Daily Stock Watch: Karuna Therapeutics (NASDAQ: KRTX) up 62%

By Kirsteen Mackay


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KRTX stock soars in early trading as Phase 3 schizophrenia trial meets key endpoints. Is Karuna Therapeutics (NASDAQ: KRTX) a good investment?

Is KRTX Stock a buy?

Karuna Therapeutics (NASDAQ: KRTX) reported its latest schizophrenia trial had met its key endpoints, leading the KRTX stock to soar over 62% in early trading.

What Is Karuna Therapeutics?

Karuna Therapeutics Inc (NASDAQ: KRTX) is pushing the boundaries of neuroscience to transform the treatment of mental illness.

Karuna is a clinical-stage biopharmaceutical company driven to create and deliver transformative medicines for people living with psychiatric and neurological conditions.

The company's core focus is on schizophrenia and psychosis in Alzheimer's disease.

Karuna is advancing a pipeline of novel drug candidates for treating various psychiatric and neurological conditions.

Karuna Therapeutics' pipeline is built on the broad therapeutic potential of its lead product candidate, KarXT (xanomeline-trospium), an oral modulator of muscarinic receptors located in the central nervous system (CNS) and various peripheral tissues.

KarXT Trial Results

In Karuna's Phase III trial for its experimental schizophrenia therapy, KarXT met the primary endpoint. This trial involved 252 adults with schizophrenia in the US. 

Steve Paul, M.D., CEO, President, and Chairman of Karuna Therapeutics, said:

It is an incredibly exciting time for Karuna; with two positive, registrational trials in hand for KarXT, we are another step closer to potentially providing the first new class of medicine in more than 50 years to the millions of people worldwide living with schizophrenia,

People living with serious mental illness are in dire need of medicines that work differently than current treatments in order to find relief from burdensome symptoms. We plan to submit a New Drug Application in schizophrenia in mid-2023, and will simultaneously continue to progress the ARISE and ADEPT clinical trial programs to explore KarXT's potential in additional indications.

KRTX Q2 Financial Results

Karuna Therapeutics (KRTX) reported its Q2 earnings for the quarter ended June 2022. The quarterly results missed FactSet consensus estimates. KRTX EPS came in at -$2.17, missing estimates of -$2.06 by -5.2%. The company brought in license revenue of $5.28m, associated with its License Agreement with Zai Lab (Shanghai) Co., Ltd.

Nevertheless, the company continues to lose money with a $64.9m loss in Q2 (from $34.4m in Q2 2021). Karuna has not yet generated any revenue from product sales.

  • Research and development expenses rose to $52.5m from $24.1m in the prior year period.

  • General and administrative expenses increased to $17.8m, up from $10.4m in Q2, 2021.

  • Met primary and key secondary endpoints in Phase 3 EMERGENT-2 trial of KarXT in schizophrenia

  • The company plans to submit a New Drug Application (NDA) with the US Food & Drug Administration (FDA) in mid-2023

  • Topline data from the Phase 3 EMERGENT-3 trial and Phase 3 ARISE trial of KarXT in schizophrenia is expected in the first quarter of 2023 and the first half of 2024, respectively

  • Phase 3 ADEPT-1 trial of KarXT in psychosis related to Alzheimer's disease to initiate in the Q3 of 2022 

  • $407.4m in cash is expected to fund operations for at least 12 months following the potential New Drug Application (NDA) submission of KarXT for schizophrenia

Karuna Therapeutics ended Q2 with $407.4m in cash, cash equivalents and available-for-sale investment securities compared to $494m as of December 31, 2021.

The company expects that current cash, cash equivalents and available-for-sale investment securities as of June 30, 2022, will enable the company to fund its operating expenses and capital expenditure requirements for at least 12 months following the potential NDA submission of KarXT for the treatment of psychosis in adults with schizophrenia.

How Does Karuna Therapeutics Make Money? 

Karuna Therapeutics does not make money. If its development efforts for its range of product candidates are successful and result in regulatory approval, Karuna may generate revenue in the future from product sales. However, there are no guarantees the company will ever succeed in obtaining regulatory approval for any of its product candidates, making this a speculative investment.

To fund its operations, Karuna stock relies on share placings, debt financing and licensing deals.

On August 8, 2022, it initiated a share placing for $600m worth of its common stock.

KRTX Stock Financials

Over the past year, Karuna Therapeutics Inc (KRTX) has traded between $92.26 and $161.98. Today it trades at around $216.68.

Year-to-date, the Karuna Therapeutics Inc (KRTX) stock is up by 63.7%, while the S&P 500 is down -13.58% over the same period.

FactSet analysts have a consensus Buy rating on KRTX stock with a target share price of $183.30. 

KRTX stock has a price-to-book-value (P/BV) of 9.2, which is well above the industry average of 1.6. KRTX stock does not offer shareholders a dividend yield.

KRTX Growth Potential

According to BCC research, the global market for Alzheimer's disease treatment should grow from $4.8bn in 2020 to $6.3bn by 2025, with a compound annual growth rate (CAGR) of 5.5% from 2020-2025. 

Meanwhile, according to Fortune Business Insights, the Global Schizophrenia Drugs Market was valued at $6.75bn in 2018 and is projected to reach $9.48bn by 2026, exhibiting a CAGR of 4.3%. 

The company hopes KarXT could provide a new approach to treating psychiatric and neurological conditions. 

There's no doubt that demand for these drugs is soaring, and if Karuna Therapeutics can commercialize its products, it stands to do very well.

KRTX Stock Risks

Karuna Therapeutics will require significant funds to support its continuing operations and pursue its growth strategy. Until it can generate substantial revenue from product sales, it expects to finance its operations through private and public equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution, or licensing arrangements with third parties.

There is always the risk that it may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms.

Should You Invest in Karuna Therapeutics?

A positive outcome in a Phase III trial is a dream come true for clinical-stage companies. But KarXT still has several trials to get through and the process to reach commercial sale remains long.

The company continues to burn through cash with no immediate income streams in sight. Therefore, KRTX stock is a highly speculative investment.

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This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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