What happened

Intra-Cellular Therapies (NASDAQ:ITCI), a clinical-stage biopharma focused on diseases of the central nervous system, rose more than 26% as of 11:35 a.m. EDT Wednesday. The big jump came in response to the company sharing some upbeat regulatory news related to its lead compound lumateperone.

So what

Management let investors know that the FDA has completed its review of the additional data that was submitted related to its nonclinical animal toxicology studies. 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 Intra-Cellular to provide additional data to help show that the drug was safe for use in humans.

Investors learned on Wednesday that Intra-Cellular presented "adequate data to support its position that the metabolic pathway in the animal species is distinctive from humans, which indicates that the toxicity observed in the animal species is not relevant to 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.

Given the update, it is easy to understand why traders are cheering.

A man in a suit giving thumbs up with a medical professional in the background.

Image source: Getty Images.

Now what

There's no doubt that investors were relieved to hear this news. After all, lumateperone is the company's lead product candidate, so if it was going to be pulled over potential safety issues then it would have blown a hole in the bull case for owning the company's stock.

Does this mean it will be smooth sailing for investors from here? That's always a possibility, that caution is warranted. Schizophrenia is a crowded 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 that it failed to outperform a placebo, I have a hard time believing the drug will be able to win over providers and insurers even if it does manage to gain FDA approval. For that reason, I think the smart move is to look elsewhere for investment opportunities.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool has a disclosure policy.