Karuna Therapeutics: This Ship Has Sailed

Sep. 09, 2022 5:27 PM ETKaruna Therapeutics, Inc. (KRTX)


  • Karuna produced excellent data from its phase 3 trial.
  • They have a boatload of cash.
  • Speaking of boats, however, this ship has already sailed.
  • Looking for more investing ideas like this one? Get them exclusively at The Total Pharma Tracker. Learn More »

Leadership Concepts with Arrows on Blue Background


Since my last coverage of Karuna Therapeutics, Inc. (NASDAQ:KRTX) just over a year back, the stock has nearly tripled after posting strong results from its schizophrenia trial, meeting the primary endpoint of that trial. That was a month back, and even though the company took the opportunity to carry out a massive $600mn secondary, the dilution hasn’t put a dent in public enthusiasm. The stock is still going strong, although it is back down a few notches.

From my previous coverage of the company, they were running a 246-patient phase 3 trial called EMERGENT-2, and 3 more phase 3 trials in the EMERGENT series, in their lead candidate KarXT in acutely psychotic patients with a DSM-5 diagnosis of schizophrenia. KarXT is a differentiated antipsychotic molecule that combines muscarinic-agonist xanomeline and muscarinic-antagonist trospium chloride together. While xanomeline works in the CNS, trospium helps avoid undesirable, cholinergic side effects that arise due to the stimulation of muscarinic receptors in peripheral tissues. The FDA has guided that

“data from EMERGENT-1 [a phase 2 study], one successful Phase 3 efficacy and safety trial, and additional safety data to meet regulatory requirements would be acceptable to support NDA filing in schizophrenia.”

The first two phase 3 studies were supposed to have toplined in early 2022.

In August, the company announced positive data from the EMERGENT-2 trial. This was a double blind, placebo controlled trial done entirely in the United States. It enrolled 252 adult patients with a confirmed diagnosis of schizophrenia who were experiencing symptoms of psychosis. The primary endpoint was change from baseline in Positive and Negative Syndrome Scale (PANSS) total score, a scale for measuring schizophrenia symptom severity, of KarXT compared to placebo at Week 5.

The trial resoundingly met its primary endpoint, with KarXT demonstrating a statistically significant 9.6-point reduction in PANSS Total Score compared to placebo at Week 5 (p<0.0001).

The trial also met key secondary endpoints. Data include:

  • 2.9-point reduction in the PANSS positive subscale with KarXT compared to placebo (-6.8 KarXT vs. -3.9 placebo, p<0.0001).

  • 1.8-point reduction in the PANSS negative subscale with KarXT compared to placebo (-3.4 KarXT vs. -1.6 placebo, p=0.0055).

  • 2.2-point reduction in the PANSS negative Marder factor subscale with KarXT compared to placebo (-4.2 KarXT vs. -2.0 placebo, p=0.0022).

The PANSS scores are used to measure positive symptoms (e.g., hallucinations or delusions) and negative symptoms (e.g., difficulty enjoying life or withdrawal from others) of schizophrenia. Benefit in the negative symptoms has historically been difficult to achieve. The trial’s Cohen’s d effect size of 0.61 compares well “to that of widely used and multibillion-dollar blockbusters Risperdal and Zyprexa (about a 0.5 effect size),” according to William Blair analysts.

The drug was generally well-tolerated with little differentiation from placebo. There was transient increase in heart rate, which subsided as the trial ended. Importantly, KarXT was not associated with known side effects of current treatments.

As FierceBiotech noted:

The clinical trial studied KarXT, a xanomeline formulation designed to address the problems that led Lilly to give up on the molecule despite generating evidence of efficacy. Lilly found the M1 agonist improved cognition in Alzheimer’s disease patients in the 1990s, only for tolerability to stop the program. Karuna sought to address the tolerability problems by giving xanomeline with a peripherally restricted molecule that blocks receptors at the root of the issues without crossing the blood-brain barrier to limit efficacy.

As noted by Steve Paul, M.D., chief executive officer, president and chairman of Karuna Therapeutics, this trial may “redefine what successful treatment looks like for the 21 million people living with schizophrenia worldwide, and potentially usher in the first new class of medicine for these patients in more than 50 years.” The stock jumped up hugely on this data. The company plans to file an NDA in mid-2023, after data from their second phase 3 trial comes out next year.

Besides this, the company has an ongoing phase 3 trial targeting Psychosis in Alzheimer’s disease. These trials will be completed in 2025.


Karuna has a market cap of $8.43bn and a cash balance of $407mn as of August. Right after the trial data announcement, they launched and closed a huge secondary offering of $883mn, which brings their cash balance to nearly $1.3bn. The $407mn was supposed to last them 12 months, so I am guessing the added cash will last them 3 years.

Because KarXT is a combination of two generic medicines, investors should understand the company’s patent protection, which the company says extends through 2040. They have seven U.S. patents covering 120+ claims and including product claims and methods of treatment claims. The company also says:

• Granted and pending claims provide the optimal combination of breadth with strength against future validity challenges, as concluded by third-party IP review of patent estate by Goodwin Procter

• Regulatory exclusivity of KarXT through 2032, inclusive of 5 years NCE protection and statutory 30- month patent stay.

To be noted, Karuna’s CEO Steve Paul worked on xanomeline during his 17 year career at Eli Lilly (LLY). Steve also co-founded Sage Therapeutics, a successful CNS drug developer, which developed and markets Zulresso for treating postpartum depression.

Bottom Line

Karuna seems to be on the cusp of greatness. Peak sales estimate for KarXT is pegged at $2bn by 2028, according to Evaluate. They have tons of cash, strong data, and a large market with strong unmet need. However, the price is up hugely, and even the large secondary could not dent market enthusiasm. I would wait for a better price if I was going in today. If I was an early investor, I would also invest in a bottle of expensive champagne.

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