ITCI - Intra-Cellular Therapies: Caplyta's Rise And A Promising Pipeline

2023-08-12 10:29:03 ET

Summary

• Intra-Cellular Therapies' main drug, Caplyta, has been successful in treating neuropsychiatric conditions and has shown potential in addressing mixed features in mood disorders.
• Q2 2023 earnings report showed substantial revenue growth driven by Caplyta's net product sales, although the company still recorded a net loss.
• The company's growth initiatives include exploring the potential of lumateperone in Major Depressive Disorder, developing new formulations, and expanding their pipeline with new programs.

Introduction

Intra-Cellular Therapies (ITCI) develops novel therapies for neuropsychiatric and neurological conditions by targeting the central nervous system. Caplyta, their main drug, is FDA-approved for schizophrenia and bipolar depression in adults and is in phase 3 trials for major depressive disorder.

In my recent analysis of Intra-Cellular Therapies, I highlighted the company's promising potential due to the success of lumateperone, especially in treating mixed features in neuropsychiatric conditions. The anticipated MDD approval and growth of Caplyta indicated strong investment potential. However, their reliance on Caplyta for revenue posed risks, especially with exclusivity expiration. Despite these challenges, the company's diverse pipeline and robust cash position, paired with positive future prospects, led me to upgrade their stock from "Hold" to "Buy".

The following article reviews Intra-Cellular Therapies' potential and challenges. Highlighting Caplyta's success in treating neuropsychiatric conditions, it discusses financials, growth strategies, risks, and maintains a "Buy" recommendation.

Q2 2023 Earnings

Looking at Intra-Cellular's most recent earnings report , total revenues for Q2 2023 reached $110.8M, a substantial rise from $55.6M in Q2 2022. This growth was primarily driven by Caplyta's net product sales, which doubled year-over-year to $110.1M. Despite the increased revenue, the company recorded a net loss of $42.8M, an improvement from the $86.6M loss in the same quarter of the previous year. Cost of product sales grew to $7.2M from $4.7M. SG&A expenses remained relatively stable at $101M, while R&D expenses saw a significant uptick to $49.8M, primarily due to higher lumateperone project costs. The company boasted a healthy cash position, with $514.6M on hand as of June 30, 2023. For the full year, Caplyta sales guidance was adjusted upwards to a range of $445M to $465M.

Liquidity & Balance Sheet

Turning to Intra-Cellular Therapies' balance sheet , the company's current liquidity position includes cash and cash equivalents of $142.25M and investment securities available-for-sale amounting to $370.60M, summing up to a total of $512.85M. From the Condensed Consolidated Statements of Operations, the company reported a loss from operations of $95.57M over the last six months. Extrapolating this to an annualized basis, we expect an approximate operating loss of $191.14M. Given the liquidity position, the cash runway is about 2.68 years ($512.85M ÷ $191.14M). The company's overall liquidity seems satisfactory, with its current assets substantially exceeding its current liabilities ($698.07M vs. $92.08M). There's a limited amount of liability on the balance sheet ($106.51M in total liabilities), indicating low leverage. However, if the company continues its current trend of operational losses, it may require additional financing in the future to support its operations and any unforeseen investments.

Valuation, Growth, & Momentum

According to Seeking Alpha data: ITCI capital structure reveals a market cap of $5.59B with minimal debt and a healthy cash reserve, resulting in an enterprise value of $5.10B. Its valuation metrics are challenging to interpret given the non-meaningful P/E ratios, although it trades at a high Price/Book of 9.21 and has an elevated EV/Sales of 13.93. The company is experiencing strong growth, with earnings estimates indicating a robust revenue increase; the YoY sales growth for 2023 is an impressive 84.06%, which is expected to continue growing over the next few years. Despite the negative momentum in the past three months at -12.40%, the 6 and 9-month momentum are positive at +19.58% and +14.86% respectively, contrasting slightly with the stock's minor decline over the year.

Growth Initiatives

In their recent earnings call , Intra-Cellular Therapies highlighted their growth strategies:

• Lumateperone's Broad Potential: The company emphasized the positive reception for Study 403 related to lumateperone, which showed significant symptom reduction for patients with mixed features in mood disorders. They plan to present these results at upcoming psychiatric meetings and aim to engage the FDA for further discussions.

• Adjunctive MDD Program: Lumateperone is being evaluated as an adjunctive treatment for Major Depressive Disorder [MDD] in three ongoing Phase 3 studies. Results for two of these trials are expected in 2024, with an anticipated filing for supplemental new drug application [sNDA] later that year.

• Lumateperone Long Acting Injectable (LAI) Formulations: Plans are underway to begin Phase 1 studies on several new LAI formulations, aiming for longer treatment durations.

• Pipeline Expansion:

  • ITI-1284: This year, Phase 2 programs will be initiated to evaluate ITI-1284 for generalized anxiety disorder, psychosis in Alzheimer's patients, and agitation in Alzheimer's patients.

  • ITI-500 Series: Focusing on non-hallucinogenic psychedelics, the company developed novel compounds to harness therapeutic potentials without the adverse effects typical of known psychedelics. Their lead compound, ITI-1549, will be evaluated in IND studies, with human testing slated for late 2024 or early 2025.

  • PDE1 Inhibitors Platform: The ongoing Phase 2 trial of Lenrispodun targets Parkinson's disease symptoms, while ITI-1020, a cancer immunotherapy candidate, is in a Phase 1 study.

  • ITI-333: Designed for opioid use disorder and pain treatment, ITI-333 has completed a single ascending dose study, with results from multiple ascending dose studies anticipated in 2024.

My Analysis & Recommendation

In analyzing the current status and future trajectory of Intra-Cellular Therapies, several key observations emerge. The notable success of Caplyta, with its substantial growth in net product sales, undoubtedly points to a promising avenue for the company. The continued strong launch and reception of this drug, especially its potential in addressing mixed features in mood disorders, are a testament to the company's commitment to innovation and patient care.

From an investor's standpoint, several factors warrant close observation in the coming weeks and months. The forthcoming results from the Phase 3 studies on lumateperone's adjunctive treatment for Major Depressive Disorder [MDD] could be pivotal. Positive outcomes here may further solidify Caplyta's position in the market and potentially pave the way for extended indications. Additionally, given the projected growth rates, how close Intra-Cellular is to turning a profit will be a matter of intense scrutiny. If current trends hold, the gap between operational expenses and revenues could narrow substantially, bringing the company closer to profitability.

However, concerns persist. The company's significant reliance on Caplyta for its revenue stream might be viewed as a double-edged sword. While the drug's success is driving growth, any setbacks, especially in the face of patent exclusivity expiration, could have disproportionate impacts on the company's financial health. Further, while the cash runway suggests a buffer for the next few years, sustained operational losses may compel the company to seek additional financing – a move that always comes with its share of complexities and potential dilutions for existing shareholders.

In light of the above, and the company's clear direction in expanding its neuropsychiatry offerings - from the exploration of non-hallucinogenic psychedelics to initiatives in Parkinson's disease and opioid use disorder treatments - I remain optimistic. Thus, I maintain my "Buy" recommendation for Intra-Cellular Therapies. The rationale hinges on Caplyta's promising prospects, the company's diverse and innovative pipeline, and its robust cash position, which collectively position it well to navigate future challenges and capitalize on opportunities.

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