Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So for this session, we have Karuna Therapeutics with CEO Bill Meury. Welcome, Bill. Thank you. Maybe for those who are not as familiar with Karuna Therapeutics, can you provide a brief introduction? Yeah. We're a, we're a Boston-based neuroscience company. We have about 300 employees. We have drug discovery, drug development, and commercialization capabilities. Our flagship product is called KarXT, which is an M1/M4 receptor agonist for the in development for the treatment of schizophrenia, the adjunctive treatment of schizophrenia, and Alzheimer's psychosis. So three indications. We also have a discovery platform directed toward muscarinic receptor modulators, and we have a TRPC4/5 inhibitor that's also in early stages of development, potentially for depression and anxiety. We think fairly broadly about neuroscience. Right now, we're focused on psychosis as well as mood and anxiety disorders. And we're going to file an NDA at the end of the month, September thirtieth. We have 19 days, and so there's a filing team of about 75-100 people that have been working day and night to make sure the NDA goes in on time, which it will go in on time. Great. Well, let's start with schizophrenia monotherapy. You know, over the last year, you've reported positive data from two phase 3 studies of KarXT in schizophrenia. Can you just provide some of the key highlights from those results? Yeah. EMERGENT-1 and EMERGENT-2, which were five weeks flexible dose studies, two doses of KarXT, placebo-controlled trial. I think on the efficacy side of the equation, I'll start there. Look, we showed an effect size in those two studies that was in the range of about 0.65, and a placebo-adjusted effect on the PANSS scale of about 8-9 points. And so if you were to rank all the atypical antipsychotics in the United States from high to low in terms of effect size in a cross-study comparison, KarXT would be at the top. We also showed a CGI-S responder, essentially rate, where almost 40% of people in those two studies were mild or better at the end of the five weeks, as compared to about 10% or 11% in placebo, and they went into the study, you know, rated markedly ill. And so, you know, when you look at the research endpoint, the PANSS and the CGI-S, it's a pretty impressive data set. If you look at the safety and side effect side of the equation, it's a fundamentally different profile. And so with KarXT, we haven't seen any weight gain, EPS, somnolence or sedation, which are very common side effects associated with the drug. We do see some GI side effects, which are more like an SSRI, which are in the mid-teens, but those side effects were mild to moderate in nature, transient, and usually a single event. And so the benefit risk profile, added with the fact that this is an M1/M4 agonist and not a D2 antagonist, you know, tells me that this has potential to be a pretty significant launch in 2024, 2025. Now, historically, common problems with treating schizophrenia is that patients cycle through drugs or experience side effects. Can you talk about how KarXT is differentiated, and what kinds of benefits do you see for patients with KarXT? Yeah, I mean, look, the statistics here are well documented. I think there was a CATIE study that showed that 75% of people who started on a D2 antagonist after 18 months aren't taking their medication. 50%-60% of people are not adherent. The main reason for that is simply safety and side effects. And if you look at surveys of patients with schizophrenia, you hear about weight gain, drowsiness, sedation, which are the number one reasons that they discontinue their medication. Fortunately, when we look at the benefit risk data from the EMERGENT program, it's just a different approach. And so whether it's a new patient, whether it's a switch patient, whether it's potentially an add-on patient, there's some real potential here for what I would describe as a changing of the guard in schizophrenia. Psychiatrists have been using basically the same class of medications for the past several decades, which are D2 antagonists, and they are more similar than different. They've certainly made a big difference in patients' lives, but they're not without limitations, and there's never been another class. So take a look at depression, for example. There are eight different classes of antidepressants, but in schizophrenia, there's only one class, and so I expect that this could carve out a reasonable portion of patients in the next several years. Now, your long-term safety trials, EMERGENT-4 and EMERGENT-5, those have now completed enrollment and top-line data are expected next year. Can you expand on the remaining outstanding items, and steps in these trials? And then how do these data fit into the overall NDA data package in terms of content and timing? Sure. The EMERGENT-4 included patients who were rolled over from our efficacy trials, EMERGENT-2 and 3, and EMERGENT-5 were de novo patients. It's a 52-week long-term safety program. The primary objective of the program was to assess adverse events and safety, but there were also secondary and exploratory endpoints in the study over that one-year period, and there were over 500 patients in the study. So this is a very rich database. There were over 30 different endpoints, primary, secondary, and exploratory, across efficacy and safety, and those data were part of our NDA or will be part of our NDA submission at the end of the month. And we'll release the data from EMERGENT-4 and 5 in the second half of 2024. We'll look at all the efficacy endpoints that were used in the EMERGENT-2 and EMERGENT-3 trials, of course, all the safety endpoints. We also have three PROs, patient-reported outcomes: the SF-36, the EMA, which is the Ecological Momentary Assessment scale, and something called the PSP, which is the Personal and Social Performance score. And those endpoints look at quality of life and activities of daily living. And so this is a very rich database that I think is going to be very reassuring to psychiatrists and to payers in terms of what we are observing, largely consistent with, with what we observed in EMERGENT-1, which was our phase two study, and EMERGENT-2 and EMERGENT-3. And, you know, we're anxious to get the data to the, to the community. I think psychiatrists are going to look very carefully long-term at the lack of weight gain. They'll look at things like glucose levels and lipid levels, motor dysfunction, among other things, but anxious to see those data in the public domain. Now, you have 24-hour ambulatory blood pressure data expected in the fourth quarter. Can you talk about what you hope to see and what we should expect with those results? Yeah, of course, it's an ongoing study. But I think we expect that study to be positive and rule out a 3-mm increase in blood pressure on a 24-hour basis, which is the primary objective of the study. We completed enrollment in the study, several weeks ahead of schedule, and as you said, we expect the results to be available in the middle of the fourth quarter. That will be part of our 120-day update to the FDA, which we had talked about with the FDA during our pre-NDA meeting. And of course, the vital signs information from that data could be included in our label, which will be reassuring, and I don't - I think this is going to be a positive study. Can you talk about the timing for filing the KarXT NDA and thoughts on whether there may be an Ad Com? Yeah, we expect to submit it at the end of the month. As it relates to an Ad Com, look, and this is true for any company, you just got to be ready. I don't think that there's any controversy in our efficacy and safety results. The design of our phase three program was very straightforward. I always say that while KarXT is a novel compound, a non-D2 blocker for managing schizophrenia, the development program is right, right down the middle, and I think that de-risks it from a regulatory perspective. If there is an Ad Com, all we can do is be ready for it, but I don't know what fundamental question the FDA would want to get advice on, to be fair. Okay, great. Maybe a few questions on the commercial side. Yeah. Can you talk about your commercial preparation efforts ahead of the potential launch? Yeah, look, right now we're about, you know, 12-18 months from an approval. We have... You know, there's, and this is true at any company, it's not unique at Karuna, but there's a medical science liaison team that's talking to psychiatrists around the country and in the context of scientific exchange, and they're probably interacting with about 1,000 psychiatrists over the next year. We also have a managed care account team that will call on Medicaid, Medicare Part D, and commercial payers, and they're able to talk to the payers about what we've produced from the EMERGENT program. And obviously, with the objective being that when we get to launch at the end of 2024, early 2025, that we're able to secure formulary coverage at a price that makes sense for them and a price that makes sense for us. We'll start building the sales organization in the summer, late summer of 2024. We know how to do that. It's not a lunar landing. We'll have a fully wired launch program. The fact that there's so much anticipation in the psychiatry community, and to a certain extent, at least as it relates to schizophrenia, we have a monopoly on the airways. There's not going to be a new product launch within the first couple of years of our launch. And so we'll be ready to go when we get to the end of the year next year. Talking about the sales force, how many salespeople do you think you need to address the U.S. patients? You know, what patients will you target initially, and then what's the strategy for reaching those patients? Yeah, I think, as it relates to the sales organization, we're probably going to be in the range of about 300-400 people in order to cover... You know, there's roughly 30,000 psychiatrists in the United States that are diagnosing and treating schizophrenia. That would include nurse practitioners, too. And so that is the right size organization, and they'll be deployed and trained and compensated appropriately. You know, as it relates to sort of other aspects of the launch program, there'll be a large peer-to-peer promotional effort. There'll be a consumer program in place. You know, in terms of how to position the drug, it's not another D2, and I think that's incredibly relevant. And as I mentioned earlier, you have new patients. There's some limits to getting to new patients because payers will put certain restrictions in place, but that's typical. That's been going on for a long time. There's switch patients, and there's a, you know, the switching rate in categories, in CNS categories, like mental health, is very high because success rates with the drugs are very low and failure rates are very high. You know, if I gave you a antihypertensive or something for your glucose or your, your lipids, there's a 90% chance it would have an effect. But in the area of serious mental health, the response to therapy is very idiosyncratic. And so, you know, success rates or efficacy rates, and there's no talk of remission, of course, but they're in the 20%-30% range.... So there's a lot of switching, so that would be the second sort of opportunity for KarXT. And then, of course, there's the potential for add-on. Now, we won't have an indication for adjunctive treatment at launch. We'll have the treatment for-- We'll have an indication for the treatment of schizophrenia, but polypharmacy is very common in the psychiatry community. Roughly 30% of patients today are getting two D2 antagonists, despite the fact there's no evidence preclinically or clinically to support the combination. So I think there'll be some adjunctive use. If our adjunctive treatment study is positive, I think it will, it will increase that even further, and I think that's also a big opportunity for the product. Now, given that switching is common for current drugs, I guess, how are you thinking about duration of therapy with KarXT, and what kind of initiatives- Sure. Do you implement to, to help with that? Yeah, a lot of it has to do with safety and side effects. If you look at atypicals, for example, and there's multiple studies available on this, about the atypicals, real-world studies or naturalistic studies, the adherence rate is only about 60%. If you look at persistency, which is another measure, it's about, let's call it 200 days of therapy. All right? So you can see that there's a lot of gaps in treatment, partly because of the response to these medications, which is complicated by brain chemistry, among other things, and partly because of problems with safety and side effects. Now, if you looked at the typicals, which was the class of drugs that was available just before the atypical class, the adherence rate was 35%, and the persistency rate was only roughly 150 days of therapy. So there was almost a 50% improvement in adherence and persistency when you moved from one class to the other. I would say the differences between KarXT and the atypicals are even more profound than the differences between the atypicals and a typical antipsychotic like Haldol. Hard to tell how much better adherence and persistency are gonna be, but it's gonna be higher, and I think it's, it's hard to imagine that it's not. If, if you think about the, the discontinuation rate in our clinical trials due to adverse events was only about 5% or 6%, and I think that's largely due to the tolerability profile. So it'll be higher. We'll just have to wait and see how much higher. All right. So what has the feedback been from payers and physicians? Yeah, look, as it relates to... I'll deal with the harder question, which is the payers. I think this is true in mental health more than it is in other therapeutic areas in biopharma. There is still a balanced conversation happening between companies, the manufacturers, and the payers because of what we were talking about, which is, it's so difficult to control the symptoms of some of these conditions, whether it's schizophrenia or Alzheimer's or depression or anxiety, and so they're more inclined to provide access to medications than they are in other areas. And I don't think it's the case that an innovative drug has to be priced at a major discount or a major premium to be successful. There's a middle ground that I think we'll achieve. And at the state level, and this, a lot of 55% of our sales will come from Medicaid. At the state level, there are policies being put in place today for conditions related to serious mental illness that preclude the use of prior authorizations and step edits. So, for example, in the state of Texas, where there are roughly 200,000 patients who suffer from schizophrenia, there was a legislative decision made to not allow the use of prior authorizations and steps. And so I think formulary coverage is something that we're gonna be able to achieve, and we'll achieve it at a price that makes sense for the payer and doesn't create budget problems and, at the same time, rewards Karuna for its, for its innovation. As it relates to psychiatry, I think they subscribe to the notion that there could be a changing of the guard here. And, you know, I was at a Psych Congress in Nashville last week, and Roger McIntyre, who's a well-known psychiatrist, said: "For years and years, we've been treating schizophrenia postsynaptically, even though it's a presynaptic condition," and KarXT works presynaptically upstream on M1 and M4, not postsynaptically downstream on D2. And so I think there's a lot of anticipation here for something that is not contradictory and doesn't compete with the dopamine hypothesis, which has really governed sort of pharmacological therapy in schizophrenia, but actually is complementary and could be additive. Most of the psychiatry community has been dealing with setting expectations with patients that, you know, you're gonna face challenges with your condition, and now you're gonna face challenges with the treatment for that condition. That conversation will sound a little bit different with KarXT, assuming that the real-world experience with the drug matches the clinical research experience. Great. Let's move to the adjunctive treatment in schizophrenia. You talked about this a little bit earlier. Can you just talk about the ARISE study and what you're looking for in that study? Sure. The study, in many respects, is a carbon copy of EMERGENT-1, EMERGENT-2, and EMERGENT-3 in terms of its basic design. Two big differences, patients are on background or on a D2 antagonist. They have background therapy, and so this is adjunctive treatment. You add KarXT. We're looking for a 4-5-point change on the PANSS, and that's what the study is powered to show, which is roughly half the effect size that we saw in our EMERGENT program. There's a 5-week lead-in period to confirm that patients are compliant. And of course, we're looking for no overlap in terms of adverse events. Now, if you look at the D2 antagonists and KarXT, they are different in that respect.... No, no weight gain, EPS, and sedation with, with KarXT, no effect on glucose or lipids, prolactin levels, among other things. The only thing that KarXT has is GI side effects, like I said, in the, in the mid-teens. And so I—the psychiatry community wants to know that they can add it safely, and it'll be well tolerated, and that there's an additive benefit. And if the study proves to be positive, then I think we'll have an indication, and I do think it, it could really change how schizophrenia is treated. And the best way to think about this is two analogs. In depression, an atypical antipsychotic is used 20% of the time on top of an SSRI or an SNRI, non or partial responder, so someone who failed 1-3 courses of therapy, 20% of the time. In Alzheimer's, an NMDA antagonist called Namenda is used on top of Aricept over 37% of the time. So let's just take the midpoint. If, if the ARISE study is positive and the experience with KarXT is positive, you know, you could have 30% of people receiving an M 1, M4 on top of a D2 antagonist, and that would be a fundamental shift. Now, given patients may be on different drugs with KarXT, what kind of benefit are you looking for? And is there a specific bar for success, and how much variation in benefit are you expecting with different drugs? Yeah, we don't expect a difference based on the background atypical. And so in the study, you'll have products like risperidone and aripiprazole and lurasidone and cariprazine and paliperidone, oral and long-acting injectable, which, to be fair, pharmacologically, they are much more similar than different. And the study is powered to show a 4- to 5-point change. You can get an atypical approved at the FDA based on a 4- to 5-point change. And so I think there's a lot of anticipation in the community for the results of the study. We know that preclinically, if you take KarXT and add it to aripiprazole or risperidone in two different sort of models of psychosis, you see a synergistic effect. And so now it's just time to produce the clinical data. Right. Let's talk about psychosis in Alzheimer's disease. Can you just talk about why you think psychosis in Alzheimer's disease is de-risked? Sure. First of all, schizophrenia was at one time called dementia praecox, which is premature dementia. And so the two conditions, Alzheimer's psychosis and schizophrenia, share many of the same features. Biochemical dysfunction, you know, brain region dysfunction. They're very similar in that regard. That's number one. Number two, KarXT was discovered in an Alzheimer's study. It was an Alzheimer's study of cognition, where they observed the antipsychotic benefit. And so there are two distinct proof points here that KarXT should have an effect in Alzheimer's psychosis, and we've designed a relapse prevention study as well as an acute efficacy study. I think as it relates to safety and side effects, you know, the proposition here for KarXT is stronger than it is for a second-generation atypical or a D2 antagonist for all the reasons that we talked about earlier. We have to complete the studies. They'll be available at the end of 2025. But we like the way things are setting up right now. Can you talk about the rationale for different doses? Yeah. So we did. Based on the Lilly work that was done in Alzheimer's and based on, you know, a full phase 1 program, we determined that we could achieve therapeutic levels of KarXT in elderly at lower doses. And so, for example, in our phase 1 program, patients were on 100-150 milligrams of KarXT as compared to, you know, 200-250 milligrams in the schizophrenia program, but the same drug levels. We lowered the doses of the trospium and the ratio of xanomeline to trospium so that we could preserve the therapeutic effect and have something that was well tolerated. And I think we're in a good place right now. We have a broad range of doses, ranging from 60 milligrams of xanomeline, all, all the way up to 200, 10-to-1 ratio with the trospium. And we have a longer titration phase, another 2-week more titration. So the problem we were solving for going into Alzheimer's was related to safety and tolerability, not efficacy. Okay, great. Let's move beyond schizophrenia and ADEPT. Are there any additional indications that you plan to explore with KarXT, and what is the mechanistic rationale for pursuing these indications? Sure. I mean, the thesis we have is that wherever, wherever an atypical antipsychotic is used today, a second-generation atypical for psychosis, so take bipolar depression and depression aside, KarXT could be used. And so we've, as you mentioned, we've checked the box for schizophrenia. We were checking the box for Alzheimer's psychosis, but we could look at Alzheimer's agitation, autism, mania, and even, and even Parkinson's. Now, I don't think we'll do all of those. But given what we're seeing in the profile and given the widespread utilization of atypicals across those conditions, whether it's in, you know, in autism, you're talking about kids 5 to 17 years of age, then you have adults, and then the 65 and older population, it's a very large, diverse market. We're gonna look at all of these indications now that we've gotten the NDA, you know, near submission. ...Any updates on KAR-2618 for mood and anxiety disorders? You know, what should we expect from the update later this year? Yeah, as you know, for those of you who don't know, KAR-2618 is a TRPC4/5 inhibitor that we acquired several months ago. We expect to be able to take it into the clinic sometime in 2024 for depression and anxiety. We're doing some formulation work right now. The deal made sense for Karuna on so many levels. Scientifically, we know that TRPC4/5 receptors are expressed in that part of the brain that's responsible for mood and anxiety disorders. There was several layers of preclinical evidence in animal models of behavior that demonstrated its antidepressant and anxiolytic effect, although the predictive quality of those studies is, as you know, limited. There's also human data, fMRI imaging data, as well as, I guess, a human pharmacodynamic study in CCK-induced panic patients. And we really like the way it looked. It's been dosed in over 100 patients, humans in a different condition, some up to 48 weeks, and so from a safety standpoint, we felt pretty good about it. And strategically, it made a lot of sense for a company like Karuna to have one - on one side, a psychosis platform, and on the other side, mood and anxiety. Now, it's early, and we have to actually show an antidepressant or an anxiolytic effect in humans, and that'll be the purpose of the study. Likely, it will be a phase 1b type study, with sort of the secondaries being some efficacy. And, you know, I'm really enthusiastic about it, but I'm very realistic about where we are right now. Great. Maybe a couple of housekeeping questions. Can you just provide an overview of the IP for KarXT? Sure. We have several patent families, but the two that are most relevant are patent family one and patent family two, just sort of at a high level. You're talking about 8 patents across the two families, over 200 claims. Patent family one is on the basic invention, the pharmaceutical composition of xanomeline and trospium at the approved doses. And then patent family two relates to a number of PK, and that takes to 2034 with regulatory exclusivities, both PTE and pediatric exclusivity. Patent family two takes us out to 2040, and the claims related to patent family two are directed to a number of different PK parameters that are very relevant to this sort of combination of xanomeline and trospium. You know, we had to synchronize the release rate of xanomeline and trospium to reduce the side effects. And so, you know, when you think about IP, you have to think about, you know, how valid is your patent? Is there an invention story there, non-obviousness, and you think about infringement or workarounds or non-infringement, and I think we're in a very good situation as it relates to both patent families. These are issued Orange Book listable patents, and we'll continue to file more IP over time. Can you remind us how much cash you have and the runway that that gets you? Sure. We have about... I think at the last quarter earnings call, we had $1.4 billion in cash, and we have—you know, we're spending about $100 million a quarter. And so we have enough balance sheet to launch KarXT and advance the ADEPT program, which is our Alzheimer's psychosis program, as well as the ARISE program, the adjunctive treatment program, and that'll take us through or into 2026. And we wouldn't be raising money unless there was a clear use of proceeds, and we were pursuing things that could create incremental value, unanticipated incremental value over the next several years. Great. Well, maybe in the last minute, just one last question. Anything that you think that the street misunderstands about the Karuna story? I think the only thing I'd like to clarify, I think it's well documented, the story. I think what I'd like to clarify is that this is a psychosis platform and not just a drug for schizophrenia. And I think, you know, you asked the question about what will you pursue beyond schizophrenia? Of course, we have Alzheimer's, but there are other indications. In fact, the psychosis market for atypicals is actually larger than that of the bipolar depression, depression market when you look at all the uses of atypicals, from kids to adults to 65-and-older population. But I think most people understand it. Great. Looks like we'll have to leave it there. Thanks so much for your time. All right, good. Thank you.