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What happened

Shares of Intra-Cellular Therapies (ITCI -2.58%), a clinical-stage biopharma focused on diseases of the central nervous system, are falling by more than 62% as of 10:45 a.m. EDT on Thursday.

So what

The decline can be traced to the company reporting results from a phase 3 trial testing its lead compound ITI-007 as a potential treatment for schizophrenia.

Patients in the study were randomized into four groups and were either given a 60 mg dose of ITI-007, a 20 mg dose of ITI-007, a placebo, or risperidone, the latter of which is a commonly prescribed antipsychotic. The primary outcome of the six-week study was to report the change from baseline on the Positive and Negative Syndrome Scale, or PANSS, a test that measures the antipsychotic behavior of patients with schizophrenia.

Both the 60 mg and 20 mg versions of ITI-007 showed a change from baseline on the PANSS total score of -14.6 points and -15.0 points, respectively, which was consistent with prior studies. However, both of those numbers fell short of the -15.1 point change that was observed in the placebo group. In addition, patients who used risperidone did even better, posting a total score of -20.5 points. 

These results suggest that ITI-007 may not be an effective treatment for schizophrenia, hence why shares of Intra-Cellular are cratering today.

Now what

Management is blaming the poor study results on "an unusually high placebo response." They have a point, since in a prior phase 3 schizophrenia study, the placebo group produced a PANSS score of -10.3 points. That's nearly five points lower than the results observed in this study.

However, that point overlooks the fact that patients who used risperidone showed a total PANSS score of -20.5, which was much better than either dose of ITI-007.

On the plus side, ITI-007 once again excelled from a safety perspective, showing clinical results that were consistent with the placebo group. That compares favorably to risperidone, as patients who used this drug showed a statistically significant increase in weight, glucose, cholesterol, triglycerides, and prolactin when compared to placebo. 

In the press release, Dr. Sharon Mates, Intra-Cellular Therapies' CEO, stated: "We remain committed to the development of ITI-007 for the treatment of schizophrenia, bipolar depression, agitation associated with dementia, including Alzheimer's disease and other neuropsychiatric indications." The company also said that is will be meeting with the Food and Drug Administration to discuss next steps. However, it is unknown at this point if the agency would accept a submission with the data that the company has on hand or if it would require an additional phase 3 study.

Intra-Cellular ended June with more than $442 million in cash, so it certainly has the funds to run another trial if necessary. However, I'd argue that this clinical data substantially raises the risk profile of an already high-risk stock. For that reason, I'd recommend that potential investors should approach this company with caution.