William Blair notes increasing investor inbounds on Karuna Therapeutics Inc KRTX given the recent pullback, as the stock is down 13% off June 2023 highs and 25% off 52-week highs after the EMERGENT-2 readout.
The analyst sees this as a buying opportunity ahead of an NDA filing for a novel mechanism antipsychotic, KarXT, expected in Q3 (likely late September) as Karuna transitions into a commercial-stage entity.
Assuming that Karuna submits its New Drug Application (NDA) in Q3 with the usual review time, KarXT might secure FDA approval in 2H 2024. Investors have shown keen interest in whether Karuna itself can set KarXT on a launch path to reach the high peak sales figures of antipsychotic drugs from peers, such as Abilify, Risperdal, Zyprexa, and Seroquel.
The analyst notes that management said a 300-400-person-strong salesforce would be implemented to target roughly 30,000 prescribing psychiatrists and nurse practitioners.
Karuna has $1.5 billion in cash to fund hiring and operations through 2026.
Many investors continue to consider Karuna as a potential acquisition target. While such transactions are hard to forecast, the analyst says there has been a growing trend since 2015 where assets in late-stage clinical trials or early commercial stages occupy a larger portion of M&A activity.
A frequently overlooked factor is that antipsychotics belong to a Medicare Part D protected drug class, implying automatic coverage for KarXT upon approval.
Considering that 90% of individuals with schizophrenia are covered by Medicare/Medicaid and 90% are automatically placed in zero-premium Medicare Part D plans due to low-income subsidies, William Blair envisages wide-ranging and immediate avenues for KarXT reimbursement.
Price Action: KRTX shares closed at $208.62 on Thursday.
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