Investors flock to neuro drug makers after FDA approves new schizophrenia drug

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The approval of Intra-Cellular Therapies Inc.’s schizophrenia drug Caplyta on Monday is the latest indicator that some drug developers are finally prioritizing psychiatric treatments despite the challenges of bringing them to market.

Shares of Intra-Cellular ITCI, +192.60% rocketed 203% in trading on Monday after the Food and Drug Administration announced the approval of Caplyta, which is expected to launch at the end of the first quarter of 2020. The company’s stock price hit a record high on Monday.

“A label like this should motivate broad use of Caplyta in schizophrenia patients among physicians seeking to minimize the many adverse side effects of older antipsychotics,” including weight gain, sexual dysfunction and movement disorders, SVB Leerink’s Marc Goodman wrote in a note to clients.

See also: Karuna Therapeutics’ stock more than triples after upbeat trial results of schizophrenia treatment

Drugmakers have long steered away from developing psychiatric drugs and have instead pursued more lucrative categories like oncology and rare diseases. “Many pharmaceutical companies have exited psychiatry in recent years because of high failure rates in clinical trials, only rudimentary understanding of disease mechanisms, and the lack of treatment biomarkers,” Steven Hyman, director of the Stanley Center for Psychiatric Research at the Broad Institute, wrote in an op-ed in Science magazine in 2014.

However, that may be changing. A handful of new drugs treating a range of mental health disorders have been approved so far in 2019, and at least two of these therapies are considered landmark approvals.

The FDA in March approved Johnson & Johnson’s JNJ, +0.44%  Spravato, a medicine derived from the party drug ketamine that is the first new treatment for treatment-resistant depression in three decades. Sage Therapeutics Inc.’s SAGE, -0.98%  Zulresso, also approved in March, is the first treatment for postpartum depression in adult women.

Allergan’s AGN, +0.52%  Vraylar this year received an expanded label to include treating depressive episodes of bipolar I disorder.

There have also been a number of high-profile failures this year. Minerva Neurosciences Inc. NERV, +11.71%  said its experimental treatment for major depressive disorder did not meet the primary and key secondary endpoints in a Phase 2b trial, sending the company’s shares down 20% on Dec. 19.

Allergan’s rapastinel, an adjunctive treatment also for major depressive disorder, failed in three Phase 3 trials. “We are deeply disappointed with these results, and they are a vivid reminder that drug development is extremely challenging, especially in mental health,” David Nicholson, Allergan’s chief research and development officer, said earlier this year.

When it comes to schizophrenia, specifically, which is estimated to affect about 1% of the population, mental-health advocates have been pushing for more attention from drugmakers for years. Noven Pharmaceuticals, a privately held drugmaker, also received FDA approval this year, to market a patch, which is worn on the skin and dispenses asenapine, an antipsychotic commonly prescribed to people with schizophrenia.

Caplyta’s approval likely provides a glimpse into the regulator’s current thinking when it comes to approving treatments for central nervous system disorders, according to Stifel analyst Paul Matteis. The drug had met its endpoints in one Phase 3 trial but failed in another late-stage study. The FDA ended up pushing back its decision date three months, to Dec. 27, in order to get additional data from the company. Matteis views the approval based on those studies as confirmation that the regulator is “more flexible than average for neuroscience drugs” and is taking a “glass-half-full” approach to these types of medicines. (Intra-Cellular is also testing Caplyta as a bipolar disorder treatment.)

Read:Alzheimer’s expert says more clinical trials are needed for controversial Biogen drug

That optimism, however, didn’t immediately extend to the stock prices of other companies developing psychiatric therapies on Monday. Shares of Karuna Therapeutics Inc. KRTX, -4.91%, which plans to put its schizophrenia treatment into a late-stage trial by the end of 2020, were down 4% in trading on Monday, while shares of Acadia Pharmaceuticals Inc. ACAD, -1.28%  and Sage Therapeutics were flat.

Still, Matteis notes that Intra-Cellular’s approval is a positive for the three companies, as well as Biogen Inc.’s BIIB, +0.18%  controversial Alzheimer’s disease candidate, aducanumab. The Caplyta approval “offers another example where FDA was willing to overlook a negative study and to an extent just focus on the positives,” he wrote. “That said, we believe any BIIB read-throughs need to be taken with a large grain of salt.”

Shares of Intra-Cellular Therapies are up 208% year-to-date. The SPDR S&P Biotech XBI, +0.97%  exchange-traded fund has gained 35% year-to-date and the S&P 500 SPX, +0.13%  has gained 28%.

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