What happened
Karuna Therapeutics (KRTX 0.03%), 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.
