Karuna Therapeutics, a Boston-based biotech focused on neuropsychiatric disorders, ended the day on Friday, Nov. 15, worth about $400 million.
By the following Tuesday, shares in Karuna were worth seven times as much, valuing the company at nearly $3 billion. The remarkable rise was due to Phase 2 study results, disclosed by Karuna on Nov. 18, that showed its lead drug to have a powerful antipsychotic effect in patients with schizophrenia.
Stock swings in biotech are nothing new, but the dramatic gains notched by Karuna are still an outlier, indicative of the need investors see for new psychiatric drugs.
"What happened last week was an A-ha moment," said Steven Paul, CEO of Karuna Therapeutics, in an interview. "Our clinical team was able to deliver a clinical trial result that looked very good in an area that unfortunately gets a bad rap."
Paul attributed Karuna's impressive stock jump to investors realizing two things: "One, the realization that we had something important and, two, that we can actually do the work and get good data."
Shares have since retreated in value and now trade at about $75 a piece — still nearly four times the $17 they were worth before the trial readout. Like many biotechs announcing positive data, though, Karuna took the opportunity to raise money, quickly announcing plans to sell $250 million worth of company shares.
That new funding will add to the proceeds of an initial public offering closed this summer and put Karuna in a stronger position to launch a planned Phase 3 study of its drug late next year.
"Maybe this sounds immodest, but we think we can do this ourselves," said Paul. "We think we can develop this drug better than big pharma."
So far, Paul's not far from the mark.
KarXT, the name Karuna gave its lead drug, is actually a combination of two: a muscarinic receptor agonist called xanomeline and trospium, an approved muscarinic receptor antagonist.
Paul had worked on developing xanomeline in the 1990s while heading Eli Lilly's research laboratories. Then, the drug also proved to be an effective antipsychotic in several clinical tests. But a high rate of side effects like excessive sweating, nausea and vomiting led Lilly to deprioritize xanomeline's development. Lilly's success with another antipsychotic, approved in 1996 as Zyprexa, also likely played a role.
At Karuna, which was formed by PureTech Health in 2009, xanomeline was revived and paired with a drug that seems to counteract the problematic side effects seen in earlier testing. Trospium's mechanism of action is xanomeline's opposite, dulling the drug's potency in the peripheral system. But since trospium doesn't cross the blood-brain barrier, it doesn't interfere with xanomeline's potential antipsychotic effect in the central nervous system.
The Phase 2 study of KarXT to treat acute psychosis in patients with schizophrenia was a major test of that hypothesis. Results showed a statistically significant benefit to the drug versus placebo on a rating scale known as PANSS.
And, most importantly, tolerability appeared better, with similar rates of discontinuation and no higher incidence of sedation.
"It's hard to compare drugs from one study to another unless you've done a head to head comparison, and it's also hard to compare drugs historically in this field," said Paul, who's also a co-founder of Sage Therapeutics and Voyager Therapeutics.
Still, "this is a pretty big effect that we're seeing," he added, contrasting the nearly 12-point PANSS reduction in KarXT's Phase 2 study with the roughly eight- to nine-point reductions observed with approved drugs.
Investors agreed, turning Karuna into a multi-billion dollar company overnight.
Paul acknowledged that such interest comes with raised expectations for what Karuna can deliver. And in neuroscience, a field many consider to be among the toughest clinically, investor optimism has been dashed before.
Clinical setbacks, in fact, have led many large pharmaceutical companies to exit the space, a trend that Paul argues might actually benefit Karuna.
"Over the last 10 to 15 years, this area of therapeutic interest in big pharma has been deprioritized," said Paul. "That has left a lot of really good people out there and we're recruiting them."
Karuna plans to do more hiring in 2020 to bolster its clinical staff, Paul said, noting that Karuna will be pursuing developing KarXT for other indications as well as preparing for its Phase 3 trial in schizophrenia.
"Quite frankly, we probably wouldn't have been able to assemble this team if it was 10 or 15 years ago," he said.
Karuna plans to meet with the Food and Drug Administration to discuss the Phase 2 data sometime in the second quarter of next year. A Phase 3 study of KarXT in schizophrenia could follow by the end of 2020.