Why Karuna Therapeutics Stock Is On Fire Today

What happened

Karuna Therapeutics (KRTX 73.23%), a clinical-stage biotech, is having a record-breaking day. As of 2:25 p.m. ET, the company’s shares were up by an eye-popping 70%, surging to an all-time high during Monday’s trading session.

Although the biotech released its 2022 second-quarter results this morning, the real needle-mover is the news that Karuna’s experimental psych medication, KarXT (xanomeline-trospium), hit the mark in a late-stage trial for adults with schizophrenia.

So what

With strong phase 3 results in hand, Karuna plans to file for the drug’s approval in schizophrenia by mid-2023. The company said it plans on waiting for long-term safety data before formally filing for approval. KarXT is thus on track to possibly hit the market by early 2024.

As a possible go-to treatment for schizophrenia, KarXT has the potential to generate megablockbuster-level sales (greater than $5 billion a year) at peak. Armed with this insight, it’s no surprise to see Karuna’s shares skyrocketing today.

What’s more, the drug is also being trialed in a handful of other high-value indications, such as psychosis related to Alzheimer’s disease. If KarXT ultimately garners multiple approvals, it could become a top 10 best-selling medicine by the end of the decade. 

Now what

Is Karuna’s stock still a buy? Yes, I think it is a screaming buy right now.

The long and short of it is that the company’s $7.2 billion market cap following this enormous move higher simply doesn’t reflect the staggering commercial potential of a novel schizophrenia medicine. The market is clearly wary of the extended timeline for KarXT’s approval. But savvy investors may want to take advantage of this trepidation. Late-stage psych meds with novel mechanisms of action — such as KarXT — rarely make it to this advanced stage of development, after all.

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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