response to a cybersecurity incident and use the findings to improve our processes and technologies; •leverage the NIST incident handling framework to help us identify, protect, detect, respond, recover, and improve our process, actions and systems when there is an actual or potential cybersecurity incident; •conduct regular vulnerability scans of our environment as a detective control to identify vulnerabilities arising out of improper configurations or unpatched software and systems; •manage physical access to our facilities using integrated card swipe technology; and •authorize and control logical system access to our critical systems utilizing Single Sign on and Multi Factor Authentication. As part of our risk management processes, we periodically perform risk assessments across internal and third-party providers that proactively identify top cybersecurity risks and proactively manage those risks by remediating control limitations and vulnerabilities. These are prioritized for remediation using a risk impact analysis and will be mitigated in one of two ways. The first remediation approach is using cybersecurity roadmaps of actions that are part of our Information Security Management Program (ISMP). The second remediation approach is triggered if significant vulnerabilities are identified, or new threats emerge and these risks are remediated immediately. We regularly engage with consultants, auditors and other third parties to assist with assessments and remediation, including having a third-party independent qualified expert assessor review our cybersecurity program to help identify areas for continued focus, improvement and compliance. We actively engage with industry groups for peer benchmarking purposes and to stay current on best practices. We employ a range of tools and services to test our controls and program effectiveness, including external evaluations, annual penetration tests, ongoing vulnerability scanning, regular network and endpoint monitoring, audits, threat modeling, tabletop exercises, and engaging experts to attempt to infiltrate our information systems. The ISMP documents our approach to risk governance and the totality of our defense and response capabilities as well as the in year and out year improvement roadmaps. Any risks that cannot be remediated are examined to ensure insurance and other risk transfer mechanisms can be leveraged to remediate those risks. Our processes also address cybersecurity risks associated with our use of third-party service providers, including our clinical research organizations, suppliers and manufacturers or those who have access to data or our systems. In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers that process controlled and/or classified data as part of our procurement process. Additionally, we generally require those third parties that could introduce significant cybersecurity risk to us to agree by contract to manage their cybersecurity risks in specified ways, and to agree to be subject to cybersecurity audits, which we conduct as appropriate.
The Company maintains a Security Awareness and Training Program that includes training to reinforce the Company’s Cybersecurity policies, standards, and practices which engages personnel with training on how to identify potential cybersecurity risks, protect company resources and information, phishing and other tests. Those users who fail the tests are required to take remedial training. Training is mandatory for all employees and contingent workers who have access to our electronic systems. Finally, our Privacy Program requires all employees to take periodic awareness training on data privacy. We have experienced continual attempts by cyber criminals to gain access to our systems for the purposes of monetary gain. To the best of our knowledge, in the last three years, we have not experienced any material cybersecurity incidents and no events have resulted in a threat actor being able to take control of any of our data or information technology assets. To efficiently and effectively plan for and manage cybersecurity incidents and privacy events, we have developed Incident Response Policy, Procedures and Play Books that memorialize appropriate actions and procedures as well as template communications for various incident types and severity. Our Incident Response Policy, Procedures and Play Books coordinate the activities we take to prepare for, detect, respond to, and recover and improve following cybersecurity incidents, which include processes to identify, investigate, triage, assess severity for, escalate, contain, and remediate the incident, as well as to comply with potentially applicable legal obligations and mitigate damage to our business and reputation. Cybersecurity Governance and Management Cybersecurity is an important part of our risk management processes and an area of focus for our board of directors and management. In general, our board of directors oversees risk management activities designed and implemented by our management, and considers specific risks, including, for example, risks associated with our strategic plan, business operations, and capital structure. Our board of directors executes its oversight responsibility for risk management both directly and through delegating oversight of certain of these risks to its committees, and our board of directors has authorized our audit committee to oversee risks from cybersecurity threats. At least semi-annually, our board of directors receives an update from management of our cybersecurity threat risk management and strategy processes covering topics such as data security posture, results from third-party assessments, progress towards pre-determined risk-mitigation-related goals, our incident response plan, and material cybersecurity threat risks or incidents and developments, as well as the steps management has taken to respond to such risks. In such sessions, our board of directors generally receives materials discussing current and emerging material cybersecurity threat risks, and describing our ability to mitigate those risks, as well as recent developments, evolving standards, technological developments and information security considerations arising with respect to our peers and third parties, and discusses such matters with our Chief Information Officer. Our audit committee also will receive prompt and timely information regarding any cybersecurity incident that meets establishing reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. Members of our board of directors are also encouraged to regularly engage in conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management and strategy programs. Material cybersecurity threat risks are also considered during separate board meeting discussions of important matters like enterprise risk management, operational budgeting, business continuity planning, mergers and acquisitions, brand management, and other relevant matters. We also have a cybersecurity steering committee responsible for assisting with our overall day-to-day cybersecurity responsibilities and implementing our cybersecurity programs. The members of our cybersecurity steering committee include a cross-functional team and is chaired by our Chief Information Officer. Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by a team of senior level management, including our President, Chief Executive Officer and Chairman of the Board, Senior Vice President of Finance and Chief Financial Officer, Executive Vice President, General Counsel and Secretary, and Chief Information Officer. Such individuals collectively have significant prior work experience in various roles involving managing information security, developing cybersecurity strategy, implementing effective information and cybersecurity programs, as well as several relevant degrees and certifications.
A qualified individual with over 35 years of cyber, IT security and risk management experience who holds both a Certified Information Security Professional (CISSP) and Certified Cloud Security Professional (CCSP) accreditations has been engaged to advise the CIO and build out our Cybersecurity Governance Model and the ISMP. These management team members are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our Incident Response Policy, Procedures and Play Books. As discussed above, these management team members report to the audit committee of our board of directors about cybersecurity risks, among other cybersecurity related matters, on a semiannual basis. | UNRESOLVED STAFF COMMENTS
|
Our headquarters are located at 430 East 29th Street, New York, New York 10016, where we occupy approximately 32,28732,000 square feet of useable office and laboratory space. The term of the lease, as amended, expires in March 2029. We also lease a small amountapproximately 4,000 square feet of office space in Towson, Maryland. The term of this lease expires in August 2026.
Item 3. LEGAL PROCEEDINGS
In February 2024, the Company received notices from Alkem Laboratories Ltd., Aurobindo Pharma USA, Inc. and Aurobindo Pharma Ltd., Dr. Reddy's Laboratories Inc. (on behalf of Dr. Reddy's Laboratories Ltd.), MSN Laboratories Private Ltd., Sandoz Inc., Hetero USA, Inc. (the U.S. Regulatory Agent for Hetero Labs Limited Unit - V, a division of Hetero Labs Limited) and Zydus Pharmaceuticals (USA), Inc., each an ANDA Filer, that each company had filed an abbreviated new drug application, or ANDA, with the FDA seeking approval of generic version of CAPLYTA. The ANDAs each contained Paragraph IV Patent Certifications alleging that certain of our patents covering CAPLYTA are invalid and/or will not be infringed by each ANDA Filer’s manufacture, use or sale of the medicine for which the ANDA was submitted. The Company is currently reviewing the notices from ANDA Filers and intends to vigorously defend and enforce its intellectual property rights.
From time to time, we may become subject to other legal proceedings or claims arising in the ordinary course of our business. We are not currently believe that none of the claims or actions pending against us is likely to have, individually or in the aggregate, a party to any material legal proceedings.
adverse effect on our business, financial condition or results of operations. Given the unpredictability inherent in litigation, however, we cannot predict the outcome of these matters. | Item 4. MINE SAFETY DISCLOSURES |
| Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock is traded on the Nasdaq Global Select Market under the symbol “ITCI.”
As of February 22, 2021,20, 2024, we had 80,917,01396,807,191 outstanding shares of common stock and no outstanding shares of preferred stock. As of February 22, 2021,20, 2024, there were approximately 9373 holders of record of our outstanding shares of common stock.
Unregistered Sales of Securities
Issuer Purchases of Equity Securities
Not applicable.
Item 6. [RESERVED]
| Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of the financial condition and results of our operations should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this Annual Report on Form
10-K.
This section of this Annual Report on Form 10-K generally discusses the fiscal years ended December 31, 2023 and 2022 items and year to year comparisons between the fiscal years ended December 31, 2023 and 2022. The discussion around results of operations for the fiscal year ended December 31, 2021 and a comparison of our results for the fiscal years ended December 31, 2022 and 2021 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the Risk Factors set forth in Item 1A of this Annual Report on Form
10-K
for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
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/(42 mg/day) and we initiated the commercial launch of CAPLYTA in late March 2020. In supportDecember 2021, CAPLYTA was approved by the FDA for the treatment of our commercialization efforts, we employ a national sales force consistingbipolar depression in adults (42 mg/day). We initiated the commercial launch of approximately 240 sales representatives.CAPLYTA for the treatment of bipolar depression in December 2021. Additionally, in April 2022, the FDA approved two additional 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.
schizophrenia and bipolar depression.Lumateperone is also in Phase 3 clinical development as a novel treatment for bipolar depression. Ourmajor depressive disorder, or MDD. Clinical conduct in Study 501, Study 502, and Study 505, global Phase 3 clinical trials evaluating lumateperone bipolar depression clinical program consists42 mg as an adjunctive therapy to antidepressants for the treatment of three monotherapy studies and oneMDD, is ongoing. Study 505 is intended to serve as a potential additional registration trial in support of a supplemental New Drug Application, or sNDA, for approval of lumateperone as an adjunctive study. In September 2020, we announced positivetherapy to antidepressants for the treatment of MDD, if needed. This is a common strategy employed in mood disorder development programs. We expect to announce topline results from Study 402, conducted globally, evaluating501 in April 2024 and Study 502 late in the second quarter of 2024 and, subject to the results of these studies, we expect to file an sNDA with the FDA for approval of lumateperone as an adjunctive therapy to lithium or valproate inantidepressants for the treatment of major depressive episodes associated with Bipolar I or Bipolar II disorder. In Study 402, once daily lumateperone 42 mg metMDD in the primary endpoint for improvement in depression as measured by change from baseline versus placebo on the Montgomery-Åsberg Depression Rating Scale, or MADRS, total score (p=0.0206; effect size = 0.27). Lumateperone 42 mg also met the key secondary endpoint, the Clinical Global Impression Scale for Bipolar for Severitysecond half of Illness, or2024.
Depression Score (p=0.0082; effect size = 0.31). The lower lumateperone dose, 28 mg, showed a trend for a dose-related improvement in symptoms
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 Bipolarbipolar I or Bipolarbipolar 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 Bipolarbipolar I or Bipolarbipolar II disorder and mixed features in patients with major depressive disorder, or MDD. We expect to complete Study 403 in the second half of 2022 and following completionIn March 2023, we intend to discuss theannounced positive topline results with the FDA to determine whetherfrom Study 403 as amended, will provide supportive data for a potential future regulatory filing for this indication.
In July 2019, we announced topline results from our first monotherapy study, Study 401, conductedlumateperone 42 mg given once daily met the primary endpoint in the
United States,study by demonstrating a statistically significant and
our second monotherapy study, Study 404, conducted globally, evaluating lumateperone as monotherapyclinically meaningful reduction in the
treatmentMontgomery-Asberg Depression Rating Scale (MADRS) total score compared to placebo at Week 6 in the combined patient population of
major depressive episodes associatedMDD with
Bipolar I or Bipolar II disorder. In Study 404,mixed features and bipolar depression with mixed features (5.7 point reduction vs. placebo; p<0.0001; Cohen’s d effect size (ES) of 0.64). Robust results were also seen in the individual patient population of MDD with mixed features (5.9 point reduction vs. placebo; p<0.0001; ES= 0.67), and in the individual patient population of bipolar depression with mixed features (5.7 point reduction vs. placebo; p<0.0001; ES= 0.64). Additionally, lumateperone 42 mg met the
primary endpoint for improvement in depression as measured by change from baseline versus placebo on the MADRS total score (p<0.0001; effect size = 0.56). These benefits were statistically significant in both Bipolar I and Bipolar II patients. Study 404 also met its key secondary endpoint
Clinicalin the study by demonstrating a statistically significant and clinically meaningful reduction in the clinician’s assessment of improvement in the overall severity on the Global Impression
of Severity Scale
for Bipolar for Severity(CGI-S) score compared to placebo at Week 6 in the combined patient population of
IllnessTotal Score (p<0.001; effect size = 0.46). Study 401 tested two doses of lumateperone, 42 mgMDD with mixed features and
28mg along with placebo. In this trial, neither dose of lumateperone met the primary endpoint of statistical separation from placebo as measured by change
from baseline on the MADRS total score. There was a high placebo response in this trial. Lumateperone was generally well-tolerated in all three bipolar depression studies, with a favorable safety profile.
In addition, while our Phase 3mixed features (p<0.0001; ES= 0.59) and in the individual patient population of MDD with mixed features (p=0.0003; ES= 0.57), as well as the individual patient population of bipolar depression trials were poweredwith mixed features (p<0.0001; ES=0.61).
We also have an ongoing study, Study 304, evaluating lumateperone for the overall patient population and not powered for subpopulation analyses, statistically significant benefit versus placebo was seen in the subgroupprevention of patients with Bipolar I and Bipolar II disorder in Study 404 andrelapse in patients with Bipolar I disorderschizophrenia. The study is being conducted in Study 402, but the Bipolar II subgroup was not statistically significantfive 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 Study 402. In February 2021, we submitted supplemental new drug applications,duration, during which patients receive either 42 mg of lumateperone per day or sNDAs,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 for potential regulatoryin connection with the approval of lumateperoneCAPLYTA for the treatment of bipolar depression in patients with Bipolar I or II disorderschizophrenia as monotherapy and adjunctive therapy. Assuming the sNDA submissions are accepted by the FDA, we anticipate an FDA target action dateis typical for the sNDAs in the second half of 2021.antipsychotics.
We are also pursuing clinical development of lumateperone for the treatment of additional CNS diseases and disorders. At a dose of 42 mg, lumateperone has been shown effective in treating the symptoms associated with schizophrenia, and we believe lumateperone may represent a potential treatment for mood disorders including MDD, post-traumatic stress disorder and intermittent explosive disorder. We have commenced our program of lumateperone in MDD evaluating lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD and we expect to initiate clinical conduct in two Phase 3 trials in 2021.
Within the lumateperone portfolio, we have conducted or are alsoin the process of conducting studies with pediatric patients in schizophrenia, bipolar disorder and irritability associated with autism spectrum disorder. In addition, we are 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 a long-acting injectable formulation and in December 2020 we initiatedconducted a Phase 1 single ascending dose study of lumateperonewith an LAI a formulation of lumateperone designed to be administered subcutaneously and to maintain therapeutic levels of lumateperone for at least one month.formulation. This study will evaluateevaluated the pharmacokinetics, safety and tolerability of a lumateperone LAI in patients with stable symptoms of schizophrenia.schizophrenia and was generally safe and well-tolerated. We anticipate topline results fromare evaluating several additional formulations of a lumateperone LAI with treatment durations of one month and longer. We have completed all non-clinical studies to support the initiation of a Phase 1 study with four additional formulations of our LAI. We expect to commence clinical conduct in this study will be available in the secondfirst half of 2021. Results from this study will inform the dosing strategy for future studies.2024. Given the encouraging tolerability dataefficacy and favorable safety profile to date with oral lumateperone, we believe that a long-acting injectablean LAI option, in particular, may lend itself to being an important formulation choice for certain patients.
We hold exclusive, worldwide commercialization rights to lumateperone and a family of compounds from Bristol-Myers Squibb Company pursuant to an exclusive license.
We are developing ITI-1284ITI-1284-ODT-SL for the treatment of behavioral disturbancesgeneralized anxiety disorder, the treatment of agitation in patients with dementia, and the treatment of dementia-related psychosis and for the treatment of certain depressive disorders in the elderly. ITI-1284psychosis. ITI-1284-ODT-SL is a deuterated form of lumateperone, a new molecular entity formulated as an oral disintegrating tabl ettablet for sublingual administration. ITI-1284ITI-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.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 studies,results, we plan to initiatehave initiated Phase 2 studiesprograms evaluating ITI-1284ITI-1284-ODT-SL for the treatment of behavioral disturbancesgeneralized anxiety disorder, psychosis in dementia, dementia-related psychosis,Alzheimer's disease and certain depressive disordersagitation in patients with Alzheimer’s disease. 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 conducted additional toxicology studies. These studies have been completed and we expect to commence clinical conduct in our Phase 2 studies in the elderly.first half of 2024. We are continuing with Phase 1 studies with ITI-1284-ODT-SL, including drug-drug interaction studies.
We have another major program calledITI-002
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 andnon-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.
ITI-214
Lenrispodun (ITI-214) is our lead compound in this program.
We believeITI-214
is the first compound in its class to successfully advance into Phase 1 clinical trials. Following the favorable safety and tolerability results in our Phase 1 program, we initiated our development program for
ITI-214
lenrispodun for Parkinson’s disease and
commenced patient enrollment in the third quarter of 2017 inconducted a Phase 1/2 clinical trial of
ITI-214
lenrispodun in patients with Parkinson’s disease to evaluate safety and tolerability in this patient population, as well as motor and
non-motor
exploratory endpoints. In
the fourth quarter of 2018, we announced that the Phase 1/2 clinical trial ofITI-214
has been completed and topline results demonstratedITI-214
this study, lenrispodun was generally well-tolerated with a favorable safety profile and clinical signs consistent with improvements in motor symptoms and dyskinesias.
We plan to initiate aOur Phase 2 clinical trial
with ITI-214 for Parkinson’s diseaseof lenrispodun evaluating improvements in
2021. In addition,motor symptoms, changes in
the second quarter of 2020, we announced topline results from Studya Phase 1/2 translational study of single ascending doses ofITI-214
cognition, and inflammatory biomarkers in patients with
chronic systolic heart failure with reduced ejection fraction. In this study,ITI-214
improved cardiac output by increasing heart contractility and decreasing vascular resistance. Agents that both increase heart contractility (inotropism) and decrease vascular resistance (vasodilation) are called 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 leadParkinson’s disease is ongoing.We expect to mortality.ITI-214,
which acts through a novel mechanism of action, was not associated with arrhythmiascomplete patient enrollment 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 safe, effective,
non-addictive
treatments to manage pain.
ITI-333
is a novel compound that uniquely combines activity as an antagonist at serotonin
5-HT2A
receptors and a partial agonist at µ-opioid receptors. These combined actions support the potential utility of
ITI-333
in the treatment of opioid use disorder and associated comorbidities (e.g., depression, anxiety, sleep disorders) without opioid-like safety and tolerability concerns.
In December 2020, we initiatedWe 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 also have an ongoing multiple ascending dose study with ITI-333 in healthy volunteers. 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 also have assembledthe ITI-1500 program focused on the development of novel non-hallucinogenic psychedelics. Compounds in this series interact with serotonergic (5-HT2a) receptors in a management team with significant industry experience to leadunique way, potentially allowing 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 expertsthis new drug class in the fields of schizophreniamood, anxiety and other CNS disorders.
In December 2019, a novel strainneuropsychiatric disorders without the liabilities of
coronavirus, SARS-CoV-2,
which causes coronavirus disease 2019(COVID-19),
surfaced in Wuhan, China. Since then, SARS-CoV-2 and COVID-19 have spread to multiple countries, known psychedelics including the
United States. The COVID-19 pandemichallucinogenic potential and risk for cardiac valvular pathologies. Our lead compound in this program, ITI-1549, is
evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. In response to the spread of SARS-CoV-2 and COVID-19, we have instructed the majority of our office-based employees to work from home. In connection with our commercial launch of CAPLYTA, which is approved by FDA for the treatment of schizophreniacurrently being evaluated in
adults, our commercial organization and sales force and medical organization are having significantly reduced personal interactions with physicians and customers and increasingly conduct promotional activities virtually, and elected to cease in-person interactions with physicians and customers entirely for some period of time in the interest of employee and community safety. Even though certain of our sales force and medical organization have begun to have personal interactions with physicians and customers, we may have to cease such personal interactions depending on the COVID-19 situation. In addition, the COVID-19 situation has resulted in a decrease in the number of patient visits to healthcare providers. As a result of the COVID-19 pandemic, or similar pandemics, we may experience disruptions that could severely impact our business, including our ability to successfully
commercialize our only commercial product, CAPLYTA, in the United States, and these disruptions could negatively impact our sales of CAPLYTA. 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 are currently conducting clinical trials for our product candidates in many countries, including the United States, Europe and Russia 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 bythe COVID-19 pandemic
or other pandemics. Some factors from theCOVID-19
pandemic that have or may adversely affect the timing and conduct of our clinical trials and adversely impact our business generally, include but are not limited to delays or difficulties in clinical site initiation, patient enrollment, diversion of healthcare resources away from clinical trials to pandemic concerns, limitations on travel, regulatory delays and supply chain disruptions.In response tothe COVID-19 pandemic,
on March 10, 2020, the FDA announced its intention to temporarily postpone most inspections of foreign manufacturing facilities and products. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials, which has since been further updated. As of June 23, 2020, the FDA noted it was continuing to ensure timely reviews of applications for medical products duringthe COVID-19 pandemic
in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. As of July 2020, utilizing a rating system to assist in determining when and where it is safest to conduct such inspections based on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments, FDA is either continuing to, onconduct only mission critical inspections, or, where possible to do so safely, resuming prioritized domestic inspections, which generallyinclude pre-approval inspections.
Foreign pre-approval inspections
that are not deemed mission-critical remain postponed, while those deemed mission-critical will be considered for inspection onFDA will use similar data to inform resumption of prioritized operations abroad as it becomes feasible and advisable to do so. The FDA may not be able to maintain this pace and delays or setbacks are possible in the future. Should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, FDA may defer action on the application until an inspection can be completed. Additionally, regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response tothe COVID-19 pandemic.
If global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.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.The following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements.
Net revenues from product sales consist of sales of CAPLYTA, which was approved by the FDA onfor the treatment of schizophrenia in adults in December 2019.2019 and for the treatment of bipolar depression in adults in December 2021. In addition, in April 2022, the FDA approved two additional dosage strengths of CAPLYTA for certain patients. We initiated the commercial launch of CAPLYTA in late March 20202020. During the years ended December 31, 2023 and generated
approximately $22.5 million in2022, net revenue from product sales increased from approximately $249.1 million for the year ended December 31, 2020. During this product launch year, 2020 net sales increased steadily from approximately $883,000 in the first quarter of 20202022 to approximately $12.4$462.2 million in the fourth quarter. In addition, we had approximately $0.3 million of grant revenues for the year ended December 31, 2020, compared to approximately $0.06 million of grant revenues for the year ended December 31, 2019. We have received and may continue to receive grants from U.S. government agencies and foundations.
We do not expect any revenues that we may generate in the next several years to be significant enough to completely fund our operations.
2023.
Expenses
The process of researching, developing and commercializing drugs for human use is lengthy, unpredictable and subject to many risks.
We are unable with certainty to estimate either the costs or the timelines in which those costs will be incurred. The costs associated with the commercialization of CAPLYTA
will beare substantial and will be incurred prior to our generating sufficient revenue to offset these costs. Costs for the clinical development of
lumateperonelumateperone-related projects, including for the treatment of
bipolar depression consumesMDD, consume and, together with our
required post-marketing studies and other anticipated clinical development programs,
for depressive disorders andITI-214,
will continue to consume a large portion of our current, as well as projected, resources. We intend to pursue other disease indications that lumateperone may address, but there are significant costs associated with pursuing FDA approval for those indications, which would include the cost of additional clinical trials.
Our
ITI-002
program has acompound, ITI-214,
in Phase 1/2 development. We intend to pursue the development of our PDE program,including ITI-214
for the treatment of several CNSand non-CNS
conditions, including cardiovascular disease. We have ongoing development programsfor ITI-214
for Parkinson’s disease and for the treatment of heart failure. Our other projects are still in the preclinical stages, and will require extensive funding not only to complete preclinical testing, but to commence and complete clinical trials. Expenditures that we incur on these projects will be subject to availability of funding in addition to the funding required for the advancement of lumateperone. Any failure or delay in the advancement of lumateperone could require us tore-allocate
resources from our other projects to the advancement of lumateperone, which could have a material adverse impact on the advancement of these other projects and on our results of operations. Our operating expenses are comprised of (i) costs of product
sales;sales, (ii)
research and development expenses;selling expenses, (iii) general and administrative expenses, and (iv)
sellingresearch and development expenses.
Costs of product sales are comprised of:
•royalty payments on product sales;
Direct•direct costs of formulating, manufacturing and packaging drug product;
Overhead•overhead costs consisting of labor, customs, share-based compensation, shipping, outside inventory managementmanufacturing and other miscellaneous operating costs.
Selling expenses are incurred in three major categories:
•salaries and related benefit costs of a dedicated sales force;
•marketing and promotion expenses; and
•sales operation costs.
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.
Royalty payments on product sales.
Our researchResearch and development costs are comprised of:
•fees paid to external parties that 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; andmaintenance.
fees paid to external parties who provide us with contract services, such aspre-clinical
testing, manufacturing and related testing, clinical trial activities and license milestone payments.Selling expenses are incurred in three major categories:
salaries and related benefit costs of a dedicated sales force;
sales operation costs; and
marketing and promotion expenses.
General and administrative expenses are incurred in three major categories:
salaries and related benefit costs;
patent, legal, and professional costs; and
office and facilities overhead.
Product sold through December 31, 2020 generally2023 consisted of active pharmaceutical ingredients (API) and drug product that was previously charged to research and development expenseexpenses prior to FDA approval of CAPLYTA. Because the Company previously expensed drugCompany’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 yearyears ended December 31, 2020. The Company’s reported cost of product sales as a percentage of product sales, net was 8.4% or approximately $1.9 million for the year ended December 31, 2020, of which more than half related to royalty payments accrued to BMS.
2023 and 2022. We will expect to continue to have this favorable impact on cost of product sales and related product gross margins until the cost of our sales of CAPLYTA include drug product that is manufactured entirely after the FDA approval. We are currently unable to estimate how longexpect 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 until we begin sellingin future periods. In addition, as our net product manufactured post FDA approval.
We expect that research and development expenses willsales increase
as we proceed with our clinical trials of lumateperone for the treatment of bipolar depression and depressive disorders, other clinical trials, increased manufacturing of drug product for clinical trialsand pre-clinical
development activities. We also expect that our selling, general and administrative costs will increase from prior periods primarily due to costs associated with building and maintaining infrastructure and promotional activities to support the commercial sales of CAPLYTA, which will include hiring additional personnel and increasing technological capabilities. On September 28, 2018, we signed a lease with a related party to acquire 15,534 square feet of additional office space in our current headquarters facility. We granted options to purchase 1,833,102 shares of our common stock in 2019 and have granted options to purchase 800,200 shares of our common stock in 2020. We also granted time based restricted stock units, or RSUs, for 950,449 shares of our common stock in 2019 and time based RSUs for 1,007,402 shares of our common stock in 2020. We will recognize expense associated with these RSUs and options over three years in research and development expenses, selling, general and administrative expenses, and inventoriable manufacturing expenses. In the first quarter of 2017, we also granted performance based RSUs, which vest based on the achievement of certain milestones that include (i) the submission of an NDA with the FDA, (ii) the approval of the NDA by the FDA, or the Milestone RSUs, and (iii) the achievement of certain comparative shareholder returns against our peers, or the TSR RSUs. The Milestone RSUs were valued at the closing price on March 8, 2017. The RSUs related to the NDA submission were amortized through December 31, 2018 based on the probable vesting date. The NDA submission milestone was achieved in the third quarter of 2018. The Milestone RSUs related to the NDA submission vested on December 31, 2018. The NDA approval milestone was achieved in the fourth quarter of 2019. The Milestone RSUs related to the NDA approval vested on December 31, 2019. The TSR RSUs were valued using the Monte Carlo simulation method and were amortized over the life of the RSU’s which vested on January 24, 2020. In the first quarter of 2020, we also granted performance based RSUs, which vest based on the achievement of certain milestones that include (i) the approval of a planned NDA by the FDA, or the 2020 Milestone RSUs, and (ii) the achievement of certain comparative shareholder returns against our peers, or the 2020 TSR RSUs. The 2020 Milestone RSUs were valued at the closing price of our common stock on February 18, 2020. The 2020 TSR RSUs were valued using the Monte Carlo simulation method. We expect to continue to grant stock options and other share-based awards in the future
whichand, we exceed certain sales thresholds, the applicable royalty rate for payments we make under our License Agreement with
our growing employee baseBristol Myers Squibb (BMS) will increase,
our share-based compensation expensewhich we anticipate will result in
future periods.an increase to cost of product sales.
The following table sets forth our revenues, operating expenses, interest income, net and income tax expense for the years ended December 31, 2020, 20192023 and 20182022 (in thousands):
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2023 | | 2022 |
| Revenues | | | |
| Product sales, net | $ | 462,175 | | | $ | 249,132 | |
| Grant revenue | 2,195 | | | 1,182 | |
| Total revenues, net | 464,370 | | | 250,314 | |
| Expenses | | | |
| Cost of product sales | 33,745 | | | 20,443 | |
| Selling, general and administrative | 409,864 | | | 358,782 | |
| Research and development | 180,142 | | | 134,715 | |
| Total operating expenses | 623,751 | | | 513,940 | |
| Loss from operations | (159,381) | | | (263,626) | |
| Interest income | 20,343 | | | 7,376 | |
| Income tax expense | (636) | | | (6) | |
| Net loss | $ | (139,674) | | | $ | (256,256) | |
| | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | | 2019 | | | | |
| | | | | | $ | 61 | | | $ | — | |
| | | | | | | | | | | | |
| | | | | | | — | | | | — | |
| | | | | | | 89,125 | | | | 132,167 | |
Selling, general and administrative | | | | | | | 64,948 | | | | 30,099 | |
| | | | | | | | | | | | | |
| | | | | | | 154,073 | | | | 162,266 | |
| | | | | | | | | | | | | |
| | | | | | | (154,012 | ) | | | (162,266 | ) |
| | | | | | | (6,292 | ) | | | (7,141 | ) |
| | | | | | | 2 | | | | 2 | |
| | | | | | | | | | | | | |
| | | | | | $ | (147,722 | ) | | $ | (155,127 | ) |
| | | | | | | | | | | | | |
Comparison of Years Ended December 31, 20202023 and December 31, 2019
Total Revenues,Product Sales, Net
Total revenues, net for the year ended December 31, 2020 were approximately $22.8 million compared to $61,000 for the year ended December 31, 2019. Net product sales were approximately $22.5$462.2 million for the year ended December 31, 2020,2023 and were$249.1 million for the year ended December 31, 2022. Net product sales for the periods presented are comprised of sales of CAPLYTA which was approved by the FDA on December 20, 2019 and became available to wholesalers in March 2020. No similar net product sales were recognized during the year ended December 31, 2019. In addition, revenue from a government grant was approximately $282,000 and $61,000 for the years ended December 31, 2020treatment of schizophrenia and 2019, respectively.bipolar depression.
Cost of product sales was approximately $1.9$33.7 million and $20.4 million for the yearyears ended December 31, 2020.2023 and 2022, respectively. Cost of product sales consisted primarily of product royalty fees, overhead and minimal direct costs. Product sold during the year endedDrug product costs, including certain direct, indirect, and overhead costs, for product sales through December 31, 2020 generally consisted of drug product that was2023 were previously charged to research and development expense prior to FDA approval in December 2019 and are not a component of CAPLYTA.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 yearyears ended December 31, 2020. No similar cost of2023 and 2022.
We expect our net product sales was recognized during the year ended December 31, 2019.
Wein future quarters will continue to have abe impacted by 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 continue to 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 cost of product sales will increase in future quarters as minimum sales thresholds are met, resulting in royalty payment increases under the BMS License Agreement.ResearchSelling, General and DevelopmentAdministrative Expenses
Selling, general and administrative costs for the year ended December 31, 2023 were $409.9 million as compared to $358.8 million in the year ended December 31, 2022, which represents an increase of 14%.
| | | | | | | | |
| | | | | | 2019 | |
| | | | | | $ | 59,141 | |
| | | | | | | 29,984 | |
| | | | | | | | | |
Total Research and development expenses | | | | | | $ | 89,125 | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | 2019 | |
| | | | | | $ | 37,121 | |
Manufacturing costs of drug candidates | | | | | | | 20,684 | |
Share- based compensation | | | | | | | 9,411 | |
Other projects and overhead | | | | | | | 21,909 | |
| | | | | | | | | |
Total Research and development expenses | | | | | | $ | 89,125 | |
| | | | | | | | | |
Research and development expenses decreased to $65.8Selling costs were $324.5 million for the year ended December 31, 20202023 as compared to $89.1$277.8 million in the year ended December 31, 2022, or an increase of 17%. This increase is primarily due to increases of salaries, benefits and share-based compensation expenses of approximately $27.3 million, travel and entertainment expense of approximately $2.3 million, marketing and advertising of approximately $9.3 million, and other commercial costs of approximately $7.8 million. Compensation and related benefit costs for our sales and marketing functions for the years ended December 31, 2023 and 2022 constituted approximately 33% and 34%, respectively, of our selling costs.
General and administrative expenses for the year ended December 31, 2023 were $85.4 million as compared to $81.0 million for the year ended December 31, 2019, representing2022, an increase of 5%. This increase is due to increases in salaries and benefits of approximately $2.8 million and IT related services of approximately $2.0 million, partially offset by a decrease in insurance costs of approximately $23.3$0.4 million. Compensation and related benefit costs for our general and administrative functions for the years ended December 31, 2023 and 2022 constituted approximately 25% and 23%, respectively, of our general and administrative costs.
Research and Development Expenses
The following tables set forth our research and development expenses for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| External costs | $ | 133,672 | | | $ | 93,338 | |
| Internal costs | 46,470 | | | 41,377 | |
| Total research and development expenses | $ | 180,142 | | | $ | 134,715 | |
| | | | | | | | | | | |
| 2023 | | 2022 |
| Lumateperone project costs | $ | 111,881 | | | $ | 73,107 | |
| Non-lumateperone project costs | 37,638 | | | 33,734 | |
| Overhead and other costs | 30,623 | | | 27,874 | |
| Total research and development expenses | $ | 180,142 | | | $ | 134,715 | |
Research and development expenses were $180.1 million
or 26%for the year ended December 31, 2023 as compared to $134.7 million for the year ended December 31, 2022, representing an increase of approximately 34%. This
decreaseincrease is due primarily to
a decreaseincreases of approximately
$15.1$38.8 million
in manufacturing expense, which is due to expensing manufacturingfor lumateperone costs,
related to CAPLYTA prior to FDA approval in prior yearsapproximately $3.9 million for non-lumateperone costs and
capitalizing a significant portion as inventory in the current year, a decrease of approximately
$4.2$2.7 million
of lumateperone clinical andnon-clinical
expenses, a decrease of approximately $3.0 million relating to other projects andon overhead and
a decreaseother costs. External costs increased by approximately $40.3 million due primarily to outsourced clinical expenses, outsourced laboratory testing of
approximately $1.0 million of share-based compensation expense.our lumateperone and other program expenses, and outsourced development-based manufacturing activities. Internal costs
decreasedincreased by approximately
$3.0$5.1 million for the
periodyear due
primarily to
lower labor related
expenses, stock compensation expense, travelcosts and
other operating costs.share-based compensation. As
the development of lumateperone
and non-lumateperone programs progresses, we anticipate
research and development costs
for lumateperone towill increase
moderately due primarily to
non-clinical testing and conducting ongoing and planned clinical trials
relating to our lumateperone programs induring the next several
years as we conduct Phase 3 and other clinical trials.years. We are also required to complete
non-clinical
testing to obtain FDA approval and manufacture
materialmaterials needed for clinical trial use, which includes
non-clinical
testing of the drug product, and
the creation of an inventorymanufacturing of drug product in anticipation of possible
additional FDA
approval. We received FDA approval on December 20, 2019 for CAPLYTA (lumateperone) for the treatment for schizophrenia in adults. There was no lumateperone inventory purchased, received, or produced from the date of approval through December 31, 2019 and therefore no inventory costs are reflected on our balance sheet through December 31, 2019.As of December 31, 2020, we employed 43 full time personnel in our research and development group as compared to 56 full time personnel in our research and development group at December 31, 2019. The decrease is due primarily to personnel transitioning from research-related activities to commercial efforts in 2020. We expect to hire additional staff as we increase our development efforts and grow our business in the upcoming years.
We currently have several projects, in addition to lumateperone, that are in the research and development stages, including in the areas of cognitive dysfunction and the treatment of neurodegenerative diseases, including AD, among others. We have used internal resources and incurred expenses not only in relation to the developmentapprovals 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 modestindications beyond schizophrenia and are reflected in the amounts discussed in this section “—Research and Development Expenses.”
The research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by numerous governmental authorities in the United States and other countries. This process typically takes years to complete and requires the expenditure of substantial resources. The steps required before a drug may be marketed in the United States generally include the following:
completion of extensivepre-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 FDApre-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.
bipolar depression.
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
non-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
entitledtitled “Risk Factors” in this Annual Report on
Form 10-K.
Selling, General and Administrative Expenses
Selling, general and administrative costs for the year ended December 31, 2020 were $186.4 million as compared to $64.9 million in the year ended December 31, 2019, which represents an increase of 187%.
Selling costs were $132.5 million for the year ended December 31, 2020 as compared topre-commercialization
costs of $32.5 million in the same period in 2019, or an increase of 307%. This increase is primarily due to an increase in sales related labor costs of $55.2 million and commercialization costs of $41.5 million. Salaries, bonuses and related benefit costs for our sales and marketing functions for the year ended December 31, 2020 and 2019 constituted approximately 46% and 17%, respectively, of our selling costs.General and administrative expenses for the year ended December 31, 2020 were $53.9 million in 2020 as compared to $32.4 million for the same period in 2019, an increase of 66%. This increase is due to increases in professional and consulting fees of $7.0 million, information technology services of $5.1 million, stock compensation expense of $4.3 million, labor and related expenses of $3.8 million, and the remainder consisting of insurance, lease expense, and other administrative expenses. Salaries, bonuses and related benefit costs for our general and administrative functions for the years ended December 31, 2020 and 2019 constituted approximately 63% and 53%, respectively, of our general and administrative costs.
We expect selling, general and administrative costs to increase in 2021 as compared to the year ended December 31, 2020. We are expanding post approval marketing, including increased efforts to educate physicians due to the limitations related tothe COVID-19
virus pandemic and market access efforts as well as our administrative infrastructure.Interest income has decreased to approximately $4.2 million from $6.3 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. This decrease is primarily a result of lower interest rates during 2020, in addition to decreases in cash balances from 2019 to 2020.
In September 2016, the Company licensed certain intellectual property rights to its wholly-owned subsidiary, ITI Limited, which was formed in the third quarter of 2016. Although the license of intellectual property rights did not result in any gain or loss in the consolidated statements of operations, the transaction generated taxable net income in the United States in 2016. We utilized a portion of our available federal and state net operating loss carryforwards to offset the majority of this net income but incurred approximately $1.1 million of AMT related to intercompany transactions that were treated as tax expense in our consolidated statement of operations in 2016. On December 22, 2017, the “Tax Cuts and Jobs Act,” or TCJA granted a refund of the AMT or a reduction of taxes in future periods. The Company has therefore recognized a benefit of approximately $1.1 million for these taxes in 2017. The Company received approximately $529,000 in 2019 and the remainder in 2020.
Liquidity and Capital Resources
Through December 31, 2020,Since inception, we provided funds forhave incurred significant operating and cash losses from our operations. We have primarily funded our operations by obtaining a total of approximately $1.6 billion of cash primarilyto date through proceeds from 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 foundationsfoundations. In addition, we began to generate net product revenue in the first quarter of 2020 in conjunction with the commercial launch of CAPLYTA.
As of December 31, 2023, our cash and payments received undercash equivalents, available-for-sale investment securities, and restricted cash totaled $499.7 million. We invest cash in excess of our immediate requirements in a terminated licensevariety of interest-bearing instruments, including obligations of U.S. government agencies and collaboration agreement. Inmoney market accounts. Whenever possible, we seek to minimize the potential effects of concentration and degrees of risk. Although we maintain cash balances and investments with financial institutions in excess of insured limits, we do not anticipate any losses with respect to such balances because these financial institutions are custodians of our investments.
During the year ended December 31, 2020,2023, we have collected approximately $16.8 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 near future.
On January 10, 2020, we completed a public offering of 10,000,000 shares of our common stock. All of the shares in the offering were sold by the Company, with gross proceeds to the Company of $295.0 million and net proceeds of approximately $277.0 million, after deducting underwriting discounts, commissions and offering expenses.
In June 2020, we sold 230,000 shares of common stock underprogram generating $5.6 million in net proceeds which was received in July 2020. In the third quarter of 2020, we sold an additional 512,791 shares of common stock utilizingour at-the-market program
and received $12.3used $124.2 million of net
proceeds.In September 2020 we completedcash in operating activities, a public offering of common stock in which we sold 12,666,667 shares of common stock at a public offering price of $30.00 per sharedecrease from $270.2 million for aggregate gross proceeds of $380.0 million. After deducting underwriting discounts, commissions and offering expenses, the net proceeds to the Company were approximately $357.8 million.
As of December 31, 2020, we had a total of approximately $658.8 million in cash and cash equivalents andinvestment securities, including $1.4 million in restricted cash, and approximately $36.9 million of short-term liabilities consisting entirely of liabilities from operations, including approximately $5.5 million of short-term lease obligations. In the year ended December 31,
2020, we spent approximately $251.4 million in cash for operations and equipment. We have sources of cash which included $4.2 million of interest income and $16.8 million of collected product sales, resulting2022. The decrease in net cash used in operations
of $230.3 million. The use of cash was primarily
due to increased cash receipts related to higher net product sales combined with decreases in cash spend for
selling and marketing costs in connection with our commercial launch of CAPLYTA, conducting clinical trials andnon-clinical
testing, product manufacturing, and funding recurring operating expenses.Based on our current operating plans, we expect that our existing cash, cash equivalents,
and marketable securities,
will enable usand product sales are sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the filing date of this Annual Report. During that time, we expect that our expenses will increase,
substantiallyprimarily due
primarily to
our commercialization activities and related infrastructure expansion in connection with the
continued commercialization of CAPLYTA for the treatment of
schizophrenia;schizophrenia and bipolar depression; the development of lumateperone in our
late stagelate-stage clinical programs; the development of our other product candidates, including
ITI-214;
the continuation of manufacturing activities for anticipated future sales of product PDE, ITI-1284, ITI-333, and
in connection with the development of lumateperone;ITI-1500; and infrastructure expansion and general operations.
For 2021, we expect to spend up to $395 million primarily related to the marketing and commercialization of CAPLYTA, lumateperone clinical development including clinical trial conduct, regulatory activities, manufacturing and inventory production, expansion of our administrative infrastructure and other development activities. This spending does not include projected receipts from sales of CAPLYTA or revenue generated from grants. Our other development activities will include efforts related to ourITI-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 preclinical and clinical trials, our ability to obtain approval of any product candidates from the FDA or other regulatory authorities, and our workforce and therefore our research, development and commercialization activities. This may ultimately have a material adverse effect on our liquidity, although we are unable to make any prediction with certainty given the rapidly changing nature of the pandemic and governmental and other responses to it.We will require significant additional financing in the future to continue to fund our operations. We believe that we have the funding in place to commercialize CAPLYTA in patients with schizophrenia. With our existing cash, cash equivalents andinvestment securities, we believe that we have the funds to complete the development of lumateperone for bipolar depression through potential FDA approval for this indication. We also plan to fund additional clinical trials of lumateperone for the treatment of depressive disorders and other CNS disorders; preclinical and clinical development of ourITI-007
long acting injectable development program; additional clinical trials of lumateperone; clinical development ofITI-1284,
continued clinical development of our PDE product candidates, includingITI-214;
research and preclinical development of our other product candidates; and the continuation of manufacturing activities in connection with the development of lumateperone. We anticipate requiring additional funds for further development of lumateperone in patients with depressive disorders and other indications, and for development of our other product candidates. We have incurred losses in every year since inception with the exception of 2011, when we received anup-front
fee and a milestone payment related to a license agreement that has been terminated. These losses have resulted in significant cash used in operations. In the year ended December 31, 2020, we spent approximately $251.4 million in cash for operations and equipment. We have sources of cash which included $4.2 million of interest income and $16.8 million of collected product sales, resulting in net cash used in operations of $230.3 million. While we have several research and development programs underway, the lumateperone program has advanced the furthest and will continue to consume increasing amounts of cash for conducting clinical trials and the testing and manufacturing of product material. As we continue to conduct the activities necessary to pursue FDA approval of lumateperone beyond schizophrenia and our other product candidates, as well as commercialization efforts, we expect the amount of cash to be used to fund operations to increase over the next several years.We seek to balance the level of cash, cash equivalents and investments on hand with our projected needs and to allow us to withstand periods of uncertainty relative to the availability of funding on favorable terms.
Until we canSubject to our ability to generate significant revenues from operations, we
willmay need to satisfy our future cash needs through public or private sales of our equity securities, sales of debt securities, incurrence of debt from commercial lenders, strategic collaborations, licensing a portion or all of our product candidates and technology and, to a lesser extent, grant funding.
On August 30, 2019, we filed a universal shelf registration statement on FormS-3,
which was declared effective by the SEC on September 12, 2019, on which we registered for sale up to $350 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, which included up to $75 million of common stock that we could issue and sell from time to time, through SVB Leerink LLC acting as our sales agent, pursuant to the sale agreement that we entered into with SVB Leerink on August 29, 2019 for ourequity program. In the quarter ended June 30, 2020, we sold 230,000 shares of common stock underequity program which resulted in our receiving net proceeds of $5.6 million in July 2020. In the quarter ended September 30, 2020, we issued an additional 512,791 shares of common stock underequity program and received approximately $12.3 million of net proceeds. On September 10, 2020, we terminatedequity program agreement with SVB Leerink LLC.
In addition, on January 6, 2020, we filed an automatic shelf registration statement on FormS-3
with the SEC, which became effective upon filing, on which we registered for sale an unlimited amount of any combination of its common stock, preferred stock, debt securities, warrants, rights, and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules. These registration statements will remain in effect for up to three years from the respective dates they became effective.We cannot be sure that future funding will be available to us when we need it on terms that are acceptable to us, or at all. We sell securities and incur debt when the terms of such transactions are deemed favorable to us and as necessary to fund our current and projected cash needs. The amount of funding we raise through sales of our common stock or other securities depends on many factors, including, but not limited to, the magnitude of sales of CAPLYTA, the status and progress of our product development programs, projected cash needs, availability of funding from other sources, our stock price and the
statuscondition of the capital markets. Due to the volatile nature of the financial markets, equity and debt financing may be difficult to obtain.
Additionally, the continued spread ofCOVID-19
and uncertain market conditions may limit our ability to access any financing. In addition, any unfavorable results in the commercialization of CAPLYTA and unfavorable development or delay in the progress of our lumateperone program could have a material adverse impact on our ability to raise additional capital.In addition, following the closing of our September 2020 underwritten public offering of common stock, we have a limited number of authorized shares of common stock available for future issuance that are not already issued or reserved for issuance. We have 100.0 million authorized shares of common stock. As of December 31, 2020, we had 80.5 million shares of common stock outstanding, 7.2 million shares of common stock issuable upon the exercise of outstanding stock options or the vesting of outstanding restricted stock units, and 7.5 million shares of common stock reserved for future issuance under our equity compensation plans. As a result, as of December 31, 2020, we had approximately 4.9 million authorized shares of common stock available for issuance. We will remain limited by the number of additional shares available for future capital raising transactions or strategic transactions unless we obtain stockholder approval to amend our restated certificate of incorporation to increase the number of authorized shares of common stock. This may cause a delay in our future capital raising, collaboration, partnership or other strategic transactions, and may have a material adverse effect on our business and financial condition.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
If adequate funds are not available to us on a timely basis, we may be required to: (1) delay, limit, reduce or terminate
pre-clinical
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
non-clinical development activities;
or (3) enter into licenses or other arrangements with third parties on terms that may be unfavorable to us or sell, license or relinquish rights to develop or commercialize our product candidates, technologies or intellectual property at an earlier stage of development and on less favorable terms than we would otherwise
agree.agree; or (4) limit or reduce commercialization efforts related to CAPLYTA.
Our cash, iscash equivalents, and investments are 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. Beginning in early 2022, interest rates began to rise increasing our interest income. These rates have stabilized in the second half of 2023. During the year ended December 31, 2023, there was a decrease in unrealized losses primarily due to maturities in lower yielding investments. Due to the current lowshort-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, available for these instruments, we are earning limited interest income. We do not expect interest income to be a significant source of funding over the next several quarters.funding. 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.
Our cash requirements in the short and long term consist of operational, manufacturing, and capital expenditures, a portion of which contain contractual or other obligations. We plan to fund our cash requirements with our current financial resources together with our anticipated receipts from product sales. We manage future cash requirements relative to our long-term business plans. Our primary uses of cash and operating expenses relate to marketing and manufacturing our products, paying employees and consultants, administering clinical trials, and providing technology and facility infrastructure to support our operations.
In 2014, we entered into aWe have three kinds of long-term contractual commitments - operating leases, licensing and royalty commitments, and purchase obligations. Our operating lease with a related party which, as amended, provided for a lease of 16,75332,000 square feet of useable laboratory and office space, located at 430 East 29th Street, New York, New York 10016. Concurrent with this lease, we entered into a license agreement to occupy certain vivarium related space in the same facility for the same term, rent and escalation provisions as the lease. This license has the primary characteristics of a lease and is characterized as a lease in accordance with ASU2016-02
for accounting purposes. In September 2018, we further amended the lease to obtain an additional 15,534 square feet of office space beginning October 1, 2018 and to extend the term of the lease for previously acquired space. The lease, as amended, has a term of 14.3 years ending in May 2029. In February 2019, weRefer to Note 7 - Leases to our consolidated financial statements for further details.We entered into a long-term leasean exclusive license with BMS for 3,164 square feetwhich we are obligated to make tiered single-digit percentage royalty payments on sales of office space in Towson, Maryland beginning March 1, 2019.licensed products. The lease has a termamount of 3.2 years ending in April 2022. On May 17, 2019,future royalty payments are dependent on future net product sales of the licensed product. We may also be obligated to make other milestone payments to BMS for each licensed product of up to an aggregate of $14.75 million. Refer to Note 11- Commitments and Contingencies to our consolidated financial statements for further details.
In addition, we have entered into a vehicle fleet leasecertain other long-term commitments for goods and services that are outstanding for periods greater than one year including clinical trial agreements. We recently amended certain manufacturing service agreements committing the Company to certain minimum annual purchases through 2029. We have also entered into short-term agreements with a company to acquire motor vehicles for certain employees.various vendors and suppliers of goods and services in the normal course of operations through purchase orders. Such short-term agreements are settled by cash payments upon delivery of goods and services. The vehicle fleet lease provides for individual leasesnature of the work being conducted under these agreements is such that, in most cases, the services may be stopped on short notice without penalty. In such event, we would not be liable for the vehicles, which at each lease commencement was determined to qualify for operating lease treatment. We began leasing vehicles under the vehicle fleet lease in March 2020. Restricted cash of $1.4 million on our consolidated balance sheet relates to a letter of credit issued as partfull amount of the vehicle fleet lease.agreement.
Critical Accounting Policies and Estimates
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 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.
We believe that the following critical accounting policypolicies affects management’s more significant judgments and estimates used in the preparation of our financial statements:
Revenue Recognition
Product Sales, net
We sell CAPLYTA to a limited number of customers which include national and regional distributors. These customers subsequently resell our products to retail pharmacies, specialty pharmacy providers, and certain medical centers or hospitals. In addition to distribution agreements with customers, we enter into arrangements with health care providers and payers that obligate us to have government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products. We also offer voluntary patient assistance programs which are intended to provide financial assistance to qualified commercially-insured patients. We recognize revenue on product sales when the customer obtains control of our product, which occurs upon delivery. Product revenues are recorded net of applicable reserves for the sales obligations that are considered variable consideration, including rebates, discounts and allowances, among others.
Payer Rebates— We contract with certain private payer organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its product. The allowance for rebates is based on contractual percentages, estimated payer mix, and expected utilization. Our liability for these rebates consists of estimates of unpaid claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.
Research and Development Including Clinical Trial Expenses
Except for payments made in advance of services, we expense our research and development costs as incurred. For payments made in advance, we recognize research and development expense as the services are rendered. Research and development costs primarily consist of salariesexternal costs for contract services, such as pre-clinical testing, manufacturing and related expensestesting, clinical trial activities; and internal recurring costs for personnellabor and resourcesbenefits, facilities and the costs of clinical trials. Otherother. We recognize our research and development expenses include preclinical analytical testing, manufacturing of drug product, outsideas the services providers, materials and consulting fees.
are incurred.Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by our vendors with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accruedWe have entered into various research and development expense, as the case may be.
As part of the process of preparing our financial statements, we are required to estimate expenses resulting from the obligations under contracts with vendors, clinical research organizations and consultantsother companies both inside and under clinical siteoutside of the U.S. These agreements in connection with conducting clinical trials. Theare generally cancellable. At the end of each financial reporting period, we record expenses incurred to date related to these agreements and recognize accruals or prepaid expenses, as appropriate. These accruals or prepaid expenses occur when billing terms ofunder these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. Our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching those expensescoincide with the period in which services are performed and efforts are expended. We account for these expenses according to the progress of the clinical trial as measured by subject progression and the timing of various aspectswhen the work is performed. Estimates are based on a number of factors, including our knowledge of the trial. We determine accrualprogress towards completion of the research and development activities, communication from the clinical research organizations or other companies of any actual costs incurred during the period that have not yet been invoiced, the costs included in the contracts, and invoicing to date under the contracts. Significant judgments and estimates through financial models taking into account various clinical information provided by vendors and discussion with applicable personnel and outside service providers as toare made in determining the progressaccrued or stateprepaid balances at the end of consummation of trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actualany reporting period. Actual results could differ from our estimates. We makeOur historical estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time. Our clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations, clinical sites and other third-party vendors. Although we dohave not expect our estimates to bebeen materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period. For the year ended December 31, 2020, we had no material change in estimates which related to the prior year estimates of accrued expenses for clinical trials. For the year ended December 31, 2019, we recorded a change in estimate of approximately $5.3 million related to the prior year estimates of accrued expenses for clinical trials that resulted in a reduction of research and development expenses.
costs.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.
In June 2016, the FASB Based on our assessment, recently issued
ASUNo. 2016-13,
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Lossesaccounting pronouncements were determined to be either not applicable or are expected to have minimal impact on
Financial Instruments” (“ASU2016-13”).
This guidance applies to all entities and impacts how entities account for credit losses for most financial assets and other instruments. Fordebt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. For trade receivables, loans anddebt securities, entities will be required to estimate lifetime expected credit losses. We adopted this standard on January 1, 2020 and evaluated the implications of the new standard, inclusive of the applicable financial statement disclosures required, as well as to its internal controls, business processes, and accounting policies, noting there was no significant impact to theour consolidated financial statements
as of January 1, 2020 and for the year ended December 31, 2020.or related disclosures. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity.
2020,2023, we had cash, cash equivalents, marketable securities and restricted cash of approximately $658.8$499.7 million, consisting of cash deposited in a highly rated financial institutioninstitutions in the United States and in a short-term U.S. Treasury bonds, money market fund,funds, as well as high-grade corporate bonds and commercial paper. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations and we do not enter into investments for trading or speculative purposes. We believe that we do not have material exposure to high-risk investments such as mortgage-backed securities, auction rate securities or other special investment vehicles within our money-market fund investments. We believe that we do not have any material exposure to changes in fair value as a result of changes in interest rates althoughas we intend and have the recent declineability to hold our investments to maturity. Beginning in early 2022, interest rates hasbegan to rise increasing our interest income. These rates have stabilized in the second half of 2023. During 2023, there was an unrealized gain primarily due to maturities of lower yielding investments that resulted in oura net unrealized gain on investments, net,position of $0.1 million as of December 31, 2020 of approximately $481,000 and an unrealized gain on investments, net, in 2019 totaling approximately $128,000. We plan on holding those investments to maturity, and should interest rates rise, there would be no recognition of impairment required.2023. Declines in interest rates however,in future periods would reduce future investment income.
Inflation Risk. Inflation generally may affect us by increasing our cost of labor, clinical trial costs and other outsourced activities. To date, inflation has not had a material impact on our business. Should global inflation increase in the future, we expect increases in clinical trial, selling, labor, and other operating costs. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases of our product. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.
Although we receive product revenues from commercial sales of CAPLYTA, we continue tomay in the future, depend on funds raised through other sources. One possible source of funding is through further equity offerings. Our ability to raise funds in this manner depends upon capital market forces affecting our stock price.price among other things. Foreign Currency Risk. Due to our operations outside of the United States, we are exposed to market risk related to changes in foreign currency exchange rates. Historically, our foreign currency exposure has been limited so we have not hedged for this exposure. Changes in the relative values of currencies occur regularly and, in some instances, could materially adversely affect our business, our results of operations or our cash flows. For the years ended December 31, 2023, 2022 and 2021, changes in foreign currency exchange rates did not have a material impact on our historical financial position, our business, our financial condition, our results of operations or our cash flows. A hypothetical 10% change in foreign currency rates would not have a material impact on our financial position or results of operations. However, there can be no assurance that changes in foreign currency exchange rates will not have a material adverse impact on us in the future.
| Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INTRA-CELLULAR THERAPIES, INC.
| | | | | | | | |
Index to Financial Statements and Financial Statement Schedules | | Number | |
| | | F-1 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
| | | F-8 | |
|
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| Item 9A. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
as of the end of the period covered by this Form
10-K,
have concluded that, based on such evaluation, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on our assessment, management believes that, as of December 31, 2020,2023, the Company’s internal control over financial reporting is effective based on those criteria Our independent registered public accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting. This report appears further below in this Item 9A.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the fourth quarter ended December 31, 20202023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Intra-Cellular Therapies, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Intra-Cellular Therapies, Inc. and subsidiaries’its subsidiary's internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Intra-Cellular Therapies, Inc. and subsidiariessubsidiary (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20202023 and 2019,2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020,2023 and the related notes and our report dated February 25, 202122, 2024 expressed an unqualified opinion thereon.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Baltimore, Maryland
February 22, 2024
Item 9B. OTHER INFORMATION
Not applicable.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
| Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Management and Corporate Governance”Governance,” “Delinquent Section 16(a) Reports,” and “Code of Ethics and Business Conduct” in the Company’s Proxy Statement for the 20212024 Annual Meeting of Stockholders.
| Item 11. EXECUTIVE COMPENSATION |
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Executive Officer and Director Compensation,” “Compensation Discussion and Analysis,” “Management and Corporate Governance—Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report” and “Risks Related to Compensation Practices and Policies” in the Company’s Proxy Statement for the 20212024 Annual Meeting of Stockholders.
The section titled “Pay Versus Performance” in the Company’s 2024 Proxy Statement is not incorporated by reference herein. | Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 20212024 Annual Meeting of Stockholders.
| Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Certain Relationships and Related Person Transactions” and “Management and Corporate Governance” in the Company’s Proxy Statement for the 20212024 Annual Meeting of Stockholders.
| Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Ratification of SelectionAppointment of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 20212024 Annual Meeting of Stockholders.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | | | | | | | |
| | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
| |
| | The following documents are filed as part of this annual report on Form10-K: |
| | |
| | See “Index to Consolidated Financial Statements and Financial Statement Schedules” at Item 8 to this Annual Report onForm 10-K. Other financial statement schedules have not been included because they are not applicable or the information is included in the financial statements or notes thereto. |
| | |
| Item 15(a)(3) | | Exhibits |
| | | Exhibits
| | The following is a list of exhibits filed as part of this Annual Report on Form 10-K. |
The following is a list | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | | | Exhibit Description | | Filed
Herewith | | Incorporated
by Reference
herein from
Form or
Schedule | | Filing Date | | SEC File/
Reg. Number |
| 2.1 | | | | | | | | 8-K
(Exhibit 2.1) | | 8/29/2013 | | 000-54896 |
| | | | | | | | | | | | |
| 2.2 | | | | | | | | 8-K
(Exhibit 2.2) | | 9/5/2013 | | 000-54896 |
| | | | | | | | | | | | |
| 3.1 | | | | | | | | 10-Q
(Exhibit 3.1) | | 8/9/2021 | | 001-36274 |
| | | | | | | | | | | | |
| 3.2 | | | | | | | | 8-K
(Exhibit 3.3) | | 9/5/2013 | | 000-54896 |
| | | | | | | | | | | | |
| 3.3 | | | | | | | | 8-K
(Exhibit 3.4) | | 9/5/2013 | | 000-54896 |
| | | | | | | | | | | | |
| 3.4 | | | | | | | | 8-K
(Exhibit 3.5) | | 9/5/2013 | | 000-54896 |
| | | | | | | | | | | | |
| 4.1 | | | | | | | | 8-K
(Exhibit 4.1) | | 9/5/2013 | | 000-54896 |
| | | | | | | | | | | | |
| 4.2 | | | | | | X | | | | | | |
| | | | | | | | | | | | |
| 10.1 | | .1 | | | | | | 8-K
(Exhibit 10.1) | | 8/9/2022 | | 001-36274 |
| | | | | | | | | | | | |
| | .2 | | | | | | 8-K
(Exhibit 10.1.2) | | 9/5/2013 | | 000-54896 |
| | | | | | | | | | | | |
| 10.2 | | | | | | | | 10-K (Exhibit 10.2) | | 3/1/2023 | | 001-36274 |
| | | | | | | | | | | | |
| 10.3 | | .1 | | | | | | 10-Q
(Exhibit 10.1) | | 11/9/2020 | | 001-36274 |
| | | | | | | | | | | | |
| | .2 | | | | | | 10-K (Exhibit 10.3.2) | | 3/1/2023 | | 001-36274 |
| | | | | | | | | | | | |
| 10.4 | | | | | | | | 8-K
(Exhibit 10.3) | | 9/5/2013 | | 000-54896 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit
Number | | | | Exhibit Description | | Filed
Herewith | | Incorporated
by Reference
herein from
Form or
Schedule | | Filing Date | | SEC File/
Reg. Number | | 10.5 | | .1 | | | | | | 10-Q
(Exhibit 10.1) | | 11/5/2015 | | 001-36274 | | | | | | | | | | | | | | | | .2 | | | | | | 10-Q
(Exhibit 10.1) | | 11/9/2016 | | 001-36274 | | | | | | | | | | | | | | | 10.6 | | | | | | | | 8-K
(Exhibit 10.4) | | 9/5/2013 | | 001-36274 | | | | | | | | | | | | | | | 10.7 | | | | | | | | 10-K
(Exhibit 10.9) | | 2/27/2019 | | 001-36274 | | | | | | | | | | | | | | | 10.8 | | | | | | | | 10-K
(Exhibit 10.8) | | 3/1/2022 | | 001-36274 | | | | | | | | | | | | | | | 10.9 | | | | | | | | 8-K
(Exhibit 10.8) | | 9/5/2013 | | 000-54896 | | | | | | | | | | | | | | | 10.10 | | | | | | | | 10-K
(Exhibit 10.11) | | 3/12/2015 | | 001-36274 | | | | | | | | | | | | | | | 10.11 | | | | | | | | 8-K
(Exhibit 10.9) | | 9/5/2013 | | 000-54896 | | | | | | | | | | | | | | | 10.12 | | | | | | | | 10-K
(Exhibit 10.16) | | 2/27/2019 | | 001-36274 | | | | | | | | | | | | | | | 10.13 | | | | | | | | 10-K
(Exhibit 10.13) | | 3/1/2022 | | 001-36274 | | | | | | | | | | | | | | | 10.14 | | | | | | | | 8-K
(Exhibit 10.13) | | 9/5/2013 | | 000-54896 | | | | | | | | | | | | | | | 10.15 | | | | | | | | 8-K
(Exhibit 10.14) | | 9/5/2013 | | 000-54896 | | | | | | | | | | | | | | | 10.16 | | | | | | | | 8-K
(Exhibit 10.15) | | 9/5/2013 | | 000-54896 | | | | | | | | | | | | | | | 10.17 | | | | | | | | 8-K
(Exhibit 10.1) | | 6/18/2015 | | 001-36274 | | | | | | | | | | | | | | | 10.18 | | | | | | | | 10-K
(Exhibit 10.19) | | 3/25/2014 | | 001-36274 | | | | | | | | | | | | | | | 10.19 | | | | | | | | 8-K
(Exhibit 10.1) | | 5/28/2020 | | 001-36274 | | | | | | | | | | | | | | | 10.20 | | | | | | | | 8-K
(Exhibit 10.2) | | 6/21/2018 | | 001-36274 | | | | | | | | | | | | | | | 10.21 | | | | | | | | 8-K
(Exhibit 10.3) | | 6/21/2018 | | 001-36274 | | | | | | | | | | | | | | | 10.22 | | | | | | | | 8-K
(Exhibit 10.4) | | 6/21/2018 | | 001-36274 | | | | | | | | | | | | | |
| | | | | | | | | | | |
|
2.1 | | | | Agreement and Plan of Merger, dated as of August 23, 2013, by and among the Registrant, ITI, Inc. and Intra-Cellular Therapies, Inc. | | | | | | 8/29/2013 | | 000-54896 |
| | | | | | |
2.2 | | | | Agreement and Plan of Merger, dated as of August 29, 2013, by and between the Registrant and Intra-Cellular Therapies, Inc., relating to the name change of the Registrant. | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
3.1 | | | | Restated Certificate of Incorporation of the Registrant, filed with the Secretary of State of the State of Delaware on November 7, 2013. | | | | | | 11/26/13 | | 333-191238 |
| | | | | | |
3.2 | | | | Certificate of Merger relating to the Merger of ITI, Inc. with and into Intra-Cellular Therapies, Inc., filed with the Secretary of State of the State of Delaware on August 29, 2013. | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
3.3 | | | | Certificate of Ownership and Merger relating to the Merger of Intra-Cellular Therapies, Inc. with and into the Registrant, filed with the Secretary of State of the State of Delaware on August 29, 2013, relating to the name change of the Registrant. | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
3.4 | | | | Restated Bylaws of the Registrant. | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
4.1 | | | | Form of common stock certificate. | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
4.2 | | | | Description of securities. | | | | | | 3/2/2020 | | 001-36274 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| |
| | | | | | |
| 10.1 | | | .1 | | | License Agreement dated as of May 31, 2005 by and between Bristol-Meyers Squibb Company and Intra-Cellular Therapies, Inc.** | | | | | | 10/31/2013 | | | 000-54896 | |
| | | | | | |
| | | .2 | | | Amendment No. 1 to License Agreement dated as of November 3, 2010 by and between Bristol-Meyers Squibb Company and Intra-Cellular Therapies, Inc. | | | | | | 9/5/2013 | | | 000-54896 | |
| | | | | | |
| 10.2 | | | | | | Supply Agreement dated as of January 4, 2017 by and between Siegfried Evionnaz SA and ITI Limited.** | | | | | | 3/1/2017 | | | 001-36274 | |
| | | | | | |
| 10.3 | | | | | | Master Services Agreement, effective as of January 10, 2017, by and between ITI Limited and Lonza Ltd.*** | | | | | | 11/9/2020 | | | 001-36274 | |
| | | | | | |
| 10.4 | | | | | | Employment Agreement effective as of February 26, 2008 by and between Sharon Mates, Ph.D. and Intra-Cellular Therapies, Inc.* | | | | | | 9/5/2013 | | | 000-54896 | |
| | | | | | |
| 10.5 | | | .1 | | | Employment Agreement effective as of August 3, 2015 by and between Michael I. Halstead and Intra-Cellular Therapies, Inc.* | | | | | | 11/5/2015 | | | 001-36274 | |
| | | | | | |
| | | .2 | | | Amendment No.1 to Employment Agreement dated as of November 9, 2016 by and between Michael I. Halstead and Intra-Cellular Therapies, Inc.* | | | | | | 11/9/2016 | | | 001-36274 | |
| | | | | | |
| 10.6 | | | | | | Employment Agreement effective as of February 26, 2008 by and between Lawrence J. Hineline and Intra-Cellular Therapies, Inc.* | | | | | | 9/5/2013 | | | 001-36274 | |
| | | | | | |
| 10.7 | | | | | | Employment Agreement effective as of November 13, 2017 by and between Andrew Satlin, M.D. and Intra-Cellular Therapies, Inc.* | | | | | | 3/1/2018 | | | 001-36274 | |
| | | | | | |
| 10.8 | | | | | | Employment Agreement effective as of October 15, 2018 by and between Mark Neumann and Intra-Cellular Therapies, Inc. | | | | | | 2/27/2019 | | | 001-36274 | |
| | | | | | |
| 10.9 | | | | | | Employment Agreement effective as of September 12, 2018 by and between Suresh Durgam, M.D. and Intra-Cellular Therapies, Inc. | | X | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | | | Exhibit Description | | Filed
Herewith | | Incorporated
by Reference
herein from
Form or
Schedule | | Filing Date | | | | | | | | SEC File/
Reg. Number |
| 10.23 | | | | | | | | | | | |
|
| | | | | | |
10.10 | | | | Employee Proprietary Information, Inventions, and Non-Competition Agreement effective as of September 1, 2003 by and between Sharon Mates, Ph.D. and Intra-Cellular Therapies, Inc.* | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
10.11 | | | | Employee Proprietary Information, Inventions, and Non-Competition Agreement effective as of July 29, 2014 by and between Michael Halstead and Intra-Cellular Therapies, Inc.* | | | | | | 3/12/2015 | | 001-36274 |
| | | | | | |
10.12 | | | | Employee Proprietary Information, Inventions, and Non-Competition Agreement effective as of December 1, 2003 by and between Lawrence J. Hineline and Intra-Cellular Therapies, Inc.* | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
10.13 | | | | Employee Proprietary Information, Inventions, Inventions, and Non-Competition Agreement effective as of November 13, 2017 by and between Andrew Satlin, M.D. and Intra-Cellular Therapies, Inc.* | | | | | | 3/1/2018 | | 001-36274 |
| | | | | | |
10.14 | | | | Employee Proprietary Information, Inventions, Inventions, and Non-Competition Agreement effective as of December 10, 2018 by and between Mark Neumann and Intra-Cellular Therapies, Inc.* | | | | | | 2/27/2019 | | 001-36274 |
| | | | | | |
10.15 | | | | Form of Indemnification Agreement by and between the Company and its directors and executive officers.* | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
10.16 | | | | 2003 Equity Incentive Plan, as amended.* | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
10.17 | | | | Form of Stock Option Agreement under the 2003 Equity Incentive Plan, as amended.* | | | | | | 9/5/2013 | | 000-54896 |
| | | | | | |
10.18 | | | | Amended and Restated 2013 Equity Incentive Plan.* | | | | | | 6/18/2015 | | 001-36274 |
| | | | | | |
10.19 | | | | Form of Stock Option Agreement under the 2013 Equity Incentive Plan.* | | | | | | 3/25/2014 | | 001-36274 |
| | | | | | |
10.20 | | | | Amended and Restated 2018 Equity Incentive Plan.* | | | | | | 5/28/2020 | | 001-36274 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 10.34 | | | | | | |
10.35 | | | | | | | | | | 3/2/2020 | | 001-36274 |
| | | | | | | | | | | | |
| 10.35 | | | | | | X | | 3/2/2020 | | | | |
| | | | | | | | | | | | |
| 21.1 | | | | | | | | 10-K
(Exhibit 21.1) | | 3/1/2023 | | 001-36274 |
| | | | | | | | | | | | |
21.123.1 | | | | Subsidiaries. | | | | | | 3/1/2017 | | 001-36274 |
| | | | | | |
23.1 | | | | Consent of Ernst & Young LLP. | | X | | X | | | | | |
| | | | | | | | | | | | |
| 31.1 | | | | | | X | | X | | | | | |
| | | | | | | | | | | | |
| 31.2 | | | | | | X | | X | | | | | |
| | | | | | | | | | | | |
| 32.1 | | | | | | X | | X | | | | | |
| | | | | | | | | | | | |
| 101 | | .INS | | .INS | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | X | | X | | | | | |
| | | | | | | | | | | | |
| | .SCH | | .SCH | | Inline XBRL Taxonomy Extension Schema Document. | | X | | X | | | | | |
| | | | | | | | | | | | |
| | .CAL | | .CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | X | | X | | | | | |
| | | | | | | | | | | | |
| | .DEF | | .DEF | | Inline XBRL Taxonomy Extension Definition. | | X | | X | | | | | |
| | | | | | | | | | | | |
| | .LAB | | .LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | X | | X | | | | | |
| | | | | | | | | | | | |
| | .PRE | | .PRE | | Inline XBRL Taxonomy Presentation Linkbase Document. | | X | | X | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | | | Exhibit Description | | Filed
Herewith | | Incorporated
by Reference
herein from
Form or
Schedule | | Filing Date | | SEC File/
Reg. Number |
| | | | | | | | | | | | |
| 104 | | | | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101). | | X | | X | | | | | |
*Management contract or compensatory plan or arrangement.
**Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) are the type of information that the Company treats as private or confidential.
Item 16. FORM 10-K SUMMARY
* | Management contract or compensatory plan or arrangement.
|
** | Confidential treatment has been granted for portions of this Exhibit. Redacted portions filed separately with the Securities and Exchange Commission.
|
*** | Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
|
Not applicable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | | | INTRA-CELLULAR THERAPIES, INC. |
| | | |
Date: February 25, 202122, 2024 | By: | | | By: | | /s/ Sharon Mates, Ph.D. |
| | | | | | Sharon Mates, Ph.D. |
| | | | | | Chairman, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | | | | | | | |
| | Signatures | | Title | | | | | Date |
| | | | | | |
| By: | | | |
By: | | | | Chairman, President and Chief Executive Officer (principal executive officer) | | February 25, 202122, 2024 |
| | Sharon Mates, Ph.D. | | | |
| | | | | | |
| By: | | | | Senior Vice President of Finance and
Chief Financial Officer (principal financial officer and principal accounting officer) | | February 25, 202122, 2024 |
| | Lawrence J. Hineline | | | |
| By: | | /s/ Christopher Alafi, Ph.D.
| | Director | | February 25, 2021
| By: | | | |
By: | | | | Director | | February 25, 2021 |
| | | |
By: | | | | Director | | February 22, 2024 |
| | Joel S. Marcus | | | Director | | February 25, 2021
| | | | | | |
| By: | | | | Director | | February 22, 2024 |
| | Rory B. Riggs | | | | |
| | | | | | |
| By: | | Director/s/ Eduardo Rene Salas | | Director | | February 25, 202122, 2024 |
| | Eduardo Rene Salas | | | | |
| | | | | | |
| By: | | /s/ Robert L. Van Nostrand | | Director | | February 22, 2024 |
| | Robert L. Van Nostrand | | | Director | | February 25, 2021
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Intra-Cellular Therapies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Intra-Cellular Therapies, Inc. and subsidiariessubsidiary (the Company) as of December 31, 20202023 and 2019,2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020,2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2023 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 25, 202122, 2024 expressed an unqualified opinion thereon.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MatterMatters
The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the financial statements that waswere communicated or required to be communicated to the audit committee and thatthat: (1) relatesrelate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit mattermatters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.
they relate.
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| | |
| | |
| Description of the Matter | | As described in Note 2 to the consolidated financial statements, at each consolidated balance sheet date, the Company recognizes research and development expenses, which include clinical trials, as the services are incurred. When recording the estimate of clinical trial costs incurred, the Company is required to estimate its expenses resulting from its obligationsevaluate the progress toward completion of contractually agreed upon tasks using subject enrollment, clinical site activations and other information provided to the Company by vendors. Since billings under the contracts with vendors, clinical research organizationsthird parties may not coincide with costs incurred to date, the Company must apply significant judgment to determine the estimated expense and consultants, and under clinical site agreements in connection with conducting clinical trials. The Company recorded accrued expenses for the clinical trial accruals, which are included in accrued and other current liabilities on the December 31, 2020 consolidatedrelated balance sheet and also recorded prepaid clinical trial expenses, which are includedpositions at period end. Our principal consideration in prepaid expenses and other current assetsevaluating this as a critical audit matter focused on the December 31, 2020 consolidated balance sheet. The amounts recorded for clinical trial accruals and for prepaid clinical trial expenses, within the aforementioned balance sheet captions represent the Company’s estimate of the unpaid and prepaid clinical trial expenses based on theprogress of the research and development services for clinical trials comparedcertain phase 3 studies with active subject enrollment due to the amounts paid for clinical trials through December 31, 2020. Auditingsignificant contractual obligations and the Company’s clinical trial accruals and prepaid clinical trial expenses involved a high degree of subjectivity due to the significantand estimation required in determining the progressof management to completion of specific tasks conducted under its clinical trials anddetermine the costs of those tasks that will be invoiced by the vendors, clinical research organizations and consultants, and under clinical site agreements subsequent to the date that the consolidated financial statements are issued.
incurred at period end. |
| | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s estimation of the clinical trial expenses, including the process of estimating the expenses incurred to date based on the statusprogress of thethese phase 3 clinical trials. For example, we observed management’s key review control which included quarterly interviews with clinical research organizations (CROs) and related documentation to support management’s estimate of costs incurred at period end. We also tested controls over management’s review of the clinical trial expense calculation the significant assumptions about the status of research and development services incurred, andincluding controls over the completeness and accuracy of the data used to calculate the estimates.inputs. To test the clinical trial accruals and prepaid clinical trial expenses,expense for the applicable studies, we performed procedures that included, among others, readingothers: 1) read each agreement and change order with the principal vendors supporting the applicable phase 3 clinical research organizations and consultants, and under clinical site agreements, and evaluatingstudy, 2) evaluated the significant assumptions described aboverelated to enrollment, patient costs and other components of the methodsstudy budget used in developingto develop the clinical trial expense estimates and calculatingcalculated the amounts that were unpaid andaccrued or prepaid at the balance sheet date. We made direct inquiriesdate, 3) tested the completeness and accuracy of financial and clinical personnel, and observed management hold discussionsinvoicing activity associated with the Clinical Research Organization onCompany’s contractual obligations, 4) confirmed with the statusCRO the work orders, change orders, enrollment data and invoicing activity included in management’s calculation, 5) assessed the historical accuracy of the clinical trials, progress to completion of clinical trials, method of allocating contractual charges to specific tasks performed during the clinical trials, and the status of change orders. We compared the current estimate of expenses incurred to estimates previously made by management. |
| | | | | | | | |
| | Reserves for variable consideration associated with Medicaid and Managed Care payer rebates |
| | |
| Description of the Matter | | As described in Note 2 to the consolidated financial statements, product sales are calculated based on the wholesale acquisition cost that the Company charges to distributors for CAPLYTA less variable consideration for which reserves are established to arrive at net product sales. Variable consideration includes estimates to record Medicaid and Managed Care payer rebates that are recorded within Accrued customer programs. These estimates involve the use of significant assumptions and judgements to arrive at the best estimate subject to the constraint associated with revenue recognition under ASC 606. The principal considerations in our determination that this was a critical audit matter is how the significant assumptions and judgments create measurement uncertainty in developing the reserves for variable consideration to arrive at net product sales. These subjective assumptions and estimates include the estimated units of inventory in the distribution channel at period end, the assumption of the final payer class and the rebate percentage associated with this payer class. These estimates and assumptions were developed using internal and external sources to estimate product in the distribution channel, payer mix, prescription volumes and historical experience. In addition, for the Medicaid payer class, the rebates must also consider applicable government pricing requirements which required the involvement of a specialist due to the complex nature of calculations, and the inherent lag between initial estimate and the final settlement of amounts owed to the respective Medicaid programs. |
| | |
How We also assessedAddressed the historicalMatter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's estimation of reserves for variable consideration under ASC 606 for Medicaid and Managed Care payer rebates. For example, we tested controls over management's calculations for Medicaid and Managed Care payer rebates which included a review of key inputs and assumptions such as the estimated units in the inventory channel at period end that have not reached a patient, prescription volume activity for CAPLYTA, the percentage distribution of the payer mix for those sales where the payer has not been identified and the rate applied to Medicaid and Managed Care payers. We tested management's controls related to the completeness and accuracy of management’s estimateskey inputs, identification of and examinedreview of applicable agreements and the calculations supporting the estimates. To test the reserves for variable consideration associated with Medicaid and Managed Care payer rebates, our audit procedures included, among others, examining the support for key inputs and assumptions and testing the calculations prepared by management. As part of our procedures, we considered changes in contractual terms, prescription trends, and review of actual payments madeunder these arrangements.
Furthermore, to service providers aftertest the consolidated balance sheet date. variable consideration associated with Medicaid rebates, we involved our specialist to assist in the evaluation of government pricing inputs for Medicaid rebates. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Baltimore, Maryland
February 22, 2024
|
|
We have served as the Company’s auditor since 2002. |
Baltimore, Maryland |
February 25, 2021 |
Intra-Cellular Therapies, Inc. and SubsidiariesSubsidiary
Consolidated Balance Sheets
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 147,767 | | | $ | 148,615 | |
| Investment securities, available-for-sale | 350,174 | | | 443,290 | |
| Restricted cash | 1,750 | | | 1,750 | |
| Accounts receivable, net | 114,018 | | | 75,189 | |
| Inventory | 11,647 | | | 23,920 | |
| Prepaid expenses and other current assets | 42,443 | | | 45,193 | |
| Total current assets | 667,799 | | | 737,957 | |
| Property and equipment, net | 1,654 | | | 1,913 | |
| Right of use assets, net | 12,928 | | | 14,824 | |
| Inventory, non-current | 38,621 | | | — | |
| Other assets | 7,293 | | | 86 | |
| Total assets | $ | 728,295 | | | $ | 754,780 | |
| Liabilities and stockholders’ equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 11,452 | | | $ | 10,395 | |
| Accrued and other current liabilities | 27,944 | | | 19,657 | |
| Accrued customer programs | 53,173 | | | 25,621 | |
| Accrued employee benefits | 27,364 | | | 22,996 | |
| Operating lease liabilities | 3,612 | | | 4,567 | |
| Total current liabilities | 123,545 | | | 83,236 | |
| Operating lease liabilities, non-current | 13,326 | | | 15,474 | |
| Total liabilities | 136,871 | | | 98,710 | |
| Stockholders’ equity: | | | |
| Common stock, $0.0001 par value: 175,000,000 shares authorized at December 31, 2023 and December 31, 2022, respectively; 96,379,811 and 94,829,794 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively | 10 | | | 9 | |
| Additional paid-in capital | 2,208,470 | | | 2,137,737 | |
| Accumulated deficit | (1,617,160) | | | (1,477,486) | |
| Accumulated comprehensive income (loss) | 104 | | | (4,190) | |
| Total stockholders’ equity | 591,424 | | | 656,070 | |
| Total liabilities and stockholders’ equity | $ | 728,295 | | | $ | 754,780 | |
| | | | | | | | |
| | |
| | |
| |
| | | | | | | | |
| | | | | | | | |
Cash and cash equivalents | | | | | | $ | 107,636,849 | |
| | | | | | | 116,373,335 | |
| | | | | | | — | |
Accounts receivable, less allowance of $120,000 and $0 at December 31, 2020 and 2019, respectively | | | | | | | — | |
| | | | | | | — | |
Prepaid expenses and other current assets | | | | | | | 6,313,785 | |
| | | | | | | | | |
| | | | | | | 230,323,969 | |
Property and equipment, net | | | | | | | 2,259,740 | |
| | | | | | | 18,252,074 | |
| | | | | | | 264,609 | |
| | | | | | | 86,084 | |
| | | | | | | | | |
| | | | | | $ | 251,186,476 | |
Liabilities and stockholders’ equity | | | | | | | | |
| | | | | | | | |
| | | | | | $ | 7,425,024 | |
Accrued and other current liabilities | | | | | | | 16,138,909 | |
Lease liabilities, short-term | | | | | | | 3,187,435 | |
Accrued employee benefits | | | | | | | 9,472,651 | |
| | | | | | | | | |
Total current liabilities | | | | | | | 36,224,019 | |
| | | | | | | 19,955,186 | |
| | | | | | | | | |
| | | | | | | 56,179,205 | |
| | | | | | | | |
Common stock, $0.0001 par value: 100,000,000 shares authorized; 80,463,089 and 55,507,497 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | | | | | 5,551 | |
| | | | | | | 904,971,772 | |
| | | | | | | (710,098,369 | ) |
Accumulated comprehensive income | | | | | | | 128,317 | |
| | | | | | | | | |
Total stockholders’ equity | | | | | | | 195,007,271 | |
| | | | | | | | | |
Total liabilities and stockholders’ equity | | | | | | $ | 251,186,476 | |
| | | | | | | | | |
See accompanying notes to consolidated financial statements.
Intra-Cellular Therapies, Inc. and SubsidiariesSubsidiary
Consolidated Statements of Operations
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Revenues | | | | | |
| Product sales, net | $ | 462,175 | | | $ | 249,132 | | | $ | 81,708 | |
| Grant revenue | 2,195 | | | 1,182 | | | 2,095 | |
| Total revenues, net | 464,370 | | | 250,314 | | | 83,803 | |
| Operating expenses: | | | | | |
| Cost of product sales | 33,745 | | | 20,443 | | | 8,035 | |
| Selling, general and administrative | 409,864 | | | 358,782 | | | 272,611 | |
| Research and development | 180,142 | | | 134,715 | | | 88,845 | |
| Total operating expenses | 623,751 | | | 513,940 | | | 369,491 | |
| Loss from operations | (159,381) | | | (263,626) | | | (285,688) | |
| Interest income | 20,343 | | | 7,376 | | | 1,568 | |
| Loss before provision for income taxes | (139,038) | | | (256,250) | | | (284,120) | |
| Income tax expense | (636) | | | (6) | | | (6) | |
| Net loss | $ | (139,674) | | | $ | (256,256) | | | $ | (284,126) | |
| Net loss per common share: | | | | | |
| Basic & Diluted | $ | (1.46) | | | $ | (2.72) | | | $ | (3.50) | |
| Weighted average number of common shares: | | | | | |
| Basic & Diluted | 95,881,729 | | 94,046,670 | | 81,253,394 |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | $ | — | | | $ | — | |
| | | | | | | 60,613 | | | | — | |
| | | | | | | | | | | | | |
| | | | | | | 60,613 | | | | — | |
| | | | | | | | | | | | |
| | | | | | | — | | | | — | |
| | | | | | | 89,124,838 | | | | 132,166,913 | |
Selling, general and administrative | | | | | | | 64,947,625 | | | | 30,099,855 | |
| | | | | | | | | | | | | |
| | | | | | | 154,072,463 | | | | 162,266,768 | |
| | | | | | | (154,011,850 | ) | | | (162,266,768 | ) |
| | | | | | | (6,291,272 | ) | | | (7,140,957 | ) |
| | | | | | | | | | | | | |
Loss before provision for income taxes | | | | | | | (147,720,578 | ) | | | (155,125,811 | ) |
| | | | | | | 1,600 | | | | 1,600 | |
| | | | | | | | | | | | | |
| | | | | | $ | (147,722,178 | ) | | $ | (155,127,411 | ) |
Net loss per common share: | | | | | | | | | | | | |
| | | | | | $ | (2.68 | ) | | $ | (2.84 | ) |
Weighted average number of common shares: | | | | | | | | | | | | |
| | | | | | | 55,186,206 | | | | 54,707,865 | |
See accompanying notes to consolidated financial statements.
Intra-Cellular Therapies, Inc. and SubsidiariesSubsidiary
Consolidated Statements of Comprehensive Loss
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net loss | $ | (139,674) | | | $ | (256,256) | | | $ | (284,126) | |
| Other comprehensive income (loss): | | | | | |
| Unrealized gain (loss) on investment securities | 4,294 | | | (3,826) | | | (845) | |
| Comprehensive loss | $ | (135,380) | | | $ | (260,082) | | | $ | (284,971) | |
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | | | | | | | | |
| | | | | | $ | (147,722,178 | ) | | $ | (155,127,411 | ) |
Other comprehensive income: | | | | | | | | | | | | |
Unrealized gain on investment securities | | | | | | | 796,074 | | | | 131,467 | |
| | | | | | | | | | | | | |
| | | | | | $ | (146,926,104 | ) | | $ | (154,995,944 | ) |
| | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Intra-Cellular Therapies, Inc. and SubsidiariesSubsidiary
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Accumulated
Comprehensive
Income (Loss) | | Total
Stockholders’
Equity |
| Shares | | Amount | | | | |
| Balance at December 31, 2020 | 80,463,089 | | $ | 8 | | | $ | 1,593,475 | | | $ | (937,104) | | | $ | 481 | | | $ | 656,860 | |
| Exercise of stock options and issuances of restricted stock | 1,419,331 | | — | | | 11,519 | | | — | | | — | | | 11,519 | |
| Stock issued for services | 4,545 | | — | | | 179 | | | — | | | — | | | 179 | |
| Share-based compensation | — | | — | | | 34,303 | | | — | | | — | | | 34,303 | |
| Net loss | — | | — | | | — | | | (284,126) | | | — | | | (284,126) | |
| Other comprehensive loss | — | | — | | | — | | | — | | | (845) | | | (845) | |
| Balance at December 31, 2021 | 81,886,965 | | $ | 8 | | | $ | 1,639,476 | | | $ | (1,221,230) | | | $ | (364) | | | $ | 417,890 | |
| Common shares issued January 7, 2022 | 10,952,381 | | 1 | | | 433,717 | | | — | | | — | | | 433,718 | |
| Exercise of stock options and issuances of restricted stock | 1,988,775 | | — | | | 21,441 | | | — | | | — | | | 21,441 | |
| Stock issued for services | 1,673 | | — | | | 90 | | | — | | | — | | | 90 | |
| Share-based compensation | — | | — | | | 43,013 | | | — | | | — | | | 43,013 | |
| Net loss | — | | — | | | — | | | (256,256) | | | — | | | (256,256) | |
| Other comprehensive loss | — | | — | | | — | | | — | | | (3,826) | | | (3,826) | |
| Balance at December 31, 2022 | 94,829,794 | | $ | 9 | | | $ | 2,137,737 | | | $ | (1,477,486) | | | $ | (4,190) | | | $ | 656,070 | |
| Exercise of stock options and issuances of restricted stock | 1,548,468 | | 1 | | | 17,809 | | | — | | | — | | | 17,810 | |
| Stock issued for services | 1,549 | | — | | | 92 | | | — | | | — | | | 92 | |
| Share-based compensation | — | | — | | | 52,832 | | | — | | | — | | | 52,832 | |
| Net loss | — | | — | | | — | | | (139,674) | | | — | | | (139,674) | |
| Other comprehensive income | — | | — | | | — | | | — | | | 4,294 | | | 4,294 | |
| Balance at December 31, 2023 | 96,379,811 | | $ | 10 | | | $ | 2,208,470 | | | $ | (1,617,160) | | | $ | 104 | | | $ | 591,424 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | |
| | |
| | |
| |
| | | | | | | |
Balance at December 31, 2017 | | | 54,597,679 | | | $ | 5,460 | | | $ | 862,479,505 | | | $ | (407,248,780 | ) | | $ | (799,224 | ) | | $ | 454,436,961 | |
Exercise of stock options and issuances of restricted stock | | | 284,326 | | | | 29 | | | | 674,177 | | | | — | | | | — | | | | 674,206 | |
Stock issued for services | | | 11,468 | | | | 1 | | | | 192,529 | | | | — | | | | — | | | | 192,530 | |
| | | — | | | | — | | | | 17,396,146 | | | | — | | | | — | | | | 17,396,146 | |
| | | 1,822 | | | | — | | | | 10,982 | | | | — | | | | — | | | | 10,982 | |
| | | — | | | | — | | | | — | | | | (155,127,411 | ) | | | — | | | | (155,127,411 | ) |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 131,467 | | | | 131,467 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | | | 54,895,295 | | | $ | 5,490 | | | $ | 880,753,339 | | | $ | (562,376,191 | ) | | $ | (667,757 | ) | | $ | 317,714,881 | |
Exercise of stock options and issuances of restricted stock | | | 596,558 | | | | 59 | | | | 3,235,542 | | | | — | | | | — | | | | 3,235,601 | |
Stock issued for services | | | 15,644 | | | | 2 | | | | 194,203 | | | | — | | | | — | | | | 194,205 | |
| | | — | | | | — | | | | 20,788,688 | | | | — | | | | — | | | | 20,788,688 | |
| | | — | | | | — | | | | — | | | | (147,722,178 | ) | | | — | | | | (147,722,178 | ) |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 796,074 | | | | 796,074 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Exercise of stock options and issuances of restricted stock | | | | | | | | | | | | | | | | | | | | | | | | |
Stock issued for services | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Intra-Cellular Therapies, Inc. and SubsidiariesSubsidiary
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Cash flows used in operating activities | | | | | |
| Net loss | $ | (139,674) | | | $ | (256,256) | | | $ | (284,126) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Depreciation | 528 | | | 656 | | | 533 | |
| Share-based compensation | 52,832 | | | 43,013 | | | 34,303 | |
| Stock issued for services | 92 | | | 90 | | | 179 | |
| Amortization of premiums and accretion of discounts on investment securities, net | (8,400) | | | 447 | | | (4,080) | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable, net | (38,829) | | | (55,033) | | | (9,391) | |
| Inventory | (26,348) | | | (15,972) | | | (892) | |
| Prepaid expenses and other assets | (4,457) | | | (19,749) | | | (11,208) | |
| Accounts payable | 1,057 | | | 1,704 | | | 3,189 | |
| Accrued and other current liabilities | 8,287 | | | 8,584 | | | 3,177 | |
| Accrued customer programs | 27,552 | | | 19,657 | | | 2,958 | |
| Accrued employee benefits | 4,368 | | | 2,099 | | | 5,989 | |
| Lease liabilities, net | (1,207) | | | 574 | | | (175) | |
| Net cash used in operating activities | (124,199) | | | (270,186) | | | (259,544) | |
| Cash flows provided by (used in) investing activities | | | | | |
| Purchases of investments | (415,269) | | | (759,209) | | | (224,575) | |
| Maturities of investments | 521,079 | | | 631,614 | | | 505,244 | |
| Purchases of property and equipment | (269) | | | (778) | | | (325) | |
| Net cash provided by (used in) investing activities | 105,541 | | | (128,373) | | | 280,344 | |
| Cash flows provided by financing activities | | | | | |
| Proceeds of public offerings, net | — | | | 433,718 | | | — | |
| Proceeds from exercise of stock options | 17,810 | | | 21,441 | | | 11,519 | |
| Net cash provided by financing activities | 17,810 | | | 455,159 | | | 11,519 | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (848) | | | 56,600 | | | 32,319 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 150,365 | | | 93,765 | | | 61,446 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 149,517 | | | $ | 150,365 | | | $ | 93,765 | |
| Cash paid for taxes | $ | 162 | | | $ | 6 | | | $ | 6 | |
| Non-cash investing and financing activities | | | | | |
| Right of use assets under operating leases | $ | — | | | $ | 419 | | | $ | 108 | |
| | | | | |
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows: |
| | | | | |
| Cash and cash equivalents | $ | 147,767 | | | $ | 148,615 | | | $ | 92,365 | |
| Restricted cash | 1,750 | | | 1,750 | | | 1,400 | |
| Total cash, cash equivalents and restricted cash | $ | 149,517 | | | $ | 150,365 | | | $ | 93,765 | |
| | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | | | | | | | | |
Cash flows used in operating activities | | | | | | | | | | | | |
| | | | | | $ | (147,722,178 | ) | | $ | (155,127,411 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| | | | | | | 477,121 | | | | 368,673 | |
| | | | | | | 20,788,688 | | | | 17,396,146 | |
Stock issued for services | | | | | | | 194,205 | | | | 192,530 | |
Amortization of premiums and discounts on investment securities, net | | | | | | | (1,131,597 | ) | | | (943,239 | ) |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
| | | | | | | — | | | | — | |
| | | | | | | — | | | | — | |
Prepaid expenses and other assets | | | | | | | 1,465,384 | | | | (3,026,908 | ) |
Long term deferred tax asset, net | | | | | | | 264,609 | | | | 529,217 | |
| | | | | | | (6,536,036 | ) | | | 7,787,521 | |
Accrued liabilities and other | | | | | | | 3,327,095 | | | | 14,386,774 | |
| | | | | | | 889,468 | | | | — | |
| | | | | | | — | | | | 267,584 | |
| | | | | | | | | | | | | |
Net cash used in operating activities | | | | | | | (127,983,241 | ) | | | (118,169,113 | ) |
Cash flows (used in) provided by investing activities | | | | | | | | | | | | |
| | | | | | | (80,720,301 | ) | | | (271,156,707 | ) |
Maturities of investments | | | | | | | 258,857,683 | | | | 406,189,288 | |
Purchases of property and equipment | | | | | | | (700,395 | ) | | | (391,268 | ) |
| | | | | | | | | | | | | |
Net cash (used in) provided by investing activities | | | | | | | 177,436,987 | | | | 134,641,313 | |
Cash flows provided by financing activities | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | | | | | 3,235,601 | | | | 674,206 | |
Proceeds of public offerings, net | | | | | | | — | | | | — | |
Proceeds from stock warrant | | | | | | | — | | | | 10,982 | |
| | | | | | | | | | | | | |
Net cash provided by financing activities | | | | | | | 3,235,601 | | | | 685,188 | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | | | | | | 52,689,347 | | | | 17,157,388 | |
Cash, cash equivalents, and restricted cash at beginning of period | | | | | | | 54,947,502 | | | | 37,790,114 | |
| | | | | | | | | | | | | |
Cash, cash equivalents, and restricted cash at end of period | | | | | | $ | 107,636,849 | | | $ | 54,947,502 | |
| | | | | | | | | | | | | |
| | | | | | $ | 1,600 | | | $ | 1,600 | |
Non-cash investing and financing activities | | | | | | | | | | | | |
Right of use assets under operating vehicle fleet leases | | | | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
Right of use assets under operating real estate leases | | | | | | $ | 219,703 | | | $ | — | |
| | | | | | | | | | | | | |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
| | | | | | | | | | | | |
Cash and cash equivalents | | | | | | $ | 107,636,849 | | | $ | 54,947,502 | |
| | | | | | | — | | | | — | |
| | | | | | | | | | | | | |
Total cash, cash equivalents and restricted cash | | | | | | $ | 107,636,849 | | | $ | 54,947,502 | |
| | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Intra-Cellular Therapies, Inc. and SubsidiariesSubsidiary
Notes to Consolidated Financial Statements
1. Organization
Intra-Cellular Therapies, Inc. (the “Company”), through its wholly-owned operating
subsidiaries,subsidiary, ITI, Inc. (“ITI”)
and ITI Limited,, is 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 (“CNS”). In December 2019,
the Company announced that CAPLYTATM
CAPLYTA® (lumateperone)
had beenwas approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of schizophrenia in adults
(42mg/(42 mg/day)
. The and the Company initiated the commercial launch of CAPLYTA in
late March 2020.
In December 2021, CAPLYTA was approved by the FDA for the treatment of bipolar depression in adults (42 mg/day) and the Company initiated the commercial launch of CAPLYTA for the treatment of bipolar depression. Additionally, in April 2022, the FDA approved two additional 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). The commercial launch of these special population doses occurred in August 2022. As used in these Notes to Consolidated Financial Statements, “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.schizophrenia and bipolar depression. Lumateperone is in Phase 3 clinical development as a novel treatment for
bipolar depression and major depressive disorder.
On January 10, 2020, the Company completed a public offering of common stock in which the Company sold 10,000,000 shares of common stock at an offering price of $29.50 per share for aggregate gross proceeds of $295.0 million. After deducting underwriting discounts, commissions and offering expenses, the net proceeds to the Company were approximately $277.0 million. On September 15, 2020, the Company completed a public offering of common stock in which the Company sold 12,666,667 shares of common stock at an offering price of $30.00 per share for aggregate gross proceeds of $380.0 million. After deducting underwriting discounts, commissions and offering expenses, the net proceeds to the Company were approximately $357.8 million.
In order to further its commercial activities and research projects and support its collaborations, the Company
willmay require additional financing until such time, if ever, that revenue streams are sufficient to generate consistent positive cash flow from operations. The Company currently projects that its cash, cash equivalents and investments will be sufficient to fund operating expenses and
working capital
expendituresneeds for at least one year from the date that these financial statements are filed with the Securities and Exchange Commission (the “SEC”). Possible sources of funds include public or private sales of the Company’s equity securities, sales of debt
or convertible debt securities, the incurrence of debt from commercial lenders, strategic collaborations, licensing a portion or all of the Company’s
products, product candidates and technology and, to a
much lesser extent, grant funding.
On August 30, 2019, the Company filed a universal shelf registration statement on FormS-3,
which was declared effective by the SEC on September 12, 2019, on which the Company registered for sale up to $350 million 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 the Company may determine, which included up to $75 million of common stock that the Company could issue and sell from time to time, through SVB Leerink LLC acting as its sales agent, pursuant to the sale agreement that the Company entered into with SVB Leerink on August 29, 2019 for the Company’sequity program. On September 10, 2020, the Company terminated theequity program sales agreement with SVB Leerink LLC.During the year ended December 31, 2020, the Company issued an aggregate
742,791 shares of common stock under the Company’sequity program which resulted in the Company receiving net proceeds of $17.9 million.In addition, on January 6, 2020, the Company filed an automatic shelf registration statement on FormS-3
with the SEC, which became effective upon filing, on which the Company 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 the Company may determine, so long as the Company continues to satisfy the requirements of a “well-known seasoned issuer” under SEC rules. These registration statements will remain in effect for up to three years from the respective dates they became effective.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements of Intra-Cellular Therapies, Inc. and its
wholly own subsidiarieswholly-owned subsidiary have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States GAAP set forth in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). All intercompany accounts and transactions have been eliminated in consolidation. The Company currently operates in one operating segment. Operating segments are defined as components of an enterprise about which separate discrete information is available for the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing performance. The Company views its operations and manages its business in
1one segment, which is discovering,
developing, and
developingcommercializing drugs primarily for the treatment of neurological and psychiatric
disorders.disorders.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although actual results could differ from those estimates, management does not believe that such differences would be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months
or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of checking accounts, money market accounts, money market
mutual funds, and certificates of deposit with a maturity date of three months or less. The carrying values of cash and cash equivalents approximate the fair market value. Certificates of deposit, commercial paper, corporate notes and corporate bonds with
aan original maturity date of more than three months are classified separately on the consolidated balance sheets.
Investment securities may consist of investments in U.S. Treasuries, various U.S. governmental agency debt securities, corporate bonds, certificates of deposit, and other fixed income securities with an average maturity of
approximately twelve months or less. Management classifies the Company’s investments as
Such securities are carried at estimated fair value, with any unrealized holding gains or losses reported, net of any tax effects reported, as accumulated other comprehensive income
(loss), which is a separate component of stockholders’ equity. Realized gains and losses and declines in value judged to be other-than-temporary, if any, are included in
the consolidated
resultsstatement of operations. A decline in the market value of any
security below cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is established. Dividend and interest income are recognized as interest income on the consolidated statements of operations when earned. The cost of securities sold is calculated using the specific identification method.
Investment securities consisted of the following (in thousands):
| | | | | | | | | | | | | | | | |
| | | | |
| | |
| | |
| | |
| | |
| |
U.S. Government Agency Securities | | $ | 259,304 | | | $ | 3 | | | $ | (31 | ) | | $ | 259,276 | |
| | | 10,500 | | | | — | | | | — | | | | 10,500 | |
| | | 124,368 | | | | 23 | | | | (21 | ) | | | 124,370 | |
| | | 202,749 | | | | 624 | | | | (117 | ) | | | 203,256 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 596,921 | | | $ | 650 | | | $ | (169 | ) | | $ | 597,402 | |
| | | | | | | | | | | | | | | | | |
2. Summary of Significant Accounting Policies (continued)
| | | | | | | | | | | | | | | | |
| | | | |
| | |
| | |
| | |
| | |
| |
U.S. Government Agency Securities | | $ | 35,462 | | | $ | 35 | | | $ | (3 | ) | | $ | 35,494 | |
| | | 3,000 | | | | — | | | | — | | | | 3,000 | |
| | | 39,013 | | | | 10 | | | | (5 | ) | | | 39,018 | |
| | | 38,770 | | | | 91 | | | | — | | | | 38,861 | |
| | | | | | | | | | | | | | | | |
| | | $ | 116,245 | | | $ | 136 | | | $ | (8 | ) | | $ | 116,373 | |
| | | | | | | | | | | | | | | | |
The Company has classified all of its investment securities asincluding those with maturities beyond one year, as current assets on the consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations. As of December 31, 2020 and 2019, the Company held $188.5 million and $3.0 million, respectively, ofinvestment securities with contractual maturity dates more than one year and less than two years.The Company monitors its investment portfolio for overall risk, specifically credit loss, quarterly or more frequently if circumstances warrant. The company would estimateCompany has estimated the expected credit loss over the lifetime of the asset and recordhas determined an allowance for the portion of the amortized cost basis of the financial asset that the company doescredit losses is not expect to collect.
The aggregate related fair value of investmentsmaterial with
unrealized losses as of December 31, 2020 was $372.3 million, which consisted of $180.0 million from U.S. government agency securities, $84.4 million of commercial paper, and $107.8 million of corporate notes/bonds. The aggregate amount of unrealized losses as of December 31, 2020 was approximately $169,000, which consisted of $31,000 from U.S. government agency securities, $21,000 from commercial paper, and $117,000 from corporate notes/bonds. The $372.3 million aggregate fair value of investments with unrealized losses as of December 31, 2020 has been held in a continuous unrealized loss position for less than 12 months. As of December 31, 2019, the aggregate related fair value of investments with unrealized losses was $29.6 million and the aggregate amount of unrealized losses was approximately $8 thousand. Of the $29.6 million, $17.1 million had
been held in a continuous unrealized loss position for less than12 months and $12.5 million have been held in a continuous loss position for 12 months or longer.The Company reviewed all of the investments which were in a loss position at the respective balance sheet dates, as well as the remainder of the portfolio. The Company has analyzed the unrealized losses and determined that market conditions were the primary factor driving these changes. After analyzing the securities in an unrealized loss position, the portion of these losses that relate to changes in credit quality is insignificant. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell them priorrespect to the end of their contractual terms. Furthermore, the Company does not believe that these securities expose the Company to undue market risk or counterparty credit risk.investment portfolio.
The Company applies the fair value method under ASC Topic 820,Fair Value Measurements and Disclosures
•Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.
2. Summary of Significant Accounting Policies (continued)
•Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.
•Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity—e.g., determining an appropriate adjustment to a discount factor for illiquidity associated with a given security.
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the ASC Topic 820 hierarchy.
The Company has 0 assets or liabilities that were measured using quoted prices for significant unobservable inputs (Level 3 assets and liabilities) as of December 31, 2020 and December 31, 2019. The carrying value of cash held in money market funds of approximately $27.9 million as of December 31, 2020 and $49.9 million as of December 31, 2019 is included in cash and cash equivalents and approximates market value based on quoted market price or Level 1 inputs. The carrying value of cash held in certificates of deposit of $0 and approximately $47.6 million as of December 31, 2020 and 2019, respectively, is included in cash and cash equivalents and approximates market value based on quoted market price or Level 2 inputs. The carrying value of cash held in commercial paper of approximately $3.0 million as of December 31, 2019 is included in cash and cash equivalents and approximates market value based on quoted market price or Level 2 inputs.
The fair value measurements of the Company’s cash equivalents andinvestment securities are identified in the following tables (in thousands): | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at | |
| | |
| | |
| | |
| | |
| |
| | $ | 27,917 | | | $ | 27,917 | | | $ | — | | | $ | — | |
U.S. Government Agency Securities | | | 259,276 | | | | — | | | | 259,276 | | | | — | |
| | | 10,500 | | | | — | | | | 10,500 | | | | — | |
| | | 124,370 | | | | — | | | | 124,370 | | | | — | |
| | | 203,256 | | | | — | | | | 203,256 | | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
2. Summary of Significant Accounting Policies (continued)
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at | |
| | |
| | |
| | |
| | |
| |
| | $ | 49,882 | | | $ | 49,882 | | | $ | — | | | $ | — | |
U.S. Government Agency Securities | | | 35,494 | | | | — | | | | 35,494 | | | | — | |
| | | 50,622 | | | | — | | | | 50,622 | | | | — | |
| | | 42,015 | | | | — | | | | 42,015 | | | | — | |
| | | 38,861 | | | | — | | | | 38,861 | | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The Company considers the recorded costs of its financial assets and liabilities, which consist of cash equivalents, restricted cash, accounts receivable, prepaid expenses, right of use asset, net, other assets, accounts payable, accrued liabilities, accrued customer programs, accrued employee benefits, and operating lease liabilities short term, to approximate their fair value because of their relatively short maturities at December 31, 20202023 and December 31, 2019.2022. Management believes that the risks associated with the Company’s financial instruments are minimal as the counterparties are various corporations, financial institutions and government agencies of high credit standing.
Restricted Cash
Restricted cash is collateral used under the letter of credit arrangement for the Company’s vehicle lease agreement (see Note 5)7).
The Company adopted ASU
No. 2016-18,
“Restricted Cash”Cash (“ASU2016-18”)
and now includes restricted cash balances within the cash, cash equivalents and restricted cash balance on the statement of cash flows.The Company’s accounts receivable net, primarily arise from product sales. They are generally stated at the invoiced amountsales and do not bear interest. Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable considerationallowances for which reserves are establishedreturns, distribution fees, chargebacks, and which result from chargebacks, prompt pay discounts, and distribution fees.discounts.
The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profiles. The Company reserves against accounts receivable for estimated losses that may arise from a Customer’scustomer’s inability to pay and any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected. The reserve amount for estimated collectability losses was not significant as of December 31, 2020.
2023 and 2022.We are also subject toThe Company estimates expected credit risk from ourlosses of its accounts receivable related to our product sales. We monitor our exposure within accounts receivable and record a creditby assessing the risk of loss reserve against uncollectible accounts receivable as necessary. We extend credit primarily to pharmaceutical wholesale distributors. Customer creditworthiness is monitored and collateral is not required.based on available relevant information. Historically, we have not experienced credit losses on our accounts receivable and asreceivable. As of December 31, 2020,2023 and 2022, our credit loss reserve on receivables was not material.significant.
2. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of accounts receivable, net from customers and cash, cash equivalentequivalents and investments held at financial institutions. For the yearyears ended December 31, 2020, all2023 and 2022, 97% of the Company’s accounts receivable, net arose from product sales in the U.S. and all customers have standard payment terms which generally require payment within 60 days. For the year ended December 31, 2020, 96% of sales were generated from three major industry wholesalers, respectively.
wholesalers.NaNThree individual customers accounted for approximately 36%, 32%, and 29% and 39%, 29%30%, and 28% of product sales for the yearyears ended December 31, 2020.2023 and 2022, respectively. As of December 31, 2020,2023, the Company believes that suchthese customers are of high credit quality.
Cash equivalents are held with major financial institutions in the United States. Certificates of deposit, cash and cash equivalents held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.
The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines the cost of its inventories, which includes amounts related to
direct materials,
production costs, and manufacturing overhead, on a
first-in,
first-out
(“FIFO”) basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated net realizable value in the period in which the impairment is first identified. Such impairment charges, if they occur, are recorded within cost of product sales.
The Company capitalizes inventory costs associated with the Company’s products after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized.realized typically after regulatory approval. Inventory acquired and manufactured prior to receipt of regulatory approval of a product candidate is expensed as research and development expense as incurred. Inventory that can be used in either the production of clinical or commercial product is expensed as research and development expense when selected for use in a clinical manufacturing campaign. Inventory that is used in the production of sample product is reclassified to prepaid and other current assets and is then expensed to selling, general and administrative expenses when the sample product is distributed.
The Company analyzes its inventory based on the stage of production and classifies work in process and finished goods as current assets. Raw materials includes the active pharmaceutical ingredients ("API") and any related intermediate compounds. The raw material supply exceeds 12 months of current operating requirements and is recorded as inventory, non-current on the consolidated balance sheet.
Shipping and handling costs for product shipments to customers are recorded as incurred inpart of cost of product sales along with costs associated with manufacturing the product, and any inventory write-downs.
Based on contractual terms, the Company has made advances on API production campaigns. Deposits related to production campaigns when delivery is expected within the next 12-month period from the balance sheet date are included in prepaid and other current assets on the consolidated balance sheets and if delivery is expected beyond the next 12-month period from the balance sheet date are included in other assets on the consolidated balance sheets.
Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line basis over estimated useful lives ranging from three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the assets or the term of the related lease. Expenditures for maintenance and repairs are charged to operations as incurred.
When indicators of possible impairment are identified, the Company evaluates the recoverability of the carrying value of its long-lived assets based on the criteria established in ASC Topic No. 360,Property, Plant and Equipment
case management must determinethe carrying value exceeds the fair value of the underlying asset. NaNNo such impairment losses have been recognized to date.
2. Summaryspecifically identified assets, control and economic benefit. Payments for identified leases are recognized in the consolidated statements of Significant Accounting Policies (continued)operations on a straight-line basis over the lease term. The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate. As the majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.
Effective January 1, 2018, the Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers
(“ASC Topic 606”). The Company did not generate any product related revenue prior to January 1, 2020, and therefore the adoption of ASC Topic 606 did not have an impact in the Company’s financial statements for any prior periods. In accordance with ASC Topic 606,Revenue from contracts with customers, the Company recognizes revenue when the customer obtains control of a promised good or service, in an amount that reflects the consideration that the Company expects to receive in exchange for the good or service. The reported results for the year ended December 31, 2020 reflect the application of ASC Topic 606.To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to arrangements that meet the definition of a contract under ASC Topic 606, including when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope
(below).To date, the Company’s only source of product sales has been from sales of CAPLYTA in the U.S.,United States, which the Company began shipping to customers in March 2020.
The Company sells CAPLYTA to a limited number of customers which include a number of national and select regional distributors. These customers subsequently resell the Company’s products to retail pharmacies, specialty pharmacy providers, as well as other retail pharmacies and certain medical centers or hospitals. In addition to distribution agreements with customers, the Company enters into arrangements with health care providers and payers that provide forobligate the Company to have government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. The Company also voluntarily offers patient assistance programs which are intended to provide financial assistance to qualified commercially-insured patients. The Company recognizes revenue on product sales when the Customercustomer obtains control of the Company’s product, which occurs at a point in time (upon delivery).upon delivery. Product revenues are recorded net of applicable reserves for the sales obligations that are considered variable consideration, including rebates, discounts and allowances, among others. If taxes should be collected from customers relating to product sales and remitted to governmental authorities, they will be excluded from revenue.
Reserves for Variable Consideration
Revenues are calculated based onThe Company recognizes revenue from product sales at the net sales price (the "transaction price") which includes the wholesale acquisition cost that the Company charges to distributors for CAPLYTAits customers less variable consideration for which reserves are established. Components of variable consideration may include trade discounts and allowances, product returns, provider chargebacks, and discounts, government rebates,and payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its customers, payers, and other indirect customers relating to the Company’s sales of its product.
These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, include estimates that take into consideration a range of possible outcomes which are either considered more likely or probability-weighted in accordance with the expected value method in ASC Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, forecasted customer
2. Summary of Significant Accounting Policies (continued)
buying and payment patterns. The Company’s estimates regarding the payer mix for CAPLYTA and historical industry information regarding the payer mix for comparable pharmaceutical products and product portfolios, in particular, historical information related to similar products in their initial launch stages. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts after considering whether revenue should be constrained under ASC 606.
assistance. The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of December 31, 2020 and, therefore, the transaction price was not reduced further during the year ended December 31, 2020. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product sales and earnings in the period such variances become known.
The provision for rebates, discounts, and other incentives is based on expected patient usage, as well as inventory levels in the distribution channel to determine the contractual obligations to the benefit providers. Additionally, sales are generally made with a limited right of return under certain conditions. Revenue is recorded net of provisions for rebates, discounts, and other incentives and returns, which are established at the time of sale. The Company uses payer mix utilization data, changes to product price, government pricing calculations and prior payment history in order to estimate the variable consideration.
Trade Discounts and Allowances
However, theThe Company has determined such services received to date are not distinct from the Company’s sale of products to the Customercustomer and, therefore, these payments have been recorded as a reduction of product sales, net within the consolidated statements of operations through December 31, 2020, as well as a reduction to revenue and accounts receivables,receivable, net on the consolidated balance sheets.— Consistent with industry practice, theThe Company generally offers customers a limited right of return for product that has been purchased from the Company based on the product’s expiration date, whichsuch right lapses upon shipment to a patient.patient's receipt of product. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as accrued expenses and other current liabilitiesaccounts receivable, net on the consolidated balance sheets. The Company currently estimates product return liabilities primarily using available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. The Company has not received any returns to date. experience and, when appropriate, benchmarking data for similar products and industry experience.Provider Chargebacks and Discounts
for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to customers who directly purchase the product directly from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivables,receivable, net. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by customers, and the Company generally issues credits for such amounts within a few weeks of the customer’s notification to the Company of the resale.customers. Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at the end of each reportingperiod-end
that the Company expects will be sold to qualified healthcare providers, period, and chargebacks that customers have claimed, but for which the Company has not yet issued a credit. For the year ended December 31, 2020, these amounts were not significant.
Government and Payer Rebates
subjectliable for rebates that apply to discount obligations under stateMedicaid, managed care and private payer organizations, primarily insurance companies and pharmacy benefit managers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements with, or statutory requirements pertaining to, Medicaid and Medicare programs. These reservesbenefit providers. The allowance for rebates is based on statutory discount rates or contractual percentages, estimated payer mix, and expected utilization. The Company's estimates for expected utilization of rebates are recorded in the same period the related revenue is recognized, resulting in a reduction ofbased on historical data since product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the consolidated balance sheets. For Medicare, the Company also estimates the
2. Summary of Significant Accounting Policies (continued)
number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program.launch. The Company’sCompany's liability for these rebates consists of invoices received for claims from prior quartersperiods that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter,period, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.
— The Company contracts with certain private payer organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its product. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability recorded as an accrued expenses and other current liabilities on the consolidated balance sheets.— Other incentives which the Company offers include voluntary patient assistance programs, such as theco-pay
assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drugco-payments
required by payers. The calculation of the accrual forco-pay
assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. The Company
also has a voucher program whereby a patient can receive a prescription at no costestimates these rebates and
whereby the Company reimburses the pharmacy for 100% of the sales price of the prescription. The Company applies the claims for vouchers for product that is in the distribution channel and reduces recognized revenue accordingly.The adjustments are recordedrecords such estimates in the same period the related revenue is recognized resultingand, records a reserve in a reduction of product revenue and the establishment of a current liability which is included as a component of accrued expenses and other current liabilitiescustomer programs on the consolidated balance sheets.
Chargebacks, discounts, fees,Patient Assistance— The Company offers programs such as the co-pay assistance and returnsvoucher programs, which are recordedintended to provide financial assistance to eligible patients with prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance and voucher programs is based on monthly claims activity as reductions of trade receivables, netwell as estimated claims related to product in the distribution channel and the estimated cost per claim based on historical activity. The Company records a reserve in accrued customer programs on the consolidated balance sheets. Government and other rebates are recorded as a component of accrued expenses and other current liabilities on the consolidated balance sheets.
Our cost of product sales relates to sales of CAPLYTA. Cost of product sales primarily includes product royalty fees, overhead, and direct costs (inclusive of material shipping, and manufacturing costs)., and overhead.
For the product royalty fees, the Company entered into an exclusive License Agreement with Bristol-Myers Squibb Company (“BMS”), for which the Company is obliged to make tiered single digit percentage royalty payments ranging between 5 – 9%5-9% on sales of licensed products. The related royalties are recorded within cost of product sales on the statementconsolidated statements of operations.
Prior to
the
FDA approval of CAPLYTA, the Company expensed all costs associated with the manufacturing of lumateperone as part of research and development expenses.
From December 20, 2019, the date of approval of CAPLYTA, through December 31, 2019 there was 0 production and 0 inventory costs were incurred. Therefore, at December 31, 2019, no inventory costs had been capitalized. The cost of product sales in the
yearyears ended December 31,
20202023, 2022 and 2021 are lower than incurred because of previously expensed inventory.
Research and Development Including Clinical Trial Expenses
Except for payments made in advance of services, the Company expenses its research and development costs as incurred. For payments made in advance, the Company recognizes research and development expense as the services are rendered. Research and development costs primarily consist of salariesexternal costs for contract services, such as pre-clinical testing, manufacturing and related expensestesting, clinical trial activities; and internal recurring costs for
2. Summary of Significant Accounting Policies (continued)
personnel labor and resourcesbenefits, facilities and the costs of clinical trials. Otherother. The Company recognizes research and development expenses include preclinical analytical testing, manufacturing of drug product for use in clinical and nonclinical trials, outsideas the services providers, materials and consulting fees.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to theThe Company by its vendors, among other factors with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accruedhas entered into various research and development expense, as the case may be.
As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultantsother companies both inside and under clinical siteoutside of the U.S. These agreements in connection with conducting clinical trials. Theare generally cancellable. At the end of each financial reporting period, the Company records expenses incurred to date related to these agreements and recognizes accruals or prepaid expenses, as appropriate. These accruals or prepaid expenses occur when billing terms ofunder these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate clinical trial expenses in its financial statements by matching those expensescoincide with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the clinical trial as measured by subject progression and the timing of various aspectswhen the work is performed. Estimates are based on a number of factors, including the Company’s knowledge of the trial.progress towards completion of the research and development activities, communication from the clinical research organizations or other companies of any actual costs incurred during the period that have not yet been invoiced, the costs included in the contracts, and invoicing to date under the contracts. Significant judgments and estimates are made in determining the accrued or prepaid balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The Company determines accrualhistorical estimates through financial models taking into account various clinical information providedmade by vendors and discussion with applicable personnel and external service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time.
The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations, clinical sites and other third-party vendors. Although the Company doeshave not
expect its estimates to bebeen materially different from
amounts actually incurred, its understanding of the status and timing of services performed relative to the actual
status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the year ended December 31, 2020,the companycosts.
had no material change in estimates which related to the prior year estimates of accrued expenses for clinical trials. For the year ended December 31, 2019, the Company recorded a change in estimate of approximately$5.3 million related to the prior year estimates of accrued expenses for clinical trials that resulted in a reduction of research and development expenses.
In connection with the FDA approval of CAPLYTA in 2019, the Company began to incur advertising costs in connection with the subsequent commercial launch of CAPLYTA in 2020. Advertising costs are expensed when services are rendered. The Company incurred $36.3$92.2 million, $85.8 million and $82.5 million in advertising costs during the year ended December 31, 2020, and $0 in advertising costsexpenses during the years ended December 31, 2019,2023, 2022, and 2018,2021, respectively, related to its marketed product, CAPLYTA.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.
2. Summary of Significant Accounting Policies (continued)
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. The Company accounts for uncertain tax positions pursuant to ASC Topic 740, (previously included in FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No.
)Taxes. Financial statement recognition of a tax position taken or expected to be taken in a tax return is determined based on amore-likely-than-not
threshold of that position being sustained. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in the provision for income taxes. The Company’s effective tax rate for the years ended December 31, 20202023, 2022 and 20192021 was approximately (0.5)%, 0%. and 0%, respectively. This effective tax rate is substantially lower than the U.S. statutory rate of 21% due to valuation allowances recorded on current year losses where the Company is not more-likelymore likely than not to recognize a future tax benefit.
On March 27, 2020,August 9, 2022, the United States enacted The Coronavirus Aid, Reliefthe CHIPS and Economic Security (CARES)Science Act which provides an investment tax credit for 25% of qualified investments primarily used for manufacturing of semiconductors and related equipment in the U.S. On August 16, 2022, the United States enacted the Inflation Reduction Act (“IRA”) which includes several significant businessa provision for a 15% corporate alternative minimum tax provisions, of which the immediate relevance to the Company is the acceleration of refunds of previously generated corporate Alternative Minimum Tax (“AMT”) credits. The CARES Act also adds an employee retention credit to encourage employers to maintain headcounts even if employees cannot report to work because of issues related to the coronavirus, and a temporary provision allowingon companies to defer remitting to the government the employee share of some payroll taxes, among other things.with average annual adjusted financial statement income over $1 billion effective for tax years ending after December 31, 2022. The Company reviewed the provisions and there was not a material tax impact on its financial statements for the yearyears ended December 31, 2020.2023 and 2022.
On December 31, 2022, ITI Limited, our wholly-owned Bermuda subsidiary, was merged into Intra-Cellular Therapies, Inc., a Delaware corporation. The Company did reclassify its deferred tax asset relatedintellectual property rights associated with lumateperone were transferred to the AMTDelaware corporation as a result of this merger. This merger and the subsequent liquidation of ITI Limited does not have any material impact from a U.S. or Bermuda income tax credit carryforward of $265,000 to a current tax receivable in the first quarter of 2020 upon the filing of its tax return for year ended December 31, 2019 and received the refund in July 2020.perspective.
Comprehensive Income (Loss)
All components of comprehensive
income (loss),loss, including net
income (loss),loss, are reported in the financial statements in the period in which they are incurred. Comprehensive
income (loss)loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from
non-owner
sources. In accordance with accounting guidance, the Company presents the impact of any unrealized gains or
(losses)losses on its investment securities in a separate statement of comprehensive
income (loss)loss for each period.
Share-based payments are accounted for in accordance with the provisions of ASC Topic 718,Compensation—Stock Compensation
For all awards granted with time-based vesting conditions, expense is amortized using the straight-line attribution method. Share-based compensation expense recognized in the statements of operations for the years ended December 31, 2020, 20192023, 2022 and 20182021 accounts for forfeitures as they occur.
The Company utilizes the Black-Scholes Model for estimating fair value of its stock options granted. Option valuation models, including the Black-Scholes Model, require the input of subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.
2. Summary of Significant Accounting Policies (continued)
Expected volatility rates for quarterly periods prior to December 31, 2019 were based on a combination of the historical volatility of the common stock of comparable publicly traded entities and the limited historical information about the Company’s common stock. In the fourth quarter of 2019 and for all periods thereafter,The expected volatility rates are based entirely on the historical volatility of the Company’s common stock. The expected life of stock options is the period of time for which the stock options are expected to be outstanding. Given the limited historical exercise data, the expected life is determined using the “simplified method,” which defines expected life as the midpoint between the vesting date and the end of the contractual term.
The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not paid dividends to its stockholders since its inception and does not plan to pay cash dividends in the foreseeable future. Therefore, the Company has assumed an expected dividend rate of 0.zero. For stock options granted, the exercise price was determined by using the closing market price of the Company’s common stock on the date of grant.
A restricted stock unit (“RSU”) is a stock award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair value of each RSU is based on the fair market value of the Company’s common stock on the date of grant. TheIn each fiscal year beginning in 2016, the Company has granted RSUs that vest in three equal annual installments provided that the employee remains employed with the Company.
In the first quarter of each fiscal year beginning in 2016, the The Company granted timegrants select employees performance based RSUs thatwhich vest in three equal annual installments. Inupon the first quarterCompensation Committee’s approval at the end of 2017, the Company granted performance-based RSUs, which vestthree year service period based on the achievement of certainselect performance milestones that include (i) the submission of a new drug application (“NDA”) to the FDA for lumateperone for the treatment of schizophrenia, (ii) the approval of the NDA by the FDA (together, the “Milestone RSUs”) and (iii) the achievement of certain comparative shareholder returns against the Company’s peers (the “TSR RSUs”). The Milestone RSUs related to the NDA submission were fully amortized on December 31, 2018. The NDA submission milestone was achieved in the third quarter of 2018, so the Milestone RSUs related to the NDA submission vested on December 31, 2018. The Milestone RSU’s related to the NDA approval was achieved in the fourth quarter of 2019, so the RSU’s vested on December 31, 2019. The Milestone RSUs related to the approval of the NDA were fully amortized on December 31, 2019. The TSR RSUs were valued using the Monte Carlo Simulation method and were amortized over the life of the RSUs based on the agreements which vested on January 24, 2020.
peers.In the first quarter of 2020, the Company granted performance-based RSUs for approximately 86,000 shares of common stock, which vest based on the achievement of certain milestones that include (i) the approval of a planned NDA by the FDA and (ii) the achievement of certain comparative shareholder returns against the Company’s peers (the “2020 TSR RSUs”). The 2020 TSR RSUs were valued using the Monte Carlo Simulation method and will be amortized over the life of the RSUs based on the agreements.
Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law is considered to be a deductible difference in applying ASC Topic 740,
. The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.Equity instruments issued tonon-employees
for services are accounted for under the provisions of ASC Topic 718 and ASC Topic505-50,
Equity/Equity-Based Payments toNon-Employees
In June 2018, the Company’s stockholders approved the Company’s 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which 4,750,000 additional shares of common stock were reserved for future equity grants. In
2. Summary of Significant Accounting Policies (continued)
2020, the Company’s stockholders approved the Company’s 2018 Amended and Restated Equity Incentive Plan (the “Amended 2018 Plan”) pursuant to which
6,500,000
additional shares of common stock were reserved for future equity grants.
In December 2019, the Company adopted the Intra-Cellular Therapies, Inc. 2019 Inducement Award Plan (the “2019 Inducement Plan”) without stockholder approval pursuant to Rule 5635(c)(4)for the grant of the Nasdaq Listing Rules. Pursuant to the 2019 Inducement Plan, the Company may grant stock options, RSUs, stockequity awards and other share-based awards forof up to a total of 1,000,000 shares of common stock to new employees of the Company. As of December 31, 2020, stock options and RSUs for 314,138 shares have been granted under the 2019 Inducement Plan. The Company does not intend to make additional grants under the 2019 Inducement Plan.newly hired employees.
Basic net loss per common share is determined by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants and RSUs.
Foreign Currency Translation
Expenses denominated in foreign currency are translated into U.S. dollars at the exchange rate on the date the expense is incurred. Assets and liabilities of foreign operations are translated at period-end exchange rates. The following common stock equivalents were excludedeffect of exchange rate fluctuations on translating foreign currency into U.S. dollars is included in the calculationstatements of diluted loss per share because their effect could be anti-dilutive as appliedoperations and is not material to the net loss for the years ended December 31, 2020, 2019 and 2018:Company’s financial statements.
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | 5,517,622 | | | | 6,039,945 | | | | 4,748,391 | |
| | | 1,600,083 | | | | 1,268,679 | | | | 647,411 | |
| | | 36,339 | | | | 67,080 | | | | 206,484 | |
Recently Issued Accounting Standards
The Company considers the applicability and impact of any recent ASU issued by the FASB. Based on our assessment, there are no recent accounting pronouncements that have or are expected to have a material impact on the Company’s consolidated financial statements or related disclosures.
In June 2016,
3. Investment Securities
Investment securities consisted of the FASB issued ASUfollowing (in thousands):
No. 2016-13, | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized
Cost | | Unrealized
Gains | | Unrealized
(Losses) | | Estimated
Fair
Value |
| U.S. Government Agency Securities | $ | 150,651 | | | $ | 148 | | | $ | (204) | | | $ | 150,595 | |
| FDIC Certificates of Deposit | 4,410 | | | 2 | | | (12) | | | 4,400 | |
| Certificates of Deposit | 60,000 | | | — | | | — | | | 60,000 | |
| Commercial Paper | 78,610 | | | 59 | | | (27) | | | 78,642 | |
| Corporate Notes/Bonds | 118,899 | | | 281 | | | (143) | | | 119,037 | |
| $ | 412,570 | | | $ | 490 | | | $ | (386) | | | $ | 412,674 | |
“Financial Instruments – Credit Losses (Topic 326): Measurement | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized
Cost | | Unrealized
Gains | | Unrealized
(Losses) | | Estimated
Fair
Value |
| U.S. Government Agency Securities | $ | 188,465 | | | $ | 14 | | | $ | (1,729) | | | $ | 186,750 | |
| FDIC Certificates of Deposit | 4,155 | | | 3 | | | (72) | | | 4,086 | |
| Certificates of Deposit | 7,500 | | | — | | | — | | | 7,500 | |
| Commercial Paper | 100,711 | | | 3 | | | (269) | | | 100,445 | |
| Corporate Notes/Bonds | 189,588 | | | 1 | | | (2,141) | | | 187,448 | |
| $ | 490,419 | | | $ | 21 | | | $ | (4,211) | | | $ | 486,229 | |
The Company has classified all of Credit Lossesits investment securities as available-for-sale, including those with maturities beyond one year, as current assets on Financial Instruments” (“ASUthe consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations. As of December 31, 2023 and 2022, the Company held $77.8 million and $71.5 million, respectively, of available-for-sale investment securities with contractual maturity dates more than one year and less than two years, with the remainder of the available-for-sale investment securities having contractual maturity dates less than one year.
2016-13”).The aggregate related fair value of investments with unrealized losses as of December 31, 2023 was $165.2 million, which consisted of $78.0 million from U.S. government agency securities, $3.7 million of certificates of deposit, $32.1 million of commercial paper, and $51.4 million of corporate notes/bonds. $70.1 million of the aggregate fair value of investments with unrealized losses as of December 31, 2023 has been held in a continuous unrealized loss position for over 12 months, with the remaining $95.1 million held in a continuous unrealized loss position for less than 12 months. As of December 31, 2023, $60.0 million of the certificates of deposit and $2.5 million of the U.S. Government Agency Securities balance are listed as cash equivalents. As of December 31, 2022, the aggregate related fair value of investments with unrealized losses was $438.3 million. $49.1 million of the aggregate fair value of investments with unrealized losses as of December 31, 2022 has been held in a continuous unrealized loss position for over than 12 months, with the remaining $389.2 million held in a continuous unrealized loss position for less than 12 months.
This guidance appliesThe Company reviewed all of the investments which were in a loss position at the respective balance sheet dates, as well as the remainder of the portfolio. The Company has analyzed the unrealized losses and determined that market conditions were the primary factor driving these changes. After analyzing the securities in an unrealized loss position, the portion of these losses that relate to
all entities and impacts how entities account forchanges in credit
losses for most financial assets and other instruments. Fordebtquality is insignificant. The Company does not intend to sell these securities,
entitiesnor is it more likely than not that the Company will be required to
recognize an allowancesell them prior to the end of their contractual terms. Furthermore, the Company does not believe that these securities expose the Company to undue market risk or counterparty credit risk.
4. Fair Value Measurements
The Company has no assets or liabilities that were measured for
credit losses rather than a reduction to thesignificant unobservable inputs (Level 3 assets and liabilities) as of December 31, 2023 and 2022. The carrying value of
the asset. For trade receivables, loanscash held in money market funds of approximately $10.7 million as of December 31, 2023 and
debt securities, entities will be required to estimate lifetime expected credit losses. $12.2 million as of December 31, 2022 is included in cash and cash equivalents and approximates market value based on quoted market price or Level 1 inputs. The
Company adopted this standard on January 1, 2020.carrying value of U.S. Government Agency Securities of $2.5 million and certificates of deposit of $60.0 million as of December 31, 2023 are included in cash and cash equivalents. The
Company evaluated the implicationscarrying value of cash held in commercial paper of approximately $14.9 million, U.S. Government Agency Securities of $20.5 million, and certificates of deposit of $7.5 million as of December 31, 2022 are included in cash and cash equivalents. The fair value measurements of the new standard, inclusive ofCompany’s cash equivalents and available-for-sale investment securities are identified in the applicable financial statement disclosures required, as well as to its internal controls, business processes, and accounting policies, noting there was no significant impact to the financial statements as of January 1, 2020 and for the year ended December 31, 2020.following tables (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at
Reporting Date Using |
| December 31,
2023 | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Money Market Funds | $ | 10,698 | | | $ | 10,698 | | | $ | — | | | $ | — | |
| U.S. Government Agency Securities | 150,595 | | | — | | | 150,595 | | | — | |
| FDIC Certificates of Deposit | 4,400 | | | — | | | 4,400 | | | — | |
| Certificates of Deposit | 60,000 | | | — | | | 60,000 | | | — | |
| Commercial Paper | 78,642 | | | — | | | 78,642 | | | — | |
| Corporate Notes/Bonds | 119,037 | | | — | | | 119,037 | | | — | |
| $ | 423,372 | | | $ | 10,698 | | | $ | 412,674 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at
Reporting Date Using |
| December 31,
2022 | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Money Market Funds | $ | 12,203 | | | $ | 12,203 | | | $ | — | | | $ | — | |
| U.S. Government Agency Securities | 186,750 | | | — | | | 186,750 | | | — | |
| FDIC Certificates of Deposit | 4,086 | | | — | | | 4,086 | | | — | |
| Certificates of Deposit | 7,500 | | | — | | | 7,500 | | | — | |
| Commercial Paper | 100,445 | | | — | | | 100,445 | | | — | |
| Corporate Notes/Bonds | 187,448 | | | — | | | 187,448 | | | — | |
| $ | 498,432 | | | $ | 12,203 | | | $ | 486,229 | | | $ | — | |
5. Inventory
Inventory consists of the following:
following (in thousands): | | | | |
| | |
| |
| | $ | 2,483,801 | |
| | | 1,781,101 | |
| | | 2,791,483 | |
| | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Raw materials | $ | 38,621 | | | $ | 17,227 | |
| Work in process | 4,277 | | | 2,594 | |
| Finished goods | 7,370 | | | 4,099 | |
| Total | 50,268 | | | 23,920 | |
| Less: Current portion | (11,647) | | | (23,920) | |
| Total inventory, non-current | $ | 38,621 | | | $ | — | |
Inventory acquired prior to receipt ofDecember 31, 2023 and 2022, the FDA approval on December 20, 2019 for CAPLYTA was expensed as researchCompany has recorded $7.7 million and development expense as incurred. No$0, respectively, in inventory was produced from the FDA approval date through the end of 2019; therefore, no inventory was capitalized on the consolidated balance sheet as of December 31, 2019.
sheets which is subject to supplemental regulatory procedures but believes it is probable that it has future economic benefit.4. Property6. Prepaid and Equipment
PropertyPrepaid expenses and equipment consistother assets consists of the following:
following (in thousands): | | | | | | | | |
| | |
| | |
| |
| | | | | | $ | 243,532 | |
| | | | | | | 423,097 | |
| | | | | | | 3,861,227 | |
| | | | | | | 1,240,315 | |
| | | | | | | | | |
| | | | | | | | 5,768,171 | |
Less accumulated depreciation | | | | | | | (3,508,431 | ) |
| | | | | | | | | |
| | | | | | | $ | 2,259,740 | |
| | | | | | | | | |
Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $528,118, $477,121 and $368,673, respectively.
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Prepaid operating expenses, non-clinical | $ | 19,465 | | | $ | 11,335 | |
| Production campaign deposits | 15,127 | | | 21,575 | |
| Clinical trial advances | 11,630 | | | 11,808 | |
| Prefunded customer programs | 3,514 | | | 561 | |
| Total | 49,736 | | | 45,279 | |
| Less: Current portion | (42,443) | | | (45,193) | |
| Total other assets | $ | 7,293 | | | $ | 86 | |
5.7. Right Ofof Use Assets and Lease Liabilities
In 2014, the Company entered into a long-term lease with a related party which, as amended, provided for a lease of useable laboratory and office space located in New York, New York. A member of the Company’s board of directors is the Executive Chairman of the parent company to the landlord under this lease. Concurrent with this lease, the Company entered into a license agreement to occupy certain vivarium relatedvivarium-related space in the same facility for the same term and rent escalation provisions as the lease. This license has the primary characteristics of a lease and is characterized as a lease in accordance with ASU No. 2016-02,
Leases, for accounting purposes. In September 2018, the Company further amended the lease to obtain an additional office space beginning October 1, 2018 and to extend the term of the lease for previously acquired space. The lease, as amended, has a term of 14.3 years ending in May 2029. In February 2019, the Company entered into a long-term lease for office space in Towson, Maryland beginning March 1, 2019. The lease has a term of 3.2 years ending in April 2022 and includes limited rent abatement and escalation provisions. The Company has
no other significant leases. In addition, no identified leases require allocations between lease andnon-lease
components.In adopting ASU2016-02
as of January 1, 2019, the Company elected the package of practical expedients, which permit the Company not to reassess under the new standard the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the consolidated balance sheets. The Company also
elected the lessee component election, allowing the Company to account for the lease andnon-lease
components as a single lease component. In determining whether a contract contains a lease, asset and service agreements are assessed at onset and upon modification for criteria of specifically identified assets, control and economic benefit. The Company recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate. As the majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. On
5. Right Of Use Assets and Lease Liabilities (continued)
the lease commencement dates, the Company estimated the lease liabilities and the right of use assets at present value using its applicable incremental borrowing rates of its two long-term leases of 7.2% for the Company’s Maryland lease of 3.2 years and 9.1% for the Company’s New York leases of 14.3 years. On January 1, 2019, upon adoption of ASU2016-02,
the Company recorded right of use assets of approximately $20.2 million, lease liabilities of $23.4 million and eliminated deferred rent of $3.2 million. At the execution of the Maryland lease in 2019, the Company recorded a right of use asset and a lease liability of $0.2 million, which represented anon-cash
transaction.Right of use assets and lease liabilities for operating leases were approximately $17.0 million and $21.8 million as of December 31, 2020, respectively. The operating cash outflows related to operating lease obligations for the year ended December 31, 2020 were approximately $3.3 million.
Maturity analysis under the lease agreements are as follows:
| | | | |
Year ending December 31, 2021 | | $ | 3,448,323 | |
Year ending December 31, 2022 | | | 3,491,166 | |
Year ending December 31, 2023 | | | 3,566,466 | |
Year ending December 31, 2024 | | | 3,675,196 | |
Year ending December 31, 2025 | | | 3,787,248 | |
| | | 13,839,791 | |
| | | | | |
| | | 31,808,190 | |
Less: Present value discount | | | (9,961,556 | ) |
| | | | | |
| | | 21,846,634 | |
| | | | | |
| | | (3,284,540 | ) |
| | | | | |
Long-term lease liabilities | | $ | 18,562,094 | |
| | | | | |
Lease expense for the year ended December 31, 2020, 2019 and 2018 was approximately $3.3 million $3.3 million and $1.8 million, respectively.
On May 17, 2019, the Company entered into an agreement (the “Vehicle Lease”) with a company (the “Lessor”) to acquire motor vehicles for certain employees. The Vehicle Lease provides for individual leases for the vehicles, which at each lease commencement was determined to qualify for operating lease treatment. The Company began leasing vehicles under the Vehicle Lease in March 2020.
The contractual period of each lease is 12 months, followed by
renewal periods. The Company estimates the lease term for each vehicle to be
3012 months. Leases which the Company determined to have a lease term of 12 months
basedor less will be treated as short-term in accordance with the accounting policy election and are not recognized on
industry standards. Thethe balance sheet. Each lease permits either party to terminate the lease at any time via written notice to the other party. The Company neither acquires ownership of, nor has the option to purchase the vehicles at any time. The Company is required to maintain an irrevocable
$1.4$1.75 million letter of credit that the Lessor may draw upon in the event the Company defaults on the Vehicle
Lease. The $1.4 million isLease, which has been recorded as restricted cash on the consolidated balance
sheet.The nature of the lease is one commonly referred to as “TRAC” lease, as it contains a terminal rental adjustment clause, or “TRAC” clause.” The TRAC clause limits lesseeexposure, or likelihood of having a variable lease paymentdue at lease termination. This variable lease payment amount would be any difference between the vehicle stipulated (capitalized) cost and the sum of the reserve and net proceeds from disposal as described in the Vehicle Lease. Further, the Lessor guarantees that the net proceeds will not be less than 20% of the vehicle capitalized cost in the first 12 months, and 30% of the vehicle capitalized cost at the beginning of subsequent12-month
period increments.sheets.
5. Right Of Use Assets and Lease Liabilities (continued)
Right of use asset and lease liability for the vehicle fleet lease were approximately $7.3 million and $0, respectively, as of December 31, 2020 and December 31, 2019. The vehicle leases entered into since March 2020 representnon-cash
transactions. The total operating lease cost for the year ended December 31, 2020 was $1,183,072. The operating cash outflows related to vehicle fleet operating lease obligations for the year ended December 31, 2020 were $1,183,072.The following table presents the Vehicle Lease balances withinlease cost for the consolidated balance sheet,years ended December 31, 2023, 2022, and 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Lease cost | | | | | |
| Operating lease cost | $ | 3,851 | | | $ | 4,719 | | | $ | 5,774 | |
| Variable lease cost | 1,536 | | | 1,612 | | | 2,676 | |
| Short-term lease cost | 2,298 | | | 873 | | | — | |
| $ | 7,685 | | | $ | 7,204 | | | $ | 8,450 | |
The following table presents the weighted average remaining fleet lease term, and the weighted average discount rates related to the Vehicle Leaseleases as of December 31, 2020:
2023 and 2022: | | | | | | |
Lease Assets and Liabilities – Fleet | | | | | | |
| | | | | | | |
| | Operating lease right of use assets | | | $ | 7,295,515 | |
| | | | | | | | |
| | | | | | $ | 7,295,515 | |
| | | | | | | | |
| | | | | | | |
| | | | | | | |
Lease liabilities, short-term | | Operating lease liabilities | | | $ | 2,257,262 | |
| | |
| | | | | | | |
| | Non-current operating lease liabilities | | | | 5,038,253 | |
| | | | | | | | |
| | | | | $ | 7,295,515 | |
| | | | | | | | |
Weighted average remaining lease term | | | | | | |
| | | | | | 2.0 years | |
Weighted average discount rate | | | | | | 1.74 | % |
The following table presents the maturity of the Company’s fleet lease liability as of December 31, 2020:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Other information | | | |
| Weighted average remaining lease term | 5.3 years | | 5.9 years |
| Weighted average discount rate | 9.07 | % | | 8.76 | % |
| | | | |
Year ending December 31, 2021 | | $ | 2,363,058 | |
Year ending December 31, 2022 | | | 3,458,449 | |
Year ending December 31, 2023 | | | 1,640,337 | |
Year ending December 31, 2024 | | | 0 | |
| | | 0 | |
| | | | | |
| | | 7,461,844 | |
Less: Present value discount | | | (166,329 | ) |
| | | | | |
Total operating lease liabilities | | | 7,295,515 | |
| | | | | |
| | | (2,257,262 | ) |
| | | | | |
Long-term lease liabilities | | $ | 5,038,253 | |
| | | | | |
Right of use assets and lease liabilities for all operating leases were approximately $24.3 million and $29.1 million, respectively, as of December 31, 2020.
6.Share
-Based CompensationOn June 18, 2018, the Company’s stockholders approved the 2018 Plan which provided for the granting of share-based awards, such as stock options, restricted common stock, RSUs and stock appreciation rights to employees, directors and consultants as determined by the Board of Directors. On May 27, 2020, the Company’s stockholders approved the Amended 2018 Plan, which provides for the granting of up to 6,500,000 additional share-based awards, such as stock options, restricted common stock, RSUs and stock appreciation rights to
6.Share
-Based Compensation (continued) and consultants as determined by the Board of Directors. In December 2019, the Company adopted the 2019 Inducement Plan for the grant of equity awards of up to
1,000,000shares of common stock to newly hired employees.
As of December 31, 2020, the total number of shares reserved under all equity plans was 17,787,390 and the Company had 7,459,117 shares available for future issuanceMaturity analysis under the Amended 2018 Plan and the 2019 Inducement Plan. Stock options granted under the Amended 2018 Plan and the 2019 Inducement Plan may be either incentive stock options (“ISOs”)lease agreements are as defined by the Internal Revenue Code of 1986, as amended, orfollows:
non-qualified | | | | | |
| Year ending December 31, 2024 | $ | 3,792 | |
| Year ending December 31, 2025 | 3,907 | |
| Year ending December 31, 2026 | 3,974 | |
| Year ending December 31, 2027 | 4,022 | |
| Year ending December 31, 2028 | 4,144 | |
| Thereafter | 1,771 | |
| Total | 21,610 | |
| Less: Present value discount | (4,672) | |
| Total Lease liability | 16,938 | |
| Less: Current portion | (3,612) | |
| Long-term lease liabilities | $ | 13,326 | |
stock options. 8. Share-Based Compensation
The Board of Directors determines who will receivereceives options, the vesting periods (which are generally one to three years) and the exercise prices of such options. Options have a maximum term of 10 years. The exercise price of stock options granted under the Amended 2018 Plan and the 2019 Inducement Plan must be at least equal to the fair market value of the common stock on the date of grant. The Company does not intend to issue any additional equity awards under the 2019 Inducement Plan.
Total
share
-based share-based compensation expense related to all of the Company’s share-based awards, including stock options and RSUs granted to employees
directors and
consultantsdirectors recognized during the years ended December 31,
2020, 20192023, 2022, and
2018,2021, was comprised of the
following:following (in thousands): | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Inventoriable costs | $ | 1,610 | | | $ | 1,791 | | | $ | 1,624 | |
| Research and development | 15,781 | | | 15,387 | | | 9,832 | |
| Selling, general and administrative | 35,441 | | | 25,835 | | | 22,847 | |
| Total share-based compensation expense | $ | 52,832 | | | $ | 43,013 | | | $ | 34,303 | |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | — | | | | — | |
| | | | | | $ | 9,411,056 | | | $ | 7,380,814 | |
| Selling, general and administrative | | | | | | | 11,377,632 | | | | 10,015,332 | |
| | | | | | | | | | | | | |
Total share-based compensation expense | | | | | | $ | 20,788,688 | | | $ | 17,396,146 | |
| | | | | | | | | | | | | |
The following table describes the assumptions used for calculating the value of options granted during the years ended December 31, 2020, 20192023, 2022 and 2018:
2021: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Dividend yield | 0 | % | | 0 | % | | 0 | % |
| Expected volatility | 74.8%-78.0% | | 78.7-88.7% | | 89.4-94.9% |
| Weighted-average risk-free interest rate | 3.92 | % | | 2.22 | % | | 0.87 | % |
| Expected term (in years) | 6.0 | | 5.9 | | 5.9 |
| | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | 0 | % | | | 0 | % |
| | | | | | | 85.7-96.5 | % | | | 85.2%-85.8 | % |
Weighted-average risk-free interest rate | | | | | | | 2.32 | % | | | 2.48 | % |
| | | | | | | 6.0 | | | | 6.0 | |
Information regarding stock option awards under the 2019 Inducement Plan, including with respect to grants to employees as of December 31, 2020, and changes during the period then ended, are summarized as follows:
| | | | | | | | | | | | |
| | |
| | |
| | |
| |
Outstanding at December 31, 2019 | | | 0 | | | $ | 0 | | | | | |
| | | 39,728 | | | $ | 17.18 | | | | 9.2 years | |
| | | | | | | | | | | | | |
Outstanding at December 31, 2020 | | | 39,728 | | | $ | 17.18 | | | | 9.2 years | |
| | | | | | | | | | | | | |
Vested or expected to vest at December 31, 2020 | | | 39,728 | | | $ | 17.18 | | | | | |
| | | | | | | | | | | | | |
Exercisable at December 31, 2020 | | | 0 | | | $ | 0 | | | | | |
| | | | | | | | | | | | | |
The weighted-average grant date fair value for awards granted during the years ended December 31, 2020, 20192023, 2022 and 20182021 was $12.84, $0$33.49, $41.71 and $0$29.01 per share, respectively. The total intrinsic value of
Information regarding the stock options exercised duringactivity, including with respect to grants to employees, directors and consultants under the years ended December 31, 2020,Amended 2018 Plan and 2019 and 2018 was $0, respectively. The total intrinsic value of the options
6.Share
-Based Compensation (continued)Inducement Plan as of December 31, 2020 was $
580,877. The total intrinsic value of the options exercisable as of December 31, 2020 was $
0. The total fair value of shares vested2023, and changes during the yearsyear then ended, December 31, 2020, 2019 and 2018 was $are summarized as follows:
0, respectively. | | | | | | | | | | | | | | | | | |
| Number of
Shares | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Contractual
Life |
| Outstanding at December 31, 2022 | 4,785,972 | | $ | 26.27 | | | 5.8 years |
| Options granted 2023 | 289,084 | | 48.13 | | | |
| Options exercised 2023 | (791,795) | | 22.49 | | | |
| Options canceled 2023 | (39,854) | | 51.05 | | | |
| Options expired 2023 | (3,425) | | 40.94 | | | |
| Outstanding at December 31, 2023 | 4,239,982 | | $ | 28.22 | | | 5.2 years |
| Vested and expected to vest at December 31, 2023 | 4,239,982 | | $ | 28.22 | | | |
| Exercisable at December 31, 2023 | 3,470,018 | | $ | 23.55 | | | 4.5 years |
The unrecognized share-based compensation expense related to stock option awards at December 31, 20202023 was $377,146$15.8 million, and will be recognized over a weighted-average period of 2.21.2 years.
Information regarding RSU awards under the 2019 Inducement Plan during the period then ended are summarized as follows:
| | | | | | | | | | | | |
| | |
| | |
| | |
| |
Outstanding at December 31, 2019 | | | 0 | | | $ | 0 | | | | | |
Time based RSUs granted in 2020 | | | 274,410 | | | $ | 16.01 | | | | 2.2 years | |
Time based RSUs cancelled in 2020 | | | (22,543 | ) | | $ | 15.81 | | | | 2.2 years | |
| | | | | | | | | | | | | |
Outstanding at December 31, 2020 | | | 251,867 | | | $ | 16.03 | | | | 2.2 years | |
| | | | | | | | | | | | | |
Vested or expected to vest at December 31, 2020 | | | 251,867 | | | $ | 16.03 | | | | | |
| | | | | | | | | | | | | |
The total intrinsicfollowing table details the value of the time based RSUs vestedoptions during the years ended December 31, 2020, 20192023, 2022 and 2018 was $0, respectively. The total intrinsic value of the2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Intrinsic value of options exercised | $ | 27,187 | | | $ | 48,267 | | | $ | 19,688 | |
| Intrinsic value of options outstanding | 184,027 | | 130,078 | | | 172,964 | |
| Intrinsic value of options exercisable | 166,820 | | 118,340 | | | 131,235 | |
| Fair value of shares vested | 19,120 | | 17,145 | | | 10,583 | |
Information regarding time based RSU’s outstandingRSU activity, including with respect to grants to employees under the Amended 2018 Plan and 2019 Inducement Plan as of December 31, 2020 was $8,009,370. 2023, and changes during the year then ended, is summarized as follows:
| | | | | | | | | | | | | | | | | |
| Number of
Shares | | Weighted-
Average
Grant Date
Fair Value Per Share | | Weighted-
Average
Contractual
Life |
| Outstanding at December 31, 2022 | 1,274,664 | | $ | 42.76 | | | 0.8 years |
| Time based RSUs granted in 2023 | 1,109,622 | | 48.58 | | | |
| Time based RSUs vested in 2023 | (665,824) | | 36.65 | | | |
| Time based RSUs cancelled in 2023 | (73,332) | | 48.29 | | | |
| Outstanding at December 31, 2023 | 1,645,130 | | $ | 48.92 | | | 1.0 years |
The total fairfollowing table details the value of time based RSUs vested during the years ended December 31, 2020, 20192023, 2022 and 2018 was $0, respectively. 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Intrinsic value of time based RSUs outstanding | 117,824 | | | 67,455 | | | 80,062 | |
| Fair value of RSUs vested | 24,400 | | | 17,873 | | | 12,411 | |
The fair value of time based RSUs is based on the closing price of the Company’s common stock on the date of grant.
As of December 31, 2020,2023, there was $2,859,070$52.8 million of unrecognized compensation costs related to unvested time based RSUs which will be recognized over a weighted-average period of 2.21.4 years.
December 31, 2020, the Company issued options and time based RSUs totaling 314,138 shares in the 2019 Inducement Plan. The Company doeshas not intend to issueissued any additional equity awardsoptions or RSUs under the 2019 Inducement Plan.
Information regarding the stock options activity, including with respect to grants to employees, directors and consultants as of December 31, 2020, and changes during the year then ended, are summarized as follows:
| | | | | | | | | | | | |
| | |
| | |
| | |
| |
Outstanding at December 31, 2019 | | | 6,039,945 | | | $ | 16.81 | | | | 7.0 years | |
| | | 760,472 | | | $ | 24.03 | | | | 9.2 years | |
Options exercised in 2020 | | | (999,479 | ) | | $ | 12.58 | | | | 4.8 years | |
Options canceled or expired in 2020 | | | (323,044 | ) | | $ | 19.42 | | | | 7.6 years | |
| | | | | | | | | | | | | |
Outstanding at December 31, 2020 | | | 5,477,894 | | | $ | 18.43 | | | | 6.6 years | |
| | | | | | | | | | | | | |
Vested or expected to vest at December 31, 2020 | | | 5,477,894 | | | $ | 18.43 | | | | | |
| | | | | | | | | | | | | |
Exercisable at December 31, 2020 | | | 3,441,115 | | | $ | 19.19 | | | | 5.6 years | |
| | | | | | | | | | | | | |
6.Share
-Based Compensation (continued)The weighted-average grant date fair value for awards granted during the years ended December 31, 2020, 2019 and 2018 was $17.98, $9.17 and $15.22 per share, respectively. The total intrinsic value of the options exercised during the years ended December 31, 2020, 2019 and 2018 was $11,099,951, $3,127,412 and $1,683,679, respectively. The total intrinsic value of the options outstanding as of December 31, 2020 was $81,234,131. The total intrinsic value of the options exercisable as of December 31, 2020 was $51,341,624. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was $13,366,276, $11,983,108 and $11,348,595, respectively.
The unrecognized share-based compensation expense related to stock option awards at December 31, 2020 was $16,083,760, and will be recognized over a weighted-average period of 1.7 years.
Information regarding time based RSU activity, including with respect to grants to employees as of December 31, 2020, and changes during the year then ended, is summarized as follows:
| | | | | | | | | | | | |
| | |
| | |
| | |
| |
Outstanding at December 31, 2019 | | | 1,268,679 | | | $ | 13.60 | | | | | |
Time based RSUs granted in 2020 | | | 732,992 | | | $ | 23.09 | | | | | |
Time based RSUs vested in 2020 | | | (519,994 | ) | | $ | 13.90 | | | | | |
Time based RSUs cancelled in 2020 | | | (169,800 | ) | | $ | 17.23 | | | | | |
| | | | | | | | | | | | | |
Outstanding at December 31, 2020 | | | 1,311,877 | | | $ | 18.77 | | | | | |
| | | | | | | | | | | | | |
The total intrinsic value of the time based RSUs vested during the years ended December 31, 2020, 2019 and 2018 was $14,553,421, $3,109,328 and $1,165,323, respectively. The total intrinsic value of the time based RSU’s outstanding as of December 31, 2020 was $40,816,730. The total fair value of time based RSUs vested during the years ended December 31, 2020, 2019 and 2018 was $7,230,027, $4,623,030 and $2,109,705, respectively. The fair value of time based RSUs is based on the closing price of the Company’s common stock on the date of grant.
Plan since 2020. As of December 31, 2020,2023, there was $14,600,601 ofno unrecognized compensation costs related to unvested time basedoptions and RSUs which will beunder the 2019 Inducement Plan, and $0.2 million was recognized over a weighted-average periodduring 2023 under this plan. As of 1.8 years.December 31, 2023, all options and RSUs are vested.
9. Loss per Share
The
Company recognizednon-cash
following common stock equivalents were excluded in the calculation of diluted loss per share
-based compensation expense related because their effect could be anti-dilutive as applied to
Milestone RSU’sthe net loss for the years ended December 31,
2020, 20192023, 2022 and
2018 of approximately $0, $0.9 million and $0.5 million, respectively. The total fair value of shares vested with respect to Milestone RSUs during the years ended December 31, 2020, 2019 and 2018 was $0, $921,972 and $1,062,212, respectively.2021: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Stock options | 4,239,982 | | 4,785,972 | | 5,451,398 |
| RSUs | 1,860,714 | | 1,469,678 | | 1,666,848 |
Information related to the Company’s Milestone RSUs and the TSR RSUs during the year ended December 31, 2020 are summarized as follows:
| | | | | | | | | | | | |
| | |
| | |
| | |
| |
Outstanding at December 31, 2019 | | | 67,080 | | | $ | 17.08 | | | | 0.2 years | |
Milestone RSUs and TSR RSUs granted in 2020 | | | 86,044 | | | $ | 28.25 | | | | 2.1 years | |
Milestone RSUs and TSR RSUs vested in 2020 | | | (67,080 | ) | | $ | 17.08 | | | | 0.2 years | |
Milestone RSUs and TSR RSUs cancelled in 2020 | | | (13,366 | ) | | $ | 28.25 | | | | 2.1 years | |
| | | | | | | | | | | | | |
Outstanding at December 31, 2020 | | | 72,678 | | | $ | 28.25 | | | | 2.1 years | |
| | | | | | | | | | | | | |
6.Share
-Based Compensation (continued
)The total intrinsic value of the Company’s Milestone RSUs and the TSR RSUs vested during the years ended December 31, 2020, 2019 and 2018 was $1,583,759, $2,233,958, and $781,434, respectively. The total intrinsic value of the Company’s Milestone RSU’s and the TSR RSUs outstanding as of December 31, 2020 was $2,311,160. The total fair value of the Company’s Milestone RSUs and the TSR RSUs vested during the years ended December 31, 2020, 2019 and 2018 was $1,145,732, $921,972, and $971,475, respectively.
As of December 31, 2020 and 2019 there were $1,658,764 and $0 respectively of unrecognized compensation costs related to unvested Milestone RSU grants and TSR RSU grants which will be recognized over a weighted average period of 2.1 years.
The weighted average estimated fair value per share of the TSR RSUs granted in 2017 was $17.08, which was derived from a Monte Carlo simulation. Significant assumptions utilized in estimating the value of the awards granted include an expected dividend yield of 0%, a risk free rate of 1.6%, and expected volatility of 95.4%. The TSR RSUs granted in 2017 entitled the grantee to receive a number of shares of the Company’s common stock determined over a three-year performance period ended and vested on December 31, 2019, provided the grantee remained in the service of the Company on the settlement date. The Company expensed the cost of these awards ratably over the requisite service period. The number of shares for which the TSR RSUs was settled was a percentage of shares for which the award was targeted and depended on the Company’s total shareholder return (as defined below), expressed as a percentile ranking of the Company’s total shareholder return as compared to the Company’s peer group (as defined below). The number of shares for which the TSR RSUs were settled varied depending on the level of achievement of the goal. Total shareholder return was determined by dividing the average share value of the Company’s common stock over the 30 trading days preceding January 1, 2020 by the average share value of the Company’s common stock over the 30 trading days beginning on January 1, 2017, with a deemed reinvestment of any dividends declared during the performance period. The Company’s peer group originally included 223 companies that comprised the Nasdaq Biotechnology Index at December 31, 2018, which was selected by the Compensation Committee of the Company’s Board of Directors and included a range of biotechnology companies operating in several business segments. The TSR RSUs valuation was complete and 67,080 shares subject to the TSR RSU’s were issued in the first quarter of 2020.
The weighted average estimated fair value per share of the TSR RSUs granted in 2020 was $32.56, which was derived from a Monte Carlo simulation. Significant assumptions utilized in estimating the value of the awards granted include an expected dividend yield of 0%, a risk free rate of 1.4%, and expected volatility of 91.3%. The TSR RSUs granted in 2020 will entitle the grantee to receive a number of shares of the Company’s common stock determined over a three-year performance period ending and vesting on December 31, 2022, provided the grantee remained in the service of the Company on the settlement date. The Company is expensing the cost of these awards ratably over the requisite service period. The number of shares for which the TSR RSUs will be settled is a percentage of shares for which the award is targeted and depends on the Company’s total shareholder return, expressed as a percentile ranking of the Company’s total shareholder return as compared to the Company’s peer group, which is consistent with the TSR RSUs granted in 2017. The number of shares for which the TSR RSUs will be settled will vary depending on the level of achievement of the goal. Total shareholder return will be determined by dividing the average share value of the Company’s common stock over the 30 trading days preceding January 1, 2023 by the average share value of the Company’s common stock over the 30 trading days beginning on January 1, 2020, with a deemed reinvestment of any dividends declared during the performance period. The Company’s peer group included companies that compromised the Nasdaq Biotechnology Index at December 31, 2019.
On December 22, 2017, former President Donald Trump signed into law the “Tax Cuts and Jobs Act” (“TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended (the “Code”). The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility
7.10. Income Taxes (continued)
of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. In addition, the TCJA repealed the alternative minimum tax (“AMT”) and provides for a refund of AMT paid or a reduction of future taxes payable over a prescribed period of years between 2018 and 2021. With the passing of the TCJA, the Company recorded a receivable for prior period AMT, and therefore, the Company recognized an income tax benefit of approximately $1.1 million related to this prior period AMT in December 2017.
While the TCJA provide for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangiblelow-taxed
income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. As of the year ended December 31, 2020, the Company’s foreign operations do not generate positive income and the Company is not currently subject to the GILTI provisions. The Company has not made an accounting policy election for GILTI and will analyze and formulate its GILTI accounting policy in the period which the Company becomes subject to the GILTI provisions.
The BEAT provisions eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company has not made any qualifying payments and the BEAT tax is not applicable in 2020. Therefore, the Company has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2020.
During December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The Company has recognized the provisional tax impacts related to the release of the valuation allowance with respect to AMT credits and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company completed its evaluation of the effects of the TCJA during the fourth quarter of 2018 and the provisional amounts the Company accounted for in its December 31, 2017 provision were finalized in 2018 with no adjustments.
Loss before income taxes is as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| U.S. | $ | (139,038) | | | $ | (223,465) | | | $ | (221,216) | |
| Non-U.S. | — | | | (32,785) | | | (62,904) | |
| Total loss before taxes | $ | (139,038) | | | $ | (256,250) | | | $ | (284,120) | |
| | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | (56,121,258 | ) | | $ | (30,299,751 | ) |
| | | | | | | (91,599,320 | ) | | | (124,826,060 | ) |
| | | | | | | | | | | | | |
| | | | | | | (147,720,578 | ) | | $ | (155,125,811 | ) |
| | | | | | | | | | | | | |
Total income tax expense for the years ended December 31, 2020, 20192023, 2022 and 20182021 is allocated as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Current | $ | 636 | | | $ | 6 | | | $ | 6 | |
| Deferred | (51,341) | | | (52,789) | | | (53,070) | |
| Valuation allowance | 51,341 | | | 52,789 | | | 53,070 | |
| Provision for income taxes | $ | 636 | | | $ | 6 | | | $ | 6 | |
| | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | $ | 1,600 | | | $ | 1,600 | |
| | | | | | | (8,484,822 | ) | | | (5,054,468 | ) |
| | | | | | | 8,484,822 | | | | 5,054,468 | |
| | | | | | | | | | | | | |
Provision for income taxes | | | | | | $ | 1,600 | | | $ | 1,600 | |
| | | | | | | | | | | | | |
7. Income Taxes (continued)
A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate for the years ended December 31, 2020, 20192023, 2022 and 20182021 is as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Income tax at statutory federal rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Executive and share-based compensation | (0.4) | | | 1.9 | | | 0.6 | |
| Subpart F Inclusion | — | | | (3.4) | | | — | |
| Foreign rate differential | — | | | (2.7) | | | (4.6) | |
| Change in effective state tax rates | (1.6) | | | 0.2 | | | (0.3) | |
| State income tax expense | 4.8 | | | 3.6 | | | 2.0 | |
| Research and development credits | 14.1 | | | — | | | — | |
| Other permanent items | (1.5) | | | — | | | — | |
| Change in valuation allowance | (36.9) | | | (20.6) | | | (18.7) | |
| Provision for income taxes | (0.5) | % | | — | % | | — | % |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | | |
Income tax benefit at statutory federal rate | | | | | | | | | | | 21.00 | % |
Other permanent differences | | | | | | | | | | | (0.58 | ) |
Foreign rate differential | | | | | | | | | | | (16.90 | ) |
Change in effective state tax rates | | | | | | | | | | | (0.38 | ) |
| | | | | | | | | | | 0.12 | |
Change in valuation allowance | | | | | | | | | | | (3.26 | ) |
| | | | | | | | | | | | | |
Provision for income taxes | | | | | | | | | | | 0.00 | % |
| | | | | | | | | | | | | |
Deferred income taxes reflect the net tax effect of temporary differences that exist between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. As of December 31, 2020,2023, the Company had $323.0$528.4 million of federal net operating loss carryforwards, of which $131.1$73.6 million expire at various dates through 2037 and $191.9$454.8 million do not expire. The gross amount of the state net operating loss carryforwards is equal to or less than the federal net operating loss carryforwards and
expires over various periods based on individual state tax law. In general, businesses with U.S. net operating losses (“NOLs”) are considered loss corporations for U.S. federal income tax purposes. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), loss corporations that undergo an ownership change, as defined under the Code, may be subject to an annual limitation on the amount of NOLs (and certain other tax attributes) available to offset taxable income earned after such ownership change. For the years ended December 31, 2020, 2019, 2018, 2017, 2016 and 2015 through 2022, the Company performed a Section 382 ownership analysis and determined that an ownership change occurred (within the meaning of Section 382 of the Code) in 2015 but not in subsequent periods. Based on the analysis performed through December 31, 2020, however,2023, the Company does not believe that the Section 382 annual limitation will impact the Company’s ability to utilize the tax attributes that existed as of the date of the ownership change in a material manner. If the Company experiences an ownership change in the future, the tax benefits related to the NOLs and tax credit carryforwards may be further limited or lost.
The following summarizes the significant components of the Company’s deferred tax assets and liabilities as of December 31, 20202023 and 2019, respectively:
2022, respectively (in thousands): | | | | | | | | |
| | | | |
| | | | | | | |
| | | | | | | | |
Net operating loss carryforwards | | $ | 85,751,154 | | | $ | 49,668,232 | |
Accrued employee benefits | | | 1,363,082 | | | | 589,667 | |
Research and development credit | | | 9,321,214 | | | | 9,321,214 | |
| | | 15,137,990 | | | | 12,965,250 | |
| | | 850,900 | | | | — | |
| | | — | | | | 264,609 | |
| | | 7,461,587 | | | | 4,973,618 | |
Deferred tax liabilities: | | | | | | | | |
Right of use asset—capital lease | | | (6,228,138 | ) | | | (3,922,583 | ) |
Unrealized gains on investment | | | (123,049 | ) | | | (27,577 | ) |
| | | (244,058 | ) | | | (230,760 | ) |
| | | | | | | | | |
Net deferred tax asset before valuation allowance | | | 113,290,682 | | | | 73,601,670 | |
| | | (113,290,682 | ) | | | (73,337,061 | ) |
| | | | | | | | | |
| | $ | 0 | | | $ | 264,609 | |
| | | | | | | | | |
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 138,685 | | | $ | 168,606 | |
| Accrued expenditures | 17,842 | | | 9,169 | |
| Research and development credit, net | 31,109 | | | 9,321 | |
| Research and development expenditures | 62,432 | | | 13,525 | |
| Share-based compensation | 19,753 | | | 17,085 | |
| Other | — | | | 1,466 | |
| Capital lease | 4,198 | | | 4,980 | |
| Deferred tax liabilities: | | | |
| Right of use asset—capital lease | (3,204) | | | (3,684) | |
| Depreciation | (140) | | | (154) | |
| Other | (86) | | | — | |
| Net deferred tax asset before valuation allowance | 270,589 | | | 220,314 | |
| Valuation allowance | (270,589) | | | (220,314) | |
| Net deferred tax asset | $ | — | | | $ | — | |
7. Income Taxes (continued)
upon the Company’s historical operating performance and the reported cumulative net losses to date, the Company presently does not have sufficient objective evidence to support the recovery of its net deferred tax assets. Accordingly, the Company has established a full valuation allowance against its net deferred tax assets in 20202023 and 2019, excluding the AMT paid in prior years that is refundable or available as a reduction to future taxes payable,2022, for financial reporting purposes because it is not more likely than not that these deferred tax assets will be realized.
The Company did reclassify its deferredfiles income tax asset related to the AMT tax credit carryforward of $
265,000to a current tax receivablereturns in the first quarterU.S. federal jurisdiction and various state jurisdictions. The open years subject to tax audits vary depending on the tax jurisdictions. In the U.S. federal jurisdiction, we are no longer subject to income tax audits by taxing authorities for years before 2020. In addition, for federal tax purposes and certain state taxing jurisdictions, in the case of 2020 upon the filing of itscarryover tax returnattributes to years open for year ended December 31, 2019 and received the refund in July 2020. As of December 31, 2020, the Company received all of these refunds.assessment, such attributes may be subject to reduction by taxing authorities.
The total amount of unrecognized tax benefits was $2.5 million and $1.7 million as of December 31, 20202023 and December 31, 2019.2022 respectively. If recognized, none of these tax benefits would affect the effective tax rate due to valuation allowances.
The following summarizes the significant components of gross unrecognized tax benefits as of December 31, 2020 and 2019, respectively:
| | | | | | | | |
| | | | |
| | | | | | | |
| | | | | | $ | 1,738,815 | |
Current Year Uncertain Tax Positions: | | | | | | | | |
| | | 0 | | | | 0 | |
| | | | | | | | | |
| | | | | | $ | 1,738,815 | |
| | | | | | | | | |
8.11. Commitments and Contingencies
License and Royalty Commitments
On May 31, 2005, the Company entered into a worldwide, exclusive License Agreement with Bristol-Myers Squibb Company,
(“BMS”), pursuant to which the Company holds a license to certain patents and
know-how
of BMS relating to lumateperone and other specified compounds. The agreement was amended on November 3, 2010. The licensed rights are exclusive, except BMS retains rights in specified compounds in the fields of obesity, diabetes, metabolic syndrome and cardiovascular disease. However, BMS has no right to use, develop, or commercialize lumateperone and other specified compounds in any field of use. The Company has the right to grant sublicenses of the rights conveyed by BMS. The Company is obliged under the agreement to use commercially reasonable efforts to develop and commercialize the licensed technology. The Company is also prohibited from engaging in the clinical development or commercialization of specified competitive compounds.
Under the agreement, the Company
has made
an upfront paymentpayments of
$1.0$10.8 million to BMS
in 2005, a milestone payment of $1.25 million in December 2013, and a milestone payment of $1.5 million in December 2014 following the initiation of the Company’s first Phase 3 clinical trialrelated to milestones achieved to date for
lumateperone for patients with exacerbated schizophrenia. Upon FDA acceptance of an NDA filing for lumateperone, the Company was obligated to pay BMS a $2.0 million milestone payment, which was paid in January 2019. The FDA approved the NDA filing on December 23, 2019 and as a result the Company accrued an additional milestone liability of $5.0 million in the fourth quarter of 2019 which was paid in January 2020.lumateperone. Possible milestone payments remaining total $5.0 million. Under the agreement, the Company may be obliged to make other milestone payments to BMS for each licensed product of up to an aggregate of approximately $14.75 million. The Company is also obliged to make tiered single digit percentage royalty payments ranging between 5 – 9% on sales of licensed products. The Company is obliged to pay to BMS a percentage of
non-royalty
payments made in consideration of any sublicense.
8. Commitments and Contingencies (continued)
The agreement extends, and royalties are payable, on a
and
basis, through the later of 10 years after first commercial sale of a licensed product in such country, expiration of the last licensed patent covering a licensed product, its method of manufacture or use, or the expiration of other government grants providing market exclusivity, subject to certain rights of the parties to terminate the agreement on the occurrence of certain events. On termination of the agreement, the Company may be obliged to convey to BMS rights in developments relating to a licensed compound or licensed product, including regulatory filings, research results and other intellectual property rights.
In September 2016, the Company transferred certain of its rights under the BMS agreement to its wholly owned subsidiary, ITI Limited. In connection with the transfer, the Company guaranteedHowever, in December 2022, ITI Limited’s performance of its obligations under the BMS agreement. With the initial recognition of product sales revenue in the year ended December 31, 2020, theLimited merged into Intra-Cellular Therapies, Inc. The Company expensed approximately $1,126,538$26.4 million, $12.5 million, and $4.1 million in cost of product sales to satisfy its obligation under the BMS agreement.
agreement for the years ended December 31, 2023, 2022 and 2021, respectively.Purchase Commitments
ResearchThe Company enters into certain other long-term commitments for goods and Other Commitments
services that are outstanding for periods greater than one year. The Company has manufacturing service agreements committing the Company to certain minimum annual purchase commitments which the Company anticipates making payments for within the years 2025 through 2029. As of December 31, 2020,2023, the Company has committed to purchasing a production campaigncampaigns for active pharmaceutical ingredients (API)various raw materials including API and its intermediates from each of ourits supply vendors – Siegfried Evionnaz SA (Siegfried) and Lonza Ltd. (Lonza). Bothvendors. The current campaigns are expected to be received into inventory during 2022.2024 and 2025. The Company has a total commitmentpaid deposits of $16.4$15.1 million related to these two agreements. Asand $21.6 million as of December 31, 2020,2023 and 2022, respectively, for these campaigns. Of the Company had paid a deposit$15.1 million as of $3.0December 31, 2023, $7.9 million for the Siegfried campaign which is recorded within prepaidsprepaid expenses and other current assets.assets as the campaigns are expected to be received within one year of the balance sheet date and $7.2 million is recorded within other assets on the consolidated balance sheet as the campaigns are expected to be received after December 31, 2024. The $21.6 million balance as of December 31, 2022 is recorded within prepaid expenses and other current assets on the consolidated balance sheet. Over the course of the vendors’ manufacturing period, the Company will remit paymentpayments to each vendor based on the payment plan within the executed agreement. Each payment will subsequently be recorded into prepaid and other current assets. Upon title transfer of the product, the Company will recognize the material as inventory.agreements.
Retirement savings plan 401(k) contributions
The Company sponsors a defined contribution 401(k) plan covering all full-time employees. Participants may elect to contribute their annual
pre-tax
earnings up to the federally allowed maximum limits. The Company made a matching contribution of 100% on the first 6% of contributions made by participants in the
yearyears ended December 31,
2020, 20192023, 2022 and
2018.2021. Participant and
Companycompany contributions vest immediately. During the years ended December 31,
2020, 20192023, 2022 and
2018,2021, the Company recorded matching contribution expense of
$1,771,380, $658,179$4.3 million, $3.9 million and
$429,318,$3.0 million, respectively.
During the normal course of our business, we are occasionally involved with various claims and litigation. Reserves are established in connection with such matters when a loss is probable and the amount of such loss can be reasonably estimated. At December 31, 20202023 and 2019,2022, no material reserves were recorded. The determination of probability and the estimation of the actual amount of any such loss are inherently unpredictable, and it is therefore possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any. However, we believe that the likelihood that any such excess might have a material adverse effect on our financial statements is remote.
In the first quarter of 2015, the Company moved its headquarters to New York, New York. The Company has entered into a long-term lease with a related party for laboratory and office spaceOn September 28, 2018, the Company signed a lease with the same related party to acquire additional office space in the Company’s current headquarters facility and to extend the term of the lease for previously acquired space. The amendment includes provisions for yearly rent escalation, a limited rent abatement for the additional space, and an amount provided for leasehold improvements. The lease, as amended, has a term of 14.3 years ending in May 2029. A member of
9. Related Parties (continued)
the Company’s board of directors is the Chairman of the board of directors, Chief Executive Officer and President of the parent company to the landlord under this lease.
10.12. Unaudited Quarterly Financial Information
The tables herein set forth the Company’s unaudited condensed consolidated 20202023 and 20192022 quarterly statements of operations.
The following table sets forth the Company’s unaudited condensed consolidated statements of operations for the 20202023 quarters ended:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 Quarter Ended | | December 31, | | September 30, | | June 30, | | March 31, |
| Revenue, net | | $ | 132,099 | | | $ | 126,173 | | | $ | 110,792 | | | $ | 95,306 | |
| Operating expenses | | (166,196) | | | (155,886) | | | (157,971) | | | (143,698) | |
| Interest income | | 5,966 | | | 5,498 | | | 4,530 | | | 4,349 | |
| Income tax expense | | (448) | | | (43) | | | (135) | | | (10) | |
| Net loss | | $ | (28,579) | | | $ | (24,258) | | | $ | (42,784) | | | $ | (44,053) | |
| Basic and diluted net loss per share | | $ | (0.30) | | | $ | (0.25) | | | $ | (0.45) | | | $ | (0.46) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | $ | 12,454,270 | | | $ | 7,368,594 | | | $ | 1,906,636 | | | $ | 1,083,479 | |
| | | (73,787,606 | ) | | | (63,305,048 | ) | | | (66,778,953 | ) | | | (50,169,003 | ) |
| | | 644,390 | | | | 752,829 | | | | 1,160,059 | | | | 1,678,203 | |
| | | (13,513 | ) | | | — | | | | — | | | | (3,281 | ) |
| | | (60,699,178 | ) | | | (55,183,625 | ) | | | (63,712,258 | ) | | | (47,410,602 | ) |
Basic and diluted net loss per share | | $ | (0.76 | ) | | $ | (0.79 | ) | | $ | (0.96 | ) | | $ | (0.73 | ) |
The following table sets forth the Company’s unaudited condensed consolidated statements of operations for the 20192022 quarters ended:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 60,613 | | | | — | | | | — | | | | — | |
| | | (41,829,272 | ) | | | (36,376,236 | ) | | | (39,171,114 | ) | | | (36,695,841 | ) |
| | | 1,185,808 | | | | 1,513,837 | | | | 1,731,550 | | | | 1,860,077 | |
| | | — | | | | — | | | | (1,600 | ) | | | — | |
| | | (40,582,851 | ) | | | (34,862,399 | ) | | | (37,441,164 | ) | | | (34,835,764 | ) |
Basic and diluted net loss per share | | $ | (0.73 | ) | | $ | (0.63 | ) | | $ | (0.68 | ) | | $ | (0.63 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 Quarter Ended | | December 31, | | September 30, | | June 30, | | March 31, |
| Revenue, net | | $ | 87,869 | | | $ | 71,870 | | | $ | 55,579 | | | $ | 34,996 | |
| Operating expenses | | (135,281) | | | (127,499) | | | (143,502) | | | (107,658) | |
| Interest income | | 3,386 | | | 2,122 | | | 1,320 | | | 548 | |
| Income tax expense | | — | | | (1) | | | — | | | (5) | |
| Net loss | | $ | (44,026) | | | $ | (53,508) | | | $ | (86,603) | | | $ | (72,119) | |
| Basic and diluted net loss per share | | $ | (0.45) | | | $ | (0.57) | | | $ | (0.92) | | | $ | (0.78) | |
