Intra-cellular therapy stock: what lies ahead (NASDAQ: ITCI)
Happy people produce. People who are bored consume. -Stephen Richards
It’s been a while since we’ve looked at biopharma concerns Intra-Cellular Therapies, Inc. (NASDAQ:ITCI). This name comes up from time to time in the comments of Looking for Alpha subscribers. Given that, now seems like a good time to revisit this name to see what’s in store for this mid-cap company. An analysis follows below.
Intra-Cellular Therapies, Inc. is based in New York. The company is focused on the development of new drugs for the treatment of neuropsychiatric and neurological diseases. The company’s flagship product is CAPLYTA (lumateperone). CAPLYTA was approved for the treatment of schizophrenia in adults in early 2020. The compound then became the first and only FDA-approved treatment for depressive episodes associated with bipolar I or II disorder (bipolar depression) in adults as monotherapy and as add-on therapy with lithium. or valproate at the end of 2021.
Intra-Cellular Therapies also has a few other drug candidates in development. The stock trades just above $45.00 per share and sports a market capitalization just north of $4.5 billion.
The company also has a few phase III trials underway to evaluate lumateperone as a potential treatment for major depressive disorder, or MDD. If all goes well, management plans to file a supplemental new drug application, or sNDA, with the FDA for approval of lumateperone as an add-on therapy to antidepressants for the treatment of MDD in 2024.
Additionally, the company, as mentioned earlier, has a few other candidates in its pipeline. However, they are too early to be relevant for this analysis.
Second quarter results:
On August 9, the company announced the second quarter Numbers. Intra-Cellular Therapies posted a GAAP loss of 92 cents per share in the quarter, 15 cents per share below consensus. Revenue rose more than 175% from the same period a year ago to $55.6 million, nearly $7 million lower than expected. Total CAPLYTA prescriptions increased 191% from 2Q2021 and 51% sequentially from the first quarter of this year.
Selling, general and administrative (SG&A) expenses rose sharply to just over $100 million for the quarter, from just under $70 million in the same period a year ago. This is mainly due to higher marketing and advertising expenses as well as labor costs. Research and development (R&D) spending for the second quarter of 2022 also increased significantly, to $38.5 million. This compares to $17.3 million for the second quarter of 2021. The increase is primarily due to increased costs related to clinical and non-clinical trials of lumateperone.
Analysts’ comments and review:
Since the release of second-quarter results, five analyst firms, including Needham and Jefferies, have reissued buy ratings on ITCI. Price targets offered range from $67 to $90 per share. However, Goldman Sachs downgraded the stock to Neutral and reduced its price target from $15 per share to a target price of $49. citing:
Slowing the volume growth of drug prescriptions and highlighting that ITCI has already utilized key growth drivers to accelerate volume growth. While prevalent antipsychotic drugs indicate potentially manageable generic competition for the indication, “a new generic entrant nonetheless represents an additional competitive threat to Caplyta in our view,” Goldman expects generic market entry Latuda changes market dynamics in borderline disorder.“
The stock saw big insiders selling in March and April in the low $50-$60 range, with insiders selling more than $15 million worth of shares in those two months. Since then, they have sold just under an additional $3 million of that equity. Less than four percent of the outstanding float is currently held short. At the end of the second quarter, the company held nearly $680 million in cash and marketable securities after posting a net loss of $86.6 million in the quarter. The company has no long-term debt.
The current analyst firm consensus the company is losing just over $3.20 per share in fiscal 2022, even as revenue rises 180% to around $235 million. In fiscal 2023, they expect an 80% increase in sales to just over $420 million, as Intra-Cellular Therapies, Inc. cuts its loss to around $1.70 per share .
CAPLYTA (lumateperone) has significant potential in multiple indications. Sales traction looks solid for an early rollout, even though the company missed expectations with its latest quarterly numbers. Unfortunately for Intra-Cellular Therapies shareholders, profitability is years away. At more than ten times projected revenue for next year, ITCI isn’t yet cheap on a price-to-sales ratio either. Moreover, it’s not exactly the type of company whose shares are rewarded in the turbulent market of 2022 as interest rates continue to rise.
Additionally, insider selling this year is a minor red flag and Goldman’s recent ITCI downgrade is also a negative. It’s a good story to watch, but personally I’m withholding any investment in the stock until Intra-Cellular Therapies significantly reduces its cash burn rate.
It is always true that man is most uniquely human when he turns obstacles into opportunities.― Eric Hoffer