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ALLISON GATLIN

Karuna Takes A Big Step In Schizophrenia Treatment. But Shares Yo-Yo.

Karuna Therapeutics asked the Food and Drug Administration to approve its schizophrenia treatment on Thursday. But KRTX stock yo-yoed before closing with a small gain.

If approved, Karuna's KarXT would be the first new mechanism to treat schizophrenia in several decades. Unlike most schizophrenia drugs, Karuna's doesn't manipulate dopamine or serotonin. Instead, KarXT stimulates receptors that activate the parasympathetic nervous system. It's the part of the nervous system that relaxes the body.

RBC Capital Markets analyst Brian Abrahams expects Karuna to win approval after a standard six- to 10-month review period.

"Additionally, given the looming threat of a government shutdown — which could prevent the FDA from accepting new applications, but not working on existing ones — we believe the company successfully completing their application ahead of Oct. 1 likely will keep approval timelines on track," he said in a note.

On the stock market today, KRTX stock rose 1.5%, closing at 170.25.

KRTX Stock: Mixed Results In Final Study

The application for approval is based on three studies comparing KarXT to a placebo and two ongoing tests to evaluate the drug's long-term safety, Karuna said in a news release.

In the final study, patients who received Karuna's pill for five weeks showed an 8.4-point reduction on a 112-point scale measuring symptoms compared to placebo recipients. That lined up with reductions of 11.6 and 9.6 points in the earlier studies.

But KRTX stock skidded 5% on March 20, the day the company announced those results. The study also looked at positive and negative symptoms. Positive symptoms are changes in behavior or thought, while negative symptoms include withdrawal. Patients showed a marked improvement in positive symptoms, but the change in negative symptoms wasn't statistically significant.

Still, RBC's Abrahams says Karuna submitted a strong package of data for approval. He notes the FDA is likely to hold an advisory committee meeting, allowing experts to debate the merits of the treatment. It's important to note that KarXT doesn't lead to weight gain or cause uncontrolled movements. Both are usual side effects with other schizophrenia treatments.

Shares Are Consolidating, But Trapped

Abrahams sees a peak of $1.2 billion in sales. Karuna is also testing KarXT in dementia-related psychosis. He maintained his outperform rating and 235 price target on KRTX stock.

Today, shares have a poor IBD Digital Relative Strength Rating of 18, though a year ago Karuna stock had a perfect 99. The RS Rating is a measure of a stock's 12-month performance. KRTX stock ranks in the bottom one-fifth of all stocks on this measure.

Shares are consolidating with a buy point at 245, according to MarketSmith.com. But KRTX stock remains trapped below its key moving averages, so it could struggle to move higher.

Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.

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