When investors see a stock rise by close to 100%, they probably just assume it’s a corporate buyout. In biotech, there are times when emerging companies see their shares rise 100%, 200% or even more on the heels of positive drug development news. In the case of Karuna Therapeutics Inc. (NASDAQ: KRTX), a fairly recent initial public offering, news that KarXT demonstrated statistically significant and clinically meaningful improvement in a schizophrenia study sent shares up over 400% on Monday.

On top of this potential game-changer for schizophrenia patients, some investors just experienced the same euphoria as holding a winning lottery ticket.

Karuna Therapeutics announced that results from its Phase 2 clinical trial of KarXT for the treatment of acute psychosis in patients with schizophrenia demonstrated a statistically significant and clinically meaningful 11.6 point mean reduction in total Positive and Negative Syndrome Scale score compared to placebo. The study also demonstrated good overall tolerability.

According to the press release, a statistically significant reduction in the secondary endpoints of PANSS-Positive and PANSS-Negative scores were also observed. KarXT was shown to be well tolerated in the Phase 2 trial. Similar discontinuation rates between KarXT and placebo were shown to be 20% and 21%, respectively, and the number of discontinuations due to treatment-emergent adverse events were equal in the KarXT and placebo arms.

Karuna said that it combined xanomeline, a novel muscarinic receptor agonist that preferentially stimulates M1 and M4 muscarinic receptors, with trospium, an approved muscarinic receptor antagonist that does not measurably cross the blood-brain barrier. This confined the effects to peripheral tissues. The Phase 2 study (randomized, double-blind, placebo-controlled) was an inpatient trial made up of 182 adult patients between the ages of 18 and 60. The patients had been diagnosed with DSM-5 schizophrenia and were experiencing acute psychosis, and they were then said to be washed-out of antipsychotic medicines and randomized equally between KarXT and placebo for five weeks. The primary outcome measure of the trial was the change from baseline on the total PANSS score on KarXT versus placebo treatment at week five.

Investors and traders reacted as though this is set to change the course of care in schizophrenia treatment. Jeffrey Lieberman M.D. is a member of Karuna’s scientific advisory board. He is also listed as a professor and chair of the Department of Psychiatry at Columbia University, College of Physicians and Surgeons. His evaluation said:

The results of the Phase 2 trial are impressive and encouraging because they indicate that KarXT, if approved, could represent a game-changing therapeutic advance in the treatment of patients with schizophrenia. The effectiveness of antipsychotics has been limited by the frequent and serious side effects of first- and second-generation drugs which are difficult for many patients to tolerate, are potentially harmful, and lead to high rates of discontinuation and relapse. In addition to its novel mechanism of action, KarXT could be a new therapeutic option that has the potential to offer robust efficacy devoid of weight gain, metabolic effects and extrapyramidal side effects.

Steve Paul M.D., chief executive officer, president and board chair of Karuna, also opined about the data:

The schizophrenia treatment landscape has remained rather stagnant for decades with therapeutic options relying on discoveries dating back to the 1950s. KarXT and its novel muscarinic receptor mechanism of action represent the potential to become a true advancement in how schizophrenia is treated, allowing patients relief from their debilitating psychotic symptoms without experiencing some of the very troubling side effects associated with current treatments.

Karuna Therapeutics closed up 442% at $96.00 a share on Monday, with some 14.7 million shares changing hands. The company’s IPO was back in June, and its 5.78 million shares priced at just $16 apiece. Its prior closing price was $17.68, and the highest it traded in the weeks after its IPO was $27.56.

Four firms issued Buy or Outperform ratings in July: Citigroup ($28 target price), Goldman Sachs ($34 target), Wells Fargo ($29 target) and Wedbush Securities ($38 target).

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