KRTX - Karuna: NDA Filing Q3 Of 2023 And Expanded Potential With KarXT

2023-08-24 14:54:15 ET

Summary

• Submission of New Drug Application of KarXT for the treatment of schizophrenia is expected in Q3, 2023.
• If FDA approval of KarXT is given for the treatment of patients with schizophrenia then commercial launch of the drug is expected in the second half of 2024.
• The global schizophrenia drug market is projected to reach $9.48 billion by 2026.
• Potential to expand use of KarXT as an adjunctive treatment for patients with schizophrenia with the advancement of the phase 3 ARISE study.

Karuna Therapeutics ( KRTX ) has made great progress in advancing the use of its KarXT, which is being advanced for the treatment of patients with schizophrenia. That's because the company is on track to submit the New Drug Application - NDA - of this drug for the treatment of this patient population in Q3 of 2023. Should the FDA review go well, then the company believes that it will receive FDA approval of KarXT for this patient population in 2024. Thus, it's expected that it will launch this drug in the second half of 2024. Not only that, but another intriguing thing about the advancement of this program is that there might be a few expansion opportunities. The first expansion opportunity is to explore the use of KarXT as an adjunctive therapy for patients with Schizophrenia, which is being evaluated in the phase 3 ARISE trial. Results from this particular study are expected to be released in the second half of 2024. A second expansion opportunity would be the advancement of KarXT for the treatment of patients with psychosis in Alzheimer's Disease. This is being done through the exploration of the ADEPT program, whereby two studies are being done, known as ADEPT-1 and ADEPT-2. Results from both of these studies are expected to be released in 2025, which are additional catalysts for investors to look forward to.

KarXT NDA Filing In Q3 Of 2023 Is A Huge Inflection Point

Karuna Therapeutics expects to file its New Drug Application to the FDA of KarXT for the treatment of patients with schizophrenia in Q3 of 2023. This is going to be a huge opportunity for this biotech as it has the potential to capture a large market. The global schizophrenia drug market is projected to reach $9.48 billion by 2026 . This is a huge market opportunity to go after, and the company's drug was shown to achieve an excellent risk/benefit profile in phase 3 clinical testing. The ability of Karuna to file the NDA of KarXT for the treatment of patients with schizophrenia was made possible thanks to positive results from several registration studies (EMERGENT-1, EMERGENT-2, EMERGENT-3). Plus, the addition of a few long-term safety studies, known as EMERGENT-4 and EMERGENT-5.

In particular, the company ran several studies as part of the EMERGENT program. The phase 3 EMERGENT-3 study was one of the last of three registrational studies to release data for the use of KarXT for the treatment of patients with schizophrenia. A total of 256 patients were enrolled into this study and were treated with either KarXT or placebo over a five-week period. The primary endpoint of this study, was change in baseline in Positive and Negative Syndrome Scale [PANSS] total score at week of drug compared to placebo. What is this PANSS total score? It's a measure for determining how severe symptoms are for these patients with schizophrenia. Participants are rated from "1" to "7" on each symptom scale. The maximum possible score is 210, while the minimum score is 30. The lower the score, the better it is for the patient in terms of reducing symptom severity. Thus, the intention of KarXT would be to significantly decrease PANSS score compared to placebo. The final conclusion was that the primary endpoint was met as treatment with KarXT resulted in an 8.4 point reduction in PANSS total score compared to placebo at week 5. This primary endpoint was met with statistical significance, with a p-value of p<0.0001. Should Karuna receive FDA approval of KarXT for the treatment of patients with schizophrenia, then it expects to commercially launch the drug in the 2nd half of 2024.

Expansion Opportunities For KarXT Possible With Two Particular Advancements

The NDA of KarXT highlighted above deals with targeting of patients with schizophrenia. Hopefully, Karuna ends up receiving FDA approval of this drug for the treatment of this patient population. However, it's also finding a way to develop KarXT as an adjunctive therapy. That is, to combine the use of it with a background antipsychotic for patients with schizophrenia. In order to see if KarXT can be added to background therapy, it is advancing a phase 3 study known as ARISE . The primary endpoint of this study is going to be a change from baseline in Positive and Negative Syndrome Scale [PANSS] total score at Week 6. Topline results from this study are expected to be released in the second half of 2024. Should the primary endpoint for this study be met, then this is another possible market expansion.

A second expansion opportunity for the use of KarXT would be the targeting of another indication. This would be to use the drug for the treatment of psychosis in Alzheimer's Disease. It is expected that the global Alzheimer's Disease market will reach $13.7 billion in 2030 . This is going to be a large market opportunity, but what about AD patients with psychosis? It will still be a good market opportunity to go after, because it's said that about 30% of AD patients experience psychosis. The advancement of this study is being done through the use of the ADEPT program. This program entails two phase 3 studies known as ADEPT-1 (already initiated)/ADEPT-2 and then an open-label extension trial known as ADEPT-3 (already initiated). There are a few catalysts to look forward to as it relates to this particular program. The second phase 3 study known as ADEPT-2, using KarXT for the treatment of psychosis in Alzheimer's Disease, is expected to begin in the 2nd half of 2023. Then, topline data from both of the ADEPT-1 and ADEPT-2 studies are expected in 2025.

Financials

According to the 10-Q SEC Filing , Karuna Therapeutics had cash, cash equivalents and available-for-sale investments of $1.4 billion as of June 30, 2023. The reason for the large cash on hand is because of a public offering that was done in March of 2023. That's when it sold a total of 2,851,299 shares of common stock at a price of $161.33 per share. In addition, to the underwriters exercising in full their option to purchase an additional 371,908 shares at the very same price. Gross proceeds that were obtained through this offering were approximately $460 million, before expenses. It has plenty of cash runway, and I don't believe that there's a risk for near-term dilution. That's because with the cash on hand, Karuna believes that it has enough to fund its operations through the end of 2026.

Risks To Business

There are several risks that investors should be aware of before investing in Karuna Therapeutics. The first risk deals with the NDA filing of KarXT for the treatment of patients with schizophrenia. That's because this filing is expected to happen in Q3 of 2023. Even if the NDA is submitted, there 's no guarantee that it will be accepted for review by the FDA. The second risk would then be the review of the NDA of KarXT, which is that there's no assurance that this drug will ultimately be approved to treat patients with schizophrenia. The third risk to consider would be with respect to the possible expansion opportunity, which is the potential for KarXT to be used as adjunctive therapy.

This is being explored in the ongoing phase 3 ARISE study, which is expected to report data in the second half of 2024. There's no guarantee that results from this late-stage study will end up being positive, nor that the primary endpoint will be met. Thus, the ability to expand the use of KarXT as an adjunctive treatment might fall short. The fourth and final risk to consider would be the advancement of KarXT for the treatment of psychosis in Alzheimer's Disease, which is being advanced in two phase 3 studies. These two phase 3 studies are known as ADEPT-1 and ADEPT-2. Both of these late-stage studies are expected to have results released in 2025. There's no guarantee that one or both of these studies will end up being positive.

Conclusion

Karuna Therapeutics has done well to advance its drug KarXT for the treatment of patients with schizophrenia. The NDA filing of this drug for this patient population is expected in Q3 of 2023 and if all goes well, then it's expected that the drug launch could occur by the second half of 2024. The global schizophrenia drug market is projected to reach $9.48 billion by 2026. This is a large market opportunity and there's further potential to go after it with the potential to use KarXT as an adjunctive therapy. Not only that, but the drug is also being advanced in the ADEPT program, as I highlighted above. That is, there's potential for it to also possibly help treat psychosis in Alzheimer's Disease as well. With the NDA filing of KarXT expected in Q3 of 2023, plus the potential to expand the use of this drug towards two other expansion opportunities, I believe that investors might be able to capitalize on any potential gains made.

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