What happened

Shares of Karuna Therapeutics (NASDAQ:KRTX) were sinking 13.3% as of 3:22 p.m. on Thursday after falling as much as 21.1% earlier in the day. The drop came after Karuna's largest shareholder, PureTech Health, submitted a regulatory filing to the Securities and Exchange Commission (SEC) which revealed that PureTech had sold 2.1 million shares of Karuna on Wednesday.

So what

It's not shocking that PureTech Health would take some profits considering that Karuna Therapeutics stock has skyrocketed close to 400% since its initial public offering (IPO) last summer. Even with yesterday's sale, though, PureTech still owns more than 20% of Karuna.

Man with hands on the top of his head looking at a stock chart going down

Image source: Getty Images.

Karuna really took off in November 2019 after announcing positive results from a phase 2 study of experimental drug KarXT in treating acute psychosis associated with schizophrenia. Those results were so good that one member of the biotech's scientific advisory board said that KarXT "could represent a game-changing therapeutic advance in the treatment of patients with schizophrenia." PureTech Health's sale of some of its stake in Karuna doesn't change the long-term prospects for the company. 

Now what

Investing in biotech stocks, especially small clinical-stage ones like Karuna Therapeutics, comes with plenty of volatility. The main thing to watch with Karuna now is the company's progress in advancing KarXT to a late-stage clinical study that could potentially lead to FDA approval of the drug. Karuna plans to meet with the FDA in the second quarter of 2020 to determine a path forward.