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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-36274
Intra-Cellular Therapies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
36-4742850
(I.R.S. Employer
Identification No.)
430 East 29th Street
New York, New York 10016
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (646) 440-9333
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Common Stock, $0.0001 Par Value Per Share
Trading
Symbol(s)
ITCI
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ 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 the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer
Large accelerated filer
Smaller reporting company
Non-accelerated filer
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 revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
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 whose shares are not
included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed
second fiscal quarter was approximately $5.3 billion.
As of February 27, 2023, the registrant had 95,280,003 shares of common stock outstanding.
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
TABLE OF CONTENTS
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required
in Part III of this Annual Report on Form 10-K is incorporated by reference from the Registrant’s Proxy Statement for the 2023 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission.
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PART I
All brand names or trademarks appearing in this report are the property of their respective holders. Use or display by us of other parties’
trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by
the trademark or trade dress owners. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” refer to
Intra-Cellular Therapies, Inc. and its wholly-owned subsidiary, ITI, Inc.
Item 1.
BUSINESS
Overview
We are a biopharmaceutical company focused on the discovery, clinical development and commercialization of innovative, small molecule drugs
that address underserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within
the central nervous system, or CNS. In December 2019, CAPLYTA® (lumateperone) was approved by the U.S. Food and Drug Administration, or FDA,
for the treatment of schizophrenia in adults (42mg/day) and we initiated the commercial launch of CAPLYTA in March 2020. In December 2021,
CAPLYTA was approved by the FDA for the treatment of bipolar depression in adults (42mg/day). We initiated the commercial launch of CAPLYTA
for the treatment of bipolar depression in December 2021. Additionally, in April 2022, the FDA approved two new dosage strengths of CAPLYTA, 10.5
mg and 21 mg capsules, to provide dosage recommendations for patients concomitantly taking strong or moderate CYP3A4 inhibitors, and 21 mg for
patients with moderate or severe hepatic impairment (Child-Pugh class B or C). We initiated the commercial launch for these special population doses in
August 2022. As used in this report, “CAPLYTA” refers to lumateperone approved by the FDA for the treatment of schizophrenia in adults and for the
treatment of bipolar depression in adults, and “lumateperone” refers to, where applicable, CAPLYTA as well as lumateperone for the treatment of
indications beyond schizophrenia and bipolar depression. Lumateperone is in Phase 3 clinical development as a novel treatment for major depressive
disorder, or MDD.
Our Product
In December 2019, CAPLYTA was approved by the FDA for the treatment of schizophrenia in adults (42mg/day) and we initiated the commercial
launch of CAPLYTA in March 2020. In support of our commercialization efforts, we employ a national salesforce consisting of approximately 370 sales
representatives. In December 2021, CAPLYTA was approved by the FDA for the treatment of bipolar depression in adults (42mg/day). CAPLYTA is the
only FDA-approved treatment for depressive episodes associated with bipolar I or II disorder (bipolar depression) in adults as monotherapy and as
adjunctive therapy with lithium or valproate. We initiated the commercial launch of CAPLYTA for the treatment of bipolar depression in December
2021. In addition, the FDA approved new dosage strengths, 10.5mg and 21mg, for special populations of patients, in April 2022. We initiated the
commercial launch for these special population doses in August 2022.
The efficacy of CAPLYTA 42 mg in schizophrenia was demonstrated in two placebo-controlled trials, showing a statistically significant
separation from placebo on the primary endpoint, the Positive and Negative Syndrome Scale, or PANSS, total score. The most common adverse
reactions (>5% and twice the rate of placebo) for the recommended dose of CAPLYTA versus placebo were somnolence/sedation (24% vs. 10%) and
dry mouth (6% vs. 2%). In pooled data from short term studies, mean changes from baseline in weight gain, fasting glucose, triglycerides and total
cholesterol were similar between CAPLYTA and placebo. The incidence of extrapyramidal symptoms was 6.7% for CAPLYTA and 6.3% for placebo.
The efficacy of CAPLYTA 42 mg in bipolar depression was demonstrated in two positive Phase 3 placebo-controlled bipolar depression studies,
which evaluated the effects of CAPLYTA on depression in adult patients with bipolar I or bipolar II disorder both as monotherapy (Study 404) and as
adjunctive therapy with lithium or valproate (Study 402). In these studies, the efficacy of CAPLYTA 42 mg was established by demonstrating
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statistically significant improvements over placebo for the change from baseline in the Montgomery-Asberg Depression Rating scale, or MADRS, total
score at week 6. CAPLYTA 42 mg also showed a statistically significant improvement in the key secondary endpoint relating to clinical global
impression of bipolar disorder in each study. In addition, CAPLYTA demonstrated a favorable tolerability and safety profile consistent with findings in
prior clinical studies in schizophrenia. The most common reported adverse reactions (occurring at a rate of 5% or more and at least twice the rate of
placebo) were somnolence/sedation, dizziness, nausea, and dry mouth. Mean changes from baseline in weight, fasting glucose, total cholesterol,
triglycerides, and LDL cholesterol were similar between CAPLYTA and placebo.
Our Development Programs
Our pipeline includes several product candidates in clinical development and additional product candidates in nonclinical testing. We believe that
our product candidates offer innovative therapeutic approaches and may provide advantages relative to current therapies. The following table
summarizes our product candidates and programs:
OUR THERAPEUTIC PIPELINE
The safety and efficacy of investigational agents and/or investigational uses of approved products have not been established.
Lumateperone Development Program
The efficacy of lumateperone could be mediated through a combination of antagonist activity at central serotonin 5-HT2A receptors and
postsynaptic antagonist activity at central dopamine D2 receptors. In terms of pharmacodynamics, lumateperone has high binding affinity for serotonin
5-HT2A receptors and moderate binding affinity for dopamine D2 receptors, serotonin transporters, dopamine D1 receptors, dopamine D4 receptors and
adrenergic alpha 1A and alpha 1B receptors. It lacks biologically relevant interactions with other receptors including muscarinic and histaminergic
receptors. As a result, we believe lumateperone may represent a potential treatment across multiple therapeutic indications.
Lumateperone for the treatment of major depressive disorder and other mood disorders
As a potent 5-HT2A receptor antagonist and serotonin reuptake inhibitor, we believe that lumateperone could improve symptoms of depression
with fewer side effects than currently marketed antipsychotics and
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antidepressants. Dopamine modulation by lumateperone may also reduce irritability and aggression that can accompany many mood disorders.
Lumateperone, as a standalone agent, indirectly enhances glutamatergic neurotransmission through both AMPA and NMDA channels in the prefrontal
cortex via lumateperone’s dopamine D1 receptor activation. By enhancing AMPA neurotransmission, lumateperone also activates key proteins in the
mTOR pathway which has shown antidepressant effects. As such, lumateperone may represent a potential treatment for mood disorders including MDD
and post-traumatic stress disorder.
Lumateperone is in Phase 3 clinical development as a novel treatment for MDD. Patient enrollment in Study 501 and Study 502, global Phase 3
clinical trials evaluating lumateperone 42 mg as an adjunctive therapy to antidepressants for the treatment of MDD, is ongoing. In addition, in the
second quarter of 2023, we expect to initiate a third global Phase 3 trial, Study 505, also evaluating lumateperone 42 mg as an adjunctive therapy to
antidepressants for the treatment of MDD. Study 505 is intended to serve as a potential additional registration trial in support of a supplemental New
Drug Application, or sNDA, for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD, if needed. This is a
common strategy employed in mood disorder development programs. Subject to the results of Study 501 and Study 502, we expect to file an sNDA with
the FDA for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD in 2024. In the first quarter of 2020, as part
of our lumateperone bipolar depression clinical program, we initiated our third monotherapy Phase 3 study, Study 403, evaluating lumateperone as
monotherapy in the treatment of major depressive episodes associated with bipolar I or bipolar II disorder. Following the positive results in our
adjunctive study that was part of our bipolar depression clinical program, Study 402, we amended Study 403 to evaluate major depressive episodes with
mixed features in bipolar disorder in patients with bipolar I or bipolar II disorder and mixed features in patients with MDD. Clinical conduct for Study
403 has been completed, and we expect to report topline results in the first quarter of 2023. Following reporting of topline results, we intend to discuss
the results with the FDA to determine whether this study will provide supportive data for a potential future regulatory filing for this indication.
We have also initiated a Phase 3 study evaluating lumateperone for the prevention of relapse in patients with schizophrenia. The study is being
conducted in five phases consisting of a screening phase, a 6-week, open-label run-in phase during which all patients will receive 42 mg of
lumateperone per day, a 12-week, open-label stabilization phase during which all patients will receive 42 mg of lumateperone per day; a double-blind
treatment phase, 26 weeks in duration, during which patients receive either 42 mg of lumateperone per day or placebo (1:1 ratio) and
a 2-week safety follow-up phase. This study is being conducted in accordance with our post approval marketing commitment to the FDA in connection
with the approval of CAPLYTA for the treatment of schizophrenia as is typical for antipsychotics.
Other Indications for Lumateperone
Within the lumateperone portfolio, we are also developing a long-acting injectable, or LAI, formulation to provide more treatment options to
patients suffering from mental illness. We have completed the nonclinical development of an LAI formulation, and we have conducted a Phase 1 single
ascending dose study with this formulation. This study evaluated the pharmacokinetics, safety and tolerability of lumateperone LAI in patients with
stable symptoms of schizophrenia. We completed this study and it was safe and well tolerated. We are evaluating several additional formulations of the
lumateperone LAI with treatment durations of one month and longer. Non-clinical development on these additional formulations is ongoing and
expected to be completed in 2023 and we plan to initiate Phase I single ascending dose studies with these formulations in 2023. Given the encouraging
tolerability data to date with oral lumateperone, we believe that an LAI option, in particular, may lend itself to being an important formulation choice for
certain patients.
We hold exclusive, worldwide commercialization rights to lumateperone and a family of compounds from Bristol-Myers Squibb Company
pursuant to an exclusive license.
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Other Product Candidates
We are developing ITI-1284-ODT-SL for the treatment of agitation in patients with dementia, the treatment of dementia-related psychosis and the
treatment of generalized anxiety disorder. ITI-1284-ODT-SL is a deuterated form of lumateperone, a new molecular entity formulated as an oral
disintegrating tablet for sublingual administration. ITI-1284-ODT-SL is formulated as an oral solid dosage form that dissolves almost instantly when
placed under the tongue, allowing for ease of use in the elderly and may be particularly beneficial for patients who have difficulty swallowing
conventional tablets. Phase 1 single and multiple ascending dose studies in healthy volunteers and healthy elderly volunteers (> than 65 years of age)
evaluated the safety, tolerability and pharmacokinetics of ITI-1284-ODT-SL. In these studies, there were no reported serious adverse events in either age
group. In the elderly cohort, reported adverse events were infrequent with the most common adverse event being transient dry mouth (mild). Based on
these results, we have initiated our program evaluating ITI-1284-ODT-SL for the treatment of agitation in patients with Alzheimer’s disease. We are in
discussions with the FDA regarding the nonclinical toxicological profile of ITI-1284-ODT-SL. The FDA has informed us that they do not believe the
deuterated and undeuterated forms of lumateperone are identical. As a result, the nonclinical data from lumateperone may not be broadly applied to
ITI-1284-ODT-SL and we are conducting additional toxicology studies. We expect to commence clinical conduct in a Phase 2 study in agitation in
patients with Alzheimer’s disease in 2023. Additional studies in psychosis in patients with Alzheimer’s disease and generalized anxiety disorder are also
planned for 2023. We are continuing with Phase 1 studies with ITI-1284-ODT-SL, including drug-drug interaction studies.
We have another major program that has yielded a portfolio of compounds that selectively inhibit the enzyme phosphodiesterase type 1, or PDE1.
PDE1 enzymes are highly active in multiple disease states and our PDE1 inhibitors are designed to reestablish normal function in these disease states.
Abnormal PDE1 activity is associated with cellular proliferation and activation of inflammatory cells. Our PDE1 inhibitors ameliorate both of these
effects in animal models. We intend to pursue the development of our phosphodiesterase, or PDE, program, for the treatment of aberrant immune system
activation in several CNS and non-CNS conditions with a focus on diseases where excessive PDE1 activity has been demonstrated and increased
inflammation is an important contributor to disease pathogenesis. Our potential disease targets include immune system regulation, neurodegenerative
diseases, cancers and other non-CNS disorders. Lenrispodun (ITI-214) is our lead compound in this program. Following the favorable safety and
tolerability results in our Phase 1 program, we initiated our development program for lenrispodun for Parkinson’s disease and conducted a Phase 1/2
clinical trial of lenrispodun in patients with Parkinson’s disease to evaluate safety and tolerability in this patient population, as well as
motor and non-motor exploratory endpoints. In this study, lenrispodun was generally well-tolerated with a favorable safety profile and clinical signs
consistent with improvements in motor symptoms and dyskinesias. We have initiated our Phase 2 clinical program with lenrispodun for Parkinson’s
disease, and expect to commence patient enrollment in the first quarter of 2023. We also have an active Investigational New Drug application to evaluate
our newest candidate within the PDE 1 inhibitor program, ITI-1020, as a novel cancer immunotherapy. A Phase 1 program with ITI-1020 in healthy
volunteers is anticipated to commence in the first half of 2023.
We also have a development program with our ITI-333 compound as a potential treatment for substance use disorders and pain. There is a
pressing need to develop new drugs to treat opioid addiction and safe, effective, non-addictive treatments to manage pain. ITI-333 is a novel compound
that uniquely combines activity as an antagonist at serotonin 5-HT2A receptors and a partial agonist at µ-opioid receptors. These combined actions
support the potential utility of ITI-333 in the treatment of opioid use disorder and associated comorbidities (e.g., depression, anxiety, sleep disorders)
without opioid-like safety and tolerability concerns. We have conducted a Phase 1 single ascending dose study evaluating the safety, tolerability and
pharmacokinetics of ITI-333 in healthy volunteers. In this study, ITI-333 achieved plasma exposures at or above those required for efficacy and was
generally safe and well-tolerated. We have commenced a neuroimaging study to investigate brain occupancy for receptors that play a role in substance
use disorder and also have applicability for pain. The results of this study will support the dose selection for future studies. We commenced a multiple
ascending dose study in the first quarter of 2023. We have received a grant from the National Institute on Drug Abuse under the
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Helping to End Addiction Long-term Initiative, or NIH HEAL Initiative, that we expect will fund a significant portion of the early stage clinical
development costs associated with this program.
Our Drug Discovery Platform and Capabilities
Based on the pioneering efforts of our late co-founder and Nobel laureate, Dr. Paul Greengard, we have developed a detailed understanding of
intracellular signaling pathways and intracellular targets. We have used that knowledge to develop several state of the art technology platforms,
including one called CNSProfileTM. This technology monitors the phosphoprotein changes elicited by major psychotropic drug classes and subclasses,
and generates a unique molecular signature for drug compounds. By monitoring how the levels of these phosphoproteins change in vivo, we identify
intracellular signaling pathways through which several major drug classes operate. Along with what we believe to be state of the art drug discovery
efforts, we have used, and may continue to use, this information as a tool to validate our selection of nonclinical candidate molecules.
Given the nature of our research and development and business activities, we do not expect that compliance with federal, state and local
environmental laws will result in material costs or have a significant negative effect on our operations.
Disease and Market Overview
Our programs for small molecule therapeutics are designed to address various CNS and other diseases that we believe are underserved or unmet
by currently available therapies and that represent large potential commercial market opportunities for us. Background information on the diseases and
related commercial markets that may be addressed by our programs is set forth below.
Schizophrenia
Schizophrenia is a disabling and chronic mental illness that is characterized by multiple symptoms during an acute phase of the disorder that can
include so-called “positive” symptoms, such as hallucinations, hearing voices, grandiose beliefs and suspiciousness or paranoia. These symptoms can be
accompanied by additional, harder to treat symptoms, such as social withdrawal, blunted emotional response and speech deficits, collectively referred to
as “negative” symptoms, difficulty concentrating and disorganized thoughts, or cognitive impairment, depression and insomnia. Such residual symptoms
often persist even after the acute positive symptoms subside, and contribute substantially to the social and employment disability associated with
schizophrenia.
According to the American Psychiatric Association and the National Institute of Mental Health, about 1% of the population (2.4 million adults in
the United States) suffers from schizophrenia in any given year. A landmark study funded by the National Institute of Mental Health, the Clinical
Antipsychotic Trials of Intervention Effectiveness, also referred to as CATIE, which was published in The New England Journal of Medicine in
September 2005, found that 74% of patients taking typical or atypical antipsychotics discontinued treatment within 18 months because of side effects or
lack of efficacy.
Bipolar Disorder
Bipolar disorder, sometimes referred to as manic-depressive illness, is characterized by extreme shifts in mood. Individuals with bipolar disorder
may experience intense feelings of over-excitement, irritability, impulsivity with grandiose beliefs and racing thoughts, referred to as a manic episode.
Symptoms of depression may include feeling tired, hopeless and sad, with difficulty concentrating and thoughts of suicide. Some people experience both
types of symptoms in the same “mixed” episode. Severe symptoms of bipolar disorder can be associated with hallucinations or delusions, otherwise
referred to as psychosis.
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According to the National Institute of Mental Health, an estimated 4.4% of adults in the United States (approximately 11 million adults in the
United States) experience bipolar disorder at some time in their lives. Bipolar disorder is often treated with antipsychotic medications alone or in
combination with mood stabilizers. The side effects and safety risks associated with antipsychotic drugs in patients with bipolar disorder are similar to
those experienced by patients with schizophrenia. Moreover, a large national research program conducted from 1998 to 2005 called the Systematic
Treatment Enhancement Program for Bipolar Disorder, or STEP-BD, followed 4,360 patients with bipolar disorder long term and showed that about half
of patients who were treated for bipolar disorder, still experienced lingering and recurrent symptoms, indicating a clear need for improved treatments.
Major Depressive Disorder
MDD is a mood disorder that can be associated with symptoms of sadness, hopelessness, helplessness, feelings of guilt, irritability, loss of interest
in formerly pleasurable activities, cognitive impairment, disturbed sleep patterns, and suicide ideation or behavior. Different people may experience
different symptoms, but everyone with major depression experiences symptoms that are severe enough to interfere with everyday functioning, such as
the ability to concentrate at work or school, social interactions, eating and sleeping. Sometimes the depressive episode can be so severe it is
accompanied by psychosis (hallucinations and delusions).
According to the National Institute of Mental Health, approximately 8.4% of adults in the United States experience MDD each year. The
antidepressant market is primarily composed of selective serotonin reuptake inhibitors such as escitalopram and selective norepinephrine reuptake
inhibitors, or SNRIs, such as duloxetine. Antipsychotics such as quetiapine, aripriprazole, Rexulti® and Vraylar® are also used as adjunctive treatments
with antidepressant treatment. The National Institute of Mental Health-funded Sequenced Treatment Alternatives to Relieve Depression, or STAR*D,
study showed that only one-third of treated patients experience complete remission of depressive symptoms. Nearly two-thirds of patients with
depression do not fully recover on an anti-depressant medication.
Behavioral Disturbances in Dementia
The World Health Organization estimates that approximately 55 million people worldwide have dementia, and there are nearly 10 million new
cases every year. The Alzheimer’s Association estimates more than 6 million Americans are living with Alzheimer’s dementia, or AD, in 2022. While
the diagnostic criteria for AD and other dementias mostly focus on the related cognitive deficits, it is often the behavioral and psychiatric symptoms that
are most troublesome for caregivers and lead to poor quality of life for patients. Several behavioral symptoms are quite prevalent in patients with
dementia, including patients with AD. We believe that ITI-1284 may provide a novel therapy for treating the behavioral disturbances accompanying
dementia, including AD.
The FDA has not approved any drug to treat the behavioral symptoms of dementia, including AD. We believe there is a large unmet medical need
for a safe and effective therapy to treat the behavioral symptoms in patients with dementia, including AD.
Parkinson’s Disease
Parkinson’s disease is a chronic and progressive neurodegenerative disorder that involves malfunction and death of neurons in a region of the
brain that controls movement. This neurodegeneration creates a shortage of an important brain signaling chemical, or neurotransmitter, known as
dopamine, thereby rendering patients unable to direct or control their movements in a normal manner. Parkinson’s disease is characterized by well-
known motor symptoms, including tremors, limb stiffness, slowness of movements, and difficulties with posture and balance, as well as by non-motor
symptoms, which include sleep disturbances, mood disorders, cognitive
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impairment and psychosis. Parkinson’s disease progresses slowly in most people and the severity of symptoms tends to worsen over time.
According to the National Parkinson Foundation, about 1 million people in the United States and more than 10 million people worldwide suffer
from this disease. Parkinson’s disease is more common in people over 60 years of age, and the prevalence of this disease is expected to increase
significantly as the average age of the population increases. Parkinson’s disease patients are commonly treated with dopamine replacement therapies,
such as levodopa, commonly referred to as L-DOPA, which is metabolized to dopamine, and dopamine agonists, which are molecules that mimic the
action of dopamine. Global Data estimated global sales of therapeutics such as L-DOPA, and dopamine agonists used to treat the disease to be
approximately $4.3 billion in 2022.
Non-motor symptoms can be particularly distressing and even more troublesome to patients with Parkinson’s disease than the primary motor
disturbances. Non-motor symptoms substantially contribute to the burden of Parkinson’s disease and deeply affect the quality of life of patients and their
caregivers. Non-motor symptoms of Parkinson’s disease are associated with increased caregiver stress and burden, nursing home placement, and
increased morbidity and mortality. Treatment of non-motor symptoms associated with Parkinson’s disease poses a challenge to physicians. Current
dopamine replacement drugs used to treat the motor symptoms of Parkinson’s disease do not help, and sometimes worsen, the non-motor symptoms. We
believe there is a large unmet medical need for the treatment of non-motor symptoms associated with Parkinson’s disease.
Opioid Use Disorder
The opioid crisis was declared a public health emergency in 2017. According to the 2019 CDC annual surveillance report of drug-related risks and
outcomes, opioid misuse is widespread with over 10 million Americans reporting opioid misuse. The rate of drug overdose deaths involving opioids in
the United States remains high, with more than 68,000 deaths reported in 2020.
Opioids are a class of drugs that include the illegal drug heroin, synthetic opioids such as fentanyl, and pain relievers available legally by
prescription, including oxycodone, hydrocodone, codeine and morphine. Opioids produce high levels of positive reinforcement, increasing the odds that
people will continue using them despite negative consequences. Opioid use disorder is a chronic lifelong disorder, with serious potential consequences
including disability, relapses, and death. While medications including methadone, buprenorphine and naltrexone are approved to treat opioid use
disorder, these medications do not effectively treat psychiatric comorbidities (e.g., mood and anxiety disorders) that may drive opioid use/abuse or
dysphoria or the dysphoria and mood disturbances (e.g., depression and anxiety) that often accompany opioid withdrawal and abstinence.
Our Strategy
Our goal is to discover, develop and commercialize novel small molecule therapeutics for the treatment of CNS diseases and other diseases in
order to improve the lives of people suffering from such illnesses. Using our key understanding of intracellular signaling, we seek to accomplish our
goal, using our in-house expert drug discovery and clinical development teams, in two ways:
•
•
we seek to have the capability to develop first-in-class medications with novel mechanisms that have the potential to treat CNS diseases
and 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 other
diseases which are not adequately treated by currently marketed drugs or can be effective with fewer side effects.
The key elements of our strategy are to:
•
continue to commercialize CAPLYTA, which has been approved by the FDA for the treatment of schizophrenia and bipolar depression in
adults, in the United States;
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•
•
•
•
complete the development of lumateperone for additional neuropsychiatric indications, such as MDD;
expand the commercial potential of lumateperone by investigating its usefulness in additional neurological areas;
continue to advance our other product candidates in clinical development such as lenrispodun, for the treatment of CNS and other
disorders; ITI-1284, for the treatment of neuropsychiatric disorders and behavioral disturbances in dementia; and ITI-333, for substance
use disorders, pain and psychiatric comorbidities including depression and anxiety; and
advance the earlier stage product candidates in our pipeline.
Intellectual Property
Our Patent Portfolio
As of February 1, 2023, we owned or controlled approximately 130 patent families filed in the United States and other major markets worldwide,
including approximately 125 issued or allowed U.S. patents, 62 pending U.S. patent applications, 527 issued or allowed foreign patents and 343 pending
foreign patent applications, directed to novel compounds, formulations, methods of treatment, synthetic methods, and platform technologies.
Lumateperone tosylate is FDA-approved as CAPLYTA® for the treatment of schizophrenia and for the treatment of bipolar depression. We have
extensively characterized this compound and related compounds and filed additional patent applications on salt forms, polymorphs, pharmaceutical
formulations, new indications, improved methods of manufacture, metabolites, derivatives, and structurally related novel compounds. As of February 1,
2023, our lumateperone program consisted of approximately 36 patent families that we own or control, filed in the United States and other major
markets, including 49 issued or allowed U.S. patents, 29 pending U.S. patent applications, 213 issued or allowed foreign patents and 155 pending
foreign patent applications. Thirteen patents are currently Orange Book listed in the United States. In addition to patent protection, lumateperone has
five years of new chemical entity data exclusivity with the FDA, until December 2024. Patent protection for lumateperone includes:
Summary Description of Patent
or Patent Application
ITI-007 Product Patent (approved drug product—
lumateperone tosylate—in any pharmaceutical
form)
ITI-007 Crystal Form Patent (approved drug product
—lumateperone tosylate—in solid crystalline
form)
ITI-007 Dosage and Method of Treatment Patents
(including schizophrenia, bipolar depression, sleep
disorder indications)
United States or Foreign
Jurisdiction
Granted: US (10,464,938*), AU
Expiration Date
March 12, 2028 (US: does not include
expected 6-month extension in US for
pediatric studies)
Granted: US (8,648,077*; 9,199,995*;
9,586,960*; RE48,825*), EP (AT, BE, BG, CH,
CZ, DE, DK, EE, ES, FI, FR, GB, GR, HR, HU,
IE, IT, LT, LU, LV, NL, NO, PL, PT, RO, SE, SI,
SK, TR), AU, CA, CN, KR, HK, JP and MX
December 1, 2029 (US; does not include
expected 6-month extension for pediatric
studies; additional patent term extension
possible through 2033**);
March 12, 2029 (ex-US)
Pending in IL, IN
Granted: US (8,598,119*; 9,186,258,
9,616,061*, 10,702,522*; 10,117,867*;
RE48,839*), AU, CN, JP, KR, MX, EP
(allowed)
Pending: US (continuation), EP (divisional), IN,
KR (divisional), MX (divisional)
December 28, 2029 (US; does not include
expected 6-month extension for pediatric
studies; additional patent term extension
possible through 2033**);
May 27, 2029 (ex-US)
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Summary Description of Patent
or Patent Application
ITI-007 Residual Symptoms Patent (treatment of
negative/residual symptoms of schizophrenia)
Patents for Additional Dosage Forms
Patents for Additional Indications (including post-
traumatic stress disorder, impulse control disorder,
symptoms associated with dementia, acute
depression, and acute anxiety)
United States or Foreign
Jurisdiction
Granted: US (9,956,227*; 10,960,009*;
11,026,951*), AU, EP, JP, KR, MX, RU
Pending: US (continuation), AU (divisional), JP
(divisional), EP (divisional), IN, KR
(divisional), MX (divisional), CA, BR, IL, CN
Granted: US (10,695,345*; 11,052,084*)
Pending: US (continuation), AU, CA, CN, EP,
IN, IL, JP, KR, MX, RU
Granted: US (11,053,245; 11,124,514)
Granted or pending in US, EP, JP, and other
countries
Expiration Date
December 3, 2034 (US and ex-US; does not
include expected US 6-month extension for
pediatric studies;)
2037-2039
2033-2034
*
Orange-Book listed U.S. patents (NB: U.S. 8,598,119 and U.S. 9,586,960 have been requested for delisting as they have been superseded by
RE48,839 and RE48,825, respectively)
** We have filed patent term extension applications on two U.S. patents. The U.S. Patent and Trademark Office, or USPTO, has not completed its
review of these applications. In the United States, we are permitted to extend the term of one U.S. patent for lumateperone or the use thereof.
Accordingly, on completion of the USPTO’s review of our patent term extension applications, we must select one of the two patents to which any
patent term extension granted will attach. Patent terms may be subject to change not only due to potential patent term extensions but also to any
terminal disclaimer that reduces patent term, as well as other factors. Because the U.S. patent laws and related judicial interpretations change,
modifications or new interpretations of the laws may impact our patent terms.
Our ITI-1284 program relates to novel lumateperone derivatives for the treatment of behavioral disturbances associated with dementia, and other
central nervous system disorders. Six families of patent applications have been filed, which have already resulted in eight U.S. patents and fifteen
foreign patents. The ITI-1284 molecule has composition of matter protection to 2037, with possible extensions and additional Orange Book-listable
protection to 2042.
Our program on PDE1 inhibitors for cognition, dopamine-mediated and other disorders, cardiovascular disorders, as well as several others,
includes patent protection across 55 families, including 31 families for the lead molecule, lenrispodun, as well as a wide range of filings on other
proprietary compounds and indications. The lenrispodun lead molecule has composition of matter protection to 2029, with possible extensions and
additional Orange Book-listable protection to 2034. Additionally, we expect to have data exclusivity in the European Union (EU) for up to 11 years from
commercial launch. We have obtained patent coverage for lenrispodun in the treatment of cardiovascular disorders, including heart failure, that extends
to 2034. We are also evaluating potential follow-on compounds for lenrispodun which would have patent protection beyond 2030.
Our ITI-333 program relates to novel compounds for the non-addictive treatment of pain and for the treatment of opiate use disorder. 18 families
of patent applications have been filed, including five families which have already resulted in six U.S. patents and three EP grants, as well as thirteen
other foreign grants. 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).
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We have also filed patent applications on novel proprietary targets and lead compounds for AD, which would provide compound protection
beyond 2028 or beyond 2034, depending on which compound is ultimately selected for development.
License Agreement
The Bristol-Myers Squibb License Agreement
On May 31, 2005, we entered into a worldwide, exclusive License Agreement with Bristol-Myers Squibb Company, or BMS, pursuant to which
we hold a license to certain patents and know-how of BMS relating to lumateperone and other specified compounds. The agreement was amended on
November 3, 2010. The licensed rights are exclusive, except BMS retains rights in specified compounds in the fields of obesity, diabetes, metabolic
syndrome and cardiovascular disease. However, BMS has no right to use, develop or commercialize lumateperone and other specified compounds in any
field of use. We have the right to grant sublicenses of the rights conveyed by BMS. We are obliged under the license to use commercially reasonable
efforts to develop and commercialize the licensed technology. We are also prohibited from engaging in the clinical development or commercialization of
specified competitive compounds.
Under the agreement, we made an upfront payment of $1.0 million to BMS, a milestone payment of $1.25 million in December 2013, and a
milestone payment of $1.5 million in December 2014 following the initiation of our first Phase 3 clinical trial for lumateperone for patients with
schizophrenia. Upon FDA acceptance of a New Drug Application, or NDA, filing for lumateperone, we were obligated to pay BMS a $2.0 million
milestone payment. The FDA accepted our NDA filing for lumateperone for the treatment of schizophrenia in the third quarter of 2018 and, as a result,
we paid the milestone payment in the first quarter of 2019. The FDA approved our NDA filing on December 23, 2019 and as a result, we accrued
$5.0 million related to that milestone in the fourth quarter of 2019 which was paid in the first quarter of 2020. Remaining potential milestone payments
under the agreement with respect to lumateperone total $5.0 million if approvals to market the product are received in certain countries outside the U.S.
Under the agreement, we may be obliged to make other milestone payments to BMS, for licensed products other than lumateperone, of up to an
aggregate of approximately $14.75 million. We are also obliged to make tiered single digit percentage royalty payments ranging between 5 – 9% on
sales of licensed products. We are obliged to pay to BMS a percentage of non-royalty payments made in consideration of any sublicense.
The agreement extends, and royalties are payable, on a country-by-country and product-by-product basis, through the later of ten years after first
commercial sale of a licensed product in such country, expiration of the last licensed patent covering a licensed product, its method of manufacture or
use, or the expiration of other government grants providing market exclusivity, subject to certain rights of the parties to terminate the agreement on the
occurrence of certain events. On termination of the agreement, we may be obliged to convey to BMS rights in developments relating to a licensed
compound or licensed product, including regulatory filings, research results and other intellectual property rights.
Manufacturing
We do not own or operate manufacturing facilities for the production of CAPLYTA or any of our product candidates, nor do we have plans to
develop our own manufacturing operations in the foreseeable future. We currently rely on third-party contract manufacturers for all of our required raw
materials inclusive of active pharmaceutical ingredient, or API, and its intermediates, as well as finished product for commercial sales of CAPLYTA and
for ournonclinical research and clinical trials, including our ongoing and anticipated trials. We believe that we would be able to contract with other third-
party contract manufacturers to obtain active pharmaceutical ingredients, or API, if our existing sources of API were no longer available, but there is no
assurance that API would be available from other third-party manufacturers on acceptable terms, on the timeframe that our business would require, or at
all.
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The Siegfried Supply Agreement
On January 4, 2017, we entered into a supply agreement with Siegfried Evionnaz SA, an affiliate of Siegfried AG, or Siegfried. Following the
automatic expiration of the agreement on January 4, 2023, we entered into a new supply agreement with Siegfried effective January 5, 2023, or the
Siegfried Agreement. Under the Siegfried Agreement, Siegfried has agreed to manufacture and supply the API for lumateperone in commercial
quantities. We agreed to provide Siegfried with a rolling forecast of our anticipated requirements for supply of the API. Under the agreement, our
purchase prices for supply of the API from Siegfried are specified prices based on the volume of API produced. The initial term of the Siegfried
Agreement is three years until January 5, 2026. The Siegfried Agreement will automatically renew on an evergreen basis for a
consecutive one-year period, unless either party notifies the other party of its election to not renew the agreement at least 12 months prior to the end of
the initial term or any renewal period then in effect. Either party may terminate the agreement prior to its expiration upon an uncured material breach by
the other party, the liquidation or dissolution of the other party, the commencement of insolvency procedures or other bankruptcy-related proceedings
that are not dismissed within a certain period of time, the appointment of any receiver, trustee or assignee to take possession of the properties of the
other party, the cessation of all or substantially all of the other party’s business operations, or a continuing force majeure event affecting the other party.
Under the Siegfried Agreement, we have the right to and may purchase the API for lumateperone from other suppliers. As of December 31, 2022, the
Company has committed to purchasing production campaigns of API and intermediate product from Siegfried that are expected to be delivered in 2023
and 2024.
The Lonza Manufacturing Services Agreement
On January 10, 2017, we entered into a manufacturing services agreement, as amended on December 19, 2022, or the Lonza Agreement, with
Lonza Ltd., or Lonza. Under the Lonza Agreement, Lonza has agreed to manufacture and supply the API for lumateperone, with purchase prices
specified based on the volume produced. We agreed to provide Lonza with a written forecast of our estimated quarterly requirements. On December 19,
2022, the Lonza Agreement was amended to, among other items, extend the current term of the agreement until December 31, 2028 and provide for
certain minimum annual purchase commitments by the Company for the years 2025 through 2028 for delivery in 2026 through 2029. Either party may
terminate the agreement prior to its expiration upon a prior written notice, an uncured material breach by the other party, the insolvency, liquidation,
dissolution or bankruptcy of the other party, or a continuing force majeure event affecting the other party, and may be extended by mutual consent. As of
December 31, 2022, the Company has committed to purchasing production campaigns of API and intermediate products from Lonza that are expected to
be delivered in 2023 and 2024.
Development and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, that comply
with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal
resources to manage our manufacturing contractors.
Commercial Operations
We initiated the commercial launch of CAPLYTA for the treatment of schizophrenia in adults in the United States in March 2020. In December
2021 we launched CAPLYTA for the treatment of bipolar depression in adults. In support of our commercialization efforts we employ a national sales
force consisting of approximately 370 sales representatives. In the future, we may choose to commercialize CAPLYTA or any other products, in markets
outside of the United States, if approved for sale in such markets, by establishing one or more strategic alliances.
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Customers
We are currently approved to sell CAPLYTA for the treatment of schizophrenia in adults and for the treatment of bipolar depression in adults in
the U.S. CAPLYTA is priced in line with other currently marketed branded antipsychotics indicated for the treatment of schizophrenia and for the
treatment of bipolar depression. We distribute CAPLYTA principally through three third-party wholesale drug distributors whose concentration are each
between 28% and 39% of total sales.
Competition
We face, and will continue to face, intense competition from pharmaceutical and biotechnology companies, as well as numerous academic and research
institutions and governmental agencies, both in the United States and abroad. We compete, or will compete, with existing and new products being
developed by our competitors. Some of these competitors are pursuing the development of pharmaceuticals that target the same diseases and conditions
that our research and development programs target.
Even if we are successful in commercializing CAPLYTA and developing and obtaining approval of our product candidates, we would compete
with a variety of established drugs in the areas of our targeted CNS therapeutic indications. CAPLYTA for the treatment of schizophrenia and for the
treatment of bipolar depression competes with, among other branded products, Fanapt®, marketed by Vanda Pharmaceuticals, Lybalvi®, marketed by
Alkermes, Rexulti®, marketed by Otsuka Pharmaceutical, and Vraylar®, marketed by AbbVie. In addition, CAPLYTA competes and our product
candidates, if approved, would compete with, among other generic antipsychotic products, aripiprazole, clozapine, haloperidol, lurasidone, olanzapine,
paliperidone, quetiapine/XR and risperidone.
In addition, the companies described above and other competitors may have a variety of drugs in development or be awaiting FDA approval that
could reach the market and become established before our approved product is established in the market or before we are able to sell our product
candidates, if approved. Our competitors may also develop alternative therapies that could further limit the market for any drugs that we may develop.
Many of our competitors are using technologies or methods different or similar to ours to identify and validate drug targets and to discover novel small
molecule drugs. Many of our competitors and their collaborators have significantly greater experience than we do in the following:
•
•
•
•
identifying and validating targets;
screening compounds against targets;
nonclinical studies and clinical trials of potential pharmaceutical products; and
obtaining FDA and other regulatory clearances.
In addition, many of our competitors and their collaborators have substantially greater advantages in the following areas:
•
•
•
•
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 collaborative
arrangements with large pharmaceutical and established biotechnology companies. Many of our competitors have products that have been approved by
the FDA or are in advanced development. We face competition from other companies, academic institutions, governmental agencies and other public
and private research organizations for collaborative arrangements with pharmaceutical and biotechnology companies,
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in recruiting and retaining highly qualified commercial, scientific and management personnel and for licenses to additional technologies. Our
competitors, either alone or with their collaborators, may succeed in developing technologies or drugs that are more effective, safer, and more affordable
or more easily administered than ours and may achieve patent protection or commercialize drugs sooner than us. Developments by others may render
our product candidates or our technologies obsolete. Our failure to compete effectively could have a material adverse effect on our business.
Government Regulation
United States—FDA Process
The research, development, testing, manufacture, labeling, promotion, advertising, import and export, distribution and marketing, among other
things, prescription of drug products are extensively regulated by governmental authorities in the United States and other countries. In the United States,
the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply with the
applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, clinical holds,
warning letters, fines, civil penalties, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or
criminal prosecution.
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 in
the United States generally include the following:
•
•
•
•
•
•
•
completion of extensive nonclinical laboratory tests, potentially animal studies, and formulation studies in accordance with the FDA’s
Good Laboratory Practice, or GLP, regulations;
submission to the FDA of an Investigational New Drug application, or IND, for human clinical testing, which must become effective
before human clinical trials may begin;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposed
indication;
submission to the FDA of an NDA after completion of all clinical trials;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the API and finished drug
product are produced and tested to assess compliance with current Good Manufacturing Practices, or cGMPs;
satisfactory completion of FDA inspections of clinical trial sites to assure that data supporting the safety and effectiveness of the product
candidate 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.
Nonclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The Consolidated
Appropriations Act for 2023, signed into law on December 29, 2022, (P.L. 117-328) amended the FDCA to specify that nonclinical testing for drugs
may, but is not required to, include in vivo animal testing. According to the amended language, a sponsor may fulfill nonclinical testing requirements by
completing various in vitro assays (e.g., cell-based assays, organ chips, or microphysiological systems), in silico studies (i.e., computer modeling), other
human or non-human biology-based tests (e.g., bioprinting), or in vivo animal tests. The conduct of the nonclinical tests and formulation of the
compounds for testing must comply with federal regulations and requirements. The results of the nonclinical tests, together with manufacturing
information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An
IND will automatically become effective 30 days after receipt by the FDA,
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unless before that time the FDA raises concerns or questions about the conduct of the trial, such as whether human research subjects will be exposed to
an unreasonable health risk. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials
can proceed. The FDA, the trial’s sponsor or an Institutional Review Board, or IRB, overseeing the trial also may place a study on hold at any time
during its execution.
Clinical trials involve administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials
are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be
evaluated. Each protocol must be provided to the FDA as part of a separate submission to the IND. Further, an IRB, for each site proposing to conduct
the clinical trial, must review and approve the study protocol and informed consent information for study subjects for any clinical trial before it
commences at that center, and the IRB must monitor the study until it is completed. There are also requirements governing reporting of on-going clinical
trials and clinical trial results to public registries. Failure to timely register a covered clinical study or to submit study results as provided for in the law
can give rise to civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. The
ClinicalTrials.gov registration and reporting final rule became effective in 2017, and the government has begun enforcing those requirements against
non-compliant clinical trial sponsors. Study subjects must provide informed consent before being enrolled to participate in a clinical trial.
Clinical trials necessary for product approval typically are conducted in three sequential phases, but the phases may overlap.
•
•
•
Phase 1 usually involves the initial introduction of the investigational drug into a limited population, typically healthy humans, to evaluate
its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early
indication of its effectiveness.
Phase 2 usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy of the drug for specific targeted indications. Multiple Phase 2
clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.
Phase 3 trials, commonly referred to as pivotal studies, are undertaken in an expanded patient population at multiple, geographically
dispersed clinical trial centers to further evaluate clinical efficacy and test further for safety by using the drug in its final form.
The FDA may approve an NDA for a product candidate, but require that the sponsor conduct additional clinical trials to further assess the drug
after NDA approval under a post-approval commitment. Post-approval trials are typically referred to as Phase 4 clinical trials.
Congress also recently amended the FDCA, as part of the Consolidated Appropriations Act for 2023, in order to require sponsors of a Phase 3
clinical trial, or other “pivotal study” of a new drug to support marketing authorization, to design and submit a diversity action plan for such clinical
trial. The action plan must include the sponsor’s diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor
will meet them. Sponsors must submit a diversity action plan to the FDA by the time the sponsor submits the relevant clinical trial protocol to the
agency for review. The FDA may grant a waiver for some or all of the requirements for a diversity action plan. It is unknown at this time how the
diversity action plan may affect Phase 3 trial planning and timing or what specific information FDA will expect in such plans, but if the FDA objects to
a sponsor’s diversity action plan, it may delay trial initiation.
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During the development of a new drug, sponsors are given an opportunity to meet with the FDA at certain points. These points may be prior to
submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an
opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to
reach an agreement on the next phase of development. Sponsors typically use the end of Phase 2 meeting to discuss their Phase 2 clinical results and
present their plans for the pivotal Phase 3 clinical trial that they believe will support approval of the new drug. A sponsor may request a Special Protocol
Assessment, or SPA, to reach an agreement with the FDA that the protocol design, clinical endpoints, and statistical analyses are acceptable to support
regulatory approval of the product candidate with respect to effectiveness in the indication studied. If such an agreement is reached, it will be
documented and made part of the administrative record, and it will be binding on the FDA except in limited circumstances, such as if the FDA identifies
a substantial scientific issue essential to determining the safety or effectiveness of the product after clinical studies begin, or if the sponsor fails to follow
the protocol that was agreed upon with the FDA. There is no guarantee that a study will ultimately be adequate to support an approval even if the study
is subject to an SPA.
Concurrent with clinical trials, companies usually complete additional animal safety studies and must also develop additional information about
the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The
manufacturing process must be capable of consistently producing quality batches of the drug candidate and the manufacturer must develop methods for
testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging must be selected and tested and stability studies must be
conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
Assuming successful completion of the required clinical testing, the results of nonclinical studies and of clinical studies, together with other
detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA
requesting approval to market the product for one or more indications. An NDA must be accompanied by a significant user fee, and the sponsor of an
approved NDA is also subject to an annual program fee. These fees are typically adjusted annually, but exemptions and waivers may be available under
certain circumstances. The NDA is subject to a sixty-day acceptance period, and if sufficiently complete to permit substantive review, will be filed by
the FDA at the end of that period. For NDAs that are assigned a standard review designation, the FDA’s goal is to complete its review ten months from
the date the FDA files the NDA and, for NDA determined by the agency to be eligible for priority review, six months from the date the FDA files the
NDA. These goals can be extended by the FDA through requests for additional information from the sponsor.
The testing and approval process requires substantial time, effort and financial resources. The FDA will review the NDA to determine, among
other things, whether product candidate is safe and effective for its intended use. FDA may refuse to approve an NDA if the applicable regulatory
criteria are not satisfied or may require additional clinical or other data and information. The FDA may also refer the application to the appropriate
advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The
FDA is not bound by the recommendations of the advisory committee, but it typically follows such recommendations.
Before approving an NDA, the FDA inspects the facility or the facilities at which the drug and/or its active pharmaceutical ingredient is
manufactured and will not approve the product unless the manufacturing is in compliance with cGMPs. On the basis of the FDA’s evaluation of the
NDA and accompanying information, including the results of the inspection of the manufacturing facilities, it may issue an approval letter or a Complete
Response Letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA
may require post-marketing testing and surveillance to monitor the drug’s safety or efficacy, or impose other conditions, as discussed further below. A
Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its current form. A
Complete Response Letter outlines the deficiencies in the submission and may
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require additional clinical data and/or additional clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical
trials, nonclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may choose to either resubmit the NDA addressing all
of the deficiencies identified in the letter or withdraw the application. Even if such additional information is submitted, the FDA may ultimately decide
that the NDA does not satisfy the criteria for approval. Data from clinical trials is not always conclusive and the FDA may interpret data differently than
we or our collaborators interpret data. Alternatively, the FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy, or REMS, to
mitigate risks of the drug, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted
distribution methods, patient registries or other risk minimization tools. Once the FDA approves a drug, the FDA may withdraw product approval if
on-going regulatory requirements are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing,
including Phase 4 clinical trials, and surveillance programs to monitor the safety of approved products that have been commercialized, and the FDA has
the power to prevent or limit further marketing of a product based on the results of these post-marketing programs or other information.
Post-Approval Requirements. After a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements
be satisfied, including the conduct of additional clinical trials. If post-approval conditions are not satisfied, the FDA may withdraw its approval of the
drug. 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 a company can market products for additional indications, it must
obtain additional approvals from the FDA, typically through the submission and approval of a supplemental NDA. Obtaining approval for a new
indication generally requires that additional clinical trials be conducted. A company cannot be sure that any additional approval for new indications for
any product candidate will be approved on a timely basis, or at all.
In addition, holders of an approved NDA are required to (i) report certain adverse reactions to the FDA and maintain pharmacovigilance programs
to proactively look for these adverse events; (ii) comply with certain requirements concerning advertising and promotional labeling for their products;
and (iii) continue to have quality control and manufacturing procedures conform to cGMPs after approval. The FDA periodically inspects the sponsor’s
records related to safety reporting and the approved drug’s manufacturing facilities, which includes assessment of on-going compliance with cGMPs.
Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP
compliance. We intend to continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and future FDA
inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require
substantial resources to correct. In addition, discovery of problems with a product after approval may result in new restrictions on a product,
manufacturer or holder of an approved NDA, including recall of the product from the market, imposition of a REMS program, or withdrawal of
approval of the NDA for that drug, among other potential consequences.
Moreover, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or the PDMA, which
regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug
distributors by the states. Both the PDMA and state laws limit the distribution of prescription drug product samples and impose requirements to ensure
accountability in distribution. Most recently, the Drug Supply Chain Security Act, or DSCSA, was enacted with the aim of building an electronic system
to identify and trace certain prescription drugs distributed in the United States. The DSCSA mandates phased-in and resource-intensive obligations for
pharmaceutical manufacturers, wholesale distributors, and dispensers over a ten-year period that is expected to culminate in November 2023. From time
to time, new legislation and regulations may be implemented that could significantly change the statutory provisions governing the approval,
manufacturing and marketing of products regulated by the FDA. It is impossible to predict whether further legislative or regulatory changes will be
enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.
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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 compensation
for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining
term 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 between
the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that
application. Only one patent applicable to an approved drug is eligible for the extension and the extension must be requested prior to expiration of the
patent. Also, the approval must be the first permitted commercial marketing or use of the active ingredient under the relevant provision of law. The
USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. We have applied for, and in the
future we intend to apply for, restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current
expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.
Data and market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA
provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical
entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the
molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new
drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or
have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a
certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or
supplement to an existing NDA if new clinical investigations, other than bioavailability studies, conducted or sponsored by the applicant are deemed by
the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year
exclusivity covers only the data and information associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs
or 505(b)(2) NDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full
NDA; however, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to all of the nonclinical studies and
clinical trials necessary to demonstrate safety and effectiveness. The FDCA also provides seven years of market exclusivity for a drug designated for a
rare disease or condition (e.g., a disease or condition that affects less than 200,000 people in the United States) that begins to run after the drug’s
marketing approval for that condition. The exclusivity prohibits the approval of the same drug for the same disease or condition unless there is a
showing of clinical superiority or other exceptions are triggered.
Foreign Regulation
In addition to regulations in the United States, we may become subject to a variety of foreign regulations governing clinical trials and commercial
sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory
authorities of foreign countries before we can commence clinical trials and approval of foreign countries or economic areas, such as the European
Union, before we 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 FDA
approval.
Pricing and Reimbursement
In the United States and internationally, sales of any approved products, and our ability to generate revenues on such sales, are dependent, in
significant part, on the availability of adequate coverage and reimbursement
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from third-party payors, such as state and federal governments, managed care providers and private insurance plans. Private insurers, such as health
maintenance organizations and managed care providers, have implemented cost-cutting and reimbursement initiatives and likely will continue to do so
in the future. These include establishing formularies that govern the drugs and biologics that will be offered and the out-of-pocket obligations of member
patients for such products. We may need to conduct pharmacoeconomic studies to demonstrate the cost-effectiveness of our products for formulary
coverage and reimbursement. Even with such studies, our products may be considered less safe, less effective or less cost-effective than existing
products, and third-party payors may not provide coverage and reimbursement for our product candidates, in whole or in part.
In addition, particularly in the United States and increasingly in other countries, we are required to provide discounts and pay rebates to state and
federal governments and agencies in connection with purchases of our products that are reimbursed by such entities. It is possible that future legislation
in the United States and other jurisdictions could be enacted to potentially impact reimbursement rates for the products we are developing and may
develop in the future and could further impact the levels of discounts and rebates paid to federal and state government entities. Any legislation that
impacts these areas could impact, in a significant way, our ability to generate revenues from sales of any approved product that we bring to market. Most
recently, on August 16, 2022, President Biden signed into the law the Inflation Reduction Act of 2022, or the IRA. Among other things, the IRA has
multiple provisions that may impact the prices of drug products that are both sold into the Medicare program and throughout the United States. Starting
in 2023, a manufacturer of drugs or biological products covered by Medicare Parts B or D must pay a rebate to the federal government if their drug
product’s price increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate
owed to the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, starting
for payment year 2026, the Centers for Medicare & Medicaid Services (CMS) will negotiate drug prices annually for a select number of single source
Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment
year 2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue generated from such drug will decrease. CMS has begun
to implement these new authorities but their impact on the pharmaceutical industry in the United States remains uncertain. In addition to the IRA’s drug
price negotiation provisions, President Biden’s Executive Order 14087, issued in October 2022, called for CMS to prepare and submit a report to the
White House on potential payment and delivery modes that would complement to IRA, lower drug costs, and promote access to innovative drugs. As of
mid-January 2023, the report had not been released but it is expected to further inform the current Administration’s priorities and activities in this area.
Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental changes. There have
been, and we expect there will continue to be, legislative and regulatory proposals to change the health care system in ways that could significantly
affect our future business. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act of 2010, or collectively, the ACA, enacted in March 2010, substantially changed the way health care is financed by both
governmental and private insurers. Certain legislative changes to and regulatory changes under the ACA have occurred over the past few years and
further legislative changes to and regulatory changes under the ACA remain possible. We expect that healthcare reform measures that may be adopted in
the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that may be charged
for any of our product candidates, if approved. Individual states in the United States have also increasingly passed legislation and implemented
regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain
product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries
and bulk purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate
pharmaceutical benefit managers (PBMs) and other members of the health care and pharmaceutical supply chain, an important decision that appears to
be leading towards further and more aggressive efforts by states in this area. The Federal Trade Commission in mid-2022 also launched sweeping
investigations into the practices of the PBM industry
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that could lead to additional federal legislative or regulatory proposals targeting such entities’ operations, pharmacy networks, or financial arrangements.
Significant efforts to change the PBM industry as it currently exists in the U.S. may affect the entire pharmaceutical supply chain and the business of
other stakeholders, including pharmaceutical companies like us.
Sales and Marketing
The FDA, in conjunction with the U.S. Federal Trade Commission, or FTC, regulates all advertising and promotion activities for products under
FDA’s jurisdiction prior to and after approval, including standards and regulations for direct-to-consumer advertising, dissemination of off-label
information, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Drugs may be marketed only for
the approved indications and in accordance with the provisions of the approved label. Failure to comply with applicable FDA requirements may subject
a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties
available to the FDA. There are also continuing annual user fee requirements that are now assessed as program fees for certain NDA-approved drugs.
Physicians may prescribe legally available drugs for uses that are not described in the drug’s labeling and that differ from those tested by us and
approved by the FDA. Such off-label uses are common across medical specialties, and often reflect a physician’s belief that the off-label use is the best
treatment for the patient. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent
restrictions on manufacturers’ communications regarding off-label uses.
Our commercial marketing of CAPLYTA and related business activities could become subject to scrutiny and enforcement under one or more
federal or state health care fraud and abuse laws and regulations. These fraud and abuse laws, and other applicable health care laws include:
•
The federal Anti-Kickback Law, which prohibits, among other things, knowingly or willingly offering, paying, soliciting or receiving
remuneration, directly or indirectly, in cash or in kind, to induce or reward the purchasing, leasing, ordering or arranging for or
recommending the purchase, lease or order of any goods or services for which payment may be made, in whole or in part, by federal health
care programs such as Medicare and Medicaid;
•
The federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to
be presented, a false or fraudulent claim for payment of government funds or knowingly making, using or causing to be made or used, a
false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly
avoiding, decreasing or concealing an obligation to pay money to the federal government, and which provides for civil whistleblower or
qui tam actions against individuals or entities alleged to have submitted a false claim;
•
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal liability for knowingly and
willfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a health care
benefit program, willfully obstructing a criminal investigation of a health care offense, or knowingly and willfully making false statements
relating to healthcare matters;
•
•
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also
imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information;
The federal Physician Payment Sunshine Act, which requires manufacturers of FDA-approved drugs (among others) covered by Medicare
or Medicaid to report to CMS, on an annual basis,
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information related to payments and other transfers of value to physicians, teaching hospitals, and certain advanced non-physician health
care practitioners and physician ownership and investment interests, with such data then being made publicly available on a website
maintained by CMS called Open Payments; and
•
Analogous state and foreign laws and regulations, including state anti-kickback and false claims laws, which may apply to items or
services reimbursed under Medicaid and other state programs or, in several states, apply regardless of the payer, as well as other state laws
that require pharmaceutical companies to report expenses related to the marketing and promotion of pharmaceutical products, prohibit
certain gifts or payments to health care providers in the state, and/or require pharmaceutical companies to implement compliance programs
or marketing codes of conduct.
State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in
significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. We also are subject to, or may in the future become
subject to, U.S. federal and state, and foreign laws and regulations imposing obligations on how we collect, use, disclose, store and process personal
information. Our actual or perceived failure to comply with such obligations could result in liability or reputational harm and could harm our business.
Violations of fraud and abuse laws, or other health care laws may be punishable by significant criminal and/or civil sanctions, including fines and
civil monetary penalties, the possibility of exclusion from federal health care programs (including Medicare and Medicaid) and corporate integrity
agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties also
may be imposed upon executive officers and employees, including criminal sanctions against executive officers under the so-called “responsible
corporate officer” doctrine, even in situations where the executive officer did not intend to violate the law and was unaware of any wrongdoing. Given
the penalties that may be imposed on companies and individuals if convicted, allegations of such violations often result in settlements even if the
company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary
penalties, and corporate integrity agreements. If the government was to allege or convict us or our executive officers, employees or consultants of
violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions under some of the fraud and
abuse laws described above. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and
extensive enforcement of them by law enforcement authorities. Further, federal and state laws that require manufacturers to make reports on pricing and
marketing information could subject us to penalty provisions.
Human Capital
As of February 1, 2023, we employed 561 employees all of whom were full-time. We consider our relations with our employees to be good. To
successfully commercialize CAPLYTA and develop our drug candidates, we must be able to attract and retain highly skilled personnel. We anticipate
hiring a number of additional employees during 2023. We continually evaluate the business need and opportunity and balance in-house expertise and
capacity with outsourced expertise and capacity. Currently, we outsource substantial clinical trial work to clinical research organizations and drug
manufacturing to contract manufacturers.
Compensation and Benefits
We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees. Pharmaceutical
companies both large and small compete for a limited number of qualified applicants to fill specialized positions. To attract qualified applicants, we offer
a total rewards package consisting of base salary and cash target bonus, a comprehensive benefit package and equity compensation for every employee.
Bonus opportunity and equity compensation increase as a percentage of total compensation based on level of responsibility. Actual bonus payout is
based on performance.
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Diversity, Equity and Inclusion
Much of our success is rooted in the diversity of our teams and our commitment to inclusion. We value diversity at all levels. We believe that our
business benefits from the different perspectives a diverse workforce brings, and we pride ourselves on having a strong, inclusive and positive culture
based on our shared mission and values.
At all times we strive to distinguish ourselves as a respected biopharmaceutical company that is differentiated by top talent and innovative
research to develop products that address underserved medical needs.
Communication is critical in our ability to continuously enhance our company culture and create a more inclusive environment. The
implementation of an announcement board allowed us to share what is important and impactful to us as a business. It also allows for us to host events
that affect our employees on both a personal and professional level.
Health, Wellness and Safety
We believe that the safety and health of our employees and their families is essential to our business. Our culture is driven by a desire to do what is
right, and we strive to support the well-being of our employees. We prioritize the safety and well-being of our employees as they face both mental and
physical challenges related to the COVID-19 pandemic. Our employees have demonstrated great resilience during the pandemic, and we continue to
provide resources to support their well-being. Beginning in March 2020, we have supported our employees and government efforts to curb the
COVID-19 pandemic through a multi-faceted communication, infrastructure, and behavior modification and enforcement effort that includes:
•
•
•
establishing clear and regular COVID-19 policies, safety protocols, and updates to all employees;
strongly encouraging all office-based employees to work from home; and
implementing protocols to address actual and suspected COVID-19 cases and potential exposure.
Our financial, medical, and mental health benefits that were already in place prior to the COVID-19 pandemic were designed to help employees
through crisis, and we further expanded our offerings to create appropriate “work from home” conditions for success and wellness, including purchasing
additional IT equipment and office supplies and increasing communications related to our mental health benefits. In particular, we offered sessions on
mindfulness to further support the mental health of our employees.
Environmental, Social and Governance
Our commitment to integrating sustainability across our organization begins with our Board of Directors, or the Board. The Nominating and
Governance Committee of the Board has oversight of strategy and risk management related to Environmental, Social and Governance, or ESG.
Applying Nasdaq’s listing standards for independence, four of our five directors are independent.
All employees are responsible for upholding our core values, including to communicate, collaborate, innovate and be respectful, as well as for
adhering to our Code of Ethics and Business Conduct, including our policies on bribery, corruption, conflicts of interest and our whistleblower program.
We encourage employees to come to us with observations and complaints, ensuring we understand the severity and frequency of an event in order to
escalate and assess accordingly. Our Chief Compliance Officer strives to ensure accountability, objectivity, and compliance with our Code of Ethics and
Business Conduct. If a complaint is financial in nature, the Audit Committee Chair is notified concurrently, which triggers an investigation, action and
report.
We are committed to protecting the environment and attempt to mitigate any negative impact of our operations. We monitor resource use, improve
efficiency, and at the same time, reduce our emissions and waste.
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In order to reduce the overall impact of our product on the environment, we have taken steps to enhance the sustainability of our manufacturing
processes for our drug substances.
We are systematically addressing the environmental impacts of the buildings we rent as we make improvements, including adding energy control
systems and other energy efficiency measures. Waste in our own operation is minimized by our commitment to reduce both single-use plastics and
operating paper-free, primarily in a digital environment. We have safety protocols in place for handling biohazardous waste in our labs, and we use
third-party vendors for biohazardous waste and chemical disposal.
Corporate Information
We were originally incorporated in the State of Delaware in August 2012 under the name “Oneida Resources Corp.” Oneida Resources Corp. was
a “shell” company registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, with no specific business plan or purpose
until it began operating the business of Intra-Cellular Therapies, Inc. (now re-named ITI, Inc., or ITI) through a reverse merger transaction on
August 29, 2013, or the Merger. ITI was incorporated in Delaware in May 2001 to focus primarily on the development of novel drugs for the treatment
of neuropsychiatric and neurologic diseases and other disorders of the central nervous system. Effective upon the Merger, a wholly owned subsidiary of
the Company merged with and into ITI. ITI continues as the operating subsidiary of the Company. As used herein, the words the “Company,” “we,”
“us,” and “our” refer to Intra-Cellular Therapies, Inc. and its wholly owned subsidiary, ITI, Inc.
Our corporate headquarters and laboratory are located at 430 East 29th Street, New York, New York 10016, and our telephone number is
(646) 440-9333. We also have an office in Towson, Maryland. We maintain a website at www.intracellulartherapies.com, to which we regularly post
copies of our press releases as well as additional information about us. We make available free of charge through the Investors section of our web site
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as
reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The Securities and
Exchange Commission maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Securities and Exchange Commission. We include our web site address in this Annual Report on Form
10-K only as an inactive textual reference. Information contained in our website does not constitute a part of this report or our other filings with the
SEC.
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Item 1A.
RISK FACTORS
Except for the historical information contained herein, this report contains forward-looking statements that involve risks and uncertainties. These
statements include projections about our finances, plans and objectives for the future, future operating and economic performance and other statements
regarding future performance. These statements are not guarantees of future performance or events. Our actual results could differ materially from
those discussed in this report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the following
section, as well as those discussed in Part II, Item 7 titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and elsewhere throughout this report.
You should consider carefully the following risk factors, together with all of the other information included or incorporated by reference in this
report. If any of the following risks, either alone or taken together, or other risks not presently known to us or that we currently believe to not be
significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected. If
that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment.
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, including those highlighted in this section below, that represent challenges that we
face in connection with the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in more
detail in the risk factors below, alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows,
financial condition and results of operations. Such risks include, but are not limited to:
•
•
•
•
•
•
•
•
•
In order to execute our business plan and achieve profitability, we need to effectively expand the commercialization of CAPLYTA, which
received FDA approval in December 2019 for the treatment of schizophrenia in adults and in December 2021 for the treatment of bipolar
depression in adults.
If we do not obtain regulatory approval of lumateperone for other indications in the United States, or for any indication in foreign
jurisdictions, we will not be able to market lumateperone for other indications or in other jurisdictions, which will limit our commercial
revenues.
If the sales and marketing capabilities we have established or our third-party relationships for the commercialization of lumateperone are
not effective, lumateperone may not be successfully commercialized.
We have generated limited revenue from product sales and there is no guarantee that our revenue from the sale of CAPLYTA will result in
us achieving profitability.
There is no guarantee that our planned clinical trials for lumateperone will be successful.
We expect our net losses to continue and are unable to predict the extent of future losses or when we will become profitable, if ever.
We may require additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us
to delay, limit, reduce or cease our operations.
Our management has broad discretion over the use of our cash and we may not use our cash effectively, which could adversely affect our
results of operations.
Delays, suspensions and terminations in our clinical trials or the need to conduct additional clinical or nonclinical studies could result in
increased costs to us, delay our ability to generate product revenues and therefore may have a material adverse effect on our business,
results of operations and future growth prospects.
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Even though the FDA has granted approval of CAPLYTA for the treatment of schizophrenia and bipolar depression, the terms of the
approval may limit its commercial potential. Additionally, CAPLYTA is still subject to ongoing regulatory requirements.
Safety issues with our product candidates or approved product, or with product candidates or approved products of third parties that are
similar to our product candidates, could give rise to delays in the regulatory approval process, restrictions on labeling or product
withdrawal after approval.
Preliminary and interim data from our clinical studies that we may announce or publish from time to time may change as more patient data
become available.
We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that
prevent us from successfully commercializing our product candidates.
Even if we successfully complete the clinical trials of one or more of our product candidates, the product candidates may fail for other
reasons.
We are subject to ongoing regulatory obligations and restrictions with regard to CAPLYTA and, following regulatory approval of any of
our product candidates, we will be subject to ongoing regulatory obligations and restrictions with regard to such product candidates, which
may result in significant expense and limit our ability to commercialize lumateperone and our other potential products.
CAPLYTA and our product candidates, if approved, may not gain acceptance among physicians, patients, or the medical community,
thereby limiting our potential to generate revenues, which will undermine our future growth prospects.
We rely on third-party manufacturers to manufacture and supply lumateperone and our other product candidates for us. If one of our
suppliers or manufacturers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote
significant efforts to find new suppliers or manufacturers. We may also face significant delays in our clinical trials, regulatory approvals
and product introductions and commercialization.
We will need to continue to manage our organization and we may encounter difficulties with our staffing and any future transitions, which
could adversely affect our results of operations.
Our ability to compete may be undermined if we do not adequately protect our proprietary rights.
Our ability to generate product revenues will be diminished if lumateperone or any of our other potential products does not receive and
maintain coverage from payors or sells for inadequate prices, or if patients are unable to obtain adequate levels of reimbursement.
The COVID-19 pandemic could continue to have a material impact on our business, financial condition and results of operations, including
our commercial operations and sales, clinical trials and nonclinical studies.
Many of our competitors have greater resources and capital than us, putting us at a competitive disadvantage. If our competitors develop
and market products that are more effective than lumateperone or our other product candidates, they may reduce or eliminate our
commercial opportunity.
Numerous factors could result in substantial volatility in the trading price of our stock.
The price of our common stock could be subject to volatility related or unrelated to our operations.
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Risks Related to Our Business
In order to execute our business plan and achieve profitability, we need to effectively expand the commercialization of CAPLYTA, which received
FDA approval in December 2019 for the treatment of schizophrenia in adults and in December 2021 for the treatment of bipolar depression in
adults.
CAPLYTA is our only drug that has been approved for sale and it has been approved only for the treatment of schizophrenia in adults and bipolar
depression in adults in the United States only. We are focusing a significant portion of our activities and resources on CAPLYTA, and we believe our
prospects are highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully commercialize CAPLYTA
for the treatment of schizophrenia in adults and for the treatment of bipolar depression in adults in the United States.
Successful commercialization of CAPLYTA is subject to many risks. We have never, as an organization, launched or commercialized any other
product, and there is no guarantee that we will be able to successfully commercialize CAPLYTA for its approved indications. There are numerous
examples of failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than us.
We expect that continued commercial success of CAPLYTA for the treatment of schizophrenia and bipolar depression will depend on many factors,
including the following:
•
•
•
•
•
•
the efficacy, cost, approved use, and side-effect profile of CAPLYTA regimens relative to competitive treatment regimens for the treatment
of schizophrenia and bipolar depression;
the effectiveness of our commercial strategy for the marketing of CAPLYTA, including our pricing strategy and the effectiveness of our
efforts to obtain adequate third-party reimbursements;
maintaining and successfully monitoring commercial manufacturing arrangements for CAPLYTA with third-party manufacturers to ensure
they meet our standards and those of regulatory authorities, including the FDA, which extensively regulate and monitor pharmaceutical
manufacturing facilities;
our ability to meet the demand for commercial supplies of CAPLYTA;
the acceptance of CAPLYTA by patients, the medical community and third-party payors; and
the effect of recent or potential health care legislation in the United States.
While we believe that CAPLYTA for the treatment of schizophrenia and bipolar depression has a commercially competitive profile, we cannot
accurately predict the amount of revenue that will be generated from the sale of CAPLYTA. If we do not effectively commercialize CAPLYTA, we will
not be able to execute our business plan and may not be able to achieve profitability. If our revenues, market share and/or other indicators of market
acceptance of CAPLYTA do not meet the expectations of investors or public market analysts, the market price of our common stock would likely
decline.
If we do not obtain regulatory approval of lumateperone for other indications in the United States, or for any indication in foreign jurisdictions, we
will not be able to market lumateperone for other indications or in other jurisdictions, which will limit our commercial revenues.
While CAPLYTA has been approved by the FDA for the treatment of schizophrenia and bipolar depression in adults, lumateperone has not been
approved by the FDA for any other indications, and it has not been approved in any other jurisdiction for these indications or for any other indication. In
order to market lumateperone for other indications or in other jurisdictions, we must obtain regulatory approval for each of those indications and in each
of the applicable jurisdictions, and we may never be able to obtain such approval. Approval of CAPLYTA by the FDA for the treatment of schizophrenia
and bipolar depression does not ensure that foreign jurisdictions will also approve CAPLYTA for those indications, nor does it ensure that lumateperone
will be approved by the FDA for additional indications or populations. Lumateperone is in Phase 3 clinical
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development as an adjunctive therapy for the treatment of MDD. There is no guarantee that any ongoing or future studies of lumateperone in other
indications will be successful, or that the FDA or any regulatory authority in foreign jurisdictions will approve lumateperone for any of those
indications. The research, testing, manufacturing, labeling, approval, sale, import, export, marketing, and distribution of pharmaceutical product
candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, whose regulations
differ from country to country. We will be required to comply with different regulations and policies of the jurisdictions where we seek approval for our
product candidates, and we have not yet identified all of the requirements that we will need to satisfy to submit lumateperone for approval for other
indications or in other jurisdictions. This will require additional time, expertise and expense, including the potential need to conduct additional studies or
development work for other jurisdictions beyond the work that we have conducted to support our NDA submission in schizophrenia or our sNDA
submissions in bipolar depression. In addition, strategic considerations need to be taken into account when determining whether and when to submit
lumateperone for approval in other jurisdictions. If we do not receive marketing approval for lumateperone for any other indication or from any
regulatory agency outside of the United States, we will never be able to commercialize lumateperone for any other indication in the United States or for
any indication in any other jurisdiction. Even if we do receive additional regulatory approvals, we may not be successful in commercializing those
opportunities.
If the results or timing of regulatory filings, the regulatory process, regulatory developments, clinical trials or nonclinical studies, or other
activities, actions or decisions related to lumateperone do not meet our or others’ expectations, the market price of our common stock could decline
significantly.
If the sales and marketing capabilities we have established or our third-party relationships for the commercialization of lumateperone are not
effective, lumateperone may not be successfully commercialized.
Prior to the commercial launch of CAPLYTA in March 2020, we had no experience as a company in marketing drugs or with respect to pricing
and obtaining adequate third-party reimbursement for drugs. We continue to build our commercial organization and capabilities in the United States in
order to market CAPLYTA for the treatment of schizophrenia and bipolar depression. We will need to successfully complete the expansion of our
capabilities and/or enter into arrangements with third parties to sell and market CAPLYTA for the treatment of schizophrenia and bipolar depression
and, if approved, to sell and market our other product candidates. If our sales and marketing capabilities or our third-party relationships for the
commercialization of our products are not effective, our business could be materially harmed.
We have generated limited revenue from product sales and there is no guarantee that our revenue from the sale of CAPLYTA will result in us
achieving profitability.
Our ability to generate revenue from product sales and achieve profitability depends on our ability to successfully commercialize CAPLYTA for
the treatment of schizophrenia and bipolar depression in adults in the United States as well as our ability to complete the development of and obtain
regulatory approvals necessary to commercialize lumateperone in other indications or to manufacture and market our other product candidates. We have
a limited operating history on which to evaluate our business and prospects. To date, we have generated limited product revenues from CAPLYTA and
we cannot guarantee that CAPLYTA will be successfully commercialized or that any of our product candidates currently in development will ever
become marketable products.
We must demonstrate that our product candidates satisfy rigorous standards of safety and efficacy for their intended uses before the FDA and other
regulatory authorities in the European Union and elsewhere will approve them for commercialization. Significant additional research, nonclinical testing
and clinical testing is required before we can submit applications to the FDA or other regulatory authorities for approval of our drug candidates. In
addition, to compete effectively, our drugs must be easy to administer, cost-effective and economical to manufacture on a commercial scale. We may not
achieve any of these objectives.
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Lumateperone is in Phase 3 clinical development as a novel treatment for MDD. Patient enrollment in Study 501 and Study 502, global Phase 3
clinical trials evaluating lumateperone 42 mg as an adjunctive therapy to antidepressants for the treatment of MDD, is ongoing. In addition, in the
second quarter of 2023, we expect to initiate a third global Phase 3 trial, Study 505, also evaluating lumateperone 42 mg as an adjunctive therapy to
antidepressants for the treatment of MDD. Study 505 is intended to serve as a potential additional registration trial in support of an sNDA, for approval
of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD, if needed. This is a common strategy employed in mood disorder
development programs. Subject to the results of Study 501 and Study 502, we expect to file an sNDA with the FDA for approval of lumateperone as an
adjunctive therapy to antidepressants for the treatment of MDD in 2024.In the first quarter of 2020, as part of our lumateperone bipolar depression
clinical program, we initiated our third monotherapy Phase 3 study, Study 403, evaluating lumateperone as monotherapy in the treatment of major
depressive episodes associated with bipolar I or bipolar II disorder. Following the positive results in our adjunctive study that was part of our bipolar
depression clinical program, Study 402, we amended Study 403 to evaluate major depressive episodes with mixed features in bipolar disorder in patients
with bipolar I or bipolar II disorder and mixed features in patients with MDD. Clinical conduct in Study 403 has been completed, and we expect to
report topline results in the first quarter of 2023. Following reporting of topline results, we intend to discuss the results with the FDA to determine
whether this study will provide supportive data for a potential future regulatory filing for this indication.
In addition, we intend to pursue the development of our PDE program, including lenrispodun for the treatment of several CNS and non-CNS
conditions, including cardiovascular disease. Following the favorable safety and tolerability results in our Phase 1 program, we initiated our
development program for lenrispodun for Parkinson’s disease. In the fourth quarter of 2018, we announced that the Phase 1/2 clinical trial of
lenrispodun has been completed and topline results demonstrated lenrispodun was generally well-tolerated with a favorable safety profile and clinical
signs consistent with improvements in motor symptoms and dyskinesias. We have initiated our Phase 2 clinical program with lenrispodun for
Parkinson’s disease and expect to commence patient enrollment in the first quarter of 2023.
We cannot be certain that the clinical development of these or any other drug candidates in nonclinical testing or clinical development will be
successful, that we will receive the regulatory approvals required to commercialize them or that any of our other research and drug discovery programs
will yield a drug candidate suitable for investigation through clinical trials.
There is no guarantee that our planned clinical trials for lumateperone will be successful.
The historical rate of failures for product candidates in clinical development and late-stage clinical trials is high. We are conducting and plan to
conduct further clinical trials in lumateperone in indications beyond schizophrenia and bipolar depression, and there is no guarantee that we will have
the same level of success in these trials as we have had in certain of our previous clinical trials, or be successful at all.
In addition, although we believe that lumateperone and follow-on compounds may also have clinical utility in indications other than schizophrenia
and bipolar depression, such as behavioral disturbances in dementia, intermittent explosive disorder, non-motor disorders associated with Parkinson’s
disease, obsessive compulsive disorder and anxiety disorders and post-traumatic stress disorder, we have never tested lumateperone in Phase 3 clinical
trials in the patient populations for these other indications, except for our ITI-007-201 Phase 3 trial in patients with a clinical diagnosis of probable AD
and clinically significant symptoms of agitation, which we determined to discontinue following our independent data monitoring committee’s, or
DMC’s, recommendation that the study should be stopped for futility.
If we do not successfully complete clinical development and obtain approval of lumateperone in indications beyond schizophrenia and bipolar
depression, we will be unable to market, sell and generate revenue from lumateperone in any of these other indications. Even though we have
successfully completed certain clinical
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trials for CAPLYTA in patients with schizophrenia and bipolar depression, those results are not necessarily predictive of results of future trials that may
be needed before we may submit an NDA to the FDA for any indication beyond schizophrenia and bipolar depression. Of the vast number of drugs in
development, only a small percentage result in the submission of an NDA to the FDA, and even fewer result in the NDA ultimately being approved by
the FDA for commercialization.
We expect our net losses to continue 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 inception. As of December 31, 2022, we had an accumulated deficit of approximately
$1.5 billion. We expect to continue to incur net losses as we advance our programs and incur significant clinical development costs. To date, we have
received limited revenues from the commercialization of CAPLYTA. Prior to our commercial launch of CAPLYTA in March 2020, substantially all of
our revenues were from our license and collaboration agreement with Takeda and our agreements with various U.S. governmental agencies and other
parties, including our research and development grants. To obtain revenues from lumateperone, we must successfully commercialize lumateperone in its
approved indications. To obtain revenues from our product candidates, we must succeed, either alone or with others, in developing, obtaining regulatory
approval for, and manufacturing and marketing drugs with significant market potential. We may never succeed in these activities, and may never
generate revenues that are significant enough to achieve profitability.
We may require additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay,
limit, reduce or cease our operations.
We have consumed substantial amounts of capital since our inception. Our cash, cash equivalents, investment securities and restricted cash totaled
$593.7 million at December 31, 2022. With our cash, cash equivalents and investment securities, we intend to fund our drug development programs and
our working capital needs in connection with the commercialization of CAPLYTA. Accordingly, we may require additional capital to continue our
clinical development and commercialization activities. Because successful development of our product candidates is uncertain, we are unable to estimate
the actual funds we will require to complete research and development and commercialize our products under development.
Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:
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the amount of product sales from lumateperone;
the costs of maintaining and expanding our sales and marketing capabilities for lumateperone;
the costs of preparing applications for regulatory approvals for lumateperone in additional indications beyond schizophrenia and bipolar
depression, and potentially in jurisdictions other than the United States, and for other product candidates, as well as the costs required to
support review of such applications;
the costs of manufacturing and distributing lumateperone for commercial use in the United States;
our ability to obtain regulatory approval for, and subsequently generate product sales from, lumateperone in additional indications beyond
schizophrenia and bipolar depression or in jurisdictions other than the United States;
the progress in, and the costs of, our nonclinical studies and clinical trials and other research and development programs;
the scope, prioritization and number of our research and development programs;
our ability to enter into new, and to maintain any existing, collaboration and license agreements;
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the ability of any future collaborators and us to reach the milestones, and other events or developments, triggering payments under any
future collaboration agreements or to otherwise make payments under such agreements;
the extent to which any future collaborators are obligated to reimburse us for clinical trial costs under any future collaboration agreements;
the costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
the costs of maintaining or securing manufacturing and supply arrangements for clinical or commercial production of lumateperone or our
other product candidates;
the costs of preparing applications for regulatory approvals for our product candidates;
the costs of preparing for and establishing, or contracting for, sales and marketing capabilities if we obtain regulatory approvals for our
product candidates;
the costs involved in maintaining and expanding the accounting and data management systems to support commercial operations; and
the costs associated with litigation, including the costs incurred in defending against any product liability claims that may be brought
against us related to lumateperone or our other product candidates.
Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through our existing cash, cash equivalents and
investment securities, strategic collaborations, private or public sales of our securities, debt financings, grant funding, or by licensing all or a portion of
our products, product candidates or technology. Turmoil and volatility in the financial markets have adversely affected the market capitalizations of
many biotechnology companies, and generally made equity and debt financing more difficult to obtain. This, coupled with other factors, may limit our
access to additional financing. This could have a material adverse effect on our ability to access sufficient funding. We cannot be certain that additional
funding will be available to us on acceptable terms, or at all. If we do obtain additional funding through equity offerings, the ownership of our existing
stockholders and purchasers of shares of our common stock in any such offering will be diluted, and the terms of any financing may adversely affect the
rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our
shares to decline. If funds are not available, we will be required to delay, reduce the scope of, or eliminate one or more of our research or development
programs or our commercialization efforts. We also could be required to seek funds through arrangements with collaboration partners or otherwise that
may require us to relinquish rights to some of our technologies, products or product candidates or otherwise agree to terms unfavorable to us.
Our management has broad discretion over the use of our cash and we may not use our cash effectively, which could adversely affect our results of
operations.
Our management has significant flexibility in applying our cash resources and could use these resources for corporate purposes that do not
increase our market value, or in ways with which our stockholders may not agree. We may use our cash resources for corporate purposes that do not
yield a significant return or any return at all for our stockholders, which could adversely affect our future growth prospects.
Delays, suspensions and terminations in our clinical trials or the need to conduct additional clinicals or nonclinical studies could result in increased
costs to us, delay our ability to generate product revenues and therefore may have a material adverse effect on our business, results of operations
and future growth prospects.
The commencement of clinical trials can be delayed for a variety of reasons, including delays in: demonstrating sufficient safety and
pharmacological activity to justify seeking to commence a clinical trial;
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reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites; manufacturing sufficient quantities of a
product candidate; obtaining clearance from the FDA to commence clinical trials pursuant to an IND; obtaining institutional review board approval to
conduct a clinical trial at a prospective clinical trial site; and patient enrollment, which is a function of many factors, including the size of the patient
population, the nature of the protocol, the proximity of patients to clinical trial sites, the availability of effective treatments for the relevant disease and
the eligibility criteria for the clinical trial.
Once a clinical trial has begun, it may be delayed, suspended or terminated due to a number of factors, including: ongoing discussions with
regulatory authorities regarding the scope or design of our clinical trials or requests by them for supplemental information with respect to our clinical
trial results; failure to conduct clinical trials in accordance with regulatory requirements; lower than anticipated screening or retention rates of patients in
clinical trials; serious adverse events or side effects experienced by participants; and insufficient supply or deficient quality of product candidates or
other materials necessary for the conduct of our clinical trials.
Many of these factors may also ultimately lead to denial of regulatory approval of a current or potential product candidate. If we experience
delays, suspensions or terminations in a clinical trial or are required to conduct additional clinical trials or nonclinical studies, our costs will increase, the
commercial prospects for the related product candidate will be harmed, and our ability to generate product revenues will be delayed.
Even though the FDA has granted approval of CAPLYTA for the treatment of schizophrenia and bipolar depression, the terms of the approval may
limit its commercial potential. Additionally, CAPLYTA is still subject to ongoing regulatory requirements.
Even though the FDA has granted approval of CAPLYTA, the scope and terms of the approval may limit our ability to commercialize CAPLYTA
and, therefore, our ability to generate substantial sales revenues. The FDA has approved CAPLYTA only for the treatment of schizophrenia and bipolar
depression in adults. The label for CAPLYTA also contains a “boxed” warning that elderly patients with dementia-related psychosis treated with
antipsychotic drugs are at an increased risk of death and that CAPLYTA is not approved for the treatment of patients with dementia-related psychosis.
The manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for
CAPLYTA also continue to be subject to extensive and ongoing regulatory requirements. These requirements include, but are not limited to, submissions
of safety and other post-marketing information and reports and manufacturing establishment registration. We will also have to continue to comply with
current good manufacturing processes, good clinical practices, international council for harmonization guidelines and good laboratory practices, which
are regulations and guidelines enforced by the FDA for all of our nonclinical and clinical development and for any clinical trials that we conduct post-
approval.
Discovery of any issues post-approval, including any safety concerns, such as unexpected side effects or drug-drug interaction problems, adverse
events of unanticipated severity or frequency, or concerns over misuse or abuse of the product, problems with the facilities where the product is
manufactured, packaged or distributed, or failure to comply with regulatory requirements, may result in, among other things, restrictions on CAPLYTA
or on us, including:
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withdrawal of approval, addition of warnings or narrowing of the approved indication in the product label;
requirement of a Risk Evaluation and Mitigation Strategy, or REMS, program to mitigate the risk of off-label use in populations where the
FDA may believe that the potential risks of use may outweigh its benefits;
voluntary or FDA-requested recalls;
warning letters;
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suspension of any ongoing clinical studies;
refusal by the FDA or other regulatory authorities to approve pending applications or supplements to approved applications filed by us,;
restrictions on operations, including restrictions on the marketing or manufacturing of the product or the imposition of costly new
manufacturing requirements; or
seizure or detention, or refusal to permit the import or export of products.
If any of these actions were to occur, we may have to delay or discontinue the commercialization of CAPLYTA, limit our sales and marketing
efforts, conduct further post-approval studies, and/or delay, discontinue or change any other ongoing or planned clinical studies, which in turn could
result in significant expense and delay or limit our ability to generate sales revenues.
Safety issues with our product candidates or approved product, or with product candidates or approved products of third parties that are similar to
our product candidates, could give rise to delays in the regulatory approval process, restrictions on labeling or product withdrawal after approval.
Problems with product candidates or approved products marketed by third parties that utilize the same therapeutic target or that belong to the same
therapeutic class as our product candidates or approved product could adversely affect the development and regulatory approval of our product
candidates or commercialization or our approved product. In 2012, the FDA released draft guidance recommending that prospective suicidality
assessments be performed in clinical trials of any drug being developed for a psychiatric indication. Our development programs are focused on
psychiatric indications. Our PDE program is a novel target and may have unexpected safety effects that do not appear until late in clinical development
or after commercial approval. As we continue the development and clinical trials of our product candidates and continue to commercialize our approved
product, there can be no assurance that our product candidates or approved product will not experience significant safety issues.
Discovery of previously unknown class effect problems may prevent or delay clinical development and commercial approval of product
candidates or result in restrictions on permissible uses after their approval, including withdrawal of the medicine from the market. Many drugs acting on
the CNS include boxed warnings and precautions related to suicidal behavior or ideation, driving impairment, somnolence/sedation and dizziness,
discontinuation, weight gain, non-insulin dependent (type II) diabetes, cardiovascular side effects, sleep disturbances, and motor disturbances. The label
for CAPLYTA contains a “boxed” warning that elderly patients with dementia-related psychosis treated with antipsychotic drugs are at an increased risk
of death and that CAPLYTA is not approved for the treatment of patients with dementia-related psychosis. If we or others later identify undesirable side
effects caused by the mechanisms of action or classes of our products or product candidates or any specific products or product candidates:
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we may be required to conduct additional clinical trials or implement a REMS program prior to or following approval;
regulatory authorities may not approve our product candidates or, as a condition of approval, may require specific warnings and
contraindications;
regulatory authorities may withdraw their approval of the product and require us to take our drug off the market;
we may have limitations on how we promote our drugs;
sales of products may decrease significantly;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase our
commercialization costs and expenses, which, in turn, could delay or prevent us from generating significant revenues from its sale.
Finally, if the FDA determines that a drug may present a risk of substance abuse, it can recommend to the Drug Enforcement Administration, or
DEA, that the drug be scheduled under the Controlled Substances Act, or the CSA. Controlled substances are subject to a high degree of regulation
under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and
other requirements administered by the DEA that are separate and apart from FDA’s regulatory requirements. The DEA classifies controlled substances
into five schedules. Schedule I substances by definition have a high potential for abuse, have no currently “accepted medical use” in the U.S., lack
accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the U.S. Pharmaceutical products approved for use by
the FDA may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and
Schedule V substances the lowest relative risk of abuse. Any regulatory decision that one of our product candidates should be controlled under the CSA
would create additional operational, financial, and commercialization burdens for such a product, which could affect our business and cash flows.
If we seek to enter into strategic alliances for our drug candidates, but fail to enter into and maintain successful strategic alliances, we may have to
reduce or delay our drug candidate development or increase our expenditures.
An important element of a biotechnology company’s strategy for developing, manufacturing and commercializing its drug candidates may be to
enter into strategic alliances with pharmaceutical companies or other industry participants to advance its programs and enable it to maintain its financial
and operational capacity. We may face significant competition in seeking appropriate alliances. If we seek such alliances, we may not be able to
negotiate alliances on acceptable terms, if at all. In addition, these alliances may be unsuccessful. On October 31, 2014, we entered into the Termination
Agreement with Takeda, which terminated the Takeda License Agreement, pursuant to which all rights granted under the Takeda License Agreement
were returned to us. If we seek such alliances and then fail to create and maintain suitable alliances, we may have to limit the size or scope of, or delay,
one or more of our drug development or research programs. If we elect to fund drug development or research programs on our own, we will have to
increase our expenditures and will need to obtain additional funding, which may be unavailable or available only on unfavorable terms.
To the extent we are able to enter into collaborative arrangements or strategic alliances, we will be exposed to risks related to those collaborations
and alliances.
Biotechnology companies at our stage of development sometimes become dependent upon collaborative arrangements or strategic alliances to
complete the development and commercialization of drug candidates, particularly after the Phase 2 stage of clinical testing. If we elect to enter into
collaborative arrangements or strategic alliances, these arrangements may place the development of our drug candidates outside our control, may require
us to relinquish important rights or may otherwise be on terms unfavorable to us.
Dependence on collaborative arrangements or strategic alliances would subject us to a number of risks, including the risk that:
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we may not be able to control the amount and timing of resources that our collaborators may devote to the drug candidates;
our collaborators may experience financial difficulties;
we may be required to relinquish important rights, such as marketing and distribution rights;
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business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or
ability to complete its obligations under any arrangement;
a collaborator could independently move forward with a competing drug candidate developed either independently or in collaboration with
others, including our competitors; and
collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of
developing our drug candidates.
Preliminary and interim data from our clinical trials that we may announce or publish from time to time may change as more patient data become
available.
From time to time, we may announce or publish preliminary or interim data from our clinical trials. Preliminary and interim data of a clinical trial
are not necessarily predictive of final data. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially
change as patient enrollment continues and more patient data become available. As a result, preliminary and interim data should be viewed with caution
until the final data are available. Material adverse changes in the final data compared to the interim data could affect our planned clinical path for our
product candidates, including increasing costs of and/or causing delays in such development, and could significantly harm our business prospects.
We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us
from successfully commercializing our product candidates.
Although we design and manage our current nonclinical studies and clinical trials, we do not currently have the ability to conduct clinical trials for
our product candidates on our own. In addition to our collaborators, we rely on contract research organizations, medical institutions, clinical
investigators, and contract laboratories to perform data collection and analysis and other aspects of our clinical trials. In addition, we also rely on third
parties to assist with our nonclinical studies, including studies regarding biological activity, safety, absorption, metabolism, and excretion of product
candidates.
Our nonclinical activities or clinical trials may be delayed, suspended, or terminated if: the quality or accuracy of the data obtained by the third
parties on whom we rely is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or if for other reasons, these
third parties do not successfully carry out their contractual duties or fail to meet regulatory obligations or expected deadlines, or these third parties need
to be replaced.
If the third parties on whom we rely fail to perform, our development costs may increase, our ability to obtain regulatory approval, and
consequently, to commercialize our product candidates may be delayed or prevented altogether. We currently use several contract research organizations
to perform services for our nonclinical studies and clinical trials. While we believe that there are numerous alternative sources to provide these services,
in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays or incurring additional
expenses.
Further, we are currently conducting clinical trials for our product candidates in many countries, including the United States, Europe, and Asia and
may expand to other geographies. Timely enrollment of, completion of and reporting on our clinical trials is dependent upon these global clinical trial
sites which are, or in the future may be, adversely affected by political instability or conflict. Political instability and conflict in areas in the world where
we have clinical operations, may delay our trials and negatively affect our business and operations in those regions.
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Our employees, independent contractors, principal investigators, contract research organizations, consultants or vendors may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, contract research organizations, consultants or
vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or
disclosure of unauthorized activities to us that violates: FDA regulations, including those laws requiring the reporting of true, complete and accurate
information to the FDA; manufacturing standards; federal and state health care fraud and abuse laws and regulations; or laws that require the true,
complete and accurate reporting of financial information or data. In addition, sales, marketing and business arrangements in the health care industry are
subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials
or creating fraudulent data in our nonclinical studies or clinical trials, which could result in regulatory sanctions and serious harm to our reputation.
It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions
or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person could allege
such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative
penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal health care programs, contractual
damages, reputational harm, diminished potential profits and future earnings, and curtailment of our operations, any of which could adversely affect our
business, financial condition, results of operations or prospects.
Even if we successfully complete the clinical trials of one or more of our product candidates, the product candidates may fail for other reasons.
Even if we successfully complete the clinical trials for one or more of our product candidates, the product candidates may fail for other reasons,
including the possibility that the product candidates will:
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fail to receive the regulatory approvals required to market them as drugs;
be subject to proprietary rights held by others requiring the negotiation of a license agreement prior to marketing;
be difficult or expensive to manufacture on a commercial scale;
have adverse side effects that make their use less desirable; or
fail to compete with product candidates or other treatments commercialized by our competitors.
If we are unable to receive the required regulatory approvals, secure our intellectual property rights, minimize the incidence of any adverse side
effects or fail to compete with our competitors’ products, our business, financial condition, cash flows and results of operations could be materially and
adversely affected.
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We are subject to ongoing regulatory obligations and restrictions with regard to CAPLYTA and, following regulatory approval of any of our product
candidates, we will be subject to ongoing regulatory obligations and restrictions with regard to such product candidates, which may result in
significant expense and limit our ability to commercialize lumateperone and our other potential products.
With regard to CAPLYTA and our product candidates, if any, approved by the FDA, or by another regulatory authority, we are held to extensive
regulatory requirements over product manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping.
Regulatory approvals may also be subject to significant limitations on the indicated uses or marketing of the product candidates. Potentially costly
follow-up or post-marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate
specific issues of interest to the regulatory authority.
Previously unknown problems with the product candidate, including adverse events of unanticipated severity or frequency, may result in
restrictions on the marketing of the drug, and could include withdrawal of the drug from the market.
In addition, the law or regulatory policies governing pharmaceuticals may change. New statutory requirements or additional regulations may be
enacted that could prevent or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are not able to
maintain regulatory compliance, we might not be permitted to market our drugs and our business could suffer.
CAPLYTA and our product candidates, if approved, may not gain acceptance among physicians, patients, or the medical community, thereby
limiting our potential to generate revenues, which will undermine our future growth prospects.
The degree of market acceptance by physicians, health care professionals and third-party payors of CAPLYTA, and any product candidate for
which we obtain regulatory approval, and our profitability and growth will depend on a number of factors, including:
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our ability to provide acceptable evidence of safety and efficacy;
the scope of the approved indication(s) for the product;
the inclusion of any warnings or contraindications in the product label;
pricing and cost effectiveness, which may be subject to regulatory control;
our ability to obtain sufficient third-party insurance coverage or reimbursement;
effectiveness of our or our collaborators’ sales and marketing strategy;
relative convenience and ease of administration;
patient adherence to treatment;
prevalence and severity of any adverse side effects; and
availability of alternative treatments.
If any product that we develop does not provide a treatment regimen that is at least as beneficial as the current standard of care or otherwise does
not provide some additional patient benefit over the current standard of care, that product will not achieve market acceptance and we will not generate
sufficient revenues to achieve profitability.
The failure to attract and retain skilled personnel and key relationships could impair our drug development and commercialization efforts.
We are highly dependent on our senior management and key clinical development, sales and marketing, scientific and technical personnel.
Competition for these types of personnel is intense. The loss of the services of
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any member of our senior management, clinical development, sales and marketing, scientific or technical staff may significantly delay or prevent the
achievement of drug development, commercialization and other business objectives and could have a material adverse effect on our business, operating
results and financial condition. We also rely on consultants and advisors to assist us in formulating our strategy. All of our consultants and advisors are
either self-employed or employed by other organizations, and they may have conflicts of interest or other commitments, such as consulting or advisory
contracts with other organizations, that may affect their ability to contribute to us. We intend to expand and develop new drug candidates, and may need
additional funding to grow our business. We will need to hire additional employees in order to continue our research and clinical trials and to market our
drugs when approved. This strategy may require us to recruit additional executive management and clinical development, regulatory, scientific, technical
and sales and marketing personnel. There is currently intense competition for skilled executives and employees with relevant clinical development,
regulatory, scientific, technical and sales and marketing expertise, and this competition is likely to continue. The inability to attract and retain sufficient
clinical development, scientific, technical, sales and marketing, and managerial personnel, due to intense competition and our limited resources, would
limit or delay our product development and commercialization efforts, which would adversely affect the development of our product candidates and
commercialization of CAPLYTA and our product candidates, if approved, and growth of our business.
We may not be able to continue or fully exploit our partnerships with outside scientific and clinical advisors, which could impair the progress of our
clinical trials and our research and development efforts.
We work with scientific and clinical advisors at academic and other institutions who are experts in the field of CNS disorders. They advise us with
respect to our clinical trials. These advisors are not our employees and may have other commitments that would limit their future availability to us. If a
conflict of interest arises between their work for us and their work for another entity, we may lose their services, which may impair our reputation in the
industry and delay the development or commercialization of our approved product or product candidates.
We rely on third-party manufacturers to manufacture and supply lumateperone and our other product candidates for us. If one of our suppliers or
manufacturers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find
new suppliers or manufacturers. We may also face significant delays in our clinical trials, regulatory approvals and product introductions and
commercialization.
We have no manufacturing facilities and have limited experience in the manufacturing of drugs or in designing drug-manufacturing processes. We
have contracted with third-party manufacturers to produce, in collaboration with us, our product candidates, including lumateperone, for clinical trials
and to produce lumateperone for commercial sales. For example, in January 2017, we entered into a supply agreement with Siegfried and entered into a
new supply agreement with Siegfried in January 2023, under which Siegfried has agreed to manufacture and supply the API for lumateperone in
commercial quantities. Each month, we will provide Siegfried with a rolling forecast of our anticipated requirements for supply of the API. Under the
Siegfried Agreement, we have the right to and may purchase the API for lumateperone from other suppliers. In addition, in January 2017, we entered
into a manufacturing services agreement with Lonza, as amended in December 2022, under which Lonza has agreed to manufacture and supply the API
for lumateperone commercial quantities, with purchase prices determined in each project plan. We agreed to provide Lonza with a written forecast of
our estimated quarterly requirements. While we believe that there are alternative sources available to manufacture our product candidates, in the event
that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays or additional expenditures. We cannot
estimate these delays or costs with certainty but, if they were to occur, they could cause a delay in our development and commercialization efforts. If our
existing or planned third-party manufacturing arrangements are terminated or if the sources of supply from such arrangements are inadequate and we
must seek supply agreements from alternative sources, we may be unable to enter into such agreements or do so on commercially reasonable terms,
which could delay a product launch or subject our commercialization efforts to significant supply risk.
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Manufacturers of our product candidates are obliged to operate in accordance with FDA-mandated current good manufacturing practices, or
cGMPs. The manufacture of pharmaceutical products in compliance with the cGMPs requires significant expertise and capital investment, including the
development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in
production, including difficulties with production costs and yields, quality control, including stability of the product or product candidate and quality
assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements, other federal and state regulatory
requirements and foreign regulations. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations
to us or under applicable regulations, our ability to provide product for commercial sale or product candidates in our clinical trials would be jeopardized.
Any delay or interruption in the supply of commercial quantities of approved product could have a material adverse impact on our revenue from product
sales and any delay or interruption in the supply of clinical trial materials could delay the completion of our clinical trials, increase the costs associated
with maintaining our clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at significant additional
expense or terminate the clinical trials completely.
In addition, the facilities used by our contract manufacturers or other third-party manufacturers to manufacture our product candidates must be
approved by the FDA pursuant to inspections conducted following our request for regulatory approval for our product candidates from the FDA. These
requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our
product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. The FDA or
similar foreign regulatory agencies may also implement new standards at any time, or change their interpretation and enforcement of existing standards
for manufacture, packaging or testing of products. We have little control over our manufacturers’ compliance with these regulations and standards. A
failure of any of our current or future contract manufacturers to establish and follow cGMPs or to document their adherence to such practices may lead
to significant delays in obtaining regulatory approval of product candidates or the ultimate launch of products, if approved, into the market. Failure by
our current or future third-party manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us, including
fines, injunctions, civil penalties, failure of the government to grant marketing approval of drugs, delays, suspension or withdrawal of approvals,
seizures or recalls of products, operating restrictions, and criminal prosecutions. If the safety of any product supplied is compromised due to our
manufacturers’ failure to adhere to applicable laws or for other reasons, we may be held liable for any injuries sustained as a result. Any of these factors
could cause a delay of clinical studies, regulatory submissions, approvals or commercialization of our product candidates or approved product, entail
higher costs or impair our reputation.
We will need to continue to manage our organization and we may encounter difficulties with our staffing and any future transitions, which could
adversely affect our results of operations.
We will need to manage our operations and facilities effectively in order to advance our drug development programs (including lumateperone,
ITI-1284, lenrispodun and ITI-333), facilitate any future collaborations, and pursue other development activities. It is possible that our infrastructure
may be inadequate to support our future efforts and growth. In particular, we will need to further develop information technology systems and internal
sales, marketing, and distribution capabilities for any drug that we may successfully develop, including additional indications for lumateperone. 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 lumateperone or any of our other potential products does not receive and maintain
coverage from payors or sells for inadequate prices, or if patients are unable to obtain adequate levels of reimbursement.
Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their prescription drugs. Adequate coverage and
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reimbursement from governmental health care programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.
Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic
alternatives are already available or subsequently become available. Even if we obtain coverage for lumateperone or other potential products, the
resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to
use lumateperone or other product candidates, if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of
the cost of those products.
In addition, the market for lumateperone or any product candidate for which we may receive regulatory approval will depend significantly on
access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry
competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may
refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic
equivalent or other alternative is available, even if not approved for the indication for which lumateperone is approved.
Third-party payors, whether foreign or domestic, governmental or commercial, are developing increasingly sophisticated methods of controlling
health care costs.
The current environment is putting pressure on companies to price products below what they may feel is appropriate. Selling lumateperone at less
than an optimized price could impact our revenues and overall success as a company. We do not know if the price we have selected, or may select in the
future, for lumateperone is or will be the optimized price. In addition, in the United States, no uniform policy of coverage and reimbursement for drug
products exists among third-party payors. Therefore, coverage and reimbursement for drug products such as lumateperone may differ significantly from
payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and
clinical support for the use of our drug products such as lumateperone to each payor separately, with no assurance that coverage will be obtained. If we
are unable to obtain and maintain coverage of, and adequate payment levels for, our products from third-party payors, physicians may limit how much or
under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to
successfully commercialize any approved products and thereby adversely impact our profitability, results of operations, financial condition, and future
success.
Health care legislation may make it more difficult to receive revenues from CAPLYTA or future products.
In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals in recent years to
change the health care system in ways that could impact our ability to sell our products profitably. For example, on August 16, 2022, President Biden
signed into the law the Inflation Reduction Act of 2022, or the IRA. Among other things, the IRA has multiple provisions that may impact the prices of
drug products that are both sold into the Medicare program and throughout the United States. Starting in 2023, a manufacturer of drugs or biological
products covered by Medicare Parts B or D must pay a rebate to the federal government if their drug product’s price increases faster than the rate of
inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate owed to the federal government is directly
dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, starting for payment year 2026, CMS will negotiate
drug prices annually for a select number of single source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices
for a select number of Part B drugs starting for payment year 2028. If a drug product is selected by CMS for negotiation, it is expected that the revenue
generated from such drug will decrease. CMS has begun to implement these new authorities but their impact on the pharmaceutical industry in the
United States remains uncertain. Further legislative changes to health care and pharmaceutical laws in the U.S. remain possible. We expect that health
care reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in
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additional downward pressure on the price that may be charged for lumateperone or any of our other product candidates, if approved. Any reduction in
reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of
cost containment measures or other health care reforms may prevent us from being able to generate revenue, attain profitability, or commercialize
CAPLYTA or any other products for which we receive regulatory approval.
In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government
control. In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the
range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for
human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the
profitability of the company placing the medicinal product on the market. We may face competition from lower-priced products in foreign countries that
have placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with any products we
may market, which could negatively impact our profitability.
We currently have very limited experience as a company in marketing and distributing pharmaceutical products and rely on third-party distributors
to distribute CAPLYTA. If we are unable to effectively commercialize CAPLYTA, we may not be able to generate adequate product revenues.
CAPLYTA, which was approved by the FDA in December 2019 for the treatment of schizophrenia in adults in the United States and in December
2021 for the treatment of bipolar depression in adults in the United States, is our only drug that has been approved for sale by any regulatory body. We
initiated the commercial launch of CAPLYTA in March 2020. As such, as an organization, this was the first time we have launched or commercialized
any pharmaceutical product. In order to continue to successfully market CAPLYTA, we must continue to develop our sales, marketing, managerial,
compliance, and related capabilities or make arrangements with third parties to perform these services. If we are unable to maintain and develop
adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to continue to appropriately
commercialize and generate revenue from sales of CAPLYTA and may not become profitable.
We are employing our own internal sales force to commercialize CAPLYTA for the treatment of schizophrenia and bipolar depression as part of
our commercialization strategy in the United States. We are competing with other pharmaceutical and biotechnology companies to recruit, hire, train and
retain marketing and sales personnel. These efforts will continue to be expensive and time-consuming, and we cannot be certain that we will be able to
successfully maintain and further develop our sales force.
Additionally, our strategy in the United States includes distributing CAPLYTA through third-party distributors. While we have entered into, or
will attempt to enter into, agreements with these distributors to distribute CAPLYTA in the United States, they may not perform as agreed or they may
terminate their agreements with us. Also, we may need to enter into agreements with additional distributors, and there is no guarantee that we will be
able to do so on commercially reasonable terms or at all. If we are unable to maintain and, if needed, expand, our network of distributors, we would be
exposed to substantial distribution risk.
In the event we are unable to effectively develop and maintain our commercial team, including our U.S. sales force, or maintain and, if needed,
expand, our network of distributors, our ability to effectively commercialize CAPLYTA and generate product revenues would be limited.
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The FDA has granted marketing approval of CAPLYTA for the treatment of schizophrenia and bipolar depression in adults, and we could face
liability if a regulatory authority determines that we are promoting CAPLYTA for any “off-label” uses.
A company may not promote “off-label” uses for its drug products. An off-label use is the use of a product for an indication or patient population
that is not described in the product’s FDA-approved label in the United States or for uses in other jurisdictions that differ from those approved by the
applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory
agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional
communications from pharmaceutical companies or their sales force with respect to off-label uses of products for which marketing clearance has not
been issued. A company that is found to have promoted off-label use of its product may be subject to significant liability, including civil and criminal
sanctions. We intend to comply with the requirements and restrictions of the FDA and other regulatory agencies with respect to our promotion of
CAPLYTA, and any other products we may market, but we cannot be sure that the FDA or other regulatory agencies will agree that we have not violated
their restrictions. As a result, we may become subject to criminal and civil liability should an agency determine that such violations occurred. In
addition, our management’s attention could be diverted to handle any such alleged violations. A significant number of pharmaceutical companies have
been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative entities in
connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice, or DOJ, and various U.S.
Attorneys’ Offices, the Health and Human Services Office of Inspector General, the FDA, the Federal Trade Commission and various state Attorneys
General offices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims asserting antitrust
violations, violations of the FDCA, the civil False Claims Act, anti-kickback laws, and other alleged violations in connection with the promotion of
products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. If the FDA, DOJ, or any other governmental agency initiates an
enforcement action against us, or if we are the subject of a qui tam suit under the False Claims Act and it is determined that we violated prohibitions
relating to the promotion of products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other
sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and
monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our
revenue, business, financial prospects, and reputation.
There are possible limitations on our use of net operating losses.
As of December 31, 2022, we had net operating loss carryforwards, or NOLs, of approximately $663.2 million, which are available to reduce any
future federal and state taxable income, of which $131.1 million will begin to expire at various dates through 2037 and $532.1 million do not expire.
The use of our NOLs may be restricted due to changes in our ownership, including as a result of our public offerings.
Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, changes in our ownership (as defined by the
foregoing sections of the Code) may limit the amount of NOLs and tax credit carryforwards that could be utilized annually in the future to offset taxable
income.
For the years ended December 31, 2022, 2021 and 2020, we performed a Section 382 ownership analysis and determined that no ownership
change occurred (within the meaning of Section 382 of the Code) as a result of our public offerings in 2020 and 2022. Our previous ownership analysis
through December 31, 2015 reflected an ownership change occurred as a result of our 2015 public offerings.
Changes in tax laws could adversely affect our business and financial condition.
On March 27, 2020, the United States enacted The Coronavirus Aid, Relief and Economic Security (CARES) Act which includes several
significant business tax provisions, of which the immediate relevance to the
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Company is the acceleration of refunds of previously generated corporate AMT credits. The CARES Act also adds an employee retention credit to
encourage employers to maintain headcounts even if employees cannot report to work because of issues related to the coronavirus, a temporary
provision allowing companies to defer remitting to the government the employee share of some payroll taxes, among other things. The Company
reviewed the provisions and there was not a material tax impact on its financial statements for the years ended December 31, 2022, 2021 and 2020. We
did reclassify its deferred tax asset related to the AMT tax credit carryforward of $0.3 million to a current tax receivable in the first quarter of 2020 upon
the filing of its tax return for year ended December 31, 2019 and received the refund in July 2020.
On August 9, 2022, the United States enacted the CHIPS and Science Act which provides an investment tax credit for 25% of qualified
investments primarily used for manufacturing of semiconductors and related equipment in the U.S. On August 16, 2022, the United States enacted the
Inflation Reduction Act (“IRA”) which includes a provision for a 15% corporate alternative minimum tax on companies with average annual adjusted
financial statement income over $1 billion effective for tax years ending after December 31, 2022. In addition to other provisions included such as stock
buy-back and prescription drug pricing, we reviewed the provisions and there was not a material tax impact on its financial statements for the year ended
December 31, 2022.
On December 31, 2022, ITI Limited, our wholly-owned Bermuda subsidiary, was merged into Intra-Cellular Therapies, Inc., a Delaware
corporation. The intellectual property rights were transferred to the Delaware corporation as a result of this merger. ITI Limited is solvent as the fair
market value of the intellectual property exceeds the liabilities of the entity. This merger and the subsequent liquidation of the Bermuda subsidiary does
not have any impact from a U.S. or Bermuda income tax perspective.
We continue to examine the impact this tax reform legislation may have on our business and depending on possible foreign operations, among
other things, the impact of this tax reform is uncertain and could be adverse. This report does not discuss any such tax legislation or the manner in which
it might affect holders of our common stock. We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and
the potential tax consequences of investing in our common stock.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing
critical information or expose us to liability, which could adversely affect our business and our reputation.
We are increasingly dependent upon technology systems and data to operate our business. The COVID-19 pandemic has caused us to modify our
business practices in ways that heighten this dependence, including changing the requirement that most of our office-based employees in the U.S. and
our other key markets work from the office. As a result, we are increasingly dependent upon our technology systems to operate our business and our
ability to effectively manage our business depends on the security, reliability and adequacy of our technology systems and data, which includes use of
cloud technologies. Breakdowns, invasions, corruptions, destructions and/or breaches of our technology systems, including our cloud technologies,
and/or unauthorized access to our data and information could subject us to liability, negatively impact our business operations, and/or require
replacement of technology and/or ransom payments. Our technology systems, including our cloud technologies, continue to increase in multitude and
complexity, increasing our vulnerability when breakdowns, malicious intrusions, and random attacks occur. Data privacy or security breaches also pose
a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, patients, customers or other business
partners, may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, and are
becoming increasingly difficult to detect, when they impact vendors, customers or companies, including vendors, suppliers and other companies in our
supply chain. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups,
“hacktivists” and employees or contractors acting with careless or malicious intent. Cyber-attacks include deployment of harmful malware and key
loggers, ransomware, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity
and
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availability of our technology systems and data. Cyber-attacks also include manufacturing, hardware or software supply chain attacks, which could
cause a delay in the manufacturing of products or products produced for contract manufacturing or lead to a data privacy or security breach. Our key
business partners face similar risks and any security breach of their systems could adversely affect our security posture. In addition, our increased use of
cloud technologies heightens these and other operational risks, and any failure by cloud or other technology service providers to adequately safeguard
their systems and prevent cyber-attacks could disrupt our operations and result in misappropriation, corruption or loss of confidential or trade secret
information. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. In addition, there can be no assurance that we will promptly detect
any such disruption or security breach, if at all. To the extent that any disruption or security 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 commercialization of our approved
product and the further development of our product candidates could be delayed or otherwise adversely impacted.
While we continue to build and improve our systems and infrastructure, including our business continuity plans, there can be no assurance that our
efforts will prevent disruptions or breaches in our systems that could adversely affect our business and operations and/or result in the loss of critical or
sensitive information, which could result in financial, legal, operational or reputational harm to us, loss of competitive advantage or loss of consumer
confidence. Our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks, and
other related breaches.
Our business is subject to complex and evolving U.S. and foreign laws and regulations, information security policies and contractual obligations
relating to privacy and data protection, including the use, processing, and cross-border transfer of personal information. These laws and regulations
are subject to change. The actual or perceived failure by us, or vendors to comply could harm our reputation, and subject us to significant fines and
liability.
A growing body of increasingly stringent domestic and foreign laws and regulations governs the collection, use, disclosure, transfer and other
processing of personal data. Privacy laws in the United States are becoming increasingly complex and changing rapidly. California was the first U.S.
state to enact a comprehensive privacy law, California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020. The CCPA requires
covered companies to provide new disclosures to California residents and honor their requests to access, delete and opt-out of certain sharing of their
personal data. The CCPA provides for civil penalties for violations and statutory damages for certain data breaches. Since the enactment of the CCPA,
new privacy and data security laws have been enacted in Virginia, Colorado, Connecticut, and Utah, reflecting a trend toward more stringent privacy
legislation in the United States. The CCPA has also been substantially amended by a voter-approved ballot initiative called the California Privacy Rights
Act, or CPRA. The CPRA went into full effect on January 1, 2023, and, among other things, creates a new administrative agency to implement and
enforce California’s privacy laws. While certain clinical trial activities are exempt from some state privacy law requirements, other personal information
that we handle may be subject to these various laws, which may increase our compliance costs, exposure to regulatory enforcement action and other
liabilities.
In addition to U.S. privacy laws, we may also be subject to privacy regulations elsewhere in the world, including the European Union’s General
Data Protection Regulation, or GDPR. The GDPR imposes stringent requirements for controllers and processors of personal data, including, for
example, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications,
limitations on retention of information, increased requirements pertaining to special categories of data, such as health data, and additional obligations
when we contract with third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer
of personal data out of the European Economic Area to the United States and other countries, and a recent decision of the European Union’s highest
court has made complying with those rules more challenging. In addition, the GDPR provides that
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European Union member states may adopt further laws and regulations limiting the processing of personal data, including genetic, biometric or health
data.
The GDPR applies extraterritorially, and we may be subject to the GDPR because of our data processing activities that involve the personal data
of individuals residing in the European Union. Failure to comply with the requirements of the GDPR and the applicable national data protection laws of
the European Union member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding
financial year, whichever is higher, bans on processing personal data and other administrative penalties. GDPR regulations may impose additional
responsibility and liability in relation to the personal data that we process and we may be required to put in place additional mechanisms to ensure
compliance with the new data protection rules.
In addition, the GDPR includes restrictions on cross-border data transfers. A recent decision by the Court of Justice of the European Union (the
“Schrems II” ruling), however, has invalidated the EU-U.S. Privacy Shield Framework, which was one of the primary mechanisms used by U.S.
companies to import personal information from Europe, and raised questions about whether the European Commission’s Standard Contractual Clauses,
or SCCs, one of the primary alternatives to the Privacy Shield, can lawfully be used for personal information transfers from Europe to the United States
or most other countries. Similarly, the Swiss Federal Data Protection and Information Commissioner recently opined that the Swiss-U.S. Privacy Shield
is inadequate for transfers of data from Switzerland to the United States. The United Kingdom (UK), whose data protection laws are similar to those of
the European Union, may similarly determine that the EU-U.S. Privacy Shield is not a valid mechanism for lawfully transferring personal information
from the UK to the United States. The European Commission recently proposed updates to the SCCs, and additional regulatory guidance has been
released that seeks to impose additional obligations on companies seeking to rely on the SCCs. Given that, at present, there are few, if any, viable
alternatives to the EU-U.S. Privacy Shield and the SCCs, any transfers by us or our vendors of personal data from Europe may not comply with
European data protection law, which may increase our exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer
restrictions and may prohibit our transfer of EU personal data outside of the EU (including clinical trial data), and may adversely impact our operations,
product development and ability to provide our products.
If we are unable to implement safeguards necessary to ensure that our transfers of personal data from and within Europe are lawful, we will face
increased exposure to regulatory actions, substantial fines and bans on processing personal data from Europe. In addition, we may be required to
increase our data processing capabilities in Europe at significant expense. Inability to import personal data from Europe may also restrict our clinical
trials activities in the EU and limit our ability to collaborate with contract research organizations, service providers, contractors and other companies
subject to European data protection laws. Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border
data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of operating our business.
The GDPR, CCPA and many other laws and regulations relating to privacy and data protection are still being tested in courts, and they are subject
to new and differing interpretations by courts and regulatory officials. We are working to comply with the privacy and data protection laws and
regulations that apply to us, and we anticipate needing to devote significant additional resources to complying with these laws and regulations. It is
possible that the GDPR, CCPA or other laws and regulations relating to privacy and data protection may be interpreted and applied in a manner that is
inconsistent from jurisdiction to jurisdiction or inconsistent with our current policies and practices. Compliance with the various and rapidly-changing
privacy laws is a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and
despite those efforts, there is a risk that we may be subject to fines and penalties.
Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts,
restrict our ability to collect, use and disclose data, or in some cases,
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impact our ability to operate in certain jurisdictions. Data protection laws and data protection worldwide is, and is likely to remain, uncertain for the
foreseeable future. While we strive to comply with applicable data protection laws, external and internal privacy and security policies, and contractual
data protection obligations to the extent possible, we may at times fail to do so, or may be perceived to have failed to do so. Moreover, despite our
efforts, we may not be successful in achieving compliance if our personnel, collaborators, partners or vendors do not comply with applicable data
protection laws, external and internal privacy and security policies, and contractual data protection obligations. Actual or perceived failure to comply
with U.S. and international data protection laws could result in government enforcement actions (which could include civil or criminal penalties),
private litigation or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or
our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and
disclose the information. Claims that we have violated individual’s privacy rights, even if we are found not liable, could be expensive and time
consuming to defend and could result in adverse publicity that could harm our business.
We are also subject to the terms of our external and internal privacy and security policies, representations, certifications, publications and
frameworks, and contractual obligations to third parties related to privacy, information security and processing. Failure or a perceived failure to comply
with these policies, or if these policies are, in whole or part, found or perceived to be inaccurate, incomplete, deceptive, unfair, or misrepresentative of
our actual practices, could result in reputational harm; result in litigation; cause a material adverse impact to business operations or financial results; and
otherwise result in other material harm to our business.
Our actual or perceived failure to adequately comply with applicable laws and regulations relating to privacy and data protection, or to protect
personal data and other data we process or maintain, could result in regulatory fines and bans on processing personal information, investigations and
enforcement actions, penalties and other liabilities, claims for damages by affected individuals, and damage to our reputation, any of which could
materially affect our business, financial condition, results of operations and growth prospects.
The COVID-19 pandemic could continue to have a material impact on our business, financial condition and results of operations, including our
commercial operations and sales, clinical trials and nonclinical studies.
In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China.
Since then, SARS-CoV-2 and COVID-19 have spread to countries worldwide, including the United States. The COVID-19 pandemic continues to
evolve, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public
health safety measures. As a result of the COVID-19 pandemic, we may continue to experience disruptions, which could severely impact our business,
including our ability to successfully commercialize our only commercial product, CAPLYTA, in the United States, and could negatively impact our sales
of CAPLYTA. Our commercial organization, sales force and medical organization have had, and, depending on the severity and duration of the
pandemic, may continue to have significantly reduced personal interactions with physicians and customers and may need to continue to conduct many
promotional activities virtually, and we may elect to cease in-person interactions with physicians and customers entirely for some period of time in the
interest of employee and community safety. In addition, the pandemic may continue to impact the willingness of patients to visit their healthcare
provider. Business interruptions from the current or future pandemics may also adversely impact the third parties we rely on to sufficiently manufacture
CAPLYTA and to produce our product candidates in quantities we require, which may impair the commercialization and our research and development
activities.
We conduct clinical trials for our product candidates in many countries and regions, including the United States, Europe and Asia, and may
expand to other geographies. Timely enrollment of, completion of and reporting on our clinical trials is dependent upon these global clinical trial sites
which are, or in the future may be, adversely affected by the COVID-19 pandemic or other pandemics. Some factors from the COVID-19 pandemic that
have or may adversely affect the timing and conduct of our clinical trials and adversely impact our
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business generally, include but are not limited to, delays or difficulties in clinical site initiation, patient enrollment, diversion of healthcare resources
away from clinical trials to pandemic concerns, limitations on travel, regulatory delays and supply chain disruptions.
The COVID-19 pandemic continues to evolve, and the severity and duration of the pandemic remain uncertain. The extent to which the pandemic
impacts our business, including our commercial results, clinical trials, and nonclinical studies will depend on future developments, which are highly
uncertain.
Risks Related to Our Intellectual Property
Our ability to compete may be undermined if we do not adequately protect our proprietary rights.
Our commercial success depends on obtaining and maintaining proprietary rights to our products and product candidates and technologies and
their uses, as well as successfully defending these rights against third-party challenges. We will only be able to protect our products and product
candidates, proprietary technologies, and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, or effectively
protected trade secrets, cover them. We have patent rights under issued patents in many cases covering our lumateperone, lenrispodun, ITI-1284 and
ITI-333 development programs. Nonetheless, the issued patents and patent applications covering our primary technology programs remain subject to
uncertainty and continuous monitoring and action by us due to a number of factors, including:
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we may not have been the first to make the inventions covered by our pending patent applications or issued patents;
we may not have been the first to file patent applications for our products, product candidates or the technologies we rely upon;
others may independently develop similar or alternative technologies or duplicate any of our technologies;
our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;
any or all of our pending patent applications may not result in issued patents;
we may not seek or obtain patent protection in all countries that will eventually provide a significant business opportunity;
any patents issued to us or our collaborators may not provide a basis for commercially viable products, may not provide us with any
competitive advantages or may be challenged by third parties;
our proprietary technologies may not be patentable;
others may design around our patent claims to produce competitive products which fall outside of the scope of our patents;
others may identify prior art which could invalidate our patents; and
changes to patent laws may limit the exclusivity rights of patent holders.
Even if we have or obtain patents covering our products, product candidates or technologies, we may still be barred from making, using and
selling our products, product candidates or technologies because of the patent rights of others. Others have or may have filed, and in the future are likely
to file, patent applications covering compounds, assays, genes, gene products and therapeutic products that are similar or identical to ours. There are
many issued U.S. and foreign patents relating to genes, nucleic acids, polypeptides, chemical compounds or therapeutic products, and some of these may
encompass reagents utilized in the identification of candidate drug
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compounds or compounds that we desire to commercialize. Numerous U.S. and foreign issued patents and pending patent applications owned by others
exist in the area of CNS disorders and the other fields in which we are developing product candidates. These could materially affect our ability to
develop our product candidates or sell our products. Because patent applications can take many years to issue, there may be currently pending
applications, unknown to us, that may later result in issued patents that our products, product candidates or technologies may infringe. These patent
applications may have priority over patent applications filed by us.
We regularly conduct searches to identify patents or patent applications that may prevent us from obtaining patent protection for our proprietary
compounds or that could limit the rights we have claimed in our patents and patent applications. Disputes may arise regarding the ownership or
inventorship of our inventions. It is difficult to determine how such disputes would be resolved. Others may challenge the validity, enforceability, scope
and term of our patents. Additionally, any patent term extensions that we seek may not be granted on a timely basis, if at all. If our patents are found to
be invalid, we will lose the ability to exclude others from making, using or selling the inventions claimed in our patents.
Some of our academic institutional licensors, research collaborators and scientific advisors have rights to publish data and information to which
we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations,
then our ability to receive patent protection or protect our proprietary information will be impaired. Additionally, any employee whose employment with
us terminates, whether voluntarily by the employee or by us in connection with restructurings or otherwise, may seek future employment with our
competitors. Although each of our employees is required to sign a confidentiality agreement with us at the time of hire, we cannot guarantee that the
confidential nature of our proprietary information will be maintained in the course of such future employment. In addition, technology that we may
license-in may become important to some aspects of our business. We generally will not control the patent prosecution, maintenance or enforcement of
in-licensed technology.
Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information
and may not adequately protect our intellectual property, which could limit our ability to compete.
Because we operate in the highly technical field of drug discovery and development of small molecule drugs, we rely in part on trade secret
protection in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality and
intellectual property assignment agreements with our corporate partners, employees, consultants, outside scientific collaborators, sponsored researchers,
and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties any confidential
information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also
generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these
agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is
using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be
less willing to protect trade secrets. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.
A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and
costly, and an unfavorable outcome could harm our business.
There is significant litigation in our industry regarding patent and other intellectual property rights. While we are not currently subject to any
pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based
on claims that our products, product candidates, technologies or activities infringe the intellectual property rights of others. If our drug development or
commercialization activities are found to infringe any such patents, we may have to pay significant damages or seek licenses to such patents. We may
need to resort to litigation to enforce a patent
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issued to us, protect our trade secrets or determine the scope and validity of third-party proprietary rights. From time to time, we may hire scientific
personnel formerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals
may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. If we become involved in
litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We also may not be
able to afford the costs of litigation.
The patent applications of pharmaceutical and biotechnology companies involve highly complex legal and factual questions, which, if determined
adversely to us, could negatively impact our patent position.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions.
The standards of the U.S. Patent and Trademark Office, or USPTO, are uncertain and could change in the future. Consequently, the issuance and scope
of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications
may also be subject to interference proceedings, and U.S. patents may be subject to reexamination proceedings in the USPTO (and foreign patents may
be subject to opposition or comparable proceedings in the corresponding foreign patent office), which proceedings could result in either loss of the
patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. Similarly,
opposition or invalidity proceedings could result in loss of rights or reduction in the scope of one or more claims of a patent in foreign jurisdictions. In
addition, such interference, reexamination and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us
with sufficient protection against competitive products or processes.
In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use our
discoveries or to develop and commercialize our technology, products and product candidates without providing any compensation to us or may limit
the number of patents or claims we can obtain. In particular, there have been proposals to shorten the exclusivity periods available under U.S. patent law
that, if adopted, could substantially harm our business. Our approved product and the product candidates that we are developing are protected by
intellectual property rights, including patents and patent applications. For our approved product and any of our product candidates that become a
marketable product, if any, we will rely on our exclusivity under patents to sell the compound and recoup our investments in the research and
development of the compound. If the exclusivity period for patents is shortened, then our ability to generate revenues without competition will be
reduced and our business could be materially adversely impacted. The laws of some countries do not protect intellectual property rights to the same
extent as U.S. laws, and those countries may lack adequate rules and procedures for defending our intellectual property rights. For example, some
countries, including many in Europe, do not grant patent claims directed to methods of treating humans and, in these countries, patent protection may
not be available at all to protect our products or product candidates. In addition, U.S. patent laws may change, which could prevent or limit us from
filing patent applications or patent claims to protect our products, product candidates and/or technologies or limit the exclusivity periods that are
available to patent holders. For example, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law in 2011 and includes a
number of significant changes to U.S. patent law. These include changes to transition from a “first-to-invent” system to a “first-to-file” system and to the
way issued patents are challenged. These changes may favor larger and more established companies that have more resources to devote to patent
application filing and prosecution. The USPTO has been in the process of implementing regulations and procedures to administer the Leahy-Smith Act,
and many of the substantive changes to patent law associated with the Leahy-Smith Act may affect our ability to obtain, enforce or defend our patents.
Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will ultimately have on the cost of prosecuting our patent applications, our ability
to obtain patents based on our discoveries and our ability to enforce or defend our issued patents.
If we fail to obtain and maintain patent protection and trade secret protection of our products, product candidates, proprietary technologies and
their uses, we could lose our competitive advantage and competition we face would increase, reducing our potential revenues and adversely affecting
our ability to attain or maintain profitability.
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We may not be able to protect our intellectual property and proprietary rights throughout the world, which could negatively impact our business.
Filing, prosecuting and defending patents relating to our products, product candidates and technologies in all countries throughout the world
would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as U.S. laws. Consequently, we may
not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made
using our inventions in and into the United States or other jurisdictions. Competitors or other third parties may use our technologies in jurisdictions
where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where
we have patent protection or licenses but enforcement is not as strong as that in the United States. These products may compete with our products, and
our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant difficulties in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual
property protection, particularly those relating to biotechnology, which could make it difficult, costly or impossible for us to stop the infringement of our
patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our
intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects
of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and
could provoke third parties to assert claims against us or any of our future licensors. We may not prevail in any lawsuits or other adversarial proceedings
that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
Further, many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In
addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner
may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third
parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of
operations and prospects may be adversely affected.
Risks Related to Our Industry
We are subject to stringent regulation in connection with the marketing of CAPLYTA and any other products derived from our product candidates,
which could delay the development and commercialization of our products.
The pharmaceutical industry is subject to stringent regulation by the FDA and other regulatory agencies in the United States and by comparable
authorities in other countries. Neither we nor our collaborators can market a pharmaceutical product in the United States until we or they have
completed rigorous nonclinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of
regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product, and requires substantial resources.
Even if regulatory approval is obtained, it may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion,
and/or marketing of such products, and requirements for post-approval studies, including additional research and development and clinical trials. For
example, the label for CAPLYTA contains a “boxed” warning that elderly patients with dementia-related psychosis treated with antipsychotic drugs are
at an increased risk of death and that CAPLYTA is not approved for the treatment of patients with dementia-related psychosis. These limitations may
reduce the size of the market
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for the product or result in the incurrence of additional costs. Any delay or failure in obtaining required approvals could have a material adverse effect
on our ability to generate revenues and continue our business.
Outside the United States, the ability to market a product is contingent upon receiving approval from the appropriate regulatory authorities. The
requirements governing the conduct of clinical trials, marketing authorization, pricing, and reimbursement vary widely from country to country. Only
after the appropriate regulatory authority is satisfied that adequate evidence of safety, quality, and efficacy has been presented will it grant a marketing
authorization. Approval by the FDA does not automatically lead to the approval by regulatory authorities outside the United States and, similarly,
approval by regulatory authorities outside the United States will not automatically lead to FDA approval.
Many of our competitors have greater resources and capital than us, putting us at a competitive disadvantage. If our competitors develop and market
products that are more effective than lumateperone or our other 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 and
biotechnology companies, as well as numerous academic and research institutions and governmental agencies, both in the United States and abroad.
Some of these competitors have products or are pursuing the development of drugs that target the same diseases and conditions that are the focus of our
drug development programs.
For example, CAPLYTA for the treatment of schizophrenia and for the treatment of bipolar depression competes with, among other branded
products, Fanapt®, marketed by Vanda Pharmaceuticals, Lybalvi®, marketed by Alkermes, Rexulti®, marketed by Otsuka Pharmaceutical, and Vraylar®,
marketed by AbbVie. In addition, CAPLYTA competes and our product candidates, if approved, would compete with, among other generic
antipsychotic products, aripiprazole, clozapine, haloperidol, lurasidone, olanzapine, paliperidone, quetiapine/XR and risperidone.
Many of our competitors and their collaborators have significantly greater experience than we do in the following:
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identifying and validating targets;
screening compounds against targets;
nonclinical studies and clinical trials of potential pharmaceutical products;
obtaining FDA and other regulatory approvals; and
commercializing pharmaceutical products.
In addition, many of our competitors and their collaborators have substantially greater capital and research and development resources,
manufacturing, sales and marketing capabilities, and production facilities. Smaller companies also may prove to be significant competitors, particularly
through proprietary research discoveries and collaboration arrangements with large pharmaceutical and established biotechnology companies. Many of
our competitors have products that have been approved or are in advanced development and may develop superior technologies or methods to identify
and validate drug targets and to discover novel small molecule drugs. Our competitors, either alone or with their collaborators, may succeed in
developing drugs that are more effective, safer, more affordable, or more easily administered than ours, have fewer side effects than ours, and may
achieve patent protection or commercialize drugs sooner than us. Our competitors may also develop alternative therapies that could further limit the
market for any drugs that we may develop. Our failure to compete effectively could have a material adverse effect on our business.
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Any claims relating to improper handling, storage, or disposal of biological, hazardous, and radioactive materials used in our business could be
costly and delay our research and development 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 radioactive
compounds. Our operations also produce hazardous waste products. We face the risk of contamination or injury from the use, storage, handling or
disposal of these materials. We are subject to federal, state and local laws and regulations governing the use, storage, handling, and disposal of these
materials and specified waste products. The cost of compliance with these laws and regulations could be significant, and current or future environmental
regulations may impair our research, development, or production efforts. If one of our employees were accidentally injured from the use, storage,
handling, or disposal of these materials, the medical costs related to their treatment would be covered by our workers’ compensation insurance policy.
However, we do not carry specific biological or hazardous waste insurance coverage and our general liability insurance policy specifically excludes
coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or
injury, we could be subject to criminal sanctions or fines or be held liable for damages, our operating licenses could be revoked, and we could be
required to suspend or modify our operations and our research and development efforts.
We are subject, directly and indirectly, to federal, state and foreign healthcare and data protection laws and regulations, including healthcare fraud
and abuse laws, false claims laws, physician payment transparency laws and health information privacy and security laws. If we are unable to
comply, or have not fully complied, with such laws, we could face substantial penalties.
Our operations are directly, and indirectly through our customers and third-party payors, subject to various U.S. federal and state healthcare laws
and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal False Claims Act, and physician sunshine laws
and regulations. These laws may impact, among other things, our clinical research, sales, marketing, grants, charitable donations, and education
programs and constrain the business or financial arrangements with healthcare providers, physicians, charitable foundations, and other parties that have
the ability to directly or indirectly influence the prescribing, ordering, marketing, or distribution of our products for which we obtain marketing
approval. In addition, we and any potential future collaborators, partners or service providers are subject to data privacy and security regulation by both
the U.S. federal government and the states in which we conduct our business. Finally, we may be subject to additional healthcare, statutory and
regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws that may affect
our ability to operate include:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting,
offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly,
in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any
good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such
as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order
to have committed a violation;
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the U.S. federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced through civil
whistleblower or qui tam actions, and civil monetary penalties laws, which impose criminal and civil penalties on individuals or entities
for, among other things, knowingly presenting, or causing to be presented to the U.S. federal government, claims for payment or approval
that are false or fraudulent or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the
U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the
U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
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HIPAA, and its implementing regulations, and as amended again by the Final HIPAA Omnibus Rule, Modifications to the HIPAA Privacy,
Security, Enforcement and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other
Modifications to the HIPAA Rules, published in January 2013, which imposes criminal and civil liability for, among other things,
knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of
false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any
healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering
up by any trick or device a material fact or making any materially false statement, in connection with the delivery of, or payment for,
healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation;
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We are not directly subject to HIPAA, however, we could be subject to penalties, including criminal penalties if we knowingly obtain or
disclose individually identifiable health information from a HIPAA-covered health care provider or research institution that has not
complied with HIPAA’s requirements for disclosing such information. Furthermore, the number of government investigations related to
data security incidents and privacy violations continue to increase and government investigations typically require significant resources
and generate negative publicity, which could harm our business and our reputation;
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the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;
the U.S. federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act”, which
was enacted as part of the ACA and its implementing regulations and requires certain manufacturers of drugs, devices, biologics and
medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually
to CMS information related to certain payments and other transfers of value made to physicians (as defined to include doctors of medicine,
dentists, optometrists, podiatrists and chiropractors under such law), and teaching hospitals, as well as ownership and investment interests
held by physicians and their immediate family members, which was expanded beginning in 2022, to require applicable manufacturers to
report such information regarding its relationships with physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist
assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year;
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analogous state and local laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business
practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or
services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal
government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local
laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking
gifts and other remuneration and items of value provided to healthcare professionals and entities and/or the registration of pharmaceutical
sales representatives; and state laws governing the privacy and security of personal information and health information in certain
circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts; and
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European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments
to healthcare providers, and data protection under the GDPR; we anticipate that over time we may expand our business operations to
include additional operations in the EU and with such expansion, we would be subject to increased governmental regulation in the EU
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countries in which we might operate, including the GDPR. In addition, our failure to comply with GDPR and privacy laws of EU Member
States or the United Kingdom may result in regulators prohibiting our processing of the personal information of EU data subjects, which
could impact our operations and ability to develop our products and provide our services, including interrupting or ending EU clinical
trials.
Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations
could involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future
statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant
penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government-funded healthcare programs, such as
Medicare and Medicaid, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, additional reporting requirements
and/or oversight, and the curtailment or restructuring of our operations. Moreover, while we do not bill third-party payors directly and our customers
make the ultimate decision on how to submit claims, from time-to-time, for CAPLYTA, and any other product candidates that may be approved, we may
provide reimbursement guidance to patients and healthcare providers. If a government authority were to conclude that we provided improper advice
and/or encouraged the submission of a false claim for reimbursement, we could face action against us by government authorities. If any of the
physicians or other providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject
to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs and imprisonment. If any of the above
occur, it could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of
CAPLYTA, or any other product candidates that may be approved, outside of the United States will also likely subject us to foreign equivalents of the
healthcare laws mentioned above, among other foreign laws.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of
lumateperone or any other product for which we obtain regulatory approval, or development or commercialization of our product candidates.
We face an inherent risk of product liability as a result of commercial sales of lumateperone in the United States and the clinical testing of our
product candidates, and will face an even greater risk following commercial launch of lumateperone in additional jurisdictions, if approved, or if we
engage in the clinical testing of new product candidates or commercialize any additional products.
For example, we may be sued if lumateperone or any other product we develop allegedly causes injury or is found to be otherwise unsuitable for
administration in humans. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection laws.
If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization
of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual
outcome, liability claims may result in:
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decreased demand for our products or product candidates that we may develop;
injury to our reputation;
withdrawal of clinical trial participants;
initiation of investigations by regulators;
costs to defend the related litigation;
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a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
exhaustion of any available insurance and our capital resources;
the inability to commercialize our products or product candidates; and
a decline in our stock price.
Although we currently have product liability insurance that covers our clinical trials and the commercialization of CAPLYTA for the treatment of
schizophrenia and bipolar depression, we may need to increase and expand this coverage, including if lumateperone is approved for the treatment of
indications beyond schizophrenia and bipolar depression or if other product candidates are approved for commercial sale. This insurance may be
prohibitively expensive or may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of products that we or our collaborators
develop. If we determine that it is prudent to increase our product liability coverage, we may be unable to obtain such increased coverage on acceptable
terms or at all. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage.
Our liability could exceed our total assets if we do not prevail in a lawsuit from any injury caused by our drug products. Product liability claims could
have a material adverse effect on our business and results of operations.
Our business is affected by macroeconomic conditions.
Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in
inflation, interest rates and overall economic conditions and uncertainties, including those resulting from the current and future conditions in the global
financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass price increases
on to our customers due to the process by which healthcare providers are reimbursed for our product by the government. Interest rates, the liquidity of
the credit markets and the volatility of the capital markets has and could continue to also affect the value of our investments and our ability to liquidate
our investments in order to fund our operations. We purchase or enter into a variety of financial instruments and transactions, including high-grade
corporate bonds and commercial paper. If any of the issuers or counter parties to these instruments were to default on their obligations, it could
materially reduce the value of the transaction and adversely affect our cash flows. Interest rates and the ability to access credit markets could also
adversely affect the ability of our customers and distributors to purchase, pay for and effectively distribute our products. Similarly, these macroeconomic
factors could affect the ability of our suppliers and manufacturers to supply or manufacture our product.
Risks Related to Owning Our Common Stock
Numerous factors could result in substantial volatility in the trading price of our stock.
During the year ended December 31, 2022, the price per share of our common stock on the Nasdaq Global Select Market has ranged from a high
of $66.00 to a low of $38.51. We have several stockholders who hold substantial blocks of our stock. Sales of large numbers of shares by any of our
large stockholders could adversely affect our trading price. If stockholders holding shares of our common stock sell, indicate an intention to sell, or if it
is perceived that they will sell, substantial amounts of their common stock in the public market, the trading price of our common stock could decline.
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In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors,
some of which are beyond our control. These factors include:
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the success of our commercialization of CAPLYTA in the United States for the treatment of schizophrenia and bipolar depression;
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 time
experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry
fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where the
market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock.
If any of our stockholders were to bring a securities class action lawsuit against us, such as the purported class action lawsuits brought against us and
certain of our executive officers in May 2017, consolidated in July 2017 and voluntarily dismissed in November 2017, the defense and disposition of the
lawsuit could be costly and divert the time and attention of our management and harm our operating results.
Raising additional capital may cause dilution to existing stockholders, restrict our operations or require us to relinquish rights.
We may need to satisfy our future cash needs through public or private sales of our equity securities, sales of debt securities, the incurrence of debt
from commercial lenders, strategic collaborations, licensing a portion or all of our products, product candidates and technology and, to a lesser extent,
grant funding, although there can be no assurances such financing can be obtained. To the extent that we raise additional capital through the sale of
equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other
preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds
through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or grant licenses on
terms that are not favorable to us.
The price of our common stock could be subject to volatility related or unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to meet
our growth projections and expectations, quarterly operating results of
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other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or
other developments affecting our business and the business of others in our industry. In addition, the stock market itself is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons related and
unrelated to their operating performance and could have the same effect on our common stock.
We incur substantial costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which
could harm our operating results.
As a public company, we have incurred and will incur significant legal, accounting and other expenses, including costs associated with public
company reporting requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including
requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the SEC or the Nasdaq Global Select
Market or any other stock exchange or inter-dealer quotations system on which our common stock may be listed in the future. The expenses incurred by
public companies for reporting and corporate governance purposes have increased dramatically in recent years.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which
could harm our operating results, our ability to operate our business and investors’ views of us.
We are required to comply with Section 404 of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to
maintain effective internal control over financial reporting. In particular, we must perform system and process evaluation and testing of our internal
control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting. In addition, we are
required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting. Ensuring
that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a
timely basis is a costly and time-consuming effort that will need to be re-evaluated frequently. We currently outsource the internal audit function. We
have hired and may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting
knowledge to establish an internal audit function. If we fail to maintain the effectiveness of our internal controls or if we or our independent registered
public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, this could have a
material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have
an adverse effect on the price of our common stock and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory
authorities, which would require additional financial and management resources. In addition, if our efforts to comply with new or changed laws,
regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory
authorities may initiate legal proceedings against us and our business may be harmed.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate
financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and
controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures
or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to
obtain an unqualified report on internal controls from our independent registered public accounting firm as required under Section 404 of the Sarbanes-
Oxley Act. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our ability to access the
capital markets.
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If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change
their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock is and will be influenced by whether industry or securities analysts publish or continue to publish
research and reports about us, our business, our market or our competitors and, to the extent analysts do publish such reports, what they publish in those
reports. We may not continue to have or to obtain analyst coverage in the future. Any analysts that do cover us may make adverse recommendations
regarding our stock, adversely change their recommendations from time to time, and/or provide more favorable relative recommendations about our
competitors. If any analyst who covers us or may cover us in the future were to cease coverage of us or fail to regularly publish reports on us, or if
analysts fail to cover us or publish reports about us at all, we could lose, or never gain, visibility in the financial markets, which in turn could cause our
stock price or trading volume to decline.
Provisions of the Delaware law, our restated certificate of incorporation and our restated bylaws may delay or prevent a takeover which may not be
in the best interests of our stockholders.
The provisions of Delaware law and our restated certificate of incorporation and restated bylaws could discourage or make it more difficult to
accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is
possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in
their best interests or in our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our
board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or
threatened change of our control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage
certain tactics that may be used in proxy fights. Such provisions also may have the effect of preventing changes in our management.
We do not anticipate paying cash dividends in the foreseeable future.
We currently intend to retain any future earnings for funding growth. We do not anticipate paying any cash dividends in the foreseeable future. As
a result, you should not rely on an investment in our securities if you require dividend income. Capital appreciation, if any, of our shares may be your
sole source of gain for the foreseeable future. Moreover, you may not be able to re-sell your shares at or above the price you paid for them.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,” “will,” “would,” “could,” “should,” “continue,” and similar expressions or
phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this
report, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and
other factors that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements,
to differ. The description of our Business set forth in Item 1, the Risk Factors set forth in this Item 1A and our Management’s Discussion and Analysis of
Financial Condition and Results of Operations set forth in Item 7 as well as other sections in this report, discuss some of the factors that could contribute
to these differences. These forward-looking statements include, among other things, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the accuracy of our estimates regarding expenses, revenues, uses of cash, cash equivalents and investment securities, capital requirements
and the need for additional financing;
our expectations regarding our commercialization of CAPLYTA;
the duration and severity of the COVID-19 pandemic and its continued impact on our business;
the supply and availability of and demand for our product;
the initiation, cost, timing, progress and results of our development activities, nonclinical studies and clinical trials;
the timing of and our ability to obtain and maintain regulatory approval, or submit an application for regulatory approval, of lumateperone
and our other existing product candidates, any product candidates that we may develop, and any related restrictions, limitations, and/or
warnings in the label of any approved product candidates;
our plans to research, develop and commercialize lumateperone and our other current and future product candidates;
the election by any collaborator to pursue research, development and commercialization activities;
our ability to obtain future reimbursement and/or milestone payments from our collaborators;
our ability to attract collaborators with development, regulatory and commercialization expertise;
our ability to obtain and maintain intellectual property protection for our product candidates;
our ability to successfully commercialize lumateperone and our other product candidates;
the size and growth of the markets for lumateperone and our other product candidates and our ability to serve those markets;
the rate and degree of market acceptance of any current or future products;
the success of competing drugs that are or become available;
regulatory developments in the United States and other countries;
the performance of our third-party suppliers and manufacturers and our ability to obtain alternative sources of raw materials;
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•
•
•
•
•
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, inflation risk and capital market risk; and
our ability to attract and retain key scientific, management or sales and marketing personnel.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue
reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important cautionary statements in this report, particularly in the Risk Factors set forth in
Item 1A of this Annual Report on Form 10-K, that we believe could cause actual results or events to differ materially from the forward-looking
statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint
ventures or investments we may make.
You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the
understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this report
are made as of the date of this report, and we do not assume, and specifically disclaim, any obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Our headquarters are located at 430 East 29th Street, New York, New York 10016, where we occupy approximately 32,287 square feet of useable
office 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 PROCEEDINGS
On July 8, 2022, a purported shareholder derivative complaint was filed in the Supreme Court for the State of New York against the directors
serving on the Company’s board of directors and the Company as a nominal defendant alleging breach of fiduciary duty and unjust enrichment alleging
that compensation awarded to the director defendants for service on the board of directors was excessive. We believe that the complaint is without merit.
At present, we are unable to estimate potential losses, if any, related to the lawsuit.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “ITCI.”
Stockholders
As of February 27, 2023, we had 95,280,003 outstanding shares of common stock and no outstanding shares of preferred stock. As of
February 27, 2023, there were approximately 78 holders of record of our outstanding shares of common stock.
Unregistered Sales of Securities
Not applicable.
Issuer Purchases of Equity Securities
Not applicable.
Item 6.
[RESERVED]
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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of our operations should be read in conjunction with the financial statements and
the notes to those statements appearing elsewhere in this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally
discusses the fiscal years ended December 31, 2022 and 2021 items and year to year comparisons between the fiscal years ended December 31, 2022
and 2021. The discussion around results of operations for the fiscal year ended December 31, 2020 and a comparison of our results for the fiscal years
ended December 31, 2021 and 2020 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of
our Annual Report on Form 10-K for fiscal year ended December 31, 2021, filed with the SEC on March 1, 2022. Some of the information contained in
this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties. You should read the Risk Factors set forth in Item 1A of this Annual Report on Form
10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-
looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company focused on the discovery, clinical development and commercialization of innovative, small molecule drugs
that address underserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within
the central nervous system, or CNS. In December 2019, CAPLYTA® (lumateperone) was approved by the U.S. Food and Drug Administration, or FDA,
for the treatment of schizophrenia in adults (42mg/day) and we initiated the commercial launch of CAPLYTA in March 2020. In December 2021,
CAPLYTA was approved by the FDA for the treatment of bipolar depression in adults (42mg/day). We initiated the commercial launch of CAPLYTA
for the treatment of bipolar depression in December 2021. Additionally, in April 2022, the FDA approved two new dosage strengths of CAPLYTA, 10.5
mg and 21 mg capsules, to provide dosage recommendations for patients concomitantly taking strong or moderate CYP3A4 inhibitors, and 21 mg for
patients with moderate or severe hepatic impairment (Child-Pugh class B or C). We initiated the commercial launch of these special population doses in
August 2022. As used in this report, “CAPLYTA” refers to lumateperone approved by the FDA for the treatment of schizophrenia in adults and for the
treatment of bipolar depression in adults, and “lumateperone” refers to, where applicable, CAPLYTA as well as lumateperone for the treatment of
indications beyond schizophrenia and bipolar depression.
Lumateperone is in Phase 3 clinical development as a novel treatment for MDD. Patient enrollment in Study 501 and Study 502, global Phase 3
clinical trials evaluating lumateperone 42 mg as an adjunctive therapy to antidepressants for the treatment of MDD, is ongoing. In addition, in the
second quarter of 2023, we expect to initiate a third global Phase 3 trial, Study 505, also evaluating lumateperone 42 mg as an adjunctive therapy to
antidepressants for the treatment of MDD. Study 505 is intended to serve as a potential additional registration trial in support of a supplemental New
Drug Application, or sNDA, for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD, if needed. This is a
common strategy employed in mood disorder development programs. Subject to the results of Study 501 and Study 502, we expect to file an sNDA with
the FDA for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD in 2024. In the first quarter of 2020, as part
of our lumateperone bipolar depression clinical program, we initiated our third monotherapy Phase 3 study, Study 403, evaluating lumateperone as
monotherapy in the treatment of major depressive episodes associated with bipolar I or bipolar II disorder. Following the positive results in our
adjunctive study that was part of our bipolar depression clinical program, Study 402, we amended Study 403 to evaluate major depressive episodes with
mixed features in bipolar disorder in patients with bipolar I or bipolar II disorder and mixed features in patients with MDD. Clinical conduct for Study
403 has been completed, and we expect to report topline results in the first quarter of 2023. Following reporting of topline
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results, we intend to discuss the results with the FDA to determine whether this study will provide supportive data for a potential future regulatory filing
for this indication.
We have also initiated a Phase 3 study evaluating lumateperone for the prevention of relapse in patients with schizophrenia. The study is being
conducted in five phases consisting of a screening phase, a 6-week, open-label run-in phase during which all patients will receive 42 mg of
lumateperone per day, a 12-week, open-label stabilization phase during which all patients will receive 42 mg of lumateperone per day; a double-blind
treatment phase, 26 weeks in duration, during which patients receive either 42 mg of lumateperone per day or placebo (1:1 ratio) and
a 2-week safety follow-up phase. This study is being conducted in accordance with our post approval marketing commitment to the FDA in connection
with the approval of CAPLYTA for the treatment of schizophrenia as is typical for antipsychotics.
Within the lumateperone portfolio, we are also developing a long-acting injectable, or LAI, formulation to provide more treatment options to
patients suffering from mental illness. We have completed the nonclinical development of an LAI formulation, and we have conducted a Phase 1 single
ascending dose study with this formulation. This study evaluated the pharmacokinetics, safety and tolerability of lumateperone LAI in patients with
stable symptoms of schizophrenia. We completed this study and it was safe and well tolerated. We are evaluating several additional formulations of the
lumateperone LAI with treatment durations of one month and longer. Non-clinical development on these additional formulations is ongoing and
expected to be completed in 2023 and we plan to initiate Phase I single ascending dose studies with these formulations in 2023. Given the encouraging
tolerability data to date with oral lumateperone, we believe that an LAI option, in particular, may lend itself to being an important formulation choice for
certain patients.
We are developing ITI-1284-ODT-SL for the treatment of agitation in patients with dementia, the treatment of dementia-related psychosis and the
treatment of certain depressive disorders in the elderly. ITI-1284-ODT-SL is a deuterated form of lumateperone, a new molecular entity formulated as an
oral disintegrating tablet for sublingual administration. ITI-1284-ODT-SL is formulated as an oral solid dosage form that dissolves almost instantly
when placed under the tongue, allowing for ease of use in the elderly and may be particularly beneficial for patients who have difficulty swallowing
conventional tablets. Phase 1 single and multiple ascending dose studies in healthy volunteers and healthy elderly volunteers (> than 65 years of age)
evaluated the safety, tolerability and pharmacokinetics of ITI-1284-ODT-SL. In these studies, there were no reported serious adverse events in either age
group. In the elderly cohort, reported adverse events were infrequent with the most common adverse event being transient dry mouth (mild). Based on
these results, we have initiated our program evaluating ITI-1284-ODT-SL for the treatment of agitation in patients with Alzheimer’s disease. We are in
discussions with the FDA regarding the nonclinical toxicological profile of ITI-1284-ODT-SL. The FDA has informed us that they do not believe the
deuterated and undeuterated forms of lumateperone are identical. As a result, the nonclinical data from lumateperone may not be broadly applied to
ITI-1284-ODT-SL and we are conducting additional toxicology studies. We expect to commence clinical conduct in a Phase 2 study in agitation in
patients with Alzheimer’s disease in 2023. Additional studies in psychosis in patients with Alzheimer’s disease and generalized anxiety disorder are also
planned for 2023. We are continuing with Phase 1 studies with ITI-1284-ODT-SL, including drug-drug interaction studies.
We have another major program that has yielded a portfolio of compounds that selectively inhibit the enzyme phosphodiesterase type 1, or PDE1.
PDE1 enzymes are highly active in multiple disease states and our PDE1 inhibitors are designed to reestablish normal function in these disease states.
Abnormal PDE1 activity is associated with cellular proliferation and activation of inflammatory cells. Our PDE1 inhibitors ameliorate both of these
effects in animal models. We intend to pursue the development of our phosphodiesterase, or PDE, program, for the treatment of aberrant immune system
activation in several CNS and non-CNS conditions with a focus on diseases where excessive PDE1 activity has been demonstrated and increased
inflammation is an important contributor to disease pathogenesis. Our potential disease targets include immune system regulation, neurodegenerative
diseases, cancers and other non-CNS disorders. Lenrispodun (ITI-214) is our lead compound in this program. Following the favorable safety and
tolerability results in our Phase 1 program, we initiated our
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development program for lenrispodun for Parkinson’s disease and conducted a Phase 1/2 clinical trial of lenrispodun in patients with Parkinson’s disease
to evaluate safety and tolerability in this patient population, as well as motor and non-motor exploratory endpoints. In this study, lenrispodun was
generally well-tolerated with a favorable safety profile and clinical signs consistent with improvements in motor symptoms and dyskinesias. We have
initiated our Phase 2 clinical program with lenrispodun for Parkinson’s disease, and expect to commence patient enrollment in the first quarter of 2023.
We also have an active Investigational New Drug application to evaluate our newest candidate within the PDE 1 inhibitor program, ITI-1020, as a novel
cancer immunotherapy. A Phase 1 program with ITI-1020 in healthy volunteers is anticipated to commence in the first half of 2023.
We also have a development program with our ITI-333 compound as a potential treatment for substance use disorders, pain and psychiatric
comorbidities including depression and anxiety. There is a pressing need to develop new drugs to treat opioid addiction and safe,
effective, non-addictive treatments to manage pain. ITI-333 is a novel compound that uniquely combines activity as an antagonist at serotonin 5-HT2A
receptors and a partial agonist at µ-opioid receptors. These combined actions support the potential utility of ITI-333 in the treatment of opioid use
disorder and associated comorbidities (e.g., depression, anxiety, sleep disorders) without opioid-like safety and tolerability concerns. We have conducted
a Phase 1 single ascending dose study evaluating the safety, tolerability and pharmacokinetics of ITI-333 in healthy volunteers. In this study, ITI-333
achieved plasma exposures at or above those required for efficacy and was generally safe and well-tolerated. We have commenced a neuroimaging study
to investigate brain occupancy for receptors that play a role in substance use disorder and also have applicability for pain. The results of this study will
support the dose selection for future studies. We commenced a multiple ascending dose study in the first quarter of 2023. We have received a grant from
the National Institute on Drug Abuse under the Helping to End Addiction Long-term Initiative, or NIH HEAL Initiative, that we expect will fund a
significant portion of the early stage clinical development costs associated with this program.
We have assembled a management team with significant industry experience to lead the commercialization of our product and the discovery,
development and potential commercialization of our product candidates. We complement our management team with a group of scientific and clinical
advisors that includes recognized experts in the fields of schizophrenia, bipolar depression and other CNS disorders.
COVID-19
In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China.
Since then, SARS-CoV-2 and COVID-19 have spread to countries worldwide, including the United States. The COVID-19 pandemic continues to
evolve, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public
health safety measures. As a result of the COVID-19 pandemic, we may continue to experience disruptions, which could severely impact our business,
including our ability to successfully commercialize our only commercial product, CAPLYTA, in the United States, and could negatively impact our sales
of CAPLYTA. Our commercial organization, sales force and medical organization have had, and, depending on the severity and duration of the
pandemic, may continue to have significantly reduced personal interactions with physicians and customers and may need to continue to conduct many
promotional activities virtually, and we may elect to cease in-person interactions with physicians and customers entirely for some period of time in the
interest of employee and community safety. In addition, the pandemic may continue to impact the willingness of patients to visit their healthcare
provider. Business interruptions from the current or future pandemics may also adversely impact the third parties we rely on to sufficiently manufacture
CAPLYTA and to produce our product candidates in quantities we require, which may impair the commercialization and our research and development
activities.
We conduct clinical trials for our product candidates in many countries and regions, including the United States, Europe and Asia, and may
expand to other geographies. Timely enrollment of, completion of and reporting on our clinical trials is dependent upon these global clinical trial sites
which are, or in the future may
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be, adversely affected by the COVID-19 pandemic or other pandemics. Some factors from the COVID-19 pandemic that have or may adversely affect
the timing and conduct of our clinical trials and adversely impact our business generally, include but are not limited to, delays or difficulties in clinical
site initiation, patient enrollment, diversion of healthcare resources away from clinical trials to pandemic concerns, limitations on travel, regulatory
delays and supply chain disruptions.
The COVID-19 pandemic continues to evolve, and the severity and duration of the pandemic remain uncertain. The extent to which the pandemic
impacts our business, including our commercial results, clinical trials, and nonclinical studies will depend on future developments, which are highly
uncertain.
Results of Operations
The following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements.
Revenues
Net revenues from product sales consist of sales of CAPLYTA, which was approved by the FDA for the treatment of schizophrenia in adults in
December 2019 and for the treatment of bipolar depression in adults in December 2021. In addition, in April 2022, the FDA approved two new dosage
strengths of CAPLYTA for certain patients. We initiated the commercial launch of CAPLYTA in March 2020. During the years ended December 31,
2022 and 2021, net sales increased from approximately $81.7 million for the year ended December 31, 2021 to approximately $249.1 million for the
year ended December 31, 2022.
Expenses
The process of researching, developing and commercializing drugs for human use is lengthy, unpredictable and subject to many risks. We are
unable, with certainty, to estimate either the costs or the timelines in which those costs will be incurred. The costs associated with the commercialization
of CAPLYTA are substantial and will be incurred prior to our generating sufficient revenue to offset these costs. Costs for the clinical development of
lumateperone-related projects, including for the treatment of MDD, consumes and, together with our required post marketing studies and other
anticipated clinical development programs, will continue to consume a large portion of our current, as well as projected, resources. We intend to pursue
other disease indications that lumateperone may address, but there are significant costs associated with pursuing FDA approval for those indications,
which would include the cost of additional clinical trials.
Our PDE, ITI-1284 and ITI-333 development programs are currently in clinical development. Our other programs are still in the nonclinical stages
and will require extensive funding not only to complete nonclinical testing, but also to commence and complete clinical trials. Expenditures that we
incur on these programs will be subject to availability of funding in addition to the funding required for the advancement of lumateperone. Any failure
or delay in the advancement of lumateperone could require us to re-allocate resources from our other programs to the advancement of lumateperone,
which could have a material adverse impact on the advancement of these other programs and on our results of operations.
Our operating expenses are comprised of (i) costs of product sales, (ii) selling expenses, (iii) general and administrative expenses, and
(iv) research and development expenses.
Costs of product sales are comprised of:
•
•
royalty payments on product sales;
direct costs of formulating, manufacturing and packaging drug product; and
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•
overhead costs consisting of labor, share-based compensation, shipping, outside inventory management and other miscellaneous operating
costs.
Selling expenses are incurred in three major categories:
•
•
•
salaries and related benefit costs of a dedicated sales force;
sales operation costs; and
marketing and promotion expenses.
General and administrative expenses are incurred in three major categories:
•
•
•
salaries and related benefit costs;
patent, legal, and professional costs; and
office and facilities overhead.
Research and development costs are comprised of:
•
•
fees paid to external parties who provide us with contract services, such as nonclinical testing, manufacturing and related testing, clinical
trial activities and license milestone payments; and
internal recurring costs, such as costs relating to labor and fringe benefits, materials, supplies, facilities and maintenance.
Product sold through December 31, 2022 consisted of API and drug product that was previously charged to research and development expense
prior to FDA approval of CAPLYTA and other direct, indirect, and overhead costs required to make final product for sale. Because the Company’s
policy does not allow for the capitalization of pre-approval product, the cost of drug product sold is lower than it would have been and has a positive
impact on our cost of product sales for the years ended December 31, 2022, 2021 and 2020. We expect to continue to have this favorable impact on cost
of product sales and related product gross margins until the cost of our sales of CAPLYTA include drug product that is manufactured entirely after the
FDA approval. We expect that this will be the case for the near term and, as a result, our cost of product sales will be less than we anticipate it will be in
future periods.
We expect that research and development expenses will increase considerably as we proceed with our clinical trials, including increased
manufacturing of drug product for clinical trials and nonclinical development activities. We also expect that our selling, general and administrative costs
will increase from prior periods primarily due to costs associated with promotional activities to support the commercial sales of CAPLYTA as well as
costs associated with building and maintaining infrastructure, which will include hiring additional personnel and increasing technological capabilities.
We granted significant share-based awards in 2022, 2021 and 2020. We expect to continue to grant share-based awards in the future due to our growing
employee base, which will increase our share-based compensation expense in future periods.
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The following table sets forth our revenues, operating expenses, interest income, net and income tax expense for the years ended December 31,
2022, 2021 and 2020 (in thousands):
Revenues
Product sales, net
Grant revenue
Total revenues, net
Expenses
Cost of product sales
Selling, general and administrative
Research and development
Total costs & expenses
Loss from operations
Interest income, net
Income tax expense
Net loss
For the Year Ended December 31,
2021
2020
2022
$ 249,132
1,182
250,314
$ 81,708
2,095
83,803
$ 22,531
282
22,813
20,443
358,782
134,715
513,940
(263,626)
7,376
(6)
$(256,256)
8,035
272,611
88,845
369,491
(285,688)
1,568
(6)
$(284,126)
1,895
186,364
65,782
254,041
(231,228)
4,235
(13)
$(227,006)
Comparison of Years Ended December 31, 2022 and December 31, 2021
Product Sales, Net
Net product sales were approximately $249.1 million for the year ended December 31, 2022 and $81.7 million for the year ended December 31,
2021. Net product revenue in 2021 was comprised of sales of CAPLYTA for the treatment of schizophrenia, while net product revenue in 2022 was
comprised of sales of CAPLYTA for the treatment of schizophrenia and bipolar depression.
Cost of Product Sales
Cost of product sales was approximately $20.4 million and $8.0 million for the years ended December 31, 2022 and 2021, respectively. Cost of
product sales consisted primarily of product royalty fees, overhead and direct costs. Drug product costs, including certain direct, indirect, and overhead
costs, for product sales through December 31, 2022 were previously charged to research and development expense prior to FDA approval in December
2019 and are not a component of cost of product sales. This minimal cost drug product had a positive impact on our cost of product sales and related
product gross margins for the years ended December 31, 2022 and 2021.
We will continue to have a lower cost of product sales that excludes the cost of the drug product that was incurred prior to FDA approval until our
sales of CAPLYTA include drug product that is entirely manufactured after the FDA approval. We expect that this will be the case for the near-term and,
as a result, our cost of product sales will be less than we anticipate it will be in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative costs for the year ended December 31, 2022 were $358.8 million as compared to $272.6 million in the year
ended December 31, 2021, which represents an increase of 32%.
Selling costs were $277.8 million for the year ended December 31, 2022 as compared to $203.5 million in the year ended December 31, 2021, or
an increase of 37%. This increase is primarily due to increases of marketing and advertising expenses of approximately $45.6 million, sales related labor
costs of approximately
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$21.9 million, and approximately $6.8 million in travel, lease expense and other costs. Salaries, bonuses and related benefit costs for our sales and
marketing functions for the years ended December 31, 2022 and 2021 constituted approximately 34% and 35%, respectively, of our selling costs.
General and administrative expenses for the year ended December 31, 2022 were $81.0 million as compared to $69.1 million for the year ended
December 31 2021, an increase of 17%. This increase is due to increases in share-based compensation expense of approximately $3.0 million, IT related
services of approximately $2.8 million, labor related expense of approximately $2.2 million, and the remainder for insurance, lease expense, regulatory
fees and other administrative expenses. Salaries, bonuses and related benefit costs for our general and administrative functions for the years ended
December 31, 2022 and 2021 constituted approximately 55% and 57%, respectively, of our general and administrative costs.
We expect selling, general and administrative costs to increase in 2023 as compared to the year ended December 31, 2022 due to our recent sales
force expansion and increased marketing, promotional and advertising costs.
Research and Development Expenses
The following tables set forth our research and development expenses for the years ended December 31, 2022 and 2021 (in thousands):
External costs
Internal costs
Total Research and development expenses
Lumateperone project costs
Non-lumateperone project costs
Share-based compensation
Overhead and other costs
Total Research and development expenses
2022
$ 88,803
45,912
$ 134,715
$ 70,416
38,210
15,828
10,261
$ 134,715
2021
$ 53,166
35,679
$ 88,845
$ 51,187
18,675
9,832
9,151
$ 88,845
Research and development expenses increased to $134.7 million for the year ended December 31, 2022 as compared to $88.8 million for the year
ended December 31, 2021, representing an increase of approximately 52%. This increase is due primarily to increases of approximately $19.3 million
for lumateperone costs, approximately $19.5 million for non-lumateperone costs, including the ITI-1284, ITI-214, and ITI-333 programs, among others,
approximately $6.0 million for share-based compensation expense and approximately $1.1 million on overhead and other expenses. External costs
increased by approximately $35.6 million due primarily to outsourced clinical expenses, outsourced laboratory testing of our lumateperone and other
program expenses, and outsourced development-based manufacturing activities. Internal costs increased by approximately $10.2 million for the year due
primarily to labor related costs and share-based compensation.
As the development of lumateperone and non-lumateperone programs progresses, we anticipate research and development costs will increase
significantly due primarily to nonclinical testing and conducting ongoing and planned clinical trials during the next several years. We are also required
to complete nonclinical testing to obtain FDA approval and manufacture materials needed for clinical trial use, which includes nonclinical testing of the
drug product, and manufacturing of drug product in anticipation of possible additional FDA approvals of lumateperone for indications beyond
schizophrenia and bipolar depression.
As of December 31, 2022, we employed 75 full-time personnel in our research and development group as compared to 67 full-time personnel in
our research and development group at December 31, 2021. The increase is due primarily to additional personnel for our clinical development team as
we continue our ongoing programs.
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We expect to hire additional staff as we increase our development efforts and grow our business in the upcoming years.
The research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by
numerous governmental authorities in the United States and other countries. This process typically takes years to complete and requires the expenditure
of substantial resources. The steps required before a drug may be marketed in the United States generally include the following:
•
•
•
•
•
•
•
completion of extensive nonclinical laboratory tests, animal studies, and formulation studies in accordance with the FDA’s Good
Laboratory Practice, or GLP, regulations;
submission to the FDA of an Investigational New Drug application, or IND, for human clinical testing, which must become effective
before human clinical trials may begin;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposed
indication;
submission to the FDA of a New Drug Application, or NDA, after completion of all clinical trials;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical
ingredient, or API, and finished drug product are produced and tested to assess compliance with current Good Manufacturing Practices, or
cGMPs;
satisfactory completion of FDA inspections of clinical trial sites to assure that data supporting the safety and effectiveness of product
candidates has been generated in compliance with Good Clinical Practices; and
FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.
The successful development of our product candidates and the approval process requires substantial time, effort and financial resources, and is
uncertain and subject to a number of risks. We cannot be certain that any of our product candidates will prove to be safe and effective, will meet all of
the applicable regulatory requirements needed to receive and maintain marketing approval, or will be granted marketing approval on a timely basis, if at
all. Data from nonclinical studies and clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory approval or
could result in label warnings related to or recalls of approved products. We, the FDA, or other regulatory authorities may suspend clinical trials at any
time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies find
deficiencies in the conduct of the trials or other problems with our product candidates. Other risks associated with our product candidates are described
in the section titled “Risk Factors” in this Annual Report on Form 10-K.
Liquidity and Capital Resources
From inception through December 31, 2022, we have financed the Company primarily through public and private offerings of our common stock
and other securities, and to a far lesser extent, through proceeds from grants from government agencies and foundations. In 2022, we collected
approximately $259.5 million from product sales, which we believe will increase going forward. We do not believe that grant revenue will be a
significant source of funding in the future.
As of December 31, 2022, we had a total of approximately $593.7 million in cash and cash equivalents, available-for-sale investment securities
and restricted cash, and approximately $83.2 million of short-term liabilities consisting entirely of liabilities from operations. In the year ended
December 31, 2022, we used approximately $495 million in cash for operating costs. During this period, we collected $259.5 million from
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product sales, $6.4 million of interest income, and we paid approximately $44.1 million related to our customer program liabilities, which resulted in
$271.0 million of net cash used for operations and equipment. The use of cash was primarily for selling and marketing costs in connection with our
commercialization of CAPLYTA, conducting clinical trials and nonclinical testing, funding recurring operating expenses, and product manufacturing.
Based on our current operating plans, we expect that our existing cash, cash equivalents, marketable securities, and product sales will enable us to
fund our operating expenses and capital expenditure requirements for at least the next 12 months from the filing date of this Annual Report. During that
time, we expect that our expenses will increase, primarily due to the continued commercialization of CAPLYTA for the treatment of schizophrenia and
bipolar depression; the development of lumateperone in our late-stage clinical programs; the development of our other product candidates, including
ITI-1284, ITI-214, and ITI-333; and infrastructure expansion and general operations.
We seek to balance the level of cash, cash equivalents and investments on hand with our projected needs and to allow us to withstand periods of
uncertainty relative to the availability of funding on favorable terms. Subject to our ability to generate significant revenues from operations, we may
need to satisfy our future cash needs through public or private sales of our equity securities, sales of debt securities, incurrence of debt from commercial
lenders, strategic collaborations, licensing a portion or all of our product candidates and technology and, to a lesser extent, grant funding.
We cannot be sure that future funding will be available to us when we need it on terms that are acceptable to us, or at all. We sell securities and
incur debt when the terms of such transactions are deemed favorable to us and as necessary to fund our current and projected cash needs. The amount of
funding we raise through sales of our common stock or other securities depends on many factors, including, but not limited to, the magnitude of sales of
CAPLYTA, the status and progress of our product development programs, projected cash needs, availability of funding from other sources, our stock
price and the status of the capital markets. Due to the volatile nature of the financial markets, equity and debt financing may be difficult to obtain.
Additionally, the uncertain market conditions and continued effects of COVID-19 may limit our ability to access any financing. In addition, any
unfavorable results in the commercialization of CAPLYTA and unfavorable development or delay in the progress of our lumateperone program could
have a material adverse impact on our ability to raise additional capital.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing
stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt,
making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and
distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
If adequate funds are not available to us on a timely basis, we may be required to: (1) delay, limit, reduce or terminate nonclinical studies, clinical
trials or other clinical development activities for one or more of our product candidates, including our lead product candidate lumateperone, and our
other product candidates; (2) delay, limit, reduce or terminate our discovery research or nonclinical development activities; (3) enter into licenses or
other arrangements with third parties on terms that may be unfavorable to us or sell, license or relinquish rights to develop or commercialize our product
candidates, technologies or intellectual property at an earlier stage of development and on less favorable terms than we would otherwise agree; or
(4) limit or reduce commercialization efforts related to CAPLYTA.
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Our cash is maintained in checking accounts, money market accounts, money market mutual funds, U.S. government agency securities,
certificates of deposit, commercial paper, corporate notes and corporate bonds at major financial institutions. Due to the recent history of low interest
rates available for these instruments, we have been earning limited interest income. During the year ended December 31, 2022, however, interest rates
have risen which is increasing interest income. This increase in interest rates has, however, resulted in approximately $4.2 million of unrealized losses
on investments during the year ended December 31, 2022. Due to the short-term nature of these investments and our intention to hold these investments
to maturity, we do not expect to recognize these losses. Even with the rise or further potential rise in interest rates, we do not expect interest income to
be a significant source of funding. In addition, our investment portfolio historically has not been adversely impacted by problems in the credit markets,
but there can be no assurance that our investment portfolio will not be adversely affected in the future.
Our cash requirements in the short and long term consist of operational, manufacturing, and capital expenditures, a portion of which contain
contractual or other obligations. We plan to fund our cash requirements with our current financial resources together with our anticipated receipts from
product sales. We manage future cash requirements relative to our long-term business plans. Our primary uses of cash and operating expenses relate to
administering clinical trials, manufacturing and marketing our products, paying employees and consultants, and providing technology and facility
infrastructure to support our operations.
We have two kinds of long-term contractual commitments—operating leases and purchase obligations. In 2014, we entered into a lease of 16,753
square feet of useable laboratory and office space located at 430 East 29th Street, New York, New York 10016. In September 2018, we amended the
lease to obtain an additional 15,534 square feet of office space beginning October 1, 2018 and to extend the term of the lease for previously acquired
space. The lease, as amended, has a term of 14.3 years ending in May 2029. Refer to Note 7—Leases to our consolidated financial statements for further
details.
In addition to operating leases, we enter into certain other long-term commitments for goods and services that are outstanding for periods greater
than one year. We recently amended our significant manufacturing service agreements with Siegfried Evionnaz SA and Lonza Ltd, committing to certain
minimum annual purchase commitments which we anticipate payments for within the years 2025 through 2029. We also enter into short-term
agreements with various vendors and suppliers of goods and services in the normal course of operations through purchase orders. Such short-term
agreements are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services. The nature of
the work being conducted under these agreements is such that, in most cases, the services may be stopped on short notice without penalty. In such event,
we would not be liable for the full amount of the agreement.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires
management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the balance sheet and reported
amounts of revenues and expenses for the periods presented. Judgments must also be made about the disclosure of contingent liabilities. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and
assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management makes estimates and exercises judgment in research and development, including clinical trial accruals. Actual results may differ from those
estimates and under different assumptions or conditions.
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We believe that the following critical accounting policy affects management’s more significant judgments and estimates used in the preparation of
our financial statements:
Research and Development, Including Clinical Trial Expenses
We recognize our research and development expenses as the services are incurred. Research and development costs primarily consist of salaries
and related expenses for personnel and resources and the costs of clinical trials. Other research and development expenses include nonclinical analytical
testing, manufacturing of drug product for use in clinical and nonclinical trials, 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
tasks using data such as subject enrollment, clinical site activations or information provided to us by our vendors, among other factors with respect to
their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of
costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.
As part of the process of preparing our financial statements, we are required to estimate expenses resulting from the obligations under contracts
with vendors, clinical research organizations and 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 not match the
periods over which materials or services are provided under such contracts. Our objective is to reflect the appropriate clinical trial expenses in our
financial statements by matching those expenses with the period in which services are performed and efforts are expended. We account for these
expenses according to the progress of the clinical trial as measured by subject progression and the timing of various aspects of the trial. We determine
accrual estimates through financial models taking into account various clinical information provided by vendors and discussion with applicable
personnel and external service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical
trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance
sheet date based on the facts and circumstances known to us at that time. Our clinical trial accruals are dependent upon the timely and accurate reporting
of contract research organizations, clinical sites and other third-party vendors. Although we do not expect our estimates to be materially different from
amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed
may vary and may result in us reporting amounts that are too high or too low for any particular period.
Revenue Recognition
In accordance with ASC Topic 606, we recognize revenue when the customer obtains control of a promised good or service, in an amount that
reflects the consideration that we expect to receive in exchange for the good or service.
To determine revenue recognition for arrangements that we determine are within the scope of ASC Topic 606, we perform the following five
steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price,
(iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under ASC Topic 606, including when
it is probable that we will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract
inception, once the contract is determined to be within the scope of ASC Topic 606, we assess the goods or services promised within each contract and
determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the
amount of the transaction price that is allocated to the
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respective performance obligation when (or as) the performance obligation is satisfied. For additional discussion of accounting for product sales, see
Product Sales, net (below).
To date, our only source of product sales has been from sales of CAPLYTA in the United States, which we began shipping to customers in March
2020.
Product Sales, net
We sell CAPLYTA to a limited number of customers which include a number of national and select regional distributors. These customers
subsequently resell our products to specialty pharmacy providers, as well as other retail pharmacies and certain medical centers or hospitals. In addition
to distribution agreements with customers, we enter into arrangements with health care providers and payers that provide for government mandated
and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products. We recognize revenue on product sales
when the customer obtains control of our product, which occurs at a point in time (upon delivery). Product revenues are recorded net of applicable
reserves for variable consideration, including rebates, discounts and allowances, among others. If taxes should be collected from customers relating to
product sales and remitted to governmental authorities, they will be excluded from revenue.
Reserves for Variable Consideration
Revenues are calculated based on the wholesale acquisition cost that we charge to distributors for CAPLYTA less variable consideration for which
reserves are established. Components of variable consideration may include trade discounts and allowances, product returns, provider chargebacks and
discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within
contracts between us and our customers, payers, and other indirect customers relating to sales of our product.
These reserves are based on the amounts earned, or to be claimed on the related sales, include our best estimates that take into consideration a
range of possible outcomes which are considered more likely in accordance with the expected value method in ASC Topic 606 for relevant factors such
as current contractual and statutory requirements, specific known market events and trends, and forecasted customer buying and payment patterns. Our
estimates utilizing payer mix are based on CAPLYTA’s actual channel mix in 2022. The amount of variable consideration which is included in the
transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of
the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in
accordance with the guidance, under which it determined it was probable that a significant reversal of revenue would not occur in a future period for the
estimates detailed below as of December 31, 2022 and 2021, therefore, the transaction price was not reduced further during the years ended
December 31, 2022 and 2021. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary
from our estimates, we will adjust these estimates, which would affect net product sales and earnings in the period such variances become known.
Government Rebates—We are subject to discount obligations under state Medicaid and Medicare programs. These reserves are recorded in the
same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included
in accrued expenses and other current liabilities on the consolidated balance sheets. For Medicare, we also estimate the number of patients in the
prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists
of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the
current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution
channel inventories at the end of each reporting period.
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Chargebacks, discounts, fees, and returns are recorded as reductions of trade receivables, net on the consolidated balance sheets. Government and
other rebates are recorded as a component of accrued expenses and other current liabilities on the consolidated balance sheets.
Recently Issued Accounting Pronouncements
We review new accounting standards to determine the expected financial impact, if any, that the adoption of each such standard will have. Based
on our assessment, all new accounting pronouncements were determined to be either not applicable or are expected to have minimal impact on our
consolidated financial statements or related disclosures.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity. As of December 31, 2022, we had cash, cash equivalents, marketable securities and restricted cash of approximately
$593.7 million, consisting 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 as high-grade corporate bonds and commercial paper. The primary objective of our investment activities is to preserve our capital for the
purpose of funding operations and we do not enter into investments for trading or speculative purposes. We believe that we do not have material
exposure to high-risk investments such as mortgage-backed securities, auction rate securities or other special investment vehicles within our money-
market fund investments. We believe that we do not have any material exposure to changes in fair value as a result of changes in interest rates, although
the recent increase in interest rates has resulted in our unrealized loss on investments, net, as of December 31, 2022 of approximately $4.2 million and
an unrealized gain on investments, net, in 2021 totaling approximately $0.9 million. We plan on holding those investments to maturity and should
interest rates rise, there would be no recognition of impairment required. Declines in interest rates, however, would reduce future investment income.
Inflation Risk. Inflation generally may affect us by increasing our cost of labor, clinical trial costs, and other outsourced activities. To date,
inflation has not had a material impact on our business, but if the global inflationary trends continue, we expect appreciable increases in clinical trial,
selling, labor, and other operating costs. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases of our product. Our inability or failure to do so could adversely affect our business, financial condition and results
of operations.
Capital Market Risk. Although we receive product revenues from commercial sales of CAPLYTA, we continue to depend on funds raised through
other sources. One possible source of funding is through further equity offerings. Our ability to raise funds in this manner depends upon capital market
forces affecting our stock price.
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Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTRA-CELLULAR THERAPIES, INC.
Index to Financial Statements and Financial Statement Schedules
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
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Number
F-1
F-3
F-4
F-5
F-6
F-7
F-8
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Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-K, have concluded that, based on such
evaluation, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or
persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and
procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework (2013).
Based on our assessment, management believes that, as of December 31, 2022, the Company’s internal control over financial reporting is effective
based on those criteria.
Our independent registered public accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting.
This report appears further below in this Item 9A.
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Changes in Internal Controls
There were no changes in our internal control over financial reporting during the fourth quarter ended December 31, 2022 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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To the Stockholders and the Board of Directors of Intra-Cellular Therapies, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control Over Financial Reporting
We have audited Intra-Cellular Therapies, Inc. and subsidiary (the Company’s) internal control over financial reporting as of December 31, 2022, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting at December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets as of December 31, 2022 and 2021, 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, 2022, and the related notes (collectively referred to as the “financial statements”),
and our report dated March 1, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Inherent Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
78
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Baltimore, MD
March 1, 2023
79
Table of Contents
Item 9B.
OTHER INFORMATION
Not applicable.
Item 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
80
Table of Contents
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Management and Corporate
Governance,” “Delinquent Section 16(a) Reports,” and “Code of Ethics and Business Conduct” in the Company’s Proxy Statement for the 2023 Annual
Meeting of Stockholders.
PART III
Item 11.
EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Executive Officer and Director
Compensation,” “Compensation Discussion and Analysis,” “Management and Corporate Governance—Compensation Committee Interlocks and Insider
Participation,” “Compensation Committee Report” and “Risks Related to Compensation Practices and Policies” in the Company’s Proxy Statement for
the 2023 Annual Meeting of Stockholders. The section titled “Pay Versus Performance” in the Company’s 2023 Proxy Statement is not incorporated by
reference herein.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of Certain
Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 2023 Annual Meeting of
Stockholders.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Certain Relationships and
Related Person Transactions” and “Management and Corporate Governance” in the Company’s Proxy Statement for the 2023 Annual Meeting of
Stockholders.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Ratification of Appointment of
Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders.
81
Table of Contents
PART IV
Item 15.
EXHIBITS AND 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 Financial Statements and Financial Statement Schedules” at Item 8 to this Annual Report on Form 10-K. Other
financial statement schedules have not been included because they are not applicable or the information is included in the financial
statements or notes thereto.
Item 15(a)(3)
Exhibits
The following is a list of exhibits filed as part of this Annual Report on Form 10-K.
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
3.4
4.1
4.2
Filed
Herewith
Exhibit Description
Agreement and Plan of Merger, dated as of August 23, 2013, by and among
the Registrant, ITI, Inc. and Intra-Cellular Therapies, Inc.
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.
Restated Certificate of Incorporation of the Registrant, as amended.
Certificate of Merger relating to the Merger of ITI, Inc. with and into Intra-
Cellular Therapies, Inc., filed with the Secretary of State of the State of
Delaware on August 29, 2013.
Certificate of Ownership and Merger relating to the Merger of Intra-
Cellular Therapies, Inc. with and into the Registrant, filed with the
Secretary of State of the State of Delaware on August 29, 2013, relating to
the name change of the Registrant.
Restated Bylaws of the Registrant.
Form of common stock certificate.
Description of securities.
10.1
.1
License Agreement dated as of May 31, 2005 by and between Bristol-
Meyers Squibb Company and Intra-Cellular Therapies, Inc.**
82
Incorporated
by Reference
herein from
Form or
Schedule
8-K
(Exhibit 2.1)
8-K
(Exhibit 2.2)
10-Q
(Exhibit 3.1)
8-K
(Exhibit 3.3)
8-K
(Exhibit 3.4)
8-K
(Exhibit 3.5)
8-K
(Exhibit 4.1)
10-K
(Exhibit 4.2)
8-K
(Exhibit 10.1)
Filing Date
8/29/2013
SEC File/
Reg. Number
000-54896
9/5/2013
000-54896
8/9/2021
001-36274
9/5/2013
000-54896
9/5/2013
000-54896
9/5/2013
000-54896
9/5/2013
000-54896
3/1/2022
001-36274
8/9/2022
001-36274
Table of Contents
.2
.1
.2
.1
.2
Exhibit
Number
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Exhibit Description
Amendment No. 1 to License Agreement dated as of November 3,
2010 by and between Bristol-Meyers Squibb Company and Intra-
Cellular Therapies, Inc.
Filed
Herewith
Incorporated
by Reference
herein from
Form or
Schedule
8-K
(Exhibit 10.1.2)
Filing Date
9/5/2013
SEC File/
Reg. Number
000-54896
Supply Agreement dated as of January 5, 2023 by and between
Siegfried AG and the Registrant.**
X
Master Services Agreement, effective as of January 10, 2017, by and
between ITI Limited and Lonza Ltd.**
10-Q
(Exhibit 10.1)
11/9/2020
001-36274
Amendment No. 1 to Master Services Agreement dated as of
December 19, 2022 by and between ITI Limited and Lonza Ltd.
X
Employment Agreement effective as of February 26, 2008 by and
between Sharon Mates, Ph.D. and Intra-Cellular Therapies, Inc.*
Employment Agreement effective as of August 3, 2015 by and
between Michael I. Halstead and Intra-Cellular Therapies, Inc.*
Amendment No. 1 to Employment Agreement dated as of
November 9, 2016 by and between Michael I. Halstead and Intra-
Cellular Therapies, Inc.*
Employment Agreement effective as of February 26, 2008 by and
between Lawrence J. Hineline and Intra-Cellular Therapies, Inc.*
Employment Agreement effective as of October 15, 2018 by and
between Mark Neumann and Intra-Cellular Therapies, Inc.
Employment Agreement effective as of September 12, 2018 by and
between Suresh Durgam, M.D. and Intra-Cellular Therapies, Inc.*
Employee Proprietary Information, Inventions, and Non-Competition
Agreement effective as of September 1, 2003 by and between Sharon
Mates, Ph.D. and Intra-Cellular Therapies, Inc.*
8-K
(Exhibit 10.3)
10-Q
(Exhibit 10.1)
10-Q
(Exhibit 10.1)
8-K
(Exhibit 10.4)
10-K
(Exhibit 10.9)
10-K
(Exhibit 10.8)
8-K
(Exhibit 10.8)
9/5/2013
000-54896
11/5/2015
001-36274
11/9/2016
001-36274
9/5/2013
001-36274
2/27/2019
001-36274
3/1/2022
001-36274
9/5/2013
000-54896
10.10
Employee Proprietary Information, Inventions, and Non-Competition
Agreement effective as of July 29, 2014 by and between Michael
Halstead and Intra-Cellular Therapies, Inc.*
10-K
(Exhibit 10.11)
3/12/2015
001-36274
83
Table of Contents
Exhibit
Number
10.11
10.12
10.13
10.14
Exhibit Description
Filed
Herewith
Employee Proprietary Information, Inventions, and Non-Competition
Agreement effective as of December 1, 2003 by and between Lawrence J.
Hineline and Intra-Cellular Therapies, Inc.*
Employee Proprietary Information, Inventions, Inventions, and
Non-Competition Agreement effective as of December 10, 2018 by and
between Mark Neumann and Intra-Cellular Therapies, Inc.*
Employee Proprietary Information, Inventions, Inventions, and
Non-Competition Agreement effective as of September 12, 2018 by and
between Suresh Durgam, M.D. and Intra-Cellular Therapies, Inc.*
Form of Indemnification Agreement by and between the Company and its
directors and executive officers.*
10.15
2003 Equity Incentive Plan, as amended.*
10.16
Form of Stock Option Agreement under the 2003 Equity Incentive Plan, as
amended.*
10.17
Amended and Restated 2013 Equity Incentive Plan.*
10.18
Form of Stock Option Agreement under the 2013 Equity Incentive Plan.*
10.19
Amended and Restated 2018 Equity Incentive Plan.*
10.20
Form of Stock Option Agreement under the 2018 Equity Incentive Plan.*
10.21
10.22
10.23
10.24
Form of Director Stock Option Agreement under the 2018 Equity Incentive
Plan.*
Form of Restricted Stock Unit Agreement under the 2018 Equity Incentive
Plan.*
Form of Director Restricted Stock Unit Agreement under the 2018 Equity
Incentive Plan.*
Form of Stock Option Agreement under the Amended and Restated 2018
Equity Incentive Plan.*
84
Incorporated
by Reference
herein from
Form or
Schedule
8-K
(Exhibit 10.9)
10-K
(Exhibit 10.16)
10-K
(Exhibit 10.13)
8-K
(Exhibit 10.13)
8-K
(Exhibit 10.14)
8-K
(Exhibit 10.15)
8-K
(Exhibit 10.1)
10-K
(Exhibit 10.19)
8-K
(Exhibit 10.1)
8-K
(Exhibit 10.2)
8-K
(Exhibit 10.3)
8-K
(Exhibit 10.4)
8-K
(Exhibit 10.5)
10-Q
(Exhibit 10.2)
Filing Date
SEC File/
Reg. Number
9/5/2013
000-54896
2/27/2019
001-36274
3/1/2022
001-36274
9/5/2013
000-54896
9/5/2013
000-54896
9/5/2013
000-54896
6/18/2015
001-36274
3/25/2014
001-36274
5/28/2020
001-36274
6/21/2018
001-36274
6/21/2018
001-36274
6/21/2018
001-36274
6/21/2018
001-36274
8/10/2020
001-36274
Table of Contents
Exhibit
Number
10.25
10.26
10.27
Exhibit Description
Filed
Herewith
Form of Director Stock Option Agreement under the Amended and Restated
2018 Equity Incentive Plan.*
Form of Restricted Stock Unit Agreement under the Amended and Restated
2018 Equity Incentive Plan.*
Form of Director Restricted Stock Unit Agreement under the Amended and
Restated 2018 Equity Incentive Plan.*
10.28
Non-Employee Director Compensation Policy, as amended.*
10.29
10.30
10.31
Redemption Agreement dated as of August 29, 2013 by and between the
Registrant and NLBDIT 2010 Services, LLC.
Indemnity Agreement dated as of August 29, 2013 by and among the
Registrant, Intra-Cellular Therapies, Inc. and Samir N. Masri.
Registration Rights Agreement dated as of August 29, 2013 by and among
Intra-Cellular Therapies, Inc., the stockholders named therein and the
Registrant.
10.32
Intra-Cellular Therapies, Inc. 2019 Inducement Award Plan.*
10.33
Form of Restricted Stock Unit Agreement under the 2019 Inducement
Award Plan.*
10.34
Form of Stock Option Agreement under the 2019 Inducement Award Plan.*
21.1
23.1
31.1
31.2
32.1
101
Subsidiaries.
Consent of Ernst & Young LLP.
Certification of the Chief Executive Officer.
Certification of the Chief Financial Officer.
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
.INS
Inline XBRL Instance Document—the instance document does not appear
in the Interactive Data File because its XBRL tags are embedded within the
Inline XBRL document.
85
X
X
X
X
X
X
Incorporated
by Reference
herein from
Form or
Schedule
10-Q
(Exhibit 10.3)
10-Q
(Exhibit 10.4)
10-Q
(Exhibit 10.5)
10-Q
(Exhibit 10.1)
8-K
(Exhibit 10.17)
8-K
(Exhibit 10.18)
8-K
(Exhibit 10.19)
10-K
(Exhibit 10.32)
10-K
(Exhibit 10.33)
10-K
(Exhibit 10.34)
10-K
(Exhibit 21.1)
Filing Date
SEC File/
Reg. Number
8/10/2020
001-36274
8/10/2020
001-36274
8/10/2020
001-36274
5/10/2022
001-36274
9/5/2013
000-54896
9/5/2013
000-54896
9/5/2013
000-54896
3/2/2020
001-36274
3/2/2020
001-36274
3/2/2020
001-36274
Table of Contents
Exhibit
Number
Exhibit Description
Incorporated
by Reference
herein from
Form or
Schedule
Filed
Herewith
Filing Date
SEC File/
Reg. Number
.SCH
Inline XBRL Taxonomy Extension Schema Document.
.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
.DEF
Inline XBRL Taxonomy Extension Definition.
.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
.PRE
Inline XBRL Taxonomy Presentation Linkbase Document.
Cover Page Interactive Date File (formatted as Inline XBRL and
contained in Exhibit 101).
X
X
X
X
X
X
Management contract or compensatory plan or arrangement.
Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified
confidential portions (i) are not material and (ii) are the type of information that the Company treats as private or confidential.
104
*
**
Item 16.
FORM 10-K SUMMARY
Not applicable.
86
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 1, 2023
INTRA-CELLULAR THERAPIES, INC.
By: /s/ Sharon Mates, Ph.D.
Sharon Mates, Ph.D.
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures
Title
By:
By:
By:
By:
By:
By:
/s/ Sharon Mates, Ph.D.
Sharon Mates, Ph.D.
/s/ Lawrence J. Hineline
Lawrence J. Hineline
/s/ Joel S. Marcus
Joel S. Marcus
/s/ Rory B. Riggs
Rory B. Riggs
/s/ E. Rene Salas
E. Rene Salas
/s/ Robert L. Van Nostrand
Robert L. Van Nostrand
Chairman, President and Chief Executive Officer
(principal executive officer)
Senior Vice President of Finance and
Chief Financial Officer (principal financial officer and
principal accounting officer)
Director
Director
Director
Director
87
Date
March 1, 2023
March 1, 2023
March 1, 2023
March 1, 2023
March 1, 2023
March 1, 2023
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Intra-Cellular Therapies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Intra-Cellular Therapies, Inc. and its subsidiary (the Company) as of December 31,
2022 and 2021, 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, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2023 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally
accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free of material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise
substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be
issued.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to
F-1
Table of Contents
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which
it relates.
Description of the Matter
How We Addressed the Matter in Our
Audit
Clinical trial expenses
As described in Note 2 to the consolidated financial statements, at each consolidated balance sheet date, the
Company recognizes research and development expenses, which include clinical trials, as the services are
incurred. When recording the estimate of clinical trial costs incurred, the Company is required to evaluate the
progress toward completion of contractually agreed upon tasks using subject enrollment, clinical site
activations and other information provided to the Company by vendors. Since billings under the contracts
with third parties may not coincide with costs incurred to date, the Company must apply significant judgment
to determine the estimated expense and related balance sheet positions at period end.
Our principal consideration in evaluating this as a critical audit matter focused on the phase 3 studies due to
the significant contractual obligations and the high degree of subjectivity and estimation required of
management to determine the progress towards completion of specific tasks.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over
the Company’s estimation of the clinical trial expenses, including the process of estimating the expenses
incurred to date based on the progress of the phase 3 clinical trials. For example, we observed management’s
key review control which included quarterly interviews with Contract Research Organizations (CROs) and
subsequent documentation which provided support for management’s estimate of progress toward
completion. We also tested controls over management’s review of the clinical trial expense calculation
including controls over the completeness and accuracy of data inputs.
To test the clinical trial expense, we performed procedures that included, among others: 1) read each
agreement and change order with the principal vendors supporting the phase 3 clinical study, 2) evaluated the
significant assumptions related to enrollment, patient costs and other components of the study budget used to
develop the clinical trial expense estimates and calculated the amounts that were accrued or prepaid at the
balance sheet date, 3) tested the completeness and accuracy of invoicing activity associated with the
Company’s contractual obligations, 4) confirmed with the CRO the work orders, change orders, enrollment
data and invoicing activity included in management’s calculation, 5) assessed the historical accuracy of
estimates previously made by management.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Baltimore, Maryland
March 1, 2023
F-2
Table of Contents
Intra-Cellular Therapies, Inc. and Subsidiary
Consolidated Balance Sheets (in thousands except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Investment securities, available-for-sale
Restricted cash
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Right of use assets, net
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued and other current liabilities
Accrued customer programs
Accrued employee benefits
Operating lease liabilities
Total current liabilities
Operating lease liabilities, non-current,
Total liabilities
Stockholders’ equity:
Common stock, $0.0001 par value: 175,000,000 shares authorized at December 31, 2022 and
December 31, 2021, respectively; 94,829,794 and 81,886,965 shares issued and outstanding at
December 31, 2022 and December 31, 2021, respectively
Additional paid-in capital
Accumulated deficit
Accumulated comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
F-3
December 31,
2022
December 31,
2021
$
$
$
148,615
443,290
1,750
75,189
23,920
45,193
737,957
1,913
14,824
86
754,780
10,395
19,657
25,621
22,996
4,567
83,236
15,474
98,710
$
$
$
92,365
319,968
1,400
20,156
7,948
25,444
467,281
1,791
20,764
86
489,922
8,691
11,073
5,964
20,897
6,732
53,357
18,675
72,032
9
2,137,737
(1,477,486)
(4,190)
656,070
754,780
$
8
1,639,476
(1,221,230)
(364)
417,890
489,922
$
Table of Contents
Intra-Cellular Therapies, Inc. and Subsidiary
Consolidated Statements of Operations (in thousands except share and per share amounts)
Revenues
Product sales, net
Grant revenue
Total revenues, net
Operating expenses:
Cost of product sales
Selling, general and administrative
Research and development
Total operating expenses
Loss from operations
Interest income
Loss before provision for income taxes
Income tax expense
Net loss
Net loss per common share:
Basic & Diluted
Weighted average number of common shares:
Basic & Diluted
See accompanying notes to consolidated financial statements.
F-4
2022
Years Ended December 31,
2021
2020
$
249,132
1,182
250,314
$
81,708
2,095
83,803
$
22,531
282
22,813
20,443
358,782
134,715
513,940
(263,626)
7,376
(256,250)
(6)
$ (256,256)
8,035
272,611
88,845
369,491
(285,688)
1,568
(284,120)
(6)
$ (284,126)
1,895
186,364
65,782
254,041
(231,228)
4,236
(226,992)
(14)
$ (227,006)
$
(2.72)
$
(3.50)
$
(3.23)
94,046,670
81,253,394
70,364,800
Table of Contents
Intra-Cellular Therapies, Inc. and Subsidiary
Consolidated Statements of Comprehensive Loss (in thousands)
Net loss
Other comprehensive loss:
Unrealized (loss) gain on investment securities
Comprehensive loss
See accompanying notes to consolidated financial statements.
F-5
Years Ended December 31,
2021
$ (256,256) $ (284,126) $ (227,006)
2022
2020
(3,826)
353
$ (260,082) $ (284,971) $ (226,653)
(845)
Table of Contents
Intra-Cellular Therapies, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity (in thousands except share amounts)
Common Stock
Balance at December 31, 2019
Common shares issued
Exercise of stock options and issuances of restricted stock
Stock issued for services
Share-based compensation
Net loss
Other comprehensive income
Balance at December 31, 2020
Exercise of stock options and issuances of restricted stock
Stock issued for services
Share-based compensation
Net loss
Other comprehensive loss
Balance at December 31, 2021
Common shares issued January 7, 2022
Exercise of stock options and issuances of restricted stock
Stock issued for services
Share-based compensation
Net loss
Other comprehensive loss
Balance at December 31, 2022
Shares
55,507,497
23,409,458
1,536,797
9,337
—
—
—
80,463,089
1,419,331
4,545
—
—
—
81,886,965
10,952,381
1,988,775
1,673
—
—
—
94,829,794
See accompanying notes to consolidated financial statements.
Amount
6
$
2
—
—
—
—
—
$
8
—
—
—
—
—
8
$
1
—
—
—
—
—
9
$
F-6
Additional
Paid-in
Capital
$ 904,971
652,710
11,465
214
24,115
—
—
$1,593,475
11,519
179
34,303
—
—
$1,639,476
433,717
21,441
90
43,013
—
—
$2,137,737
Accumulated
Deficit
Accumulated
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
$
$
(710,098)
—
—
—
—
(227,006)
—
(937,104)
—
—
—
(284,126)
—
$ (1,221,230)
—
—
—
—
(256,256)
—
$ (1,477,486)
$
$
$
$
128
—
—
—
—
—
353
481
—
—
—
—
(845)
(364)
—
—
—
—
—
(3,826)
(4,190)
$
$
$
$
195,007
652,712
11,465
214
24,115
(227,006)
353
656,860
11,519
179
34,303
(284,126)
(845)
417,890
433,718
21,441
90
43,013
(256,256)
(3,826)
656,070
Table of Contents
Intra-Cellular Therapies, Inc. and Subsidiary
Consolidated Statements of Cash Flows (in thousands)
Cash flows used in operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Share-based compensation
Stock issued for services
Amortization of premiums and accretion of discounts on investment securities, net
Changes in operating assets and liabilities:
Accounts receivable, net
Inventory
Prepaid expenses and other assets
Long term deferred tax asset, net
Accounts payable
Accrued and other current liabilities
Accrued customer programs
Accrued employee benefits
Lease liabilities, net
Net cash used in operating activities
Cash flows (used in) provided by investing activities
Purchases of investments
Maturities of investments
Purchases of property and equipment
Net cash (used in) provided by investing activities
Cash flows provided by financing activities
Proceeds of public offerings, net
Proceeds from exercise of stock options
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Cash paid for taxes
Non-cash investing and financing activities
Right of use assets under operating leases
Years Ended December 31,
2021
2020
2022
$ (256,256) $ (284,126) $ (227,006)
656
43,013
90
447
533
34,303
179
(4,080)
(55,033)
(15,972)
(19,749)
—
1,704
8,584
19,657
2,099
574
(270,186)
(9,391)
(892)
(11,208)
—
3,189
3,177
2,958
5,989
(175)
(259,544)
(759,209)
631,614
(778)
(128,373)
(224,575)
505,244
(325)
280,344
528
24,115
214
(648)
(10,765)
(7,056)
(7,922)
265
(1,923)
(8,242)
5,435
3,005
(73)
(230,073)
(755,629)
275,601
(267)
(480,295)
433,718
21,441
455,159
56,600
93,765
$ 150,365 $
—
11,519
11,519
32,319
61,446
93,765 $
652,712
11,465
664,177
(46,191)
107,637
61,446
$
6 $
6 $
2
$
419 $
108 $
8,918
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to
the total of the same such amounts shown in the consolidated statements of cash flows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
See accompanying notes to consolidated financial statements.
F-7
$ 148,615 $
1,750
$ 150,365 $
92,365 $
1,400
93,765 $
60,046
1,400
61,446
Table of Contents
1. Organization
Intra-Cellular Therapies, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2022
Intra-Cellular Therapies, Inc. (the “Company”), through its wholly-owned operating subsidiary, ITI, Inc. (“ITI”), is a biopharmaceutical company
focused on the discovery, clinical development and commercialization of innovative, small molecule drugs that address underserved medical needs
primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system. In December
2019, CAPLYTA® (lumateperone) was approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of schizophrenia in adults
(42mg/day) and the Company initiated the commercial launch of CAPLYTA in March 2020. In December 2021, CAPLYTA was approved by the FDA
for the treatment of bipolar depression in adults (42mg/day). The Company initiated the commercial launch of CAPLYTA for the treatment of bipolar
depression in December 2021. Additionally, in April 2022, the FDA approved two new dosage strengths of CAPLYTA, 10.5 mg and 21 mg capsules, to
provide dosage recommendations for patients concomitantly taking strong or moderate CYP3A4 inhibitors, and 21 mg for patients with moderate or
severe hepatic impairment (Child-Pugh class B or C). The commercial launch of these special population doses occurred in August 2022. As used in
these Notes to Consolidated Financial Statements, “CAPLYTA” refers to lumateperone approved by the FDA for the treatment of schizophrenia in
adults and bipolar depression in adults, and “lumateperone” refers to, where applicable, CAPLYTA as well as lumateperone for the treatment of
indications beyond schizophrenia and bipolar depression. Lumateperone is in Phase 3 clinical development as a novel treatment for major depressive
disorder.
On January 7, 2022, the Company completed a public offering of common stock in which the Company sold 10,952,381 shares of common stock at a
public offering price of $42.00 per share for aggregate gross proceeds of $460.0 million. After deducting underwriting discounts, commissions and
offering expenses, the net proceeds to the Company were approximately $433.7 million. In order to further its commercial activities and research
projects and support its collaborations, the Company may require additional financing until such time, if ever, that revenue streams are sufficient to
generate consistent positive cash flow from operations. The Company currently projects that its cash, cash equivalents and investments will be sufficient
to fund operating expenses and capital expenditures for at least one year from the date that these financial statements are filed with the Securities and
Exchange Commission (the “SEC”). Possible sources of funds include public or private sales of the Company’s equity securities, sales of debt or
convertible debt securities, the incurrence of debt from commercial lenders, strategic collaborations, licensing a portion or all of the Company’s
products, product candidates and technology and, to a much lesser extent, grant funding.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of Intra-Cellular Therapies, Inc. and its wholly own subsidiary have been prepared in conformity
with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant
to refer to the authoritative United States GAAP set forth in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”)
of the Financial Accounting Standards Board (“FASB”). All intercompany accounts and transactions have been eliminated in consolidation. The
Company currently operates in one operating segment. Operating segments are defined as components of an enterprise about which separate discrete
information is available for the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing
performance. The Company views its operations and manages its business in one segment, which is discovering, developing, and commercializing drugs
primarily for the treatment of neurological and psychiatric disorders.
F-8
Table of Contents
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Although actual results could differ from those estimates, management does not believe
that such differences would be material.
Reclassifications
Certain amounts reported in prior periods have been reclassified to conform to current period financial statement presentation. These reclassifications
have no material effect on previously reported financial position, cash flows, or results of operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. Cash and
cash equivalents consist of checking accounts, money market accounts, money market mutual funds, and certificates of deposit with a maturity date of
three months or less. The carrying values of cash and cash equivalents approximate the fair market value. Certificates of deposit, commercial paper,
corporate notes and corporate bonds with a maturity date of more than three months are classified separately on the consolidated balance sheets.
Investment Securities
Investment securities may consist of investments in U.S. Treasuries, various U.S. governmental agency debt securities, corporate bonds, certificates of
deposit, and other fixed income securities with an average maturity of approximately twelve months or less. Management classifies the Company’s
investments as available-for-sale. Such securities are carried at estimated fair value, with any unrealized holding gains or losses reported, net of any tax
effects reported, as accumulated other comprehensive loss, which is a separate component of stockholders’ equity. Realized gains and losses and
declines in value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of any
available-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 that
period, and a new cost basis for the security is established. Dividend and interest income are recognized as interest income on the consolidated
statements of operations when earned. The cost of securities sold is calculated using the specific identification method.
The Company monitors its investment portfolio for overall risk, specifically credit loss, quarterly or more frequently if circumstances warrant. The
Company has estimated the expected credit loss over the lifetime of the asset and has determined an allowance for credit losses is not material with
respect to the investment portfolio.
Fair Value Measurements
The 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. The
ASC Topic 820 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires assets and
liabilities 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 to a
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 can
include quoted prices for similar assets and liabilities in active
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markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or
other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.
•
Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves
significant and subjective judgments to be made by a reporting entity—e.g., determining an appropriate adjustment to a discount factor for
illiquidity associated with a given security.
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at
which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs
used in determining fair value and where such inputs lie within the ASC Topic 820 hierarchy.
Financial Instruments
The Company considers the recorded costs of its financial assets and liabilities, which consist of cash equivalents, restricted cash, accounts receivable,
prepaid expenses, right of use asset, net, other assets, accounts payable, accrued liabilities, accrued employee benefits, and operating lease liabilities,
current, to approximate their fair value because of their relatively short maturities at December 31, 2022 and 2021. Management believes that the risks
associated with the Company’s financial instruments are minimal as the counterparties are various corporations, financial institutions and government
agencies of high credit standing.
Restricted Cash
Restricted cash is collateral used under the letter of credit arrangement for the Company’s vehicle lease agreement (see Note 7). The Company adopted
ASU No. 2016-18, “Restricted Cash” (“ASU 2016-18”) and now includes restricted cash balances within the cash, cash equivalents and restricted cash
balance on the statement of cash flows.
Accounts Receivable, net
The Company’s accounts receivable, net, primarily arise from product sales. They are generally stated at the invoiced amount and do not bear interest.
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves
are established and which result primarily from chargebacks, prompt pay discounts, and distribution fees. All customers have standard payment terms
which generally require payment within 60 days.
The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the
customers’ credit profiles. The Company reserves against accounts receivable for estimated losses that may arise from a Customer’s inability to pay and
any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected. The reserve
amount for estimated collectability losses was not significant as of December 31, 2022 and 2021.
We are also subject to credit risk from our accounts receivable related to our product sales. We monitor our exposure within accounts receivable and
record a credit loss reserve against uncollectible accounts receivable as necessary. We extend credit primarily to pharmaceutical wholesale distributors.
Customer creditworthiness is monitored and collateral is not required. Historically, we have not experienced credit losses on our accounts receivable. As
of December 31, 2022 and 2021, our credit loss reserve on receivables was not significant.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of accounts receivable, net from customers and
cash, cash equivalent and investments held at financial institutions. For the years ended December 31, 2022 and 2021, 97% and 96% of product sales
were generated from three major industry wholesalers, respectively.
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Three individual customers accounted for approximately 39%, 30%, and 28% and 40%, 28%, and 28% of product sales for the years ended
December 31, 2022 and 2021, respectively. As of December 31, 2022, the Company believes that these customers are of high credit quality.
Cash equivalents are held with major financial institutions in the United States. Certificates of deposit, cash and cash equivalents held with banks may
exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.
Inventory
The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines the cost of its inventories, which
includes amounts related to materials and manufacturing overhead, on a first-in, first-out (“FIFO”) basis. The Company performs an assessment of the
recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated net
realizable value in the period in which the impairment is first identified. Such impairment charges, if they occur, are recorded within cost of product
sales.
The Company capitalizes inventory costs associated with the Company’s products after regulatory approval when, based on management’s judgment,
future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory acquired and manufactured prior
to receipt of regulatory approval of a product candidate is expensed as research and development expense as incurred. Inventory that can be used in
either the production of clinical or commercial product is expensed as research and development expense when selected for use in a clinical
manufacturing campaign. Inventory that is used in the production of sample product is reclassified to prepaid and other current assets and is then
expensed to selling, general and administrative expenses when the sample product is distributed.
Shipping and handling costs for product shipments to customers are recorded as part of cost of product sales along with costs associated with
manufacturing the product, and any inventory write-downs.
Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line basis over estimated useful lives ranging from three to five years. Leasehold
improvements are amortized using the straight-line method over the shorter of the estimated useful life of the assets or the term of the related lease.
Expenditures for maintenance and repairs are charged to operations as incurred.
When indicators of possible impairment are identified, the Company evaluates the recoverability of the carrying value of its long-lived assets based on
the criteria established in ASC Topic No. 360, Property, Plant and Equipment. The Company considers historical performance and anticipated future
results in its evaluation of potential impairment. The Company evaluates the carrying value of those assets in relation to the operating performance of
the business and undiscounted cash flows expected to result from the use of those assets. Impairment losses are recognized when carrying value exceeds
the undiscounted cash flows, in which case management must determine the fair value of the underlying asset. No such impairment losses have been
recognized to date.
Leases
In accordance with ASC 842, the Company elected the package of practical expedients, which permit the Company not to reassess under the new
standard the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off
of the consolidated balance sheets. The Company also elected the lessee component election, allowing the Company to account for the lease and
non-lease components as a single lease component.
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To determine whether a contract contains a lease, asset and service agreements are assessed at onset and upon modification for criteria of specifically
identified assets, control and economic benefit. Payments for identified leases are recognized in the consolidated statements of operations on a straight-
line basis over the lease term. The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate. As
the majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information
available at the lease commencement date in determining the present value of lease payments.
Revenue Recognition
In accordance with ASC Topic 606, the Company recognizes revenue when the customer obtains control of a promised good or service, in an amount
that reflects the consideration that the Company expects to receive in exchange for the good or service. The reported results for the years ended
December 31, 2022 and 2021 reflect the application of ASC Topic 606.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the
following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. The Company only applies the five-step model to arrangements that meet the definition of a contract under ASC Topic 606,
including when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the
customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services
promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied. For additional discussion of accounting for product sales, see Product Sales, net (below).
To date, the Company’s only source of product sales has been from sales of CAPLYTA in the United States, which the Company began shipping to
customers in March 2020.
Product Sales, net
The Company sells CAPLYTA to a limited number of customers which include a number of national and select regional distributors. These customers
subsequently resell the Company’s products to specialty pharmacy providers, as well as other retail pharmacies and certain medical centers or hospitals.
In addition to distribution agreements with customers, the Company enters into arrangements with health care providers and payers that provide for
government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. The
Company recognizes revenue on product sales when the customer obtains control of the Company’s product, which occurs at a point in time (upon
delivery). Product revenues are recorded net of applicable reserves for variable consideration, including rebates, discounts and allowances, among
others. If taxes should be collected from customers relating to product sales and remitted to governmental authorities, they will be excluded from
revenue.
Reserves for Variable Consideration
Revenues are calculated based on the wholesale acquisition cost that the Company charges to distributors for CAPLYTA less variable consideration for
which reserves are established. Components of variable consideration may include trade discounts and allowances, product returns, provider
chargebacks and discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are
offered within contracts between the Company and its customers, payers, and other indirect customers relating to the Company’s sales of its product.
F-12
Table of Contents
These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, include the Company’s best estimates that take
into consideration a range of possible outcomes which are considered more likely in accordance with the expected value method in ASC Topic 606 for
relevant factors such as current contractual and statutory requirements, specific known market events and trends, and forecasted customer buying and
payment patterns. The Company’s estimates utilizing payer mix are based on CAPLYTA’s actual channel mix in 2022. The amount of variable
consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that
a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses
also contemplated application of the constraint in accordance with the guidance, under which it determined it was probable that a significant reversal of
revenue would not occur in a future period for the estimates detailed below as of December 31, 2022 and 2021, therefore, the transaction price was not
reduced further during the years ended December 31, 2022 and 2021. Actual amounts of consideration ultimately received may differ from the
Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net
product sales and earnings in the period such variances become known.
Trade Discounts and Allowances— The Company generally provides customers with discounts which include incentive fees that are explicitly stated in
the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company
compensates (through trade discounts and allowances) its customers for sales order management, data, and distribution services. However, the Company
has determined such services received to date are not distinct from the Company’s sale of products to the Customer and, therefore, these payments have
been recorded as a reduction of product sales, net within the consolidated statements of operations for the years ended December 31, 2022 and 2021, as
well as a reduction to accounts receivable, net on the consolidated balance sheets.
Product Returns— Consistent with industry practice, the Company generally offers customers a limited right of return for product that has been
purchased from the Company based on the product’s expiration date, which lapses upon shipment to a patient. The Company estimates the amount of its
product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is
recognized, as well as accrued expenses and other current liabilities on the consolidated balance sheets. The Company currently estimates product return
liabilities using available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. The
Company has not received significant expired product returns to date.
Provider Chargebacks and Discounts— Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual
commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to customers who purchase the product
directly from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to
the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of
product revenue and accounts receivable, net. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by
customers, and the Company generally issues credits for such amounts within a few weeks of the customer’s notification to the Company of the resale.
Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each
reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that customers have claimed, but for
which the Company has not yet issued a credit.
Government Rebates— The Company is subject to discount obligations under state Medicaid and Medicare programs. These reserves are recorded in the
same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included
in accrued expenses and other current liabilities on the consolidated balance sheets. For Medicare, the Company also estimates the number of patients in
the prescription drug coverage gap for whom the Company will owe an additional liability
F-13
Table of Contents
under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not
been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for
product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.
Payer Rebates— The Company contracts with certain private payer organizations, primarily insurance companies and pharmacy benefit managers, for
the payment of rebates with respect to utilization of its product. The Company estimates these rebates and records such estimates in the same period the
related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability recorded as an accrued expenses
and other current liabilities on the consolidated balance sheets.
Other Incentives— Other incentives which the Company offers include voluntary patient assistance programs, such as the co-pay assistance program,
which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payers.
The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive
associated with product that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period. The
Company also has a voucher program whereby a patient can receive a prescription at no cost and whereby the Company reimburses the pharmacy for
100% of the sales price of the prescription. The Company applies the claims for vouchers for product that is in the distribution channel and reduces
recognized revenue accordingly.
The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a
current liability which is included as a component of accrued expenses and other current liabilities on the consolidated balance sheets.
Chargebacks, discounts, fees, and returns are recorded as reductions of trade receivables, net on the consolidated balance sheets. Government and other
rebates are recorded as a component of accrued expenses and other current liabilities on the consolidated balance sheets.
Cost of Product Sales
Our cost of product sales relates to sales of CAPLYTA. Cost of product sales primarily includes product royalty fees, overhead, and direct costs
(inclusive of material, shipping, and manufacturing costs).
For the product royalty fees, the Company entered into an exclusive License Agreement with Bristol-Myers Squibb Company (“BMS”), for which the
Company is obliged to make tiered single digit percentage royalty payments ranging between 5-9% on sales of licensed products. The related royalties
are recorded within cost of product sales on the statement of operations.
Prior to the FDA approval of CAPLYTA, the Company expensed all costs associated with the manufacturing of lumateperone as part of research and
development expenses. The cost of product sales in the years ended December 31, 2022, 2021 and 2020 are lower than incurred because of previously
expensed inventory.
Research and Development, Including Clinical Trial Expenses
The Company recognizes its research and development expenses as the services are incurred. Research and development costs primarily consist of
salaries and related expenses for personnel and resources and the costs of clinical trials. Other research and development expenses include nonclinical
analytical testing, manufacturing of drug product for use in clinical and nonclinical trials, outside services, providers, materials and consulting fees.
F-14
Table of Contents
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks
using data such as subject enrollment, clinical site activations or information provided to the Company by its vendors, among other factors with respect
to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of
costs incurred, and are reflected in the financial statements as prepaid or 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 under
contracts 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 not
match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate clinical trial
expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company
accounts for these expenses according to the progress of the clinical trial as measured by subject progression and the timing of various aspects of the
trial. The Company determines accrual estimates through financial models taking into account various clinical information provided by vendors and
discussion with applicable personnel and external service providers as to the progress or state of consummation of trials, or the services completed.
During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes
estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical
trial accruals are dependent upon the timely and accurate reporting of contract research organizations, clinical sites and other third-party vendors.
Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing
of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or
too low for any particular period.
Advertising Expense
Advertising costs are expensed when services are rendered. The Company incurred $85.8 million, $82.5 million and $36.3 million in advertising costs
during the years ended December 31, 2022, 2021, and 2020, respectively, related to its marketed product, CAPLYTA.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be
recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable
for the period and the change during the period in deferred tax assets and liabilities. The Company accounts for uncertain tax positions pursuant to ASC
Topic 740, Income Taxes. Financial statement recognition of a tax position taken or expected to be taken in a tax return is determined based on a
more-likely-than-not threshold of that position being sustained. If the tax position meets this threshold, the benefit to be recognized is measured as the
tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. The Company recognizes interest accrued
related to unrecognized tax benefits and penalties in the provision for income taxes.
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Table of Contents
The Company’s effective tax rate for the years ended December 31, 2022, 2021 and 2020 was approximately 0%. This effective tax rate is substantially
lower than the U.S. statutory rate of 21% due to valuation allowances recorded on current year losses where the Company is not more likely than not to
recognize a future tax benefit.
On March 27, 2020, the United States enacted The Coronavirus Aid, Relief and Economic Security (“CARES”) Act which includes several significant
business tax provisions, of which the immediate relevance to the Company is the acceleration of refunds of previously generated corporate Alternative
Minimum Tax (“AMT”) credits. The CARES Act also adds an employee retention credit to encourage employers to maintain headcounts even if
employees cannot report to work because of issues related to the coronavirus, and a temporary provision allowing companies to defer remitting to the
government the employee share of some payroll taxes, among other things. On August 9, 2022, the United States enacted the CHIPS and Science Act
which provides an investment tax credit for 25% of qualified investments primarily used for manufacturing of semiconductors and related equipment in
the U.S. On August 16, 2022, the United States enacted the Inflation Reduction Act (“IRA”) which includes a provision for a 15% corporate alternative
minimum tax on companies with average annual adjusted financial statement income over $1 billion effective for tax years ending after December 31,
2022. The Company reviewed the provisions and there was not a material tax impact on its financial statements for the year ended December 31, 2022.
On December 31, 2022, ITI Limited, our wholly-owned Bermuda subsidiary, was merged into Intra-Cellular Therapies, Inc., a Delaware corporation.
The intellectual property rights associated with lumateperone were transferred to the Delaware corporation as a result of this merger. This merger and
the subsequent liquidation of ITI Limited does not have any material impact from a U.S. or Bermuda income tax perspective.
Comprehensive Loss
All components of comprehensive loss, including net loss, are reported in the financial statements in the period in which they are incurred.
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances
from non-owner sources. In accordance with accounting guidance, the Company presents the impact of any unrealized gains or losses on its investment
securities in a separate statement of comprehensive loss for each period.
Share-Based Compensation
Share-based payments are accounted for in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation. The fair value of
share-based payments related to stock options is estimated, on the date of grant, using the Black-Scholes-Merton option-pricing model (the “Black-
Scholes Model”). The resulting 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 compensation
expense recognized in the statements of operations for the years ended December 31, 2022, 2021 and 2020 accounts for forfeitures as they occur.
The Company utilizes the Black-Scholes Model for estimating fair value of its stock options granted. Option valuation models, including the Black-
Scholes Model, require the input of subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an
award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.
F-16
Table of Contents
The expected volatility rates are based entirely on the historical volatility of the Company’s common stock. The expected life of stock options is the
period of time for which the stock options are expected to be outstanding. Given the limited historical exercise data, the expected life is determined
using the “simplified method,” which defines expected life as the midpoint between the vesting date and the end of the contractual term.
The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the
grant. The Company has not paid dividends to its stockholders since its inception and does not plan to pay cash dividends in the foreseeable future.
Therefore, the Company has assumed an expected dividend rate of zero. For stock options granted, the exercise price was determined by using the
closing market price of the Company’s common stock on the date of grant.
A restricted stock unit (“RSU”) is a stock award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair
value of each RSU is based on the fair market value of the Company’s common stock on the date of grant. In each fiscal year beginning in 2016, the
Company has granted RSUs that vest in three equal annual installments provided that the employee remains employed with the Company. In each fiscal
year beginning in 2020, the Company has granted select employees performance based RSUs which vest upon the Board’s approval at the end of the
three year service period based on the achievement of select clinical development performance milestones and comparative shareholder returns against
the Company’s peers.
Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a
future tax deduction under existing tax law is considered to be a deductible difference in applying ASC Topic 740, Income Taxes. The deductible
temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact
the Company, as all the deferred tax assets have a full valuation allowance.
Equity instruments issued 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 the
performance commitment date or the date the required services are completed and are marked to market during the service period.
In 2020, the Company’s stockholders approved the Company’s 2018 Amended and Restated Equity Incentive Plan (the “Amended 2018 Plan”) pursuant
to which 6,500,000 additional shares of common stock were reserved for future equity grants. In December 2019, the Company adopted the 2019
Inducement Award Plan (the “2019 Inducement Plan”) for the grant of equity awards of up to 1,000,000 shares of common stock to newly hired
employees.
Loss Per Share
Basic net loss per common share is determined by dividing the net loss by the weighted-average number of common shares outstanding during the
period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average
number of common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s
stock option grants and RSUs.
Recently Issued Accounting Standards
The Company considers the applicability and impact of any recent ASU issued by the FASB. Based on our assessment, there are no recent accounting
pronouncements that have or are expected to have a material impact on the Company’s consolidated financial statements or related disclosures.
F-17
Table of Contents
3. Investment Securities
Investment securities consisted of the following (in thousands):
U.S. Government Agency Securities
FDIC Certificates of Deposit
Certificates of Deposit
Commercial Paper
Corporate Notes/Bonds
U.S. Government Agency Securities
Certificates of Deposit
Commercial Paper
Corporate Notes/Bonds
December 31, 2022
Amortized
Cost
$188,465
4,155
7,500
100,711
189,588
$490,419
Unrealized
Gains
$
$
14
3
—
3
1
21
Unrealized
(Losses)
$ (1,729)
(72)
—
(269)
(2,141)
$ (4,211)
December 31, 2021
Amortized
Cost
$ 71,752
26,232
55,955
166,394
$320,333
Unrealized
Gains
$ —
1
—
19
20
$
Unrealized
(Losses)
$
(100)
—
(36)
(249)
(385)
$
Estimated
Fair
Value
$186,750
4,086
7,500
100,445
187,448
$486,229
Estimated
Fair
Value
$ 71,652
26,233
55,919
166,164
$319,968
The Company has classified all of its investment securities as available-for-sale, including those with maturities beyond one year, as current assets on
the consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered
available for use in current operations. As of December 31, 2022 and 2021, the Company held $71.5 million and $67.2 million, respectively, of
available-for-sale investment securities with contractual maturity dates more than one year and less than two years, with the remainder of the
available-for-sale investment securities having contractual maturity dates less than one year.
The aggregate related fair value of investments with unrealized losses as of December 31, 2022 was $438.3 million, which consisted of $153.1 million
from U.S. government agency securities, $3.1 million of certificates of deposit, $96.6 million of commercial paper, and $185.5 million of corporate
notes/bonds. $49.1 million of the aggregate fair value of investments with unrealized losses as of December 31, 2022 has been held in a continuous
unrealized loss position for over than 12 months, with the remaining $389.2 million held in a continuous unrealized loss position for less than 12
months. As of December 31, 2022, $14.9 million of the commercial paper balance, $20.5 million of the U.S. Government Agency Securities balance,
and $7.5 million of the certificates of deposit balance are listed as cash equivalents. As of December 31, 2021, the aggregate related fair value of
investments with unrealized losses was $263.5 million. $9.5 million of the aggregate fair value of investments with unrealized losses as of December 31,
2021 has been held in a continuous unrealized loss position for over than 12 months, with the remaining $254.1 million held in a continuous unrealized
loss position for less than 12 months.
The Company reviewed all of the investments which were in a loss position at the respective balance sheet dates, as well as the remainder of the
portfolio. The Company has analyzed the unrealized losses and determined that market conditions were the primary factor driving these changes. After
analyzing the securities in an unrealized loss position, the portion of these losses that relate to changes in credit quality is insignificant. The Company
does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell them prior to the end of their contractual
terms. Furthermore, the Company does not believe that these securities expose the Company to undue market risk or counterparty credit risk.
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4. Fair Value Measurements
The Company has no assets or liabilities that were measured for significant unobservable inputs (Level 3 assets and liabilities) as of December 31, 2022
and 2021. The carrying value of cash held in money market funds of approximately $12.2 million as of December 31, 2022 and $56.5 million as of
December 31, 2021 is included in cash and cash equivalents and approximates market value based on quoted market price or Level 1 inputs. The
carrying value of cash held in commercial paper of approximately $14.9 million, U.S. Government Agency Securities of $20.5 million, and certificates
of deposit of $7.5 million as of December 31, 2022 are included in cash and cash equivalents. The carrying value of cash held in investment securities of
$0 as of December 31, 2021 is included in cash and cash equivalents.
The fair value measurements of the Company’s cash equivalents and available-for-sale investment securities are identified in the following tables (in
thousands):
Money Market Funds
U.S. Government Agency Securities
FDIC Certificates of Deposit
Certificates of Deposit
Commercial Paper
Corporate Notes/Bonds
Money Market Funds
U.S. Government Agency Securities
Certificates of Deposit
Commercial Paper
Corporate Notes/Bonds
5. Inventory
Inventory consists of the following (in thousands):
Raw materials
Work in process
Finished goods
$
December 31,
2022
12,203
186,750
4,086
7,500
100,445
187,448
$ 498,432
$
December 31,
2021
56,539
71,652
26,233
55,919
166,164
$ 376,507
F-19
Fair Value Measurements at
Reporting Date Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
$
$
12,203
—
—
—
—
—
12,203
Significant
Other
Observable
Inputs
(Level 2)
$ —
186,750
4,086
7,500
100,445
187,448
$ 486,229
Fair Value Measurements at
Reporting Date Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
$
$
56,539
—
—
—
—
56,539
Significant
Other
Observable
Inputs
(Level 2)
$ —
71,652
26,233
55,919
166,164
$ 319,968
Significant
Unobservable
Inputs
(Level 3)
$
$
—
—
—
—
—
—
—
Significant
Unobservable
Inputs
(Level 3)
$
$
—
—
—
—
—
—
$
December 31,
2022
17,227
2,594
4,099
23,920
$
December 31,
2021
$
$
2,484
2,407
3,057
7,948
Table of Contents
6. Property and Equipment
Property and equipment consist of the following (in thousands):
Computer equipment
Furniture and fixtures
Scientific equipment
Leasehold improvements
Less accumulated depreciation
December 31,
2022
December 31,
2021
$
$
409
423
5,065
1,240
7,137
(5,224)
1,913
$
$
409
423
4,287
1,240
6,359
(4,568)
1,791
Depreciation expense for the year ended December 31, 2022, 2021 and 2020 was $0.7 million, $0.5 million and $0.5 million, respectively.
7. Right of Use Assets and Lease Liabilities
In 2014, the Company entered into a long-term lease with a related party which, as amended, provided for a lease of useable laboratory and office space
located in New York, New York. A member of the Company’s board of directors is the Executive Chairman of the parent company to the landlord under
this lease. Concurrent with this lease, the Company entered into a license agreement to occupy certain vivarium related space in the same facility for the
same term and rent escalation provisions as the lease. This license has the primary characteristics of a lease and is characterized as a lease in accordance
with ASU 2016-02 for accounting purposes. In September 2018, the Company further amended the lease to obtain an additional office space beginning
October 1, 2018 and to extend the term of the lease for previously acquired space. The lease, as amended, has a term of 14.3 years ending in May 2029.
On May 17, 2019, the Company entered into an agreement (the “Vehicle Lease”) with a company (the “Lessor”) to acquire motor vehicles for certain
employees. The Vehicle Lease provides for individual leases for the vehicles, which at each lease commencement was determined to qualify for
operating lease treatment. The Company began leasing vehicles under the Vehicle Lease in March 2020.
The contractual period of each lease is 12 months, followed by month-to-month renewal periods. The Company estimates the lease term for each vehicle
to be between 12 and 30 months. Leases which the Company determined to have a lease term of 12 months or less will be treated as short-term in
accordance with the accounting policy election and are not recognized on the balance sheet. The lease permits either party to terminate the lease at any
time via written notice to the other party. The Company neither acquires ownership of, nor has the option to purchase the vehicles at any time. The
Company is required to maintain an irrevocable $1.75 million letter of credit that the Lessor may draw upon in the event the Company defaults on the
Vehicle Lease, which has been recorded as restricted cash on the consolidated balance sheets.
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Table of Contents
The following tables present the lease balances within the consolidated balance sheet, operating cash outflows, weighted average remaining lease term,
and the weighted average discount rates related to leases as of December 31, 2022 and 2021 (in thousands, except years and percentages):
Operating lease balance sheet classification
Right of use assets, net
Lease liabilities, short term
Lease liabilities, noncurrent
Total lease liabilities
Lease cost
Operating lease cost
Variable lease cost
Short-term lease cost
Other information
Weighted average remaining lease term
Weighted average discount rate
Maturity analysis under the lease agreements are as follows:
Year ending December 31, 2023
Year ending December 31, 2024
Year ending December 31, 2025
Year ending December 31, 2026
Year ending December 31, 2027
Thereafter
Total
Less: Present value discount
Total Lease liability
Less: Current portion
Long-term lease liabilities
December 31,
2022
December 31,
2021
$
14,824
$
20,764
4,567
15,474
20,041
4,719
1,612
873
7,204
$
$
$
6,732
18,675
25,407
5,774
2,676
—
8,450
$
$
$
5.9 years
8.76%
6.1 years
8.46%
$
4,741
3,792
3,907
3,974
4,022
5,915
26,351
(6,310)
20,041
(4,567)
$15,474
8. Share-Based Compensation
The Board of Directors determines who will receive options, the vesting periods (which are generally one to three years) and the exercise prices of such
options. Options have a maximum term of 10 years. The exercise price of stock options granted under the Amended 2018 Plan and the 2019 Inducement
Plan must be at least equal to the fair market value of the common stock on the date of grant.
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Table of Contents
Total share-based compensation expense related to all of the Company’s share-based awards, including stock options and RSUs granted to employees
and directors recognized during the years ended December 31, 2022, 2021, and 2020, was comprised of the following (in thousands):
Inventoriable costs
Research and development
Selling, general and administrative
Total share-based compensation expense
2022
$ 1,791
15,387
25,835
$43,013
Years Ended December 31,
2021
$ 1,624
9,832
22,847
$34,303
2020
$ 1,342
7,073
15,700
$ 24,115
The following table describes the assumptions used for calculating the value of options granted during the years ended December 31, 2022, 2021 and
2020:
Dividend yield
Expected volatility
Weighted-average risk-free interest rate
Expected term (in years)
2022
0%
78.7%-88.7%
%
2.22
5.9
2021
0%
89.4-94.9%
0.87%
5.9
2020
0%
91.6-95.5%
1.29%
6.0
Information regarding the stock options activity, including with respect to grants to employees, directors and consultants under the Amended 2018 Plan
and 2019 Inducement Plan as of December 31, 2022, and changes during the year then ended, are summarized as follows:
Outstanding at December 31, 2021
Options granted 2022
Options exercised 2022
Options canceled 2022
Options expired 2022
Outstanding at December 31, 2022
Vested and expected to vest at December 31, 2022
Exercisable at December 31, 2022
Number of
Shares
5,451,398
612,945
(1,219,421)
(56,792)
(2,158)
4,785,972
4,785,972
3,628,867
Weighted-
Average
Contractual
Life
6.1 years
5.8 years
Weighted-
Average
Exercise
Price
21.09
56.65
17.58
41.01
12.73
26.27
26.27
$
$
$
$
$
$
$
$
20.38
5.0 years
The weighted-average grant date fair value for awards granted during the years ended December 31, 2022, 2021 and 2020 was $41.71, $29.01 and
$17.98 per share, respectively. The total intrinsic value of the options exercised during the years ended December 31, 2022, 2021 and 2020 was
$48.3 million, $19.6 million and $11.1 million, respectively. The total intrinsic value of the options outstanding as of December 31, 2022 was
$130.1 million. The total intrinsic value of the options exercisable as of December 31, 2022 was $118.3 million. The total fair value of shares vested
during the years ended December 31, 2022, 2021 and 2020 was $17.1 million, $10.6 million and $13.4 million, respectively.
The unrecognized share-based compensation expense related to stock option awards at December 31, 2022 was $23.6 million, and will be recognized
over a weighted-average period of 1.3 years.
F-22
Table of Contents
Information regarding time based RSU activity, including with respect to grants to employees under the Amended 2018 Plan and 2019 Inducement Plan
as of December 31, 2022, and changes during the year then ended, is summarized as follows:
Outstanding at December 31, 2021
Time based RSUs granted in 2022
Time based RSUs vested in 2022
Time based RSUs cancelled in 2022
Outstanding at December 31, 2022
Number of
Shares
1,529,652
601,055
(769,355)
(86,688)
1,274,664
Weighted-
Average
Grant Date
Fair Value Per Share
26.95
$
57.53
$
23.23
$
39.73
$
42.76
$
Weighted-
Average
Contractual
Life
1.5 years
0.8 years
The total intrinsic value of the time based RSUs vested during the years ended December 31, 2022, 2021 and 2020 was $40.7 million, $25.0 million and
$14.6 million, respectively. The total intrinsic value of the time based RSU’s outstanding as of December 31, 2022 was $67.5 million. The total fair
value of time based RSUs vested during the years ended December 31, 2022, 2021 and 2020 was $17.9 million, $12.4 million and $7.2 million,
respectively. The fair value of time based RSUs is based on the closing price of the Company’s common stock on the date of grant.
The Company did not issue any options or RSUs under the 2019 Inducement Plan in 2022 or 2021. As of December 31, 2022, there was approximately
$0.3 million of unrecognized compensation costs related to unvested options and RSUs under the 2019 Inducement Plan, and $1.2 million was
recognized during 2022 under this plan. As of December 31, 2022, 11,126 options and 64,302 RSUs are expected to vest in the future.
As of December 31, 2022, there was $34.7 million of unrecognized compensation costs related to unvested time based RSUs which will be recognized
over a weighted-average period of 1.4 years.
9. Loss per Share
The following common stock equivalents were excluded in the calculation of diluted loss per share because their effect could be anti-dilutive as applied
to the net loss for the years ended December 31, 2022, 2021 and 2020:
Stock options
RSUs
10. Income Taxes
Loss before income taxes is as follows (in thousands):
U.S.
Non-U.S.
Total loss before taxes
2022
Year Ended December 31,
2021
5,451,398
1,666,848
4,785,972
1,469,678
2020
5,517,622
1,636,422
2022
$(223,465)
(32,785)
$(256,250)
2021
$(221,216)
(62,904)
$(284,120)
2020
$(155,616)
(71,376)
$(226,992)
F-23
Table of Contents
Total income tax expense for the years ended December 31, 2022, 2021 and 2020 is allocated as follows:
Current
Deferred
Valuation allowance
Provision for income taxes
2022
$
6
(52,789)
52,789
6
$
2021
$
6
(53,070)
53,070
6
$
2020
$
14
(40,049)
40,049
14
$
A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate for the years ended December 31, 2022,
2021 and 2020 is as follows:
Income tax at statutory federal rate
Executive and share-based compensation
Subpart F Inclusion
Foreign rate differential
Change in effective state tax rates
State income tax expense
Change in valuation allowance
Provision for income taxes
2022
21.00%
1.92
(3.38)
(2.69)
0.17
3.58
(20.60)
0.0%
December 31,
2021
21.00%
0.60
0.0
(4.63)
(0.31)
2.04
(18.70)
0.0%
2020
21.00%
(1.01)
0.0
(6.60)
1.12
3.14
(17.65)
0.0%
Deferred income taxes reflect the net tax effect of temporary differences that exist between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, using enacted tax rates in effect for the year in which the differences are expected to
reverse. As of December 31, 2022, the Company had $663.2 million of federal net operating loss carryforwards, of which $131.1 million expire at
various dates through 2037 and $532.1 million do not expire. The gross amount of the state net operating loss carryforwards is equal to or less than the
federal net operating loss carryforwards and expires over various periods based on individual state tax law. In general, businesses with U.S. net
operating losses (“NOLs”) are considered loss corporations for U.S. federal income tax purposes. Pursuant to Section 382 of the Code, loss corporations
that undergo an ownership change, as defined under the Code, may be subject to an annual limitation on the amount of NOLs (and certain other tax
attributes) available to offset taxable income earned after such ownership change. For the years ended December 31, 2015 through 2022, the Company
performed a Section 382 ownership analysis and determined that an ownership change occurred (within the meaning of Section 382 of the Code) in
2015 but not in subsequent periods. Based on the analysis performed through December 31, 2022, however, the Company does not believe that the
Section 382 annual limitation will impact the Company’s ability to utilize the tax attributes that existed as of the date of the ownership change in a
material manner. If the Company experiences an ownership change in the future, the tax benefits related to the NOLs and tax credit carryforwards may
be further limited or lost.
F-24
Table of Contents
The following summarizes the significant components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021,
respectively (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Accrued expenditures
Research and development credit, net
Research and development expenditures
Share-based compensation
Other
Capital lease
Deferred tax liabilities:
Right of use asset—capital lease
Depreciation
Net deferred tax asset before valuation allowance
Valuation allowance
Net deferred tax asset
December 31,
2022
2021
$ 168,606
9,169
9,321
13,525
17,085
1,466
4,980
(3,684)
(154)
220,314
(220,314)
$
—
$ 137,561
2,723
9,321
—
15,947
93
6,178
(5,049)
(201)
166,573
(166,573)
$
—
Based upon the Company’s historical operating performance and the reported cumulative net losses to date, the Company presently does not have
sufficient objective evidence to support the recovery of its net deferred tax assets. Accordingly, the Company has established a full valuation allowance
against its net deferred tax assets in 2022 and 2021, for financial reporting purposes because it is not more likely than not that these deferred tax assets
will be realized.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The open years subject to tax audits vary depending
on the tax jurisdictions. In the U.S. federal jurisdiction, we are no longer subject to income tax audits by taxing authorities for years before 2014.
The total amount of unrecognized tax benefits was $1.7 million as of December 31, 2022 and 2021. If recognized, none of these tax benefits would
affect the effective tax rate due to valuation allowances.
11. Commitments and Contingencies
License and Royalty Commitments
On May 31, 2005, the Company entered into a worldwide, exclusive License Agreement with Bristol-Myers Squibb Company, pursuant to which the
Company holds a license to certain patents and know-how of BMS relating to lumateperone and other specified compounds. The agreement was
amended on November 3, 2010. The licensed rights are exclusive, except BMS retains rights in specified compounds in the fields of obesity, diabetes,
metabolic syndrome and cardiovascular disease. However, BMS has no right to use, develop, or commercialize lumateperone and other specified
compounds in any field of use. The Company has the right to grant sublicenses of the rights conveyed by BMS. The Company is obliged under the
agreement to use commercially reasonable efforts to develop and commercialize the licensed technology. The Company is also prohibited from
engaging in the clinical development or commercialization of specified competitive compounds.
Under the agreement, the Company made an upfront payment of $1.0 million to BMS in 2005, a milestone payment of $1.25 million in December 2013,
and a milestone payment of $1.5 million in December 2014 following the initiation of the Company’s first Phase 3 clinical trial for lumateperone for
patients with exacerbated schizophrenia. Upon FDA acceptance of an NDA filing for lumateperone, the Company was obligated to pay BMS a
$2.0 million milestone payment, which was paid in January 2019. The FDA approved
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Table of Contents
the NDA filing on December 20, 2019 and as a result the Company accrued an additional milestone liability of $5.0 million in the fourth quarter of 2019
which was paid in January 2020. Possible milestone payments remaining total $5.0 million. Under the agreement, the Company may be obliged to make
other milestone payments to BMS for each licensed product of up to an aggregate of approximately $14.75 million. The Company is also obliged to
make tiered single digit percentage royalty payments ranging between 5 – 9% on sales of licensed products. The Company is obliged to pay to BMS a
percentage of non-royalty payments made in consideration of any sublicense.
The agreement extends, and royalties are payable, on a country-by-country and product-by-product basis, through the later of 10 years after first
commercial sale of a licensed product in such country, expiration of the last licensed patent covering a licensed product, its method of manufacture or
use, or the expiration of other government grants providing market exclusivity, subject to certain rights of the parties to terminate the agreement on the
occurrence of certain events. On termination of the agreement, the Company may be obliged to convey to BMS rights in developments relating to a
licensed compound or licensed product, including regulatory filings, research results and other intellectual property rights.
In September 2016, the Company transferred certain of its rights under the BMS agreement to its wholly owned subsidiary, ITI Limited. However, in
December 2022, ITI Limited merged into Intra-Cellular Therapies, Inc. The Company expensed approximately $12.5 million, $4.1 million, and
$1.1 million in cost of product sales to satisfy its obligation under the BMS agreement for the years ended December 31, 2022, 2021 and 2020,
respectively.
Purchase Commitments
The Company enters into certain other long-term commitments for goods and services that are outstanding for periods greater than one year. The
Company recently amended the significant manufacturing service agreements with Siegfried Evionnaz SA and Lonza Ltd, committing to certain
minimum annual purchase commitments which the Company anticipates making payments for within the years 2025 through 2029. As of December 31,
2022, the Company has committed to purchasing production campaigns for various raw materials including active pharmaceutical ingredients (API) and
its intermediates from each of its supply vendors. The campaigns are expected to be received into inventory during 2023 and 2024. The Company has
paid deposits of $21.6 million and $9.5 million as of December 31, 2022 and 2021, respectively, for the various campaigns, which are recorded within
prepaid expenses and other current assets. Over the course of the vendors’ manufacturing period, the Company will remit payments to each vendor
based on the payment plan within the executed agreements.
Retirement savings plan 401(k) contributions
The Company sponsors a defined contribution 401(k) plan covering all full-time employees. Participants may elect to contribute their annual pre-tax
earnings up to the federally allowed maximum limits. The Company made a matching contribution of 100% on the first 6% of contributions made by
participants in the year ended December 31, 2022, 2021 and 2020. Participant and company contributions vest immediately. During the years ended
December 31, 2022, 2021 and 2020, the Company recorded matching contribution expense of $3.9 million, $3.0 million and $1.8 million, respectively.
Contingencies
During the normal course of our business, we are occasionally involved with various claims and litigation. Reserves are established in connection with
such matters when a loss is probable and the amount of such loss can be reasonably estimated. At December 31, 2022 and 2021, no material reserves
were recorded. The determination of probability and the estimation of the actual amount of any such loss are inherently unpredictable, and it is therefore
possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any. However, we believe that the likelihood that
any such excess might have a material adverse effect on our financial statements is remote.
F-26
Table of Contents
12. Unaudited Quarterly Financial Information
The tables herein set forth the Company’s unaudited condensed consolidated 2022 and 2021 quarterly statements of operations.
The following table sets forth the Company’s unaudited condensed consolidated statements of operations for the 2022 quarters ended (in thousands):
2022 Quarter Ended
Revenue, net
Operating expenses
Interest income
Income tax expense
Net loss
December 31,
$
87,869
(135,281)
3,386
—
(44,026)
September 30,
$
71,870
(127,499)
2,122
(1)
(53,508)
June 30,
$ 55,579
(143,502)
1,320
—
(86,603)
Basic and diluted net loss per share
$
(0.45)
$
(0.57)
$
(0.92)
March 31,
$ 34,996
(107,658)
548
(5)
(72,119)
$
(0.78)
The following table sets forth the Company’s unaudited condensed consolidated statements of operations for the 2021 quarters ended (in thousands):
2021 Quarter Ended
Revenue, net
Operating expenses
Interest income
Income tax benefit (expense)
Net loss
Basic and diluted net loss per share
December 31,
$
25,671
(111,675)
270
—
(85,734)
September 30,
$
22,207
(99,531)
393
23
(76,908)
June 30,
$ 20,047
(89,188)
421
(24)
(68,744)
March 31,
$ 15,878
(69,097)
484
(5)
(52,740)
$
(1.05)
$
(0.95)
$
(0.85)
$
(0.65)
F-27
CERTAIN INFORMATION IDENTIFIED BY “[***]” HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH NOT
MATERIAL AND IS THE TYPE OF INFORMATION THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
Exhibit 10.2
January 5, 2023
SUPPLY AGREEMENT
This Agreement is made as of January 5, 2023 (the Effective Date) between
Siegfried AG
Untere Bruehlstrasse 4, 4800 Zofingen, Switzerland
and
Intra-Cellular Therapies, Inc.
430 E. 29th St, New York, NY 10016, United States of America
Recitals
(Siegfried)
(ITI)
A.
B.
C.
ITI engages in the business of research, development and commercialization of pharmaceutical compounds and products;
Siegfried has substantial expertise in process development, scale-up and manufacturing of active pharmaceutical ingredients and drug products;
and
ITI and Siegfried desire to enter into this Agreement to provide the terms and conditions upon which Siegfried shall manufacture Product in
commercial quantities after the completion of a validation campaign.
Now, therefore, in consideration of the foregoing recitals and mutual covenants, agreements, representations, warranties and obligations expressed
herein, and intending to be legally bound hereby, the Parties agree as follows:
1.
Definitions
Unless elsewhere defined in this Agreement, each of the capitalized terms used in this Agreement (other than the names of the Parties and the
headings of the Sections) shall have the meanings indicated below. Such meanings shall apply equally to all forms of such terms, including
singular and plural forms, unless otherwise clearly indicated.
Siegfried
ITI
2 / 32
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
Act shall mean the United States Food, Drug and Cosmetic Act of 1938, including any amendments thereto and all rules and regulations
promulgated thereunder.
Affiliate shall mean with respect to any Party any person or entity controlling, controlled by, or under common control with a Party at any time
during the term of this Agreement. For purposes of this definition, the term control shall mean the power to direct or cause the direction of the
management and policies of an entity, whether through the ownership of voting stock, by contract or otherwise. In the case of a corporation, the
term Control shall mean the direct or indirect ownership of at least fifty per cent (50%) of the outstanding voting stock.
Agreement shall mean this Supply Agreement including its Annexes (and appendices, if applicable), as amended from time to time according to
the terms and conditions of this Agreement.
API shall mean active pharmaceutical ingredient.
Applicable Laws means, with respect to ITI, all laws, ordinances, rules and regulations, currently in effect or enacted or promulgated, and as
amended from time to time, of each jurisdiction (in which the Product is manufactured, marketed, distributed, used or sold); and with respect to
Siegfried, all laws, ordinances, rules and regulations, currently in effect or enacted or promulgated, and as amended from time to time, of the
jurisdiction in which it performs the Services, and cGMP Regulations.
Business Day shall mean a day (not being a Saturday or Sunday) on which banks are open for business in New York, U.S.A. and Zurich,
Switzerland.
cGMP Regulations shall have the meaning as set forth in the Quality Agreement.
Change shall mean any change to the Specifications, Master Batch Record, Raw Materials, Consigned Materials, Mandatory Vendor, or the
Facility, or any other change referred to in the change control procedure set forth in the Quality Agreement, such Change being either (i) a
Required Change (as defined in Section 11.1), (ii) a Customer Change (as defined in Section 11.3), or (iii) a Siegfried Change (as defined in
Section 11.3).
Confidential Information shall mean any information of whatever kind, and all tangible and intangible embodiments, and oral disclosures
thereof, of any kind whatsoever, which has been or will be disclosed by one Party (Disclosing Party) to the other Party (Receiving Party) in
connection with this Agreement, and which is confidential or proprietary to the Disclosing Party or an Affiliate thereof, including, without
limitation, for ITI, any and all information pertaining to the Product and the Specifications, and for both Parties information which relates to the
business of such Party, including without limitation business plans, strategies, operations, policies, procedures, pricing, techniques, technical and
scientific information, accounts, marketing plans, financial plans and status, and personnel
Siegfried
ITI
of either Party, that is designated or marked at the time of the disclosure as confidential or proprietary, or disclosed or made available under
circumstances under which a reasonable person would understand the information to be confidential or proprietary, including without limitation
which are obtained by Receiving Party through inspection or observation of Disclosing Party’s, or its Affiliates’, property or facilities (whether
in writing, or in oral, graphic, electronic or any other form).
1.10 Consigned Materials shall mean the samples and materials, if any, that are to be provided to Siegfried by or on behalf of ITI for the
performance of the Manufacturing Services under this Agreement, as listed in Annex B.
3 / 32
1.11 EMA shall mean the European Medicines Agency or any successor entity.
1.12 Entitled Person shall have the meaning set forth in Section 12.2.
1.13 End Market Product shall mean any pharmaceutical product containing the Product (or any derivatives thereof) in the finished packed form for
marketing, distribution and sale.
1.14
Facility means any Siegfried facility where the Manufacturing Services are performed.
1.15
FDA shall mean the United States Food and Drug Administration or any successor entity.
1.16
Force Majeure Event shall have the meaning set forth in Section 17.2.
1.17
Forecast shall have the meaning as set out in Section 4.1.
1.18 Hidden Defects shall mean any failure of a Product to conform to the Specifications, such failure not being discoverable upon reasonable
physical inspection or standard testing upon receipt of Product.
1.19
Improvement shall mean any result, data, documentation, invention, know-how, improvement, modification, adaptation, enhancement or new
application to or for any part of the Product or the techniques or processes involved in its manufacture, which is conceived, derived, reduced to
practice, made or developed by or for Siegfried in its performance of Services under this Agreement.
1.20
Independent Improvement shall mean an Improvement which is independent from ITI’s Intellectual Property Rights and which is not solely
applicable to the Product.
1.21
Initial Term shall have the meaning set forth 14.1.
1.22
Intellectual Property Rights shall mean all inventions, patent applications, patents, registered or unregistered design rights, copyrights,
database rights, trademarks, trade names, know-how, trade secrets and other industrial or intellectual property rights of whatever kind.
Siegfried
ITI
1.23 Manufacture/Manufacturing Services shall mean all activities with respect to the manufacturing and supply of the Product, including, without
limitation, the purchase and incoming inspections, storage and handling of Materials, quality control testing (including in-process, release and
stability testing, when applicable), and packaging, release and delivery of Products.
1.24 Marketing Authorization shall mean any of the following: (a) a New Drug Application (NDA) filed with the FDA, (b) an Abbreviated New
Drug Application (ANDA) filed with the FDA or (c) any other similar or equivalent regulatory filing with any Regulatory Authority seeking
authorization and approval to manufacture, package, ship, and sell the End Market Product that will be given to humans; and (d) all supplements
and amendments that may be filed with respect to the foregoing.
1.25 Master Batch Record means the document approved in writing by both Parties, and as may be amended from time to time in accordance with
this Agreement and the Quality Agreement, specifying or referencing the complete set of formal instructions for the Manufacture of Product(s),
including, but not limited to material descriptions, the formula, processing procedures, and in-process testing specifications, Specifications and
packaging and shipping specifications.
4 / 32
1.26 Materials shall mean Raw Materials and Consigned Materials.
1.27 Order shall mean a purchase order issued by ITI in accordance with this Agreement.
1.28 Order Confirmation shall mean a confirmation issued by Siegfried that an Order posted by ITI shall be executed.
1.29
Party/Parties shall mean either ITI or Siegfried, or both, as the context may require.
1.30
Product shall mean any API to be manufactured by Siegfried as set out in any Product Schedule.
1.31 Quality Agreement shall mean the signed agreement between ITI and Siegfried which defines the responsibilities of each Party (Delinitation of
Pharmaceutical Responsibility) with respect to the practices to be followed to ensure Product quality and compliance under cGMP Regulations,
which shall be made part of this Agreement by reference (as such Quality Agreement may be amended from time to time).
1.32 Raw Materials shall mean all excipients, packaging materials and and other materials, excluding any Consigned Materials, which are used to
Manufacture the Product in accordance with the Requirements and Specifications, as applicable.
1.33 Regulatory Approval means any approval or authorizations (including supplements and amendments thereof) of any governmental authority in
each country.
Siegfried
ITI
5 / 32
1.34 Regulatory Authority shall mean the FDA and the EMA.
1.35 Requirements means compliance with Applicable Laws, cGMP Regulations, the Quality Agreement and the Master Batch Records.
1.36
Specifications shall mean the detailed description of technical requirements the Product has to conform to, as set out in detail in any Product
Schedule.
2.
2.1
2.2
2.3
3.
3.1
3.2
3.3
Manufacture and Purchase of Products
This Agreement covers the purchase, Manufacture, and supply of commercial quantities of Product after completion of a validation campaign
during the term of the Agreement as set forth in Section 14 below.
ITI shall purchase the Product(s) from Siegfried and Siegfried agrees to Manufacture and supply to ITI the volume of Product(s) as set forth in
each Product Schedule.
In case circumstances, which could not have been foreseen or which were excluded from the assumptions made by both Parties render the
completion of Manufacturing Services considerably more difficult than expected, or if this completion will cause substantially more labor and
external costs to Siegfried than had been foreseen, Siegfried shall notify ITI accordingly and shall have the right to request from ITI an extension
of deadlines or an adjustment of Siegfried’s compensation.
Product Schedules and Affiliates
During the term of this Agreement, Siegfried and ITI shall enter into one or, if applicable, more Product Schedules under this Agreement, which
are specifying and detailing the respective Product(s).
If an Affiliate of ITI desires to purchase a Product or an Affiliate of Siegfried wishes to Manufacture a Product under this Agreement, such an
Affiliate may obtain or provide the Product by entering into a Product Schedule that needs to be executed by ITI—or the applicable ITI Affiliate
—and Siegfried—or the applicable Siegfried Affiliate. ITI shall not unreasonably withhold its consent to Siegfried’s wish to Manufacture the
Product at a Siegfried Affiliate.
Siegfried shall, directly or through its Affiliates, conduct all Manufacturing Services of the Product(s) in accordance with the Requirements and
solely at the Facility. Siegfried may not deviate from the Requirements without ITI’s prior written consent in each instance. Siegfried shall notify
ITI of any proposed changes to the Specifications and/or Master Batch Record in accordance with the Quality Agreement, and may not
implement such change without
Siegfried
ITI
6 / 32
ITI‘s prior written consent. During the term of this Agreement, ITI shall timely provide to Siegfried all information, which may be required or
useful for the due performance by Siegfried of its Manufacturing Services or other obligations under this Agreement, including but not limited to
any existing or new information on Product safety, efficacy or quality and/or regulatory requirements relating thereto.
4.
4.1
4.2
Forecast and Ordering
Promptly after the Effective Date and thereafter at least [***] prior to the start of each month, ITI shall submit to Siegfried a rolling forecast
covering ITI’s anticipated requirements of Product during such period (each, a Forecast). ITI acknowledges that Siegfried will rely on the
accuracy of ITI’s Forecasts in planning its acquisitions of Raw Materials. If at any time ITI finds that a Forecast is inaccurate, ITI shall inform
Siegfried without delay and submit a modified forecast for the period in question.
ITI shall make all purchases hereunder by submitting Orders to Siegfried regarding ITI’s requirements of Product(s) in accordance with each
Product Schedule. Each Order shall be in writing and shall specify the (i) Product ordered, (ii) quantity ordered, (iii) price, (iv) delivery
location(s) and (v) the required delivery date.
4.3 Within [***] from the date of the receipt of an Order from ITI, Siegfried shall confirm to ITI by way of an Order Confirmation that it will meet
ITI’s quantity requirements in accordance with the delivery date(s), whereupon the Order shall be confirmed, final, and binding on the Parties.
4.4 Without limiting ITI’s remedies or Siegfried’s obligations hereunder, Siegfried shall promptly notify ITI in writing of any anticipated delay or of
any circumstance(s) rendering it unable to Manufacture and/or supply Product in accordance with the delivery date(s) and the estimated duration
of such delay/circumstance(s) and the Parties shall discuss in good faith about the steps to be taken to overcome such delay. Siegfried will keep
ITI regularly informed of the progress of such Orders.
4.5
5.
5.1
The Product(s) shall be delivered from Siegfried to ITI according to the commercial terms and at the price as set out in ANNEX A.
Materials
Siegfried shall order sufficient quantities of all Raw Materials from its selected and qualified vendors to Manufacture and deliver Product(s) in
accordance with ANNEX A and this Agreement. [***], where such change is agreed by the Parties in writing.
Siegfried
ITI
7 / 32
5.2
5.3
5.4
5.5
5.6
5.7
If ITI designates Mandatory Vendors in accordance with the Quality Agreement, then Siegfried shall obtain respective Raw Material(s) only
from such Mandatory Vendors. [***] In no event shall Siegfried be liable or responsible for any acts or omissions of such Mandatory Vendor,
including without limitation, any delayed delivery, delivery of non-conforming Raw Material or other supply failure.
ITI shall supply Consigned Material in sufficient quantities and of good quality as necessary to enable Siegfried to perform all Manufacturing
Services of Product(s) in accordance with the Requirements, the Product Schedule and Orders, at ITI’s cost and expense. At ITI’s option, the
Consigned Materials may be delivered directly from ITI’s vendor to Siegfried at the vendor’s or ITI’s cost and expense.
Consigned Materials shall be delivered to Siegfried no later than the requested delivery date as set forth in the Order Confirmation issued by
Siegfried requesting the delivery of Consigned Materials. Customer shall compensate Siegfried for any loss or damage (including idle capacity)
incurred in connection with late delivery or delivery of non-conforming Consigned Materials by the delivery date or timeframe specified in the
ANNEX B. In no event shall Siegfried be liable or responsible for any acts or omissions caused by third party or ITI activities under Sections
5.2, 5.3 and/or 5.4, including without limitation, any delayed delivery, delivery of non-conforming Consigned Materials or other supply failure.
Any import duties, taxes or other fees due to governmental authorities regarding Consigned Materials shall be paid by ITI (DDP Incoterms
2020).
Siegfried agrees that Consigned Materials shall: (i) be used solely for the purpose of Manufacturing Services under this Agreement; (ii) be used
in compliance with all Applicable Laws; and (iii) not be transferred to any third party, except to any permitted subcontractor of Siegfried, or
except as provided for under a specific Product Schedule.
Siegfried agrees to use all reasonable and appropriate precautions in handling and storing Consigned Materials and to inform ITI promptly in
writing of any adverse effects experienced by persons handling Consigned Materials.
ITI shall retain all right, title and interest in and to all Consigned Materials delivered to Siegfried and shall insure the Consigned Materials
against loss and damage. Siegfried shall only be liable for any loss of or damage to Consigned Materials after delivery to Siegfried if such loss or
damage was caused by Siegfried’s [***]. Following receipt of Consigned Materials, Siegfried shall inspect such items, in accordance with the
procedures set forth in the Quality Agreement and/or the Master Batch Record, to verify their quantity and quality, and shall give ITI, as soon as
reasonably possible, notice of any quantity or quality shortcoming. Any Consigned Materials not rejected by Siegfried within such time period
shall be deemed accepted, unless they have Hidden Defects. In case the Consigned Materials are rejected by Siegfried, Siegfried shall follow
ITI’s written instructions in respect of return or disposal of defective Consigned Materials, at ITI’s costs and risks. Upon delivery of any Order,
Siegfried shall notify ITI of any excess Product(s) or Consigned Materials in its possession, and unless ITI directs otherwise within [***] after
receipt of such notice, Siegfried shall store all such material at its facility at an agreed rate.
Siegfried
ITI
8 / 32
5.8
5.9
6.
6.1
6.2
Siegfried will provide an inventory report directly from its warehouse system of all material held by Siegfried that is owned by ITI (Consigned
Materials and Product) by the end of the 2nd (second) Business Day following the end of the prior month. The report shall include, but not be
limited to, item description, batch/lot identifier, warehouse location, quantity on hand, and expiration date (if applicable). The report data shall
include the inventory on hand as of the close of business on the last day of the month.
Siegfried may subcontract its Manufacturing activities (including to any Affiliate) only upon ITI’s prior written consent. If ITI gives its consent
(in its sole reasonable discretion) Siegfried will execute a subcontractor agreement with the third party subcontractor or Affiliate that contains
terms at least as protective of ITI, its rights under this Agreement, and its Intellectual Property Rights as the terms in this Agreement, including,
without limitation terms that, at a minimum, provide for compliance by the subcontractor with Applicable Laws, provide for ownership and
allocation of Intellectual Property Rights in accordance with Section 13, and for obligations of confidentiality of information, record-keeping,
access, and rights to data that are consistent with the intent and terms of this Agreement. Siegfried shall remain liable at all times for the
performance of any of its obligations hereunder that it delegates to a subcontractor, and for each such subcontractor’s actions and omissions.
Mandatory Vendor
In the event ITI designates a Mandatory Vendor to Siegfried, Siegfried shall purchase the relevant Raw Materials only from a Mandatory Vendor.
Siegfried shall promptly inform ITI of any acts or omissions of such a Mandatory Vendor impacting the due and timely delivery of the
Product(s), including without limitation, any supply shortage, supply failure (including, but not limited to, any supply of defective Raw Materials
or service) or late supply of Raw Materials or late performance of service by such a Mandatory Vendor (each a Mandatory Vendor Failure),
and the Parties shall confer and use commercially reasonable efforts to have any such Mandatory Vendor Failure promptly cured.
Either Party may suggest, upon reasonable prior written notice to the other Party, to change or add a Mandatory Vendor and the Parties shall
promptly confer and amicably agree if and how to proceed, including, without limitation, to a respective adjustment of the price of the
Product(s). Except to the extent due to the fault of Siegfried, Siegfried shall not be liable or responsible for any Mandatory Vendor Failure, and,
if applicable, ITI shall reimburse Siegfried its costs and expenses, including any idle capacity, incurred in connection with
(i) the appointment or change of such Mandatory Vendor or
(ii) any Mandatory Vendor Failure.
Siegfried
ITI
9 / 32
7.
7.1
7.2
7.3
7.4
7.5
7.6
Delivery
The Product shall be delivered from Siegfried to ITI on the date confirmed in the Order Confirmation (see Section 4.3 above) according to the
Incoterm as set forth in each Product Schedule. ITI assumes all responsibilities and liability arising out of the transport, storage, handling and use
of the Product after delivery by Siegfried to ITI.
ITI shall accept deliveries of [***] of an Order. ITI shall pay solely for the Products actually delivered by Siegfried.
In the event ITI does not pick-up the Products on the date confirmed in the Order Confirmation, the risk and rewards of ownership in the Product
shall pass to ITI on such confirmed date. Siegfried shall store the Products that are not picked-up on the date confirmed in the Order
Confirmation in its warehouse on behalf of ITI against a reasonable storage fee, and shall have the right to invoice such Products to ITI upon
delivery. Siegfried shall have the right to procure shipment of the Product on behalf of ITI and have the Product shipped to ITI, at ITI’s costs and
expenses, provided that Products have been stored on behalf of ITI for a period of no less than [***] after delivery.
Siegfried shall promptly notify ITI in writing of any anticipated delay or of any circumstance(s) rendering it unable to deliver the Product in
accordance with the confirmed delivery date(s) and the estimated duration of such delay/circumstance(s). Upon such written notice, the Parties
will work together to agree upon a revised delivery schedule.
If Siegfried, due to a negligent act or omission, is unable to meet the confirmed delivery date, Siegfried shall, at ITI’s election, either: (i) use all
commercially reasonable efforts to deliver the delayed Product within a reasonable after time, or (ii) if delivery of conforming Product is not
possible within a reasonable time, refund to ITI within [***] all amounts therefore paid by ITI to Siegfried for such late Product. Except in the
case of Siegfried’s gross negligence or willful misconduct, such delivery or refund, shall be the only remedy available to ITI in case of late
deliveries.
In the event a Product Schedule relates to a Product to be used to Manufacture another Product (i.e. an intermediate), the Parties agree to
establish a special consignment warehouse (“Consignment Warehouse”). In such case, Siegfried shall invoice to ITI the relevant Product upon
delivery of such Product into the Consignment Warehouse. Such Product is to be appropriately stored and taken from stock following the
principle “first in – first out”; further details related to the storage of Product are set forth in the Quality Agreement. ITI shall bear all costs and
expenses related to the Product stored in the Consignment Warehouse. Risk and rewards of ownership of the the Product shall pass on to ITI
upon delivery of the Product in the Consignment Warehouse. Siegfried shall be responsible for any loss of Products if and to the extent
attributable to Siegfried’s wilful misconduct or gross negligence.
Siegfried
ITI
10 / 32
8.
8.1
8.2
8.3
8.4
8.5
Product Inspection
Siegfried shall take reasonable precautions and institute procedures to ensure that the Manufacture of Product(s) is and remains fully compliant
with the Requirements.
Upon receipt of the Product, ITI shall examine the Product within [***] in order to determine compliance with the Specifications. If, in ITI’s
opinion, the Product delivered does not comply with the Specifications, then ITI shall notify Siegfried in writing thereof. If ITI does not notify
Siegfried within [***] after receipt of the Product by ITI, then the Product is deemed accepted. ITI retains the right to reject the Product for a
period of [***] after delivery in case of Hidden Defects, provided that ITI notifies Siegfried in writing within [***] of discovering the Hidden
Defect.
Any claims by ITI regarding Product delivered shall specify in reasonable detail the nature and basis for the claim and cite Siegfried’s relevant
batch numbers or other information to enable specific identification of the Product involved. Siegfried shall review any written claim made by
ITI regarding the quality of the Product and provide ITI with the results of such review. If such review and testing by Siegfried confirms that the
identified Product did not meet the Specifications, ITI shall have the right to reject such Product and the Parties shall proceed according to
Sections 8.5 and 8.6.
If the Parties fail to agree as to whether a delivered quantity of Product is a non-conforming Product, the Parties shall have the batch in dispute
further tested and analyzed by an independent testing laboratory selected by agreement between the Parties. The decision of the independent
testing laboratory shall be deemed final. Should the laboratory’s testing determine that the delivered Product are non-conforming Product, then
(i) Siegfried shall bear all costs for the independent laboratory testing, (ii) ITI shall have the right to reject such non-conforming Product, and
(iii) the Parties shall proceed according to Section 8.6. However, if said quantity of Product is determined by the independent laboratory to
conform to the Specifications, then ITI shall bear all costs of the independent laboratory and compensate Siegfried for the rejected Product, the
replacement delivery (if any), and the transportation costs as set out in this Agreement. Such remedy shall be the sole remedy to ITI, except in
the event of Siegfried’s gross negligence or willful misconduct.
ITI shall, at Siegfried’s expense and written direction, dispose of the Product not conforming to the Specifications or deliver it to such destination
as Siegfried shall specify in writing, provided that such directions are in compliance with applicable environmental laws and regulations. ITI
shall not use or dispose of any Product that does not, or of which ITI claims that it does not, conform to the Specifications without Siegfried’s
prior written consent.
Siegfried
ITI
8.6
9.
9.1
9.2
If a Product is a non-conforming Product, due to a negligent act or omission of Siegfried, Siegfried shall within a reasonable period: (i) use all
commercially reasonable efforts to replace the rejected Product with Product that conforms with the Specifications or (ii) if delivery of
conforming Product is not possible within the reasonable additional time, refund to ITI within [***] all amounts theretofore paid by ITI to
Siegfried for such non-conforming Product. Except in the case of Siegfried’s gross negligence or willful misconduct, such replacement delivery
or refund, shall be the only remedy available to ITI in case of delivery of non-conforming Product. For the avoidance of doubt, Siegfried shall
not be liable against ITI for a non-conforming Product, if the non-conformity results from the Consigned Material or a Mandatory Vendor
Failure.
11 / 32
Product Price and Invoicing
ITI shall pay Siegfried the purchase price specified in each Product Schedule.
All pricing, payments, credits, allowances or other monetary adjustments under this Agreement shall be in Swiss Francs (CHF), unless otherwise
agreed in writing. The Parties shall adjust the price (up or down) upon written agreement with regard to (i) documented Raw Materials price
increases, (ii) changes in relevant indices, (iii) exchange rate variations, and (iv) as otherwise set forth in ANNEX A, subject to this Section 9.
Notwithstanding the above, Siegfried shall have the right to increase the price in the event that:
(i) the total costs of Raw Materials increase by more than [***] percent ([***]%) and/or
(ii) the actual documented manufacturing costs incurred for the Manufacture of the Product(s) significantly exceed the manufacturing costs
assumptions of Siegfried on which the price is based and/or
(iii) in the event of a Manufacturing Change (see Section 11).
9.3
Furthermore, each calendar year, Siegfried shall have the right to increase the price based on year-over-year variation of the Swiss Consumer
Price Index (the Index) (https://www.bfs.admin.ch/bfs/en/home/statistics/prices/consumer-price-index.html), provided that the Index variation is
equal or higher than [***]% ([***] percent).
The Index reference month shall be September of each calendar year (first reference month shall be September Index 2022). The September Index
of the current year shall be compared to the September Index of the previous year in order to determine the price adjustment of the price applying
to all Order(s) to be delivered to ITI in the calendar year following the current year.
Siegfried
ITI
Example: If the September Index 2023 is [***] and the September Index 2022 is [***], the Index has increased by [***]% and Siegfried
shall be entitled to adjust the Price for all Purchase Orders to be delivered to ITI in the calendar year 2023 by [***]%.
In the event that the Index variation is lower than [***] percent ([***]%), the price will not be adjusted, but the percentage will be accumulated to
the following years increase.
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Example: If the September Index 2023 increased by [***]% compared to the September Index 2022 and the September Index 2024
increased by [***]% compared to the September Index 2023, Siegfried will be entitled to increase the price by [***]% for all Orders to be
delivered in the calendar year 2024.
9.4
9.5
9.6
9.7
9.8
9.9
For each Product Schedule, the Product price shall cease at the end of the Initial Term. The Parties shall meet prior to the end of the Initial Term
in order to set the Product price for each Product Schedule for the following year, unless otherwise mutually agreed in writing. The Product price
shall then cease at the end of the year.
A portion of [***]% ([***] percent) of the Price of the respective Product shall be paid by ITI in advance. A down payment advice shall be
issued by Siegfried and sent to ITI after issuance of Order Confirmation. A second portion of [***]% ([***] percent) of the Price of the
respective Product shall be paid by ITI in advance. A down payment advice shall be issued by Siegfried and sent to ITI upon the scheduled
production start date. Siegfried shall then issue a final invoice upon delivery of the Product, reflecting the advance payments made and
attributable for such Order of the Product. ITI shall pay invoices to Siegfried within [***] after the date of such invoice, it being understood that
the invoiced amount shall be on Siegfried’s bank account on the due date at the latest.
In case any undisputed invoices are not paid in accordance with such terms of payment, then ITI shall pay interest at an annual rate of [***]%
([***] percent) on the amount of the late sum (from original due date until the late sum is paid).
ITI shall pay any and all taxes, duties, assessments and other charges and expenses imposed by any Regulatory Authority in connection with
delivery of the Product(s) and the other services provided to ITI and payments made by ITI under this Agreement.
All payments made to Siegfried pursuant to this Agreement shall be (i) made by wire transfer and (ii) are non-refundable and the expiration or
termination of this Agreement shall not relieve ITI of its obligation to pay any outstanding balances due to Siegfried.
Shortage of Supply: In the event of any shortage in the availability or supply of Raw Materials that Siegfried orders under Section 5.1 of this
Agreement and utilizes both in connection with the Manufacture of the Product and in connection with the production of other pharmaceutical
products for third parties, Siegfried shall use commercially reasonable efforts to allocate equitably such Raw Materials among ITI and such third
parties.
Siegfried
ITI
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10.
Regulatory Affairs
10.1
10.2
10.3
10.4
ITI shall be solely responsible for all regulatory filings for the Product and End Market Product. All information, documents and updates with
regard to the Manufacture of Product which are in the possession of Siegfried and required by any governmental authority shall, as reasonably
requested by ITI in connection with such submissions and filings, be provided by Siegfried, at ITI’s cost, to ITI or to the governmental authority,
if requested by ITI.
Siegfried shall further provide ITI, at ITI’s requests, costs and expenses, with reasonable assistance in preparing or reviewing regulatory
submissions or formulating responses to any questions and/or inquiries (i.e., deficiency letters) with respect to the above submissions. Without
limiting the foregoing, Siegfried shall provide to ITI directly all information as ITI may reasonably require for purposes of applying for and
maintaining Regulatory Approval, and Siegfried hereby allows ITI to provide such information to a governmental authority as necessary to
support any application for authorization to conduct clinical trials or Regulatory Approval of a Product or in response to the requests or
requirements of such governmental authority, provided however that ITI shall take appropriate steps to limit the disclosure of Siegfried’s
Confidential Information to the extent necessary to accomplish the purpose. ITI shall be responsible for preparing all submissions to
governmental authorities with respect to the Product. Siegfried will assist ITI with all regulatory matters relating to Product, at ITI’s request and
expense. The Parties intend and commit to cooperate to allow each Party to satisfy its regulatory obligations under Applicable Laws relating to
performance of this Agreement.
ITI shall provide, and Siegfried shall review those portions of ITI’s proposed regulatory submissions relating to Siegfried’s Manufacturing
procedures or otherwise related to Siegfried’s key obligations hereunder before the submissions are filed with relevant governmental authorities
and ITI shall consider Siegfried’s comments relating to the accuracy thereto in good faith.
The Parties acknowledge that the ultimate decision of whether any End Market Product will be approved for marketing and sale rests with the
respective Regulatory Authorities. Any decision of the Regulatory Authorities to deny Marketing Authorization approval shall in no event be
attributable to Siegfried and Siegfried shall assume no liability for such decision.
11. Manufacturing Changes
11.1 All Changes shall be handled in accordance with the relevant provisions set forth in the Quality Agreement. In the event of a Change, regardless
whether it is a Required Change, a Customer Change or a Siegfried Change, Siegfried shall provide to ITI (i) a calculation of the Change costs,
(ii) if applicable, a new price for the Product, (iii) the timing for implementation (iv) as well as the amount and discard cost of any Raw Material
obsolete because of the Change (Change Documentation).
Siegfried
ITI
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11.2
In the event that either Party becomes aware and notifies the other Party that any Change is mandated by Applicable Laws and regulations
(including, without limitation cGMP Regulations) or by a competent Regulatory Authority (Required Change), Siegfried shall provide ITI the
Change Documentation. Siegfried shall, if feasible, implement such Required Change and
(i)
(ii)
(iii)
(iv)
if the Required Change relates exclusively to the Product, the ITI shall bear all costs relating to the Required Change;
if the Required Change relates to, or will be used for, the Products and other products manufactured by Siegfried at the Facility, ITI and
Siegfried shall discuss and agree on a pro-rated allocation of any costs in relation to the Required Change in good faith; or
if the Required Change applies generally to the operation of the Facility, all costs relating to the Required Change shall be bore by
Siegfried.
ITI shall reimburse Siegfried for the Raw Materials rendered obsolete due to the Required Change and ITI shall notify Siegfried
whether such obsolete Raw Material shall be delivered to ITI or destroyed on behalf of ITI, both at ITI’s cost and expense.
(v)
if applicable, ITI shall pay the new price for the Product as set forth in the Change Documentation.
11.3
In the event ITI wishes to effect a Change, which is not a Required Change (Customer Change), ITI shall advise Siegfried in writing of such
Customer Change as set forth in the Quality Agreement. If Siegfried deems, in its reasonable discretion, such Customer Change as feasible, then
Siegfried shall provide the Change Documentation to ITI. In case, ITI approves the Change Documentation, Manufacturer shall implement such
Customer Change and
(i)
(ii)
ITI shall bear all costs with regard to such Customer Change.
ITI shall reimburse Siegfried for the Raw Materials rendered obsolete due to the Customer Change and ITI shall notify Siegfried
whether such obsolete Raw Material shall be delivered to ITI or destroyed on behalf of ITI, both at ITI’s cost and expense.
(iii)
if applicable, ITI shall pay the new price for the Product as set forth in the Change Documentation.
Siegfried
ITI
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11.4
In the event Siegfried wishes to effect a Change, which is not a Required Change (Siegfried Change), Siegfried shall advise ITI in writing of
such Siegfried Change as set forth in the Quality Agreement. If ITI does not notify Siegfried in writing to refrain from implementation within
forty-five (45) days after the date of Siegfried’s request, then Siegfried shall be free to implement such Siegfried Change. Both Parties shall
negotiate in good faith the (a) the allocation of the costs relating to the Siegfried Change, (b) the new price applicable after the Siegfried Change
has been implemented, (c) the timing for implementation (d) as well as an estimated amount of any Raw Material rendered obsolete as a result of
the Siegfried Change and respective costs to be allocated. In allocating the costs, the Parties should consider whether such Siegfried Change is
beneficial to either or both Parties.
12.
Confidential Information
12.1
12.2
12.3
Each Receiving Party agrees to retain in strict confidence any Confidential Information of the Disclosing Party (or its Affiliate), whether
disclosed prior to, or after the Effective Date or the date of prior secrecy agreements and not to use any such Confidential Information for any
purpose except pursuant to, and in order to carry out, the terms and objectives of this Agreement, and not to disclose, divulge or otherwise
communicate any such Confidential Information to any third party.
The Receiving Party may disclose Confidential Information of the Disclosing Party to the Receiving Party’s (and its Affiliate’s) officers,
directors, employees, agents, consultants, licensees, representatives or (for Siegfried, permitted) subcontractors (each an Entitled Person), who,
in each case, (i) need to know such information for purposes of the implementation and performance by the Receiving Party of this Agreement,
(ii) will use the Information only for such limited purposes and (iii) are subject to confidentiality restrictions covering the Confidential
Information that are at least as stringent at those contained herein
The provisions of this Section 12 shall not apply to any Confidential Information disclosed hereunder which (a) was independently developed or
known by the Receiving Party prior to its disclosure to the Receiving Party by the Disclosing Party, as evidenced by the Receiving Party’s
written or electronic records kept in the ordinary course of its business; or (b) was before or after the date of such disclosure in the public
domain, other than through the Receiving Party’s fault or breach; or (c) is lawfully disclosed to the Receiving Party by an independent,
unaffiliated third party rightfully in possession of the Confidential Information and not under any confidentiality obligation towards the
Disclosing Party with regard to such Confidential Information. The fact that any portion of the Confidential Information may be subject to one of
the foregoing exceptions (a) through (c) shall not automatically exclude any combination of Confidential Information from protection under this
Agreement unless the entirety of such Confidential Information also falls under the same exception(s). Specific information disclosed as part of
the Confidential Information shall not be deemed to be in the public domain or in prior possession of the Receiving Party merely because it is
included in more general information in the public domain or in the prior possession of the Receiving Party.
Siegfried
ITI
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12.4
12.5
12.6
The Receiving Party may disclose the Disclosing Party’s Confidential Information to the extent such Confidential Information is required to be
disclosed by the Receiving Party to the officials of a Regulatory Authority or to comply with Applicable Laws, to defend or prosecute litigation,
or to comply with judicial orders or valid subpoenas, provided that the Receiving Party provides prior written notice of such intended disclosure
to the Disclosing Party and takes reasonable and lawful actions to avoid and/or minimize the degree of such disclosure, and reasonably assists
the Disclosing Party in its efforts (if any) to oppose such disclosure. The burden of proof of the foregoing exceptions shall lie with the Receiving
Party.
Except as otherwise provided for in this Agreement, nothing herein shall be construed as giving either Party any right, title or interest in or
ownership of the Confidential Information of the other Party.
The Parties acknowledge that any breach of this Section 12 will cause irreparable harm and that the non-breaching Party shall be entitled to
specific performance or injunctive relief to enforce this Section 12 or to prevent a breach of this Section 12, in addition to whatever remedies
such Party may otherwise be entitled to at law or in equity.
12.7 Upon termination or expiration of this Agreement, or at any other time during the term of the Agreement upon the other Party’s written request,
provided that it does not prevent the Receiving Party from performing its obligations under this Agreement, each Party shall immediately deliver
to the other Party (and cause any of its Entitled Persons to so deliver), at such Party’s expense, all Confidential Information of the other Party in
such Party’s possession or control, including without limitation any and all copies, duplications, summaries and/or notes thereof or derived
thereof, regardless of the format, and Siegfried shall return to ITI all remaining samples of Product, provided however, that both Parties may
keep original documents, copies and samples as required by law or for archival purposes or stored on their back up devices.
13.
Intellectual Property
13.1
Subject to Section 13.5, and unless otherwise required by law or specified in writing, the results of the Manufacturing Services performed
pursuant to and during the term of this Agreement, including, but not limited to, any Intellectual Property Right(s) arising out of any
Improvements (other than an Independent Improvement) shall be the property of ITI and all rights, title and interest therein shall be vested in ITI.
Siegfried shall have no responsibility for prosecuting, maintaining and enforcing any patents or other Intellectual Property Rights that ITI obtains
pursuant to this Agreement.
Siegfried
ITI
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13.2
13.3
Siegfried shall assign and hereby irrevocably assigns to ITI all title and interest that Siegfried and its Affiliates and its permitted subcontractors
may have in any Intellectual Property Right(s) arising out of any Improvements (other than an Independent Improvement); provided, that ITI
shall grant a non-exclusive, worldwide, irrevocable, royalty-free, sub-licensable license to Siegfried for the use of such Improvements for
Manufacture of Products.
ITI shall have the sole right to file and seek protection for any Intellectual Property Right(s) arising out of any Improvements (other than an
Independent Improvement). To the extent that ITI deems it reasonable to seek protection for, ITI shall bear the costs (including, but not limited to
attorney’s fees) and the responsibility associated with developing, applying for, and maintaining such protection as may be granted. In the event
ITI decides to file and prosecute patent applications on any Improvement (other than an Independent Improvement), Siegfried shall provide ITI
with reasonable assistance to obtain and defend such patents at ITI’s costs and expenses.
13.4 During the term of this Agreement and for a period of [***] thereafter, upon request by ITI, and at ITI’s expense, Siegfried shall promptly
execute, acknowledge and deliver any papers reasonably deemed necessary by ITI to document, protect, or otherwise perfect such rights of ITI,
including, without limitation, all documents necessary to obtain or perfect any protection of Intellectual Property Rights and/or to effect an
assignment of ownership of the same to ITI, at ITI’s cost and expenses.
13.5 All rights related to any Independent Improvements shall be the sole property of Siegfried. Upon ITI’s request, Siegfried shall grant and hereby
grants ITI a non-exclusive, worldwide, irrevocable, royalty-free license to use Independent Improvements to the extent that, and limited to, the
manufacturing, sale, commercialization or any other use of the Product is dependent upon such license.
13.6
In the event of patent infringement or regulatory litigation or other legal proceedings, threatened in writing or actual, involving the Product,
Siegfried shall have the right to suspend further supply of the Product to the extent this is required or by a court order or arbitral award or order
(whether interim or final) or reasonably deemed necessary or advisable by Siegfried on advice of its counsel to prevent or limit actual or possible
damages, liability or injury. Such suspension shall be deemed a temporary suspension of Siegfried’s Manufacturing Services and supply
obligations under this Agreement; provided, that if such suspension continues for more than [***], the Parties shall jointly attempt in good faith
to modify this Agreement to resolve the situation but if they are unable to do so within the following [***] either Party may terminate this
Agreement by notice to the other Party.
Siegfried
ITI
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14.
Term and Termination
14.1
14.2
This Agreement shall become effective on the Effective Date and, unless earlier terminated in accordance with this Section 14, shall continue in
full force and effect for three (3) years (hereinafter the “Initial Term”).
This Agreement shall automatically renew on an evergreen basis for a consecutive one (1) year period, unless one of the Parties notifies the other
of its election not to renew this Agreement at least twelve (12) months prior to the end of the Initial Period or any renewal period then in effect,
in which case this Agreement shall terminate upon the expiration of such term.
14.3
Either Party may terminate the Agreement immediately, [***] after becoming aware of such event, by providing written notice to the other Party
upon the occurrence of any of the following events:
(a)
the liquidation or dissolution of the other Party, or the commencement of insolvency procedures or any proceeding under any
bankruptcy, insolvency or moratorium law, or any other law or laws for the relief of debtors which proceeding is not dismissed within
ninety (90) days, or the appointment of any receiver, trustee or assignee to take possession of the properties of the other Party; or
(b)
the cessation of all or substantially all of the other Party’s business operations.
14.4
14.5
If a Party breaches a material term or condition of this Agreement, the non-breaching Party shall have the right to terminate this Agreement [***]
prior written notice to the other Party unless any such breach is cured within [***]. Termination shall be in addition to all other rights and
remedies available to the non-breaching Party at law or in equity.
Termination of this Agreement shall automatically terminate each outstanding Order unless ITI instructs Siegfried to fulfill such Order. Neither
the expiration nor the termination of this Agreement shall relieve the Parties of their rights or obligations incurred prior to such expiration or
termination. All provisions that, by their express or implied terms, are meant to survive termination of the Agreement, in particular all rights and
obligations set forth in Sections 9 (Product Price and Invoicing), 12 (Confidential Information), 13 (Intellectual Property), 16 (Liability and
Indemnity), 17 (Miscellaneous) and 18 (Applicable Law and Dispute Resolution) shall continue irrespective of such termination.
15.
Representations and Warranties
15.1
Each Party represents and warrants to the other Party:
Siegfried
ITI
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(i) that such Party has the legal power, authority and right to enter into this Agreement and to perform its obligations set forth herein,
(ii) it has and shall have throughout the term of the Agreement the required expertise, permits and approvals to perform its obligations under the
Agreement,
(iii) that this Agreement has been duly executed and delivered by such Party and constitutes the valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms,
(iv) that it is not and will not become a party to any agreement, contract, arrangement or the like with any third party, which in any way limits or
conflicts with its ability to fulfill any of its obligations under this Agreement,
(v) that it is not and will not be under any obligation or restriction, including, without limitation, pursuant to its charter document(s) or by-laws,
which in any way limits or conflicts with its ability to fulfill any of its obligations under this Agreement.
15.2
Siegfried represents and warrants that:
(a)
(b)
(c)
(d)
the Products have been manufactured in compliance with the Requirements at the time of its release.
Each Product, when delivered to ITI, will not be adulterated, misbranded, or otherwise prohibited from sale within the meaning of the
Act or Applicable Laws.
It will procure, maintain and comply with all non-Product-specific licenses, permits, certifications and approvals required under
Applicable Law at the Facility, and the portion of Facility used to Manufacture Product.
It and the Facility are registered with all applicable Regulatory Authorities pursuant to and in accordance with all Applicable Laws at
the Facility.
Siegfried will provide ITI with prompt written notice of any facts or circumstances (whether occurring prior to or after the Effective Date) which
cause any of the representations and warranties contained in this Section 15.2 not to be true, accurate, and complete in any material respect as of
the Effective Date or as of any date during the term of this Agreement.
15.3
ITI warrants that (i) all quantities of Consigned Material, if any, delivered to Siegfried shall be free from defects and, if applicable, conform to
the Specifications of such Consigned Material and (ii) except as set out otherwise in any particular Order, none of the processes, procedures,
substances or materials, including any Consigned Material, supplied by ITI or its designee and used by Siegfried in the performance of the
Services or the Manufacture of Product infringes or misappropriates or will infringe or misappropriate the Intellectual Property Rights of any
third party.
Siegfried
ITI
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ITI will provide Siegfried with prompt written notice of any facts or circumstances (whether occurring prior to or after the Effective Date) which
cause any of the representations and warranties contained in this Section 15.3 not to be true, accurate, and complete in any material respect as of
the Effective Date or as of any date during the term of this Agreement.
15.4
EXCEPT AS EXPRESSLY WARRANTED IN THIS AGREEMENT, SIEGFRIED AND ITI EXTEND NO OTHER WARRANTIES OR
REPRESENTATIONS COVERING THE PRODUCT OR MATERIALS OR RELATING TO THIS AGREEMENT, EXPRESS OR IMPLIED,
AND EACH PARTY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING THE WARRANTY OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EITHER PARTY‘S LIABILITY UNDER THIS AGREEMENT
SHALL BE STRICTLY LIMITED TO THE REMEDIES PROVIDED FOR UNDER THIS AGREEMENT.
16.
Liability and Indemnity
16.1
16.2
Siegfried shall indemnify, defend and hold ITI, its directors, officers, employees and Affiliates, harmless against losses arising out of or in
connection with a third party claims, suits, actions, demands or judgements to the extent resulting from the negligent (i) breach of representations
under this Agreement, or (ii) breach of any of Siegfried’s obligations under this Agreement, except to the extent ITI is obliged to indemnify
Siegfried under Section 16.2 below.
ITI shall indemnify, defend and hold Siegfried, its directors, officers, employees and Affiliates harmless against losses, damages arising out of or
in connection with third party claims, suits, actions, demands or judgements to the extent resulting from the negligent (i) breach of
representations under this Agreement, or (ii) breach of any of ITI’s obligations, or (i) the handling, use, distribution fo the Product(s) after
delivery to ITI, or (iv) the death of or injury to any person or any damage to property, resulting from side effects, characteristics or defects of the
Product; except to the extent Siegfried is obligated to indemnify ITI under Section 16.1 above.
16.3 With respect to any indemnification obligation under this Agreement, the following conditions shall be applicable:
(a)
The Party seeking to be indemnified shall notify the indemnifying Party promptly in writing of any claim which may give rise to an
obligation on the part of the indemnifying Party hereunder; and
Siegfried
ITI
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(b)
(c)
(d)
the indemnifying Party shall be allowed to timely take the sole control of the defense of any such action and claim, including all
negotiations for the settlement, or compromise of such claim or action at its sole expense; and
the Party to be indemnified shall, at the expense of the indemnifying Party, render reasonable assistance, information, co-operation and
authority to permit the indemnifying Party to defend such action; and
no settlement or compromise shall be binding on the indemnifying Party hereto without its prior written consent, which consent shall
not be unreasonnably withheld, conditioned or delayed.
16.4 Before the commencement of any Manufacturing Services under this Agreement, Siegfried and ITI shall each obtain and carry in full force and
effect adequate commercial, general liability insurance as common in the industry, including product liability insurance. Such insurance shall be
written by a reputable insurance company and shall be endorsed to include liability coverage for Product used. Both Parties shall provide each
other on request with a copy of certificates of insurance evidencing the same.
16.5 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES OF THE
OTHER PARTY OR ANY THIRD PARTY, INCLUDING BUT NOT LIMITED TO CLAIMS BASED ON LOST PROFITS, LOSS OF TIME
OR LOSS OF BUSINESS OPPORTUNITY SUFFERED OR INCURRED AS A RESULT OF THIS AGREEMENT, WHETHER SUCH LOSS
OR DAMAGE MAY BE BASED UPON PRINCIPLES OF CONTRACT, WARRANTY, NEGLIGENCE OR OTHER TORT, BREACH OF
ANY STATUTORY DUTY, PRINCIPLES OF INDEMNITY OR CONTRIBUTION, THE FAILURE OF ANY LIMITED OR EXCLUSIVE
REMEDY TO ACHIEVE ITS ESSENTIAL PURPOSE OR OTHERWISE.
16.6
[***].
16.7
SECTION 12.6 AND SECTION 12.7 SHALL NOT APPLY, FOR DAMAGES CAUSED BY A PARTY’S BREACH OF SECTION 12,
DAMAGES CAUSED BY A PARTY’S WILLFUL MISCONDUCT OR GROSS NEGLIGENCE.
17. Miscellaneous
17.1 No set-off. Neither Party shall be entitled to set off any of its rights or obligations under this Agreement against the rights or obligations of
another Party without having first obtained the prior written consent of that other Party.
Siegfried
ITI
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17.2
Force Majeure. A Party shall be excused from performing its obligations under this Agreement (other than obligations of payment) to the extent
that its performance is delayed or prevented by any unforeseeable cause beyond such Party’s reasonable control, which may include, but is not
limited to, supplier failure, fire, explosion, weather, disease (including epidemic and pandemic), war, terrorist act, insurrection, civil strike, riots,
government action power failure or energy or Raw Materials shortages (Force Majeure Event). Performance shall be excused only to the extent
of and during the reasonable continuance of such Force Majeure Event. Any deadline or time for performance specified in this Agreement that
falls due during or subsequent to the occurrence of any of the Force Majeure Event referred to herein shall be automatically extended for a period
of time equal to the period of such Force Majeure Event. The prevented Party shall immediately notify the other Party if, by reason of any Force
Majeure Event, the prevented Party is unable to meet any deadline or time affecting its performance of this Agreement. In the event that such
Force Majeure Event cannot be removed or overcome within [***] or more (as jointly determined by the Parties) from the date the Party affected
first became affected, then either Party may at any time after the expiration of such period, by written notice to the other Party, either (i) suspend
this Agreement for as long as such Force Majeure Event continues to exist, or (ii) terminate this Agreement with immediate effect.
17.3 COVID-19. ITI is aware of the worldwide COVID-19 pandemic (Covid-19 Pandemic). The further development of the Covid-19 Pandemic, in
particular with regard to its infection incidence and its additional containment by governmental or regulatory measures, cannot be predicted by
Siegfried. Since effects of the Covid-19 Pandemic may still cause disruptions to Siegfried’s performance the Covid-19 Pandemic shall be
considered a Force Majeure Event. For such reason, Siegfried reserves the right to postpone, change or cancel this contract or any order
confirmation issued under this contract at any time. Any claim for damages arising out of or in connection with such postponement, change or
cancellation due to Covid-19 Pandemic is explicitly precluded. In addition, ITI and Siegfried define a worldwide pandemic due to a rapidly
spreading disease on a comparable scale to the Covid-19 Pandemic as a Force Majeure Event.Precedence of Agreement. Unless expressly agreed
otherwise in writing, the terms outlined in this Agreement shall prevail over any terms and conditions outlined in any Order or Order
Confirmation for Product(s) and any general terms and conditions of a Party, and such terms and conditions are hereby expressly excluded. In
case of discrepancies between this Agreement and an Annex hereto, the provisions of this Agreement shall prevail; provided however that in
case of discrepancies between this Agreement and the Quality Agreement regarding (i) the delineation of responsibilities pursuant to cGMP
Regulations, (ii) the Specifications or (iii) the Manufacturing procedure, the Quality Agreement shall govern.
17.4 No assignment. This Agreement is binding upon and shall inure to the benefit of the Parties hereto and their successors and permitted assigns.
This Agreement and any rights or obligations hereunder, other than monetary claims, may be assigned or delegated only (i) with the consent of
the other Party, not to be unreasonably withheld, conditioned or delayed, or (ii) to the successor to all or substantially all of the business of a
Party (whether by merger, consolidation, asset transfer or similar transaction) to which this Agreement relates, or (iii) to an Affiliate of Siegfried.
Any other assignment or delegation by either Party without the prior written consent of the other Party is void.
Siegfried
ITI
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17.5 No waiver. The failure by either Party at any time to enforce any of the terms, provisions or conditions of this Agreement or to exercise any right
hereunder shall not constitute or be construed to constitute a waiver of the same or affect that Party’s rights thereafter to enforce or exercise the
same.
17.6
17.7
17.8
Independent Parties. Nothing in this Agreement shall be deemed or construed to constitute or create between the Parties hereto a partnership,
joint venture, agency, or other relationship other than as expressly set forth herein. Neither Party shall be responsible for the acts or omissions of
the other Party, and neither Party shall have authority to speak for, represent or obligate the other Party in any way without prior written consent
of the other Party.
Entire Agreement. This Agreement (together with the Quality Agreement) contains the full understanding of the Parties with respect to the
subject matter hereof and supersedes all prior understandings and writings relating thereto. No waiver, alteration or modification of any of the
provisions hereof shall be binding unless made in writing and signed by the Parties.
Severability. If any portion of this Agreement is held invalid by a court of competent jurisdiction, such portion shall be deemed to be of no force
and effect and this Agreement shall be construed as if such portion had not been included herein, provided however, if the deletion of such
provision materially impairs the commercial value of this Agreement to either Party, the Parties shall attempt to renegotiate such provision in
good faith. The fact that any provision of this Agreement shall be prohibited or unenforceable in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Parties to this Agreement waive any
provision of law that renders any provision of this Agreement prohibited or unenforceable in any respect.
17.9 Notices. Any notice required under this Agreement shall be effective only if it is in writing and (i) delivered in person or (ii) deposited with an
internationally recognized overnight courier service, or (iii) dispatched by an acknowledged e-mail (pdf), in which case such notice is to be
confirmed by one of the alternate means within five (5) Business Days; in either case any notice is to be addressed to the applicable address set
forth below.
if to Siegfried Siegfried AG
Untere Bruehlstrasse 4, 4800 Zofingen, Switzerland
[Attention:
Email:]
Siegfried
ITI
with a copy to: Siegfried AG
Untere Brühlstrasse 4, 4800 Zofingen, Switzerland
Legal Department
Email: [***]
if to ITI :
Intra-Cellular Therapies, Inc.
430 E. 29th St, New York, NY 10016, U.S.A.
Attention: Michael Halstead
Email: [***]
24 / 32
Either Party may change its above addresses, but no such change shall have any effect until the other Party has been properly notified with
written notice of the change of the address.
17.10 Compliance with Laws. Each Party shall comply with all Applicable Laws governing its performance of the terms of this Agreement, including,
but not limited to, those relating to health, safety and the environment, fair labor practices, unlawful discrimination, debarment, anti-corruption
and anti-bribery laws.
17.11 Hardship. If as a result of a change in technical, legal, economic, unpredictable, exceptional and particularly serious circumstances occurring
after the conclusion of the Agreement, and external to the will of the Parties, the general balance of the Agreement was to be long-term and
substantially disrupted and the performance by a Party of its obligations would be seriously detrimental to such Party,, both Parties shall
undertake reasonable endeavors to discuss a possible amicable resolution or possible amendment to this Agreement in light of the change in
circumstances; provided, however, that neither Party shall have any obligation to amend this Agreement or to waive or modify any of its rights
under this Agreement.
18.
Applicable Law and Dispute Resolution
18.1
This Agreement shall be governed by the laws of Switzerland without regard to its conflict of laws provisions, and the provisions of the
UN-Convention regarding Contracts on the International Sale of Goods (Vienna Convention) are expressly excluded.
18.2 All disputes, controversy or claim arising out of or in connection with this Agreement, including the validity, invalidity, breach, or termination
thereof, shall be exclusively submitted to the ordinary courts of Zürich, Switzerland, whereby the commercial court of the canton of Zürich shall
have subject matter jurisdiction.
This Agreement and any future amendments may be signed by electronic signature (e.g. using DocuSign), whereby the Parties acknowledge its validity
and binding force.
Siegfried
ITI
List of Annexes
Annex
A
Description
Product Schedule
Product Schedule #1
Product Schedule #2
Content
Details, sales price and commercial terms
Product Schedule #1 [***]
Product Schedule #2 [***]
B
Materials
Description of Consigned Materials and Mandatory Vendors for Raw Materials
In Witness Whereof, the Parties have executed this Agreement as of the Effective Date.
25 / 32
Siegfried AG
/s/ Marianne Späne
Marianne Späne/Chief Business Officer
Name / function
Intra-Cellular Therapies, Inc.
/s/ Jose Garrido
Jose Garrido/Sr. Director Manufacturing
Name / function
/s/ Marcel Signer
Marcel Signer/Managing Director EVZ
Name / function
/s/ Lawrence Hineline
Lawrence Hineline/CFO
Name / function
Siegfried
ITI
ANNEX A
Product Schedule #NUMBER
26 / 32
This Product Schedule No. NUMBER (Product Schedule) is entered into as of [DATE] (Product Schedule Effective Date) by and between Siegfried AG
(Siegfried) and Intra-Cellular Therapies, Inc. (ITI) under the Supply Agreement dated [DATE] (Agreement).
Pursuant to the Agreement, Siegfried has agreed to Manufacture one or more Products in accordance with written Product Schedules, such as this one,
entered into from time to time.
Capitalized terms used in this Product Schedule and not otherwise defined have the meanings given to them in the Agreement.
The Parties hereto agree as follows:
1.
Product Schedule
This document constitutes a Product Schedule under the Agreement. Except if expressly modified in this Product Schedule, the terms of the Agreement
are hereby incorporated by reference.
2.
Product
Product
3.
Minimum quantity per Order
Maximum order quantity per Order:
Minimum order quantity per Order:
4.
Price
Product Price:
Product
Volume (kg)
Price/kg (CHF)
Siegfried
ITI
5.
Forecast
•
•
Binding period: The first NUMBER months of each Forecast shall be covered by binding Orders pursuant to Section 4 of the Agreement.
Non-binding: months NUMBER through NUMBER of the Forecast shall be for information purposes only and non-binding.
27 / 32
6.
Delivery
FCA Siegfried Manufacturing facility in PLACE (as per Incoterms 2020, made a part hereof by reference).
7.
Term/Termination
Unless earlier terminated in accordance with the Agreement, this Product Schedule shall commence on the Product Schedule Effective Date and shall
continue until the expiry or termination of the Agreement (Product Schedule Term).
Siegfried AG
/s/ Marianne Späne
Marianne Späne/Chief Business Officer
Name / function
Intra-Cellular Therapies, Inc.
/s/ Jose Garrido
Jose Garrido/Sr. Director Manufacturing
Name / function
/s/ Marcel Signer
Marcel Signer/Managing Director EVZ
Name / function
/s/ Lawrence Hineline
Lawrence Hineline/CFO
Name / function
Siegfried
ITI
Product Schedule #1 [***]
28 / 32
This Product Schedule No. 1 (Product Schedule) is entered into as of [DATE] (Product Schedule Effective Date) by and between Siegfried AG
(Siegfried) and Intra-Cellular Therapies, Inc. (ITI) under the Supply Agreement dated [DATE] (Agreement).
Pursuant to the Agreement, Siegfried has agreed to Manufacture one or more Products in accordance with written Product Schedules, such as this one,
entered into from time to time.
Capitalized terms used in this Product Schedule and not otherwise defined have the meanings given to them in the Agreement.
The Parties hereto agree as follows:
1.
Product Schedule
This document constitutes a Product Schedule under the Agreement. Except if expressly modified in this Product Schedule, the terms of the Agreement
are hereby incorporated by reference.
2.
Product
Product
[***]
3.
Minimum quantity per Order
Maximum order quantity per Order: [***]
Minimum order quantity per Order: [***]
4.
Price
Product Price:
Product
[***]
[***]
[***]
Volume (kg)
[***]
[***]
[***]
Price/kg (CHF)
[***]
[***]
[***]
Siegfried
ITI
5.
Forecast
•
•
Binding period: The first [***] of each Forecast shall be covered by binding Orders pursuant to Section 4 of the Agreement.
Non-binding: [***] of the Forecast shall be for information purposes only and non-binding.
6.
Delivery
FCA Siegfried Manufacturing facility in [***] (as per Incoterms 2020, made a part hereof by reference).
7.
Term/Termination
Unless earlier terminated in accordance with the Agreement, this Product Schedule shall commence on the Product Schedule Effective Date and shall
continue until the expiry or termination of the Agreement (Product Schedule Term).
29 / 32
Siegfried AG
/s/ Marianne Späne
Marianne Späne/Chief Business Officer
Name / function
Intra-Cellular Therapies, Inc.
/s/ Jose Garrido
Jose Garrido/Sr. Director Manufacturing
Name / function
/s/ Marcel Signer
Marcel Signer/Managing Director EVZ
Name / function
/s/ Lawrence Hineline
Lawrence Hineline/CFO
Name / function
Siegfried
ITI
Product Schedule #2 ITI-11 [***]
30 / 32
This Product Schedule No. 2 (Product Schedule) is entered into as of [DATE] (Product Schedule Effective Date) by and between Siegfried AG
(Siegfried) and Intra-Cellular Therapies, Inc. (ITI) under the Supply Agreement dated [DATE] (Agreement).
Pursuant to the Agreement, Siegfried has agreed to Manufacture one or more Products in accordance with written Product Schedules, such as this one,
entered into from time to time.
Capitalized terms used in this Product Schedule and not otherwise defined have the meanings given to them in the Agreement.
The Parties hereto agree as follows:
1.
Product Schedule
This document constitutes a Product Schedule under the Agreement. Except if expressly modified in this Product Schedule, the terms of the Agreement
are hereby incorporated by reference.
2.
Product
Product
[***]
3.
Minimum quantity per Order
Maximum order quantity per Order [***]
Minimum order quantity per Order: [***]
4.
Price
Product
[***]
[***]
[***]
5.
Forecast
Volume (kg)
[***]
[***]
[***]
Price/kg (CHF)
[***]
[***]
[***]
•
•
Binding period: The first [***] of each Forecast shall be covered by binding Orders pursuant to Section 4 of the Agreement.
Non-binding: [***] of the Forecast shall be for information purposes only and non-binding.
Siegfried
ITI
6.
Delivery
FCA Siegfried Manufacturing facility in [***] (as per Incoterms 2020, made a part hereof by reference).
7.
Term/Termination
Unless earlier terminated in accordance with the Agreement, this Product Schedule shall commence on the Product Schedule Effective Date and shall
continue until the expiry or termination of the Agreement (Product Schedule Term).
31 / 32
Siegfried AG
/s/ Marianne Späne
Marianne Späne/Chief Business Officer
Name / function
Intra-Cellular Therapies, Inc.
/s/ Jose Garrido
Jose Garrido/Sr. Director Manufacturing
Name / function
/s/ Marcel Signer
Marcel Signer/Managing Director EVZ
Name / function
/s/ Lawrence Hineline
Lawrence Hineline/CFO
Name / function
Siegfried
ITI
32 / 32
ANNEX B
Materials
Mandatory Vendor
Mandatory Vendors:
Raw Materials
Raw Materials have an overall anticipated lead-time of [***].
Consigned Materials:
Consigned Materials*
Siegfried Code
Volume
Siegfried
ITI
CERTAIN INFORMATION IDENTIFIED BY “[***]” HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH NOT
MATERIAL AND IS THE TYPE OF INFORMATION THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.
Exhibit 10.3(2)
AMENDMENT NO. 1
to
the Master Services Agreement
dated 10 January 2017
between
LONZA LTD
and
ITI LIMITED
Confidential
THIS AMENDMENT NO. 1 (“Amendment 1”) is entered into on the 19 day of December 2022 (the “Amendment 1 Effective Date”)
BETWEEN
1.
2.
Lonza Ltd, of Muenchensteinerstrasse 38, CH-4002 Basel, Switzerland (hereinafter referred to as “Lonza”) and
ITI Limited, 2 Church Street, Hamilton HM 11, Bermuda (hereinafter referred to as “Customer”).
WHEREAS
A.
B.
Lonza and Customer have entered into a Master Services Agreement, dated 10 January 2017, as amended various times via several
Addenda (together the “Agreement”), under which Lonza is required to manufacture the Product, as defined in the Agreement.
Parties wish to extend the term of the Agreement and change several other sections.
NOW THEREFORE in consideration of the above premises and the mutual covenants herein, it is agreed hereby by the Parties to amend the Agreement
as follows:
1.
2.
Capitalized terms used but not otherwise defined herein shall have the meanings afforded to them in the Agreement.
Clause 6.4 of the Agreement will be deleted and shall hereby be replaced with the following new clause 6.4.
Minimum Volume Commitment and Dedicated Supply. Customer undertakes to purchase from Lonza a minimum of [***] of Product per calendar
year (to be manufactured in the same campaign), commencing in 2025 (with first delivery in 2026) until the end of the Term. If Customer fails to
purchase such minimum, Customer shall be invoiced the Price per kilo for the number of kilo’s below the minimum before the end of the
applicable calendar year end.
In addition to the above, Lonza will reserve for each above forecasted campaign additional capacity for Customer, sufficient for the manufacture
of [***] of Product, starting in 2025 (for first delivery in 2026) until the end of the Term. Customer may order this [***] by notifying Lonza in
writing at least 18 months prior to the estimated Commencement Date of the Step [***] intermediate campaign.
Confidential
3.
Clause 7.2 of the Agreement will be deleted and shall hereby be replaced with the following new clause 7.2.
7.2 Storage step [***] Intermediate. Lonza will store the step [***] intermediate Batches at its Facility upon release at no further cost. Customer
acknowledges that due to the long storage of the step [***] Intermediate, the sale of the step [***] Intermediate is subject to Swiss VAT and
Customer hereby agrees to pay Lonza for any required VAT charges that become due. Upon exportation of the Product (i.e. final Product) outside
of Switzerland, Lonza shall refund the VAT paid for the stored step [***] Intermediate, subject to the applicable law.
Storage batches of Product. Customer shall arrange for shipment and take delivery of such Batch from the Facility, at Customer’s expense, within
[***] after Release or pay applicable storage costs. Lonza shall provide storage on a bill and hold basis for such Batch(es) at no charge for
[***]; provided that any additional storage beyond [***] will be subject to availability and, if available, will be charged to Customer and will be
subject to a separate agreement. In addition to Section 8.2, Customer shall be responsible for all value added tax (VAT) and any other applicable
taxes, levies, import, duties and fees of whatever nature imposed as a result of any storage. Within five (5) days following a written request from
Lonza, Customer shall provide Lonza with a letter in form satisfactory to Lonza confirming the bill and hold status of each stored Batch.
4.
Clause 8.3 of the Agreement will be deleted and shall hereby be replaced with the following new clause 8.3.
8.3 Lonza shall issue invoices to Customer as follows:
Steps [***] intermediate [***]: [***] of the Price for these [***] steps will be invoiced upon placing the order at Lonza’s third party supplier
[***] and [***] of these [***] steps will be invoiced upon receipt of the steps by Lonza;
Steps [***] (FCC Facility): [***] of the Price for these steps will be invoiced upon commencement of step and [***] of these steps will be
invoiced upon completion of step [***]; and
Steps [***] (final Product): [***] of the Price will be invoiced upon completion of the final step, i.e. upon Release of the Product.
Pricing Table is provided in Appendix 1.
Micronisation activities will be invoiced as per an applicable separate Project Plan.
All invoices are strictly net and payment must be made within [***] of date of invoice. Payment shall be made without deduction, deferment,
set-off, lien or counterclaim.
5.
Clause 14.1 of the Agreement will be deleted and shall hereby be replaced with the following new clause 14.1.
14.1 Term. This Agreement shall commence on the Effective Date and will end on 31 December 2028, unless terminated earlier as provided herein
or extended by mutual written consent of the Parties (the “Term”). Notwithstanding the foregoing, each Project Plan may have separate term and
termination provisions so long as the term of any Project Plan does not extend beyond the Term.
Confidential
6.
7.
Remainder of Agreement. All other terms and conditions of the Agreement shall remain in full force and effect.
Entire Agreement. This Amendment 1 and the Agreement supersede all other prior agreements, understandings, representations and warranties,
oral or written between the Parties hereto in respect of the subject matter hereof. In the event of a conflict between the terms and conditions of this
Amendment 1 and the Agreement, the terms and conditions of the Agreement shall prevail.
IN WITNESS WHEREOF the Parties have caused this Amendment 1 to be executed by their representatives thereunto duly authorised as of the dates
below, effective as of the Amendment 1 Effective Date.
[Signatures follow on next page]
Confidential
Signed for and on behalf of
LONZA LTD.
/s/ Bart A.M. van Aarnhem
Bart A.M. van Aarnhem
TITLE: Associate General Counsel
DATE: 20-Dec-2022 | 12:25:01 CET
/s/ Marie Leblanc
Marie Leblanc
TITLE: Head of Sales EMEA, Small Molecules
DATE: 20-Dec-2022 | 11:54:38 CET
Signed for and on behalf of
ITI LIMITED
/s/ Lawrence Hineline
Lawrence Hineline
TITLE: CFO
DATE: December 19, 2022
/s/ Michael Halstead
Michael Halstead
TITLE: General Counsel
DATE: December 19, 2022
Confidential
Component
Step [***] Intermediate (INH-001-2)
Step [***] Intermediate (INH-001-2)
Step [***] Intermediate
Step [***] Intermediate
Product
Product
Appendix 1
Pricing Table
Quantity
needed for
2000Kg
annual
campaigns
of Product
[***]
Price
(CHF) per
Kg for
2000Kg
annual
campaigns
of Product
[***]
[***]
[***]
Quantity
needed for
3000Kg
annual
campaigns
of Product
[***]
[***]
Price
(CHF)
per Kg for
3000Kg
annual
campaigns
of Product
[***]
[***]
Product
Price for
2000Kg
annual
campaigns
Product
Price for
3000Kg
annual
campaigns
[***]
[***]
*
Note: Step [***] Intermediate includes the Step [***] (INH-001-2) material and is enough for 2 API Campaigns)
Payments made for intermediates will be credited against Product pricing.
ITI, Inc., a Delaware corporation
Subsidiaries
Exhibit 21.1
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-243716) pertaining to the Intra-Cellular Therapies, Inc. Amended and Restated 2018 Equity Incentive
Plan of Intra-Cellular Therapies, Inc.,
(2) Registration Statement (Form S-8 No. 333-236828) pertaining to the Intra-Cellular Therapies, Inc. 2019 Inducement Award Plan of Intra-Cellular
Therapies, Inc.,
(3) Registration Statement (Form S-8 No. 333-225799) pertaining to the Intra-Cellular Therapies, Inc. 2018 Equity Incentive Plan of Intra-Cellular
Therapies, Inc.,
(4) Registration Statement (Form S-8 No. 333-205070) pertaining to the Intra-Cellular Therapies, Inc. Amended and Restated 2013 Equity Incentive
Plan of Intra-Cellular Therapies, Inc.,
(5) Registration Statement (Post-Effective Amendment No. 3 to Form S-1 on Form S-3 No. 333-191238) of Intra-Cellular Therapies, Inc., and
(6) Registration Statement (Form S-8 No. 333-193310) pertaining to the ITI, Inc. 2003 Equity Incentive Plan, as amended, and the Intra-Cellular
Therapies, Inc. 2013 Equity Incentive Plan of Intra-Cellular Therapies, Inc.;
of our reports dated March 1, 2023, with respect to the consolidated financial statements of Intra-Cellular Therapies, Inc. and the effectiveness of
internal 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, 2022.
/s/ Ernst & Young LLP
Baltimore, Maryland
March 1, 2023
Exhibit 31.1
I, Sharon Mates, Ph.D., certify that:
1. I have reviewed this annual report on Form 10-K of Intra-Cellular Therapies, Inc.;
CERTIFICATIONS UNDER SECTION 302
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 the
statements 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 the
financial 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 in
Exchange 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 the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during 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 our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
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 reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 1, 2023
/s/ Sharon Mates, Ph.D.
Sharon Mates, Ph.D.
Chairman, President and Chief Executive Officer
(principal executive officer)
Exhibit 31.2
I, Lawrence J. Hineline, certify that:
1. I have reviewed this annual report on Form 10-K of Intra-Cellular Therapies, Inc.;
CERTIFICATIONS UNDER SECTION 302
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 the
statements 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 the
financial 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 in
Exchange 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 the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during 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 our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
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 reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 1, 2023
/s/ Lawrence J. Hineline
Lawrence J. Hineline
Senior Vice President of Finance and Chief Financial Officer
(principal financial officer and principal accounting officer)
CERTIFICATIONS UNDER SECTION 906
Exhibit 32.1
Pursuant 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 of
the 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, 2022 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or
15(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
condition and results of operations of the Company.
Dated: March 1, 2023
Dated: March 1, 2023
/s/ Sharon Mates, Ph.D.
Sharon Mates, Ph.D.
Chairman, President and Chief Executive Officer
(principal executive officer)
/s/ Lawrence J. Hineline
Lawrence J. Hineline
Senior Vice President of Finance and Chief Financial Officer
(principal financial officer and principal accounting officer)