What happened

After providing investors with a regulatory update related to its lead compound lumateperone, Intra-Cellular Therapies (NASDAQ:ITCI), a clinical-stage biopharma focused on diseases of the central nervous system, fell 35% by 11:10 a.m. EDT on Monday. 

So what

Intra-Cellular let investors know that it recently held discussions with the Food and Drug Administration related to lumateperone, which is also called ITI-007. Management said that the FDA confirmed that its mixed phase 3 clinical data will not preclude the company from seeking regulatory approval as a treatment for schizophrenia.

That was the good news.

On the flip side, Intra-Cellular also let announced that the FDA has requested additional data related to nonclinical animal toxicology studies. The agency raised concerns about elevated levels of drug-related metabolites that were retained in certain animal species for an extended period of time.

man standing in front of a wall full of question marks

Image source: Getty Images.

Management said that it is working quickly to provide regulators with the data that they need to alleviate their concerns. If all goes well, the company plans to have the drug submitted for approval by mid-2018.

Traders were spooked by the potential toxicity news and shares cratered today.

Now what

Intra-Cellular Therapies was quick to point out that the concerns had nothing to do with the company's human testing data. In fact, management reaffirmed that lumateperone demonstrated placebo-like safety during its human trials. That fact gives it confidence that it will be able to successfully address the FDA's concerns.

That might be true, but I, for one, continue to believe that lumateperone's mixed clinical data will cause it to face an uphill battle should the drug be officially accepted for review. In addition, the schizophrenia drug market is already quite competitive and is expected to become even more so if Alkermes can get its two-month dosing option of Aristada approved. That hints that Intra-Cellular could have a tough time convincing providers to use lumateperone even if the drug does find its way to market.

All in all, Intra-Cellular Therapies was already a high-risk stock, but today's update makes the company much more so. While I recognize that there could be value here, my plan is to keep my capital far away from this stock.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends Alkermes. The Motley Fool has a disclosure policy.