Karuna Therapeutics, Inc. (NASDAQ:KRTX) Q2 2023 Earnings Call Transcript

Karuna Therapeutics, Inc. (NASDAQ:KRTX) Q2 2023 Earnings Call Transcript August 5, 2023

Operator: Welcome to the Karuna Therapeutics Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note that this call is being recorded. I will now turn the call over to Alexis Smith, Head of Investor Relations.

Alexis Smith: Thank you. Good morning, everyone, and thank you for joining our second quarter 2023 financial results conference call. I’m joined on the call today by Bill Meury, President and Chief Executive Officer; and Troy Ignelzi, Chief Financial Officer, who will begin our call with prepared remarks, as well as Andrew Miller, Founder and Chief Operating Officer; and Will Kane, Chief Commercial Officer, who will join Bill and Troy for the Q&A portion of our call. Before we begin, I encourage everyone to visit the investors page of our website at investors.karunatx.com to find our press release and presentation related to today’s call. Forward-looking statements related to our product development, regulatory and commercialization plans, our research activities and financial outlook may be presented during this call.

Please refer to today’s press release and our SEC filings for important risk factors that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. And now, I’ll hand it over to Bill.

William Meury : Thanks, Alexis, and good morning, everyone. We’re now midway through 2023 and have made excellent progress in terms of our NDA, advancing our development programs for new indications and the pre-commercialization work for the anticipated launch of KarXT in the second half of next year, assuming approval. First, I’ll start with where we are on our NDA for schizophrenia and outline what’s ahead. As we shared last quarter, we had a productive meeting with the FDA in April, where we discussed various aspects of our submission, including those related to our data package and timing. That meeting and the subsequent meeting minutes in May confirmed our key assumptions and we continue to work towards a submission in September as planned.

Here’s where we are. The clinical data needed for the submission is in hand. This is data that we’ve generated across our 3 positive efficacy and safety trials, EMERGENT-1, EMERGENT-2 and EMERGENT-3, as well as the necessary long-term safety data from EMERGENT-4 and EMERGENT-5. This is the data that will make up the bulk of our clinical module. The data has been collected, cleaned and analyzed, and now we’re in the final stages of writing the ISE and ISS. Additionally, the other key technical sections of the NDA, including CMC, nonclinical pharmacology and toxicology and human pharmacokinetics and bioavailability are complete or near complete. Our NDA consists of several hundred thousand pages and the team will start assembling, formatting and publishing our submission document in the next several weeks.

The NDA filing team at Karuna has done an excellent job to produce a timely and high-quality submission. As it relates to other aspects of our submission, we’ll be providing additional safety data from our ongoing trials at day 120 as discussed and aligned on with the agency during our pre-NDA meeting. This includes the latest data from EMERGENT-4 and EMERGENT-5 as well as data from our Phase Ib ABPM trial, which completed enrollment ahead of schedule in the second quarter. Moving on to our other ongoing Phase III development programs, ARISE and ADEPT. In ARISE, we activated nearly 20 additional clinical trial sites in Bulgaria and Serbia last quarter. These sites along with the existing U.S. sites will support recruitment in the trial with data on track for the second half of next year.

As we talked about data from ARISE will be used to support a supplemental NDA for the adjunctive treatment of schizophrenia in 2025, assuming approval in schizophrenia next year. Adjunctive treatments are used extensively for serious mental health conditions, such as depression, bipolar disorder and Alzheimer’s, where there are multiple classes of drugs approved for treatment. KarXT has the potential to be the first and only adjunctive treatment for schizophrenia, which would be a major advance for patients and the field of psychiatry. Our ADEPT program evaluating KarXT in psychosis in Alzheimer’s continues to advance as well. ADEPT-1, our randomized withdrawal trial is underway and the first patient enrolled in ADEPT-3, the 1-year open-label extension trial last month.

We will be initiating ADEPT-2, a double-blind, placebo-controlled trial in the coming months. Data from ADEPT-1 and ADEPT-2 are anticipated in 2025. As a reminder, while the ADEPT program focuses on evaluating the efficacy and safety of KarXT in treating hallucinations and delusions associated with Alzheimer’s, we’re also collecting data on other prominent symptoms, such as agitation, aggression and cognition, which may inform future development efforts with KarXT. This is an important third indication for us. The potential for KarXT in psychosis related to Alzheimer’s is as significant as that in schizophrenia and we look forward to updating you on this program in the future. Beyond our three primary indications, we’re evaluating additional opportunities for KarXT in CIAS and AD agitation, as well as in autism and mania and have ongoing formulation efforts related to LAI, QD and BID dosing in the elderly.

We have some work to do here and plan to share more updates on the status of these programs early next year. Now since the start of the year, we’ve made excellent progress building our operational capabilities. We expanded key teams such as managed care, medical affairs and started pre-commercialization activities that lay the groundwork for our anticipated launch next year. In the spring, we attended several key psychiatry congresses, where we shared additional new data from our EMERGENT program that further highlights KarXT’s unique and differentiated profile. We presented data from EMERGENT-3, where KarXT demonstrated statistically significant improvement in the Clinical Global Impression of Severity Score at all time points in the trial.

Specifically patients entered the study with an average CGI-S score of 5 or 6 out of 7, meaning markedly or severely ill. By week 5, approximately 40% of patients were rated a score of 1, not at all ill to 3, mildly ill versus 22% in placebo. This is an important finding. The CGI-S is a clinician’s assessment of a patient’s global functioning, which takes into account all available information, including symptoms, behavior, function, among other factors. In other words, it’s a judgment about the total picture of the patient at each visit. It’s more than a symptom checklist and it correlates well with well-known research efficacy scales. We also shared exploratory data evaluating the effects of KarXT and cognition from EMERGENT-2 and EMERGENT-3.

Using the Cambridge Cognition Test to evaluate memory, attention and executive function, we showed statistically significant improvements in cognition in the KarXT arm relative to placebo in patients who are cognitively impaired at baseline. Further, KarXT was not shown to impair cognition. These findings are consistent with our understanding of the M1/M4 mechanism as well as prior clinical data generated with xanomeline and KarXT. This is an important finding given the prevalence of cognitive impairment among patients with schizophrenia is 70% to 90%, and there is no FDA-approved treatment. Cognition is an important predictor of improved functional outcomes and is a key treatment target in schizophrenia. While this is an exploratory analysis, we’re encouraged by what we’ve seen and are actively assessing additional clinical work to explore KarXT’s effect on cognition.

In the fall, we’ll be sharing more data analyses for EMERGENT-3 and the broader EMERGENT program, including PANSS responder rates and PANSS item analyses. These findings reinforce previous published data from our EMERGENT program, where more than half of patients treated with KarXT experienced at least a 20% to 30% reduction of positive and negative symptoms of schizophrenia, including improvements on the 5 PANSS Marder factors, such as disorganized thoughts, uncontrolled hostility and depression and anxiety. Before we review second quarter financials, I wanted to spend a few minutes on the leadership updates we announced this morning, including the appointment of Jonathan Rosin as Chief Human Resources Officer. Jonathan joined us in July, bringing with him extensive experience and proven leadership in building highly effective growth-oriented teams.

His appointment comes at a key time for us as we continue to recruit top talent and focus on transitioning to a fully integrated biotech company. We also announced the promotion of Jason Brown to Chief Financial Officer. Jason currently serves as Senior Vice President, Finance and has extensive experience with all aspects of the finance function, FP&A, accounting, audit and more. And he has also played an integral role in our business development efforts from due diligence to deal evaluation and execution. He’s known internally for his detail-oriented mindset and sound judgment. With that, I also like to share our gratitude to Troy for his commitment to the company over the past 4 years. He’s been a key member of our executive leadership team contributing financially and operationally to the company in numerous ways.

He led our IPO, multiple successful equity financings and help build the court finance capabilities at Karuna. With the NDA submission well in hand and a strong balance sheet in place, this is a logical time for these transitions. I’d like to thank Troy again for his commitment and contributions to the company and congratulate Jason and Jonathan on their new roles. And with that, I’ll hand it to Troy.

Troy Ignelzi: Thank you, Bill. Good morning, everyone, and thank you for joining us today. Before I review our second quarter financial results, I want to take a few minutes to express my gratitude for the opportunity to serve as Karuna’s CFO over the last 4 years. My time at Karuna has been nothing short of exciting. It was a little over 4 years ago that we took the company public with the help and continued support of the investment community and have since made significant progress towards our mission of developing and delivering KarXT to patients. It’s been a pleasure working alongside the leadership team, talented members of our finance, communications and IT departments and the broader organization as well as our Board of Directors.

I’m proud of all we’ve accomplished together and look forward to seeing the continued success of Karuna. Now turning to our second quarter financial results. Our balance sheet remains very strong. We ended Q2 with $1.4 billion in cash, cash equivalents and investments compared to $1.1 billion at the end of 2022. The increase was primarily the result of our follow-on public offering in March that resulted in net proceeds of approximately $437 million. We expect our current cash runway to continue to support our business operations through the end of 2026, which includes 2 full years after the anticipated launch of KarXT and schizophrenia in the second half of 2024. I’m also pleased to share that our operating expenses for the second quarter continue to track with our full year 2023 guidance that we previously provided at our first quarter business update.

Combined, R&D and G&A costs for the second quarter were $119.9 million, which was partially offset by interest and other income resulting in a net loss of $103.2 million before income tax. R&D expenses for the second quarter were $92.5 million compared to $52.5 million for the same period in 2022. The increase of $40 million was primarily driven by expenses related to KarXT clinical programs, NDA supporting activities, increased employee headcount and higher stock-based compensation. G&A expenses for the second quarter were $27.4 million compared to $17.8 million in 2022. The increase of $9.6 million was primarily driven by launch readiness activities, employee headcount and higher stock-based compensation. Looking ahead, we expect overall operating expenses for the full year to continue to range between $430 million and $470 million, including approximately $70 million in non-cash stock-based compensation expense.

Specifically, R&D expense is anticipated between $310 million and $340 million and remain relatively flat on a quarterly basis. We anticipate G&A to range $120 million to $130 million with moderate quarterly increases as we continue growing our commercial and corporate infrastructure. With that, I’ll hand it back to Bill.

William Meury: Thanks, Troy. I’ll turn it over to the operator to begin Q&A.

Q&A Session

Operator: [Operator Instructions] Your first question comes from Paul Matteis from Stifel.

Paul Matteis: Hey, thanks so much. Congrats, Troy, in your next venture, and congrats, Jason on the promotion. I was just curious as you get towards the NDA filing for KarXT, what’s your base case expectation for a priority review or lack thereof and an AdCom? And then just really quickly, can you flag for us the timing and upcoming readouts for the Boehringer Ingel compound that you’re watching for the — as it relates to the in-license asset from Goldfinch?

William Meury: Thanks, Paul. This is Bill. I’ll make a few comments and then I think Andrew can expand. I think our base case is a standard review. As you know, we’ll find out 60 days after the submission, whether we’ve earned a priority review, but we’re assuming a standard review at this point, which would be 10 months from the acceptance of the NDA, which we expect to submit as you know at the end of September. As it relates to the second part of the question, the AdCom, look, we just have to be prepared for one. I don’t anticipate that we’ll have one. I don’t view it as a negative or a positive development. We’re already planning for one if the FDA decides to schedule it. This was a, as you know, a fairly standard development program, while KarXT is a novel compound.

The studies that we conducted were very consistent with precedents, and as you know, there’s roughly a dozen atypical antipsychotics that are approved. It is a novel compound; I think we’ve set a pretty high bar as it relates to efficacy and safety and side effect data. But it’s not obvious to me why they would schedule an AdCom, but if they do, we’ll be ready. And then finally, as it relates to the Boehringer Ingelheim compounds or the Boehringer Ingelheim compound, their TRPC4/5, we anticipate that there could be results available sometime in the second half of this year and then in early 2024. Based on what we’ve read in the public domain, they have started their first study in PTSD. They had a second — excuse me, the first study was in borderline personality disorder, very different than the indications than we would study with our TRPC4/5.

Second indication or second condition was PTSD and the third was MDD. And look, it’s — we’ll have to wait and see whether the results from the BI studies to the extent that they share them are instructive. There are different compounds. As you know, there are a lot of different factors that can impact the outcomes of the study, and we’ll wait and see. Andrew, do you want to add anything?

Andrew Miller : No, I think that captures. Yes.

Operator: Next question comes from David Amsellem, Piper Sandler.

David Amsellem: Thanks. So on adjunctive usage in practice, I know you have the adjunctive studies ongoing. But is it your view Bill that some practitioners as a means of gaining early experience with KarXT may use it as an add-on therapy data notwithstanding? We’ve heard different things from different practitioners. So wanted to pick your brain on that. And then also looking at early commercialization, are you thinking any differently about KarXT early on with the recent failure? And I just wanted to pick your brain on that and how you’re thinking about the potential impact on KarXT now that, that product failed its recent Phase III?

William Meury: Thanks, David. I’ll take the first part of that question and I’ll ask Will Kane, our Chief Commercial Officer to expand. As it relates to adjunctive use, I think there are 2 — there’s 2 statistics to keep in mind. First of all, today, based on both market research and data from IQVIA, roughly 30% of patients with schizophrenia are receiving 2 D2 antagonists. So there’s effectively a non-fixed combination market or an adjunctive treatment market that exists today. Of course, none of the currently available atypicals have an FDA-approved indication for adjunctive treatment. But there’s clearly a high need there, given that they’re taking 2 compounds that are much more similar than different in order to generally achieve higher response rates.

We also know that in the literature, there are some studies dating back almost 20 years when Zyprexa and Risperdal and [inaudible] launch that upwards of 60% of patients were receiving polypharmacy with 2 different compounds. And so I expect that if we can produce positive data from the ARISE trial that this could trigger a fundamental change in the management of schizophrenia. We know that atypicals, for example, are used on top of SSRIs in partial or nonresponders, 20% of the time. We know — and David, you know this category fairly well. In Alzheimer’s, [inaudible] is used on top of Aricept almost 40% of the time. And it has the indication for adjunctive treatment in moderate to severe Alzheimer’s disease. And so I think the anticipation of the psychiatry community is that the effects of KarXT on top of a D2 are complementary and additive and pharmacologically that makes sense.

And from an efficacy and safety profile, we have efficacy results at the top end of the range, although we have no head-to-head studies. And then more importantly, when you look at safety and side effects, you don’t have overlapping profiles. And so you’re not adding to some of the common side effects, such as weight gain, EPS, akathisia and somnolence. How the psychiatry community is going to manage this before we produce data, that, of course, remains to be seen. But my sense is there’s going to be some adjunctive treatment. Obviously, we can only promote the data that we’ve produced and that’s in our label. And we are impatient about getting the results of the ARISE study available. And then the next question related to pre-commercialization and Sunovion.

Look, I’ve never viewed that this is a one-on-one market. I’ve never viewed the schizophrenia market as a market share battle. It’s not a zero-sum game. And I think we see that in the current segment of dopamine antagonist. And I feel that way about muscarinics that are in development. Yes, from a commercial perspective, you do have a higher share of voice. And of course, we can take advantage of that. Our job right now is to focus on roughly 30,000 psychiatrists, convince them that the data that we’ve produced justifies trial with convince. And I think if we generate trial and the real-world experience with KarXT represents what we’ve observed in the clinical trials, this is going to be an important launch and a fairly big launch. And that’s how I think about it.

And Will, do you want to add anything?

William Kane: Just two brief things. One, — and to the first question, I just want to reinforce that in our conversations with the psychiatry community, they need strong monotherapy as well as adjunctive therapy. And the data sets that we have in the EMERGENT program is quite solid, and there’s a lot of excitement about that, specifically for their needs with patients who they would consider switching or they lapse and therefore, they need a new treatment option. And so it’s not a question of adding, it’s getting them back on therapy. And then as Bill pointed out, there’s clearly a lot of interest and excitement about a potential adjunct that has an approval for that use because it is such an unmet need in this marketplace.

The second question, I just want to underscore that in our conversations as well, the need for new therapies in this market is high, right? Schizophrenia is a very challenging disease with the same approach to treatment for the past several decades. So the trial has been a disappointment, I would say, from my own personal perspective, doesn’t help the market because there are needs for new therapies, and we hear that all the time. But our plan to go to market is unchanged based on any changes in the Sunovion program, et cetera. We will bring a strong effort to that launch.

Operator: Next question comes from Myles Minter from William Blair.

Myles Minter: Hi, thanks for taking the questions. And congrats Troy, it’s been great working with you, and congrats Jason, on the new gig. Bill, you just mentioned that the CMC package is complete or near complete, what components are near complete? That’s the first one. And the second one is just on the commercial viability of TID dosing for Alzheimer’s disease psychosis and the plan to sort of introduce 2D or BID dosing for that product? Would that be done after the ADEPT studies in a bridging study format?

William Meury: Great. Thanks, Myles, for the question. I’m going to turn it over to Andrew.

Andrew Miller: Sure. With respect to the NDA submission, the submission consists of 5 modules, an administrative module, summary module and the nonclinical CMC and clinical. I think with respect to nonclinical and CMC, all the information is available. Those modules are essentially final at this point. It’s really in the final process of compiling. With respect to clinical, as we’ve been speaking about really for the last year and the last piece of information to come in, it’s really around long-term safety that’s here is analyzed. It’s also in the process of being compiled. Obviously, an NDA submission itself is a pretty substantial document, probably in the order of 450,000 pages. So we’re in that final push to pull that together in anticipation of submission here prior to the end of September.

William Meury: And then the second question on dosing and…

Andrew Miller: Maybe you want to speak to that, Will?

William Kane: So I would just say, obviously, the intent is to move towards a BID dosing regimen. However, in some market research we’ve done, there is a place for a TID dosing option, particularly in patients in the Alzheimer’s population, obviously, of caregiving support. And so while we would want to clearly move in the direction to reduce the frequency of dosing, there is viability for a TID dose.

Andrew Miller: And maybe to pick up on that last point with respect to our R&D activities, we do have a number of formulation development work streams ongoing, including currently ongoing Phase I clinical work with in advance or formulation of KarXT, which could offer the potential to reduce dosing frequency, including that transition from TID to BID and the [inaudible] that Will mentioned.

Operator: Next question comes from Jason Butler from JMP Securities.

Jason Butler: Hi, thanks for taking the question. And just one on ARISE. Can you just maybe reiterate any color here around enrollment dynamics for the study? Obviously, time lines are on track, but just your focus and priority on and getting the right patients in that trial and thinking again about making sure the placebo rate stays within your expectations?

William Meury: Thanks, Jason. Go ahead, Andrew.

Andrew Miller: Yes, sure. I’m happy to speak to that. We provided some updates operationally around the ARISE study at our previous earnings release. We have seen us initiate additional sites in Serbia and Bulgaria over the last quarter. Obviously, getting patients into the study at the appropriate pace, but also monitoring for variety of quality and placebo response related strategies continues to be a focus for us. It’s obviously been a substantial focus across the EMERGENT program, both the inpatient and outpatient studies. It’s been a focus in the ABPM study, which recruited quite quickly and finished enrollment last quarter. With respect in general to placebo response expectation bias, in the ARISE study, we’re following all the same strategies that we followed across the EMERGENT program.

To highlight a couple of those specifically, we continue to pursue flexible dosing, which allows us to one-to-one randomized subjects, so 50% on placebo, 50% on drugs. It’s important because expectation of therapeutic benefit is an important driver of placebo response across psychiatric indications. And so the higher percentage of patients you can have on placebo in your studies, you therefore lower the expectation of benefit on both the part of sites and investigators as well as patients. You see that again consistent that 1:1 randomization in EMERGENT-1, EMERGENT-2 and EMERGENT-3 as well as ARISE as well as ADEPT-1 and ADEPT-2. That’s a common strategy for us, and I think it’s been effective to date. In addition, we typically employ a variety of other strategies.

When we speak about frequently is the idea that we have both site-based raters and centralized remote raters. We use the remote raters as a quality control tool. We can verify ratings against recordings that are then rerated by the bill raters. But I think actually the most important aspect of that being at sites and site raters know that we’re reporting ratings. They know we’re going to rerate those ratings. And so the idea that there is a stream of accountability about what’s being done. I think it’s a really important sort of behavioral modification or behavioral effect as well as a number of other strategies that we use, but those are the 2 that we speak about most frequently. Again, I think it’s always a concern. We’re always thoughtful about it, conscious about it and will continue to be a focus for us going forward.

Operator: Next question from Salveen Richter, Goldman Sachs.

Unidentified Analyst: This is Anumit on for Salveen. Congratulations on the progress so far. Could you speak to some of your ongoing efforts on building the commercial infrastructure and the schizophrenia market ahead of the potential approval in ’24? And then could you just frame expectations around the upcoming data from the ABPM study in 4Q? Are the patients that are enrolled in that study overall similar in terms of baseline characteristics to the EMERGENT trials?

William Meury: Great. Thanks for the question. Will take the first part and Andrew can take the second part.

Andrew Miller: Sure. So on the build, if you will, of the commercial organization, we’re making strong and steady progress on those fronts. We welcomed our Head of Sales 2 months ago now, and she is fully immersed in planning for field force sizing structure and deployments. We’ve added additional strong talent, talent that worked with us in the past. So it’s going to be a launch experience, particularly in the CNS area to strengthen and enhance our preparations. And so things are moving right on schedule, and we’ll be ready.

William Meury: And I would just add that in this pre-commercialization phase, the 2 most important groups are the managed care account team, which under the PIE Act has the ability to approach payers with scientific information about KarXT, which allows us to at least clear a path from a payer perspective for a launch at the end of 2024. And that group is in place right now. We have 10 to 15 account managers. And then we have a medical affairs team of equal size that is conducting all scientific exchange for the company. So all the capabilities for the sort of 12-month to 18-month period leading up to launch are in place. And then as it relates to the launch, Will Kane, the Head of Marketing, the Head of Sales, our Head of Analytics all have extensive experience with biopharma launches.

And look, this isn’t lunar lander planning. We know exactly what to do. We’ll make the right strategic decisions operationally. We’re going to get things done. And of course, to launch both before approval and after approval will be appropriately funded. And I think we’re in a good place. And do you want to take, Andrew, this question about ABPM?

Andrew Miller: Yes. With respect to the ABPM study, I think there are a lot of similarities in terms of the patients that we would expect to recruit in ABPM in comparison to EMERGENT-1, EMERGENT-2 and EMERGENT-3. I’d also point out that we have the exact same dosing paradigm in EMERGENT-1, EMERGENT-2 and EMERGENT-3 as we do in ABPM. The study is conducted — ABPM study is conducted in the U.S., where the vast majority of subjects who participated in EMERGENT-1, EMERGENT-2 and EMERGENT-3 were from. We had an average age in the — generally in the mid-40s across the EMERGENT program. We expect similar in the ABPM study. I’d say from a differences perspective, obviously, we don’t require a specific baseline symptom severity in the ABPM study.

So when you think about those type of disease characteristics, we would expect differences between EMERGENT-1, EMERGENT-2 and EMERGENT-3, but in terms of the general background demographics, et cetera, we expect a similar average characteristic in the ABPM study.

Operator: Next question comes from Marc Goodman from Leerink Partners.

Guofang Li : Hi, thanks for taking my questions. This is Rudy on the line for Marc. Congrats on the progress for the quarter. So I have a question regarding the cognition benefits. Can you remind us how the cognition benefits will help you expand KarXT’s opportunities regarding eligible patients and market potential? And I know you mentioned that you’re making that other clinical study for cognition, maybe you can provide more color for those studies?

William Meury: Thanks for the question. Andrew, I’ll let him take the first part and then I can answer the second part.

Andrew Miller: Sure. I mean, with respect to what we’ve been able to demonstrate so far in cognition and the relevance of that, it’s been an endpoint that’s collected across EMERGENT-1, EMERGENT-2 and EMERGENT-3. It was also an endpoint that was collected in historical xanomeline monotherapy studies in Alzheimer’s and schizophrenia conducted by Eli Lilly. Across all of those studies, consistently, we see a benefit on cognition. And so importantly, when you look at what we’ve seen in EMERGENT-1, EMERGENT-2 and EMERGENT-3, those are studies for acute psychosis. But in general, there’s a non-significant to small correlation of cognitive benefits seen in those studies with the overall symptomatic improvement. Said another way, the — it’s really a way to address any pseudo-specificity concerns.

We believe there is a real cognitive benefit there. You’ve seen it [inaudible] Alzheimer’s. You’ve seen it across all of our studies. Cognition continues to be a significant area of unmet need in schizophrenia. Bill mentioned on the call that 70% to 90% of patients with schizophrenia have a level of cognitive impairment. There is currently no treatment specifically approved by the FDA for the treatment of cognitive symptoms. So I think any benefit that we can have there is a further enhancement of the potential profile of KarXT. I’d also point out that even the lack of any detrimental effect on cognition, given existing agents have a warning for both motor and cognitive impairment is actually a substantial improvement over currently available treatment.

So we continue to be excited about what we’ve seen from a cognition standpoint. We are collecting cognitive data across both the ARISE and ADEPT programs that are ongoing. And we are contemplating and planning additional work in cognition. Exactly what that will look like will be — the details of which we review at a — or reveal at a future time. But I think there’s a range of potential considerations from something that looks more like a pilot study to a fully powered Phase II proof-of-concept study to registrational program seeking specific labeling for CIS. I would remind people that our expectation of labeling based on the EMERGENT program is simply for the treatment of schizophrenia in adults, doesn’t have a restriction towards particular symptom severities or symptom domains.

But we do think there’s an opportunity to further demonstrate the cognitive benefits of KarXT, and we look forward to those opportunities.

Operator: Next question from Jay Olson from Oppenheimer.

Jay Olson: Thank you. And congrats on all the progress. Can you talk about the key unmet needs in autism and which features of autism may be treated by KarXT and types of patients you could enroll and study design you might run in that population?

William Meury: Sure. Thanks. Jay, I’ll take the first part of the question and ask Andrew to expand. As it relates to autism, we’re focused on the behavioral problems or disturbances in autism, namely agitation and aggression. In terms of unmet needs, there’s only two, as you know, Jay, FDA-approved atypicals. There’s aripiprazole and risperidone. And if you talk to any psychiatrists, there’s 2 problems with giving those products to kids. First one is weight gain, and the second one is akathisia. And so when you look at the efficacy and safety data from the EMERGENT program and the profile for KarXT, it looks pretty good on those two fronts. And so the benefit risk profile of this product in a pediatric population is fairly compelling.

And from a pharmacological standpoint, we would expect that it would produce a positive result. It’s one of the few areas where atypicals are used where you have such a vulnerable population, and so the safety and side effect profile of KarXT team is well suited for it.

Andrew Miller: Yes. I think specifically with respect to clinical study designs, I think the appropriate benchmark should really be the aripiprazole and risperidone studies that have previously been conducted that is focused on. So overall behavioral symptoms or your ability, there’s established endpoints inventories to track those symptoms. They tend to be relatively short-term studies, 1 month to 2 months or less in a double-blind, placebo-controlled manner, not so dissimilar to the EMERGENT program that we ran in schizophrenia. So I think there’s some well precedented studies, well precedented in terms of how they translate into labeling, that are good examples for us, certainly the type of design that we would think about with respect to future studies of KarXT.

Operator: Next question comes from Yatin Suneja, Guggenheim Partners.

Yatin Suneja: Thank you so much. Troy, it’s been a pleasure working with you. Congrats on the — or good luck with the next venture, and Jason, congrats, looking forward to working with you as well. So I have 2 clarification questions. And this is regarding E4 and E5. So they are part of the filing. Have they — are these studies done? Because it seems like the data will be shared later this year. And I’m not clear if those are done. And will they be — just curious like how the data from those two studies will be communicated to the FDA? So that’s one. And then the second question is on the ABPM study. Did you get any communication from the FDA that when you submit it at day 120, would it be — would it require any sort of an amendment or it will be just part of a standard review?

Andrew Miller: Yes. Maybe I can address the second part of that first. With respect to the ABPM study, our submission strategy and timing, including specifically submitting the ABPM study at the day 120 safety update was part of our pre-NDA meeting with FDA captured in the meeting minutes that we got in May as well. I think there’s a lot of confidence in our part based on that interaction and confirmation that submitting data from a Phase I safety study inside of that day 120 safety update is a common strategy and a reasonable acceptable strategy. Again, emphasizing that the ABPM study is simply providing a more definitive and supplementary data set to our existing vital sign assessments that are conducted as part of all of our clinical program.

Something we have a high degree of confidence that, that submission really is on line. And obviously, having already completed enrollment in that study, a high level of confidence that will be on time with that data set getting to the agency. With respect to EMERGENT-4 and EMERGENT-5, those studies remain ongoing. EMERGENT-4 completed enrollment in the second half of last year. In 2023, EMERGENT-5 completed enrollment here in the second quarter of 2023. And those studies, as is typical for an NDA submission, you set a data cut date in which your — the quantity of data you have is sufficient to support your submission. And then you submit to FDA all the data collected prior to that date. You provide a similar update at day 120. Usually that data is approximately 120 days after the submission data cut date.

So it is typical that those studies will continue to be ongoing during the submission and review process. And it’s simply about having a database that’s appropriately sized, meeting ICH guidelines to support your submission and review. That’s what we have in hand. And so we’ll provide, obviously, ongoing updates about those studies. With respect to when that data will be available and final, those are things that we would anticipate really being able to share and present in the first half of 2024.

Operator: Next question comes from Laura Chico from Wedbush Securities.

Laura Chico: Hey, good morning, guys. Thanks very much for taking questions. Congratulations to Jason and Troy, all the best. I’m wondering if you could kind of answer a more high-level question just on the muscarinic class in general. So now we’re seeing M4 selective, M1 selective agents advance in the pipeline. I’m wondering if you could comment at all on how you would see the key points of differentiation for KarXT beyond receptor subtype activity, how would that possibly play out in a clinical setting?

William Meury: Yes. Thanks for the question, Laura. I can make a couple of comments. As it relates to sort of the broader pharmacology, the expectation, and we see this in our data from the EMERGENT program is broader efficacy. And we certainly have a signal. First, we saw it in the Lilly study. We’ve seen in preclinical studies, and now we have the exploratory analysis from EMERGENT-2 and EMERGENT-3, we see a procognitive effect with KarXT. And that’s something as Andrew talked about a few questions ago, we need to explore more in a dedicated clinical trial, but that is not insignificant. If you talk to physicians who are diagnosed in treating patients, submission is a significant problem once they’ve resolved sort of the positive symptoms of the condition.

I would also say that NO2 muscarinic receptor antipsychotics are going to be the same even with overlapping pharmacology. And when you look at just the basic efficacy data that we’ve produced in the EMERGENT program, we’ve set a fairly high bar here. I mean the effect size when you look across the 3 programs is in that 0.6, 0.7 range. And the changes on the PANSS are anywhere from 8 points or 9 points to 11 points. And I think that’s also important. Then as it relates to safety and side effects, it’s hard to make any comparisons between KarXT and other muscarinics because we have exposure in 1,500 patients, and we have a full efficacy and safety program and 2 long-term safety studies, but there again, it’s a pretty compelling safety and side effect profile.

And so my sense is the selling proposition here or the value proposition is not predicated on one aspect of the profile. There are several different aspects to it and which should be highly relevant to psychiatrists.

Andrew Miller: Yes. I think I’d just add to that, from a basic science perspective, we — Steve Paul, myself and a few others here, published a mechanistic review paper actually not too long ago in the American Journal of Psychiatry highlighting the potential role of different muscarinic receptors. And when I think you look at the profile, specifically at xanomeline, you obviously see that M4 has a role in the antipsychotic properties of xanomeline, but not an exclusive role in those properties. You can knock out the M4 receptor and you attenuate but don’t eliminate the antipsychotic benefits in preclinical models. And then as Bill mentioned, the M1 receptor plays a substantial role. I think the primary role really in the procognitive effects that we see clinically and also preclinically with xanomeline, but also, I think, has a role in the antipsychotic properties.

And to Bill’s point, I think at this juncture, it’s difficult to offer a comparison simply because we don’t have large-scale registrational data for any other program at this point. I think once that comes into focus, it will be more informative about how the clinical profiles will compare. But I think to Bill’s point, we’ve been able to demonstrate, I think a very compelling and robust efficacy signal with KarXT that we’re quite excited about.

Operator: Next question comes from Jason Gerberry from Bank of America.

Unidentified Analyst: This is Tina on for Jason. Congrats on the progress this quarter. We just wanted to drill down a bit on the recent recruitment trends in neuropsych trials. Are you seeing any potential structural dynamics for the ARISE and ADEPT trials beyond ensuring high-quality trial sites that could impact time lines or ability to mitigate placebo response? And then just a quick one on the Goldfinch asset. Besides following the science, what are other factors that are driving which mood or anxiety indications that you plan to assess? And could we see a trial initiation in the second half of this year?

William Meury: Thanks for the question.

Andrew Miller: Yes. I think with respect to the first question around structural or sort of macro factors with respect to recruitment time lines, et cetera, I don’t think we see a substantial shift there. Obviously, the people speak a lot about the pandemic and its overall shift in many industries. And there certainly have been impacts of that with respect to clinical studies and recruitment. But in general, I think the types of issues and considerations and the strategies used to mitigate those are really mostly unchanged. Every study is unique. Every study has its own challenges. We had to mitigate and address challenges ongoing in the EMERGENT program, as that study, same types of things are going to happen across any future study that we run.

So I think from our perspective, we don’t see substantial headwinds specific to neuroscience or specific to these types of studies. It’s all the same challenges around design and execution that have always been there. So I think that’s sort of the discussion on the first. What was the second part of that?

William Meury: Yes. As it relates to the TRPC4/5 and how we’re thinking about. Well, first of all, following the science is really important. I would just make a couple of general comments that when we think about — and this is true for KarXT and any additional work we do there. When we think about indications for the TRPC4/5, we have to look at unmet medical need, probability of technical and regulatory success, commercial potential and the return profile for any investment. Right now, when you think about mood and anxiety disorders, what we’re thinking is MDD and GAD. And those are well-developed regulatory paths, large populations. And while there are a number of different classes of medications approved, they’re, of course, not without limitations.

Most of the drugs today are serotonergic, neurogenergic, dopaminergic, glutamatergic, and this would be a fundamentally different approach, not dissimilar to KarXT in schizophrenia. And as we get closer to the end of the year, we’ll be able to sort of describe in a little bit more detail what our plans are for TRPC4/5. But Andrew, do you want to add anything as it relates to the science?

Andrew Miller: No, I mean, I think, again, I think it’s important for us to really be thoughtful about what is the probability of technical success of whatever studies we do run, and that involves both the basic science and rationale as well as your ability to execute in a timely fashion on a study that can provide you a definitive data point, either positive or negative. And so I think that comes into focus to MDD and GAD is certainly I think at the top of our priority list. For us, there are certainly other things that we would consider as well. I think we want to be in a position to provide a more definitive update about that through the second half of this year. I wouldn’t anticipate a clinical start coming in the second half of this — of 2023 for that program.

Operator: Next question comes from Ram Selvaraju from H.C. Wainwright.

Ram Selvaraju: Thanks so much for taking my questions. Just with respect to the long-term commercial outlook for KarXT, I was wondering if you could touch upon, first of all, what you expect the impact of KarXT on negative symptoms to be with respect to the potential market positioning and market uptake in schizophrenia? And then secondly, if you could also give us a sense of whether you’re thinking about potential applicability of KarXT in that population of patients that exhibits mixed features of both schizophrenia and depression?

William Meury: Thanks for the question. As it relates to the — I think your question is the impact of an effect on negative symptoms in the commercial potential of KarXT. And I said this earlier, and I really do mean it. I don’t think that the success of the uptake, the adoption of KarXT and psychiatry is predicated on one aspect of the profile. There is, of course, a lot of focus on negative symptoms because there’s no FDA-approved treatment specifically for negative symptoms. We certainly have some interesting convincing data from the EMERGENT program. But in order to get an indication for negative symptoms, we would have to do a dedicated trial, which we’re considering. I think the adoption of KarXT is going to be predicated on all the data that we have from the EMERGENT program, namely its efficacy on positive symptoms, which is still a need in this area.

The fact that it could be used adjunctively, I would say is number two. Number three, it appears to have a procognitive effect, more work is needed. And then I think from a safety and side effect standpoint, it’s completely obvious that this is a fundamentally different profile. And while the psychiatric community and including all of us at Karuna are interested in exploring the benefits of KarXT on negative symptoms, I don’t see it essential to the adoption and uptake of the product. And to be fair, if we do more work here, it would be a couple to several years before we produced actual data that we could actually use in the commercialization of the product. And the second part of the question?

Ram Selvaraju: That was with respect to — yes.

William Meury: Andrew, do you want to comment on mixed features of schizophrenia and depression?

Andrew Miller: Yes, I mean I think with any psychiatric unless I think there’s a degree of symptomatic overlap when you think about depression, more I would think about bipolar disorder with respect to schizophrenia. And people often receive one diagnosis and then move on to the next at a different point of their illness. I think specifically with respect to KarXT, we’re able to demonstrate, I think very clearly at this point is a robust effect on the symptoms of psychosis in schizophrenia. To the extent that someone has a diagnosis of schizophrenia, I think when you’ll look at the clinical evidence center today, demonstrating that we can treat those symptoms. Specifically with respect to negative symptoms and do you think there’s a conversation about how those may or may not overlap with some of the types of symptoms associated with depression in either bipolar disorder or MDD, given things like lack of motivation, anhedonia and other features or commonly associated with both those orders, it’s really difficult to predict how KarXT would work or be effective in patients without a diagnosis of schizophrenia.

That being said, to Bill’s point, I think our data provides a motivation and a demonstration of a broad and robust efficacy profile that we can continue to refine and study over time, and that will help inform physicians about how they might use this product.

Operator: Next question comes from Jeff Hung from Morgan Stanley.

Jeff Hung: Thanks for taking my question. With multiple companies developing candidates for psychosis in Alzheimer’s disease, are you concerned that this may lead to slower enrollment or lower quality in patients? What steps are you taking to mitigate that potential headwind in psychosis in Alzheimer’s disease? And then are there any updates on potential partnership discussions for ex U.S. rights to KarXT?

William Meury: Thanks, Jeff. Andrew will take the first part of the question.

Andrew Miller: Yes. I think specifically with respect to recruiting and enrolling the ADEPT program, it’s always a competitive space. Obviously, Alzheimer’s is an indication where there are a large number of ongoing studies. Those tend to be more around disease modification or cognitive outcome measures. There are obviously a number of agents being pursued for the agitation and aggression associated with Alzheimer’s disease, which is a secondary endpoint in the ADEPT-2 study. There are other studies ongoing recruiting for hallucinations and delusions. Again, that’s whenever you’re in an area with significant unmet need, you’re likely to face some competitive dynamics with respect to clinical trial recruitment. So I don’t think we see anything particularly unique there with respect to the ADEPT program.

I think it’s — you see a pretty broad footprint for that program for us across the U.S. as well as multiple ex U.S. countries. You’ll continue to see that for ADEPT-2 as well. Again, not really reflective of a competitive dynamic in particular, but really just the idea of where the best place is to conduct these studies, how to get the right patients into those trials and have a high-quality data readout the same way we’ve had with EMERGENT-1, EMERGENT-2, EMERGENT-3.

William Meury: And as it relates to our ex U.S. partnering plans, our thinking here has not changed. And of course, will make sense operationally to find a partner with regulatory development and commercial capabilities. And we’ll provide an update at the right time. We’re talking to companies all the time, but no update at this point. Thanks for the question.

Operator: I will now turn the call back over to Bill Meury, President and Chief Executive Officer for closing remarks.

William Meury: Thank you for being with us this morning. We appreciate the questions. And look forward to talking to you next quarter.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.