Intra-Cellular Therapies Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2018OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to Commission file number: 001-36274 Intra-Cellular Therapies, Inc.(Exact name of registrant as specified in its charter) Delaware 36-4742850(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)430 East 29th StreetNew York, New York 10016(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code (646) 440-9333Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.0001 Par Value Per Share The Nasdaq Global Select MarketSecurities 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 ☐ No ☒Indicate 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 ☐ No ☒Indicate 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 thepreceding 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 90days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-Tduring the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒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 growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the ExchangeAct. Large accelerated filer ☒ Accelerated filer ☐Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐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 revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒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 whoseshares 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 theregistrant’s most recently completed second fiscal quarter was approximately $793 million.As of February 25, 2019, the registrant had 55,116,739 shares of common stock outstanding. Table of ContentsTABLE OF CONTENTS PART I 4 Item 1. Business 4 Item 1A. Risk Factors 34 Item 1B. Unresolved Staff Comments 61 Item 2. Properties 61 Item 3. Legal Proceedings 61 Item 4. Mine Safety Disclosures 61 PART II 62 Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities 62 Item 6. Selected Financial Data 63 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 64 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 78 Item 8. Financial Statements and Supplementary Data 78 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 78 Item 9A. Controls and Procedures 78 Item 9B. Other Information 80 PART III 81 Item 10. Directors, Executive Officers and Corporate Governance 81 Item 11. Executive Compensation 81 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 81 Item 13. Certain Relationships and Related Transactions, and Director Independence 81 Item 14. Principal Accounting Fees and Services 81 PART IV 82 Item 15 Exhibits, Financial Statement Schedules 82 Item 16. Form 10-K Summary 86 Signatures 87 2Table of ContentsDOCUMENTS INCORPORATED BY REFERENCEThe following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information requiredin Part III of this Annual Report on Form 10-K is incorporated by reference from the Registrant’s Proxy Statement for the 2019 Annual Meeting ofStockholders to be filed with the Securities and Exchange Commission. 3Table of ContentsPART IAll 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 bythe trademark or trade dress owners. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” referto Intra-Cellular Therapies, Inc. and its wholly-owned subsidiaries, ITI, Inc. and ITI Limited. Item 1.BUSINESSOverviewWe are a biopharmaceutical company focused on the discovery and clinical development of innovative, small molecule drugs that addressunderserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the centralnervous system, or CNS. Lumateperone (also known as ITI-007) is our lead product candidate with mechanisms of action that, we believe, mayrepresent an effective treatment across multiple therapeutic indications. In our preclinical and clinical trials to date, lumateperone combines potentserotonin 5-HT2A receptor antagonism, dopamine receptor phosphoprotein modulation, or DPPM, glutamatergic modulation, and serotonin reuptakeinhibition into a single drug candidate for the treatment of acute and residual schizophrenia and for the treatment of bipolar disorder, including bipolardepression. At dopamine D2 receptors, lumateperone has been demonstrated to have dual properties and to act as both a pre-synaptic partial agonistand a post-synaptic antagonist. Lumateperone has also been demonstrated to have affinity for dopamine D1 receptors and indirectly stimulatephosphorylation of glutamatergic NMDA GluN2B receptors in a mesolimbic specific manner. We believe that this regional selectivity in brain areasthought to mediate the efficacy of antipsychotic drugs, together with serotonergic, glutamatergic, and dopaminergic interactions, may result in efficacyfor a broad array of symptoms associated with schizophrenia and bipolar disorder with improved psychosocial function. The serotonin reuptakeinhibition potentially allows for antidepressant activity in the treatment of schizoaffective disorder, other disorders with co-morbid depression, and/oras a stand-alone treatment for major depressive disorder, or MDD. We believe lumateperone may also be useful for the treatment of other psychiatricand neurodegenerative disorders, particularly behavioral disturbances associated with dementia, autism, and other CNS diseases. In the fourth quarterof 2018, the FDA accepted for review our new drug application, or NDA, for lumateperone for the treatment of schizophrenia, and assigned aPrescription Drug User Fee Act, or PDUFA, target action date of September 27, 2019. Lumateperone is also in Phase 3 clinical development as a noveltreatment bipolar depression and agitation associated with dementia, including Alzheimer’s disease, or AD.Lumateperone for the Treatment of SchizophreniaIn September 2015, we announced top-line clinical results from our first Phase 3 clinical trial of lumateperone for the treatment of patients withschizophrenia. This randomized, double-blind, placebo-controlled Phase 3 clinical trial was conducted at sites in the United States with 450 patientsrandomized. The pre-specified primary efficacy measure was change from baseline versus placebo at study endpoint (4 weeks) on the centrally ratedPositive and Negative Syndrome Scale, or PANSS, total score. In this trial, the once-daily dose of 60 mg of ITI-007 met the primary endpoint anddemonstrated antipsychotic efficacy with statistically significant superiority over placebo at week 4 (study endpoint). Consistent with previousstudies, lumateperone had a favorable safety and tolerability profile as evidenced by motoric, metabolic, and cardiovascular characteristics similar toplacebo, and no clinically significant changes in akathisia, extrapyramidal symptoms, prolactin, body weight, glucose, insulin, or lipids.The results from our first Phase 3 clinical trial of lumateperone confirmed the earlier Phase 2 results that we announced in December 2013, inwhich lumateperone exhibited antipsychotic efficacy in a randomized, double-blind, placebo and active controlled clinical trial in patients withschizophrenia. In this study, lumateperone 4Table of Contents(ITI-007 60 mg) met the trial’s pre-specified primary endpoint, improving symptoms associated with schizophrenia as measured by a statisticallysignificant and clinically meaningful decrease in the PANSS total score. The trial also met key secondary outcome measures related to efficacy onPANSS subscales and safety.In September 2016, we announced top-line results from the second Phase 3 clinical trial (ITI-007-302) of lumateperone for the treatment ofpatients with schizophrenia. In this trial, neither dose of lumateperone separated from placebo on the primary endpoint, change from baseline on thePANSS total score, in the pre-defined patient population. The active control, risperidone, did separate from placebo. In this trial, lumateperone wasstatistically significantly better than risperidone on key safety and tolerability parameters and exhibited a safety profile similar to placebo. We believelumateperone did not separate from placebo on the pre-specified primary endpoint in the ITI-007-302 study in part due to an unusually high placeboresponse at certain sites which disproportionately affected the trial results and contributed to the efficacy outcome of this study compared to our twoprevious positive efficacy studies. In addition, we believe other confounding factors may have played a role in the efficacy outcome of ITI-007-302,including an expectation bias and the potential for functional unblinding. We believe the lumateperone late-stage clinical development program,including two large, well-controlled positive studies and supportive evidence from this second Phase 3 study, collectively provide evidence of theefficacy and safety of lumateperone for the treatment of schizophrenia. Across all three of our efficacy trials, ITI-007 60 mg improved symptoms ofschizophrenia with the same trajectory and magnitude of change from baseline in the primary endpoint, the PANSS total score.As part of our ongoing dialogue with the U.S. Food and Drug Administration, or FDA, regarding our lumateperone development program inschizophrenia, we requested guidance from the FDA on the acceptability of the two positive well controlled clinical trials we have conducted (StudyITI-007-005 and Study ITI-007-301), with supportive evidence from Study ITI-007-302, as the basis for the submission of a new drug application, orNDA, for the treatment of schizophrenia. In connection with this request we provided extensive information and data analyses to the FDA relating tothe three studies. The FDA confirmed that the results of Study ITI-007-302 do not preclude us from submitting an NDA based on the efficacy studies wehave conducted to date. We completed our NDA for lumateperone for the treatment of schizophrenia in the third quarter of 2018 and the FDA acceptedfor review the NDA in the fourth quarter of 2018. We believe our schizophrenia clinical development program collectively provides evidence of theefficacy and safety of lumateperone for the treatment of schizophrenia.Lumateperone for the Treatment of Depressive Episodes Associated with Bipolar Disorder (Bipolar Depression)Our bipolar depression program consists of three Phase 3 multi-center, randomized, double-blind, placebo-controlled clinical trials. In theITI-007-401 and the ITI-007-404 trials, lumateperone is being evaluated as a monotherapy and in the ITI-007-402 trial, lumateperone is beingevaluated as an adjunctive therapy with lithium or valproate. All three trials are evaluating lumateperone in patients with a clinical diagnosis ofBipolar I or Bipolar II disorder and who are experiencing a current major depressive episode. We have completed patient enrollment in the ITI-007-401trial conducted in the United States and the ITI-007-404 trial conducted globally. We anticipate reporting topline results from the ITI-007-401 andITI-007-404 trials simultaneously in the second quarter of 2019. Subject to the outcome of these trials, we expect to submit an NDA for bipolardepression in the second half of 2019. Our global ITI-007-402 trial evaluating adjunctive lumateperone in bipolar depression is ongoing. Inconnection with the global strategy of this program we are adding sites outside the U.S. to the ITI-007-402 trial and we expect to provide anticipatedtimelines for this trial after completing the expansion. 5Table of ContentsLumateperone for the Treatment of Behavioral Disturbances Associated with Dementia, Including Alzheimer’s DiseaseIn the fourth quarter of 2014, we announced the top-line data from ITI-007-200, a Phase 1/2 clinical trial designed to evaluate the safety,tolerability and pharmacokinetics of low doses of lumateperone in healthy geriatric subjects and in patients with dementia, including AD. Thecompletion of this study marked an important milestone in our strategy to develop low doses of lumateperone for the treatment of behavioraldisturbances associated with dementia and related disorders. The ITI-007-200 trial results indicate that lumateperone is safe and well-tolerated across arange of low doses, has linear- and dose-related pharmacokinetics and may improve cognition in the elderly. The most frequent adverse event was mildsedation at the higher doses. We believe these results further position lumateperone as a development candidate for the treatment of behavioraldisturbances in patients with dementia and other neuropsychiatric and neurological conditions.In the second quarter of 2016, we initiated Phase 3 development of lumateperone for the treatment of agitation in patients with dementia,including AD. Our ITI-007-201 trial is a Phase 3 multi-center, randomized, double-blind, placebo-controlled clinical trial in patients with a clinicaldiagnosis of probable AD and clinically significant symptoms of agitation. In the fourth quarter of 2018, an independent data monitoring committee,or DMC, completed a pre-specified interim analysis of the ITI-007-201 trial, concluded that the trial is not likely to meet its primary endpoint uponcompletion and therefore recommended the study should be stopped for futility. As a result, we determined to discontinue the ITI-007-201 trial.Lumateperone was generally well tolerated in the ITI-007-201 trial and the decision to discontinue the study was not related to safety. We areanalyzing the results of this trial and, following completion of this analysis, we will determine the next steps in this program.Other Indications for LumateperoneWe are also pursuing clinical development of lumateperone for the treatment of additional CNS diseases and disorders. At the lowest doses,lumateperone has been demonstrated to act primarily as a potent 5-HT2A serotonin receptor antagonist. As the dose is increased, additional benefits arederived from the engagement of additional drug targets, including modest dopamine receptor modulation and modest inhibition of serotonintransporters. We believe that combined interactions at these receptors may provide additional benefits above and beyond selective 5-HT2Aantagonism for treating agitation, aggression and sleep disturbances in diseases that include dementia, AD, Huntington’s disease and autism spectrumdisorders, while avoiding many of the side effects associated with more robust dopamine receptor antagonism. As the dose of lumateperone is furtherincreased, leading to moderate dopamine receptor modulation, inhibition of serotonin transporters, and indirect glutamate modulation, these actionscomplement the complete blockade of 5-HT2A serotonin receptors. At a dose of 60 mg, ITI-007 has been shown effective in treating the symptomsassociated with schizophrenia, and we believe this higher dose range will be useful for the treatment of bipolar disorder, depressive disorders and otherneuropsychiatric diseases.We have commenced our program of lumateperone in MDD. In previous studies, schizophrenia patients with co-morbid depression experiencedimprovements in depressive symptoms. Additionally, recent preclinical data support the potential for rapid-acting antidepressant effects. In order toexplore the effect of different modes of drug administration and the potential for rapid-onset antidepressant activity, our program includes theassessment of novel formulations of lumateperone. Pharmacokinetic studies evaluating these novel formulations are currently ongoing.Within the lumateperone portfolio, we are also developing a long-acting injectable (“LAI”) formulation to provide more treatment options topatients suffering from mental illness. Given the encouraging tolerability data to date with oral lumateperone, we believe that a long-acting injectableoption, in particular, may lend itself to being an important formulation choice for patients. 6Table of ContentsGiven the potential utility for lumateperone and follow-on compounds to treat these additional indications, we may investigate, either on ourown or with a partner, agitation, aggression and sleep disturbances in additional diseases that include autism spectrum disorders, depressive disorder,intermittent explosive disorder, non-motor symptoms and motor complications associated with Parkinson’s disease, and post traumatic stress disorder.We hold exclusive, worldwide commercialization rights to lumateperone and a family of compounds from Bristol-Myers Squibb Company pursuant toan exclusive license.Other Product CandidatesWe have a second major program called ITI-002 that has yielded a portfolio of compounds that selectively inhibits the enzymephosphodiesterase type 1, or PDE1. On February 25, 2011, we (through our wholly owned operating subsidiary, ITI) and Takeda PharmaceuticalCompany Limited, or Takeda, entered into a license and collaboration agreement, or the Takeda License Agreement, under which we agreed tocollaborate to research, develop and commercialize our proprietary compound ITI-214 and other selected compounds that selectively inhibit PDE1 foruse in the prevention and treatment of human diseases. On October 31, 2014, we entered into an agreement with Takeda terminating the TakedaLicense Agreement, or the Termination Agreement, pursuant to which all rights granted under the Takeda License Agreement were returned to us. OnSeptember 15, 2015, Takeda completed the transfer of the Investigational New Drug application, or IND, for ITI-214 to us. We believe ITI-214 is thefirst compound in its class to successfully advance through Phase 1 clinical trials. We intend to pursue the development of our PDE program, includingITI-214 for the treatment of several CNS and non-CNS conditions, including cardiovascular disease. Following the positive safety and tolerabilityresults in our Phase 1 program, we initiated our development program for ITI-214 for Parkinson’s disease and commenced patient enrollment in thethird quarter of 2017 in a Phase 1/2 clinical trial of ITI-214 in patients with Parkinson’s disease to evaluate safety and tolerability in this patientpopulation, 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 had been completed and topline results demonstrated ITI-214 was generally well-tolerated with a favorable safety profile and clinical signsconsistent with improvements in motor symptoms and dyskinesias. In addition, in the first quarter of 2018, the investigational new drug application, orIND, went into effect for ITI-214 for the treatment of heart failure. We have initiated clinical conduct of the first clinical study in this program, arandomized, double-blind, placebo-controlled study of escalating single doses of ITI-214 to evaluate safety and hemodynamic effects in patients withsystolic heart failure.Our pipeline also includes preclinical programs that are focused on advancing drugs for the treatment of schizophrenia, Parkinson’s disease, ADand other neuropsychiatric and neurodegenerative disorders. We are also investigating the development of treatments for disease modification ofneurodegenerative disorders and non-CNS diseases, including our ITI-333 development program. ITI-333 is designed as a potential treatment forsubstance use disorders, pain and psychiatric comorbidities including depression and anxiety. There is a pressing need to develop new drugs to treatopioid addiction and safe, effective, non-addictive treatments to manage pain. We believe the potential exists for ITI-333 to address these challenges.In preclinical studies, ITI-333 functions as a partial agonist at mu opiate receptors, attenuating the behavioral effects of morphine while displaying fullanalgesic efficacy that is reversible by the mu opiate antagonist, naloxone. ITI-333 also acts as a 5-HT2A antagonist with interactions at D1 receptors.Preclinical safety studies are currently ongoing. If successfully translated to humans, this unique pharmacological profile may yield clinical utility forthe treatment of substance use disorders and pain. Preclinical safety studies with ITI-333 are currently ongoing and we expect to initiate a clinicalprogram in 2019.We have assembled a management team with significant industry experience to lead the discovery, development and potentialcommercialization of our product candidates. We complement our management team with a group of scientific and clinical advisors that includesrecognized experts in the fields of schizophrenia and other CNS disorders, including Nobel laureate, Dr. Paul Greengard, one of our co-founders. 7Table of ContentsWe were originally incorporated in the State of Delaware in August 2012 under the name “Oneida Resources Corp.” Prior to a reverse merger thatoccurred on August 29, 2013, or the Merger, Oneida Resources Corp. was a “shell” company registered under the Securities Exchange Act of 1934, orthe Exchange Act, with no specific business plan or purpose until it began operating the business of ITI, Inc., or ITI, through the Merger transaction onAugust 29, 2013. ITI was incorporated in Delaware in May 2001 to focus primarily on the development of novel drugs for the treatment ofneuropsychiatric and neurologic diseases and other disorders of the CNS. Effective upon the Merger, a wholly-owned subsidiary of the Companymerged with and into ITI, and ITI continues as the operating subsidiary of the Company and ITI’s business continues as the business of the Company.As used herein, the words the “Company,” “we,” “us,” and “our” refer to the current Delaware Corporation and its wholly owned subsidiaries, 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 postcopies of our press releases as well as additional information about us. Our filings with the SEC will be available free of charge through the Investorssection of our website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Information contained in ourwebsite does not constitute a part of this report or our other filings with the SEC.Our StrategyOur goal is to discover and develop novel small molecule therapeutics for the treatment of CNS diseases and other diseases in order to improvethe lives of people suffering from such illnesses. Using our key understanding of intracellular signaling, we seek to accomplish our goal, using ourin-house expert drug discovery and clinical development teams, in two ways: • we seek to have the capability to develop first-in-class medications with novel mechanisms that have the potential to treat CNS diseasesand other diseases for which there are no previously marketed drugs; and • we seek to develop drugs that either can differentiate themselves in competitive markets by addressing aspects of CNS diseases and otherdiseases 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: • complete the development of lumateperone for its lead indication, treatment of schizophrenia, and for additional neuropsychiatricindications, such as bipolar disorder, behavioral disturbances in dementia, including AD, residual symptoms in schizophrenia and MDD; • expand the commercial potential of lumateperone by investigating its usefulness in additional neurological areas, such as autism spectrumdisorder, and in additional neuropsychiatric indications, such as sleep disorders associated with neuropsychiatric and neurologicaldisorders; • continue to develop PDE inhibitor compounds, such as ITI-214, for the treatment of CNS and other disorders; and • advance earlier stage product candidates in our pipeline, such as ITI-333, for substance use disorders, pain and psychiatric comorbiditiesincluding depression and anxiety.Our Drug Discovery Platform and CapabilitiesBased on the pioneering efforts of our co-founder and Nobel laureate, Dr. Paul Greengard, we have developed a detailed understanding ofintracellular signaling pathways and intracellular targets. We have used that knowledge to develop several state of the art technology platforms,including one called CNSProfileTM. This 8Table of Contentstechnology monitors the phosphoprotein changes elicited by major psychotropic drug classes and subclasses, and generates a unique molecularsignature for drug compounds. By monitoring how the levels of these phosphoproteins change in vivo, we identify intracellular signaling pathwaysthrough which several major drug classes operate. Along with what we believe to be state of the art drug discovery efforts, we have used, and maycontinue to use, this information as a tool to validate our selection of preclinical candidate molecules.Given the nature of our research and development and business activities, we do not expect that compliance with federal, state and localenvironmental laws will result in material costs or have a significant negative effect on our operations.Disease and Market OverviewOur programs for small molecule therapeutics are designed to address various CNS and other diseases that we believe are underserved or unmetby currently available therapies and that represent large potential commercial market opportunities for us. Background information on the diseases andrelated commercial markets that may be addressed by our programs is set forth below.SchizophreniaSchizophrenia is a disabling and chronic mental illness that is characterized by multiple symptoms during an acute phase of the disorder that caninclude so-called “positive” symptoms, such as hallucinations, hearing voices, grandiose beliefs and suspiciousness or paranoia. These symptoms canbe accompanied by additional, harder to treat symptoms, such as social withdrawal, blunted emotional response and speech deficits, collectivelyreferred to as “negative” symptoms, difficulty concentrating and disorganized thoughts, or cognitive impairment, depression and insomnia. Suchresidual symptoms often persist even after the acute positive symptoms subside, and contribute substantially to the social and employment disabilityassociated with schizophrenia. Current antipsychotic medications provide some relief for the symptoms associated with the acute phase of the disorder,but they do not effectively treat the residual phase symptoms associated with chronic schizophrenia. Currently available medications used to treatacute schizophrenia are limited in their use due to side effects that can include movement disorders, weight gain, metabolic disturbances, andcardiovascular disorders. Indeed, the side effects associated with current antipsychotic medications often make some of the residual phase symptoms,such as negative symptoms and social function, worse. There is an unmet medical need for new therapies that have improved side effect and efficacyprofiles.According to the Alliance on Mental Illness and National Institute of Mental Health, about 1% of the population suffers from schizophrenia, and2.4 million Americans suffer from the illness in any given year. US market value of antipsychotic drugs exceeded $10 billion in 2018. These drugshave been increasingly used by physicians to address a range of disorders in addition to schizophrenia, including bipolar disorder and a variety ofpsychoses and related conditions in elderly patients. Despite their commercial success, current antipsychotic drugs have substantial limitations,including inadequate efficacy and severe side effects.The first-generation, or typical, antipsychotics that were introduced in the late-1950s block dopamine receptors. While typical antipsychotics areeffective against positive symptoms of schizophrenia in many patients, these drugs often induce disabling motor disturbances, and they fail to addressor worsen most of the negative symptoms and cognitive disturbances associated with schizophrenia.Most schizophrenia patients in the United States are treated today with second-generation, or atypical, antipsychotics, which induce fewer motordisturbances than typical antipsychotics, but still fail to address most of the negative symptoms of schizophrenia and other symptoms associated withsocial function impairment. Many patients with schizophrenia have deficits in social function. Social function is the ability to recognize, understand,process and use external cues to solve problems, maintain work performance, and conduct interpersonal relationships. Deficits in social function oftenremain after positive symptoms, such as 9Table of Contentshallucinations and delusions, have resolved in these patients. In addition, currently prescribed treatments do not effectively address or may exacerbatecognitive disturbances associated with schizophrenia. It is believed that the efficacy of atypical antipsychotics is due to their interactions withdopamine and 5-HT2A receptors. The side effects induced by the atypical agents may include weight gain, non-insulin dependent (type II) diabetes,cardiovascular side effects, sleep disturbances, and motor disturbances. We believe that these side effects generally arise either from non-essentialreceptor interactions or from excessive dopamine blockade.The limitations of currently available antipsychotics result in poor patient compliance. A landmark study funded by the National Institute ofMental Health, the Clinical Antipsychotic Trials of Intervention Effectiveness, also referred to as CATIE, which was published in The New EnglandJournal of Medicine in September 2005, found that 74% of patients taking typical or atypical antipsychotics discontinued treatment within 18 monthsbecause of side effects or lack of efficacy. We believe there is a large underserved medical need for new therapies that have improved side effect andefficacy profiles.Bipolar DisorderBipolar disorder, sometimes referred to as manic-depressive illness, is characterized by extreme shifts in mood. Individuals with bipolar disordermay experience intense feelings of over-excitement, irritability, and impulsivity with grandiose beliefs and racing thoughts, referred to as a manicepisode. Symptoms of depression may include feeling tired, hopeless and sad, with difficulty concentrating and thoughts of suicide. Some peopleexperience both types of symptoms in the same “mixed” episode. Severe symptoms of bipolar disorder can be associated with hallucinations ordelusions, otherwise referred to as psychosis.Bipolar disorder affects approximately 6 million adults in the United States in any given year, or about 2.8 percent of the adult U.S. population.According to Decision Resources Group, therapeutics used to treat bipolar disorder had global sales of approximately $6 billion in 2018.Bipolar disorder is often treated with antipsychotic medications alone or in combination with mood stabilizers. The side effects and safety risksassociated with antipsychotic drugs in patients with bipolar disorder are similar to those experienced by patients with schizophrenia. Moreover, a largenational 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 experiencedlingering and recurrent symptoms, indicating a clear need for improved treatments.Behavioral Disturbances in Dementia, Including Alzheimer’s DiseaseIt has been estimated that 46 million people worldwide were living with dementia in 2015, and this number is expected to increase to132 million by 2050. The Alzheimer’s Association estimates 5.7 million Americans are living with Alzheimer’s dementia in 2018. While thediagnostic criteria for AD and other dementias mostly focus on the related cognitive deficits, it is often the behavioral and psychiatric symptoms thatare most troublesome for caregivers and lead to poor quality of life for patients. Several behavioral symptoms are quite prevalent in patients withdementia, including patients with AD. In view of the potential multiple effects of lumateperone on aggression, agitation, sleep disorders anddepression, and its safety profile to date, we believe that lumateperone may provide a novel therapy for treating the behavioral disturbancesaccompanying dementia, including AD.The FDA has not approved any drug to treat the behavioral symptoms of dementia, including AD. As symptoms progress and become moresevere, physicians often resort to off-label use of antipsychotic medications in these patients. Current antipsychotic drugs are associated with a numberof side effects, which can be problematic for elderly patients with dementia. In addition, antipsychotic drugs may exacerbate the cognitive disturbancesassociated with dementia. We believe there is a large unmet medical need for a safe and effective therapy to treat the behavioral symptoms in patientswith dementia, including AD. 10Table of ContentsAlzheimer’s DiseaseAD is a progressive neurodegenerative disorder that slowly destroys memory and thinking skills, and eventually even the ability to carry outsimple tasks. Its symptoms include cognitive dysfunction, memory abnormalities, progressive impairment in activities of daily living, and a host ofbehavioral and neuropsychiatric symptoms. AD primarily affects older people and, in most cases, symptoms first appear after age 60. AD gets worseover time and is fatal.The market for AD therapeutics is categorized into two segments: acetylcholinesterase inhibitors and NMDA receptor antagonists, which includedonepezil, memantine and rivastigmine.While the diagnostic criteria for AD mostly focus on the related cognitive deficits, it is often the behavioral and psychiatric symptoms that aremost troublesome for caregivers and lead to poor quality of life for patients. These symptoms include agitation, aggressive behaviors, depression, sleepdisorders, and psychosis. Studies have suggested that approximately 60% of patients with AD experience agitation/aggression, up to 87% of patientsexperience depression, approximately 60% of patients experience sleep disturbances, particularly as an increased likelihood of day-night reversal, andapproximately 20% to 50% of AD patients may develop psychosis at some point in the disease process, commonly consisting of hallucinations anddelusions. The diagnosis of AD psychosis is associated with more rapid cognitive and functional decline and institutionalization. Sleep disturbancesincrease the likelihood of day-night reversal, increased agitation and increased caregiver stress that strongly influences decisions for nursing homeplacement.The FDA has not approved any drug to treat the behavioral symptoms of AD. As symptoms progress and become more severe, physicians oftenresort to off-label use of antipsychotic medications in these patients. Current antipsychotic drugs are associated with a number of side effects, whichcan be problematic for elderly patients with AD. In addition, antipsychotic drugs may exacerbate the cognitive disturbances associated with AD.Current antipsychotic drugs also have a boxed warning for use in elderly patients with dementia-related psychosis due to increased mortality andmorbidity. There is a large unmet medical need for a safe and effective therapy to treat the behavioral symptoms in patients with AD.Parkinson’s DiseaseParkinson’s disease is a chronic and progressive neurodegenerative disorder that involves malfunction and death of neurons in a region of thebrain that controls movement. This neurodegeneration creates a shortage of an important brain signaling chemical, or neurotransmitter, known asdopamine, 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 by non-motorsymptoms, which include sleep disturbances, mood disorders, cognitive impairment and psychosis. Parkinson’s disease progresses slowly in mostpeople and the severity of symptoms tends to worsen over time.Parkinson’s disease is the second most common neurodegenerative disorder after AD. According to the National Parkinson Foundation, about1 million people in the United States and approximately 10 million people worldwide suffer from this disease. Parkinson’s disease is more common inpeople 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 as L-DOPA, which ismetabolized to dopamine, and dopamine agonists, which are molecules that mimic the action of dopamine. According to Decision Resources Group,sales of therapeutics such as L-DOPA and dopamine agonists used to treat the disease had global sales of approximately $3 billion in 2018.Non-motor symptoms can be particularly distressing and even more troublesome to patients with Parkinson’s disease than the primary motordisturbances. Non-motor symptoms substantially contribute to the 11Table of Contentsburden of Parkinson’s disease and deeply affect the quality of life of patients and their caregivers. Non-motor symptoms of Parkinson’s disease areassociated 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 drugsused to treat the motor symptoms of Parkinson’s disease do not help, and sometimes worsen, the non-motor symptoms. No drugs are currently approvedby the FDA for treating the broad non-motor symptoms associated with Parkinson’s disease, and this remains a large unmet medical need.Major Depressive DisorderMajor depressive disorder, or MDD, is a brain disorder that can be associated with symptoms of sadness, hopelessness, helplessness, feelings ofguilt, 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 interferewith everyday functioning, such as the ability to concentrate at work or school, social interactions, eating and sleeping. Sometimes the depressiveepisode can be so severe it is accompanied by psychosis (hallucinations and delusions). According to the National Institute of Mental Health,approximately 7% of adults experience MDD each year. Worldwide sales of antidepressant drugs reached $9.5 billion in 2015. The antidepressantmarket is primarily composed of selective serotonin reuptake inhibitors such as escitalopram and selective norepinephrine reuptake inhibitors, orSNRIs, such as duloxetine. Antipsychotics such as quetiapine, aripriprazole and Rexulti® (marketed jointly by Otsuka Pharmaceutical and Lundbeck)are also used as adjunctive treatments with antidepressant treatment. The National Institute of Mental Health-funded Sequenced Treatment Alternativesto Relieve Depression, or STAR*D, study showed that only one-third of treated patients experience complete remission of depressive symptoms.Nearly two-thirds of patients were considered treatment-resistant.Heart FailureHeart failure is a chronic, progressive condition in which the heart muscle is unable to pump enough blood to meet the body’s needs for bloodand oxygen. In some types of heart failure, the left ventricle loses its ability to contract normally. The heart can’t pump with enough force to pushenough blood into circulation (heart failure with reduced ejection fraction). Eventually the heart and body cannot compensate, and the personexperiences fatigue, breathing problems or other symptoms.Approximately 5.7 million adults in the United States have heart failure. One in 9 deaths in 2009 included heart failure as contributing cause.About half of people who develop heart failure die within 5 years of diagnosis. Heart failure costs the nation an estimated $30.7 billion each year. Thistotal includes the cost of health care services, medications to treat heart failure, and missed days of work. Current treatments prolong life and improvethe heart’s function, but there is no cure. There is a pressing need for improved treatments to improve and reverse these changes in cardiac function. 12Table of ContentsOur Clinical ProgramsOur pipeline includes two product candidates in clinical development and product candidates in preclinical testing. We believe that our productcandidates offer innovative therapeutic approaches and may provide significant advantages relative to current therapies. The following tablesummarizes our product candidates and programs:OUR THERAPEUTIC PIPELINE Lumateperone ProgramOur lead product candidate, lumateperone, possesses mechanisms of action that, we believe, may represent an effective treatment across multipletherapeutic indications. We completed the submission of the NDA for lumateperone for the treatment of schizophrenia in the third quarter of 2018 andthe FDA accepted for review the NDA in the fourth quarter of 2018. In our preclinical and clinical trials to date, lumateperone combines potentserotonin 5-HT2A receptor antagonism, dopamine receptor phosphoprotein modulation, or DPPM, glutamatergic modulation, and serotonin reuptakeinhibition into a single drug candidate for the treatment of acute and residual schizophrenia. At dopamine D2 receptors, lumateperone has beendemonstrated to have dual properties and to act as both a pre-synaptic partial agonist and a post-synaptic antagonist. Lumateperone has also beendemonstrated to have affinity for dopamine D1 receptors and indirectly stimulate phosphorylation of glutamatergic NMDA NR2B, or GluN2B,receptors in a mesolimbic specific manner, resulting in enhanced glutamatergic function through both NDMA and AMPA current. We believe that thisregional selectivity in brain areas thought to mediate the efficacy of antipsychotic drugs, together with serotonergic, glutamatergic, and dopaminergicinteractions, may result in efficacy for a broad array of symptoms associated with schizophrenia. The serotonin reuptake inhibition potentially allowsfor antidepressant activity in the treatment of schizoaffective disorder, other disorders with co-morbid depression, and/or as a stand-alone treatment forMDD. We believe lumateperone may also be useful for the treatment of bipolar disorder and other psychiatric and neurodegenerative disorders,particularly behavioral disturbances associated with dementia, autism, and other CNS diseases. 13Table of ContentsWe believe these features of lumateperone may be able to improve the quality of life of patients with schizophrenia and enhance social functionto allow them to integrate more fully into their families and their workplaces. In addition, lumateperone may be shown to treat disorders at eitherlow-doses (e.g., sleep, aggression and agitation) or high-doses (e.g., acute exacerbated and residual schizophrenia, bipolar disorders, and mooddisorders).Lumateperone for the treatment of exacerbated and residual schizophreniaIn multiple clinical trials of lumateperone in patients with schizophrenia, the drug candidate has demonstrated clinical signals consistent withreductions in psychosis, depression and insomnia. Reductions in psychosis are consistent with the potential to treat acute schizophrenia, whereasreductions in depression and insomnia are consistent with the potential to treat residual phase schizophrenia. Lumateperone has demonstrated apositive safety profile and been well-tolerated across a wide range of doses in these studies. Further, at doses that have demonstrated clinical activity,lumateperone has caused fewer adverse effects than those typically associated with antipsychotic drug treatment, such as impaired motor function.These adverse side effects can be a major cause of patient noncompliance with current antipsychotic therapies and can lead to poorer social function.Phase 2 Clinical Trial (ITI-007-005)Lumateperone exhibited antipsychotic efficacy in ITI-007-005, a randomized, double-blind, placebo and active controlled Phase 2 clinical trialin patients with an acutely exacerbated episode of schizophrenia. In December 2013, we announced the clinical results from this Phase 2 trial. In thisPhase 2 trial, 335 patients were randomized to receive one of four treatments: 60 mg of ITI-007, 120 mg of ITI-007, 4 mg of risperidone (active control)or placebo in a 1:1:1:1 ratio. Patients received study treatment orally once daily in the morning for 28 days. Of those randomized, 311 patients wereincluded in the intent-to-treat primary analysis. Subject participation lasted approximately 7 to 8 weeks, including a one week screening period, a fourweek treatment period followed by stabilization on standard of care, and a safety follow up visit approximately two weeks after stabilization. Theprimary endpoint for this clinical trial was change from baseline to Day 28 on the PANSS total score. The PANSS is a well-validated 30-item ratingscale that measures the ability of a drug to reduce schizophrenia symptom severity. The PANSS measures positive symptoms, such as delusions,suspiciousness, and hallucinations; negative symptoms, such as blunted affect, social and emotional withdrawal, and stereotyped thinking; and generalpsychopathology, such as anxiety, tension, depression, and active social avoidance.Secondary endpoints in this trial included weekly assessments of the PANSS total score as well as its subscales (Positive Symptom Subscale,Negative Symptom Subscale, and General Psychopathology Subscale) and the Negative Symptom Factor (based on a subset of PANSS questions),individual item response on the PANSS, and the Calgary Depression Scale for Schizophrenia. Safety and tolerability were also assessed.In December 2013, we announced that topline results from the ITI-007-005 study indicated that lumateperone (ITI-007 60 mg) met the trial’spre-specified primary endpoint, improving symptoms associated with schizophrenia as measured by a statistically significant and clinicallymeaningful decrease in the PANSS total score. The trial also met key secondary outcome measures related to efficacy on PANSS subscales and safety.Many patients with schizophrenia have deficits in social function. Social function is the ability to recognize, understand, process and useexternal cues to solve problems, maintain work performance and conduct interpersonal relationships. Deficits in social function often remain afterpositive symptoms, such as hallucinations and delusions, have resolved in these patients. In the Phase 2 trial, lumateperone exhibited a differentiatingresponse profile across a broad range of symptoms that we believe is consistent with improvements in these social functioning deficits. The study alsoshowed that lumateperone was well-tolerated at the tested doses. Lumateperone demonstrated a favorable safety profile in the study withoutcharacteristic antipsychotic drug side effects or any serious adverse events. 14Table of ContentsITI-007 at a dose of 60 mg demonstrated a statistically significant improvement in psychosis (p = 0.017) on the trial’s pre-specified primaryendpoint, which was change from baseline on the PANSS total score, compared to placebo. The primary statistical analysis was pre-specified and used aMixed-Effect Model Repeated Measure method for handling missing data in the intent-to-treat, or ITT, study population and a Bonferroni procedure tocorrect for multiple two-sided comparisons (each dose of ITI-007 compared to placebo). The trial’s pre-specified sensitivity analysis on the primaryendpoint used the analysis of covariance, or ANCOVA, model and last observation carried forward, or LOCF, method for handling missing data for theITT population and confirmed the positive outcome with statistically significant improvements compared to placebo in patients receiving the 60 mgdose of ITI-007 (p = 0.011). ITI-007 at a dose of 60 mg also significantly improved the positive symptom subscale (p < 0.05) and the generalpsychopathology subscale (p < 0.05) on the PANSS after 28 days of treatment using the ANCOVA-LOCF on the ITT population.The improvement in the PANSS total score in the 120 mg dose group did not reach statistical significance. We believe that it is possible thatsedation, the most frequent side effect in the 120 mg dose group, interfered with the ability to detect an efficacy signal at this dose administered oncedaily in the morning. Approximately 32.5% of subjects randomized to 120 mg of ITI-007 experienced sedation/somnolence, compared to 21% ofsubjects randomized to risperidone, 17% of subjects randomized to 60 mg of ITI-007, and 13% randomized to placebo. We believe that nighttimeadministration may be more appropriate for testing the effectiveness of the 120 mg dose of ITI-007 in this patient population. In the trial, the 60 mgdose of ITI-007 was effective when administered once daily in the morning.Consistent with preliminary indications from the interim analysis and with the drug candidate’s pharmacological profile, ITI-007 at a dose of 60mg significantly improved certain items on the negative symptom and general psychopathology subscales consistent with improved social function.The study was statistically powered only on the primary endpoint. Lumateperone did significantly improve many secondary endpoints, although thestudy was not designed for significance on secondary endpoints and was not powered to detect statistical differences in subgroup analyses.A high percentage (74%) of randomized subjects completed trial participation. Only 19% of subjects discontinued from study treatment duringthe 28 day study treatment period, and an additional 7% of subjects completed study treatment but were lost to follow up.In the Phase 2 trial, lumateperone was well-tolerated. The most frequent AE was sedation, as described above. There were no serious adverseevents related to lumateperone. There were no clinically meaningful changes in safety measures with lumateperone. Notably, lumateperonedemonstrated a favorable metabolic profile with no increase of blood levels of glucose, insulin, cholesterol or triglycerides over a four week treatmentperiod. Moreover, in contrast to risperidone, 60 mg of ITI-007 was effective with no difference from placebo on weight change parameters, prolactinlevels, extrapyramidal symptoms (EPS) or akathisia. Lumateperone was not associated with EPS as measured by the Simpson-Angus Scale, BarnesAkathisia Rating Scale, or Abnormal Involuntary Movement Scale. There was no increase in suicidal ideation or behavior with lumateperone.Phase 3 Clinical Trials and Regulatory PlansWe have conducted two randomized, double-blind, placebo-controlled Phase 3 clinical trials of lumateperone in patients with acutelyexacerbated schizophrenia. In September 2015, we announced top-line clinical results from our first Phase 3 clinical trial of lumateperone for thetreatment of patients with schizophrenia. This randomized, double-blind, placebo-controlled Phase 3 clinical trial was conducted at 12 sites in theUnited States with 450 patients randomized (1:1:1) to receive either 60 mg of ITI-007, 40 mg of ITI-007 or placebo once daily in the morning for 28days. The pre-specified primary efficacy measure was change from baseline versus placebo at study endpoint (4 weeks) on the centrally rated Positiveand Negative Syndrome Scale, or PANSS, total score. In this trial, the once-daily dose of 60 mg of ITI-007 met the primary endpoint and 15Table of Contentsdemonstrated antipsychotic efficacy with statistically significant superiority over placebo at week 4 (study endpoint) with additional improvementsobserved in social function. Moreover, the 60 mg dose of ITI-007 showed significant antipsychotic efficacy as early as week 1, which was maintainedat every time point throughout the entire study. ITI-007 showed a dose-related improvement in symptoms of schizophrenia with the 40 mg doseapproximating the trajectory of improvement seen with the 60 mg dose, but the effect with 40 mg did not reach statistical significance on the primaryendpoint. In addition, the 60 mg dose of ITI-007 met the key secondary endpoint of statistically significant improvement on the Clinical GlobalImpression Scale for Severity of Illness, or CGI-S. The 40 mg dose of ITI-007 also demonstrated a statistically significant improvement versus placeboon the CGI-S, though not formally tested against placebo as a key secondary endpoint since it did not separate on the primary endpoint. A hightreatment completion rate was observed with ITI-007 (87% of patients completed treatment on ITI-007 60 mg, 82% completed on ITI-007 40 mg, and75% completed on placebo). Patients randomized to ITI-007 60 mg demonstrated a statistically significant longer time to treatment discontinuationdue to any reason compared to placebo (p=0.006) and a statistically significant longer time to treatment discontinuation due to lack of efficacy(p=0.01). Consistent with previous studies, lumateperone had a favorable safety and tolerability profile as evidenced by motoric, metabolic, andcardiovascular characteristics similar to placebo, and no clinically significant changes in akathisia, extrapyramidal symptoms, prolactin, body weight,glucose, insulin, or lipids. The number of patients who discontinued treatment in this study due to an adverse event was low and the time to treatmentdiscontinuation due to an adverse event was not statistically significantly different from placebo for either dose of lumateperone.In September 2016, we announced top-line results from the second Phase 3 clinical trial (ITI-007-302) of lumateperone for the treatment ofpatients with schizophrenia. In this trial, neither dose of lumateperone separated from placebo on the primary endpoint, change from baseline on thePANSS total score, in the pre-defined patient population. The active control, risperidone, did separate from placebo. In this trial, lumateperone wasstatistically significantly better than risperidone on key safety and tolerability parameters and exhibited a safety profile similar to placebo. Thisreplicates the safety and tolerability findings of our Phase 2 study (ITI-007-005) in which the efficacy of ITI-007 60 mg and risperidone, the activecontrol, were similar. We believe lumateperone did not separate from placebo on the pre-specified primary endpoint in the ITI-007-302 study in partdue to an unusually high placebo response at certain sites which disproportionately affected the trial results and contributed to the efficacy outcome ofthis study compared to our two previous positive efficacy studies. In addition, we believe other confounding factors may have played a role in theefficacy outcome of ITI-007-302, including an expectation bias and the potential for functional unblinding. We believe the lumateperone late-stageclinical development program, including two large, well-controlled positive studies and supportive evidence from this second Phase 3 study,collectively provide evidence of the efficacy and safety of lumateperone for the treatment of schizophrenia. Across all three of our efficacy trials,ITI-007 60 mg improved symptoms of schizophrenia with the same trajectory and magnitude of change from baseline in the primary endpoint, thePANSS total score.As part of our ongoing dialogue with the FDA regarding our lumateperone development program in schizophrenia, we requested guidance fromthe FDA on the acceptability of the two positive well controlled clinical trials we have conducted (Study ITI-007-005 and Study ITI-007-301), withsupportive evidence from Study ITI-007-302, as the basis for the submission of an NDA, for the treatment of schizophrenia. In connection with thisrequest we provided extensive information and data analyses to the FDA relating to the three studies. The FDA has confirmed that the results of StudyITI-007-302 do not preclude us from submitting an NDA based on the efficacy studies we have conducted to date. We completed our NDA forlumateperone for the treatment of schizophrenia in the third quarter of 2018 and the FDA accepted for review the NDA in the fourth quarter of 2018.We believe our schizophrenia clinical development program collectively provides evidence of the efficacy and safety of lumateperone for thetreatment of schizophrenia.In addition, the FDA had raised questions relating to certain findings observed in nonclinical toxicology studies of lumateperone in an animalspecies and requested additional information to confirm that the nonclinical findings are not indicative of a safety risk associated with long termexposure in humans. The data we presented 16Table of Contentssupports the position that there are significant species differences in the metabolism of lumateperone. Based on the FDA’s agreement that we presentedadequate data indicating that the toxicity seen in the animal species is not relevant to humans, we proceeded with our long-term safety study oflumateperone in patients with schizophrenia. Further, based on feedback from the FDA, we incorporated additional monitoring in our long-term safetystudy for metabolites seen in animal species but not seen to date in humans, and also will continue to monitor for toxicities in our nonclinical studies.With over 1,900 people exposed to date, lumateperone has been well-tolerated with a safety profile similar to placebo.In November 2017, we announced that the FDA has granted Fast Track designation for lumateperone for the treatment of schizophrenia. Werequested Fast Track designation for lumateperone based on clinical evidence that lumateperone has the potential to address the unmet medical needfor the treatment of schizophrenia with significant improvements on several clinically significant safety parameters, including with respect tometabolic, motor and cardiovascular issues associated with many currently available antipsychotic agents. The FDA’s Fast Track designation isdesigned to facilitate the development and expedite the review of drug candidates to treat serious and life-threatening conditions. Fast Trackdesignation may allow for more frequent meetings and communications with the FDA to discuss a drug candidate’s development plans and reviewprocess. Drug candidates with Fast Track designation may also qualify for priority review to expedite the FDA review process, if relevant criteria aremet.We had a pre-NDA meeting with the FDA in the first quarter of 2018 and reached agreement on the timing and content of a rolling NDAsubmission for lumateperone for the treatment of schizophrenia. We initiated the rolling submission of our NDA with the FDA for lumateperone for thetreatment of schizophrenia in the second quarter of 2018, we completed this NDA submission in the third quarter of 2018 and the FDA accepted forreview the NDA in the fourth quarter of 2018. The FDA assigned a PDUFA target action date of September 27, 2019. Meetings with the FDA may berequested, as needed, to discuss in greater detail our plans for schizophrenia, and other elements of our regulatory strategy, including additionaltherapeutic indications, as the program progresses. Our clinical plans may change based on any discussions with the FDA, the relative success and costof our research, preclinical and clinical development programs, whether we are able to enter into future collaborations, and any unforeseen delays orcash needs. If the FDA does not agree with our clinical development plans for lumateperone, our development of lumateperone may be delayed and thecosts of our development of lumateperone could increase, which would have a material adverse effect on our business, financial condition and resultsof operations.We are also developing long acting injectable formulations of ITI-007 for the treatment of schizophrenia. This is a preclinical stage developmentprogram.PET study of lumateperone in patients with stable schizophreniaOn September 16, 2015, we announced top-line data from an open-label PET study of lumateperone examining brain occupancy of striatal D2receptors. This study was conducted in patients diagnosed with schizophrenia who were otherwise healthy and stable with respect to their psychosis.After washout from their previous antipsychotic medication for at least two weeks, PET was used to determine target occupancy in brain regions atbaseline (drug-free) and again after two weeks of once daily lumateperone oral administration. In this trial, the 60 mg dose of ITI-007 was associatedwith a mean of approximately 40% striatal dopamine D2 receptor occupancy. As predicted by preclinical and earlier clinical data, lumateperonedemonstrated antipsychotic effect at relatively low striatal D2 receptor occupancy, lower than the occupancy range required by most otherantipsychotic drugs. Unlike any existing schizophrenia treatment, this dopamine receptor phosphoprotein modulator, or DPPM, acts as a pre-synapticpartial agonist and post-synaptic antagonist at D2 receptors. We believe this mechanism likely contributes to the favorable safety profile oflumateperone, with reduced risk for hyperprolactinemia, akathisia, extrapyramidal symptoms, and other motoric side effects. 17Table of ContentsOpen-label safety switching studyIn September 2017, we announced positive top-line data from the first part of an open-label safety switching study in which 302 patients withstable symptoms of schizophrenia were switched from standard-of-care antipsychotic medications to lumateperone (ITI-007 60 mg) with no dosetitration of lumateperone required for a six-week treatment duration, then switched back to standard-of-care. Many currently available antipsychoticagents are associated with motor side effects and/or weight gain, cardiovascular liabilities, dyslipidemia, and hyperglycemia. In this study,lumateperone was generally well tolerated with a favorable safety profile. Statistically significant improvements from standard-of-care baseline wereobserved in body weight, cardiometabolic and endocrine parameters in patients with stable symptoms of schizophrenia when switched to lumateperoneand worsened again when switched back to standard-of-care medication. Additionally, treatment with lumateperone was not associated with the motoror cardiovascular disturbances often associated with other antipsychotic medications. These data are consistent with previous study results reflecting asafety profile similar to placebo in placebo-controlled trials with lumateperone in patients with acutely exacerbated schizophrenia and extend thisfavorable safety profile to this stable patient population. Symptoms of schizophrenia did not worsen upon switch to lumateperone fromstandard-of-care. Rather, statistically significant improvement from baseline was observed in the PANSS mean total score. Notably, greaterimprovements were observed in subgroups of patients with elevated symptomatology such as those with comorbid symptoms of depression and thosewith prominent negative symptoms.In December 2018, we announced positive results from our ongoing long-term safety switching study. In the second part of the study, 603patients with stable symptoms of schizophrenia were switched from standard-of-care antipsychotic medications to lumateperone (ITI-007 60 mg) for upto one year with no dose titration of lumateperone required. In contrast to many other antipsychotics that are associated with weight gain, in this study,mean body weight significantly decreased after switch from standard-of-care antipsychotic treatment at six months (-1.82 kg at Day 175, p < 0.001) andone year (-3.16 kg at Day 350, p < 0.001) of treatment with lumateperone. Of the 603 patients in the trial, 24% experienced a decrease of 7% fromtheir standard-of-care baseline body weight over the course of the study, while only 8% experienced a body weight increase of 7%. Long-termtreatment with lumateperone also demonstrated a favorable cardiometabolic and endocrine safety profile with stable blood levels of glucose, insulin,and HDL cholesterol and statistically significant (p < 0.001) reductions from standard-of-care baseline in total cholesterol, LDL cholesterol andprolactin. With long-term administration, the most frequent (occurring in 5% of patients) treatment-emergent adverse events, regardless of whethersuch adverse event was related to treatment, were decrease in weight (9.5%), dry mouth (7.6%), diarrhea (7.0%), and headache (5.1%). The proportionof patients experiencing motor side effects while on lumateperone was low: any adverse event related to extrapyramidal side effects combinedincluding akathisia (5.3%); and akathisia specifically (0.5%). There were no signs of treatment-emergent extrapyramidal side effects, akathisia, ordyskinesia as measured by the Simpson Angus Scale, or SAS, the Barnes Akathisia Rating Scale, or BARS, or the Abnormal Involuntary MovementScale or AIMS, respectively. In addition, there were no signs of treatment-emergent suicidal ideation or behavior as measured by the Columbia-SuicideSeverity Rating Scale, or C-SSRS. As observed in the first part of the study (6 weeks of treatment), patients treated with lumateperone in the second partof the study (up to one year of treatment) did not worsen with respect to their symptoms of schizophrenia upon switch from standard of care. Rather,statistically significant (p < 0.001) improvements from a baseline score of 62.9 were observed on the PANSS. Given the favorable safety profile oflumateperone observed to date, the study has been extended to allow patients to stay on lumateperone for more than one year and study conduct isongoing.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 symptoms at doses similar tothose targeted for the treatment of schizophrenia. We believe that lumateperone may be effective alone or in combination with mood stabilizers. Giventhat many patients with 18Table of Contentsbipolar disorder also experience disturbed sleep and cognitive impairment similar to that observed in schizophrenia, we believe that lumateperone maytreat a wide array of symptoms in patients with bipolar disorder, including improvement of cognition and sleep.Our bipolar depression program consists of three Phase 3 multi-center, randomized, double-blind, placebo-controlled clinical trials. In theITI-007-401 and the ITI-007-404 trials, lumateperone is being evaluated as a monotherapy and in the ITI-007-402 trial, lumateperone is beingevaluated as an adjunctive therapy with lithium or valproate. All three trials are evaluating lumateperone in patients with a clinical diagnosis ofBipolar I or Bipolar II disorder and who are experiencing a current major depressive episode. In the ITI-007-401 and the ITI-007-402 trials, patients arerandomized to receive one of three treatments: 60 mg ITI-007, 40 mg ITI-007, or placebo in a 1:1:1 ratio orally once daily for 6 weeks. In theITI-007-404 trial, patients are randomized to receive 60 mg ITI-007 or placebo in a 1:1 ratio orally once daily for 6 weeks. In the ITI-007-401 and theITI-007-404 trials, patients receive lumateperone or placebo as a monotherapy. In the ITI-007-402 trial, patients receive lumateperone or placeboadjunctive to their existing mood stabilizer lithium or valproate. In each of these trials, we are employing a number of strategies designed to ensure werecruit appropriately diagnosed patients in an effort to reduce the risk of a high placebo response. We have completed patient enrollment in theITI-007-401 trial conducted in the United States and in the ITI-007-404 trial conducted globally. We anticipate reporting topline results from theITI-007-401 and ITI-007-404 trials simultaneously in the second quarter of 2019. Subject to the outcome of these trials, we expect to submit an NDAfor bipolar depression in the second half of 2019. Our global ITI-007-402 trial evaluating adjunctive lumateperone in bipolar depression is ongoing. Inconnection with the global strategy of this program we are adding sites outside the U.S. to the ITI-007-402 trial and we expect to provide anticipatedtimelines for this trial after completing the expansion.The primary endpoint for these clinical trials is change from baseline at Day 42 on the Montgomery-Åsberg Depression Rating Scale (MADRS)total score versus placebo. The MADRS is a well-validated 10-item checklist that measures the ability of a drug to reduce overall severity of depressivesymptoms. Individual items are rated by an expert clinician on a scale of 0 to 6 in which a score of 6 represents the most depressed evaluation for eachitem assessed. The total score ranges from 0 to 60. Secondary endpoints include measures of social function and quality of life that may illustrate thedifferentiated clinical profile of lumateperone. Safety and tolerability are also assessed in these clinical trials.Lumateperone for the treatment of behavioral disturbances associated with dementia, including Alzheimer’s diseaseBehavioral disturbances are common in dementia and AD. These disturbances are a major component of the burden to caregivers, and often leadto institutionalization. Although currently available treatments for patients with dementia mainly address cognitive disturbances, behavioraldisturbances are considerably more problematic and likely more amenable to drug treatment. Several behavioral symptoms are quite prevalent inpatients with dementia, including patients with AD. In the fourth quarter of 2014, we announced the top-line data from ITI-007-200, a Phase 1/2clinical trial designed to evaluate the safety, tolerability and pharmacokinetics of low doses of lumateperone in healthy geriatric subjects and inpatients with dementia, including AD. The ITI-007-200 clinical trial was conducted in two parts. Part 1 was a randomized, double-blind, placebo-controlled multiple ascending dose evaluation of lumateperone in healthy geriatric subjects. In each of three cohorts in Part 1, approximately 10subjects were randomized to receive lumateperone (N=8) or placebo (N=2) orally once daily in the morning for seven days. Doses of ITI-007 up to andincluding 30 mg were evaluated in three cohorts in Part 1. In Part 2, eight patients with dementia were randomized to receive 9 mg ITI-007 (N=5) orplacebo (N=3) orally once a day in the evening for seven days. The primary objectives of the study were to evaluate the safety, tolerability andpharmacokinetics of lumateperone in the elderly and in the target dementia patient population. Secondary measures were included to explore theeffects of lumateperone on cognition and agitation. The Hopkins Verbal Learning Test-R, or HVLT-R, was used to assess cognition in healthy geriatricsubjects and dementia patients. The results demonstrated impaired verbal learning and memory (recall and recognition memory) by dementia patientsrelative to healthy geriatric subjects. Moreover, the data indicated that healthy 19Table of Contentsgeriatric subjects treated with lumateperone for approximately one week experienced an improvement in verbal learning and memory relative toplacebo-treated subjects. Dementia patients treated with lumateperone showed enhanced recognition memory, making fewer false positive errors (i.e.,responding ‘yes’ to non-target words) than patients treated with placebo. Other secondary endpoints in the ITI-007-200 clinical trial included theassessment of agitation. However, none of the study participants experienced agitation at baseline or during the study, and therefore no signals on thisbehavioral endpoint could be assessed. The completion of this study marked an important milestone in our strategy to develop low doses oflumateperone for the treatment of behavioral disturbances associated with dementia and related disorders. The ITI-007-200 trial results indicate thatlumateperone has a positive safety profile and is well-tolerated across a range of low doses, has linear- and dose-related pharmacokinetics and mayimprove cognition in the elderly. The most frequent adverse event was mild sedation at the higher doses. We believe these results further positionlumateperone as a development candidate for the treatment of behavioral disturbances in patients with dementia and other neuropsychiatric andneurological conditions.In the second quarter of 2016, we initiated Phase 3 development of lumateperone for the treatment of agitation in patients with dementia,including AD. Our ITI-007-201 trial was a Phase 3 multi-center, randomized, double-blind, placebo-controlled clinical trial in patients with a clinicaldiagnosis of probable AD and clinically significant symptoms of agitation. In this trial, approximately 360 patients were planned to be randomized toreceive 9 mg ITI-007 or placebo in a 1:1 ratio orally once daily for four weeks. The primary efficacy measure was the Cohen-Mansfield AgitationInventory—Community version, or CMAI-C. The CMAI-C is a well-validated 37-item scale that measures the ability of a drug to reduce overallfrequency of agitation symptoms, including aggressive behaviors. Individual items were to be rated by an expert clinician on a scale of 1 to 7 in whicha score of 7 represents the most frequent for each item assessed. The key secondary efficacy measure was the CGI-S. Other exploratory secondaryendpoints included measures of other behavioral disturbances associated with dementia. Safety and tolerability were also to be assessed in the trial. Inthe fourth quarter of 2018, an independent data monitoring committee, or DMC, completed a pre-specified interim analysis of the ITI-007-201 trial,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 the ITI-007-201 trial. Lumateperone was generally well tolerated in the ITI-007-201 trial and the decision todiscontinue the study was not related to safety. We are analyzing the data set from this trial and will determine the next steps in our program followingcompletion of this analysis.Lumateperone for the treatment of sleep disturbances associated with neurologic and psychiatric disordersA Phase 2 double-blind, placebo controlled cross-over clinical trial conducted in 19 patients with primary insomnia with disturbed sleepmaintenance at low doses of lumateperone was completed in 2008 in Europe. The primary outcome measure was slow wave sleep as determined bypolysomnography. Lumateperone demonstrated a dose-related statistically significant increase in slow wave sleep. Secondary measures were consistentwith improvement of sleep maintenance in patients with primary insomnia, indicated by decreased waking after sleep onset, increased total sleep time,and no increase in latency to sleep onset. At these low doses, lumateperone did not induce sleep, but rather helped maintain sleep once sleep had beeninitiated. In addition, lumateperone was not associated with next day cognitive impairment, or “hang-over” effects. We believe that lumateperone maybe particularly useful in the treatment of sleep disorders that accompany neuropsychiatric and neurologic disorders, including schizophrenia, autismspectrum disorder, or ASD, Parkinson’s disease and dementia. Previous work has suggested that selective 5-HT2A receptor antagonists increase deep,slow wave sleep in both humans and animals. We believe, however, that other neuropharmacological mechanisms, in addition to 5-HT2A receptorantagonism, such as engaging some dopamine modulation, may be beneficial for the successful treatment of sleep maintenance insomnia, or SMI, inhumans. We believe that lumateperone represents a new approach to the treatment of sleep maintenance insomnia because of its unique pharmacologyand neuropharmacological interactions beyond selective 5-HT2A receptor antagonism. We believe that lumateperone offers a potentially newapproach to the treatment of sleep maintenance disorders, particularly in those disorders that accompany neuropsychiatric and neurologic disorders.Many of these disorders are accompanied by profound sleep deficits, 20Table of Contentswhich impair daytime functioning including cognition, exacerbate disease symptoms and increase the cost of care. We are presently exploring clinicaldesigns to incorporate the examination of sleep disturbances in one or more of these indications. There is no assurance that any such design would besufficient for an FDA approval for this indication.Lumateperone for the treatment of sleep and behavioral disturbances associated with autism spectrum disorderSleep problems are common in patients with ASD and are not adequately treated by currently available interventions. Approximately two thirdsof children and adolescents with ASD experience sleep problems, higher than the rate of sleep problems in age-matched developmentally typicalchildren. Moreover, individuals with ASD suffer from behavioral disturbances, including aggression, irritability, anxiety and depression. With itsmultiple pathway mechanism of action, we believe that lumateperone could address the multi-faceted behavioral symptoms associated with ASD.5-HT2A receptor antagonism is predicted to increase slow wave sleep, improve sleep maintenance and reduce aggression. D2 receptor modulation ispredicted to improve sleep maintenance and reduce irritability and aggression. Serotonin reuptake inhibition is predicted to reduce anxiety anddepression. Accordingly, we believe that lumateperone could improve sleep maintenance, reduce behavioral disturbances and enhance socialinteraction in patients with ASD. We believe that our completed Phase 1 studies support advancing lumateperone into Phase 2 trials in this patientpopulation, and we are presently exploring the feasibility of such trials.Lumateperone for the treatment of major depressive disorder and other mood disordersAs a potent 5-HT2A receptor antagonist and serotonin reuptake inhibitor, we believe that lumateperone could improve symptoms of depressionwith fewer side effects than selective serotonin reuptake inhibitors, or SSRIs. Dopamine modulation by lumateperone may reduce irritability andaggression that can accompany many mood disorders. Lumateperone, as a standalone agent, indirectly enhances glutamatergic neurotransmissionthrough both AMPA and NMDA channels in the prefrontal cortex via lumateperone’s dopamine D1 receptor activation. Lumateperone also activateskey proteins in the mTOR pathway similar to ketamine which has shown rapid antidepressant effects, yet lumateperone has not been associated withketamine-like safety concerns. As such, lumateperone may be effective for the treatment of mood disorders including MDD, posttraumatic stressdisorder and intermittent explosive disorder. We have commenced our program of lumateperone in MDD. In previous studies, schizophrenia patientswith co-morbid depression experienced improvements in depressive symptoms. Additionally, recent preclinical data support the potential for rapid-acting antidepressant effects. In order to explore the effect of different modes of drug administration and the potential for rapid-onset antidepressantactivity, our program includes the assessment of novel formulations of lumateperone. Pharmacokinetic studies evaluating these novel formulations arecurrently ongoing.ITI-002 (PDE1) ProgramWe have a second major program called ITI-002 that has yielded a portfolio of compounds that selectively inhibits the enzymephosphodiesterase type 1, or PDE1. In addition, PDE1 inhibitors may have utility in treating non-CNS disorders. On February 25, 2011, we (throughour wholly owned operating subsidiary, ITI) and Takeda Pharmaceutical Company Limited, or Takeda, entered into a license and collaborationagreement, or the Takeda License Agreement, under which we agreed to collaborate to research, develop and commercialize our proprietary compoundITI-214 and other selected compounds that selectively inhibit PDE1 for use in the prevention and treatment of human diseases. Takeda conducted fourPhase 1 studies. A single rising dose study was conducted in the U.S. in healthy male and female, Japanese and non-Japanese volunteers. In a secondU.S. study, ITI-214 was administered once daily over 14 days to healthy volunteers and patients with stable schizophrenia. In a third study, conductedin Japan, ITI-214 was administered for seven days at multiple rising oral doses in both male and female healthy volunteers. A fourth study comparedthe relative bioavailability of 21Table of Contentsoral formulations of ITI-214 used in all previous studies to an immediate-release tablet, either with or without food in healthy volunteers. In thesestudies, ITI-214 demonstrated a favorable safety profile and was generally well-tolerated across a broad range of doses both in healthy volunteers andin patients with schizophrenia with a pharmacokinetic profile that supports once daily dosing. We believe ITI-214 is the first compound in its class tosuccessfully advance through Phase 1 clinical trials. On October 31, 2014, we entered into an agreement with Takeda terminating the Takeda LicenseAgreement, or the Termination Agreement, pursuant to which all rights granted under the Takeda License Agreement were returned to us. OnSeptember 15, 2015, Takeda completed the transfer of the IND for ITI-214 to us. We intend to pursue the development of our PDE program, includingITI-214, for the treatment of several CNS and non-CNS conditions, including cardiovascular disease. Following the positive safety and tolerabilityresults in our Phase 1 program, we initiated our development program for ITI-214 for Parkinson’s disease and commenced patient enrollment in thethird quarter of 2017 in a Phase 1/2 clinical trial of ITI-214 in patients with Parkinson’s disease to evaluate safety and tolerability in this patientpopulation, 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 demonstrated ITI-214 was generally well-tolerated with a favorable safety profile and clinical signsconsistent with improvements in motor symptoms and dyskinesias. In addition, in the first quarter of 2018, the investigational new drug application, orIND, went into effect for ITI-214 for the treatment of heart failure. We have initiated clinical conduct of the first clinical study in this program, arandomized, double-blind, placebo-controlled study of escalating single doses of ITI-214 to evaluate safety and hemodynamic effects in patients withsystolic heart failure.Additional PDE ProgramsThere are multiple forms and isoforms of PDE with distinct roles in intracellular signaling. We have developed strong internal expertise in thedesign and synthesis of inhibitors specific for individual PDE isoforms. Based on our understanding of the expression and functions of these isoformsin the CNS, we have identified PDE2 and PDE9 as compelling targets for drug discovery. We believe that inhibitors of these PDEs may be useful intreating neurodegeneration and bioenergetic failure in a variety of CNS diseases.ITI-333 ProgramITI-333 is a pre-clinical stage development program. ITI-333 is designed as a potential treatment for substance use disorders, pain and psychiatriccomorbidities 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. We believe the potential exists for ITI-333 to address these challenges. In preclinical studies, ITI-333functions as a partial agonist at mu opiate receptors, attenuating the behavioral effects of morphine while displaying full analgesic efficacy that isreversible by the mu opiate antagonist, naloxone. ITI-333 also acts as a 5-HT2A antagonist with interactions at D1 receptors. Preclinical safety studieswith ITI-333 are currently ongoing and we expect to initiate a clinical program in 2019. If successfully translated to humans, this uniquepharmacological profile may yield clinical utility for the treatment of substance use disorders and pain.Intellectual PropertyOur Patent PortfolioAs of February 1, 2019, we owned or controlled approximately 105 patent families filed in the United States and other major markets worldwide,including approximately 83 issued or allowed U.S. patents, 27 pending U.S. patent applications, 216 issued or allowed foreign patents and 184pending foreign patent applications, directed to novel compounds, formulations, methods of treatment, synthetic methods, and platform technologies.Our ITI-007 program on novel compounds for neuropsychiatric and neurodegenerative diseases includes patents exclusively in-licensed fromBristol-Myers Squibb on families of compounds, including the ITI-007 lead molecule. We have extensively characterized this lead and filed additionalpatent applications on polymorphs, 22Table of Contentspharmaceutical formulations, new indications, improved methods of manufacture, metabolites, derivatives, and structurally related novel compounds.As of February 1, 2019, our ITI-007 program consisted of approximately 30 patent families that we own or control, filed in the United States and othermajor markets, including 31 issued or allowed U.S. patents, 13 pending U.S. patent applications, 126 issued or allowed foreign patents and 65 pendingforeign patent applications. Patent protection for ITI-007 thus includes: Summary Description of Patentor Patent Application United States or ForeignJurisdiction Expiration DateBase ITI-007 Patent Granted: United States, JP, EP (AT, BE, CH,DE, ES, FR, GB, IE, IT, LU, MC) June 15, 2025(including regulatory extensions;additional Orange Book-listable protectionto 2034; does not include expected 6month extension in US for pediatricstudies)Supplemental ITI-007 Patent Granted: US, 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; December 1, 2029 (US; does not includeexpected 6 month extension for pediatricstudies);March 12, 2029 (ex-US) Pending in IL, IN ITI-007 Dosage Patents (including schizophrenia,bipolar depression, sleep disorder indications) Granted: US, AU, CN, JP, MXPending: US (continuation), CA, (divisional),EP, IN, KR, MX (divisional) December 28, 2029 (US);May 27, 2029 (ex-US)Patents for Additional Dosage Forms Pending: US provisional, US national and/orPCT 2037-2039Patents for Additional Indications Granted or pending in US, EP, JP, and othercountries 2033-2034Our program on PDE1 inhibitors for cognition, dopamine-mediated and other disorders, cardiovascular disorders, as well as several others,includes patent protection across 19 families for the lead molecule, ITI-214, as well as a wide range of filings on other proprietary compounds andindications. The ITI-214 lead molecule has composition of matter protection to 2029, with possible extensions and additional Orange Book-listableprotection to 2034. Additionally, we expect to have data exclusivity in the European Union for up to 11 years from commercial launch. We haveobtained patent coverage for ITI-214 in the treatment of cardiovascular disorders, including heart failure, that extends to 2034. We are also evaluatingpotential follow-on compounds for ITI-214 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. 12 familiesof patent applications have been filed, including one which has already resulted in a U.S. patent. 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).We have also filed patent applications on novel proprietary targets and lead compounds for AD, which would provide compound protectionbeyond 2028 or beyond 2034, depending on which compound is ultimately selected for development. 23Table of ContentsLicense AgreementThe Bristol-Myers Squibb License AgreementOn May 31, 2005, we entered into a worldwide, exclusive License Agreement with Bristol-Myers Squibb Company, or BMS, pursuant to whichwe hold a license to certain patents and know-how of BMS relating to lumateperone and other specified compounds. The agreement was amended onNovember 3, 2010. The licensed rights are exclusive, except BMS retains rights in specified compounds in the fields of obesity, diabetes, metabolicsyndrome and cardiovascular disease. However, BMS has no right to use, develop or commercialize lumateperone and other specified compounds inany field of use. We have the right to grant sublicenses of the rights conveyed by BMS. We are obliged under the license to use commerciallyreasonable efforts to develop and commercialize the licensed technology. We are also prohibited from engaging in the clinical development orcommercialization of specified competitive compounds.Under the agreement, we made an upfront payment of $1.0 million to BMS, a milestone payment of $1.25 million in December 2013, and amilestone payment of $1.5 million in December 2014 following the initiation of our first Phase 3 clinical trial for lumateperone for patients withexacerbated schizophrenia. Upon FDA acceptance of an NDA filing for lumateperone, we were obligated to pay BMS a $2.0 million milestonepayment. The FDA accepted our NDA filing for lumateperone for the treatment of schizophrenia in the third quarter of 2018 and, as a result, we accruedthe $2.0 million milestone, which was paid in the first quarter of 2019. Remaining potential milestone payments under the agreement with respect tolumateperone total $10.0 million, including a $5.0 million milestone payable upon an NDA approval. Under the agreement, we may be obliged tomake other milestone payments to BMS, for licensed products other than lumateperone, of up to an aggregate of approximately $14.75 million. We arealso obliged to make tiered single digit percentage royalty payments ranging between 5 – 9% on sales of licensed products. We are obliged to pay toBMS a percentage of non-royalty payments made in consideration of any sublicense.The agreement extends, and royalties are payable, on a country-by-country and product-by-product basis, through the later of ten years after firstcommercial sale of a licensed product in such country, expiration of the last licensed patent covering a licensed product, its method of manufacture oruse, or the expiration of other government grants providing market exclusivity, subject to certain rights of the parties to terminate the agreement on theoccurrence of certain events. On termination of the agreement, we may be obliged to convey to BMS rights in developments relating to a licensedcompound or licensed product, including regulatory filings, research results and other intellectual property rights.ManufacturingWe do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our ownmanufacturing operations in the foreseeable future. We currently rely on third-party contract manufacturers for all of our required raw materials, activepharmaceutical ingredient, or API, and finished product for our preclinical research and clinical trials, including the Phase 3 trials for lumateperone forthe treatment of bipolar depression. We believe that we would be able to contract with other third-party contract manufacturers to obtain API if ourexisting sources of API were no longer available, but there is no assurance that API would be available from other third-party manufacturers onacceptable terms, on the timeframe that our business would require, or at all.On January 4, 2017, we entered into a supply agreement, or the Siegfried Agreement, with Siegfried Evionnaz SA, or Siegfried. Under theSiegfried Agreement, Siegfried has agreed to manufacture and supply the API for lumateperone in commercial quantities. Each month, we will provideSiegfried with a rolling forecast of our anticipated requirements for supply of the API, with the first 12 months of each forecast being binding on us.Under the agreement, our purchase prices for supply of the API from Siegfried are specified prices based on the volume of API produced. The term ofthe Siegfried Agreement extends for five years. Either party may terminate the agreement prior to its expiration upon an uncured material breach by theother party, the liquidation or 24Table of Contentsdissolution of the other party, the commencement of insolvency procedures or other bankruptcy-related proceedings that are not dismissed within acertain 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 orsubstantially all of the other party’s business operations, a continuing force majeure event affecting the other party, or the debarment or certain otherevents involving the other party’s employees, affiliates or agents. Under the Siegfried Agreement, we have the right to and may purchase the API forlumateperone from other suppliers, including if Siegfried cannot fulfill our requirements.Development and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, thatcomply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employinternal resources to manage our manufacturing contractors.Sales and MarketingWe currently are in the process of building our marketing, sales or distribution capabilities in preparation for the commercial launch oflumateperone for schizophrenia if our NDA is approved by the FDA. In order to commercialize any of our product candidates, we must develop thesecapabilities internally or through collaboration with third parties. We may choose to commercialize our products in markets outside of the UnitedStates by establishing one or more strategic alliances in the future.CompetitionWe face, and will continue to face, intense competition from pharmaceutical and biotechnology companies, as well as numerous academic andresearch institutions and governmental agencies, both in the United States and abroad. We compete, or will compete, with existing and new productsbeing developed by our competitors. Some of these competitors are pursuing the development of pharmaceuticals that target the same diseases andconditions that our research and development programs target.Even if we are successful in developing and obtaining approval of our product candidates, the resulting products would compete with a varietyof established drugs in the areas of our targeted CNS therapeutic indications. Our potential products for the treatment of schizophrenia and bipolardisorder would compete with, among other branded products including, Latuda®, marketed by Sunovion, Rexulti®, marketed by OtsukaPharmaceutical, VRAYLAR®, marketed by Allergan, Saphris®, marketed by Allergan, and Fanapt®, marketed by Vanda Pharmaceuticals. In addition,our product candidates, if approved, will compete with, among other generic antipsychotic products, aripiprazole, haloperidol, paliperidone,risperidone, quetiapine/XR, olanzapine and clozapine.In addition, the companies described above and other competitors may have a variety of drugs in development or be awaiting FDA approval thatcould reach the market and become established before we have a product to sell. Our competitors may also develop alternative therapies that couldfurther limit the market for any drugs that we may develop. Many of our competitors are using technologies or methods different or similar to ours toidentify and validate drug targets and to discover novel small molecule drugs. Many of our competitors and their collaborators have significantlygreater experience than we do in the following: • identifying and validating targets; • screening compounds against targets; • preclinical studies and clinical trials of potential pharmaceutical products; and • obtaining FDA and other regulatory clearances. 25Table of ContentsIn addition, many of our competitors and their collaborators have substantially greater advantages in the following areas: • capital resources; • research and development resources; • manufacturing capabilities; and • sales and marketing.Smaller companies also may prove to be significant competitors, particularly through proprietary research discoveries and collaborativearrangements with large pharmaceutical and established biotechnology companies. Many of our competitors have products that have been approvedby the FDA or are in advanced development. We face competition from other companies, academic institutions, governmental agencies and otherpublic and private research organizations for collaborative arrangements with pharmaceutical and biotechnology companies, in recruiting andretaining highly qualified scientific and management personnel and for licenses to additional technologies. Our competitors, either alone or with theircollaborators, may succeed in developing technologies or drugs that are more effective, safer, and more affordable or more easily administered thanours and may achieve patent protection or commercialize drugs sooner than us. Developments by others may render our product candidates or ourtechnologies obsolete. Our failure to compete effectively could have a material adverse effect on our business.Government RegulationUnited States—FDA ProcessThe research, development, testing, manufacture, labeling, promotion, advertising, import and export, distribution and marketing, among otherthings, of drug products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDAregulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply with the applicableU.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning letters, fines, civilpenalties, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution.Drug Approval Process. 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 inthe United States generally include the following: • completion of extensive preclinical laboratory tests, animal studies, and formulation studies in accordance with the FDA’s GoodLaboratory Practice, or GLP, regulations; • submission to the FDA of an 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 proposedindication; • submission to the FDA of an NDA after completion of all clinical trials; • satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the API and finished drugproduct are produced and tested to assess compliance with current Good Manufacturing Practices, or cGMPs; • satisfactory completion of FDA inspections of clinical trial sites to assure that data supporting the safety and effectiveness of productcandidates has been generated in compliance with Good Clinical Practices; and 26Table of Contents • FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.Preclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The conduct of thepreclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinicaltests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective beforehuman clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raisesconcerns or questions about the conduct of the trial, such as whether human research subjects will be exposed to an unreasonable health risk. In such acase, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. The FDA, sponsor or anInstitutional Review Board, or IRB, may place a study on hold at any time during development.Clinical trials involve administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinicaltrials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteriato 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 centerproposing to conduct the clinical trial, must review and approve the study protocol and informed consent information for study subjects for anyclinical trial before it commences at that center, and the IRB must monitor the study until it is completed. There are also requirements governingreporting of on-going clinical trials and clinical trial results to public registries. Study subjects must sign an informed consent form before participatingin 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, toevaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an earlyindication of its effectiveness. • Phase 2 usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possibleadverse effects and safety risks; and (iii) evaluate preliminarily the efficacy of the drug for specific targeted indications. Multiple Phase 2clinical 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, geographicallydispersed 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 exposedto an unacceptable health risk. The FDA may approve an NDA for a product candidate, but require that the sponsor conduct additional clinical trials tofurther assess the drug after NDA approval under a post-approval commitment. Post-approval trials are typically referred to as Phase 4 clinical trials.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 tosubmission 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 anopportunity 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 toreach an agreement on the next phase of development. Sponsors typically use the end of Phase 2 meeting to discuss their Phase 2 clinical results andpresent their plans for the pivotal Phase 3 clinical trial that they 27Table of Contentsbelieve will support approval of the new drug. A sponsor may request a Special Protocol Assessment, or SPA, to reach an agreement with the FDA thatthe protocol design, clinical endpoints, and statistical analyses are acceptable to support regulatory approval of the product candidate with respect toeffectiveness in the indication studied. If such an agreement is reached, it will be documented and made part of the administrative record, and it will bebinding on the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining the safety oreffectiveness 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 noguarantee 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 aboutthe chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. Themanufacturing process must be capable of consistently producing quality batches of the drug candidate and the manufacturer must develop methodsfor testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging must be selected and tested and stability studies mustbe 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 preclinical studies and of clinical studies, together with otherdetailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDArequesting approval to market the product for one or more indications. An NDA must be accompanied by a significant user fee, which is waived for thefirst NDA submitted by a qualifying small business. The NDA is subject to a sixty day acceptance period, and if sufficiently complete to permitsubstantive 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 tocomplete its review ten months from the date the FDA files the NDA and, for priority review of those NDAs, six months from the date the FDA files theNDA. 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 and may deem it to beinadequate to support approval, and we cannot be sure that any approval will be granted on a timely basis, if at all. The FDA may also refer theapplication to the appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether theapplication should be approved. The FDA is not bound by the recommendations of the advisory committee, but it typically follows suchrecommendations.Before approving an NDA, the FDA inspects the facility or the facilities at which the drug and/or its active pharmaceutical ingredient ismanufactured and will not approve the product unless the manufacturing is in compliance with cGMPs. If the FDA evaluates the NDA and themanufacturing facilities are deemed acceptable, the FDA may issue an approval letter, or in some cases a Complete Response Letter. The approval letterauthorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA may require post-marketing testing andsurveillance to monitor the drug’s safety or efficacy, or impose other conditions. A Complete Response Letter indicates that the review cycle of theapplication is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data and/oradditional clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies ormanufacturing. 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 to mitigate risks of the drug, which could include medicationguides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries or other riskminimization tools. Once the FDA approves a drug, the FDA may withdraw product approval if on-going regulatory requirements are not met or ifsafety problems occur after the product reaches the market. In addition, the FDA may require testing, including Phase 4 clinical trials, and surveillanceprograms to monitor the safety effects of approved products that have 28Table of Contentsbeen commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketingprograms or other information.Post-Approval Requirements. After a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirementsbe satisfied, including the conduct of additional clinical trials. In addition, certain changes to an approved product, such as adding new indications,making certain manufacturing changes, or making certain additional labeling claims, are subject to further FDA review and approval. Before acompany can market products for additional indications, it must obtain additional approvals from the FDA, typically through the submission andapproval of a supplemental NDA. Obtaining approval for a new indication generally requires that additional clinical trials be conducted. A companycannot be sure that any additional approval for new indications for any product candidate will be approved on a timely basis, or at all.If post-approval conditions are not satisfied, the FDA may withdraw its approval of the drug. In addition, holders of an approved NDA arerequired 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 andmanufacturing procedures conform to cGMPs after approval. The FDA periodically inspects the sponsor’s records related to safety reporting and/ormanufacturing 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 use third-party manufacturers to produceour products in clinical and commercial quantities, and future FDA inspections may identify compliance issues at the facilities of our contractmanufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a productafter approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including recall of the product from the market orwithdrawal of approval of the NDA for that drug.Patent Term Restoration and Marketing Exclusivity. Depending upon the timing, duration and specifics of FDA approval of the use of our drugs,some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensationfor patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remainingterm of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time betweenthe 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 thatapplication. Only one patent applicable to an approved drug is eligible for the extension and the extension must be requested prior to expiration of thepatent. Also, the approval must be the first permitted commercial marketing or use of the active ingredient under the relevant provision of law. TheUSPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend toapply 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 FDCAprovides 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 chemicalentity. 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 themolecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated newdrug 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 orhave a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains acertification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA orsupplement to an existing NDA if new clinical investigations, other 29Table of Contentsthan bioavailability studies, conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, forexample, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the newclinical 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 berequired to conduct, or obtain a right of reference to all of the preclinical studies, adequate and well-controlled clinical trials necessary to demonstratesafety and effectiveness. The FDCA also provides seven years of market exclusivity for a drug designated for a rare disease or condition (e.g., a diseaseor condition that affects less than 200,000 people in the U.S.). The exclusivity prohibits the approval of the same drug for the same disease orcondition, unless there is a showing of clinical superiority.Foreign RegulationIn addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercialsales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatoryauthorities of foreign countries before we can commence clinical trials and approval of foreign countries or economic areas, such as the EuropeanUnion, before we may market products in those countries or areas. The approval process 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 FDAapproval.Pricing and ReimbursementIn the United States and internationally, sales of products that we market in the future, and our ability to generate revenues on such sales, aredependent, in significant part, on the availability of adequate coverage and reimbursement from third-party payors, such as state and federalgovernments, managed care providers and private insurance plans. Private insurers, such as health maintenance organizations and managed careproviders, have implemented cost-cutting and reimbursement initiatives and likely will continue to do so in the future. These include establishingformularies that govern the drugs and biologics that will be offered and the out-of-pocket obligations of member patients for such products. We mayneed to conduct pharmacoeconomic studies to demonstrate the cost-effectiveness of our products for formulary coverage and reimbursement. Evenwith such studies, our products may be considered less safe, less effective or less cost-effective than existing products, and third-party payors may notprovide 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 andfederal governments and agencies in connection with purchases of our products that are reimbursed by such entities. It is possible that futurelegislation in the United States and other jurisdictions could be enacted to potentially impact reimbursement rates for the products we are developingand may develop in the future and could further impact the levels of discounts and rebates paid to federal and state government entities. Anylegislation that impacts these areas could impact, in a significant way, our ability to generate revenues from sales of products that, if successfullydeveloped, we bring to market.Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental changes. There havebeen, and we expect there will continue to be, legislative and regulatory proposals to change the health care system in ways that could significantlyaffect our future business. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education AffordabilityReconciliation Act of 2010, or collectively, the ACA, enacted in March 2010, substantially changed the way health care is financed by bothgovernmental and private insurers. Certain legislative changes to and regulatory changes under the ACA have occurred in the 115th United StatesCongress and under the Trump Administration. For instance, the Bipartisan Budget Act of 2018 increased the ACA required manufacturer point-of-salediscount from 50% to 70% off the negotiated price for Medicare Part D beneficiaries during their 30Table of Contentscoverage gap period beginning in 2019. Further legislative changes to and regulatory changes under the ACA remain possible. We expect thathealthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in additionaldownward pressure on the price that may be charged for any of our product candidates, if approved.Sales and MarketingThe FDA, in conjunction with the U.S. Federal Trade Commission, or FTC, regulates all advertising and promotion activities for products underFDA’s jurisdiction prior to and after approval, including standards and regulations for direct-to-consumer advertising, dissemination of off-labelinformation, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Drugs may be marketed onlyfor the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to the drug, includingchanges in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new orsupplemental NDA, which may require us to collect additional data or conduct additional preclinical studies and clinical trials. Failure to comply withapplicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees andthe full range of civil and criminal penalties available to the FDA.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 andapproved 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 besttreatment for the patient. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringentrestrictions on manufacturers’ communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a companyto adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties availableto the FDA.Outside the United States, our ability to market a product is contingent upon obtaining marketing authorization from the appropriate regulatoryauthorities. 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 our business activitiescould be subject to scrutiny and enforcement under one or more federal or state health care fraud and abuse laws and regulations. These fraud and abuselaws include: • The federal Anti-Kickback Law, which prohibits, among other things, knowingly or willingly offering, paying, soliciting or receivingremuneration, directly or indirectly, in cash or in kind, to induce or reward the purchasing, leasing, ordering or arranging for orrecommending the purchase, lease or order of any health care items or service for which payment may be made, in whole or in part, byfederal 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 bepresented, a false or fraudulent claim for payment of government funds or knowingly making, using or causing to be made or used, a falserecord or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperlyavoiding, 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 andwillfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a health carebenefit program, willfully obstructing a criminal investigation of a health care offense, or knowingly and willfully making false statementsrelating to healthcare matters; 31Table of Contents • The federal Physician Payment Sunshine Act, being implemented as the Open Payments Program, requires certain pharmaceuticalmanufacturers to engage in extensive tracking of payments and other transfers of value to physicians and teaching hospitals, and to submitsuch data to the Centers for Medicare and Medicaid Studies (“CMS”), which will then make all of this data publicly available on the CMSwebsite; and • Analogous state laws and regulations, including state anti-kickback and false claims laws, which may apply to items or services reimbursedunder Medicaid and other state programs or, in several states, apply regardless of the payer, as well as other state laws that requirepharmaceutical companies to report expenses related to the marketing and promotion of pharmaceutical products, prohibit certain gifts orpayments to health care providers in the state, and/or require pharmaceutical companies to implement compliance programs or marketingcodes of conduct.Violations of fraud and abuse laws may be punishable by significant criminal and/or civil sanctions, including fines and civil monetarypenalties, the possibility of exclusion from federal health care programs (including Medicare and Medicaid) and corporate integrity agreements, whichimpose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties also may be imposedupon executive officers and employees, including criminal sanctions against executive officers under the so-called “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 thatmay be imposed on companies and individuals if convicted, allegations of such violations often result in settlements even if the company orindividual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetarypenalties, and corporate integrity agreements. If the government was to allege or convict us or our executive officers, employees or consultants ofviolating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions under some of the fraudand abuse laws described above. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these lawsand extensive enforcement of them by law enforcement authorities. Further, federal and state laws that require manufacturers to make reports on pricingand marketing information could subject us to penalty provisions.Description of the MergerPursuant to an Agreement and Plan of Merger dated August 23, 2013, or the Merger Agreement, by and among Oneida Resources Corp., whichwe refer to as the Company, we, our and us; ITI, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, or Merger Sub; and Intra-Cellular Therapies, Inc., a Delaware corporation, which we refer to as ITI; Merger Sub merged with and into ITI, with ITI remaining as the survivingentity and a wholly-owned operating subsidiary of the Company. This transaction is referred to throughout this report as the “Merger.” The Merger waseffective on August 29, 2013, upon the filing of a Certificate of Merger with the Secretary of State of the State of Delaware. In connection with theMerger, ITI changed its name to ITI, Inc. and Oneida Resources Corp. assumed the name Intra-Cellular Therapies, Inc. The Merger was accounted for asa capital transaction. Upon the effectiveness of the Merger, the Company’s business became the operation of ITI and its business.At the effective time of the Merger, or the Effective Time, the legal existence of Merger Sub ceased and each share of ITI common stock and eachshare of ITI preferred stock that was issued and outstanding immediately prior to the Effective Time was automatically exchanged for 0.5 shares of ourcommon stock, which we refer to as the Exchange. Immediately following the Effective Time, we completed the closing of a redemption of 5,000,000shares of our common stock, or the Redemption, from our then-current sole stockholder, which constituted all of the issued and outstanding shares ofour capital stock, on a fully-diluted basis, immediately prior to the Merger. Upon completion of the Merger and the Redemption, the formerstockholders of ITI held 100% of the outstanding shares of our capital stock. Unless otherwise indicated in this report, all share and per share figuresreflect the exchange of each share of ITI common stock and each share of ITI preferred stock then outstanding for 0.5 shares of our common stock at theEffective Time. 32Table of ContentsEmployeesAs of February 15, 2019, we employed 73 employees all of whom were full-time. We consider our relations with our employees to be good. Tosuccessfully develop our drug candidates, we must be able to attract and retain highly skilled personnel. We anticipate hiring a substantial number ofadditional employees for sales and marketing, research and development, clinical and regulatory affairs, and general and administrative activities overthe next few years. In addition, we intend to use clinical research organizations and third parties to perform our clinical studies and manufacturing. 33Table of ContentsItem 1A.RISK FACTORSExcept 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 otherstatements regarding future performance. These statements are not guarantees of future performance or events. Our actual results could differmaterially from those discussed in this report. Factors that could cause or contribute to these differences include, but are not limited to, thosediscussed in the following section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of FinancialCondition 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 thisreport. 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 besignificant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adverselyaffected. If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment.Risks Related to Our BusinessWe depend heavily on the success of our product candidate lumateperone for the treatment of schizophrenia, which has not yet been approved by theFDA. If we experience material delays in obtaining or are unable to obtain marketing approval for lumateperone for the treatment of schizophrenia,our business will be materially harmed.We believe that a significant portion of the value attributed to our company by investors is based on the commercial potential of lumateperonefor the treatment of schizophrenia, which has not yet been approved by the FDA. The FDA has substantial discretion in deciding whether or notlumateperone for the treatment of schizophrenia should be granted approval based our clinical trials and nonclinical studies to date. We completed thisNDA submission in the third quarter of 2018 and the FDA accepted for review the NDA in the fourth quarter of 2018. The FDA assigned a PrescriptionDrug User Fee Act, or PDUFA, target action date of September 27, 2019. There is no assurance, however, that the FDA will complete its review withinthis timeframe and does not ensure that our NDA for lumateperone for the treatment of schizophrenia will be approved.Obtaining approval to market lumateperone for the treatment of schizophrenia in a timely manner will depend on many factors, including thefollowing: • whether or not the FDA determines that the evidence gathered in well-controlled clinical trials, other clinical trials and nonclinical studiesof lumateperone demonstrates that lumateperone is safe and effective as a treatment for schizophrenia; • whether or not the FDA is satisfied that the manufacturing facilities, processes and controls for lumateperone are adequate, that the labelingis satisfactory and that plans for post-marketing studies, safety monitoring and risk evaluation and mitigation are sufficient; and • the timing and nature of the FDA’s comments and questions regarding the NDA for lumateperone for the treatment of schizophrenia, thescheduling and recommendations of any advisory committee meeting to consider lumateperone, the time required to respond to the FDA’scomments and questions and to obtain the final labeling for lumateperone and any other delays that may be associated with the NDAreview process.If we experience material delays in obtaining marketing approval for lumateperone for the treatment of schizophrenia in the United States, wewill not receive product revenues during the delay. Any such delay may materially harm our product revenues and cash flows. If we do not obtainapproval to market lumateperone for the treatment of schizophrenia in the United States, our business will be materially harmed. 34Table of ContentsIn order to execute our business plan and achieve profitability, we need to effectively commercialize lumateperone for the treatment ofschizophrenia.We cannot be sure that lumateperone for the treatment of schizophrenia will be commercially successful in the pharmaceutical market even if wegain marketing approval for lumateperone for the treatment of schizophrenia in a timely manner. We expect that the initial commercial success oflumateperone for the treatment of schizophrenia, if approved, will depend on many factors, including the following: • the efficacy, cost, approved use, and side-effect profile of lumateperone regimens relative to competitive treatment regimens for thetreatment of schizophrenia; • the timing of potential marketing approval from the FDA for the treatment of lumateperone; • the effectiveness of our commercial strategy for the launch and marketing of lumateperone, including our pricing strategy and theeffectiveness of our efforts to obtain adequate third-party reimbursements; • maintaining and successfully monitoring commercial manufacturing arrangements for lumateperone with third-party manufacturers toensure they meet our standards and those of regulatory authorities, including the FDA, which extensively regulate and monitorpharmaceutical manufacturing facilities; • our ability to meet the demand for commercial supplies of lumateperone; • the acceptance of lumateperone by patients, the medical community and third-party payors; and • the effect of recent or potential health care legislation in the United States.While we believe that lumateperone for the treatment of schizophrenia will have a commercially competitive profile, we cannot accuratelypredict the amount of revenue that will be generated if lumateperone receives regulatory approval. If we do not effectively commercializelumateperone, 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 otherindicators of market acceptance of lumateperone do not meet the expectations of investors or public market analysts, the market price of our commonstock would likely decline.Even if we gain regulatory approval for any of our drug candidates, if the sales and marketing capabilities we are establishing or our third-partyrelationships for the commercialization of our drug candidates are not effective, our drug candidates may not be successfully commercialized.We have no experience as a company in marketing drugs or with respect to pricing and obtaining adequate third-party reimbursement for drugs.We are in the process of building our commercial organization and capabilities in the United States in order to prepare to market lumateperone for thetreatment of schizophrenia. We will need to successfully complete the expansion of our capabilities and/or enter into arrangements with third parties tosell and market our other product candidates, including lumateperone for the treatment of schizophrenia, if they are approved for sale. If our sales andmarketing capabilities or our third-party relationships for the commercialization of our drug candidates are not effective, our business could bematerially harmed.We have never generated revenue from product sales and do not expect to do so until at least the fourth quarter of 2019, if ever.Our ability to generate revenue from product sales and achieve profitability depends on our ability to successfully complete the development ofand obtain regulatory approvals necessary to commercialize lumateperone and our other product candidates. We have a limited operating history onwhich to evaluate our business and prospects. To date, we have not generated any product revenues from our product candidates currently indevelopment. We cannot guarantee that any of our product candidates currently in development will ever become marketable products. 35Table of ContentsWe must demonstrate that our product candidates satisfy rigorous standards of safety and efficacy for their intended uses before the FDA andother regulatory authorities in the European Union and elsewhere will approve them for commercialization. Significant additional research, preclinicaltesting and clinical testing is required before we can file applications with the FDA or other regulatory authorities for premarket approval of our drugcandidates. In addition, to compete effectively, our drugs must be easy to administer, cost-effective and economical to manufacture on a commercialscale. We may not achieve any of these objectives.Our lead product candidate, lumateperone, is in Phase 3 clinical development as a novel treatment for schizophrenia, bipolar depression andagitation associated with dementia, including AD. In the third quarter of 2018, we completed the rolling submission of our NDA with the FDA forlumateperone for the treatment of schizophrenia. The FDA accepted for review the NDA in the fourth quarter of 2018 and assigned a Prescription DrugUser Fee Act, or PDUFA, target action date of September 27, 2019. There can be no assurance that any NDA that we submit to the FDA will approvedby the FDA or that, if approved, we will be able to successfully commercialize lumateperone for the treatment of patients with schizophrenia. Inaddition, in response to questions raised by the FDA relating to certain findings observed in nonclinical toxicology studies of lumateperone in ananimal species, based on feedback from the FDA, we incorporated additional monitoring in our long-term safety study for metabolites seen in animalspecies but not seen to date in humans, and continued to monitor for toxicities in our nonclinical studies. If the FDA determines the results of our long-term safety study and nonclinical studies do not sufficiently demonstrate the safety and tolerability of long-term use of lumateperone, the FDA may notapprove an NDA for lumateperone for a chronic condition such as schizophrenia.Our bipolar depression program consists of three Phase 3 multi-center, randomized, double-blind, placebo-controlled clinical trials. In theITI-007-401 and the ITI-007-404 trials, lumateperone is being evaluated as a monotherapy and in the ITI-007-402 trial, lumateperone is beingevaluated as an adjunctive therapy with lithium or valproate. All three trials are evaluating lumateperone in patients with a clinical diagnosis ofBipolar I or Bipolar II disorder and who are experiencing a current major depressive episode. We have also initiated Phase 3 development oflumateperone for the treatment of agitation in patients with dementia, including AD. Our ITI-007-201 trial is a Phase 3 multi-center, randomized,double-blind, placebo-controlled clinical trial in patients with a clinical diagnosis of probable AD and clinically significant symptoms of agitation. Inthe fourth quarter of 2018, an independent data monitoring committee, or DMC, completed a pre-specified interim analysis of the ITI-007-201 trial,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 the ITI-007-201 trial. Lumateperone was generally well tolerated in the ITI-007-201 trial and the decision todiscontinue the study was not related to safety. We are analyzing the data set from this trial and will determine the next steps in our dementiaprogram following completion of this analysis.In addition, we intend to pursue the development of our PDE program, including ITI-214 for the treatment of several CNS and non-CNSconditions, including cardiovascular disease. Following the positive safety and tolerability results in our Phase 1 program, we have initiated ourdevelopment program for ITI-214 for Parkinson’s disease. In the fourth quarter of 2018, we announced that the Phase 1/2 clinical trial of ITI-214 hasbeen completed and topline results demonstrated ITI-214 was generally well-tolerated with a favorable safety profile and clinical signs consistent withimprovements in motor symptoms and dyskinesias. In addition, in the first quarter of 2018, the investigational new drug application, or IND, went intoeffect for ITI-214 for the treatment of heart failure. We have initiated clinical conduct of the first clinical study in this program, a randomized, double-blind, placebo-controlled study of escalating single doses of ITI-214 to evaluate safety and hemodynamic effects in patients with systolic heart failure.We cannot be certain that the clinical development of these or any other drug candidates in preclinical testing or clinical development will besuccessful, that we will receive the regulatory approvals required to commercialize them or that any of our other research and drug discovery programswill yield a drug candidate 36Table of Contentssuitable for investigation through clinical trials. Our commercial revenues from our product candidates currently in development, if any, will bederived from sales of drugs that will not become marketable until at least the fourth quarter of 2019, if at all.There is no guarantee that our planned clinical trials for lumateperone will be successful.The historical rate of failures for product candidates in clinical development and late-stage clinical trials is high. We may be required to conductfurther clinical trials in patients with schizophrenia, and we plan to conduct further clinical trials in other indications beyond schizophrenia, there is noguarantee that we will have the same level of success in these trials as we have had in certain of our earlier clinical trials, or be successful at all.In addition, although we believe that lumateperone and follow-on compounds may also have clinical utility in indications other thanschizophrenia, such as behavioral disturbances in dementia, bipolar disorder, intermittent explosive disorder, non-motor disorders associated withParkinson’s disease, obsessive compulsive disorder and anxiety disorders and post-traumatic stress disorder, we have never tested lumateperone inPhase 2 clinical trials in the patient population for these other indications, except for ITI-007-200, a Phase 1/2 clinical trial designed to evaluate thesafety, tolerability and pharmacokinetics of low doses of lumateperone in healthy geriatric subjects and in patients with dementia, including AD, forwhich we announced top-line data in the fourth quarter of 2014.If we do not successfully complete clinical development of lumateperone, we will be unable to market and sell products derived from it and togenerate product revenues. Even though we have successfully completed certain clinical trials for lumateperone in patients with schizophrenia, thoseresults are not necessarily predictive of results of future trials that may be needed before we may submit an NDA to the FDA for the initial or otherfuture indications. Of the vast number of drugs in development, only a small percentage result in the submission of an NDA to the FDA, and even lessresult in the NDA ultimately being approved by the FDA for commercialization.The FDA may ultimately determine that our Phase 3 clinical trials and non-clinical studies are not sufficient for regulatory approval. If we arerequired to conduct additional clinical trials and non-clinical studies, our development of lumateperone for schizophrenia will be more time-consuming and costly than we presently anticipate, which would have a material adverse effect on our business, results of operations, financialcondition and cash flows.The FDA may not agree with our belief that the lumateperone late-stage clinical development program, including two large, well-controlledpositive studies (a Phase 2 and a Phase 3) and supportive evidence from a second Phase 3 study, collectively provide evidence of the efficacy andsafety of lumateperone for the treatment of schizophrenia. In addition, the FDA may not agree with one or more aspects of our clinical trial designs,including the duration of the trials, clinical endpoints, controls, dose ranges, collection of safety data, or adequacy of our non-clinical studies. If theFDA does not agree with our clinical and non-clinical designs, or our interpretations of the data from such studies, our development of lumateperone inschizophrenia and other indications may be delayed, and we may incur additional costs and devote additional resources to address any concerns theFDA may have. In addition, we may be required to conduct additional clinical trials or studies, which could result in additional delays and costs.Even if we eventually receive approval of lumateperone, the FDA may grant approval contingent on the performance of costly additional post-approval clinical trials. The FDA may also approve lumateperone for a more limited indication or a narrower patient population than we originallyrequested, and the FDA may not approve the labeling that we believe is necessary or desirable for the successful commercialization of lumateperone orour other product candidates. Any delay in obtaining, or inability to obtain, applicable regulatory approval for lumateperone would delay or preventcommercialization of lumateperone and would materially adversely impact our business, results of operations, financial condition and cash flows. 37Table of ContentsIf the results of our long-term safety study do not adequately demonstrate the safety and tolerability of long-term use of lumateperone, the FDA maynot approve our NDA for lumateperone for a chronic condition such as schizophrenia.The FDA had raised questions relating to certain findings observed in nonclinical toxicology studies of lumateperone in an animal species andrequested additional information to confirm that the nonclinical findings are not indicative of a safety risk associated with long term exposure inhumans. The data we presented supports the position that there are significant species differences in the metabolism of lumateperone. Based on theFDA’s agreement that we presented adequate data indicating that the toxicity seen in the animal species is not relevant to humans, we proceeded withour long-term safety study of lumateperone in patients with schizophrenia. In December 2018, we released results from the second part of our open-label safety switching study assessing the effects of long-term administration of lumateperone in patients with stable symptoms of schizophrenia. Thedata demonstrated that lumateperone, administered for up to one year, was generally well tolerated and exhibited statistically significant improvementsfrom baseline on key safety measures of body weight, cardiometabolic and endocrine parameters, without motor side effects often associated with otherantipsychotic medications. The study has been extended to allow patients to stay on lumateperone for more than one year and study conduct isongoing. If the FDA determines the results of our long-term safety study do not adequately demonstrate the safety and tolerability of long-term use oflumateperone, our NDA for lumateperone for the treatment of schizophrenia may not be approved and we may not be able to file an NDA forlumateperone for another chronic condition. The failure to receive FDA approval of our NDA for lumateperone for the treatment of schizophreniawould have a significant adverse effect on our business.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, 2018, we had an accumulated deficit of approximately$562.4 million. We expect to incur net losses over the next several years as we advance our programs and incur significant clinical development costs.We have not received, and do not expect to receive until at least the fourth quarter of 2019, any revenues from the commercialization of our productcandidates. Substantially all of our revenues to date were from our license and collaboration agreement with Takeda and our agreements with variousU.S. governmental agencies and other parties, including our research and development grants. In October 2014, we entered into the TakedaTermination Agreement, which terminated our license and collaboration agreement with Takeda, pursuant to which all rights with respect to ITI-214that we previously granted to Takeda were returned to us. We will not, therefore, receive any further milestone payments from Takeda and we cannot becertain that we will enter into additional collaboration agreements. To obtain revenues from our product candidates, we must succeed, either alone orwith others, in developing, obtaining regulatory approval for, and manufacturing and marketing drugs with significant market potential. We may neversucceed in these activities, and may never generate revenues that are significant enough to achieve profitability.We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may requireus to delay, limit, reduce or cease our operations.We have consumed substantial amounts of capital since our inception. Our cash, cash equivalents and investment securities totaled$347.5 million at December 31, 2018. While we believe that our existing cash, cash equivalents and investment securities, together with interest oncash balances, will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2020, the amount andtiming of our actual expenditures will depend upon numerous factors, including the ongoing status of our NDA submission for lumateperone inpatients with schizophrenia; the ongoing status of our Phase 3 clinical trials of lumateperone in patients with bipolar depression; the continueddevelopment of our PDE program, including ITI-214 for the treatment of several CNS and non-CNS conditions; and our other planned clinical andnon-clinical trials. We anticipate that we will need to secure additional funding for further development of lumateperone in patients with dementia,including AD and in other programs including in patients with depressive disorders and other 38Table of Contentsindications, and for development of our other product candidates. If the FDA requires that we perform additional preclinical studies or clinical trials, orwe experience delays or other setbacks in our clinical trials, our expenses would further increase beyond what we currently expect and the anticipatedtiming of any potential future NDA submission would likely be delayed.With the remaining proceeds from our public offerings in September 2015 and October 2017, we intend to fund the following: pre-launchactivities for lumateperone for the treatment of schizophrenia and, if it receives regulatory approval, to fund our initial commercialization efforts; thecompletion of our clinical trials of lumateperone in bipolar disorder as a monotherapy and as an adjunctive therapy with lithium or valproate; clinicaltrials of lumateperone for the treatment of depressive disorders; clinical trials of lumateperone for the treatment of behavioral disturbances in dementia,including AD; preclinical and clinical development of our ITI-007 long acting injectable development program; other clinical trials of lumateperone;the continued clinical development of our PDE1 program, including ITI-214; and research and preclinical development of our other productcandidates and the continuation of manufacturing activities in connection with the development of lumateperone. The remaining proceeds, if any, willbe used to fund new and ongoing research and development activities, new business opportunities, general corporate purposes, including general andadministrative expenses, capital expenditures and working capital. Accordingly, we will continue to require substantial additional capital beyond thenet proceeds from these offerings to continue our clinical development and commercialization activities. Because successful development of ourproduct candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercializeour products under development.Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including: • whether the FDA ultimately determines that our Phase 3 clinical trials and non-clinical studies of lumateperone are or are not sufficient forregulatory approval of lumateperone for the treatment of schizophrenia; • the progress in, and the costs of, our preclinical studies and clinical trials and other research and development programs; • the scope, prioritization and number of our research and development programs; • the ability of any future collaborators and us to reach the milestones, and other events or developments, triggering payments under anyfuture 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 securing manufacturing arrangements for clinical or commercial production; • 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 clearances to marketour product candidates; • the costs involved in expanding the accounting and data management systems to support commercial operations, including but not limitedto an Enterprise Resource Planning system (ERP); and • the costs associated with litigation. 39Table of ContentsUntil we can generate significant continuing revenues, we expect to satisfy our future cash needs through our existing cash, cash equivalents andinvestment securities, strategic collaborations, private or public sales of our securities, debt financings, grant funding, or by licensing all or a portion ofour product candidates or technology. Turmoil and volatility in the financial markets have adversely affected the market capitalizations of manybiotechnology companies, and generally made equity and debt financing more difficult to obtain. This, coupled with other factors, may limit ouraccess to additional financing. This could have a material adverse effect on our ability to access sufficient funding. We cannot be certain thatadditional funding will be available to us on acceptable terms, or at all. If we do obtain additional funding through equity offerings, the ownership ofour existing stockholders and purchasers of shares of our common stock in any such offering will be diluted, and the terms of any financing mayadversely affect the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause themarket 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 ourresearch or development programs or our commercialization efforts. We also could be required to seek funds through arrangements with collaborationpartners or otherwise that may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorableto 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 ofoperations.Our management has significant flexibility in applying our cash resources, including the net proceeds from our public offerings completed inSeptember 2015 and October 2017, and could use these resources for corporate purposes that do not increase our market value, or in ways with whichour 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 ourstockholders, which could adversely affect our future growth prospects.We may encounter substantial delays in our clinical trials for lumateperone or we may fail to demonstrate safety and efficacy to the satisfaction ofthe FDA.Before obtaining marketing approval from the FDA for the sale of lumateperone, we must conduct extensive clinical trials to demonstrate thesafety and efficacy of the drug candidate for its proposed indications. Clinical trials are time-consuming, expensive and unpredictable processes thatcan be subject to delays. It may take several years to complete the preclinical testing and clinical development necessary to commercialize a drug, anddelays or failure can occur at any stage. Interim results of clinical trials do not necessarily predict final results, and success in preclinical testing andearly clinical trials does not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical and biotechnologyindustries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials.In connection with clinical trials, we face risks that a product candidate may not prove to be efficacious; patients may die or suffer other adverseeffects for reasons that may or may not be related to the product candidate being tested; the results may not confirm the positive results of our earlierpreclinical studies and clinical trials; and the results may not meet the level of statistical significance required by the FDA or other regulatory agencies.If we do not successfully complete preclinical and clinical development, we will be unable to market and sell products derived from our productcandidates and to generate product revenues. Even if we do successfully complete clinical trials, those results are not necessarily predictive of results ofadditional trials that may be needed before an NDA may be submitted to the FDA or the FDA may approve the NDA.Additionally, the FDA may not agree with our belief that the lumateperone late-stage clinical development program collectively providesevidence of the efficacy and safety of lumateperone for the treatment of schizophrenia, which may require us to conduct additional trials, which wouldbe expensive and time-consuming, would delay our ability to file an NDA with the FDA, and may have a material adverse effect on our business, resultsof operations, financial condition and cash flows. 40Table of ContentsDelays, suspensions and terminations in our clinical trials could result in increased costs to us, delay our ability to generate product revenues andtherefore 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 efficacy toobtain regulatory approval to commence a clinical trial; reaching agreement on acceptable terms with prospective contract research organizations andclinical trial sites; manufacturing sufficient quantities of a product candidate; obtaining clearance from the FDA to commence clinical trials pursuantto an IND; obtaining institutional review board approval to conduct a clinical trial at a prospective clinical trial site; and patient enrollment, which is afunction of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical trial sites, theavailability 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 withregulatory authorities regarding the scope or design of our clinical trials or requests by them for supplemental information with respect to our clinicaltrial results; failure to conduct clinical trials in accordance with regulatory requirements; lower than anticipated screening or retention rates of patientsin clinical trials; serious adverse events or side effects experienced by participants; and insufficient supply or deficient quality of product candidates orother materials necessary for the conduct of our clinical trials. In the fourth quarter of 2018, a DMC completed a pre-specified interim analysis of ourITI-007-201 Phase 3 trial in patients with a clinical diagnosis of probable AD and clinically significant symptoms of agitation, concluded that the trialis not likely to meet its primary endpoint upon completion and therefore recommended the study should be stopped for futility. As a result, wedetermined to discontinue the ITI-007-201 trial.Many of these factors may also ultimately lead to denial of regulatory approval of a current or potential product candidate. If we experiencedelays, suspensions or terminations in a clinical trial, 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.Safety issues with our product candidates, or with product candidates or approved products of third parties that are similar to our productcandidates, 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 thesame therapeutic class as our product candidates could adversely affect the development, regulatory approval and commercialization of our productcandidates. In 2012, the FDA released draft guidance recommending that prospective suicidality assessments be performed in clinical trials of any drugbeing developed for a psychiatric indication. Our development programs are focused on psychiatric indications. Our PDE program is a novel target andmay have unexpected safety effects that do not appear until late in clinical development or after commercial approval. As we continue thedevelopment and clinical trials of our product candidates, there can be no assurance that our product candidates will not experience significant safetyissues.Discovery of previously unknown class effect problems may prevent or delay clinical development and commercial approval of productcandidates or result in restrictions on permissible uses after their approval, including withdrawal of the medicine from the market. Many drugs actingon 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. If we orothers later identify undesirable side effects caused by the mechanisms of action or classes of our product candidates or specific product candidates: • we may be required to conduct additional clinical trials or implement a Risk Evaluation and Mitigation Strategies program prior to orfollowing approval; 41Table of Contents • regulatory authorities may not approve our product candidates or, as a condition of approval, may require specific warnings andcontraindications; • 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 ourcommercialization 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 thatthe drug be scheduled under the Controlled Substances Act. Any failure or delay in commencing or completing clinical trials or obtaining regulatoryapprovals for our product candidates would delay commercialization of our product candidates, and severely harm 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 toreduce 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 toenter into strategic alliances with pharmaceutical companies or other industry participants to advance its programs and enable it to maintain itsfinancial and operational capacity. We may face significant competition in seeking appropriate alliances. If we seek such alliances, we may not be ableto negotiate alliances on acceptable terms, if at all. In addition, these alliances may be unsuccessful. On October 31, 2014, we entered into theTermination Agreement with Takeda, which terminated the Takeda License Agreement, pursuant to which all rights granted under the Takeda LicenseAgreement 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 scopeof, 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 willhave 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 collaborationsand alliances.Biotechnology companies at our stage of development sometimes become dependent upon collaborative arrangements or strategic alliances tocomplete the development and commercialization of drug candidates, particularly after the Phase 2 stage of clinical testing. If we elect to enter intocollaborative arrangements or strategic alliances, these arrangements may place the development of our drug candidates outside our control, mayrequire 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; 42Table of Contents • 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 orability to complete its obligations under any arrangement; • a collaborator could independently move forward with a competing drug candidate developed either independently or in collaborationwith others, including our competitors; and • collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost ofdeveloping our drug candidates.Preliminary and interim data from our clinical studies that we may announce or publish from time to time may change as more patient data becomeavailable.From time to time, we may announce or publish preliminary or interim data from our clinical studies. Preliminary and interim results of a clinicaltrial are not necessarily predictive of final results. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes maymaterially change as patient enrollment continues and more patient data become available. As a result, preliminary and interim data should be viewedwith caution until the final data are available. Material adverse changes in the final data compared to the interim data could significantly harm ourbusiness 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 usfrom successfully commercializing our product candidates.Although we design and manage our current preclinical studies and clinical trials, we do not now have the ability to conduct clinical trials forour product candidates on our own. In addition to our collaborators, we rely on contract research organizations, medical institutions, clinicalinvestigators, and contract laboratories to perform data collection and analysis and other aspects of our clinical trials. In addition, we also rely on thirdparties to assist with our preclinical studies, including studies regarding biological activity, safety, absorption, metabolism, and excretion of productcandidates.Our preclinical activities or clinical trials may be delayed, suspended, or terminated if: the quality or accuracy of the data obtained by the thirdparties on whom we rely is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or if for other reasons, thesethird parties do not successfully carry out their contractual duties or fail to meet regulatory obligations or expected deadlines, or these third partiesneed to be replaced.If the third parties on whom we rely fail to perform, our development costs may increase, our ability to obtain regulatory approval, andconsequently, to commercialize our product candidates may be delayed or prevented altogether. We currently use several contract researchorganizations to perform services for our preclinical studies and clinical trials. While we believe that there are numerous alternative sources to providethese services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays orincurring additional expenses.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; 43Table of Contents • 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 sideeffects or fail to compete with our competitors’ products, our business, financial condition, cash flows and results of operations could be materially andadversely affected.Following regulatory approval of any of our drug candidates, we will be subject to ongoing regulatory obligations and restrictions, which mayresult in significant expense and limit our ability to commercialize our potential products.With regard to our drug candidates, if any, approved by the FDA or by another regulatory authority, we are held to extensive regulatoryrequirements 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 drug candidates. Potentially costlyfollow-up or post-marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigatespecific issues of interest to the regulatory authority. Previously unknown problems with the drug candidate, including adverse events of unanticipatedseverity 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 beenacted that could prevent or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or extent of adversegovernment regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are not able tomaintain regulatory compliance, we might not be permitted to market our drugs and our business could suffer.Our product candidates may not gain acceptance among physicians, patients, or the medical community, thereby limiting our potential to generaterevenues, which will undermine our future growth prospects.Even if our product candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance ofany approved product candidate by physicians, health care professionals and third-party payors, and our profitability and growth will depend on anumber of factors, including: • our ability to provide acceptable evidence of safety and efficacy; • 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; • prevalence and severity of any adverse side effects; and • availability of alternative treatments.If any product candidate that we develop does not provide a treatment regimen that is at least as beneficial as the current standard of care orotherwise does not provide some additional patient benefit over the current standard of care, that product will not achieve market acceptance and wewill not generate sufficient revenues to achieve profitability. 44Table of ContentsThe 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, scientific and technical personnel. Competition for thesetypes of personnel is intense. The loss of the services of any member of our senior management, clinical development, scientific or technical staff maysignificantly delay or prevent the achievement of drug development and other business objectives and could have a material adverse effect on ourbusiness, operating results and financial condition. We also rely on consultants and advisors to assist us in formulating our strategy. All of ourconsultants 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 developnew drug candidates, and will need additional funding to grow our business. We will need to hire additional employees in order to continue ourresearch and clinical trials and to market our drugs when approved. This strategy will require us to recruit additional executive management andclinical development, regulatory, scientific, technical and sales and marketing personnel. There is currently intense competition for skilled executivesand employees with relevant clinical development, 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 and managerial personnel, due to intense competition and ourlimited resources, would limit or delay our product development efforts, which would adversely affect the development of our drug candidates andcommercialization of our potential drugs 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 ourclinical trials and our research and development efforts.We work with scientific and clinical advisors at academic and other institutions who are experts in the field of CNS disorders. They advise uswith respect to our clinical trials. These advisors are not our employees and may have other commitments that would limit their future availability tous. 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 reputationin the industry and delay the development or commercialization of our product candidates.Our product candidates have never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing tocommercial scale. In particular, we will need to develop a larger scale manufacturing process that is more efficient and cost-effective tocommercialize lumateperone and other product candidates, 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 tocommercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lotconsistency and timely availability of raw materials. On January 4, 2017, we entered into a supply agreement with Siegfried. Under the SiegfriedAgreement, Siegfried has agreed to manufacture and supply the API for lumateperone in commercial quantities. There is no assurance that Siegfried orother manufacturers will be successful in establishing a larger-scale commercial manufacturing process for lumateperone which achieves our objectivesfor manufacturing capacity and cost of goods. Even if we could otherwise obtain regulatory approval for any product candidate, there is no assurancethat our manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, toproduce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If ourmanufacturers are unable to produce sufficient quantities of the approved product for commercialization, our commercialization efforts would beimpaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects. 45Table of ContentsWe rely on third-party manufacturers to manufacture and supply our product candidates for us. If one of our suppliers or manufacturers fails toperform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find new suppliers ormanufacturers. 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 clinicaltrials. For example, on January 4, 2017, we entered into a supply agreement with Siegfried under which Siegfried has agreed to manufacture and supplythe API for lumateperone in commercial quantities. Each month, we will provide Siegfried with a rolling forecast of our anticipated requirements forsupply of the API, with the first 12 months of each forecast being binding on us. Under the Siegfried Agreement, we have the right to and may purchasethe API for lumateperone from other suppliers, including if Siegfried cannot fulfill our requirements. In addition, we expect to have an additional thirdparty source of supply of the API for lumateperone in commercial quantities. While we believe that there are alternative sources available tomanufacture our product candidates, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangementswithout delays or additional expenditures. We cannot estimate these delays or costs with certainty but, if they were to occur, they could cause a delayin our development and commercialization efforts. If our existing or planned third party manufacturing arrangements are terminated or if the sources ofsupply from such arrangements are inadequate and we must seek supply agreements from alternative sources, we may be unable to enter into suchagreements or do so on commercially reasonable terms, which could delay a product launch or subject our commercialization efforts to significantsupply risk.Manufacturers of our product candidates are obliged to operate in accordance with FDA-mandated current good manufacturing practices, orcGMPs. The manufacture of pharmaceutical products in compliance with the cGMPs requires significant expertise and capital investment, includingthe development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties inproduction, including difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurancetesting, shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements, other federal and state regulatoryrequirements and foreign regulations. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligationsto us or under applicable regulations, our ability to provide product candidates in our clinical trials would be jeopardized. Any delay or interruption inthe supply of clinical trial materials could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trialprograms and, depending upon the period of delay, require us to commence new clinical trials at significant additional expense or terminate theclinical trials completely.In addition, the facilities used by our contract manufacturers or other third party manufacturers to manufacture our product candidates must beapproved by the FDA pursuant to inspections that are being conducted following our request for regulatory approval for lumateperone from the FDA.These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturersof our product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. TheFDA or similar foreign regulatory agencies may also implement new standards at any time, or change their interpretation and enforcement of existingstandards for manufacture, packaging or testing of products. We have little control over our manufacturers’ compliance with these regulations andstandards. A failure of any of our current or future contract manufacturers to establish and follow cGMPs and to document their adherence to suchpractices may lead to significant delays in clinical trials or in obtaining regulatory approval of product candidates or the ultimate launch of productsbased on our product candidates into the market. Failure by our current or future third-party manufacturers or us to comply with applicable regulationscould result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of the government to grant pre-market approval ofdrugs, 46Table of Contentsdelays, suspension or withdrawal of approvals, seizures or recalls of products, operating restrictions, and criminal prosecutions. If the safety of anyproduct supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtainregulatory approval for or successfully commercialize our products and we may be held liable for any injuries sustained as a result. Any of these factorscould cause a delay of clinical studies, regulatory submissions, approvals or commercialization of our product candidates, entail higher costs or impairour reputation.We will need to continue to manage our organization and we may encounter difficulties with our staffing and any future transitions, which couldadversely affect our results of operations.We will need to manage our operations and facilities effectively in order to advance our drug development programs (including lumateperoneand ITI-214), facilitate any future collaborations, and pursue other development activities. It is possible that our infrastructure may be inadequate tosupport our future efforts and growth. In particular, we may have to develop information technology systems and internal sales, marketing, anddistribution capabilities if we decide to market any drug that we may successfully develop. We may not successfully manage our operations and,accordingly, may not achieve our research, development, and commercialization goals.Our ability to generate product revenues will be diminished if our products do not receive coverage from payors or sell for inadequate prices, or ifpatients are unable to obtain adequate levels of reimbursement.Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costsassociated with their prescription drugs. Adequate coverage and reimbursement from governmental health care programs, such as Medicare andMedicaid, and commercial payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards thatdisfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Evenif we obtain coverage for any approved products, the resulting reimbursement payment rates might not be adequate or may require co-payments thatpatients find unacceptably high. Patients are unlikely to use any products we may market unless coverage is provided and reimbursement is adequateto cover a significant portion of the cost of those products.In addition, the market for any products for which we may receive regulatory approval will depend significantly on access to third-party payors’drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included insuch formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particularbranded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative isavailable.Third-party payors, whether foreign or domestic, governmental or commercial, are developing increasingly sophisticated methods of controllinghealth care costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors.Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process isoften a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to eachpayor separately, with no assurance that coverage will be obtained. If we are unable to obtain coverage of, and adequate payment levels for, ourproducts from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer them and patients maydecline to purchase them. This in turn could affect our ability to successfully commercialize any approved products and thereby adversely impact ourprofitability, results of operations, financial condition, and future success. 47Table of ContentsIn the future, if we have products that are approved, health care legislation may make it more difficult to receive revenues from those products.In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals in recent years tochange the health care system in ways that could impact our ability to sell our products profitably. In March 2010, the Patient Protection andAffordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, or collectively, ACA, became law in theUnited States. The ACA substantially changed the way health care is financed by both governmental and private insurers and significantly affects thehealth care industry. Among the provisions of ACA of importance to our potential product candidates are the following: • imposition of an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologicagents, apportioned among these entities according to their market share in certain government health care programs; • an increase 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 governmentinvestigative powers, and enhanced penalties for noncompliance; • a Medicare Part D coverage gap discount program, in which manufacturers agreed to offer 50% point-of-sale discounts off negotiated pricesof applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugsto be covered under Medicare Part D; • extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managedcare organizations; • expansion of eligibility criteria for Medicaid programs; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; • requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting any “payments ortransfers of value” made or distributed to prescribers, teaching hospitals and other health care providers and reporting any ownership andinvestment interests held by physicians and their immediate family members and applicable group purchasing organizations during thepreceding calendar year; • 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.Some of the details regarding the implementation of the ACA are yet to be determined and, at this time, it remains unclear what the full effect thatthe ACA will have on our business. Moreover, certain legislative changes to and regulatory changes under the ACA have occurred in the 115th UnitedStates Congress and under the Trump Administration. For instance, the Bipartisan Budget Act of 2018 increased the ACA required manufacturerpoint-of-sale discount from 50% to 70% off the negotiated price for Medicare Part D beneficiaries during their coverage gap period beginning in 2019.Further legislative changes to and regulatory changes under the ACA remain possible. We expect that healthcare reform measures that may be adoptedin the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that may becharged for any of our product candidates, if approved.In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject togovernment control. In some non-U.S. jurisdictions, the proposed pricing for a 48Table of Contentsdrug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. Forexample, the European Union provides options for its member states to restrict the range of medicinal products for which their national healthinsurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific pricefor the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinalproduct on the market. We may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceuticalproducts. In addition, there may be importation of foreign products that compete with any products we may market, which could negatively impact ourprofitability.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 thefuture, 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. Theimplementation of cost containment measures or other health care reforms may prevent us from being able to generate revenue, attain profitability, orcommercialize any products for which we receive regulatory approval.If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any products we maydevelop, we may not be able to generate product revenue.In order to market any products that may be approved by the FDA, we must build our sales, marketing, managerial, and related capabilities ormake arrangements with third parties to perform these critical commercial services. While we have begun the process of building an organization forthe sales, marketing or distribution of pharmaceutical products, there are risks involved with both establishing our own sales, marketing, managerialand related capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force isexpensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales forceand establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred thesecommercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.We also may not be successful entering into arrangements with third parties to sell and market our product candidates or may be unable to do soon terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resourcesand attention to sell and market our products effectively, which could damage our reputation. If we do not establish adequate sales, marketing, anddistribution capabilities, whether independently or in collaboration with third parties, we will not be successful in commercializing our productcandidates, may not be able to generate product revenue and may not become profitable.There are possible limitations on our use of net operating losses.As of December 31, 2018, we had net operating loss carryforwards, or NOLs, of approximately $145 million, which are available to reduce anyfuture federal and state taxable income and will begin to expire in the year 2034. The use of our NOLs may be restricted due to changes in ourownership, 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, substantial changes in our ownership may limit theamount of NOLs and tax credit carryforwards that could be utilized annually in the future to offset taxable income.For the years ended December 31, 2018 and 2017, we performed a Section 382 ownership analysis and determined that no ownership changeoccurred (within the meaning of Section 382 of the Code) as a result of our 49Table of Contentspublic offering in 2017. Our previous ownership analysis, through December 31, 2015, reflected an ownership change occurred as a result of our 2015public offerings. Based on the analysis performed, however, we do not believe that the Section 382 annual limitation will impact our ability to utilizethe tax attributes that existed as of the date of the ownership change in a material manner. If we experience an ownership change in the future, the taxbenefits related to the NOLs and tax credit carryforwards may be further limited or lost.In September 2016, we licensed certain intellectual property rights to our wholly-owned subsidiary, ITI Limited, which was formed in the thirdquarter of 2016. The costs to develop, test, manufacture and perform other activities related to the ITI-007 program will be the responsibility of ITILimited and will be incurred outside of the United States. Therefore, the majority of expected losses that we incur during the next several years will notresult in additional NOLs in the U.S. to be carried forward and used against future net income of the U.S. operations.The comprehensive tax reform bill could adversely affect our business and financial condition.On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act,” or TCJA, that significantly reforms the Internal RevenueCode of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on thedeductibility 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 refundof taxes paid between 2018 and 2021. With the passing of the TCJA, the Company will receive a refund in future periods for AMT paid in prior years.The Company has recognized a benefit of approximately $1.1 million for these taxes on its December 31, 2017 consolidated statement of operations.We continue to examine the impact this tax reform legislation may have on our business and depending on possible foreign operations, among otherthings, 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 itmight affect holders of our common stock. We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and thepotential tax consequences of investing in our common stock.Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessingcritical information or expose us to liability, which could adversely affect our business and our reputation.In the ordinary course of our business, we, our clinical research organizations and other third parties on which we rely collect and store sensitivedata, including legally protected patient health information, personally identifiable information about our employees, intellectual property, andproprietary business information. We manage and maintain our applications and data utilizing on-site systems. These applications and data encompassa 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 wedevote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access ordisclosure, our information technology and infrastructure may be vulnerable to attacks by hackers, viruses, breaches, interruptions due to employeeerror, malfeasance or other disruptions, lapses in compliance with privacy and security mandates, or damage from natural disasters, terrorism, war andtelecommunication and electrical failures. Any such event could compromise our networks and the information stored there could be accessed byunauthorized parties, publicly disclosed, lost or stolen. We have measures in place that are designed to detect and respond to such security incidentsand breaches of privacy and security mandates. Any such access, disclosure or other loss of information could result in legal claims or proceedings,liability under laws that protect the privacy of personal information, such as HIPPA, government enforcement actions and regulatory penalties.Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to conduct research and 50Table of Contentsdevelopment activities, process and prepare company financial information, manage various general and administrative aspects of our business anddamage our reputation, any of which could adversely affect our business. For example, the loss of clinical trial data from completed or ongoing orplanned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Inaddition, there can be no assurance that we will promptly detect any such disruption or security breach, if at all. To the extent that any disruption orsecurity breach 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 further development of our product candidates could be delayed.Risks Related to Our Intellectual PropertyOur 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 product candidates and technologies and their uses, aswell as successfully defending these rights against third-party challenges. We will only be able to protect our product candidates, proprietarytechnologies, and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, or effectively protected tradesecrets, cover them. We have patent rights under issued patents in many cases covering our lumateperone and ITI-002 development programs.Nonetheless, the issued patents and patent applications covering our primary technology programs remain subject to uncertainty and continuousmonitoring 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 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 anycompetitive 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 product candidates or technologies, we may still be barred from making, using and selling ourproduct candidates or technologies because of the patent rights of others. Others have or may have filed, and in the future are likely to file, patentapplications covering compounds, assays, genes, gene products and therapeutic products that are similar or identical to ours. There are many issuedU.S. and foreign patents relating to genes, nucleic acids, polypeptides, chemical compounds or therapeutic products, and some of these may encompassreagents utilized in the identification of candidate drug compounds 51Table of Contentsor compounds that we desire to commercialize. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in thearea of CNS disorders and the other fields in which we are developing product candidates. These could materially affect our ability to develop ourproduct 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 product candidates or technologies may infringe. These patent applications may havepriority 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 proprietarycompounds or that could limit the rights we have claimed in our patents and patent applications. Disputes may arise regarding the ownership orinventorship of our inventions. It is difficult to determine how such disputes would be resolved. Others may challenge the validity of our patents. If ourpatents 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 whichwe 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 employmentwith us terminates, whether voluntarily by the employee or by us in connection with restructurings or otherwise, may seek future employment with ourcompetitors. Although each of our employees is required to sign a confidentiality agreement with us at the time of hire, we cannot guarantee that theconfidential nature of our proprietary information will be maintained in the course of such future employment. In addition, technology that we maylicense-in may become important to some aspects of our business. We generally will not control the patent prosecution, maintenance or enforcement ofin-licensed technology.Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary informationand 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 secretprotection in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality andintellectual property assignment agreements with our corporate partners, employees, consultants, outside scientific collaborators, sponsoredresearchers, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties anyconfidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. Theseagreements 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 partyillegally obtained and is using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courtsoutside the United States may be less willing to protect trade secrets. The failure to obtain or maintain trade secret protection could adversely affect ourcompetitive position.A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming andcostly, 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 anypending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third partiesbased on claims that our product candidates, technologies or activities infringe the intellectual property rights of others. If our drug developmentactivities 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 tolitigation to enforce a patent issued to us, protect our trade secrets or determine the scope and validity of third-party proprietary rights. From time totime, we may hire scientific personnel 52Table of Contentsformerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals may besubject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. If we become involved in litigation, itcould consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We also may not be able to affordthe costs of litigation.The patent applications of pharmaceutical and biotechnology companies involve highly complex legal and factual questions, which, if determinedadversely 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 U.S. Patent and Trademark Office’s, or USPTO’s, standards are uncertain and could change in the future. Consequently, the issuance and scope ofpatents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications mayalso be subject to interference proceedings, and U.S. patents may be subject to reexamination proceedings in the USPTO (and foreign patents may besubject to opposition or comparable proceedings in the corresponding foreign patent office), which proceedings could result in either loss of the patentor 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. Inaddition, such interference, reexamination and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide uswith 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 ourdiscoveries or to develop and commercialize our technology and products without providing any compensation to us or may limit the number ofpatents or claims we can obtain. In particular, there have been proposals to shorten the exclusivity periods available under U.S. patent law that, ifadopted, could substantially harm our business. The product candidates that we are developing are protected by intellectual property rights, includingpatents and patent applications. If any of our product candidates becomes a marketable product, we will rely on our exclusivity under patents to sellthe compound and recoup our investments in the research and development of the compound. If the exclusivity period for patents is shortened, thenour ability to generate revenues without competition will be reduced and our business could be materially adversely impacted. The laws of somecountries do not protect intellectual property rights to the same extent as U.S. laws, and those countries may lack adequate rules and procedures fordefending our intellectual property rights. For example, some countries, including many in Europe, do not grant patent claims directed to methods oftreating humans and, in these countries, patent protection may not be available at all to protect our product candidates. In addition, U.S. patent lawsmay change, which could prevent or limit us from filing patent applications or patent claims to protect our products and/or technologies or limit theexclusivity periods that are available to patent holders. For example, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was recentlysigned into law 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 moreresources to devote to patent application filing and prosecution. The USPTO has been in the process of implementing regulations and procedures toadminister the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act may affect our ability toobtain, enforce or defend our patents. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will ultimately have on the cost ofprosecuting 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 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 abilityto attain or maintain profitability. 53Table of ContentsRisks Related to the Transfer of Certain Intellectual Property Rights to our Foreign SubsidiaryWe 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 ofcertain 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 andother consideration. The fair value of the intellectual property rights were determined by an independent third party. The proceeds from this licenserepresented a prior year gain for U.S. tax purposes which was offset partially by prior year losses. However, the Internal Revenue Service, or the 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 ouravailable NOLs at such time. If an IRS valuation exceeds our available NOLs, we could incur additional income taxes in the future. Our ability to useour NOLs is generally subject to the limitations of IRS Section 382, as well as expiration of federal and state net operating loss carryforwards.Risks Related to Our IndustryWe will be subject to stringent regulation in connection with the marketing of any products derived from our product candidates, which could delaythe 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 comparableauthorities in other countries. Neither we nor our collaborators can market a pharmaceutical product in the United States until it has completed rigorouspreclinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of regulatory requirementstypically takes many years, depends upon the type, complexity and novelty of the product, and requires substantial resources. Even if regulatoryapproval is obtained, it may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, and/ormarketing of such products, and requirements for post-approval studies, including additional research and development and clinical trials. Theselimitations may limit the size of the market for the product or result in the incurrence of additional costs. Any delay or failure in obtaining requiredapprovals 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. Therequirements governing the conduct of clinical trials, marketing authorization, pricing, and reimbursement vary widely from country to country. Onlyafter the appropriate regulatory authority is satisfied that adequate evidence of safety, quality, and efficacy has been presented will it grant a marketingauthorization. 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 andmarket products that are more effective than our product candidates, they may reduce or eliminate our commercial opportunity.Competition in the pharmaceutical and biotechnology industries is intense and increasing. We face competition from pharmaceutical andbiotechnology 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 ourdrug development programs.For example, our potential products for the treatment of schizophrenia and bipolar disorder would compete with, among other branded productsincluding, Latuda®, marketed by Sunovion, Rexulti® marketed by Otsuka Pharmaceutical, VRAYLAR®, marketed by Allergan, Saphris® marketed byAllergan and Fanapt®, marketed by 54Table of ContentsVanda Pharmaceuticals. In addition, our product candidates, if approved, will compete with, among other generic antipsychotic products, aripiprazole,haloperidol, paliperidone, risperidone, quetiapine/XR, olanzapine and clozapine.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 studies and clinical trials of potential pharmaceutical products; and • obtaining FDA and other regulatory approvals.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 biotechnologycompanies. Many of our competitors have products that have been approved or are in advanced development and may develop superior technologiesor 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 and may achieve patentprotection or commercialize drugs sooner than us. Our competitors may also develop alternative therapies that could further limit the market for anydrugs that we may develop. Our failure to compete effectively could have a material adverse effect on our business.Any claims relating to improper handling, storage, or disposal of biological, hazardous, and radioactive materials used in our business could becostly and delay our research and development efforts.Our research and development activities involve 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 radioactivecompounds. Our operations also produce hazardous waste products. We face the risk of contamination or injury from the use, storage, handling ordisposal of these materials. We are subject to federal, state and local laws and regulations governing the use, storage, handling, and disposal of thesematerials and specified waste products. The cost of compliance with these laws and regulations could be significant, and current or futureenvironmental 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 her treatment would be covered by our workers’ compensationinsurance policy. However, we do not carry specific biological or hazardous waste insurance coverage and our general liability insurance policyspecifically excludes coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the eventof 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.Consumers may sue us for product liability, which could result in substantial liabilities that exceed our available resources and damage ourreputation.Researching, developing, and commercializing drug products entail significant product liability risks. Liability claims may arise from our andour collaborators’ use of products in clinical trials and the commercial sale of those products. Consumers may make these claims directly and ourcollaborators or others selling these products may seek contribution from us if they receive claims from consumers. We have obtained limited productliability insurance coverage for our clinical trials. Our product liability insurance coverage for clinical 55Table of Contentstrials is currently limited to an aggregate of $30 million. As such, our insurance coverage may not reimburse us or may not be sufficient to reimburse usfor any expenses or losses we may suffer. Although we currently have product liability insurance that covers our clinical trials, we will need to increaseand expand this coverage if our product candidates are approved for commercial sale. This insurance may be prohibitively expensive or may not fullycover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential productliability claims could prevent or inhibit the commercialization of products that we or our collaborators develop. Product liability claims could have amaterial adverse effect on our business and results of operations. Our liability could exceed our total assets if we do not prevail in a lawsuit from anyinjury caused by our drug products.Risks Related to Owning Our Common StockNumerous factors could result in substantial volatility in the trading price of our stock.During the year ended December 31, 2018, the price per share of our common stock on the Nasdaq Global Select Market has ranged from a highof $25.82 to a low of $10.21. We have several stockholders, including affiliated stockholders, who hold substantial blocks of our stock. Sales of largenumbers 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 ofour 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 variousfactors, some of which are beyond our control. These factors include: • 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; • any major change to the composition of our board of directors or management; and • general economic conditions and slow or negative growth of our markets.The stock market in general, and market prices for the securities of biotechnology companies like ours in particular, have from time to timeexperienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industryfluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where themarket price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued thestock. If any of our stockholders were to bring a lawsuit against us, such as the purported class action lawsuits brought against us and certain of ourexecutive officers in May 2017, consolidated in July 2017 and voluntarily dismissed in November 2017, the defense and disposition of the lawsuitcould be costly and divert the time and attention of our management and harm our operating results. 56Table of ContentsRaising additional capital may cause dilution to existing stockholders, restrict our operations or require us to relinquish rights.We will need to satisfy our future cash needs through public or private sales of our equity securities, sales of debt securities, the incurrence ofdebt from commercial lenders, strategic collaborations, licensing a portion or all of our product candidates and technology and, to a lesser extent, grantfunding, although there can be no assurances such financing can be obtained. We filed a universal shelf registration statement on Form S-3 with theSEC, which was declared effective on September 14, 2016, on which we registered for sale up to $350 million of any combination of our commonstock, preferred stock, debt securities, warrants, rights, purchase contracts and/or units from time to time and at prices and on terms that we maydetermine. On October 2, 2017 and October 5, 2017, we completed our public offering of approximately $172 million of shares of our common stockregistered on the universal shelf registration statement and received net proceeds of approximately $162 million, after deducting underwritingdiscounts and commissions and estimated offering expenses. After the public offering in October 2017, approximately $178 million of securitiesremain available for issuance under this shelf registration statement. This registration statement will remain in effect for up to three years from the dateit was declared effective. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interestof our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of ourstockholders. 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 licensingarrangements 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 meetour 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 ourindustry. In addition, the stock market itself is subject to extreme price and volume fluctuations. This volatility has had a significant effect on themarket price of securities issued by many companies for reasons related and unrelated to their operating performance and could have the same effect onour common stock.We will incur increased 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 publiccompany reporting requirements. We also have incurred and will incur costs associated with current corporate governance requirements, includingrequirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the SEC or the Nasdaq Global SelectMarket or any other stock exchange or inter-dealer quotations system on which our common stock may be listed in the future. The expenses incurredby 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 tomaintain effective internal control over financial reporting. In particular, we 57Table of Contentsmust perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on theeffectiveness of our internal control over financial reporting. In addition, we are required to have our independent registered public accounting firmattest to the effectiveness of our internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controlsand 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 tobe evaluated frequently. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff withappropriate public company experience and technical accounting knowledge. If we fail to maintain the effectiveness of our internal controls or fail tocomply in a timely manner with the requirements of the Sarbanes-Oxley Act, or if we or our independent registered public accounting firm identifydeficiencies in our internal control over financial reporting that are deemed to be material weaknesses, this could have a material adverse effect on ourbusiness. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the priceof our common stock and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would requireadditional financial and management resources. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ fromthe activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedingsagainst 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 accuratefinancial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, proceduresand 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 iseffective and to obtain an unqualified report on internal controls from our independent registered public accounting firm as required under Section 404of 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 toaccess 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 theirrecommendations 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 publishresearch and reports about us, our business, our market or our competitors and, to the extent analysts do publish such reports, what they publish inthose reports. We may not continue to have or to obtain analyst coverage in the future. Any analysts that do cover us may make adverserecommendations regarding our stock, adversely change their recommendations from time to time, and/or provide more favorable relativerecommendations 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 regularlypublish 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 bein 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 toaccomplish 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. Itis possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to bein their best interests or in our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition ofour board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actualor threatened change of our 58Table of Contentscontrol. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may beused 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 dividends in the foreseeable future. As aresult, you should not rely on an investment in our securities if you require dividend income. Capital appreciation, if any, of our shares may be yoursole 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. 59Table of ContentsCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSThis report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Actthat relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may causeour actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance orachievements 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 similarexpressions 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 containedin this report, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks anduncertainties 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’sDiscussion 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 thefactors 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, capitalrequirements and the need for additional financing; • the initiation, cost, timing, progress and results of our development activities, preclinical studies and clinical trials; • the timing of and our ability to obtain and maintain regulatory approval, or submit an application for regulatory approval, of our existingproduct candidates, any product candidates that we may develop, and any related restrictions, limitations, and/or warnings in the label ofany approved product candidates; • our plans to research, develop and commercialize our current and future product candidates; • our collaborators’ election 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 our product candidates; • the size and growth of the markets for our product candidates and our ability to serve those markets; • the rate and degree of market acceptance of any 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 and capital market risk; and • our ability to attract and retain key scientific or management personnel. 60Table of ContentsWe may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place unduereliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in theforward-looking statements we make. We have included important cautionary statements in this report, particularly in the Risk Factors set forth inItem 1A of this Annual Report on Form 10-K, that we believe could cause actual results or events to differ materially from the forward-lookingstatements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, jointventures 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 theunderstanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this reportare 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 COMMENTSNone. Item 2.PROPERTIESOur headquarters are located at 430 East 29th Street, New York, New York 10016, where we occupy approximately 32,287 square feet of useableoffice and laboratory space. The term of the lease, as amended, expires in March 2029. We also lease a small amount of office space in Towson,Maryland. Item 3.LEGAL PROCEEDINGSWe are not currently a party to any material legal proceedings. Item 4.MINE SAFETY DISCLOSURESNot applicable. 61Table of ContentsPART II Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur common stock is traded on the Nasdaq Global Select Market under the symbol “ITCI.”StockholdersAs of February 25, 2019, we had 55,116,739 outstanding shares of common stock and no outstanding shares of preferred stock. As of February25, 2019, there were approximately 106 holders of record of our outstanding shares of common stock.Unregistered Sales of SecuritiesNot applicable.Issuer Purchases of Equity SecuritiesNot applicable. 62Table of ContentsItem 6.SELECTED FINANCIAL DATAThe following table sets forth consolidated financial data with respect to the Company for each of the five years in the period endedDecember 31, 2018. The selected financial data for each of the five years in the period ended December 31, 2018 have been derived from our auditedconsolidated financial statements. The consolidated balance sheets as of December 31, 2018 and 2017 and the related consolidated statements ofoperations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the reportthereon, are included elsewhere in this Annual Report on Form 10-K. The information below should be read in conjunction with the consolidatedfinancial statements (and notes thereon) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included inItem 7. 2018 2017 2016 2015 2014 Statements of Operations: Revenues: License and collaboration revenue $— $— $— $30,659 $547,546 Grant revenue — 245,837 330,702 60,705 29,755 Total Revenues — 245,837 330,702 91,364 577,301 Costs and expenses: Research and development 132,166,913 79,419,009 93,831,530 87,718,074 21,226,345 General and administrative 30,099,855 23,666,957 24,758,063 18,187,286 10,337,679 Total costs and expenses 162,266,768 103,085,966 118,589,593 105,905,360 31,564,024 Loss from operations (162,266,768) (102,840,129) (118,258,891) (105,813,996) (30,986,723) Interest income (7,140,957) (4,005,864) (2,935,077) (1,022,455) (303,936) Interest expense — — 36,781 — 7,073 Income tax expense (benefit) 1,600 (1,060,851) 1,065,673 1,600 1,600 Net Loss $(155,127,411) $(97,773,414) $(116,426,268) $(104,793,141) $(30,691,460) Net Loss per common share $(2.84) $(2.12) $(2.69) $(2.91) $(1.07) Weighted average number of common shares: 54,707,865 46,181,926 43,240,188 36,069,237 28,650,067 December 31, 2018 2017 2016 2015 2014 Balance Sheet data: Cash and cash equivalents $54,947,502 $37,790,114 $48,642,225 $47,159,303 $61,325,044 Investments 292,583,046 426,540,921 428,041,021 428,041,021 68,320,672 Total assets 357,206,498 471,486,699 388,903,495 484,103,528 131,111,769 Total liabilities 39,491,617 17,049,738 13,400,956 7,860,617 10,557,064 Accumulated deficit (562,376,191) (407,248,780) (309,475,366) (193,049,098) (88,255,957) Total stockholders’ equity 317,714,881 454,436,961 375,502,539 476,242,911 120,554,705 63Table of ContentsItem 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion of the financial condition and results of our operations should be read in conjunction with the financial statementsand the notes to those statements appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion andanalysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-lookingstatements 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 adiscussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-lookingstatements contained in the following discussion and analysis.OverviewWe are a biopharmaceutical company focused on the discovery and clinical development of innovative, small molecule drugs that addressunderserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the centralnervous system, or CNS. Lumateperone (also known as ITI-007) is our lead product candidate with mechanisms of action that, we believe, mayrepresent an effective treatment across multiple therapeutic indications. In our preclinical and clinical trials to date, lumateperone combines potentserotonin 5-HT2A receptor antagonism, dopamine receptor phosphoprotein modulation, or DPPM, glutamatergic modulation, and serotonin reuptakeinhibition into a single drug candidate for the treatment of acute and residual schizophrenia and for the treatment of bipolar disorder, including bipolardepression. At dopamine D2 receptors, lumateperone has been demonstrated to have dual properties and to act as both a pre-synaptic partial agonistand a post-synaptic antagonist. Lumateperone has also been demonstrated to have affinity for dopamine D1 receptors and indirectly stimulatephosphorylation of glutamatergic NMDA GluN2B receptors in a mesolimbic specific manner. We believe that this regional selectivity in brain areasthought to mediate the efficacy of antipsychotic drugs, together with serotonergic, glutamatergic, and dopaminergic interactions, may result in efficacyfor a broad array of symptoms associated with schizophrenia and bipolar disorder with improved psychosocial function. The serotonin reuptakeinhibition potentially allows for antidepressant activity in the treatment of schizoaffective disorder, other disorders with co-morbid depression, and/oras a stand-alone treatment for MDD. We believe lumateperone may also be useful for the treatment of other psychiatric and neurodegenerativedisorders, particularly behavioral disturbances associated with dementia, autism, and other CNS diseases. Lumateperone is in Phase 3 clinicaldevelopment as a novel treatment for schizophrenia, bipolar depression and agitation associated with dementia, including AD.We had a pre-NDA meeting with the FDA in the first quarter of 2018 and reached agreement on the timing and content of a rolling NDAsubmission for lumateperone for the treatment of schizophrenia. We initiated the rolling submission of our NDA with the FDA for lumateperone for thetreatment of schizophrenia in the second quarter of 2018, we completed this NDA submission in the third quarter of 2018 and the FDA accepted theNDA for review in the fourth quarter of 2018.Our lumateperone bipolar depression Phase 3 clinical program consists of two monotherapy studies and one adjunctive study. We havecompleted patient enrollment in our first monotherapy study (Study 401) conducted in the U.S. and in the second monotherapy study (Study 404)conducted globally. Given the relative timing of these two events and to avoid introducing potential expectation bias in the ongoing Study 404, weanticipate reporting topline results from Study 401 and Study 404 simultaneously in the second quarter of 2019. The Study 401 dataset will remainlocked and blinded until the Study 404 dataset is available and then both datasets will be analyzed concurrently. Subject to the outcome of these trials,we expect to submit in the second half of 2019 for FDA regulatory approval for bipolar depression. Our global study evaluating adjunctivelumateperone in bipolar depression (Study 402) is ongoing.In the second quarter of 2016, we initiated Phase 3 development of lumateperone for the treatment of agitation in patients with dementia,including AD. Our ITI-007-201 trial is a Phase 3 multi-center, randomized, 64Table of Contentsdouble-blind, placebo-controlled clinical trial in patients with a clinical diagnosis of probable AD and clinically significant symptoms of agitation. Inthe fourth quarter of 2018, an independent data monitoring committee, or DMC, completed a pre-specified interim analysis of the ITI-007-201 trial,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 the ITI-007-201 trial. Lumateperone was generally well tolerated in the ITI-007-201 trial and the decision todiscontinue the study was not related to safety. We are analyzing the data set from this trial and will determine the next steps in our program followingcompletion of this analysis.We are also pursuing clinical development of lumateperone for the treatment of additional CNS diseases and disorders. At the lowest doses,lumateperone has been demonstrated to act primarily as a potent 5-HT2A serotonin receptor antagonist. As the dose is increased, additional benefits arederived from the engagement of additional drug targets, including modest dopamine receptor modulation and modest inhibition of serotonintransporters. We believe that combined interactions at these receptors may provide additional benefits above and beyond selective 5-HT2Aantagonism for treating agitation, aggression and sleep disturbances in diseases that include dementia, AD, Huntington’s disease and autism spectrumdisorders, while avoiding many of the side effects associated with more robust dopamine receptor antagonism. As the dose of lumateperone is furtherincreased, leading to moderate dopamine receptor modulation, inhibition of serotonin transporters, and indirect glutamate modulation, these actionscomplement the complete blockade of 5-HT2A serotonin receptors. At a dose of 60 mg, ITI-007 has been shown effective in treating the symptomsassociated with schizophrenia, and we believe this higher dose range will be useful for the treatment of bipolar disorder, depressive disorders and otherneuropsychiatric diseases. Within the ITI-007 portfolio, we are also developing a long-acting injectable formulation to provide more treatment optionsto patients suffering from mental illness. Given the encouraging tolerability data to date with oral lumateperone, we believe that a long-actinginjectable option, in particular, may lend itself to being an important formulation choice for patients.Given the potential utility for lumateperone and follow-on compounds to treat these additional indications, we may investigate, either on ourown or with a partner, agitation, aggression and sleep disturbances in additional diseases that include autism spectrum disorders, depressive disorder,intermittent explosive disorder, non-motor symptoms and motor complications associated with Parkinson’s disease, and post-traumatic stress disorder.We hold exclusive, worldwide commercialization rights to lumateperone and a family of compounds from Bristol-Myers Squibb Company pursuant toan exclusive license.We have a second major program called ITI-002 that has yielded a portfolio of compounds that selectively inhibits the enzymephosphodiesterase type 1, or PDE1. ITI-214 is our lead compound in this program. We believe ITI-214 is the first compound in its class to successfullyadvance into Phase 1 clinical trials. We intend to pursue the development of our PDE program, including ITI-214 for the treatment of several CNS andnon-CNS conditions, including cardiovascular disease. Following the positive safety and tolerability results in our Phase 1 program, we initiated ourdevelopment program for ITI-214 for Parkinson’s disease and commenced patient enrollment in the third quarter of 2017 in a Phase 1/2 clinical trial ofITI-214 in patients with Parkinson’s disease to evaluate safety and tolerability in this patient population, as well as motor and non-motor exploratoryendpoints. In the fourth quarter of 2018, we announced that the Phase 1/2 clinical trial of ITI-214 has been completed and topline results demonstratedITI-214 was generally well-tolerated with a favorable safety profile and clinical signs consistent with improvements in motor symptoms anddyskinesias. In addition, in the first quarter of 2018, the investigational new drug application, or IND, went into effect for ITI-214 for the treatment ofheart failure. We have initiated clinical conduct of the first clinical study in this program, a randomized, double-blind, placebo-controlled study ofescalating single doses of ITI-214 to evaluate safety and hemodynamic effects in patients with systolic heart failure.Our pipeline also includes preclinical programs that are focused on advancing drugs for the treatment of schizophrenia, Parkinson’s disease, ADand other neuropsychiatric and neurodegenerative disorders. We are also investigating the development of treatments for disease modification ofneurodegenerative disorders and non-CNS diseases, including our ITI-333 development program. ITI-333 is designed as a potential treatment for 65Table of Contentssubstance use disorders, pain and psychiatric comorbidities including depression and anxiety. There is a pressing need to develop new drugs to treatopioid addiction and safe, effective, non-addictive treatments to manage pain. We believe the potential exists for ITI-333 to address these challenges.Preclinical safety studies with ITI-333 are currently ongoing and we expect to initiate a clinical program in 2019.Results of OperationsThe following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements.RevenuesWe have not generated any revenue from product sales to date and we do not expect to generate revenues from product sales until at least thefourth quarter of 2019, if ever. We had no revenues for the year ended December 31, 2018, and our revenues for the year ended December 31, 2017 werefrom a government grant. 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 fund our operations.ExpensesThe process of researching and developing drugs for human use is lengthy, unpredictable and subject to many risks. We are unable with certaintyto estimate either the costs or the timelines in which those costs will be incurred. The clinical development of lumateperone for the treatment ofschizophrenia and for the treatment of bipolar depression consumes and, together with our anticipated clinical development programs for depressivedisorders and ITI-214, will continue to consume a large portion of our current, as well as projected, resources. We intend to pursue other diseaseindications that lumateperone may address, but there are significant costs associated with pursuing FDA approval for those indications, which wouldinclude the cost of additional clinical trials.Our ITI-002 program has a compound, ITI-214, in Phase 1/2 development. We intend to pursue the development of our PDE program, includingITI-214 for the treatment of several CNS and non-CNS conditions, including cardiovascular disease. We have initiated our development program forITI-214 for Parkinson’s disease. In addition, in the first quarter of 2018, the IND went into effect for ITI-214 for the treatment of heart failure. We haveinitiated clinical conduct of the first clinical study in this program, a randomized, double-blind, placebo-controlled study of escalating single doses ofITI-214 to evaluate safety and hemodynamic effects in patients with systolic heart failure. Our other projects are still in the preclinical stages, and willrequire extensive funding not only to complete preclinical testing, but to commence and complete clinical trials. Expenditures that we incur on theseprojects will be subject to availability of funding in addition to the funding required for the advancement of lumateperone. Any failure or delay in theadvancement of lumateperone could require us to re-allocate resources from our other projects to the advancement of lumateperone, which could havea material adverse impact on the advancement of these other projects and on our results of operations. Our operating expenses are comprised of(i) research and development expenses and (ii) general and administrative expenses. Our research and development costs are comprised of: • internal recurring costs, such as costs relating to labor and fringe benefits, materials, supplies, facilities and maintenance; and • fees paid to external parties who provide us with contract services, such as pre-clinical testing, manufacturing and related testing, clinicaltrial activities and license milestone payments. 66Table of ContentsGeneral and administrative expenses are incurred in three major categories: • salaries and related benefit costs; • patent, legal, professional and pre-commercialization costs; and • office and facilities overhead.We expect that research and development expenses will increase moderately as we proceed with our Phase 3 clinical trials of lumateperone forthe treatment of bipolar disorder and depressive disorders and as we proceed with increased manufacturing of drug product for clinical trials andpre-commercialization testing. We also expect that our general and administrative costs will increase from prior periods primarily due to costs toperform pre-product commercialization activities and the increased costs associated with building infrastructure to support the anticipated commercialsales of lumateperone if it is approved for sale in the United States, which could include hiring additional personnel and the cost of additional facilityspace. 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 headquartersfacility. We granted options to purchase 1,175,187 shares of our common stock in 2018 and have granted options to purchase an additional 1,218,494shares of our common stock on January 8, 2019. We also granted time based restricted stock units, or RSUs, for 544,542 of our common stock in 2018and time based RSUs for 886,802 shares of our common stock on January 8, 2019. We will recognize expense associated with these RSUs and optionsover the next three years in both research and development expenses and general and administrative expenses. In the first quarter of 2017, we alsogranted 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 amortizedthrough December 31, 2018 based on the probable vesting date. The NDA submission milestone was achieved in the third quarter of 2018. TheMilestone RSUs related to the NDA submission vested on December 31, 2018. The amortization of the expenses of the Milestone RSUs related to theapproval of the NDA will commence if and when the filing has been approved through the last day of the calendar year in which the milestone isachieved and expires on December 31, 2019 if not achieved. The TSR RSUs were valued using the Monte Carlo simulation method and will beamortized over the life of the RSU agreements which ends December 31, 2019. The Milestone RSUs and the TSR RSUs are target based and theultimate awards, if attained, could be the target amount or higher or lower than the target amount, depending on the timing or achievement of the goal.We expect this non-cash expense to be substantial and affect quarter to quarter and year to date comparisons in the upcoming year. We expect tocontinue to grant stock options and other stock-based awards in the future, which with our growing employee base will increase our stock-basedcompensation expense in future periods.The following table sets forth our revenues, operating expenses, interest income, net and income tax (benefit) expenses for the years endedDecember 31, 2018, 2017 and 2016 (in thousands): For the Year Ended December 31, 2018 2017 2016 Revenues $— $246 $330 Expenses Research and Development 132,167 79,419 93,831 General and Administrative 30,099 23,667 24,758 Total costs & expenses 162,266 103,086 118,589 Loss from operations (162,266) (102,840) (118,259) Interest income, net (7,141) (4,006) (2,898) Income tax expense (benefit) 2 (1,061) 1,065 Net Loss $(155,127) $(97,773) $(116,426) 67Table of ContentsComparison of Years Ended December 31, 2018 and December 31, 2017RevenuesRevenues for the year ended December 31, 2018 were zero as compared to $246 thousand for the year ended December 31, 2017, due to agovernment grant that was completed in the fourth quarter of 2017. We expect to have a moderate amount of grant revenue in the future.Research and Development Expenses 2018 2017 2016 External Costs $110,700 $64,404 $81,230 Internal Costs 21,467 15,015 12,601 Total Research and Development Expenses $132,167 $79,419 $93,831 2018 2017 2016 Lumateperone costs $82,288 $53,124 $69,771 Manufacturing costs 22,741 12,282 15,441 Stock based compensation 7,381 5,083 4,473 Other projects and overhead 19,757 8,930 4,146 Total Research and Development Expenses $132,167 $79,419 $93,831 Research and development expenses increased to $132.2 million for the year ended December 31, 2018 as compared to $79.4 million for the yearended December 31, 2017, representing an increase of approximately $52.8 million, or 66%. This increase is due primarily to an increase ofapproximately $23.2 million of costs associated with lumateperone clinical costs, a $6.0 million increase in costs for lumateperone non-clinical efforts,approximately $10.5 million increase in manufacturing expense, approximately $2.3 million increase in stock compensation expense and an increaseof approximately $10.8 million of non ITI-007 projects and overhead expenses. Expenses for other projects and overhead increased as we expandedour preclinical development of ITI-333 and ITI-214, among others. Internal costs increased by $6.5 million for the period as we hired additional staffand increased our stock based compensation expense.As development of lumateperone progresses, we anticipate costs for lumateperone to increase due primarily to ongoing and planned clinicaltrials relating to our lumateperone programs in the next several years as we conduct Phase 3 and other clinical trials. We are also required to completenon-clinical testing to obtain FDA approval and manufacture material needed for clinical trial use, which includes non-clinical testing of the drugproduct and the creation of an inventory of drug product in anticipation of possible FDA approval.As of December 31, 2018, we employed 49 full time personnel in our research and development group as compared to 32 full time personnel inour research and development group at December 31,2017. We expect to hire additional staff as we increase our development efforts and grow ourbusiness 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 ofcognitive dysfunction and the treatment of neurodegenerative diseases, including AD, among others. We have used internal resources and incurredexpenses not only in relation to the development of lumateperone, but also in connection with these additional projects as well, including our PDEprogram. We have not, however, reported these costs on a project by project basis, as these costs are broadly spread among these projects. The externalcosts for these projects have been modest and are reflected in the amounts discussed in this section “—Research and Development Expenses.” 68Table of ContentsThe research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulationby numerous governmental authorities in the United States and other countries. This process typically takes years to complete and requires theexpenditure of substantial resources. The steps required before a drug may be marketed in the United States generally include the following: • completion of extensive pre-clinical laboratory tests, animal studies, and formulation studies in accordance with the FDA’s GoodLaboratory Practice, or GLP, regulations; • submission to the FDA of an Investigational New Drug application, or IND, for human clinical testing, which must become effective beforehuman clinical trials may begin; • performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposedindication; • submission to the FDA of a New Drug Application, or NDA, after completion of all clinical trials; • satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceuticalingredient, or API, and finished drug product are produced and tested to assess compliance with current Good Manufacturing Practices, orcGMPs; • satisfactory completion of FDA inspections of clinical trial sites to assure that data supporting the safety and effectiveness of productcandidates has been generated in compliance with Good Clinical Practices; and • FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.The successful development of our product candidates and the approval process requires substantial time, effort and financial resources, and isuncertain 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 ofthe applicable regulatory requirements needed to receive and maintain marketing approval, or will be granted marketing approval on a timely basis, ifat all. Data from pre-clinical studies and clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory approvalor could result in label warnings related to or recalls of approved products. We, the FDA, or other regulatory authorities may suspend clinical trials atany time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies finddeficiencies in the conduct of the trials or other problems with our product candidates. Other risks associated with our product candidates are describedin the section entitled “Risk Factors” in this Annual Report on Form 10-K.General and Administrative ExpensesGeneral and administrative expenses increased for the year ended December 31, 2018 as compared to the year ended December 31, 2017 byapproximately $6.4 million, or 27.2%. The increase is primarily the result of an increase pre-commercialization costs of approximately $4.0 million,labor costs of approximately $1.8 million, stock compensation expense of approximately $457,000, rent expense of approximately $405,000 and isoffset partially by lower professional fees of approximately $443,000. Salaries, bonuses and related benefit costs for our executive, finance andadministrative functions for the years ended 2018 and 2017 constituted approximately 56% and 62%, respectively, of our total general andadministrative costs. The next major categories of expenses were patent costs and, to a lesser extent, general office-related overhead.We expect general and administrative costs to increase significantly as we hire additional staff and expand our operations, in particular, theaddition of a sales force and related commercial and other infrastructure as we prepare for potential commercial activities. 69Table of ContentsInterest IncomeInterest income has increased to approximately $7.1 million from $4.0 million for the year ended December 31, 2018 as compared to the yearended December 31, 2017. This increase is primarily a result of slightly higher than average cash balances and rising interest rates in 2018 as comparedto 2017. The higher balances in 2018 were primarily due to the net offering proceeds of $162.1 million that we received in October 2017 and is offsetpartially by the $118.2 million of cash and investments utilized in 2018.Income TaxesIn September 2016, the Company licensed certain intellectual property rights to its wholly-owned subsidiary, ITI Limited, which was formed inthe third quarter of 2016. Although the license of intellectual property rights did not result in any gain or loss in the consolidated statements ofoperations, the transaction generated taxable net income in the U.S in 2016. We utilized a portion of our available federal and state net operating losscarryforwards to offset the majority of this net income but incurred approximately $1.1 million of alternative minimum tax related to intercompanytransactions that were treated as tax expense in our consolidated statement of operations in 2016. In December 2017 the Tax Cuts and Jobs Act law waspassed which will allow the Company to receive a refund in future periods for these taxes paid. The Company has therefore recognized a benefit ofapproximately $1.1 million for these taxes in 2017. The Company expects to receive approximately half of this amount in the next year.Comparison of Years Ended December 31, 2017 and December 31, 2016RevenuesRevenues decreased for the year ended December 31, 2017 as compared to the year ended December 31, 2016 by approximately $84 thousand, or26%, due to a government grant that was completed in the fourth quarter of 2017. We do not expect to have any significant grants in the future.Research and Development ExpensesResearch and development expenses decreased for the year ended December 31, 2017 as compared to the year ended December 31, 2016 byapproximately $14.4 million, or 15%. This change is due primarily to a decrease of approximately $11.4 million in clinical trials related costs, adecrease of approximately $4.6 million in non-clinical costs, and a decrease of approximately $3.2 million of costs associated with manufacturing.These decreases in 2017 are offset in part by an increase of approximately $2.3 million of labor related costs. For the year ended December 31, 2016,the majority of the $93.8 million in research and development costs was related to the second Phase 3 trial of lumateperone in patients withschizophrenia and to a lesser extent the Phase 3 trials of lumateperone in patients with bipolar depression and the Phase 3 trial of lumateperone for thetreatment of agitation in patients with dementia, including AD, other supporting trials for lumateperone and costs for manufacturing lumateperone. Forthe year ended December 31, 2017, the majority of the $79.4 million in research and development costs was related to clinical trial costs oflumateperone in patients with schizophrenia and to a lesser extent the Phase 3 trials of lumateperone in patients with bipolar depression, the Phase 3trial of lumateperone for the treatment of agitation in patients with dementia, including AD, and costs for manufacturing lumateperone. Amounts paidto external parties comprised most of our research and development costs. For the year ended December 31, 2017, we incurred approximately$64.3 million of costs to external parties who manufactured, tested and performed clinical trial related activities as compared to $81.1 million for theyear ended December 31, 2016. Of these external costs, approximately $60.1 million for the year ended December 31, 2017 and approximately$80.6 million in the year ended December 31, 2016 were for lumateperone related projects. The remaining external costs for each of these periods werespent on other projects. Internal costs are comprised primarily of labor, fringe benefits, materials, stock-based compensation, supplies and facilities andmaintenance costs and were approximately $15.1 million and $12.7 million for the years ended December 31, 2017 and 2016, respectively. 70Table of ContentsGeneral and Administrative ExpensesGeneral and administrative expenses decreased for the year ended December 31, 2017 as compared to the year ended December 31, 2016 byapproximately $1.1 million, or 4.4%, primarily due to a decrease of approximately $1.5 million of marketing and consulting costs in 2017 compared to2016, offset by higher capital tax expense in 2017. Salaries, bonuses, share based compensation and related benefit costs for our executive, finance andadministrative functions for the years ended December 31, 2017 and 2016 were approximately 62% and 61%, respectively, of our total general andadministrative costs. Our other general and administrative expenses include patent costs and other professional fees and, to a lesser extent, generaloffice-related overhead.Interest IncomeInterest income has increased to approximately $4.0 million from $2.9 million for the year ended December 31, 2017 as compared to the yearended December 31, 2016. This increase is primarily a result of higher than average cash balances and rising interest rates in 2017 as compared to2016. The higher balances in 2017 were primarily due to the net offering proceeds of $162.1 million that we received in October 2017 and is offsetpartially by the $80.5 million of cash and investments utilized in 2017.Income TaxesIn September 2016, we licensed certain intellectual property rights to its wholly-owned subsidiary, ITI Limited, which was formed in the thirdquarter of 2016. Although the license of intellectual property rights did not result in any gain or loss in the consolidated statements of operations, thetransaction generated taxable net income in the U.S in 2016. We utilized a portion of our available federal and state net operating loss carryforwards tooffset the majority of this net income but incurred approximately $1.1 million of alternative minimum tax related to intercompany transactions thatwere treated as tax expense in our consolidated statement of operations in 2016. In December 2017 the Tax Cuts and Jobs Act law was passed whichwill allow the Company to receive a refund in future periods for these taxes paid. The Company therefore recognized a benefit of approximately$1.1 million for these taxes in December 2017.Liquidity and Capital ResourcesThrough December 31, 2018, we provided funds for our operations by obtaining approximately $880.3 million of cash primarily through publicand private offerings of our common stock and other securities, grants from government agencies and foundations and payments received under theterminated Takeda License Agreement. We do not believe that grant revenue will be a significant source of funding in the near future.On October 2, 2017, we completed a public offering of 9,677,419 shares of our common stock for aggregate gross proceeds of approximately$150 million and net proceeds of approximately $140.6 million. On October 5, 2017, the underwriters exercised in full their option to purchase anadditional 1,451,613 shares. All of the shares in the offering were sold by the Company, with gross proceeds to the Company of approximately$172 million from the offering of an aggregate of 11,129,032 shares and net proceeds of approximately $162 million, after deducting underwritingdiscounts, commissions and estimated offering expenses.As of December 31, 2018, we had a total of approximately $347.5 million in cash and cash equivalents and available-for-sale investmentsecurities, and approximately $36.3 million of short-term liabilities consisting entirely of liabilities from operations. In the year ended December 31,2018, we spent approximately $125.7 million in cash for operations and equipment, not including $7.1 million of interest income. We reducedworking capital by approximately $135.9 million for the year ended December 31, 2018. This use of cash was primarily for conducting clinical trialsand non-clinical testing, including manufacturing related activities and funding recurring operating expenses. 71Table of ContentsFor the year 2019, subject to the timing of NDA approval, clinical trial conduct, regulatory activities, precommercial, manufacturing, and otherdevelopment activities, we expect to spend between $225 million and $240 million. We expect these expenditures to be due primarily to thepre-commercialization activities, initial commercialization activities and related infrastructure expansion in connection with the commercialization oflumateperone for the treatment of schizophrenia; the development of lumateperone in our late stage clinical programs; the development of our otherproduct candidates, including ITI-214; the continuation of manufacturing activities in connection with the development of lumateperone; and generaloperations. We expect our existing cash and cash equivalents and investments will be sufficient to fund our operating expenses and capitalexpenditure requirements into the second half of 2020.We will require significant additional financing in the future to continue to fund our operations. We believe that we have the funding in place tocomplete the additional clinical and non-clinical trials, manufacturing and pre-commercialization activities needed for potential regulatory approvaland initial commercialization of lumateperone in patients with schizophrenia. With our existing cash, cash equivalents and available-for-saleinvestment securities, we believe that we have the funds to complete our ongoing clinical trials of lumateperone in bipolar disorder as a monotherapyand as an adjunctive therapy with lithium or valproate. We also plan to fund additional clinical trials of lumateperone for the treatment of behavioraldisturbances in dementia and depressive disorders; preclinical and clinical development of ITI-007 long acting injectable development program;additional clinical trials of lumateperone; continued clinical development of our PDE program, including ITI-214; research and preclinicaldevelopment 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 dementia, including AD, for further development oflumateperone in patients with bipolar disorder, depressive disorders and other indications, and for development of our other product candidates. Wehave incurred losses in every year since inception with the exception of 2011, when we received an up-front fee and a milestone payment related to theTakeda License Agreement. These losses have resulted in significant cash used in operations. For the year ended December 31, 2018, we used net cashin operating activities and purchases of equipment of approximately $125.7 million. This total does not include an offset for $7.1 million of interestincome received. While we have several research and development programs underway, the lumateperone program has advanced the furthest and willcontinue to consume increasing amounts of cash for conducting clinical trials and the testing and manufacturing of product material. As we continue toconduct the activities necessary to pursue FDA approval of lumateperone and our other product candidates, as well as commercialization efforts, weexpect the amount of cash to be used to fund operations to increase over the next several years.With the termination of the Takeda License Agreement in October 2014, we are responsible for the costs of developing ITI-214. OnSeptember 15, 2015, Takeda completed the transfer of the IND for ITI-214 to us. We intend to pursue the development of our PDE1 program, includingITI-214 for the treatment of several CNS and non-CNS conditions. We anticipate a moderate increase in our operating expenses related to our PDEdevelopment programs. Following the positive safety and tolerability results in our Phase 1 program, we have initiated our development program forITI-214 for Parkinson’s disease and commenced patient enrollment in the third quarter of 2017 in a Phase 1/2 clinical trial of ITI-214 in patients withParkinson’s disease to evaluate safety and tolerability in this patient population, as well as motor and non-motor exploratory endpoints. In addition, inthe first quarter of 2018, the IND went into effect for ITI-214 for the treatment of heart failure. We have initiated clinical conduct of the first clinicalstudy in this program, a randomized, double-blind, placebo-controlled study of escalating single doses of ITI-214 to evaluate safety and hemodynamiceffects in patients with systolic heart failure. We expect these expenses to increase for 2019 and beyond.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 ofuncertainty relative to the availability of funding on favorable terms. Until we can generate significant revenues from operations, we will need tosatisfy our future cash needs through public or private sales of our equity securities, sales of debt securities, incurrence of debt from commerciallenders, strategic collaborations, licensing a portion or all of our product candidates and technology and, to a 72Table of Contentslesser extent, grant funding. On September 2, 2016, we filed a universal shelf registration statement on Form S-3, which was declared effective by theSEC on September 14, 2016, on which we registered for sale up to $350 million of any combination of our common stock, preferred stock, debtsecurities, warrants, rights, purchase contracts and/or units from time to time and at prices and on terms that we may determine. After the public offeringin October 2017, approximately $178 million of securities remain available for issuance under this shelf registration statement. This registrationstatement will remain in effect for up to three years from the date it was declared 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 andincur 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 offunding we raise through sales of our common stock or other securities depends on many factors, including, but not limited to, the status and progressof our product development programs, projected cash needs, availability of funding from other sources, our stock price and the status of the capitalmarkets. Due to the volatile nature of the financial markets, equity and debt financing may be difficult to obtain. In addition, any unfavorabledevelopment or delay in the progress of our lumateperone program could have a material adverse impact on our ability to raise additional capital.To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existingstockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debtfinancing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurringdebt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing anddistribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuablerights 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 studies, clinicaltrials or other clinical development activities for one or more of our product candidates, including our lead product candidate lumateperone, ITI-214,and our other pre-clinical stage product candidates; (2) delay, limit, reduce or terminate our discovery research or pre-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 developor commercialize our product candidates, technologies or intellectual property at an earlier stage of development and on less favorable terms than wewould otherwise agree.Our cash is maintained in checking accounts, money market accounts, money market mutual funds, U.S. government agency securities,certificates of deposit, commercial paper, corporate notes and corporate bonds at major financial institutions. Due to the current low interest ratesavailable for these instruments, we are earning limited interest income. We do not expect interest income to be a significant source of funding over thenext several quarters. Our investment portfolio has not been adversely impacted by the problems in the credit markets that have existed over the lastseveral years, but there can be no assurance that our investment portfolio will not be adversely affected in the future.In 2014, we entered into a long-term lease, which was amended in December 2015, for 16,753 square feet of useable laboratory and office spacelocated at 430 East 29th Street, New York, New York 10016. Due to the amortization of total lease payments, we have recognized $3.2 million ofdeferred rent through the end of 2018. In September 2018, we further amended the lease to obtain an additional 15,534 square feet of office spacebeginning October 1, 2018 and to extend the term of the lease for previously acquired space. The lease, as amended, has a term of 14.2 years ending inMarch 2029. We expect that our facility related costs will increase significantly from year to year as a result of leasing this additional space. 73Table of ContentsOff-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements.Contractual Obligations and CommitmentsTotal contractual obligations as of December 31, 2018 are summarized in the following table (in thousands): Payments Due By Period Total 2019 2020-2021 2022-2024 After 2024 Operating Lease Obligations for existing space $17,704 $1,501 $3,137 $5,069 $7,997 Operating Lease Obligations for additional office space beginningOctober 1, 2018 $15,702 $1,022 $2,843 $4,592 $7,245 $33,406 $2,523 $5,980 $9,661 $15,242 The table of Contractual Obligations and Commitments does not reflect that, under the License Agreement with BMS, we may be obligated tomake future milestone payments to BMS totaling $12 million, including the $2.0 million paid in January 2019; to make other future milestonepayments to BMS for each licensed product of up to an aggregate of approximately $14.75 million; to make tiered single digit percentage royaltypayments on sales of licensed products; and to pay BMS a percentage of non-royalty payments made in consideration of any sublicense.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been preparedin accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requiresmanagement to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the balance sheet and reportedamounts of revenues and expenses for the periods presented. Judgments must also be made about the disclosure of contingent liabilities. We base ourestimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates andassumptions 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 revenue recognition, stock-based compensation and clinical trial accruals. Actual results maydiffer from those estimates and under different assumptions or conditions.We believe that the following critical accounting policies affect management’s more significant judgments and estimates used in the preparationof our financial statements:Research and DevelopmentExcept for payments made in advance of services, we expense our research and development costs as incurred. For payments made in advance, werecognize research and development expense as the services are rendered. Research and development costs primarily consist of salaries and relatedexpenses for personnel and resources and the costs of clinical trials. Other research and development expenses include preclinical analytical testing,manufacturing of drug product, outside 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 specifictasks using data such as subject enrollment, clinical site activations or information provided to us by its vendors with respect to their actual costsincurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, andare reflected in the financial statements as prepaid or accrued research and development expense, as the case may be. 74Table of ContentsAs part of the process of preparing its financial statements, we are required to estimate its expenses resulting from its obligations under contractswith vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. Thefinancial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not matchthe periods over which materials or services are provided under such contracts. Our objective is to reflect the appropriate clinical trial expenses in itsfinancial statements by matching those expenses with the period in which services are performed and efforts are expended. We account for theseexpenses according to the progress of the clinical trial as measured by subject progression and the timing of various aspects of the trial. We determineaccrual estimates through financial models taking into account various clinical information provided by vendors and discussion with applicablepersonnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinicaltrial, we adjust its clinical expense recognition if actual results differ from its estimates. We make estimates of our accrued expenses as of each balancesheet date based on the facts and circumstances known to it at that time. Our clinical trial accruals are dependent upon the timely and accuratereporting of contract research organizations, clinical sites and other third-party vendors. Although we do not expect its estimates to be materiallydifferent from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing ofservices performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the years endedDecember 31, 2018 and 2017, there were no material adjustments to our prior period estimates of accrued expenses for clinical trials.Stock-Based CompensationShare-based payments are accounted for in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation. The fairvalue of share-based payments is estimated, on the date of grant, using the Black-Scholes-Merton model (the “Black-Scholes Model”). The resultingfair value is recognized ratably over the requisite service period, which is generally the vesting period of the option.For all awards granted with time-based vesting conditions, expense is amortized using the straight-line attribution method. Share-basedcompensation expense recognized in the statements of operations for the years ended December 31, 2018, 2017 and 2016 is based on share-basedawards ultimately expected to vest.We utilize the Black-Scholes Model for estimating fair value of its stock options granted. Option valuation models, including the Black-ScholesModel, 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.Expected volatility rates are based on a combination of the historical volatility of the common stock of comparable publicly traded entities andthe limited historical information about our common stock. The expected life of stock options is the period of time for which the stock options areexpected to be outstanding. Given the limited historical exercise data, the expected life is determined using the “simplified method,” which definesexpected 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 ofthe grant. We have not paid dividends to its stockholders since its inception and does not plan to pay cash dividends in the foreseeable future.Therefore, we have assumed an expected dividend rate of zero.Prior to January 1, 2014, at which time there was no active market for our common stock, the exercise price of the stock options on the date ofgrant was determined and approved by the board of directors using several factors, including progress and milestones achieved in our businessdevelopment and performance, the price per share of its convertible preferred stock offerings, and general industry and economic trends. In establishingthe estimated fair value of the common stock, we considered the guidance set forth in American Institute of Certified 75Table of ContentsPublic Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For stock options granted on orafter January 1, 2014, the exercise price was determined by using the closing market price of our common stock on the date of grant.An RSU is a stock award that entitles the holder to receive shares of our common stock as the award vests. The fair value of each RSU is based onthe fair market value of our common stock on the date of grant. We have granted RSUs that vest in three equal annual installments provided that theemployee remains employed with us.Beginning in the first quarter of 2016, and in the first quarter of 2017 and 2018, we granted time based RSUs that vest in three equal annualinstallments. In the first quarter of 2017, we granted additional time-based RSUs as well as performance-based RSUs, which vest based on theachievement of certain milestones that include (i) the submission of an NDA with the FDA, (ii) the approval of the NDA by the FDA (collectively, the“Milestone RSU grants”) and (iii) the achievement of certain comparative shareholder returns against the Company’s peers (the “TSR RSU grants”) .The Milestone RSU grants were valued at the closing price on March 8, 2017. The Milestone RSU grants that vest upon the NDA submission wereamortized through December 31, 2018 based on the probable vesting date. 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 amortization of the expenses for Milestone RSU grantsrelated to the approval of the NDA will commence if and when the NDA filing has been approved through the last day of the calendar year in which themilestone is achieved. The TSR RSU grants were valued using the Monte Carlo Simulation method and will be amortized over the life of the RSUagreements which ends December 31, 2019. The Milestone RSU grants and TSR RSU grants are target based and the ultimate awards, if attained, couldbe the target amount or higher or lower than the target amount, depending on the timing or achievement of the goal.Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would resultin a future tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740, Income Taxes. Thedeductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently donot impact us, as all the deferred tax assets have a full valuation allowance.Since we have net operating loss carryforwards as of December 31, 2018, 2017 and 2016, no excess tax benefits for the tax deductions related toshare-based awards were recognized in the statements of operations. In March 2016, the FASB issued ASU 2016-09. ASU 2016-09 simplifies severalareas of accounting for stock compensation, including simplification of the accounting for income taxes, classification of excess tax benefits on theStatement of Cash Flows and forfeitures. As of January 1, 2017, the Company adopted ASU 2016-09 for the quarter ended March 31, 2017.Accordingly, the Company recognized previously unrecognized excess tax benefits of $9.7 million recorded as deferred tax assets with acorresponding offsetting full valuation allowance at the beginning of 2017, which yielded no tax impact.Equity instruments issued to non-employees for services are accounted for under the provisions of ASC Topic 718 and ASC Topic 505-50,Equity/Equity-Based Payments to Non-Employees. Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of theperformance commitment date or the date the required services are completed and are marked to market during the service period.Recently Issued Accounting PronouncementsWe review new accounting standards to determine the expected financial impact, if any, that the adoption of each such standard will have.In May 2014, the FASB issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which has been subsequentlyupdated (as updated, “ASC Topic 606”). The purpose of ASC Topic 606 is to provide enhancements to the quality and consistency of how revenue isreported while also 76Table of Contentsimproving comparability in the financial statements of companies using U.S. GAAP and International Financial Reporting Standards. The coreprinciple requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect theconsideration to which an entity expects to be entitled in exchange for those goods or services. ASC Topic 606 became effective for annual periodsbeginning after December 15, 2017.We adopted this standard using the “modified retrospective method” which did not result in an impact to its financial statements as we have nothad product sales to date. Upon commercializing a product or executing any revenue generating contracts, we will provide additional disclosures inthe notes to the consolidated financial statements related to the relevant aspects of any revenue generating contracts that we have or into which weexpect to enter.In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU2016-01”). ASU 2016-01 eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is requiredto be disclosed for financial instruments measured at amortized cost on the balance sheet. The standard also clarifies the need to evaluate a valuationallowance on a deferred tax asset related to available-for-sale securities in combination with the Company’s other deferred tax assets. ASU 2016-01 iseffective for annual reporting periods beginning after December 15, 2017. The Company adopted ASU 2016-01 as of January 1, 2018 but the adoptiondid not have any material impact on the Company’s consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires the recognition of lease assets and leaseliabilities by lessees for those leases classified as operating leases under previous GAAP. The classification criteria for distinguishing between financeleases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in theprevious leases guidance. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted.The Company elected not to early adopt the standard, and therefore, will adopt the standard on January 1, 2019. We will elect the package of practicalexpedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical leaseclassification. We are not electing the hindsight practical expedient. We will make an accounting policy election to keep leases with an initial term of12 months or less off of the balance sheet. We will recognize those lease payments in the consolidated statements of operations on a straight-line basisover the lease term.We estimate adoption of the standard will result in recognition of additional net lease assets and lease liabilities of approximately $18 millionand $21 million, respectively, as of January 1, 2019. The difference between these amounts represents the net deferred rent as of January 1, 2019 withno impact to the accumulated deficit. We do not believe the new standard will have a notable impact on our liquidity.In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220)—Reclassification ofCertain Tax Effects from Accumulated Other Comprehensive Income, to address a specific consequence of the TCJA by allowing a reclassification fromaccumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA’s reduction of the U.S. federal corporateincome tax rate. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, with early adoption permitted, and is to beapplied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax ratein the TCJA is recognized. The Company does not have any stranded tax effects to which this ASU would apply. Therefore, there is no impact to theCompany’s consolidated financial statements.In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The standard allows for the entity to only remeasure equity-classified awards for which a measurementdate has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. After 77Table of Contentsadoption, the nonemployee share-based payment awards would be treated similar to employee share-based payment awards going forward. The ASU iseffective for all entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. We are currently analyzingthe impact of ASU 2018-07. As our nonemployee share-based awards are not significant, we do not expect the adoption will have a material impact onthe consolidated accumulated deficit. Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKInterest Rate Sensitivity. As of December 31, 2018, we had cash, cash equivalents and marketable securities of approximately $347.5 millionconsisting of cash deposited in a highly rated financial institution in the United States and in a short-term U.S. Treasury money market fund, as well ashigh-grade corporate bonds and commercial paper. The primary objective of our investment activities is to preserve our capital for the purpose offunding 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 fundinvestments. We believe that we do not have any material exposure to changes in fair value as a result of changes in interest rates, although the recentrise in interest rates has resulted in our unrealized loss on investments as of December 31, 2018 and 2017 totaling approximately $0.7 million and$0.8 million, respectively. Since we plan on holding those investments to maturity, no recognition of impairment is required. Declines in interest rates,however, would reduce future investment income.Capital Market Risk. We currently have no product revenues and depend on funds raised through other sources. One possible source of fundingis through further equity offerings. Our ability to raise funds in this manner depends upon capital market forces affecting our stock price. Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAINTRA-CELLULAR THERAPIES, INC. Index to Financial Statements and Financial Statement Schedules Number Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of December 31, 2018 and 2017 F-2 Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016 F-3 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2018, 2017 and 2016 F-4 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016 F-6 Notes to Consolidated Financial Statements F-7 Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable. Item 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of 78Table of Contentsthe period covered by this Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensurethat information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including ourprincipal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regardingrequired disclosure.Management’s Report on Internal Control over Financial ReportingThe Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal controlover 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, theCompany’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies andprocedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets ofthe Company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance withauthorizations 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’sassets 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree 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, 2018. Inmaking this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework (2013).Based on our assessment, management believes that, as of December 31, 2018, the company’s internal control over financial reporting is effectivebased on those criteria.Our independent registered public accounting firm has issued an audit report on our assessment of our internal control over financial reporting.This report appears further below in this Item 9A.Changes in Internal ControlsThere were no changes in our internal control over financial reporting during the fourth quarter ended December 31, 2018 that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. 79Table of ContentsReport of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Intra-Cellular Therapies, Inc.Opinion on Internal Control over Financial ReportingWe have audited Intra-Cellular Therapies, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2018, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) (the COSO criteria). In our opinion, Intra-Cellular Therapies, Inc. and subsidiaries (the Company) maintained, in all material respects,effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated balance sheets of the Company as of December 31, 2018 and 2017, 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, 2018, and the related notes and our report datedFebruary 27, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable 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 obtainreasonable 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, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal 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 arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPBaltimore, MDFebruary 27, 2019 Item 9B.OTHER INFORMATIONNot applicable. 80Table of ContentsPART III Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe response to this item is incorporated by reference from the discussion responsive thereto under the captions “Management and CorporateGovernance,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Conduct and Ethics” in the Company’s Proxy Statement forthe 2019 Annual Meeting of Stockholders. Item 11.EXECUTIVE COMPENSATIONThe response to this item is incorporated by reference from the discussion responsive thereto under the captions “Executive Officer and DirectorCompensation,” “Compensation Discussion and Analysis,” “Management and Corporate Governance—Compensation Committee Interlocks andInsider Participation,” “Compensation Committee Report” and “Risks Related to Compensation Practices and Policies” in the Company’s ProxyStatement for the 2019 Annual Meeting of Stockholders. Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of CertainBeneficial Owners and Management,” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 2019 Annual Meetingof Stockholders. Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe response to this item is incorporated by reference from the discussion responsive thereto under the captions “Certain Relationships andRelated Person Transactions” and “Management and Corporate Governance” in the Company’s Proxy Statement for the 2019 Annual Meeting ofStockholders. Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe response to this item is incorporated by reference from the discussion responsive thereto under the caption “Proposal [2]: Ratification ofSelection of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2019 Annual Meeting of Stockholders. 81Table of ContentsPART IV Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES Item 15(a).The following documents are filed as part of this annual report on Form 10-K: Item 15(a)(1) and (2)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 isincluded in the financial statements or notes thereto. Item 15(a)(3)ExhibitsThe following is a list of exhibits filed as part of this Annual Report on Form 10-K. ExhibitNumber Exhibit Description FiledHerewith Incorporatedby Referenceherein fromForm orSchedule Filing Date SEC File/Reg. Number2.1 Agreement and Plan of Merger, dated as of August 23, 2013,by and among the Registrant, ITI, Inc. and Intra-CellularTherapies, Inc. 8-K(Exhibit 2.1) 8/29/2013 000-548962.2 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. 8-K(Exhibit 2.2) 9/5/2013 000-548963.1 Restated Certificate of Incorporation of the Registrant, filedwith the Secretary of State of the State of Delaware onNovember 7, 2013. S-1/A(Exhibit 3.1) 11/26/13 333-1912383.2 Certificate of Merger relating to the Merger of ITI, Inc. withand into Intra-Cellular Therapies, Inc., filed with the Secretaryof State of the State of Delaware on August 29, 2013. 8-K(Exhibit 3.3) 9/5/2013 000-548963.3 Certificate of Ownership and Merger relating to the Merger ofIntra-Cellular Therapies, Inc. with and into the Registrant, filedwith the Secretary of State of the State of Delaware onAugust 29, 2013, relating to the name change of the Registrant. 8-K(Exhibit 3.4) 9/5/2013 000-548963.4 Restated Bylaws of the Registrant. 8-K(Exhibit 3.5) 9/5/2013 000-548964.1 Form of common stock certificate. 8-K(Exhibit 4.1) 9/5/2013 000-54896 82Table of ContentsExhibitNumber Exhibit Description FiledHerewith Incorporatedby Referenceherein fromForm orSchedule Filing Date SEC File/Reg. Number10.1 .1 License Agreement dated as of May 31, 2005 by and betweenBristol-Meyers Squibb Company and Intra-Cellular Therapies,Inc.** 8-K/A(Exhibit 10.1.1) 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. 8-K(Exhibit 10.1.2) 9/5/2013 000-5489610.2 Supply Agreement dated as of January 4, 2017 by and betweenSiegfried Evionnaz SA and ITI Limited.** 10-K(Exhibit 10.3) 3/1/2017 001-3627410.3 Employment Agreement effective as of February 26, 2008 by andbetween Sharon Mates, Ph.D. and Intra-Cellular Therapies, Inc.* 8-K(Exhibit 10.3) 9/5/2013 000-5489610.4 .1 Employment Agreement effective as of August 3, 2015 by andbetween Michael I. Halstead and Intra-Cellular Therapies, Inc.* 10-Q(Exhibit 10.1) 11/5/2015 001-36274 .2 Amendment No.1 to Employment Agreement dated as ofNovember 9, 2016 by and between Michael I. Halstead and Intra-Cellular Therapies, Inc.* 10-Q(Exhibit 10.1) 11/9/2016 001-3627410.5 Employment Agreement effective as of February 26, 2008 by andbetween Lawrence J. Hineline and Intra-Cellular Therapies, Inc.* 8-K(Exhibit 10.4) 9/5/2013 001-3627410.6 .1 Employment Agreement effective as of November 4, 2015 by andbetween Robert Davis, Ph.D. and Intra-Cellular Therapies, Inc.* 10-K(Exhibit 10.6) 2/25/2016 001-36274 .2 Amendment No.1 to Employment Agreement dated as ofNovember 9, 2016 by and between Robert Davis, Ph.D. and Intra-Cellular Therapies, Inc.* 10-Q(Exhibit 10.2) 11/9/2016 001-3627410.7 .1 Employment Agreement effective as of November 5, 2015 by andbetween Kimberly Vanover, Ph.D. and Intra-Cellular Therapies,Inc.* 10-K(Exhibit 10.7) 2/25/2016 000-54896 83Table of ContentsExhibitNumber Exhibit Description FiledHerewith Incorporatedby Referenceherein fromForm orSchedule Filing Date SEC File/Reg. Number .2 Amendment No.1 to Employment Agreement dated as of November 9, 2016 by and between Kimberly Vanover, Ph.D. and Intra-CellularTherapies, Inc.* 10-Q(Exhibit 10.3) 11/9/2016 001-3627410.8 Employment Agreement effective as of November 13, 2017 by andbetween Andrew Satlin, M.D. and Intra-Cellular Therapies, Inc.* 10-K(Exhibit 10.8) 3/1/2018 001-3627410.9 Employment Agreement effective as of October 15, 2018 by andbetween Mark Neumann and Intra-Cellular Therapies, Inc. X 10.10 Employee Proprietary Information, Inventions, andNon-Competition Agreement effective as of September 1, 2003 byand between Sharon Mates, Ph.D. and Intra-Cellular Therapies,Inc.* 8-K(Exhibit 10.8) 9/5/2013 000-5489610.11 Employee Proprietary Information, Inventions, andNon-Competition Agreement effective as of July 29, 2014 by andbetween Michael Halstead and Intra-Cellular Therapies, Inc.* 10-K(Exhibit 10.11) 3/12/2015 001-3627410.12 Employee Proprietary Information, Inventions, andNon-Competition Agreement effective as of December 1, 2003 byand between Lawrence J. Hineline and Intra-Cellular Therapies,Inc.* 8-K(Exhibit 10.9) 9/5/2013 000-5489610.13 Employee Proprietary Information, Inventions, andNon-Competition Agreement effective as of November 4, 2015 byand between Robert Davis, Ph.D. and Intra-Cellular Therapies, Inc.* 10-K(Exhibit 10.11) 2/25/2016 001-3627410.14 Employee Proprietary Information, Inventions, andNon-Competition Agreement effective as of March 5, 2007 by andbetween Kimberly E. Vanover, Ph.D. and Intra-Cellular Therapies,Inc.* 8-K(Exhibit 10.12) 9/5/2013 000-54896 84Table of ContentsExhibitNumber Exhibit Description FiledHerewith Incorporatedby Referenceherein fromForm orSchedule Filing Date SEC File/Reg. Number10.15 Employee Proprietary Information, Inventions, Inventions,and Non-Competition Agreement effective as ofNovember 13, 2017 by and between Andrew Satlin, M.D. andIntra-Cellular Therapies, Inc.* 10-K(Exhibit 10.14) 3/1/2018 001-3627410.16 Employee Proprietary Information, Inventions, Inventions,and Non-Competition Agreement effective as of December10, 2018 by and between Mark Neumann and Intra-CellularTherapies, Inc. X 10.17 Form of Indemnification Agreement by and between theCompany and its directors and executive officers.* 8-K(Exhibit 10.13) 9/5/2013 000-5489610.18 2003 Equity Incentive Plan, as amended.* 8-K(Exhibit 10.14) 9/5/2013 000-5489610.19 Form of Stock Option Agreement under the 2003 EquityIncentive Plan, as amended.* 8-K(Exhibit 10.15) 9/5/2013 000-5489610.20 Amended and Restated 2013 Equity Incentive Plan.* 8-K(Exhibit 10.1) 6/18/2015 001-3627410.21 Form of Stock Option Agreement under the 2013 EquityIncentive Plan.* 10-K(Exhibit 10.19) 3/25/2014 001-3627410.22 Intra-Cellular Therapies, Inc. 2018 Equity Incentive Plan.* 8-K(Exhibit 10.1) 6/21/2018 001-3627410.23 Form of Stock Option Agreement under the 2018 EquityIncentive Plan.* 8-K(Exhibit 10.2) 6/21/2018 001-3627410.24 Form of Director Stock Option Agreement under the 2018Equity Incentive Plan.* 8-K(Exhibit 10.3) 6/21/2018 001-3627410.25 Form of Restricted Stock Unit Agreement under the 2018Equity Incentive Plan.* 8-K(Exhibit 10.4) 6/21/2018 001-3627410.26 Form of Director Restricted Stock Unit Agreement under the2018 Equity Incentive Plan.* 8-K(Exhibit 10.5) 6/21/2018 001-3627410.27 Non-Employee Director Compensation Policy, as amended.* 10-Q(Exhibit 10.6) 8/2/2018 001-3627410.28 Redemption Agreement dated as of August 29, 2013 by andbetween the Registrant and NLBDIT 2010 Services, LLC. 8-K(Exhibit 10.17) 9/5/2013 000-54896 85Table of ContentsExhibitNumber Exhibit Description FiledHerewith Incorporatedby Referenceherein fromForm orSchedule Filing Date SEC File/Reg. Number10.29 Indemnity Agreement dated as of August 29, 2013 by andamong the Registrant, Intra-Cellular Therapies, Inc. and Samir N.Masri. 8-K(Exhibit 10.18) 9/5/2013 000-5489610.30 Registration Rights Agreement dated as of August 29, 2013 byand among Intra-Cellular Therapies, Inc., the stockholdersnamed therein and the Registrant. 8-K(Exhibit 10.19) 9/5/2013 000-5489614.1 Corporate Code of Conduct and Ethics and WhistleblowerPolicy. 10-K(Exhibit 14.1) 2/25/2016 001-3627421.1 Subsidiaries. 10-K(Exhibit 21.1) 3/1/2017 001-3627423.1 Consent of Ernst & Young LLP. X 31.1 Certification of the Chief Executive Officer. X 31.2 Certification of the Chief Financial Officer. X 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. X 101 .INS XBRL Instance Document. X .SCH XBRL Taxonomy Extension Schema Document. X .CAL XBRL Taxonomy Extension Calculation Linkbase Document. X .DEF XBRL Taxonomy Extension Definition. X .LAB XBRL Taxonomy Extension Label Linkbase Document. X .PRE XBRL Taxonomy Presentation Linkbase Document. X *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 ExchangeCommission. Item 16.Form 10-K SummaryNot Applicable. 86Table of ContentsSIGNATURESPursuant 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 signedon its behalf by the undersigned, thereunto duly authorized. INTRA-CELLULAR THERAPIES, INC.Date: February 27, 2019 By: /s/ Sharon Mates, Ph.D. Sharon Mates, Ph.D. Chairman, President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signatures Title DateBy: /s/ Sharon Mates, Ph.D. Sharon Mates, Ph.D. Chairman, President and Chief Executive Officer (principalexecutive officer) February 27, 2019By: /s/ Lawrence J. Hineline Lawrence J. Hineline Senior Vice President of Finance and Chief Financial Officer(principal financial officer and principal accountingofficer) February 27, 2019By: /s/ Christopher Alafi, Ph.D. Christopher Alafi, Ph.D. Director February 27, 2019By: /s/ Richard Lerner, M.D. Richard Lerner, M.D. Director February 27, 2019By: /s/ Joel S. Marcus Joel S. Marcus Director February 27, 2019By: /s/ Rory B. Riggs Rory B. Riggs Director February 27, 2019By: /s/ Robert L. Van Nostrand Robert L. Van Nostrand Director February 27, 2019 87Table of ContentsReport of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Intra-Cellular Therapies, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Intra-Cellular Therapies, Inc. and subsidiaries (the Company) as of December 31,2018 and 2017, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three yearsin the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, theconsolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and theresults of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generallyaccepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2019 expressed anunqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respectto the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission 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 obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2002.Baltimore, MDFebruary 27, 2019 F-1Table of ContentsIntra-Cellular Therapies, Inc. and SubsidiariesConsolidated Balance Sheets December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $54,947,502 $37,790,114 Investment securities, available-for-sale 292,583,046 426,540,921 Prepaid expenses and other current assets 7,908,133 4,884,293 Total current assets 355,438,681 469,215,328 Property and equipment, net 1,159,766 1,137,171 Long term deferred tax asset, net 529,218 1,058,435 Other assets 78,833 75,765 Total assets $357,206,498 $471,486,699 Liabilities and stockholders’ equity Current liabilities: Accounts payable $13,961,060 $6,173,539 Accrued and other current liabilities 20,044,866 6,424,221 Accrued employee benefits 2,293,259 1,611,846 Total current liabilities 36,299,185 14,209,606 Long-term deferred rent 3,192,432 2,840,132 Total liabilities 39,491,617 17,049,738 Stockholders’ equity: Common stock, $.0001 par value: 100,000,000 shares authorized; 54,895,295 and 54,597,679 sharesissued and outstanding at December 31, 2018 and 2017, respectively 5,490 5,460 Additional paid-in capital 880,753,339 862,479,505 Accumulated deficit (562,376,191) (407,248,780) Accumulated comprehensive loss (667,757) (799,224) Total stockholders’ equity 317,714,881 454,436,961 Total liabilities and stockholders’ equity $357,206,498 $471,486,699 See accompanying notes to consolidated financial statements. F-2Table of ContentsIntra-Cellular Therapies, Inc. and SubsidiariesConsolidated Statements of Operations Years Ended December 31, 2018 2017 2016 Grant revenue $— $245,837 $330,702 Costs and expenses: Research and development 132,166,913 79,419,009 93,831,530 General and administrative 30,099,855 23,666,957 24,758,063 Total costs and expenses 162,266,768 103,085,966 118,589,593 Loss from operations (162,266,768) (102,840,129) (118,258,891) Interest income (7,140,957) (4,005,864) (2,935,077) Interest expense — — 36,781 Loss before provision (benefit) for income taxes (155,125,811) (98,834,265) (115,360,595) Income tax expense (benefit) 1,600 (1,060,851) 1,065,673 Net loss $(155,127,411) $(97,773,414) $(116,426,268) Net loss per common share: Basic & Diluted $(2.84) $(2.12) $(2.69) Weighted average number of common shares: Basic & Diluted 54,707,865 46,181,926 43,240,188 See accompanying notes to consolidated financial statements. F-3Table of ContentsIntra-Cellular Therapies, Inc. and SubsidiariesConsolidated Statements of Comprehensive Loss Years Ended December 31, 2018 2017 2016 Net loss $(155,127,411) $(97,773,414) $(116,426,268) Other comprehensive loss: Unrealized gain (loss) on investment securities 131,467 (481,985) 273,171 Comprehensive loss $(154,995,944) $(98,255,399) $(116,153,097) See accompanying notes to consolidated financial statements. F-4Table of ContentsIntra-Cellular Therapies, Inc. and SubsidiariesConsolidated Statements of Stockholders’ Equity Common Stock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedComprehensiveLoss TotalStockholders’Equity Shares Amount Balance at December 31, 2015 43,155,875 $4,316 $669,878,103 $(193,049,098) $(590,410) $476,242,911 Exercise of stock options 123,745 12 477,722 — — 477,734 Restricted Stock issued to employee 1,757 — — — — — Stock issued for services 11,529 1 233,771 — — 233,772 Share-based compensation — — 14,701,219 — — 14,701,219 Net loss — — — (116,426,268) — (116,426,268) Other comprehensive gain — — — — 273,171 273,171 Balance at December 31, 2016 43,292,906 $4,329 $685,290,815 $(309,475,366) $(317,239) $375,502,539 Common shares issued October 2017 11,129,032 1,113 162,071,143 — — 162,072,256 Exercise of stock options and issuances ofrestricted stock 162,642 17 285,143 — — 285,160 Stock issued for services 13,099 1 190,884 — — 190,885 Share-based compensation — — 14,641,520 — — 14,641,520 Net loss — — — (97,773,414) — (97,773,414) Other comprehensive loss — — — — (481,985) (481,985) 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 ofrestricted stock 284,326 29 674,177 — — 674,206 Stock issued for services 11,468 1 192,529 — — 192,530 Share-based compensation — — 17,396,146 — — 17,396,146 Stock warrant 1,822 — 10,982 — — 10,982 Net loss — — — (155,127,411) — (155,127,411) Other comprehensive gain — — — — 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 See accompanying notes to consolidated financial statements. F-5Table of ContentsIntra-Cellular Therapies, Inc. and SubsidiariesConsolidated Statements of Cash Flows Years Ended December 31, 2018 2017 2016 Operating activities Net loss $(155,127,411) $(97,773,414) $(116,426,268) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 368,673 213,872 196,872 Share-based compensation 17,396,146 14,641,520 14,701,219 Stock issued for services 192,530 190,885 233,772 Amortization of premiums and discounts on investment activities (943,239) 429,839 544,354 Changes in operating assets and liabilities: Accounts receivable — 94,339 (63,679) Prepaid expenses and other assets (3,026,908) (879,200) 4,016,164 Long term deferred tax asset, net 529,217 (1,058,435) — Accounts payable 7,787,521 2,418,892 2,121,742 Accrued liabilities and employee benefits 14,386,774 1,211,103 2,147,080 Deferred rent 267,584 18,787 1,271,517 Net cash used in operating activities (118,169,113) (80,491,812) (91,257,227) Investing activities Purchases of investments (271,156,707) (520,926,824) (395,757,168) Maturities of investments 406,189,288 428,932,538 488,068,547 Purchases of property and equipment (391,268) (723,429) (48,964) Net cash provided by (used in) investing activities 134,641,313 (92,717,715) 92,262,415 Financing activities Proceeds from line of credit — — 125,000,000 Repayment of line of credit — — (125,000,000) Proceeds from stock option exercises 674,206 285,160 477,734 Proceeds of public offerings, net — 162,072,256 — Proceeds from stock warrant 10,982 — — Net cash provided by financing activities 685,188 162,357,416 477,734 Net increase (decrease) in cash and cash equivalents 17,157,388 (10,852,111) 1,482,922 Cash and cash equivalents at beginning of period 37,790,114 48,642,225 47,159,303 Cash and cash equivalents at end of period $54,947,502 $37,790,114 $48,642,225 Cash paid for interest $— $— $36,781 Cash paid for taxes $1,600 $1,600 $1,001,600 See accompanying notes to consolidated financial statements. F-6Table of ContentsIntra-Cellular Therapies, Inc. and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 20181. OrganizationIntra-Cellular Therapies, Inc. (the “Company”), through its wholly-owned operating subsidiaries, ITI, Inc. (“ITI”) and ITI Limited, is abiopharmaceutical company focused on the discovery and clinical development of innovative, small molecule drugs that address underserved medicalneeds in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system (“CNS”). TheCompany’s lead product candidate, lumateperone, is in Phase 3 clinical development as a novel treatment for schizophrenia, bipolar depression andagitation associated with dementia, including Alzheimer’s disease.The Company was originally incorporated in the State of Delaware in August 2012 under the name “Oneida Resources Corp.” Prior to a reverse mergerthat occurred on August 29, 2013 (the “Merger”), Oneida Resources Corp. was a “shell” company registered under the Securities Exchange Act of1934, as amended (the “Exchange Act”), with no specific business plan or purpose until it began operating the business of ITI, through the Mergertransaction on August 29, 2013. ITI was incorporated in Delaware in May 2001 to focus primarily on the development of novel drugs for the treatmentof neuropsychiatric and neurologic diseases and other disorders of the CNS. Effective upon the Merger, a wholly-owned subsidiary of the Companymerged with and into ITI, and ITI continues as the operating subsidiary of the Company.In September 2016, the Company licensed certain intellectual property rights to its wholly-owned subsidiary, ITI Limited, which was formed in thethird 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 $125 million of gain related to the transaction helped generate net taxable income for tax purposes in the U.S. and the Company utilized a portionof its available federal and state net operating loss carryforwards to offset the majority of this gain. Any taxes incurred related to intercompanytransactions were treated as tax expense in the Company’s consolidated statement of operations. In addition to the license, the Company also enteredinto a research and development agreement with ITI Limited pursuant to which the Company will conduct research and development services relatedto the license agreement and charge ITI Limited for these services.On October 2, 2017 and October 5, 2017, the Company completed a public offering of common stock in which the Company sold 11,129,032 shares ofcommon stock, which included the exercise of the underwriters’ option to purchase an additional 1,451,613 shares, at an offering price of $15.50 pershare for aggregate gross proceeds of approximately $172 million. After deducting underwriting discounts, commissions and offering expenses, the netproceeds to the Company were approximately $162 million.In order to further its research projects and support its collaborations, the Company will require additional financing until such time, if ever, thatrevenue streams are sufficient to generate consistent positive cash flow from operations. The Company currently projects that its cash, cash equivalentsand investments will be sufficient to fund operating expenses and capital expenditures into the second half of 2020, at which time the Company willrequire additional financing. Possible sources of funds include public or private sales of the Company’s equity securities, sales of debt securities, theincurrence of debt from commercial lenders, strategic collaborations, licensing a portion or all of the Company’s product candidates and technologyand, to a lesser extent, grant funding. On September 2, 2016, the Company filed a universal shelf registration statement on Form S-3, which wasdeclared effective by the Securities and Exchange Commission (the “SEC”) on September 14, 2016, on which the Company registered for sale up to$350 million of any combination of its common stock, preferred stock, debt securities, warrants, rights, purchase contracts and/or units from time totime and at prices and on terms that the Company may determine. After the public offering in October 2017, approximately $178 million of securitiesremain available for issuance under this shelf registration statement. This registration statement will remain in effect for up to three years from theinitial effective date. F-7Table of Contents1. Organization (continued) In the third quarter of 2018, the Company completed the rolling submission of its New Drug Application (“NDA”) to the U.S. Food and DrugAdministration (“FDA”) for lumateperone, a once-daily, oral investigational medicine with a novel mechanism of action for the treatment ofschizophrenia and in the fourth quarter of 2018 the FDA accepted the NDA for review. The NDA submission is supported by data from 20 clinical trialsand more than 1,900 subjects exposed to lumateperone. Lumateperone received Fast Track designation from the FDA in November 2017 for thetreatment of schizophrenia.2. Summary of Significant Accounting PoliciesBasis of PresentationThe accompanying consolidated financial statements of Intra-Cellular Therapies, Inc. and its wholly own subsidiaries have been prepared inconformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicableguidance is meant to refer to the authoritative United States generally accepted accounting principles set forth in the Accounting StandardsCodification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). All intercompany accountsand transactions have been eliminated in consolidation. The Company currently operates in one operating segment. Operating segments are defined ascomponents of an enterprise about which separate discrete information is available for the chief operating decision maker, or decision making group, indeciding how to allocate resources and assessing performance. The Company views its operations and manages its business in one segment, which isdiscovering and developing drugs for the treatment of neurological and psychiatric disorders.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Although actual results could differ from those estimates, management does not believethat such differences would be material.Cash and Cash EquivalentsThe Company considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. Cashand cash equivalents consist of checking accounts, money market accounts, money market mutual funds, and certificates of deposit with a maturitydate of three months or less. The carrying values of cash and cash equivalents approximate the fair market value. Certificates of deposit, commercialpaper, corporate notes and corporate bonds with a maturity date of more than three months are classified separately on the balance sheet.Investment SecuritiesInvestment securities may consist of investments in U.S. Treasuries, various U.S. governmental agency debt securities, corporate bonds, certificates ofdeposit, and other fixed income securities with an average maturity of twelve months or less. Management classifies the Company’s investments asavailable-for-sale. Such securities are carried at estimated fair value, with any unrealized holding gains or losses reported, net of any tax effectsreported, as accumulated other comprehensive income, which is a separate component of stockholders’ equity. Realized gains and losses, and declinesin value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of anyavailable-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in thatperiod, and a new cost basis for the security is established. Dividend and interest income is recognized as interest income when earned. The cost ofsecurities sold is calculated using the specific identification method. F-8Table of Contents2. Summary of Significant Accounting Policies (continued) Investment securities consisted of the following (in thousands): December 31, 2018 AmortizedCost UnrealizedGains Unrealized(Losses) EstimatedFairValue U.S. government agency securities $124,691 $24 $(289) $124,426 FDIC certificates of deposit (1) 245 — — 245 Certificates of deposit 1,000 — — 1,000 Commercial paper 41,317 — (45) 41,272 Corporate notes/bonds 125,998 7 (365) 125,640 $293,251 $31 $(699) $292,583 December 31, 2017 AmortizedCost UnrealizedGains Unrealized(Losses) EstimatedFairValue U.S. government agency securities $126,330 $— $(348) $125,982 FDIC certificates of deposit (1) 8,306 — — 8,306 Certificates of deposit 103,500 — — 103,500 Commercial paper 51,414 — (61) 51,353 Corporate notes/bonds 137,790 — (390) 137,400 $427,340 $— $(799) $426,541 (1)“FDIC Certificates of Deposit” consist of deposits that are $250,000 or less.The Company has classified all of its investment securities available-for-sale, including those with maturities beyond one year, as current assets on theconsolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are consideredavailable for use in current operations. As of December 31, 2018 and 2017, the Company held $64.6 million and $93.3 million, respectively, ofavailable-for-sale investment securities with contractual maturity dates more than one year and less than two years.The Company monitors its investment portfolio for impairment quarterly or more frequently if circumstances warrant. In the event that the carryingvalue of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, the Company records an impairmentcharge within earnings attributable to the estimated credit loss. In determining whether a decline in the value of an investment is other-than-temporary,the Company evaluates currently available factors that may include, among others: (1) general market conditions; (2) the duration and extent to whichfair value has been less than the carrying value; (3) the investment issuer’s financial condition and business outlook; and (4) the Company’sassessment as to whether it is more likely than not that the Company will be required to sell a security prior to recovery of its amortized cost basis. Asof December 31, 2018, the aggregate related fair value of investments with unrealized losses was $272.5 million and the aggregate amount ofunrealized losses was $0.7 million. Of the $272.5 million, $180.4 million have been held in a continuous unrealized loss position for less than 12months and $92.1 million have been held in a continuous loss position for 12 months or longer. The total continuous unrealized loss for investmentsheld for 12 months or longer is approximately $345,000 as of December 31, 2018. As of December 31, 2017, the Company had approximately$37.3 million of investments with a continuous unrealized loss for 12 months or longer of approximately $42,000.The Company attributes the unrealized losses on the available-for-sale securities as of December 31, 2018 and 2017 to the rise in related marketinterest rates. The Company does not intend to sell these securities, nor is it F-9Table of Contents2. Summary of Significant Accounting Policies (continued) more likely than not that the Company will be required to sell them prior to the end of their contractual terms. Furthermore, the Company does notbelieve that these securities expose the Company to undue market risk or counterparty credit risk. As such, the Company does not consider thesesecurities to be other-than-temporarily impaired.Fair Value MeasurementsThe Company applies the fair value method under ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value,establishes a fair value hierarchy for assets and liabilities measured at fair value and requires expanded disclosures about fair value measurements. TheASC Topic 820 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires assets andliabilities carried at fair value to be classified and disclosed in one of the following categories based on the lowest level input used that is significant toa particular fair value measurement: • Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities. • Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs caninclude quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactivemarkets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can becorroborated 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 involvessignificant and subjective judgments to be made by a reporting entity—e.g., determining an appropriate adjustment to a discount factor forilliquidity 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 atwhich to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputsused in determining fair value and where such inputs lie within the ASC Topic 820 hierarchy.The Company has no assets or liabilities that were measured using quoted prices for significant unobservable inputs (Level 3 assets and liabilities) asof December 31, 2018 and December 31, 2017. The carrying value of cash held in money market funds of approximately $39.6 million as ofDecember 31, 2018 and $26.2 million as of December 31, 2017 is included in cash and cash equivalents and approximates market value based onquoted market price or Level 1 inputs. The carrying value of cash held in certificates of deposit of approximately $7.5 million as of December 31, 2018is included in cash and cash equivalents and approximates market value based on quoted market price or Level 1 inputs. F-10Table of Contents2. Summary of Significant Accounting Policies (continued) The fair value measurements of the Company’s cash equivalents and available-for-sale investment securities are identified in the following tables (inthousands): Fair Value Measurements atReporting Date Using December 31,2018 Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Money market funds $39,591 $39,591 $— $— U.S. government agency securities 124,426 — 124,426 — FDIC certificates of deposit 245 — 245 — Certificates of deposit 8,500 — 8,500 — Commercial paper 41,272 — 41,272 — Corporate bonds/notes 125,640 — 125,640 — $339,674 $39,591 $300,083 $— Fair Value Measurements atReporting Date Using December 31,2017 Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Money market funds $26,181 $26,181 $— $— U.S. government agency securities 125,982 — 125,982 — FDIC certificates of deposit 8,306 — 8,306 — Certificates of deposit 103,500 — 103,500 — Commercial paper 51,353 — 51,353 — Corporate bonds/notes 137,400 — 137,400 — $452,722 $26,181 $426,541 $— Financial InstrumentsThe Company considers the recorded costs of its financial assets and liabilities, which consist of cash equivalents, prepaid expenses, accounts payableand accrued liabilities, to approximate their fair value because of their relatively short maturities at December 31, 2018 and December 31, 2017. AtDecember 31, 2018, the Company has approximately $2.4 million as a prepaid expense related to a regulatory filing fee that is expected to be refundedwithin the next year. Management believes that the risks associated with its financial instruments are minimal as the counterparties are variouscorporations, financial institutions and government agencies of high credit standing.Concentration of Credit RiskCash equivalents are held with major financial institutions in the United States. Certificates of deposit, cash and cash equivalents held with banks mayexceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. F-11Table of Contents2. Summary of Significant Accounting Policies (continued) Accounts ReceivableAccounts receivable that management has the intent and ability to collect are reported in the balance sheets at outstanding amounts, less an allowancefor doubtful accounts. The Company writes off uncollectible receivables when the likelihood of collection is not probable.The Company evaluates the collectability of accounts receivable on a regular basis. The allowance, if any, is based upon various factors including thefinancial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or eventsexpected to affect future collections experience. No allowance was recorded as of December 31, 2018 and 2017, as the Company has a history ofcollecting on all its accounts including government agencies and collaborations funding its research and there were no balances in accounts receivableas of these dates.Property and EquipmentProperty and equipment is stated at cost and depreciated on a straight-line basis over estimated useful lives ranging from three to five years. Leaseholdimprovements 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 onthe criteria established in ASC Topic No. 360, Property, Plant and Equipment. The Company considers historical performance and anticipated futureresults in its evaluation of potential impairment. The Company evaluates the carrying value of those assets in relation to the operating performance ofthe business and undiscounted cash flows expected to result from the use of those assets. Impairment losses are recognized when carrying valueexceeds the undiscounted cash flows, in which case management must determine the fair value of the underlying asset. No such impairment losses havebeen recognized to date.Research and DevelopmentExcept for payments made in advance of services, the Company expenses its research and development costs as incurred. For payments made inadvance, the Company recognizes research and development expense as the services are rendered. Research and development costs primarily consist ofsalaries and related expenses for personnel and resources and the costs of clinical trials. Other research and development expenses include preclinicalanalytical testing, manufacturing of drug product, outside 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 tasksusing data such as subject enrollment, clinical site activations or information provided to the Company by its vendors, among other factors withrespect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from thepattern of costs incurred, and are reflected in the financial statements as prepaid or accrued 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 undercontracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials.The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do notmatch the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate clinicaltrial expenses in its financial statements by matching those expenses with the F-12Table of Contents2. Summary of Significant Accounting Policies (continued) period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the clinicaltrial as measured by subject progression and the timing of various aspects of the trial. The Company determines accrual estimates through financialmodels taking into account various clinical information provided by vendors and discussion with applicable personnel and external service providersas to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinicalexpense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date basedon the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting ofcontract research organizations, clinical sites and other third-party vendors. Although the Company does not expect its estimates to be materiallydifferent from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing ofservices performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the years endedDecember 31, 2018 and 2017, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.Income TaxesIncome taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributableto differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to berecovered or settled.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 thetax payable for the period and the change during the period in deferred tax assets and liabilities. The Company accounts for uncertain tax positionspursuant to ASC Topic 740 (previously included in FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation ofFASB Statement No. 109). 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 thetax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. The Company recognizes interestaccrued related to unrecognized tax benefits and penalties in the provision for income taxes.On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (“TCJA”) that significantly reforms the Internal Revenue Code of1986, as amended (the “Code”). The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations onthe deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migrationfrom a “worldwide” system of taxation to a territorial system. In addition, the TCJA repealed the alternative minimum tax (“AMT”) and provides for arefund of taxes paid between 2018 and 2021. With the passing of the TCJA, the Company will receive a refund in future periods for AMT paid in prioryears. The Company therefore has recognized a benefit of approximately $1.1 million for these taxes for the year ended December 31, 2017.During December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situationswhen a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to completethe accounting for certain income tax effects of the TCJA. The Company has recognized the provisional tax impacts related to the release of thevaluation allowance with respect to AMT credits and the revaluation of deferred tax assets and liabilities F-13Table of Contents2. Summary of Significant Accounting Policies (continued) and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company completed its evaluation ofthe effects of the TCJA during the 4th quarter 2018 and the provisional amounts the Company accounted for in its December 31, 2017 provision werefinalized in 2018 with no adjustments.The Company recorded income tax expense of $1,600, a benefit of $1.1 million, and a tax expense of $1,065,673 for the years ended December 31,2018, 2017, and 2016, respectively. The Company’s effective tax rate for the years ended December 31, 2018 and 2017 was approximately 0% and1.1% respectively. The Company’s annual effective tax rate of approximately 0% is substantially lower than the U.S. statutory rate of 21% due tovaluation allowances recorded on current year losses where the Company is not more likely than not to recognize a future tax benefit.Comprehensive Income (Loss)All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they areincurred. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other eventsand circumstances from non-owner sources. In accordance with accounting guidance, the Company presents the impact of any unrealized gains or(losses) on its investment securities in a separate statement of comprehensive income (loss) for each period.Share-Based CompensationShare-based payments are accounted for in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation. The fair value ofshare-based payments is estimated, on the date of grant, using the Black-Scholes-Merton option-pricing model (the “Black-Scholes Model”). Theresulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option.For all awards granted with time-based vesting conditions, expense is amortized using the straight-line attribution method. Share-based compensationexpense recognized in the statements of operations for the years ended December 31, 2018, 2017 and 2016 is based on share-based awards ultimatelyexpected to vest.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 anaward. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.Expected volatility rates are based on a combination of the historical volatility of the common stock of comparable publicly traded entities and thelimited historical information about the Company’s common stock. The expected life of stock options is the period of time for which the stock optionsare expected to be outstanding. Given the limited historical exercise data, the expected life is determined using the “simplified method,” which definesexpected 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 thegrant. 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 zero. For stock options granted, the exercise price was determined by using theclosing market price of the Company’s common stock on the date of grant. F-14Table of Contents2. Summary of Significant Accounting Policies (continued) 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 fairvalue of each RSU is based on the fair market value of the Company’s common stock on the date of grant. The Company has granted RSUs that vest inthree equal annual installments provided that the employee remains employed with the Company.Beginning in the first quarter of 2016 and in 2017 and 2018, the Company granted time-based RSUs that vest in three equal annual installments. In thefirst quarter of 2017, the Company granted performance-based RSUs, which vest based on the achievement of certain milestones that include (i) thesubmission of a NDA with the FDA, (ii) the approval of the NDA by the FDA (collectively, the “Milestone RSUs”) and (iii) the achievement of certaincomparative shareholder returns against the Company’s peers (the “TSR RSUs”). The Milestone RSUs were valued at the closing price on March 8,2017. The Milestone RSUs related to the NDA submission has been fully amortized through December 31, 2018. The NDA submission milestone wasachieved in the third quarter of 2018, so the Milestone RSUs related to the NDA submission vested on December 31, 2018. The amortization of theexpenses for Milestone RSUs related to the approval of the NDA will commence if and when the NDA submission has been approved through the lastday of the calendar year in which the milestone is achieved. The TSR RSUs were valued using the Monte Carlo Simulation method and will beamortized over the life of the RSU agreements which ends December 31, 2019. The Milestone RSUs and TSR RSUs are target based and the ultimateawards, if attained, could be the target amount or higher or lower than the target amount, depending on the timing or achievement of the goal. Theexpense recognition related to these equity grants is based on the Company’s best estimate.Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in afuture tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740, Income Taxes. Thedeductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently donot impact the Company, as all the deferred tax assets have a full valuation allowance.Since the Company had net operating loss carryforwards as of December 31, 2018, 2017 and 2016, no excess tax benefits for the tax deductions relatedto share-based awards were recognized in the statements of operations. In March 2016, the FASB issued ASU No. 2016-09, Compensation—StockCompensation (“ASU 2016-09”). ASU 2016-09 simplifies several areas of accounting for stock compensation, including simplification of theaccounting for income taxes, classification of excess tax benefits on the Statement of Cash Flows and forfeitures. As of January 1, 2017, the Companyadopted ASU 2016-09 for the quarter ended March 31, 2017. Accordingly, the Company recognized previously unrecognized excess tax benefits of$9.7 million recorded as deferred tax assets with a corresponding offsetting full valuation allowance at the beginning of 2017, which yielded no taximpact.Equity instruments issued to non-employees for services are accounted for under the provisions of ASC Topic 718 and ASC Topic 505-50,Equity/Equity-Based Payments to Non-Employees. Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of theperformance commitment date or the date the required services are completed and are marked to market during the service period.In June 2018, the Company’s stockholders approved the Company’s 2018 Equity Incentive Plan pursuant to which 4,750,000 additional shares ofcommon stock were reserved for future equity grants.Loss Per ShareBasic net loss per common share is determined by dividing the net loss by the weighted-average number of common shares outstanding during theperiod, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-averagenumber of common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’sstock option grants and RSUs. F-15Table of Contents2. Summary of Significant Accounting Policies (continued) The following common stock equivalents were excluded in the calculation of diluted loss per share because their effect would be anti-dilutive asapplied to the net loss for the years ended December 31, 2018, 2017 and 2016: Year Ended December 31, 2018 2017 2016 Common Stock Equivalents 610,429 476,252 1,225,614 RSUs 386,678 87,988 32,781 TSR RSUs 48,500 65,852 — Recently Issued Accounting StandardsIn May 2014, the FASB issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which has been subsequently updated(as updated, “ASC Topic 606”). The purpose of ASC Topic 606 is to provide enhancements to the quality and consistency of how revenue is reportedwhile also improving comparability in the financial statements of companies using U.S. GAAP and International Financial Reporting Standards. Thecore principle requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect theconsideration to which an entity expects to be entitled in exchange for those goods or services. ASC Topic 606 became effective for annual periodsbeginning after December 15, 2017.The Company adopted this standard using the “modified retrospective method” which did not result in an impact to its financial statements as theCompany has not had product sales to date. Upon commercializing a product or executing any revenue generating contracts, the Company willprovide additional disclosures in the notes to the consolidated financial statements related to the relevant aspects of any revenue generating contractsthat the Company has or into which the Company expects to enter.In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”).ASU 2016-01 eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to bedisclosed for financial instruments measured at amortized cost on the balance sheet. The standard also clarifies the need to evaluate a valuationallowance on a deferred tax asset related to available-for-sale securities in combination with the Company’s other deferred tax assets. ASU 2016-01 iseffective for annual reporting periods beginning after December 15, 2017. The adoption of this standard on January 1, 2018 did not have a materialimpact on the Company’s consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires the recognition of lease assets and leaseliabilities by lessees for those leases classified as operating leases under previous GAAP. The classification criteria for distinguishing between financeleases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in theprevious leases guidance. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted.The Company elected not to early adopt the standard, and therefore, will adopt the standard on January 1, 2019. We will elect the package of practicalexpedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical leaseclassification. We are not electing the hindsight practical expedient. We will make an accounting policy election to keep leases with an initial term of12 months or less off of the balance sheet. We will recognize those lease payments in the consolidated statements of operations on a straight-line basisover the lease term.We estimate adoption of the standard will result in recognition of additional net lease assets and lease liabilities of approximately $18 million and$21 million, respectively, as of January 1, 2019. The difference between these amounts represents the net deferred rent as of January 1, 2019 with noimpact on the accumulated deficit. We do not believe the new standard will have a notable impact on our liquidity. F-16Table of Contents2. Summary of Significant Accounting Policies (continued) In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220)—Reclassification of CertainTax Effects from Accumulated Other Comprehensive Income, to address a specific consequence of the TCJA by allowing a reclassification fromaccumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA’s reduction of the U.S. federal corporateincome tax rate. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, with early adoption permitted, and is to beapplied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax ratein the TCJA is recognized. The Company does not have any stranded tax effects to which this ASU would apply. Therefore, there is no impact to theCompany’s consolidated financial statements.In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718)—Improvements to Nonemployee Share-BasedPayment Accounting (“ASU 2018-07”). The standard allows for the entity to only remeasure equity-classified awards for which a measurement date hasnot been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. After adoption, thenonemployee share-based payment awards would be treated similar to employee share-based payment awards going forward. The ASU is effective forall entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is currently analyzingthe impact of ASU 2018-07. As the Company’s nonemployee share-based awards are not significant, the Company does not expect the adoption willhave a material impact on the consolidated accumulated deficit.3. Property and EquipmentProperty and equipment consist of the following: December 31, 2018 2017 Computer equipment $44,427 $33,584 Furniture and fixtures 341,582 301,509 Scientific equipment 3,658,209 3,494,866 Leasehold improvements 149,470 — 4,193,688 3,829,959 Less accumulated depreciation (3,033,922) (2,692,788) $1,159,766 $1,137,171 Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $368,673, $213,872 and $196,872, respectively.4. Share-Based CompensationOn June 18, 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the granting ofstock-based awards, such as stock options, restricted common stock, RSUs and stock appreciation rights to employees, directors and consultants asdetermined by the Board of Directors. The 2018 Plan replaced the Company’s Amended and Restated 2013 Equity Incentive Plan (the “2013 Plan”).The Company will grant no further stock options or other awards under the 2013 Plan. Any options or other awards outstanding under the 2013 Planremain outstanding in accordance with their terms and the terms of the 2013 Plan. As of December 31, 2018, the total number of shares reserved underall equity plans is 10,287,390 and the Company had 4,807,323 shares available for future issuance under the 2018 Plan. Stock options granted underthe Plan may be either incentive stock options (“ISOs”) as defined by the Code, or non-qualified stock options. The Board of Directors determines whowill receive options, the vesting periods (which are generally one to three years) and the exercise prices of such options. Options have a maximum termof 10 years. The F-17Table of Contents4. Share-Based Compensation (continued) exercise price of ISOs granted under the Plan must be at least equal to the fair market value of the common stock on the date of grant.Total stock-based compensation expense related to all of the Company’s share-based awards, including stock options and RSUs granted to employees,directors and consultants recognized during the years ended December 31, 2018, 2017 and 2016, was comprised of the following: Years Ended December 31, 2018 2017 2016 Research and development $7,380,814 $5,082,823 $4,472,658 General and administrative 10,015,332 9,558,697 10,228,561 Total share-based compensation expense $17,396,146 $14,641,520 $14,701,219 The following table describes the assumptions used for calculating the value of options granted during the years ended December 31, 2018, 2017 and2016: 2018 2017 2016 Dividend yield 0% 0% 0% Expected volatility 85.2%-85.8% 87.4%-90.4% 80.0%-90.0% Weighted-average risk-free interest rate 2.48% 2.1% 1.7% Expected term (in years) 6.0 6.0 5.9 Information regarding the stock options activity, including with respect to grants to employees, directors and consultants as of December 31, 2018, andchanges during the period then ended, are summarized as follows: Number ofShares Weighted-AverageExercisePrice AggregateIntrinsicValue Weighted-AverageContractualLife Outstanding at December 31, 2017 3,755,736 $18.75 $7,450,293 7.04 years Options granted 1,175,187 $15.22 9.37 years Options exercised (143,056) $4.71 1.55 years Options canceled or expired (39,476) $23.25 8.33 years Outstanding at December 31, 2018 4,748,391 $18.26 $4,074,116 6.98 years Vested or expected to vest at December 31, 2018 4,748,391 $18.26 Exercisable at December 31, 2018 2,936,552 $18.70 $4,074,116 5.89 years The weighted-average grant date fair value for awards granted during the years ended December 31, 2018, 2017 and 2016 was $15.22, $15.08 and$48.85 per share, respectively. Total intrinsic value of the options exercised during the years ended December 31, 2018, 2017 and 2016 wasapproximately $1,683,679, $1,609,268 and $2,984,283, respectively. The total fair value of shares vested in the years ended December 31, 2018, 2017and 2016 was approximately $11,348,595, $7,212,195 and $9,310,898, respectively.During 2018, 2017 and 2016, the Company granted options to certain scientific advisory board members of the Company to purchase 12,000, 0 and5,000 shares of common stock, respectively, at an average exercise price per share of $15.47, $0 and $53.63, respectively. The options vest ratably overa period of 2 years. Stock compensation related to these grants will fluctuate with any changes in the underlying value of the Company’s commonstock. F-18Table of Contents4. Share-Based Compensation (continued) As of December 31, 2018 and 2017, there were $6,493,399 and $2,866,164, respectively, of unrecognized compensation costs related to unvested timebased RSUs which will be recognized over a weighted-average period 1.9 years. The unrecognized share-based compensation expense related to stockoption awards at December 31, 2018 is $13,669,451 and will be recognized over a weighted-average period of 2.0 years.The fair value of an RSU is based on the closing price of the Company’s common stock on the date of grant. Information regarding RSU activity,including with respect to grants to employees as of December 31, 2018, and changes during the year then ended, is summarized as follows: Number ofShares Weighted-AverageGrant DateFair Value Outstanding at December 31, 2017 190,933 $25.48 RSU’s granted 544,542 $17.02 RSU’s vested (72,663) $29.03 RSU’s cancelled (15,401) $17.13 Outstanding at December 31, 2018 647,411 $18.16 The Company recognized non-cash stock-based compensation expense related to RSU’s for the years ended December 31, 2018, 2017 and 2016 ofapproximately $4.8 million, $2.1 million and $1.5 million, respectively.Information related to the Company’s Milestone RSUs and the TSR RSUs during the year ended December 31, 2018 are summarized as follows: Number ofShares Weighted-AverageGrant DateFair ValuePer Share Outstanding at December 31, 2017 347,199 $15.35 RSU’s granted — $— RSU’s vested (68,607) $15.35 RSU’s cancelled — $— Outstanding at December 31, 2018 278,592 $15.35 The weighted average estimated fair value per share of the TSR RSUs granted in March 31, 2017 was $17.08, which was derived from a Monte Carlosimulation. Significant assumptions utilized in estimating the value of the awards granted include an expected dividend yield of 0%, a risk free rate of1.6%, and expected volatility of 95.4%. The TSR RSUs granted in 2017 will entitle the grantee to receive a number of shares of the Company’scommon stock determined over a three-year performance period ending and vesting on December 31, 2019, provided the grantee remains in the serviceof the Company on the settlement date. The Company expenses the cost of these awards ratably over the requisite service period. The number of sharesfor which the TSR RSUs will be settled will be a percentage of shares for which the award is targeted and will depend on the Company’s totalshareholder return (as defined below), expressed as a percentile ranking of the Company’s total shareholder return as compared to the Company’s peergroup (as defined below). The number of shares for which the TSR RSUs will be settled vary depending on the level of achievement of the goal. Totalshareholder return is 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 reinvestmentof any dividends declared during the performance period. The Company’s peer group includes 223 companies at December 31, 2018 which comprisethe Nasdaq F-19Table of Contents4. Share-Based Compensation (continued) Biotechnology Index, which was selected by the Compensation Committee of the Company’s Board of Directors and includes a range ofbiotechnology companies operating in several business segments.As of December 31, 2018 and 2017 there were $2,795,202 and $4,177,362 respectively of unrecognized compensation costs related to unvestedMilestone RSU grants and TSR RSU grants which will be recognized over a weighted average period of 1.0 years.5. Line of CreditOn September 30, 2016, the Company entered into a secured line of credit with a lender for an amount not to exceed $150.8 million. This line of creditwas secured by approximately $150.8 million of collateral held by the lender. The interest on advances under this line of credit was fixed at LIBORplus 2.991% on the date of advance. The Company borrowed $125.0 million on September 30, 2016 and repaid the entire amount on October 3, 2016.Interest expense under this secured line of credit was $36,781 for the year ended December 31, 2016. On October 6, 2016, the line of credit wasterminated by the Company.6. Income TaxesOn December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (“TCJA”) that significantly reforms the Internal Revenue Code of1986, as amended (the “Code”). The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations onthe deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migrationfrom a “worldwide” system of taxation to a territorial system. In addition, the TCJA repealed the alternative minimum tax (“AMT”) and provides for arefund of taxes paid between 2018 and 2021. With the passing of the TCJA, the Company will receive a refund in future periods for AMT paid in prioryears. The Company therefore has recognized a benefit of approximately $1.1 million for these taxes 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 theforeign subsidiary’s tangible assets. As of year ended December 31, 2018, the Company’s foreign operations do not generate income and the Companyis not currently subject to the GILTI provisions. The Company has not made an accounting policy election for GILTI and will analyze and formulate itsGILTI accounting policy in the period which the Company becomes subject to the GILTI provisions.The BEAT provisions eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax ifgreater than regular tax. The Company has not made any qualifying payments and the BEAT tax is not applicable in 2018. Therefore, the Company hasnot included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2018.During December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situationswhen a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to completethe accounting for certain income tax effects of the TCJA. The Company has recognized the provisional tax impacts related to the release of thevaluation allowance with respect to AMT credits and the revaluation of deferred tax assets and liabilities and included these amounts in itsconsolidated financial statements for the year ended December 31, 2017. The Company completed its evaluation of the effects of the TCJA during the4th quarter 2018 and the provisional amounts the Company accounted for in its December 31, 2017 provision were finalized in 2018 with noadjustments. F-20Table of Contents6. Income Taxes (continued) Income (loss) before income taxes is as follows: 2018 2017 2016 U.S. $(30,299,751) $(20,486,935) $(86,965,860) Non-U.S. (124,826,060) (78,347,330) (28,394,735) Total loss before taxes $(155,125,811) $(98,834,265) $(115,360,595) Total income tax (benefit) expense for the years ended December 31, 2018, 2017 and 2016 is allocated as follows: 2018 2017 2016 Current $1,600 $(2,416) $1,065,673 Deferred (5,054,468) 13,713,987 19,605,520 Valuation allowance 5,054,468 (14,772,422) (19,605,520) Provision (benefit) for income taxes $1,600 $(1,060,851) $1,065,673 A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate for the years ended December 31,2018, 2017 and 2016 is as follows: December 31, 2018 2017 2016 Income tax benefit at statutory federal rate 21.00% 35.00% 35.00% Royalty Income 0.00 0.00 (37.93) Other Permanent differences (0.58) (0.43) (0.78) Foreign rate differential (16.90) (27.75) (8.61) 2017 US Tax Reform impact 0.00 (21.89) 0.00 R&D Credit 0.00 (0.05) 2.08 Change in effective state tax rates (0.38) 0.84 (6.98) State income tax expense 0.12 0.40 (0.70) Change in valuation allowance (3.26) 14.95 16.99 Benefit (provision) for income taxes 0.00% 1.07% (0.93)% Deferred income taxes reflect the net tax effect of temporary differences that exist between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for income tax purposes, using enacted tax rates in effect for the year in which the differences are expected toreverse. As of December 31, 2018, the Company had $145.3 million of federal net operating loss carryforwards, which expire at various dates through2037. The gross amount of the state net operating loss carryforwards is equal to or less than the federal net operating loss carryforwards and expiresover various periods based on individual state tax law. In general, businesses with U.S. net operating losses (“NOLs”) are considered loss corporationsfor U.S. federal income tax purposes. Pursuant to Section 382 of the Code, loss corporations that undergo an ownership change, as defined under theCode, may be subject to an annual limitation on the amount of NOLs (and certain other tax attributes) available to offset taxable income earned aftersuch ownership change. For the years ended December 31, 2018, 2017 and 2015, the Company performed a Section 382 ownership analysis anddetermined that an ownership change occurred (within the meaning of Section 382 of the Code) in 2015 but not in subsequent periods. Based on theanalysis performed, however, the Company does not believe that the Section 382 annual limitation will impact the Company’s ability to utilize the taxattributes that existed as of the date of the ownership change in a material manner. If the Company experiences an ownership change in the future, thetax benefits related to the NOLs and tax credit carryforwards may be further limited or lost. F-21Table of Contents6. Income Taxes (continued) In September 2016, the Company licensed certain intellectual property rights to its wholly-owned subsidiary, ITI Limited, which was formed in thethird quarter of 2016. The costs to develop, test, manufacture and perform other activities related to the lumateperone (also known as ITI-007) programwill be the responsibility of ITI Limited and will be incurred outside of the United States. Therefore, the majority of expected losses incurred by theCompany during the next several years will not result in additional NOLs to be carried forward and used against future net income in the U.S. Thefollowing summarizes the significant components of the Company’s deferred tax assets and liabilities as of December 31, 2018 and 2017, respectively: December 31, 2018 2017 Deferred tax assets: Net operating loss carryforwards $43,872,566 $40,746,589 Accrued employee benefits 441,780 378,058 Research and development credit 9,321,214 9,321,214 Stock compensation 10,530,859 8,711,721 Federal AMT credit 529,218 1,058,435 Deferred rent 712,314 699,560 Unrealized comprehensive loss 146,531 187,714 Depreciation 1,082 — Deferred tax liabilities: Depreciation — (31,796) Net deferred tax asset 65,555,564 61,071,495 Valuation allowance (65,026,346) (60,013,060) Net deferred tax asset $529,218 $1,058,435 Based upon the Company’s historical operating performance and the reported cumulative net losses to date, the Company presently does not havesufficient objective evidence to support the recovery of its net deferred tax assets. Accordingly, the Company has established a full valuationallowance against its net deferred tax assets, excluding the refundable alternative minimum tax credit in 2017 and 2018, for financial reportingpurposes because it is not more likely than not that these deferred tax assets will be realized. In 2018, the Company reclassified $529,218 (50%)Federal AMT to Other Current Assets.The total amount of unrecognized tax benefits was $1.7 million as of December 31, 2018 and December 31, 2017. If recognized none of these taxbenefits 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, 2018 and 2017, respectively: December 31, 2018 2017 Balance at January 1, $1,738,815 $1,738,815 Current Year Uncertain Tax Positions: Gross Increases — — Balance at December 31, $1,738,815 $1,738,815 F-22Table of Contents7. Collaborations and License AgreementsThe Bristol-Myers Squibb License AgreementOn May 31, 2005, the Company entered into a worldwide, exclusive License Agreement with Bristol-Myers Squibb Company (“BMS”), pursuant towhich the Company holds a license to certain patents and know-how of BMS relating to lumateperone and other specified compounds. The agreementwas 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 otherspecified compounds in any field of use. The Company has the right to grant sublicenses of the rights conveyed by BMS. The Company is obligedunder the agreement to use commercially reasonable efforts to develop and commercialize the licensed technology. The Company is also prohibitedfrom engaging in the clinical development or commercialization of specified competitive compounds.Under the agreement, the Company made an upfront payment of $1.0 million to BMS, a milestone payment of $1.25 million in December 2013, and amilestone payment of $1.5 million in December 2014 following the initiation of the Company’s first Phase 3 clinical trial for lumateperone for patientswith exacerbated schizophrenia. Upon FDA acceptance of an NDA filing for lumateperone, the Company was obligated to pay BMS a $2.0 millionmilestone payment. The Company achieved the acceptance in the third quarter of 2018 and has therefore accrued the $2.0 million which was paid inJanuary 2019. Possible milestone payments remaining total $10.0 million, including a $5.0 million milestone payable upon an NDA approval. Underthe agreement, the Company may be obliged to make other milestone payments to BMS for each licensed product of up to an aggregate ofapproximately $14.75 million. The Company is also obliged to make tiered single digit percentage royalty payments ranging between 5 – 9% on salesof licensed products. The Company is 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 country-by-country and product-by-product basis, through the later of ten years after firstcommercial sale of a licensed product in such country, expiration of the last licensed patent covering a licensed product, its method of manufacture oruse, or the expiration of other government grants providing market exclusivity, subject to certain rights of the parties to terminate the agreement on theoccurrence of certain events. On termination of the agreement, the Company may be obliged to convey to BMS rights in developments relating to alicensed 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 connectionwith the transfer, the Company guaranteed ITI Limited’s performance of its obligations under the BMS Agreement.8. Commitments and ContingenciesThe Company currently has an operating lease agreement with a commitment for $33,406,432 for laboratory and office facilities through 2029.At December 31, 2018, future minimum lease payments under leases having an initial or remaining non-cancellable lease term in excess of one year areset forth in the table below: Year 2019 $2,522,918 2020 2,946,086 2021 3,034,469 2022 3,125,503 2023 3,219,268 Thereafter 18,558,188 $33,406,432 F-23Table of Contents8. Commitments and Contingencies (continued) Rent expense for the years ended December 31, 2018, 2017 and 2016 was $1,847,392, $1,427,716 and $1,419,940, respectively.9. Employee Benefit PlanThe Company sponsors a defined contribution 401(k) plan covering all full-time employees. Participants may elect to contribute their annual pre-taxearnings up to the federally allowed maximum limits. The Company made a matching contribution of 100% on the first 6% of contributions made byparticipants in the year ended December 31, 2018 and 2017 and a matching contribution of 50% on the first 6% of contributions in the year ended2016. Participant and Company contributions vest immediately. During the years ended December 31, 2018, 2017 and 2016, the Company recordedmatching contribution expense of $429,318, $378,233 and $157,244, respectively.10. Related PartiesIn the first quarter of 2015, the Company moved its headquarters to 430 East 29th Street, New York, New York 10016. The Company has entered into along-term lease with a related party for approximately 16,753 square feet of useable laboratory and office space. On September 28, 2018, we signed alease with the same related party to acquire an additional 15,534 square feet of additional office space in our current headquarters facility. Theamended lease has a term of 14.2 years. The amendment includes provisions for yearly rent escalation, a limited rent abatement for the additionalspace, and an amount provided for leasehold improvements. A member of 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.11. Unaudited Quarterly Financial InformationThe tables herein set forth the Company’s unaudited condensed consolidated 2018 and 2017 quarterly statements of operations.The following table sets for the Company’s unaudited condensed consolidated statements of operations for the 2018 quarters ended: 2018 Quarter Ended December 31, September 30, June 30, March 31, Net loss (40,748,036) (41,522,914) (37,376,383) (35,480,078) Basic and diluted net loss per share $(0.75) $(0.76) $(0.68) $(0.65) The following table sets for the Company’s unaudited condensed consolidated statements of operations for the 2017 quarters ended: 2017 Quarter Ended December 31, September 30, June 30, March 31, Revenue $5,055 $30,754 $114,741 $95,287 Net loss (30,208,712) (22,870,416) (17,760,704) (26,933,582) Basic and diluted net loss per share $(0.56) $(0.53) $(0.41) $(0.62) F-24Exhibit 10.9EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT (the “Agreement”), is effective this 15th day of October, 2018 (the “Effective Date”) between Mr. MarkNeumann (“Executive”) and Intra-Cellular Therapies, Inc. (the “Company”).1. Title; Capacity. Subject to terms set forth herein, the Company agrees to employ Executive in the position of Executive Vice President, ChiefCommercial Officer. Executive shall serve in an executive capacity and shall perform such duties as are assigned to Executive from time to time,consistent with the Bylaws of the Company and as required by the Company’s Board of Directors (the “Board”). During the term of his employmentwith the Company, Executive will devote his best efforts and substantially all of his business time and attention to the business of the Company.Notwithstanding the foregoing, or any other provision of this Agreement, it shall not be a breach or violation of this Agreement for the Executive to(i) serve on civic or charitable boards or committees, (ii) with the express written permission of the Company serve on corporate boards of companiesthat do not present a conflict of interest or compete directly or indirectly with the Company, (iii) deliver lectures, fulfill speaking engagements or teachat educational institutions, or (iv) manage personal investments, so long as such activities do not significantly interfere with or significantly detractfrom the performance of the Executive’s responsibilities to the Company in accordance with this Agreement. The Board has approved the Executive’sparticipation in the activities listed on Schedule A to this Agreement.2. Term. The term of this Agreement shall commence on the Effective Date, and shall continue for three (3) years from that date, unlessterminated prior thereto by either the Company or the Executive as provided in Section 4. If either the Company or the Executive does not wish torenew this Agreement when it expires at the end of the initial or any renewal term hereof, as hereinafter provided, or if either the Company or theExecutive wishes to renew this Agreement on different terms than those contained herein, it or he shall give written notice in accordance withSection 13 below of such intent to the other party at least sixty (60) days prior to the expiration date. In the absence of such notice, this Agreementshall be renewed on the same terms and conditions contained herein for a term of one year from the date of expiration. The parties expressly agree thatdesignation of a term and renewal provisions in this Agreement does not in any way limit the right of the parties to terminate this Agreement at anytime as hereinafter provided. Reference herein to the term of this Agreement shall refer both to the initial term and any successive term as the contextrequires. Should the Company elect not to renew this Agreement for reasons other than death or Disability (as defined in Section 4.3 below), or Cause(as defined in Section 4.1 below), the Executive shall be eligible for the same severance payments and benefits as Executive would receive underSection 5.2 and on the same conditions as if Executive had been terminated by the Company without Cause, provided that Executive executes aRelease of claims in favor of the Company as defined in Section 5.2(a). Provided however, Executive shall not receive any such severance paymentsand benefits unless he executes the Release within the consideration period specified therein and until the Release becomes effective and can nolonger be revoked by Executive under its terms. Executive’s ability to receive such payment and benefits is further conditioned upon his: returning allCompany property; complying with his post termination obligations under this Agreement and 1the Proprietary Information, Inventions, and Non-Competition Agreement between the Executive and the Company; and complying with the Releaseincluding without limitation any non-disparagement and confidentiality provisions contained therein. Executive shall not be eligible for anyseverance payments and benefits if either the Executive or the Company wishes to renew this Agreement on different terms than those containedherein.3. Compensation and Benefits.3.1 Salary. Executive will receive for Executive’s services to be rendered under this Agreement an initial annualized base salary at therate of $500,000 per year, subject to annual review and adjustment by the Company in the discretion of the Board, payable subject to standard federaland state payroll withholding requirements in accordance with the Company’s standard payroll practices (“Base Salary”).3.2 Incentive Compensation. In addition to Executive’s Base Salary, the Executive shall be eligible during the term of this Agreement forsuch bonus payments and/or equity grants as awarded to the Executive by the Board.3.3 Policies and Fringe Benefits. The employment relationship between the parties shall also be subject to the Company’s personnelpolicies and procedures as they may be interpreted, adopted, revised or deleted from time to time in the Company’s sole discretion. The Executive willbe eligible to participate on the same basis as other executive level employees in the Company’s benefit plans in effect from time to time during hisemployment. All matters of eligibility for coverage or benefits under any benefit plan shall be determined in accordance with the provisions of suchplan. The Company reserves the right to change, alter, or terminate any benefit plan in its sole discretion. While this Agreement is in effect, theCompany will provide the Executive with life insurance, for which the Executive may designate the beneficiary or beneficiaries in an amount of$150,000, and long-term disability insurance.3.4 Reimbursement of Certain Expenses. The Company will reimburse Executive for reasonable business expenses in accordance with theCompany’s expense reimbursement policies.4. Termination of Employment. Either Executive or the Company may terminate the employment relationship at any time, for any reason, inaccordance with this Section 4.4.1 Termination for Cause. At the election of the Company, the employment relationship may be terminated for Cause upon writtennotice by the Company to Executive specifying the provision or provisions of this Section 4.1 upon which the decision to terminate is based. For thepurposes of this Section 4.1, “Cause” for termination shall be deemed to exist upon the occurrence of any of the following:(a) a good faith finding by the Company that Executive has engaged in gross negligence or gross misconduct that is materially injuriousto the Company;(b) Executive’s conviction of a felony or crime involving fraud or embezzlement of Company property; 2(c) Executive’s material breach of this Agreement which, if curable, has not been cured by Executive within 60 days after he shall havereceived written notice from the Company stating with reasonable specificity the nature of such breach;(d) material breach of fiduciary duty; or(e) refusal to follow or implement a clear and reasonable directive of the Board as a whole, or an officer of the Company, provided thatsuch directive is ethical and legal and which, if curable, has not been cured by Executive within 60 days after he shall have received written noticefrom the Company stating with reasonable specificity the nature of such refusal.4.2 Termination by the Company Without Cause or by the Executive for Good Reason. At the election of the Company it may terminateExecutive’s employment for reasons other than Cause, death or Disability, at any time upon written notice by the Company to Executive. TheExecutive may resign from Executive’s employment for “Good Reason” within sixty (60) days after the occurrence of one of the events specifiedbelow, by giving prior written notice, provided that Executive has not consented in writing to one of the specified events or been notified previouslyof the Company’s intention to terminate Executive’s employment. As used in this Agreement Good Reason shall mean:(a) The assignment to Executive of any duties or responsibilities which result in the material diminution of Executive’s position;(b) a 5% or greater reduction by the Company in Executive’s annual Base Salary;(c) a material change in the geographic location at which the Executive is required to perform services; or(d) material breach by the Company of any material provision of this Agreement; provided however, that any actions taken by theCompany to accommodate a disability of the Executive or pursuant to the Family and Medical Leave Act shall not be a Good Reason for purposes ofthis Agreement. Notwithstanding the occurrence of any of the events enumerated in Section 4.2 (a) through (d), such occurrence shall not be deemed toconstitute Good Reason if, within 30 days after the giving by Executive of notice of the occurrence or existence of an event or circumstance specifiedabove, such event or circumstance has been fully corrected (provided that such right of correction by the Company shall only apply to the first suchnotice given by Executive). In the absence of such correction, Executive’s resignation shall be effective thirty (30) days following the Executive’snotice.4.3 Death or Disability. The Executive’s employment will terminate upon the death or determination of disability of Executive. As usedin this Agreement, the determination of “disability” shall occur when the Executive is unable due to a physical or mental condition to perform theessential functions of his position with or without reasonable accommodation for 90 consecutive days, or 180 days in the aggregate whether or notconsecutive, during any 360-day period, or based on the written certification by a licensed physician of the likely continuation of such condition forsuch period. A determination of disability shall be made by a physician satisfactory to both Executive and the Company, provided that if Executiveand the Company do 3not agree on a physician, Executive and the Company shall each select a physician and these two together shall select a third physician, whosedetermination as to disability shall be binding on all parties. This definition shall be interpreted and applied consistent with the Americans withDisabilities Act, the Family and Medical Leave Act, and other applicable law.4.4 Termination by Executive without Good Reason. At the election of Executive, he may terminate employment upon not less than 30days prior written notice by Executive to the Company.5. Effect of Termination.5.1 General; Termination for Cause or by the Executive Without Good Reason. In the event that Executive’s employment is terminatedfor any reason, the Company shall pay to Executive the compensation and benefits, including payment for accrued but untaken vacation days, payableto Executive through the last day of Executive’s actual employment by the Company. If the termination is by the Company for Cause pursuant toSection 4.1 or at the election of Executive pursuant to Section 4.4, the Company shall have no further obligations under this Agreement.5.2 Termination by the Company Without Cause or by the Executive for Good Reason.(a) Employee shall not receive any of the benefits pursuant to this Section 5.2 unless he executes a general release in favor of theCompany, in a form acceptable to the Company and substantially similar to the form attached hereto as Schedule B (the “Release”) within theconsideration period specified therein (the “Release Review Period”) and until the Release becomes effective and can no longer be revoked byEmployee under its terms. Employee’s ability to receive benefits pursuant to this Section 5.2 is further conditioned upon his: returning all Companyproperty; complying with his post termination obligations under this Agreement and the Proprietary Information, Inventions and Non-CompetitionAgreement; and complying with the Release including without limitation any non-disparagement and confidentiality provisions contained therein.(b) In the event that Executive’s employment is terminated pursuant to Section 4.2 by the Company without Cause or by the Executivefor Good Reason, the Company shall pay to Executive as severance twelve months of his annual Base Salary then in effect, together with an additionalamount calculated by dividing by 365 the number of days employed in the year of termination and multiplying that number by the amount of theExecutive’s previous year’s bonus (if any), such amount to be paid in one lump sum on the date the Release becomes effective, subject to standardpayroll deductions and withholdings, provided, however, that if the Release Review Period begins in one tax year and ends in a later tax year, thepayments under this Section 5.2(b) will be made following the date that the Release is effective that occurs in the later tax year . Additionally, ifExecutive timely elects and remains eligible for continued coverage under COBRA, the Company, as part of this Agreement, will pay that portion ofExecutive’s COBRA premiums it was paying prior to the Separation Date for twelve (12) months. 4(c) In the event Executive’s employment is terminated pursuant to Section 4.2, and not for Cause, death or Disability, all unvested equityawards shall become fully vested, all unvested stock options shall become fully vested and exercisable and any ISO’s issued to Executive willautomatically convert to a non-qualified options on the 91st day following termination, provided it has not been exercised, subject to the terms of theapplicable stock plan and option agreement.(d) Termination for Death or Disability. In the event that Executive’s employment is terminated by death or because of Disabilitypursuant to Section 4.3, in addition to the payment of accrued salary and unused vacation provided in Section 5.1, the Company shall pay toExecutive’s estate or to Executive, as the case may be, compensation which would otherwise be payable to Executive through the end of the month inwhich such termination occurs, and payment for any accrued but untaken vacation days.5.3 Code Sections 409A and 280G.(a) In the event that the payments or benefits set forth in Section 5.2 of this Agreement constitute “non-qualified deferred compensation”subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), then the following conditions apply to such payments orbenefits:(i) Any termination of Executive’s employment triggering payment of benefits under Section 5 must constitute a “separation fromservice” under Section 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h) before distribution of such benefits can commence. Tothe extent that the termination of Executive’s employment does not constitute a separation of service under Section 409A(a)(2)(A)(i) of theCode and Treas. Reg. §1.409A-1(h) (as the result of further services that are reasonably anticipated to be provided by Executive toCompany at the time Executive’s employment terminates), any such payments under Section 5 that constitute deferred compensationunder Section 409A of the Code shall be delayed until after the date of a subsequent event constituting a separation of service underSection 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h). For purposes of clarification, this Section 5.3(a) shall not cause anyforfeiture of benefits on Executive’s part, but shall only act as a delay until such time as a “separation from service” occurs.(ii) Notwithstanding any other provision with respect to the timing of payments under Section 5.2 if, at the time of Executive’stermination, Executive is deemed to be a “specified employee” of Company (within the meaning of Section 409A(a)(2)(B)(i) of the Code),then limited only to the extent necessary to comply with the requirements of Section 409A of the Code, any payments to which Executivemay become entitled under Section 5 which are subject to Section 409A of the Code (and not otherwise exempt from its application) shallbe withheld until the first (1st) business day of the seventh (7th) month following the termination of Executive’s employment, at which timeExecutive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to Executive under the termsof Section 5. 5(b) It is intended that each installment of the payments and benefits provided under Section 5 of this Agreement shall be treated as aseparate “payment” for purposes of Section 409A of the Code. Neither Company nor Executive shall have the right to accelerate or defer the deliveryof any such payments or benefits except to the extent specifically permitted or required by Section 409A of the Code.(c) Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted and at all timesadministered in a manner that avoids the inclusion of compensation in income under Section 409A of the Code, or the payment of increased taxes,excise taxes or other penalties under Section 409A of the Code. The parties intend this Agreement to be in compliance with Section 409A of the Code.Executive acknowledges and agrees that Company does not guarantee the tax treatment or tax consequences associated with any payment or benefitarising under this Agreement, including but not limited to consequences related to Section 409A of the Code.(d) If any payment or benefit Executive would receive under Section 5.4 of this Agreement, when combined with any other payment orbenefit Executive receives pursuant to a Change of Control (for purposes of this section, a “Payment”) would: (i) constitute a “parachute payment”within the meaning of Section 280G the Code; and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the“Excise Tax”), then such Payment shall be either: (A) the full amount of such Payment; or (B) such lesser amount (with cash payments being reducedbefore equity compensation) as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, takinginto account the applicable federal, state and local employments taxes, income taxes, and the Excise Tax, results in Executive’s receipt, on an after-taxbasis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.5.4 Effect of a Change in Control.(a) In the event either (i) Executive’s employment with the Company is terminated by the Company for reasons other than death orDisability (as defined above) within three months before or 12 months following a Change in Control (as defined below) or (ii) Executive terminateshis employment for Good Reason (as defined above) within three months before or 12 months following a Change in Control (as defined below), thenprovided that Executive executes the Release (as defined in Section 5.2) within the consideration period specified therein and it becomes effective andcan no longer be revoked by Executive under its terms, and provided further that Executive returns all Company property’ complies with his posttermination obligations under this Agreement and the Proprietary Information, Inventions and Non-Competition Agreement, and complies with theRelease including without limitation any non-disparagement and confidentiality provisions contained therein, Executive shall be entitled to thepayments, equity acceleration and benefits described in this Section 5.4 in lieu of, and not in addition to, the benefits provided for in Section 5.2. TheCompany shall pay to the Executive, in lieu of the severance described in Section 5.2(a), severance equivalent to 18 months of his annual Base Salarythen in effect, together with an additional amount calculated by dividing by 365 the number of days employed in the year of termination andmultiplying that number by the amount of the Executive’s previous year’s bonus (if any), paid in a lump sum on the eighth day following the date theRelease becomes effective, subject to standard payroll deductions and 6withholdings, provided, however, that if the Release Review Period begins in one tax year and ends in a later tax year, the payments under thisSection 5.4(a) will be made following the date that the Release is effective that occurs in the later tax year. On the date of termination of Executive’semployment, any unvested equity awards granted to the Executive shall immediately vest and, in the case of stock options, become exercisable.Additionally, if Executive timely elects and remains eligible for continued coverage under COBRA, the Company, as part of this Agreement, will paythat portion of Executive’s COBRA premiums it was paying prior to the Separation Date for eighteen (18) months.(b) Definition of Change in Control. For purposes of this Agreement, a “Change in Control” means the occurrence of any of the followingevents:(i) a sale, lease or other disposition of all or substantially all of the assets of the Company;(ii) a consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporatereorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own lessthan fifty percent (50%) of the outstanding voting power of the surviving entity (and its parent) following the consolidation, merger orreorganization; or(iii) any transaction (or series of related transactions involving a person or entity, or a group of affiliated persons or entities) inwhich in excess of fifty percent (50%) of the Company’s outstanding voting power is transferred.Notwithstanding the above, a Change in Control shall not be deemed to occur on account of the sale or acquisition of the Company’s capital stock byinstitutional investors or venture capital firms for the primary purpose of obtaining financing for the Company.6. No Mitigation. Executive shall have no obligation to mitigate any amount of any payment or benefit contemplated by this agreement.7. Cooperation. For one month following termination of the Executive’s employment for any reason, and, additionally, for the number ofmonths for which the Executive is receiving severance following termination, he will reasonably cooperate with the Company in all matters relating tothe winding up of his pending work including, but not limited to, any litigation in which the Company is involved, and the orderly transfer of any suchpending work to such other employees as may be designated by the Company. The Company will reimburse the Executive for any out-of-pocketexpenses associated with such cooperation.8. Insurance and Indemnification. The Company shall purchase a directors and officers insurance policy for which Executive shall receive usualand customary coverage for all acts undertaken as an officer of the Company. In addition, the Company shall indemnify Executive to the fullest extentpermitted by its charter, bylaws and by law for all costs, charges, damages, fees including without limitation, attorneys fees or other expenses thatExecutive incurs or potentially may incur in connection with Executives’ duties herewith and also enter into an indemnification agreement withExecutive. 79. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine orneuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.10. Complete Agreement. This Agreement constitutes the entire agreement between Executive and the Company with regard to the subjectmatter hereof. This Agreement is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter and supersedesany prior oral discussions or written communications and agreements. This Agreement is entered into without reliance on any promise or representationother than those expressly contained herein, and it cannot be modified or amended except in writing signed by Executive and an authorized officer ofthe Company. The parties have entered into a separate Proprietary Information, Inventions, and Non-Competition Agreement and have or may enterinto separate equity grant agreements. These separate agreements govern other aspects of the relationship between the parties, have or may haveprovisions that survive termination of the Executive’s employment under this Agreement, may be amended or superseded by the parties without regardto this agreement and are enforceable according to their terms without regard to the enforcement provision of this Agreement. In the event of a conflictbetween this Agreement and any other agreement between the Executive and the Company, this Agreement shall control.11. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and Executive.12. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New York and anyaction arising from or relating to this Agreement shall be commenced in the Federal or State courts located in New York County.13. Notices. Any notices required hereunder to be in writing shall be deemed effectively given: (a) upon personal delivery to the party to benotified; (b) when sent by electronic mail, telex or confirmed facsimile if sent during normal business hours on the day sent, and, if not, then on thenext business day; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) dayafter deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communicationsshall be sent to the Company at its primary office location and to Employee at Employee’s address as listed on the Company payroll, or at such otheraddress as the Company or the Employee may designate by ten (10) days advance written notice to the other.14. Successors and Assigns.14.1 Assumption by Successors. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidationor otherwise and whether or not after a Change in Control) to all or substantially all of the business or assets of the Company to assume in writing priorto such succession and to agree to perform its obligations under this Agreement in the same manner and to the same extent that the Company would berequired to perform it if no such succession had taken place. Successions by virtue of the sale of stock shall be governed by operation of law. 814.2 Successor Benefits. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successorsand assigns, including any corporation into which the Company may be merged or which may succeed to its assets or business, provided, however, thatthe obligations of Executive are personal and shall not be assigned by Executive.15. Miscellaneous.15.1 No Waiver. No delay or omission by either party in exercising any right under this Agreement shall operate as a waiver of that or anyother right. A waiver or consent given by either party on any one occasion shall be effective only in that instance and shall not be construed as a bar orwaiver of any right on any other occasion.15.2 Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affectthe scope or substance of any section of this Agreement.15.3 Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality andenforceability of the remaining provisions shall in no way be affected or impaired thereby.15.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all ofwhich together shall constitute one and the same instrument.IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. INTRA-CELLULAR THERAPIES, INC. EXECUTIVEBY: /S/ LAWRENCE HINELINE /S/ MARK NEUMANN LAWRENCE HINELINE MARK NEUMANN CHIEF FINANCIAL OFFICER 9SCHEDULE APERMITTED ACTIVITIES 10SCHEDULE BRELEASE OF CLAIMSThis Release of Claims (Release”) is made as of by and between (“the Executive”) and Intra-CellularTherapies, Inc. (the “Company”) f(together, the “Parties”).1. In consideration for Executive’s execution of this Release, the Company will make a severance payment to Executive in the amount set forthin the Employment Agreement between the Executive and the Company. This amount will be paid following the Effective Date (as defined below) inaccordance with the Employment Agreement, provided the Company has received the executed Agreement from Executive on or before that date. Thispayment will be subject to standard payroll deductions and withholdings. If Executive timely elects and remains eligible for continued coverage underCOBRA, the Company will pay that portion of Executive’s COBRA premiums it was paying prior to the Separation Date for the time period set forth inthe Employment Agreement between the Executive and the Company.2. Executive hereby releases, acquits and forever discharges the Company, its parents and subsidiaries, and their officers, directors, agents,servants, employees, stockholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs,expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, which were known or throughreasonable diligence should have been known, arising out of or in any way related to Releases, events, acts or conduct at any time prior to the dateExecutive executes this Settlement Release, including, but not limited to: all such claims and demands directly or indirectly arising out of or in anyway connected with Executive’s employment with the Company, including but not limited to, claims of intentional and negligent infliction ofemotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or anyother ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation;claims pursuant to any federal, state or local law or cause of action including, but not limited to, any and all claims and causes of action that theCompany, its parents and subsidiaries, and its and their respective officers, directors, agents, servants, employees, attorneys, shareholders, successors,assigns or affiliates: • has violated its personnel policies, handbooks, contracts of employment, or covenants of good faith and fair dealing; • has discriminated against him on the basis of age, race, color, sex (including sexual harassment), national origin, ancestry, disability,religion, sexual orientation, marital status, parental status, source of income, entitlement to benefits, any union activities or other protectedcategory in violation of any local, state or federal law, constitution, ordinance, or regulation, including but not limited to: Title VII of theCivil Rights Act of 1964, as amended; 42 U.S.C. § 1981, as amended; the Equal Pay Act; the Americans With Disabilities Act; the Familyand Medical Leave Act; the New York State Law Human Rights Law; the New York City Human Rights Law; the Employee RetirementIncome Security Act; Section 510; and the National Labor Relations Act; 11 • has violated any statute, public policy or common law (including but not limited to claims for retaliatory discharge; negligent hiring,retention or supervision; defamation; intentional or negligent infliction of emotional distress and/or mental anguish; intentionalinterference with contract; negligence; detrimental reliance; loss of consortium to him or any member of his family and/or promissoryestoppel).Excluded from this Release are any claims which cannot be waived by law. Executive is waiving, however, his right to any monetary recovery shouldany governmental agency or entity, such as the EEOC or the DOL, pursue any claims on his behalf. Executive acknowledges that he is knowingly andvoluntarily waiving and releasing any rights he may have under the ADEA, as amended. Executive also acknowledges that (i) the consideration givento his in exchange for the waiver and release in this Release is in addition to anything of value to which he was already entitled, and (ii) that he hasbeen paid for all time worked, have received all the leave, leaves of absence and leave benefits and protections for which he is eligible, and have notsuffered any on-the-job injury for which he has not already filed a claim. Executive further acknowledges that he has been advised by this writing that:(a) his waiver and release do not apply to any rights or claims that may arise after the execution date of this Release; (b) he has been advised herebythat he has the right to consult with an attorney prior to executing this Release; (c) he has twenty-one (21) days to consider this Release (althoughExecutive may choose to voluntarily execute this Release earlier and if he does he will sign the Consideration Period waiver below); (d) he has seven(7) days following his execution of this Release to revoke the Release; and (e) this Release shall not be effective until the date upon which therevocation period has expired unexercised (the “Effective Date”), which shall be the eighth day after Executive executes this Release.3. On or before the last day of Executive’s employment, Executive agrees to return to the Company all Company documents (and all copiesthereof) and other Company property that Executive has had in his possession at any time, including, but not limited to, Company files, notes,drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property (including, butnot limited to, computers), credit cards, entry cards, identification badges and keys; and, any materials of any kind that contain or embody anyproprietary or confidential information of the Company (and all reproductions thereof). Executive shall coordinate the return of Company propertywith Allen Fienberg, Vice President of Business Development or an appropriated officer designated by the Board of Directors.4. Executive further agrees that both during and after Executive’s employment Executive acknowledges his continuing obligations under hisProprietary Information, Inventions and Non-Competition Agreement not to use or disclose any confidential or proprietary information of theCompany and to refrain from certain solicitation and competitive activities.5. It is understood that Executive shall hold the provisions of this Release in strictest confidence and shall not publicize or disclose it in anymanner whatsoever; provided, however, that: (a) Executive may disclose this Release to his immediate family; (b) Executive may disclose this Releasein confidence to his attorney, accountant, auditor, tax preparer, and financial advisor; and (c) Executive may disclose this Release insofar as suchdisclosure may be required by law. 126. Executive agrees not to disparage the Company, and the Company’s attorneys, directors, managers, partners, employees, agents and affiliates,in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided that Executive may respondaccurately and fully to any question, inquiry or request for information when required by legal process.7. This Release does not constitute an admission by the Company of any wrongful action or violation of any federal, state, or local statute, orcommon law rights, including those relating to the provisions of any law or statute concerning employment actions, or of any other possible or claimedviolation of law or rights.8. Executive agrees that upon any breach of this Release Executive will forfeit all amounts paid or owing to Executive under this Release.Executive further acknowledges that it may be impossible to assess the damages caused by violation of the terms of paragraphs 3, 4, 5 and 6 of thisRelease and further agree that any threatened or actual violation or breach of those paragraphs of this Release will constitute immediate and irreparableinjury to the Company. Executive therefore agrees that any such breach of this Release is a material breach of this Release, and, in addition to any andall other damages and remedies available to the Company upon Executive’s breach of this Release, the Company shall be entitled to an injunction toprevent Executive from violating or breaching this Release. Executive agrees that if the Company is successful in whole or part in any legal orequitable action against Executive under this Release, Executive agree to pay all of the costs, including reasonable attorney’s fees, incurred by theCompany in enforcing the terms of this Release.9. This Release constitutes the complete, final and exclusive embodiment of the entire Release between the Parties with regard to this subjectmatter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and itsupersedes any other such promises, warranties or representations. This Release may not be modified or amended except in a writing signed by bothExecutive and a duly authorized officer of the Company. This Release will bind the heirs, personal representatives, successors and assigns of theParties, and inure to the benefit of the Parties, their heirs, successors and assigns. If any provision of this Release is determined to be invalid orunenforceable, in whole or in part, this determination will not affect any other provision of this Release and the provision in question will be modifiedby the court so as to be rendered enforceable. This Release will be deemed to have been entered into and will be construed and enforced in accordancewith the laws of the State of New York as applied to contracts made and to be performed entirely within New York.IN WITNESS WHEREOF, the Parties have duly authorized and caused this Agreement to be executed as follows: INTRA-CELLULAR THERAPIES, INC. By: [NAME] [NAME] Date Date 13Exhibit 10.16INTRA-CELLULAR THERAPIES, INC.EMPLOYEE PROPRIETARY INFORMATION,INVENTIONS, AND NON-COMPETITION AGREEMENTIn consideration of my employment or continued employment by INTRA-CELLULAR THERAPIES, INC. (the “Company”), and the compensationnow and hereafter paid to me, I hereby agree as follows: 1.NONDISCLOSURE.1.1 Recognition of Company’s Rights; Nondisclosure. At all times during my employment and thereafter, I will hold in strictestconfidence and will not disclose, use, lecture upon or publish any of the Company’s Proprietary Information (defined below), except as suchdisclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expresslyauthorizes such in writing. I will obtain Company’s written approval before publishing or submitting for publication any material (written,verbal, or otherwise) that relates to my work at Company and/or incorporates any Proprietary Information. I hereby assign to the Company anyrights I may have or acquire in such Proprietary Information and recognize that all Proprietary Information shall be the sole property of theCompany and its assigns. I have been informed and acknowledge that the unauthorized taking of the Company’s trade secrets may subject me tocivil and/or criminal penalties.1.2 Proprietary Information. The term “Proprietary Information” shall mean any and all confidential and/or proprietary knowledge,data or information of the Company. By way of illustration but not limitation, “Proprietary Information” includes (a) tangible and intangibleinformation relating to antibodies and other biological materials, cell lines, samples of assay components, media and/or cell lines and proceduresand formulations for producing any such assay components, media and/or cell lines, formulations, products, processes, know-how, designs,formulas, methods, developmental or experimental work, clinical data, improvements, discoveries, plans for research, new products(“Inventions”); (b) marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers andcustomers; and (c) information regarding the skills and compensation of other employees of the Company. Notwithstanding the foregoing, it isunderstood that, at all such times, I am free to use information which is generally known in the trade or industry, which is not gained as result of abreach of this Agreement, and my own, skill, knowledge, know-how and experience to whatever extent and in whichever way I wish.1.3 Third Party Information. I understand, in addition, that the Company has received and in the future will receive from third partiesconfidential or proprietary information (“Third Party Information”) subject to a duty on the Company’s part to maintain the confidentiality ofsuch information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third PartyInformation in the strictest confidence and will not disclose to anyone (other than Company personnel who need to know such information inconnection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unlessexpressly authorized by an officer of the Company in writing.1.4 No Improper Use of Information of Prior Employers and Others. During my employment by the Company I will not improperlyuse or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation ofconfidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any formeremployer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person. Iwill use in the performance of my duties only information which is generally known and used by persons with training and experiencecomparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided ordeveloped by the Company. 2.ASSIGNMENT OF INVENTIONS.2.1 Proprietary Rights. The term “Proprietary Rights” shall mean all trade secret, patent, copyright, mask work and other intellectualproperty rights or “moral rights” throughout the world. “Moral rights” refers to any rights to claim authorship of an Invention or to object to orprevent the modification of any Invention, or to withdraw from circulation or control the publication or distribution of any Invention, and anysimilar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right isdenominated or generally referred to as a “moral right.”2.2 Prior Inventions. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with theCompany are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit A (PreviousInventions) attached hereto a complete list of all Inventions that I have, alone or jointly with others, conceived, developed or reduced to practiceor caused to be conceived, developed or reduced to practice prior to the commencement of my employment with the Company, that I consider tobe my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (collectively referred to as“Prior Inventions”). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that Iam not to list such Prior Inventions in Exhibit A but am only to disclose a cursory name for each such invention, a listing of the party(ies) towhom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. A space is provided on Exhibit A forsuch purpose. If no such disclosure is attached, I represent that there are no Prior Inventions. If, in the course of my employment with theCompany, I incorporate a Prior Invention into a Company product, process or machine, the Company is hereby granted and shall have anonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make,have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to beincorporated, Prior Inventions in any Company Inventions without the Company’s prior written consent.2.3 Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby assign and agree to assign in the future (when any suchInventions or Proprietary Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to the Company all my right, titleand interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable undercopyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period ofmy employment with the Company. Inventions assigned to the Company, or to a third party as directed by the Company pursuant to thisSection 2, are hereinafter referred to as “Company Inventions.”2.4 Unassigned Inventions. I recognize that this Agreement will not be deemed to require assignment of any Invention that wasdeveloped entirely on my own time without using the Company’s equipment, supplies, facilities, or trade secrets and neither related to theCompany’s actual or anticipated business, research or development, nor resulted from work performed by me for the Company.2.5 Obligation to Keep Company Informed. During the period of my employment and for six (6) months after termination of myemployment with the Company, I will promptly disclose to the Company fully and in writing all Inventions authored, conceived or reduced topractice by me, either alone or jointly with others. In addition, I will promptly disclose to the Company all patent applications filed by me or onmy behalf within a year after termination of employment. The Company will keep in confidence and will not use for any purpose or disclose tothird parties without my consent any confidential information disclosed in writing to the Company pursuant to this Agreement.2.6 Government or Third Party. I also agree to assign all my right, title and interest in and to any particular Company Invention to athird party, including without limitation the United States, as directed by the Company.2.7 Works for Hire. I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within thescope of my employment and which are protectable by copyright are “works made for hire,” pursuant to United States Copyright Act (17 U.S.C.,Section 101).2.8 Enforcement of Proprietary Rights. I will assist the Company in every proper way to obtain, and from time to time enforce, UnitedStates and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver suchdocuments and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for,obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verifyand deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect toProprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, butthe Company shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Company’s request on suchassistance.In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with theactions specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents asmy agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documentsand to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. Ihereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of anyProprietary Rights assigned hereunder to the Company. 3.RECORDS. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form thatmay be required by the Company) of all Proprietary Information developed by me and all Inventions made by me during the period of myemployment at the Company, which records shall be available to and remain the sole property of the Company at all times. 4.DUTY OF LOYALTY DURING EMPLOYMENT. I understand that my employment with the Company requires my full attention and effort. Iagree that during the period of my employment by the Company I will not, without the Company’s express written consent, engage in anyemployment or business activity other than for the Company, including but not limited to employment or business activity which iscompetitive with, or would otherwise conflict with, my employment by the Company. 5.NO SOLICITATION OF EMPLOYEES, CONSULTANTS OR CONTRACTORS. I agree that for the period of my employment by the Companyand for one (1) year after the date my employment by the Company ends for any reason, including but not limited to voluntary terminationby me or involuntary termination by the Company, I will not, either directly or through others, (i) solicit or attempt to solicit any employeeof the Company to end his or her relationship with the Company; and (ii) solicit any consultant or contractor of the Company, with whom Ihad contact or whose identity I learned as a result of my employment with the Company to diminish or materially alter its relationship withthe Company. 6.NON-COMPETE PROVISION. I agree that for the period of my employment with the Company, and for the period of one (1) year after thedate my employment ends for any reason, including but not limited to voluntary termination by me or involuntary termination by theCompany, I will not provide services, similar to those I provided to the Company, to any person or entity in competition (as defined below)with the Company. I acknowledge that this non-compete provision is limited to the types of activities and services I provided in myemployment with the Company.At the present time, the Company engages in the research and discovery and commercialization of treatments for schizophrenia, bi-polardepression, behavior disturbances in dementia, Parkinson’s disease, heart failure, substance use disorder and pain, and therefore entities andindividuals which provide similar products or services are defined as in competition with the Company. The parties understand that the scope andnature of my activities and services, and the Company’s business, products or services, may change as the Company develops. The parties agree thatthe scope of this provision will change to cover any changes in my activities or services, as well as any changes in the Company’s business, products orservices, during my employment. 7.NO CONFLICTING AGREEMENT OR OBLIGATION. I represent that my performance of all the terms of this Agreement and as an employeeof the Company does not and will not breach any agreement or obligation of any kind made prior to my employment by the Company,including agreements or obligations I may have with prior employers or entities for which I have provided services. I have not entered into,and I agree I will not enter into, any agreement or obligation either written or oral in conflict herewith. 8.RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes,memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing ordisclosing any Company Inventions, Third Party Information or Proprietary Information of the Company. I further agree that any propertysituated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other workareas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with theCompany in completing and signing the Company’s termination statement. 9.LEGAL AND EQUITABLE REMEDIES. I recognize that in the course of employment with the Company, I will have access to ProprietaryInformation, to Third Party Information, and to employees, consultants, contractors, clients, and customers of the Company. I alsorecognize that the services I will be employed to provide are personal and unique. I understand that because of this the Company maysustain irreparable injury if I violate this Agreement. In order to limit or prevent such irreparable injury, the Company shall have the rightto enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and withoutprejudice to any other rights and remedies that the Company may have for a breach of this Agreement. 10.NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at suchother address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or ifsent by certified or registered mail, three (3) days after the date of mailing. 11.NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the Company, I authorize the Company to provide notice ofmy rights and obligations under this Agreement to my subsequent employer and to any other entity or person to whom I provide services. 12.GENERAL PROVISIONS.12.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of theState of New York, as such laws are applied to agreements entered into and to be performed entirely within New York between New Yorkresidents. I hereby expressly consent to the personal jurisdiction of the state and federal courts for New York County, New York in any lawsuitfiled there against me by Company arising from or related to this Agreement.12.2 Severability. In case any one or more of the provisions, subsections, or sentences contained in this Agreement shall, for any reason,be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions ofthis Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.Moreover, if any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration,geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with theapplicable law as it shall then appear.12.3 Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representativesand will be for the benefit of the Company, its successors, and its assigns.12.4 Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreementby the Company to any successor in interest or other assignee.12.5 Employment At-Will. I agree and understand that I am employed at-will, and that nothing in this Agreement shall change thisat-will status or confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right orthe Company’s right to terminate my employment at any time, with or without cause.12.6 Waiver. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. Nowaiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be requiredto give notice to enforce strict adherence to all terms of this Agreement.12.7 Entire Agreement. The obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any time during which I waspreviously employed, or am in the future employed, by the Company as a consultant if no other agreement governs nondisclosure andassignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to thesubject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor anywaiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change orchanges in my duties, salary or compensation will not affect the validity or scope of this Agreement.This Agreement shall be effective as of the first day of my employment with the Company, namely: , 201 .I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY FILLED OUT EXHIBIT A TO THISAGREEMENT. Dated: December 10, 2018/s/ Mark Neumann(Signature) Mark Neumann(Printed Name)ACCEPTED AND AGREED TO:INTRA-CELLULAR THERAPIES, INC.By: /s/Lawrence HinelineTitle: Chief Financial Officer430 E. 29th St. New York NY 10016(Address) Dated: December 14, 2018Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1) Registration Statement (Form S-8 No. 333-225799) pertaining to the Intra-Cellular Therapies, Inc. 2018 Equity Incentive Plan of Intra-CellularTherapies, Inc.,(2) Registration Statement (Form S-3 No. 333-213495) of Intra-Cellular Therapies, Inc.,(3) Registration Statement (Form S-8 No. 333-205070) pertaining to the Intra-Cellular Therapies, Inc. Amended and Restated 2013 Equity IncentivePlan of Intra-Cellular Therapies, Inc.,(4) Registration Statement (Post-Effective Amendment No. 3 to Form S-1 on Form S-3 No. 333-191238) of Intra-Cellular Therapies, Inc., and(5) Registration Statement (Form S-8 No. 333-193310) pertaining to the ITI, Inc. 2003 Equity Incentive Plan, as amended, and the Intra-CellularTherapies, Inc. 2013 Equity Incentive Plan of Intra-Cellular Therapies, Inc.;of our reports dated February 27, 2019, with respect to the consolidated financial statements of Intra-Cellular Therapies, Inc. and the effectiveness ofinternal control over financial reporting of Intra-Cellular Therapies, Inc. included in this Annual Report (Form 10-K) of Intra-Cellular Therapies, Inc.for the year ended December 31, 2018. /s/ Ernst & Young LLPBaltimore, MDFebruary 27, 2019Exhibit 31.1CERTIFICATIONS UNDER SECTION 302I, Sharon Mates, Ph.D., certify that:1. I have reviewed this annual report on Form 10-K of Intra-Cellular Therapies, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: February 27, 2019 /s/ Sharon Mates, Ph.D. Sharon Mates, Ph.D.Chairman, President and Chief Executive Officer(principal executive officer)Exhibit 31.2CERTIFICATIONS UNDER SECTION 302I, Lawrence J. Hineline, certify that:1. I have reviewed this annual report on Form 10-K of Intra-Cellular Therapies, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: February 27, 2019 /s/ Lawrence J. Hineline Lawrence J. HinelineSenior Vice President of Finance and Chief Financial Officer(principal financial officer and principal accounting officer)Exhibit 32.1CERTIFICATIONS UNDER SECTION 906Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each ofthe undersigned officers of Intra-Cellular Therapies, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:The Annual Report for the year ended December 31, 2018 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial conditionand results of operations of the Company. Dated: February 27, 2019 /s/ Sharon Mates, Ph.D. Sharon Mates, Ph.D. Chairman, President and Chief Executive Officer(principal executive officer)Dated: February 27, 2019 /s/ Lawrence J. Hineline Lawrence J. Hineline Senior Vice President of Finance and Chief Financial Officer(principal financial officer and principal accounting officer)

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