Intra-Cellular Therapies Inc

NASDAQ:ITCI

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Intra-Cellular Therapies' Second Quarter Earnings Call. At this time, all participants on a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, today's conference is being recorded.

I would now like to turn the conference over to Dr. Juan Sanchez, Vice President, Corporate Communications and Investor Relations. Thank you. Please go ahead.

[Juan Sanchez]

Good morning, and thank you all for joining us on the call today. Our earnings press release provides a corporate update and details of the company's financial results for the second quarter ended June 30, 2022. The press release crossed the wire earlier this morning and is available on our website at intracellulartherapies.com.

Joining me on the all today are Dr. Sharon Mates, Chairman and Chief Executive Officer; Mark Neumann, Executive Vice President and Chief Commercial Officer; Dr. Suresh Durgam, Executive Vice President and Chief Commercial Medical Officer; and Larry Hineline, Senior Vice President and Chief Financial Officer.

As a reminder, during today's call, we will be making certain forward-looking statements. These statements may include statements regarding, among other things, the efficacy, safety and intended use of the company's product development candidates, our clinical and nonclinical plans, our plans to present or report additional data, the anticipated conduct and results of ongoing and future clinical trials, plans regarding regulatory filings, future research and development, our plans and expectations regarding the commercialization of CAPLYTA; the potential impact of the COVID-19 pandemic on our business; and possible uses of existing cash and investment resources.

These forward-looking statements are based on current information, assumptions and expectations. Those are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our previous filings made with the Securities and Exchange Commission including our quarterly and annual reports. You're cautioned not to place undue reliance on these forward-looking statements, and the company disclaims any obligations to update such statements.

I will now turn the call over to Sharon.

[Sharon Mates, Chairman and Chief Executive Officer]

Thanks, Juan. Good morning, everyone. Today, I'm pleased to share with you our second quarter results. We will update you on the strong performance of CAPLYTA following our launch in Bipolar I and Bipolar I depression, as well as the progress in our clinical development programs.

We are pleased to report that total revenues for the second quarter 2022 were $55.6 million compared to $20 million for the same period in 2021, representing a 178% increase.

CAPLYTA net product revenues for the second quarter 2022 were $55.1 million, representing a 190% increase over the same period in 2021 and a 58% increase over the first quarter of 2022. Larry will provide additional details on our financial performance in his remarks.

Our commercialization of CAPLYTA continues to go extremely well. Following the FDA's approval of CAPLYTA for bipolar depression in late December 2021, we have seen tremendous enthusiasm from health care professionals which has been reflected in our strong prescription growth.

In the second quarter, CAPLYTA new and total prescriptions increased 225% and 191% and respectively, versus the same period in 2021. Second quarter 2022 CAPLYTA new and total prescriptions increased 55% and 51%, respectively, versus first quarter 2022.

In addition to continued increases in CAPLYTA prescriptions, we have received highly positive feedback from health care practitioners regarding the strength of CAPLYTA's clinical profile including both the efficacy and safety profile and the positive experience their patients are having on the medication. We are proud to be helping a growing number of patients managed their bipolar disorder.

CAPLYTA is the first and only treatment indicated for depressive episodes associated with bipolar I or bipolar II disorder in adults, as monotherapy or as adjunctive therapy with lithium or valproate.

Prior to CAPLYTA, there was only one medicine approved for bipolar II depression and only as monotherapy. We are pleased to have seen such a significant uptake of CAPLYTA to treat both bipolar I and bipolar II, disorders that have a similar patient population size. We have also seen an increase in CAPLYTA prescriptions for the treatment of schizophrenia. Mark will further elaborate during his comments.

CAPLYTA's profile makes it an important medicine for patients. CAPLYTA interact with key neurotransmitter systems believed to be involved in major neuropsychiatric conditions, including depressive disorders. Although the mechanism of action of lumateperone is unknown, the modulation of the dopamine system coupled with 5-HT2A antagonism serotonin uptake inhibition and indirect interactions with the glutamate system offers distinct pharmacologic characteristics relevant to treating mood disorders in addition to schizophrenia.

There is a significant need for medicines that safely and effectively treat these disorders. In our clinical studies, CAPLYTA has shown consistent efficacy supported by a favorable safety and tolerability profile. In fact, changes in key safety metrics such as weight change, fasting glucose, total cholesterol, triglycerides and EPS, including akathisia, were all similar to placebo.

The pharmacologic properties and clinical results of CAPLYTA have led us to expand our programs beyond schizophrenia and bipolar disorder to include major depressive disorder or MDD and mixed features in MDD and bipolar depression.

We are currently enrolling patients in our global Phase III MDD studies to evaluate lumateperone 42 milligrams as an adjunctive treatment to antidepressants. To remind you, studies 501 and 502 are global double-blind, placebo-controlled studies with approximately 470 patients in each study. The primary endpoint is changed from baseline and the e MADRS at week 6.

Additionally, study 503 is an open-label rollover study to assess long-term safety in this patient population. We expect to file a supplemental new drug application with the FDA for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD in 2024.

I'll now discuss study 403, our mixed feature study. Patient enrollment is progressing well in this study, a large, well-controlled global clinical trial evaluating lumateperone 42 milligrams patients with MDD and in patients with bipolar depression who exhibit mixed features.

The primary endpoint of this study is change from baseline versus placebo on the MADRS at week 6 and changes in CGI-S as a key secondary end point. A follow-up safety assessment is planned approximately 2 weeks after the last dose of study medication. We expect to complete clinical conduct in this study in late 2022. Following completion of data analysis, we expect to report top line results in Q1 2023.

Study 403 represents another opportunity to study the safety and efficacy of lumateperone in an area where there are important medical needs. During depressive episodes, roughly one third of patients with unipolar depression and with bipolar disorder present with mixed features.

Mixed Features is defined by a patient having co-occurring sub-threshold mania or hypomanic symptoms during their depressive episode. This clinical presentation is important to highlight as these patients have greater severity of illness at higher rates of suicide and suicidal ideation, higher recurrence rates and comorbidities.

These patients are more difficult to treat than patients exhibiting classic depressive episodes and tend to respond poorly to antidepressants. The inclusion of mixed features specifier in the DSM-5 underscores the recently recognized importance of this clinical presentation.

During the quarter, we had multiple scientific presentations featuring CAPLYTA at prominent medical and scientific conferences. These meetings included the American Psychiatric Association Meeting International Conference for Bipolar Disorders Annual Meeting, the American Society of Clinical Psychopharmacology and the Schizophrenia International Research Society.

I'll now highlight several of these presentations. At ASCP and ISBD, we presented further evidence of favorable metabolic profile of lumateperone. Rates of metabolic syndrome at baseline and at the end of treatment were similar between patients who received lumateperone or placebo. More patients who received lumateperone improved from having metabolic syndrome at baseline to no longer meeting criteria at the end of treatment compared with placebo.

These and other results presented at these meetings highlight the favorable placebo-like metabolic profile of lumateperone and supported use in patients with bipolar depression and schizophrenia.

At ISBD, we presented data demonstrating broad antidepressant effects of lumateperone as evidenced by improvements versus placebo across the 10single items of the MADRS total scale, as well as a higher percentage of lumateperone patients versus placebo shifting from severe disease to moderate, mild disease or no illness.

At ISBD and ASCP, we presented analysis highlighting marked improvements in functional disability and quality of life. Lumateperone statistically significantly improved the pre-specified secondary outcome measure, the quality of life enjoyment and satisfaction questionnaire short form total score from baseline to day 43 compared with placebo.

In a post hoc s analysis, t4here were marked improvements with lumateperone in items representing the ability to function in daily life, family relationships, households activities, leisure time activities, mood and overall life satisfaction.

At the SIRS meeting, we presented additional safety analysis from our open-label safety switching study evaluating lumateperone 42 milligrams in patients with stable schizophrenia. Data from this post hoc analysis further supports the favorable safety and tolerability profile of lumateperone 42 milligrams in patients with schizophrenia who switched from another antipsychotic regardless of the previous antipsychotics.

In addition, patients switching from risperidone/paliperidone or olanzapine to lumateperone had significant improvements in cardiometabolic parameters and proactive concentrations.

We have also continued to advance other programs in our pipeline. We are working to develop long-acting injectable formulation of lumateperone that are effective, safe and well tolerated and last one month and longer to provide more treatment options for patients suffering from mental illness.

We have completed the preclinical development of an LAI formulation and we have conducted a Phase I single ascending dose study with this formulation. This study evaluated the pharmacokinetic safety and tolerability of lumateperone long-acting injectable in patients with stable symptoms of schizophrenia.

We are now exploring alternate sites of injection with this formulation, as well as progressing with other formulations. This will assist us in evaluating dosing strategies and formulations for our efficacy studies.

Next is our 1284 program. ITI-1284 is a deuterated form of lumateperone, a new chemical entity formulated as an oral disintegrated tablet for sublingual administration. We are presently evaluating ITI-1284-ODT-SL in Phase I studies, including drug-drug interaction studies. We expect to commence clinical conduct in Phase II clinical trials in agitation in patients with probable Alzheimer's disease in dementia-related psychosis and in certain depressive disorders in the elderly in 2023.

In our PDE1 inhibitor programs, we have completed or have ongoing Phase I trials, including drug-drug interaction, bioavailability from scale-up batches and food effect studies. We've initiated our Phase II clinical program with lenrispodun for Parkinson's disease and expect to commence patient enrollment in the second half of 2022.

We continue to investigate the anti-cancer effect of PDE1 inhibitors. At AACR, we presented preclinical data demonstrating the antitumor effect of PD-1 inhibitors when administered in conjunction with checkpoint inhibitor immunotherapy in an animal model of triple-negative breast cancer. We have now shown that our PDE1 inhibitors can potentiate the action of checkpoint inhibitors in various models of colorectal, kidney, breast and glioblastoma cancer.

Finally, our ITI 3 program for opioid use disorder continues to advance. Following the recent completion of our single ascending dose study, we have commenced a neuroimaging study to investigate brain occupancy for receptors that play a role in substance use disorder and have applicability for pain. The results of this study will support the dose selection for future studies.

We ended the second quarter in a strong financial position with $679.2 million in cash, cash, cash equivalents and investment securities, and we have no debt.

In summary, we are pleased with our second quarter results and proud of our accomplishments. We look forward to CAPLYTA's continued market growth in bipolar depression and schizophrenia and to advancements in our pipeline.

I will now turn the call over to Mark, who will provide additional details about our successful launch. Mark?

[Mark Neumann]

Thanks, Sharon. I am pleased to report that we continue to make significant progress. In the first 6 months of our bipolar launch, CAPLYTA new and total prescriptions have approximately doubled and new patient starts as reflected by new-to-brand prescriptions, are five times the level they were just prior to our label expansion.

Significant launch inflection that we saw in the first quarter continued throughout the second quarter in both new and total prescriptions, reflecting sustained and robust growth following CAPLYTA's approval in bipolar depression.

Second quarter CAPLYTA new and total prescriptions increased by 55% and 51%, respectively, versus the first quarter. A broad patient population is using CAPLYTA, including patients diagnosed with both bipolar I and bipolar II. Prescribers are using CAPLYTA as both monotherapy and adjunctive therapy.

An increasing number of newly diagnosed patients are initiating therapy on CAPLYTA, as well as those switching from other antipsychotics, including both branded and generic medications.

While an increasingly larger portion of prescriptions are coming from bipolar depression, we are also pleased with the continued growth of CAPLYTA for the treatment of schizophrenia.

CAPLYTA's robust performance has been driven by successful commercial execution, broad market access and a strong clinical efficacy, safety and dosing profile. In market research recently fielded with 300 health care professionals, these HCPs rated CAPLYTA as well differentiated on the attributes of a broad bipolar depression indication that includes both bipolar I and bipolar II, low risk of metabolic dysfunction, low risk of weight gain, low risk of extra pyramidal symptoms including akathisia and ease of dosing with no titration required. In this research, a significant majority of physicians intend to prescribe CAPLYTA in the future.

CAPLYTA maintained broad coverage in the Medicare Part D and Medicaid channels with greater than 98% of lives covered and during the second quarter, we further expanded coverage in the commercial channel to approximately 85% of lives covered. We expect this coverage to continue to increase in the coming months.

We are also looking forward to launching two new dosage strengths for CAPLYTA 10.5 milligrams and 21 milligrams, which were FDA approved during the second quarter of 2022. This will expand the patient population who has access to CAPLYTA, specifically for patients taking strong or moderate CYP3A4 inhibitors in patients with moderate or severe hepatic impairment. We anticipate these new dosage strengths to be available in pharmacies later this month.

In closing, CAPLYTA is a very appealing option for prescribers and patients with bipolar depression and schizophrenia and we are confident in our ability to drive continued robust prescription and revenue growth throughout the second half of the year.

I will now turn the call over to Larry. Larry?

[Larry Hineline]

Thank you, Mark. I will now provide a summary of our financial results for the second quarter ending June 30, 2022. Total revenues in the second quarter grew to $55.6 million compared to $20 million in the second quarter of 2021.

In the second quarter, we recorded net product revenue of CAPLYTA of $55.1 million compared to $19 million for the same period in 2021 and $34.8 million in the first quarter of 2022. This represents a year-over-year increase of 190% and a 58% increase over the first quarter of 2022.

The second quarter of 2022 gross to net percentage was in the low 30s, consistent with our prior guidance. We expect CAPLYTA's gross to net percentage to remain consistently in the low 30s throughout 2022.

Cost of product sales were $4.7 million in the second quarter of 2022 compared to $2 million for the same period in 2021. Selling, general and administrative expenses were $100.3 million for the second quarter of 2022 compared to $69.9 million for the same period in 2021. This increase is primarily due to an increase in marketing and advertising expenses and labor-related costs.

Research and development expenses for the second quarter of 2022 were $38.5 million compared to $17.3 million for the second quarter of 2021. This increase is due to higher lumateperone clinical trial and non-clinical related costs and an increase in non-lumateperone project costs.

The net loss for the second quarter of 2022 was $86.6 million compared to a net loss of $68.7 million for the second quarter of 2021. Cash, cash equivalents, restricted cash and investment securities totaled $679.2 million at June 30, 2022, compared to $413.7 million at December 31, 2021.

In January 2022, we completed a $460 million public offering resulting in net proceeds to the company of approximately $433.7 million from the sale of 10,952,381 shares of our common stock after deducting offering expenses paid by the company.

This concludes our prepared remarks. Operator, could you please open the line for questions.

Thank you. [Operator Instructions] The first question is coming from Andrew Tsai of Jefferies. Please go ahead.

[Andrew Tsai, Jefferies]

Thanks, and good morning. [Technical Difficulty] To ask on the outlook of the prescription trends. Maybe your touch points so far, whether your sales reps have exhausted all the targeted physicians. Or do you think you've barely scratched the surface and that you still remain in the early innings. So just curious if we can expect the trajectory to maintain? Or could scripts inflect even further over time? Thanks.

[Larry Hineline]

Go ahead and take that.

[Mark Neumann]

Yeah. So Andrew, yeah, thanks for your question. And what I would say is we're very confident in our ability to drive continued robust growth throughout 2022 and remain bullish on the long-term potential for CAPLYTA. Our awareness levels continue to rise as we continue to further penetrate our target audience.

The physicians in the market research that we recently fielded recognize the differentiated profile that we have with CAPLYTA and we continue to execute in a very strong way in our promotional activities.

What I would say about the reach to our target audience is that we've been pleased with the significant progress we're making in reaching our target audience and educating them on the clinical profile and the benefits of CAPLYTA in bipolar. And I'd say we've reached the majority of the target prescriber audience, but we continue to make additional strides in furthering that reach, both with our in-person promotional activities, with our sales force, with the virtual capability our sales representatives have and then also supplementing that effort with a comprehensive digital and on personal programs that we have. So we're making very good progress with that. Still room for additional reach, still room for additional frequency, but we've been pleased with the progress at this stage of the launch so far.

[Andrew Tsai, Jefferies]

Okay. Thanks for all the color.

[Operator]

Thank you. The next question is coming from Jessica Fye of JPMorgan. Please go ahead.

[Larry Hineline]

Hey, Jess. Good morning.

[Jessica Fye, JPMorgan]

Can you hear me?

[Sharon Mates, Chairman and Chief Executive Officer]

Before Jessica adding something, okay, you couldn't hear me before. I just wanted to add to what Mark said. Yes, we think that we are still on a good trajectory, Andrew, to give you the short answer and then you can add into that what everything Mark added into that.

[Operator]

Thank you, Jessica, please go ahead.

[Jessica Fye, JPMorgan]

Great. Maybe kind of following up on that. I don't know if it's for Sharon or Mark. But last quarter, we talked about the launch phase being sort of 6 to 12 month period characterized by the most robust new to brand growth. Now that we're a little more than 6 months into the bipolar depression launch, do you think the launch phase here is going to be closer to that 6 months or closer to the 12 months that you talked about before?

[Mark Neumann]

Yeah. So Jessica, in a launch, there's always going to be sort of week-to-week variability. And I think in the recent period that we've just gone through, we've seen some summer seasonality where you have some holidays with - that kind of interrupt the week, you have Memorial Day weekend, you have 4th of July, you have Juneteenth.

Summertime is when you tend to have vacations of physicians, with patients, et cetera. And we have seen some impact of the rise in the COVID cases, which has impacted the overall market. But we think that the longer-term prescription trends remain very healthy for CAPLYTA. And as Sharon said, we continue to believe that we're on a very good trajectory that will take us into the second half.

[Jessica Fye, JPMorgan]

Got it. If I could just ask a follow-up. Were there any changes in the amount of inventory days on hand in the channel at the end of 2Q relative to the end of 1Q? Mark for Larry.

[Mark Neumann]

Yeah, Larry, you…

[Larry Hineline]

Things on hand have been relatively stable and have been rising when sales rise. But they're pretty much stable.

[Jessica Fye, JPMorgan]

Thank you.

[Operator]

Thank you. The next question is coming from Umer Raffat of Evercore. Please go ahead.

[Mike DiFiore, Evercore]

This is Mike DiFiore in for Umer. Thanks a lot for taking my question. First on the Mixed Features trial. You saw in the bipolar Phase III, a solid [indiscernible] was seen on the MADRS about halfway into the 6-week trial and continue to improve for the end of the trial. However, the MADRS score of these patients was around 30 whereas the mixed features, trials, inclusion criteria specified a score of at least 24. So where I'm going with this is, can you give us a sense of where the baseline MAGRS scores in the Mixed Fixed trial may fall relative to the bipolar depression trial.

And also, is there any reason why the placebo group may behave differently in this patient population and where the – and whether there could be any U.S. versus ex-U.S. dynamics that may affect the results. And just separately, really quick on inventory, how many weeks do you typically keep in the channel? Thank you.

[Sharon Mates, Chairman and Chief Executive Officer]

So let's break that into a couple of questions, and I'll ask Suresh to address our Mixed Features.

[Suresh Durgam, Executive Vice President Chief Medical Officer]

Yeah. Mixed Features study. It is ongoing right now. We are on track for enrollment by end of the year. In terms of - the question about mix, the baseline, it is 24, where you are correct in terms of what we have for this trial. But it will usually be in the range in what we have seen, the baselines would be what we have seen in our monotherapy and adjunctive trials that is around 30 to 32, so I expect that will be in the same range for this trial too.

In terms of your question about placebo response. We had to - again, that, as you know, that these trials have - depression trials, in general, have a 50,000 successful rate and with bipolar, it is even a little bit higher. However, we have shown that in bipolar depression, we were able to demonstrate efficacy in both monotherapy and adjunctive therapy.

Also in the post-hoc analysis for the 404 study where we have seen patients with mixed features, which where we use a proxy of our YMRS as Mixed Features there in that analysis – post-hoc analysis, we saw a clear separation in this Mixed Feature population in the trial. And so we'll wait and see for the results.

[Sharon Mates, Chairman and Chief Executive Officer]

I would just add to that, that you have cutoff points for these - for the MADRS scores. But again, as Suresh mentioned, there is a range of MADRS scores as these patients can come in at, just like in our bipolar, both monotherapy and adjunctive therapy studies.

[Mike DiFiore, Evercore]

Great. Very helpful. And also just real quick on the inventory question. How many weeks do you typically keep in the channel?

[Sharon Mates, Chairman and Chief Executive Officer]

Yes. So I'll start, and then I'll ask if Larry wants to chime in. So remember, this is not a category where you keep large stocks of inventory. The distributors are amazingly efficient at being able to move product around the country on very, very short order. So there are large inventory stocks for this category, at least in our hands. I don't know, Larry, if you wanted to add anything to that.

[Larry Hineline]

Yeah. There was a question asked earlier about days on hand and days on hand is - has been stable and is relatively low. And it's more of a just-in-time sort of effect that we're seeing. So there's not a lot of inventory in the channel. We have a lot of inventory on our balance sheet, but it doesn't stop out in the channel. It's very efficient, as Sharon said.

[Mike DiFiore, Evercore]

Got it. Thanks very much.

[Operator]

Thank you. The next question is coming from Brian Abrahams of RBC Capital Markets. Please go ahead.

[Brian Abrahams, RBC Capital Markets]

Hi, good morning. Thanks for taking my question and congrats on the continued strong launch. Maybe a question for Mark. I'm curious how you're thinking about the impact that the DTC campaign is having on the bipolar launch and also the inflection we're seeing. Do you have a sense as to how much it may be contributing relative to the growth that you might expect from the label expansion alone? And then I guess I'm also curious how long you expect the DTC campaign to run for and what the potential long-term impact on SG&A and margins would be? Thanks.

[Mark Neumann]

Yeah. Sure, Brian. Thanks for the question. So as I think you know, our bipolar TV ad began running in early second quarter with a mix of media and broadcast, cable, syndicated, streaming TV, et cetera. And we do have some interim metrics and we don't have all of the metrics at this point.

But what I would say is we are pleased with how our media is successfully targeting and reaching the bipolar depression audience. Our TV ad has driven substantially more visitors to our website, where they're seeking information about CAPLYTA. And we are seeing an increasing number of physicians reporting patient requests for CAPLYTA. And we would expect to see this continue to increase as our ads continues to air.

So overall, I'd say we've been very pleased with the impact of the DTC and our expectation is that we would continue to run DTC throughout 2022.

[Brian Abrahams, RBC Capital Markets]

Thanks.

[Operator]

Thank you. The next question is coming from Charles Duncan of Cantor Fitzgerald. Please go ahead.

[Charles Duncan, Cantor Fitzgerald]

Yeah, hi. Good morning. Sharon, congratulations on a good quarter. Thanks for taking our questions. It's a multipart single question for Mark or you, Sharon. And that is relative to some of the prepared remarks on positive experience that patients are experiencing. I guess I'm wondering if you could provide any qualitative information on persistence. And if that is providing a halo effect to see to drive the additional schizophrenic prescribing?

And then relative to the new dosage forms, I'm wondering if you could provide even qualitative information on what percentage of patients are not being - being prescribed CAPLYTA and how could that result in an uptick, further uptick in adoption? Thanks.

[Sharon Mates, Chairman and Chief Executive Officer]

Yeah. So thank you, Charles, for the questions. And I'll ask Mark to take them. But yes, just to comment on your first comment on, yes, our continued strong launch. We are very pleased with the continued strong launch and into that, we'll now also launch these lower doses, and I will ask Mark to further comment from here.

[Mark Neumann]

Yeah. Sure. And Charles, let me start there. We are pleased to be able to offer appropriate dose strengths now for an expanded patient population who will now have access to CAPLYTA and that specifically, as you saw in the press release, for patients with either moderate to severe hepatic impairment who are taking moderate or are taking moderate to strong CYP3A4 inhibitors.

And precise numbers are difficult to obtain for these patient populations, but we estimate it to be about 5% of the population taking antipsychotics. And we will be launching this shortly. We expect these new doses strengths to be available and in pharmacies by next week. So we're looking forward to that launch and making CAPLYTA available to additional patients who may not have had access to it before.

On your first question, yeah, from a persistency perspective, we continue to see - we continue to track and see the same kind of improved persistence on CAPLYTA, particularly in patients with schizophrenia that we've been monitoring since the beginning of the launch.

We talk about this quite a bit each time we get together, and we did have the hypothesis that given the safety and tolerability profile of CAPLYTA that we would see that translate into a good compliance and persistence profile and all the data that we've seen through our most recent data suggests that that's the case. So we're pleased with what we're seeing there as well.

[Charles Duncan, Cantor Fitzgerald]

Great. Thanks for the added color.

[Operator]

Thank you. The next question is coming from Marc Goodman of SVB. Please go ahead.

[Marc Goodman, SVB]

Yes, good morning. I think the questions about inventory are related to the fact that if you just simplistically took the IQVIA prescriptions from first quarter and second quarter, and then you listen to your guidance about gross to nets, which are low 30 for both quarters. that you struggle a little bit to get to the sales moving from 35 to 55 without some inventory change in the channel, which I guess we all assume that the channel keeps 2 to 3 weeks. And so sometimes you can move from the low end to the high end, and I think where the questioning was or maybe IQVIA is not picking up all the scripts. So maybe you can give us a flavor for that as gross net you know, lower in the second quarter versus first quarter. Anything you can to help us with that will be helpful.

And then I just had one other question, which is on Mixed Features, Mark, can you give us a sense of if you get that indication, how many new patients, do you think that range as a potential new market for you? Thanks.

[Larry Hineline]

You would like to - I'll start. This is Larry…

[Sharon Mates, Chairman and Chief Executive Officer]

Yes. So let me ask Larry to take the first part of the question. And then I'll take the second part on how many new patients Mixed Features would bring.

[Larry Hineline]

Yeah. So like I said earlier, the days on hand at distributors and elsewhere has been stable Okay. So that - there's not been a big increase in that. I think when you're in a launch mode and sales are rising, it's hard to do - to take the IQVIA data and match with the gross to net and then match to our revenue. It's – you can try to do it, but you're going to be off just by the mathematics involved.

So I would say there is nothing to worry about because we see the data as far as the days on hand and the inventory in the channel. I don't know if I can add any more color to that, but when sales are rising, it's hard to do that math.

[Marc Goodman, SVB]

And gross in the second quarter lower than the first quarter?

[Larry Hineline]

No, the gross to net was fairly consistent and will be consistent. The rest of it's in that range. And we didn't see a large change in our gross to net in this quarter.

[Marc Goodman, SVB]

Which is interesting because it usually gross to net in the first quarter or so high relative to the rest of the year just for every product out there.

[Larry Hineline]

And we talked about that on our last call. And as the commercial channel is increasing, you'll still see the impact to gross to net even though you have the seasonality of the first quarter, you have an increase in commercial channel usage, and that will keep the gross to net at a higher range - higher end of the range.

So I think the mechanics behind that, we're pretty comfortable with and is pretty clear to us. So maybe when we talk one-on-one, I can give you a little more insight on the mechanics of it, but pretty straightforward.

[Operator]

Thank you. The next question is coming from Karin Jenkins of Goldman Sachs. Please go ahead.

[Karin Jenkins, Goldman Sachs]

Hi, good morning. I think in the past, you guided to reaching 85% to 90% of covered lives under the commercial payer infrastructure [ph] So I'm curious now that you're at 85%, how much incremental coverage gains should we expect to see?

And then can you provide any additional detail on omni channel, what authorization policies as you expand that commercial coverage?

[Sharon Mates, Chairman and Chief Executive Officer]

So Mark, do you want to take that…

[Mark Neumann]

Yes, sure. So Karin, we actually - where we've been, what we've communicated previously is that we've had over 80% of coverage in the commercial channel, and that was up from approximately about $50 [Technical Difficulty] in part of last year. So as we approach the bipolar depression approval and as we began that launch, we were very pleased to be able to get that coverage from mid-50s up to over 80%.

And what we're communicating this quarter is during the second quarter, we improved even further on that coverage, and now we're approximately 85% covered in the commercial channel. And we do expect that number continue to climb in the coming months.

And as far as the utilization criteria, they’ve been consistent. You have certain plans and channels that make CAPLYTA available unrestricted, which means there's no prior authorizations. There's no step edits through a generic or other plans to use electronic step edits, which is not a significant barrier at all. To accessing CAPLYTA we've talked in the past about sort e-patient churning through antipsychotics that happens both in schizophrenia and bipolar where they're dissatisfied typically due to a tolerability issue. They've gone through 1, 2, 3 generics already, so they already qualify for meeting that step criteria of having to use a generic first or sometimes 2 generics.

And then there's other plans that require prior authorization. But even the prior authorization in this category is not onerous, basically, the payer just wants to ensure the patient is appropriate, meaning it's either a patient with schizophrenia or with bipolar depression. And we have our LytaLink program that helps physician offices navigate process. And typically, when they do that, the payer very frequently approves that medication for that.

So overall, I would say we continue to enjoy a very strong market access position. We're happy with where we are and we expect to see even further continued increases in the commercial channel.

[Operator]

Thank you. The next question is coming from Greg Subanavia [ph] of Mizuho. Please go ahead.

[Unidentified Analyst]

Good morning. Thanks for taking my questions. Congrats on the quarter. I was wondering if you could - if you have this data, can you quantify the magnitude of the current market penetration of CAPLYTA in both schizophrenia and bipolar depression or at least with a qualifying comments around that?

And then second, in terms of the current brand awareness of CAPLYTA within the prescribing community, how would you characterize that right now? And maybe that's kind of asking like what additional level of market education do you need to do? And if there are physicians who have yet to use it or are resistant to using it. I'm wondering if you can provide some color as to what the potential kind of pushback might be? Thanks.

[Mark Neumann]

Yes, Greg. Thanks for the question. At this stage, without providing real quantification of these numbers, what I would say for your second question is the awareness levels in bipolar depression among our prescriber audience are right about where we would expect them to be at this stage of the launch. And so we're pleased with both the awareness levels of CAPLYTA both unaided. They bring it up on their own and even much higher when given a list of products to take a look at and they can recognize that CAPLYTA is approved for bipolar depression.

Perhaps even what's more encouraging to us in the recent market research that we had with over 30 physicians how they rate CAPLYTA versus the various attributes of the product compared to the other antipsychotics.

And sp our belief and understanding is that physicians have a very good understanding of the clinical profile and the areas of differentiation. especially in being indicated for both bipolar I and bipolar II and then all the safety and tolerability measures, the low risk of metabolic dysfunction, low risk of weight gain, low risk of extra pyramidal symptoms and also the ease of dosing with no…

[Unidentified Analyst]

Any color on kind of where you feel you are in terms of penetrating schizophrenia and bipolar depression in terms of market share or anything like that?

[Mark Neumann]

This is a category where you have several big branded products that have been on the market for many years, LATUDA for over 10 years, ALR [ph] for over 5 years. And certainly, the generics have been around for a long time as well. So we think there's plenty of room for upward penetration of CAPLYTA, and we continue to make very good progress in penetrating each of those areas.

We look carefully month as the source of our new patients, as I mentioned in my prepared remarks, we are seeing increasingly more and more patients being newly diagnosed patients being placed on CAPLYTA for those patients whose insurance allow for first-line usage. But also encouragingly, when we look at the switch dynamics are seeing switches from a wide variety of antipsychotics, including both generic products and increasingly, coming from other branded products as well. And we see that as a very healthy sign that physicians understand the clinical profile. They value the clinical profile, and they're taking the steps to make those switches to CAPLYTA.

[Unidentified Analyst]

Thank you.

[Operator]

Thank you. The next question is coming from Jason Gerberry of Bank of America. Please go ahead.

[Jason Gerberry, Bank of America]

Hey, guys. Thanks for taking my questions. Just wanted to better try to connect the script data for the big BPD drugs like [indiscernible] to these patient numbers, right? These patient numbers are massive 6 million to 11 million patients you've heard. But we know the BPD is sort of an under diagnosed condition.

So do you have a sense sort of what is the diagnosed patient number? Do you have like maybe a more realistic TAM for the market based on how many of these patients you think are getting diagnosed. Because when I look at like the Latuda and Veloscripts [ph] and assume some reasonable average duration of therapy, it would suggest somewhere like maybe 400,000 to 500,000 patients might be getting treated for BPD with the brands, right? I don't know what the generic number would be. But just how do you kind of - because this is an important, I guess, data point to just trying to understand how much bigger sort of the branded BPD category can get? Thanks.

[Mark Neumann]

Yes, Jason, the category is a massive category. Our estimates of the epidemiology suggests that there are upwards of 11 million of patients who suffer from bipolar disorder, which is 4 to 5 times the size of schizophrenia.

Both schizophrenia and bipolar disorder are serious mental illness with significant symptomatology. So I would say the majority of patients are diagnosed, once diagnosed, then they go sort of on their treatment journey of really zeroing in and perhaps Suresh would want to comment on this from a psychiatrist perspective. But they go on their treatment journey where a psychiatry or other treating physician is trying to determine exactly what their condition is.

One of the dynamics in bipolar disorder is distinguishing between a patient who is depressed, who maybe might present as a patient with major depressive disorder. But particularly in bipolar II because these are sub-threshold mania symptoms, they might go unnoticed and that patient might not get diagnosed with bipolar II for several years and that physician may try treating them with an antidepressant and antidepressants typically do not work well in bipolar depression.

So it takes a little time for them to get an accurate diagnosis and get them appropriately treated with an antipsychotic, like CAPLYTA. I don't know Suresh or Sharon, whether you'd like to add any color to that that might help address Jason's question there.

[Sharon Mates, Chairman and Chief Executive Officer]

So can you hear me?

[Mark Neumann]

Yeah.

[Sharon Mates, Chairman and Chief Executive Officer]

Great. Sorry, everybody. I'm having some technical issues here. Yeah, I agree with everything that Mark said and he also – he said that, it is a - Jason, it is a large market and that has still not reached its potential. I do think with Mark said, the bipolar II patient population is certainly an untapped market at this point. Suresh, did you want to add anything? Or are you, good?

[Suresh Durgam, Executive Vice President Chief Medical Officer]

Yes, nothing to add. That is true. It's still an untapped market.

[Sharon Mates, Chairman and Chief Executive Officer]

Great. Thank you.

[Operator]

Thank you. The next question is coming from Ash Verma of UBS. Please go ahead.

[Ash Verma, UBS]

Hi, good morning. Thanks for taking my question. I have two. So now that we are beyond the half year mark with the first half of CAPLYTA it around $90 million, finished up on a strong quarter in 2Q. How do you feel about the consensus expectation for second half, which is around $130 million? That's number one.

And then just secondly, on the OpEx. So it seems like SG&A and R&D, we saw a jump in the second quarter, you mentioned that DTC program is going to continue throughout the year. So is this like a good run rate to assume for the remainder of the year? Thanks.

[Sharon Mates, Chairman and Chief Executive Officer]

Larry, do you want to take that?

[Larry Hineline]

Yes. I'll take the second part. Yes, the expenses were higher for R&D and SG&A in the second quarter as were expected. And I think it is a good - it indicates what the run rate would be for the rest of the year.

I'd also like to remind you that we had given guidance earlier $500 million in cash spend which doesn't include noncash expenses for the year. And we spent $260 million of that in the first half, and we are guiding to 240 for the second half.

So I would say that - within the context of the expenses for the first and second quarter, as well as what we project for the rest of the year, you should see that guidance remain intact. And I think that tells the story. Do you have any further questions related to that?

[Ash Verma, UBS]

And just on [indiscernible] sales?

[Sharon Mates, Chairman and Chief Executive Officer]

Yes. So we don't give guidance as - we don't give guidance, as you know. But with that, we're very pleased with our launch to date and our continued progress and our continued trajectory Mark, did you want to add anything to that?

[Mark Neumann]

No, I completely agree with you.

[Operator]

Thank you. Unfortunately, we have only time for one more question today. The last question will be coming from Sumant Kulkarni of Canaccord. Please go ahead.

[Sumant Kulkarni, Canaccord]

Morning. Apologies for any background noise and this has been asked already, but I'll ask two questions mainly because you may not answer my first. The first question is, could you give us a split between bipolar depression and schizophrenia for the current sales that you have or any components of growth? And second, now that lumateperone is humming along nicely in the U.S., what are your latest thoughts internally on taking that product ex-U.S.?

[Sharon Mates, Chairman and Chief Executive Officer]

Mark, do you want to take the first part, and I'll take the second part.

[Mark Neumann]

Yes, sure. Sumant, with the explosive growth that we've seen in the first half of the year, our business is increasingly being sourced from bipolar depression over schizophrenia. Now that being said, we are pleased with the continued growth that we've seen the schizophrenia business in addition to the more explosive growth that we have seen with all the new patients coming in consistent with the new indication in bipolar depression.

And the mix of those two is increasingly weighing more and more towards bipolar depression. And I think if you look at the existing branded products like Latuda and like RLAR [ph] and you look at the mix of their business it is significantly more coming from bipolar depression, bipolar disorder than from schizophrenia, and we are tracking along that same track and would expect to have a similar profile as they do once we get to a more mature stage of the business. And Sharon, I might kick the second part of that question back to you

[Sharon Mates, Chairman and Chief Executive Officer]

Yes. Thank you. And so as you've said before, we continue to evaluate opportunities ex-U.S. and we will let you know as that progresses. So we don't have any updates for you right now, and we will update you as soon as we have further information.

[Sumant Kulkarni, Canaccord]

Thank you.

[Operator]

At this time, I'd like to turn the floor back over to Dr. Mates for closing comments.

[Sharon Mates, Chairman and Chief Executive Officer]

Thank you, operator, and thank you, everyone. We're very pleased with our progress made today, both on our launch, as well as our development programs and the extension of lumateperone into MDD and into Mixed Features. We look forward to updating you on those programs as we move forward. And thank you very much, everyone, for joining, and I look forward to speaking with you again. Operator, at this time, you can disconnect and thank you.

[Operator]

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.