What happened

Shares of Karuna Therapeutics (KRTX 0.27%) rose 26% in January, according to data provided by S&P Global Market Intelligence. However, at $92 a share as of this writing, the stock is still below its all-time high of $124 a share, set less than three months ago.

Karuna had a spectacular 2019. Though it did drop below its offering price at one point, the stock had a massive gain late last year, right after the company announced positive results from its phase 2 trial for its schizophrenia drug, KarXT. Investors saw the value of their shares multiply by seven times in a matter of days. The giant move made Karuna the top IPO stock for 2019.

There hasn't been any medical news that's been rocking the share price in 2020, but it's been a volatile ride all the same. The stock shot up on Jan. 10 to close at $72.17 and rose to $115.92 on Jan. 22. On Feb. 4, it closed at $93.02 per share. It looks like some early investors have been taking profits, and new investors are making buys as they discover the pharmaceutical stock.   

an image from a brain scan

Image source: Getty Images.

So what

What's got investors interested? Well, about 20 million people worldwide suffer from schizophrenia. According to Fortune Business Insights, the schizophrenia drug market was valued at $6.75 billion in 2018, and is estimated to reach $9.48 billion by 2026. One of the leading drugs is the antipsychotic Invega Sustenna from Johnson & Johnson, and it and related products were on pace to reach a combined $3.4 billion in sales in 2019.

Karuna's drug targets a different area of the brain, and is expected to work on schizophrenia patients that are not helped by current antipsychotic medicines. In its phase 2 trial, the drug had a statistically significant 11.6-point improvement on PANSS (positive and negative syndrome scale) versus placebo. 

Now what

Karuna plans on initiating its phase 3 trial before the end of 2020. The company is testing KarXT in other indications as well, including psychosis from Alzheimer's, as well as cognitive symptoms from schizophrenia and negative symptoms from schizophrenia. The company believes that its drug compares favorably with antipsychotic drugs that peaked at $5 billion in annual sales.     

While KarXT is very promising, probably the earliest the company can hope to have its drug on the market is late 2022. However, paying for its phase 3 trial will not be a problem. Karuna issued a secondary offering after its successful phase 2 trial, raising $250 million. The company now has $412 million in cash and no debt.