VNDA - The Right Play On Intra-Cellular Therapies

2023-11-20 11:49:37 ET

Summary

• Intra-Cellular Therapies, Inc. is a mid-cap biopharmaceutical company focused on developing treatments for neuropsychiatric and neurological disorders.
• The company's commercial asset, Caplyta, has achieved significant sales growth and is an exciting entry in the antipsychotic market.
• Intra-Cellular is also evaluating the potential of Caplyta for other indications and has several other early-to-mid stage clinical programs in its pipeline.
• A full investment analysis around Intra-Cellular Therapies follows in the paragraphs below.

My happiness is not the means to any end. It is the end. It is its own goal. It is its own purpose .”? Ayn Rand.

Today, we tee up a mid-cap biopharma we have not looked at in quite some time. The shares had a rocky summer but have been on the rebound of late. An analysis follows below.

Company Overview:

Intra-Cellular Therapies, Inc. ( ITCI ) is a commercial-stage biopharmaceutical concern focused primarily on the development of treatments for neuropsychiatric and neurological disorders through the targeting of intracellular mechanisms within in the central nervous system. The company has one approved therapeutic for multiple indications and four early-to-mid-stage clinical programs.

Intra-Cellular was formed in 2001 and went public when it reverse-merged into blank check company Oneida Resources Corp. in 2013 at a valuation of $10 per share. The stock currently trades around $57.00 a share, translating to an approximate market cap of $5.5 billion.

Caplyta

The company’s commercial asset is Caplyta (lumateperone), a once-daily oral therapy combining a serotonin 5-HT2A receptor antagonist, a dopamine receptor phosphoprotein modulator, a glutamatergic modulator, and a serotonin reuptake inhibitor that is approved for the treatment of schizophrenia (2019) and bipolar (I and II) depression in adults (2021). After approval of the second indication, sales ramped considerably, with Caplyta achieving FY22 revenue of $249.1 million, up 205% from $81.7 million in FY21. The pace of growth slowed in 1H23 but was still significant, with sales of $204.9 million, up 128% from the prior year period. The worldwide rights to lumateperone were in-licensed from Bristol-Myers Squibb ( BMY ) , to which Intra-Cellular pays tiered (5% to 9%) royalties on sales.

Caplyta competes in a $15.5 billion antipsychotic market (2022) that is expected to reach $24.4 billion in 2030 (Fortune Business Insights), with Vanda Pharmaceuticals’ ( VNDA ) Fanapt, Alkermes’ ( ALKS ) Lybalvi, Otsuka’s ( OTSKY ) Rexulti, AbbVie’s ( ABBV ) Vraylar, and generics. Owing to its relatively safe adverse event profile – namely, lower incidence of weight gain, metabolic abnormalities, and extrapyramidal symptoms (movement disorders) that typically lead to treatment discontinuation vis a vie its competitors – management believes Caplyta possesses the potential to garner a meaningful share of its part of the antipsychotic market. The only boxed warning for Caplyta is for elderly patients with dementia-related psychosis. Approximately 11 million Americans suffer from Bipolar I or II disorder, while another 2.4 million are affected by schizophrenia.

To further expand its label, lumateperone is also undergoing evaluation for several other indications: as an adjunctive therapy to antidepressants for the treatment of major depressive disorder [MDD]; and as a monotherapy in the treatment of major depressive episodes with mixed features in patients with bipolar disorder or MDD.

For the first indication, Intra-Cellular is enrolling ~1410 individuals with MDD who are having inadequate response to antidepressant monotherapy [ADT] across three separate Phase 3 trials (Study 501, 502, and 505). Each is a ~470 patient, placebo-controlled trial with primary endpoint the change in Montgomery-Asberg Depression Rating Scale ((MADRS)) total score at week 6. The key secondary endpoint is the change in Clinical Global Impression of Severity scale (CGI-S). Study 501 and 502 are expected to be read out in 1Q24 and 2Q24, respectively. Study 505 recently initiated with no timeline for data. Subject to the results of these trials, Intra-Cellular anticipates filing an sNDA for lumateperone as an adjunctive therapy for this indication in 2H24. If ultimately successful, Caplyta would expand its label by ~21 million Americans.

As for major depressive episodes with mixed features – essentially a mood disorder in which a person exhibits symptoms of both depression and mania (or hypomania) simultaneously – the company released positive results from a Phase 3 trial (Study 403) in March 2023, meeting its primary endpoint in the total patient population (n=393) with a 5.7 point reduction versus placebo in the MADRS total score (p<0.0001) with a Cohen d effect size ((ES)) of 0.64. [For those unaware, ES is a measure of the magnitude of the experimental effect. The larger the number, the stronger the relationship between two variables. An outcome of 0.64 would indicate that ~75% of the placebo group was below the mean of the treatment group.] In the MDD patient population, a 5.9 point reduction (p<0.0001; ES=0.67) was observed; in the bipolar depression population, a 5.7 point reduction (p<0.0001; ES=0.64) was observed. Furthermore, in a subset of patients presenting anxious distress across both categories, a 6.1 point reduction (p<0.0001; ES=0.67) was observed. This last group is significant in that ~55% of patients in both indications experience anxious distress, which is typically associated with treatment nonresponse and higher suicide rates. Intra-Cellular anticipates huddling with the FDA in 2H24 to discuss next steps, which may or may not include the requirement of another trial to confirm the data in Study 403 before filing an sNDA.

It is estimated that approximately one-third of MDD and bipolar depression patients present mixed features.

The company is also advancing a long-acting injectable version of Caplyta, which is currently undergoing Phase 1 study for schizophrenia.

Pipeline

In addition to Caplyta-lumateperone, Intra-Cellular has four early-to-mid stage clinical programs.

ITI-214 (lenrispodun) . The company has developed a portfolio of compounds that selectively inhibit the enzyme phosphodiesterase type 1 (PDE1), which is found to be highly active in many diseases. Intra-Cellular’s lead PDE1 inhibitor is lenrispodun, which is currently undergoing evaluation in a Phase 2 trial for the treatment of Parkinson’s disease.

ITI-1020 . A second PDE1 inhibitor with applications in cancer immunotherapy, ITI-1020, is being assessed in a Phase 1 single ascending dose study in healthy subjects.

ITI-1284 . The company also anticipates initiating a Phase 2 trial for ITI-1284 – a sublingually administered, deuterated form of lumateperone – in the treatment of generalized anxiety disorder, as well as psychosis and agitation in patients with Alzheimer's disease by YE23.

ITI-333 . Lastly, Intra-Cellular is conducting a multiple ascending dose Phase 1 study on ITI-333, a 5-HT2A antagonist and ?-opioid receptor partial agonist, for the treatment of opioid use disorder and pain.

Third Quarter Results:

The company reported its third quarter numbers on November 2. The company had a GAAP loss of 25 cents a share, less than half what the Street was expecting. Revenues surged just over 75% on a year-over-year basis to just north of $126 million, also beating the consensus by some $7 million. Caplyta prescriptions grew 71% from the same period a year ago. Management upped FY2023 sales guidance on these impressive results to $460 million to $470 million from $445 million to $465 million previously.

Balance Sheet & Analyst Commentary:

Despite the commercial success of Caplyta, Intra-Cellular is still burning through cash, having used $116.7 million from operating activities in the first three quarters of FY2023. That said, with rapidly increasing Caplyta sales and cash and investments totaling $494.8 million and no debt as of September 30, 2023, the company should not have any reason to tap the capital markets before it achieves cash flow positivity – likely in FY25.

Since third quarter results were posted, seven analyst firms including Needham and RBC Capital have reissued Buy ratings on ITCI with price targets proffered ranging from $70 to $101 a share. Goldman Sach maintained its Hold rating and $58 price target. On average, they expect the company to lose $1.61 a share ((GAAP)) on revenue of $469.5 million in FY23, followed by a loss of $0.52 a share ((GAAP)) on revenue of $660.4 million in FY24.

Verdict:

With a differentiated adverse event profile and a solid shot at label expansion, Caplyta is headed towards blockbuster status – it’s a question of how much above $1 billion. Its label expansion potential took a big leap forward when Intra-Cellular read out the mixed features data in March 2023. Shares of ITCI responded in kind, rallying 16% in the subsequent trading session and ultimately 40% higher to an all-time high of $67.05 in June 2023, suggesting peak sales of $1.75 billion to $2.0 billion assuming no value to the company’s pipeline. However, since that time, shares of ITCI have nearly round-tripped recently back to the upper 40s as the market adjudicated that valuation too aggressive; before recently rebounding.

Considering Intra-Cellular Therapies, Inc. under a best-case scenario, Caplyta’s label will not be expanded as an adjunctive therapy in MDD until 2H25, that is a fair assessment. The real needle-moving unknown is the meeting with the FDA to determine if lumateperone needs to undergo another Phase 3 study for mixed features. By round tripping Intra-Cellular Therapies, Inc. stock, the market is indicating that another trial is likely necessary. For the avoidance of doubt, a determination of another trial will set the stock back, but that would present a buying opportunity. If the FDA determines another study is not necessary, shares should rally meaningfully. As such, the recommendation for would-be to take a small starter position, looking to cost average on bad news or make a quick trade on good.

For those that want to acquire that small holding with downside protection in Intra-Cellular Therapies, Inc., a covered call strategy seems prudent.

What we are reluctant to touch often seems the very fabric of our salvation .”? Don Delillo.

For further details see: