Intra-Cellular shares zoom higher; is buying this name a gamble or a rational bet?

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The News:

Intra-Cellular Therapies Inc. (Nasdaq:ITCI) rocketed 41% over the past week to $15.70 on a positive regulatory update from the US Food and Drug Administration regarding its lumateperone treatment for schizophrenia. The agency had previously requested additional information regarding the toxicology studies of the drug to ensure that it was safe for humans.

The FDA completed its review and “agrees that the company has presented adequate data to support its position that the metabolic pathway in the animal species is distinctive from [that in] humans, which indicates that the toxicity observed in the animal species is not relevant to humans.”

This opens the door for the company to submit a new drug application (NDA) for the treatment of schizophrenia, which it plans to have completed by mid-2018. The agency had previously raised concerns about lumateperone’s safety since elevated levels of drug-related metabolites that were found in certain species of animal. In response, they asked NYC-based Intra-Cellular to provide additional data to help show that the drug was safe for use in humans.

In response to this good news, management said it remains on plan to submit the drug for approval as a hopeful treatment of schizophrenia by mid-2018, Motley Fool notes.

Steve’s Take:

Given the update, it is easy to understand why investors breathed a sigh of relief to hear this news. After all, lumateperone is the company’s lead product candidate, so if it was going to be trashed over potential safety issues it would have been the death knell for the company’s stock.

Does this mean it will be a walk in the park for investors from here? That’s always a possibility, but caution is justified. Schizophrenia is an overcrowded disease state that companies like Bristol-Myers Squibb, AstraZeneca, and Johnson & Johnson have targeted with success for years.

Since lumateperone’s Phase 3 data showed it failed to outperform a placebo, it’s hard to swallow that the drug will be able to win over providers and insurers even if it does eventually manage to grab FDA approval.

What do the analysts think?

As of Aug 24, 2017, the consensus forecast among 8 polled analysts covering Intra-Cellular Therapies advises that the company will Outperform the market. This has been the consensus forecast since the sentiment deteriorated on Apr 14, 2015. The previous consensus forecast advised investors to Buy Intra-Cellular.

Recommendations 1yr ago Latest
Buy 3 2
Outperform 5 3
Hold 0 3
Underperform 0 0
Sell 0 0

Share price forecast

1-year change:-61.43%

The 8 analysts offering 12-month price targets for Intra-Cellular Therapies Inc have a median target of $22.50, with a high estimate of $36.00 and a low estimate of $14.00. The median estimate represents a 43.31% increase from the last price of $15.70.

Bottom Line:

Although shares climbed significantly last week on the FDA news, the future is far from certain for lumateperone.

The small-molecule drug is meant to act on serotonin, dopamine, and glutamate levels in the brain, and succeeded in one Phase 3 trial in schizophrenia but failed a second study, Xconomy notes.

The company blamed the failed study on an “unusually high placebo response at certain sites…disproportionately affected the trial results,” leading to a different outcome than it has seen in previous trials of lumateperone, and nonetheless plans to file for FDA approval.

Steve's Take: Intra-Cellular is a long-shot, straight gamble rather than a rational risk Click To Tweet

Motley Fool notes that a number of psychiatric drugs staggered in late-stage testing–among them a drug from now defunct Forum Pharmaceuticals (Waltham MA)—-and have been disaster-prone for similar reasons, but Intra-Cellular clearly thinks, failed trial notwithstanding, it has enough decent data on lumateperone to win FDA approval.

The agency’s response so far, according to Intra-Cellular, has been that the data accrued “does not preclude” the company from filing for approval. Not exactly an endorsement and just barely an invitation.

There’s an awful lot of uncertainty, and therefore risk, that this name is packing in its history with lumateperone. And most of the company’s promise rests on the shoulders of this one med. But with a 47% upside from now–according to analysts—-that’s a sizable payday looming if things pan out the way the company hopes.

With so much riding on a single med, buying this name falls into the category of a long-shot, straight gamble rather than a rational risk, and is therefore not suited for the more conservative-oriented portfolio.

It won’t be long before we know if the gamble pays off.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.