Final session of Wednesday here at the BofA Annual Healthcare Conference. My name is Jason Gerberry. I'm one of the biotech analysts who covers Karuna Therapeutics, which is our next company presenter, joined by CEO, Bill Meury, and Troy Ignelzi, CFO. Gentlemen, thanks so much for joining us. Good to be here. What's the latest and greatest at Karuna? You just had earnings. Yeah. Yeah, you're moving forward here. You've, you got some time till the NDA. Maybe if you can just maybe level set, and then we'll jump into some questions. Yeah. The NDA is planned to be submitted in the third quarter of this year. I think we've moved from recruitment, enrollment, and data collection to a phase where it's about data cleaning analysis and writing the modules for the NDA. Mm-hmm. We had a pre-NDA meeting with the FDA, a couple of weeks ago. I would say it was very, very constructive. We're on track for the NDA submission. There doesn't appear to be anything controversial right now in our package, and I think we're in a really strong position. You know, four or five years of work to create the data package for the NDA. I think everybody's, you know, focused right now. Yeah. Bill Meury, you came on board, you've launched a lot of different drugs in the CNS space. Like, what do you see is the potential for KarXT? Right? A lot of people will say, "Well, the schizophrenia space, it's a tough end market," but yet the space hasn't had any novelty. Yeah ... in a while, so a lot of retread launches of atypicals. Yeah. It is a tough managed category from a payer perspective, so if you balance all that out, I mean, do you think that this is a space that, you know, blockbusters just can still be had? Yeah. Here's how I would think about it. There's a couple of good analogs where you had an innovation-based shift and a new class of medication garnered, you know, I'll throw out a number, about 30% or 40% of the category. The class. Right now, it's one of one, if we're the first out. I'll go back as far back as the typicals transitioning to the atypicals. TCAs transitioning to SSRIs. Mm-hmm. NSAIDs transitioning to COX-2s. Most recently, you have triptans going to CGRPs. Now, if you look at the difference between a triptan and a CGRP, and I was involved with one of those CGRP launches, the differences are no more profound than the differences that exist between an M1, M4 like KarXT and the D2 antagonist. I think the, the thesis, the blockbuster thesis here on the class and on KarXT is that it's a fundamentally different approach pharmacologically. Clinically, whether you look at efficacy or safety and tolerability, it is just different. I think the drug will be used as monotherapy, and I think there'll be a lot of adjunctive use. You know, you pick up 30 to 4. By the way, if you looked at all those analogs, they garnered anywhere from 25%-50% of those categories. Mm-hmm. Take the midpoint, call it 37.5%. You apply that to the schizophrenia market at branded pricing, and you can get to a very high level of sales with KarXT pretty rapidly. The only other analog to think about is adjunctive use. You have atypicals being used with SSRIs, and if you look at inadequate responders to SSRIs, 20% of them get an atypical. Mm-hmm. If you look at an Alzheimer's drug like Namenda being added to Aricept, about 37% of them. Yep will get Namenda. Take the midpoint, call it 25%, 30%. If we were to get 25%, 30% of patients on D2 antagonists, you have a large drug. Are you defining that as a percentage of third line plus, or are you defining that as a percentage of diagnosed and treated, like all comers? Would you just say that they all cycle through all these medications anyway, so that distinction doesn't matter? Yeah, In this case, as when you think about adjunctive. Mm-hmm. I don't think it matters. The point you're raising is, well, how big is the dynamic market in schizophrenia or the in-play market? Yeah. 600,000 patients a year are either started new, switched, or added, or receive adjunctive with 2 D2 antagonists. If you wanna value that's three and a half, $4, $5 billion in annual revenue that is in play. Yep. That's why if we were going in with another D2 antagonist, that's an uphill battle. Given those three groups, given the size of that sort of dynamic market, I think there's a reasonable chance here that you have one of the larger launches in CNS in 2024 and 2025. Would you envision launch being a quick launch? I mean, you know, it's gonna take... I'm just how you think about sort of the formulary adoption and the kinetics of year one of a launch like this and issues if, say, you launch mid-year? Yeah. I'd start at the end and work my way back. If you look at the last four D2s that have launched, their coverage, their formulary coverage today is 70%, 80%. Mm-hmm. They're all very similar. There's many generic alternatives in that bipolar MDD segment as there is in schizophrenia. We should be able to get to 70%, 80% of formularies. The question will be the quality of the coverage, and then how much does it cost us? As it relates to you know, discount rates, and there's a macro pricing environment that continues to evolve, we'll be able to manage it to a level that makes sense for the payers and rewards Karuna for innovation. The pricing dynamics and the access in this category is gonna be manageable. I do believe that when you think about lines of therapy, we'll compete in all those three segments: new, switched, and adjunctive. Obviously, in the new patient segment, there are gonna be steps in place, and, you know, that's understandable. Mm-hmm. We don't need to have all that business or much of that business to still have a really successful product. Do you need ARISE to hit to be adjunctive? I mean, can maybe talk about those dynamics and I know it's a hard study to run. Nobody's ever run an adjunctive study. You know, what if, you know, it's a close but no cigar type of outcome? How do you think about that dynamic? Yeah, it's a good question. We need the study to promote, obviously. I think if you survey most psychiatrists. Mm-hmm ... adding an M1 M4 to a D2 antagonist is pretty intuitive. Today, 30% of patients are getting 2 D2 antagonists, and even though a portion of that is Seroquel for sleep, there is already a non-fixed adjunctive treatment mark that exists despite the fact that these drugs have not been proven to work together. I think when we think about adjunctive treatment, we have to realize the safety and side effect profile of KarXT is not overlapping with those. You're not adding two drugs together that have weight gain, akathisia, sedation. Mm-hmm ... insomnolence. I think in the psychiatry community, this is gonna evolve over time. Obviously, our promotion is gonna be for the treatment of schizophrenia and not adjunctive therapy, my bet is the first prescription in the United States is gonna be KarXT added to a D2 antagonist. Okay. Now, some of the components to feed the NDA is EMERGENT-4 and I think EMERGENT-5, right? Your long-term safety follow-up studies. I think there's been mention in the past Lilly ran long-term safety with xanomeline single agent, sort of the core active API within KarXT. Has that data been published, or is that just data you have in-house that gives you that comfort that, you know, yes, we have five week exposure in EMERGENT-1 through 3, but we can also look at that xanomeline data to get comfort with sort of the long-term safety profile? I mean, ultimately, you know, I hear you guys talk about the value proposition. It's consistent with our checks- Yeah ... that, avoiding the tox liabilities of the D2s- Yeah is what doctors would like, right? Yeah. They like to avoid the metabolic. They like to avoid the movement disorder risks. That's right. Ultimately, we wouldn't expect KarXT to have those issues, but, you know. Yeah. It'd be nice to have that data in-hand. Yeah. First, our primary constituent right now is obviously the FDA and getting the submission in place, and the EMERGENT-4 and EMERGENT-5 data are essential to the submission in terms of ICH safety exposures, but we'll share the long-term safety data in the spring and fall meetings in 2024. I agree with you. I'm anxious to get it out because you have, in that study, several hundred patients who were switched off of an atypical. Mm-hmm ... Risperdal, Zyprexa, Seroquel, Abilify, onto KarXT, there is an analysis there of switching. You have efficacy data, not just on the PANSS, but we also have cognition data. We have patient-reported outcomes that look at activities of daily living and, of course, all of the safety and tolerability measures like weight gain, EPS, akathisia, triglyceride levels, glucose levels. It should be valuable data for us, and we will present it in 2024. Okay. I was just gonna add to that. Lilly did have six month data. That was published as part of the Alzheimer's report that came out 20-some years ago. Okay. There was six months data. There were also 68 patients that were on the drug for up to a year or more. There was nothing published on that, but we do have the six-month. Okay. You do get questions about the ambulatory blood pressure monitoring study, which you guys have decided to commence, I guess the company's view is we've sort of assessed this already through EMERGENT-1 through 3. Not expecting anything. We've also seen another similar agent, you know, run this trial, see no signal. Right. I guess the question becomes is your view is that the work that you've done, I assume there's you've had a regulatory discussion? There has to be some understanding that this wouldn't constitute a major amendment. Any, just color you can provide there. Yeah, we did talk to the FDA in the pre-NDA meeting about many aspects of the submission. ABPM was one of them. Mm-hmm. They're aware that we're providing the update at day 120. It's a phase I B study. It's supplemental, wasn't requested, not needed for submission. If we walked all of our EMERGENT-1, EMERGENT-2, and EMERGENT-3 data, vital sign data, baseline endpoint blood pressure into our ABPM study, those were Cmax results. We only measured blood pressure at 1 point in time. We would have a positive result and exclude a 3 mm increase or greater in blood pressure. The FDA knows it's coming at 120 days. They won't comment on whether it's gonna be a major amendment or not. My sense is that that is not gonna be a major amendment. That, of course, is, you know, subject to review. Yep. Okay, maybe just thinking about down the line as the drug becomes KarXT commercially available, factors that, you know, could impact, you know, GI side effects and ultimately sort of thinking about the drug persistence and adherence. We're getting way ahead of ourselves, but. Yeah ... yeah, what we see in a five-week inpatient study may not necessarily be representative of what we might see in the real world. Oftentimes we see with drugs, doctors don't know. Mm-hmm ... prepare patients for these adverse events. Maybe Are you thinking about this and ways to mitigate this and head this off as, you know, the drug becomes commercially available and educating HCPs about this? Yeah. I think you're exactly right. If you look at the GI profile of KarXT, just nausea and vomiting, it looks like an SSRI. And obviously, psychiatrists have a lot of experience in treating patients and prescribing SSRIs. The key thing with any of these types of side effects, which by the way, are mild, moderate, and transient, you know, after the first week, at most second week, these side effects resolve with repeat dosing. The key thing is to manage expectations. Right now, when they give someone an atypical antipsychotic, this is what it sounds like. You may experience weight gain, and it could be 10 or 15 pounds. You may experience akathisia, you may experience EPS, you may experience somnolence. We're gonna watch your lab results because it could increase glucose levels, triglycerides, and lipids. Those are the expectations they set today. Flip it around. They introduce KarXT, what they're gonna say is, "You don't have to worry about those things," and our long-term safety data will help support that, of course, in the label. You may experience some nausea, vomiting. Mm-hmm. It should be mild to moderate. For many patients in the study, it was one event, and it will resolve after a couple weeks. In the entire program, let's just say you're right, and the inpatient trial is covering up something. We only had three patients out of 340 that discontinued due to vomiting. So it's an SSRI-like tolerability profile in the schizophrenia market. That's not to minimize it because I think we do have to manage expectations, and we will. You train a sales organization to do it, you train a medical field team to do it, so that physicians know exactly how to set expectations with patients. If we do that, if this was a side effect that lasted longer or that accumulated over time or that was idiosyncratic, you didn't know when it was gonna appear, that's when you run into compliance problems. Here, I think we'll be able to manage it. Okay. Now maybe just talking about what a successful launch would look like in terms of how heavily do you need to resource this drug, how data-driven do you think the end market is, education with a new mechanism of action with HCPs, DTC, right? Like, Alkermes has a little Lybalvi. They say they're only doing DTC to bipolar. They don't plan to do any DTC to schizophrenia patients 'cause I don't know. Just curious your thoughts just kind of on the components of a marketing strategy and how heavily you'll need to resource. Yeah. It is a novel approach. The dopamine hypothesis has been sort of central to the treatment of schizophrenia for years. This is not inconsistent with it. It's, it's complementary to it. It's additive to it. Mm. We won't underestimate the level of education that's needed. It'll start in the pharmaceutical industry still depends on sales organizations. They're highly effective, and we will have a fairly sizable group in place to cover psychiatrists and nurse practitioners and select primary care physicians. That's number one. There'll be a very large peer-to-peer program in place, which makes sense when you have something novel like KarXT. Look, as it relates to consumer or caregiver activation, we believe the drug has the potential to reach a very high level of sales. That means if you're sitting operating this business, you're not gonna leave any stone unturned. I think a consumer program, whether it's television or digital, can make a great deal of sense here. The audiences are not just the patients, the caregivers, but you have payers, you have policymakers, and you have physicians, and those types of programs can mean something. The program will be wired in such a way to support what is a blockbuster thesis on the drug. Mm-hmm. You know, when you're in the middle of a launch, you don't test anything novel. You test what work. You do what works, and then evolve it as you sort of get into the later quarters and years of the launch. Okay. What does this mean? Like 200-300 sales reps and, mainly, Probably closer to 300-400. Okay. Maybe 300-350. You know, it's not gonna be a launch scale to cover primary care. To get to all the physicians or potential users of KarXT in the United States that diagnose and treat schizophrenia, that number would be 300-350. Mm-hmm. Okay. Yeah. I think you mentioned that with ARISE there was a little bit of a push in the timeline, relating to enrollment dynamics and, maybe what's underpinning that? Do you feel like second half is a good firm estimate now, or do you think that there's, you know, worth monitoring in terms of the enrollment dynamics? Yeah. The calculation we did with this is quality over speed. The ARISE program is very similar to EMERGENT-1, EMERGENT-2, and EMERGENT-3 in terms of its design, the endpoints. Mm. the duration, and the doses. The big difference is there's a four or five week screening period where we need to verify that patients who are entering the study are compliant with their background atypical antipsychotic because we're adding KarXT to an active compound. We have to make sure that patient selection is done right. We needed more time operationally for that screening period, and so we intervened a year before the study was ready to be completed. We have 30 sites in the United States. We have 20 more that we're gonna that are being activated as we speak, mostly in Eastern Europe, and that was sort of the calculation here. If the study wasn't so close to EMERGENT- Mm-hmm. I'd be worried about the conduct of it. It is. We just have to make sure we get patient selection right, and we need more time to do it. As it relates to are we gonna get it done in the second half of 2024, I believe we're in a good spot. When you're doing these studies and you're activating sites, it's when you activate them and you look at the enrollment figures per site where you really get a sense of what your trajectory is. Given where we are with the 30 and adding the 20, I think we have a pretty good handle on being able to get this done second half of 2024 around the launch. Mm-hmm. Which will be valuable. Okay. to cognitive data soon. Mm-hmm. How important really is this? As you mentioned, the population wasn't really selected. Yeah. for the cognitive deficit profile and sized appropriately. You're pooling the data, right? Doesn't sound like it's gonna be sort of data that would ever make it into a label. It's gonna maybe inform future clinical exploration. Just curious, sort of framing expectations into that data update and how important that ultimately is. I think what you said is exactly right. First of all, as it relates to its importance, if you ask anyone diagnosing and treating schizophrenia, they'll say it's essential feature of the disease, it's a predictor of functional outcomes, and there's no FDA-approved treatment. Second to weight gain or only second to weight gain, patients will complain about cognitive impairment. They won't use the phrase cognitive impairment. They'll talk about, "I feel out of it." "I have a zombie-like feeling. Mm-hmm. I feel sedated. I think it is very relevant. Now, we have preclinical data. The drug was discovered in an Alzheimer's cognition study by Lilly, and now we have the exploratory analyses. There's a reason to believe there's a pro-cognitive effect here. At minimum, though, there's no impairment of cognition, which is a limitation of the currently available atypicals. I think that's gonna matter in the real world experience with the drug. We're interested in doing additional clinical work in cognition. Now, will that be a registration trial in cognitive impaired patients with schizophrenia? Probably not. Could be. There's other types of work we could do, whether it be for publication purposes or a Phase II A study to characterize it, because I think it's a property of the drug that's unique to the M1/M4 mechanism of action for KarXT, and it is relevant to potential users of the product, physicians. We also have cognitive endpoints in our ARISE trial. Mm-hmm. In the EMERGENT-4 and EMERGENT-5 long-term safety studies, and in the ADAPT trial. Mm-hmm. I think it's an aspect of the profile that comes into focus, and if we do additional clinical work, we'll be prepared by the end of the year, early 2024, to talk about it. Okay. Yeah, I mean, it makes me think, you know, first mover advantage, how important is that, you know, to be out, to establish a profile? Cognitive data, you'd expect if you're hitting M1 versus an M4 selective approach, you're more likely to have a cognitive benefit. That's right. Establishing the totality, the profile, I guess that might be one aspect that, you know, helps you further cement sort of a first mover advantage. That's exactly right. I think you're exactly right. If there's a property of the drug that's gonna matter to users and gives you a competitive advantage relative to alternatives, you take advantage of it. It's pretty clear something's happening here, and we know it's important. Isolating it in a study with cognitively impaired patients is really gonna be the key. Yep. Okay. Maybe we'll shift in the last seven- Yeah. -or eight minutes here to ADP. Mm-hmm. You know, obviously we have to wait a bit for the data, but in terms of one of the risks with AD patients in geriatrics, obviously it's the risk of elevated adverse events. Yeah. subject group. Is that sort of like ultimately the key rationale for the TID dosing profile versus, say, the BID? Do you... You know, I guess, do you buy the notion that most of these patients are managed by a care provider or a nursing home? I imagine you do, right? That it's sort of like... 'Cause TID dosing doesn't sound very- Attractive. -attractive. Yeah. Look, we wanna get to a BID regimen. The one problem we knew that we had to solve for as it related to the Alzheimer's population, given Lilly's experience, was tolerability. We did a Phase I study. We evaluated different dosage strengths and ratios. We looked at 90 a day up to 200 a day. After a couple weeks of dosing, the majority of patients were at 150 to 200 milligrams of xanomeline a day and were tolerating the drug. Adverse events were mild to moderate, and there were no discontinuations, at least in the 150 milligram group. If the first couple weeks of our ADAPT trial look like that Phase I study, then we're gonna have a therapeutic effect that's well tolerated, which was not observed in the original sort of Alzheimer's study that Lilly did. The titration phase is longer to help manage. We have to walk before we run. I think you're right. Obviously, BID is better than TID. The one thing about KarXT in an Alzheimer's population, we're studying it for psychosis, but we know it has effect on cognition. Mm-hmm. We also know if you affect psychosis, you're probably dealing with agitation and aggression, which the root cause of those two things is treating the psychosis. You know, I could treat agitation and aggression with a benzodiazepine. While right now we're gonna start with a TID dosing regimen, you could have a pretty broad efficacy story that would matter in this population, and we'll try to get to a BID form, some sort of enteric-coated capsule or enteric beads that reduces the burden. Yep. 'Cause I agree with you. Ideally, you're at worst sitting with a BID regimen. Yeah. See, I think, I think with investors, the you know, the discussion is, well, if competitors with QD dosing, you know, are successful ultimately, you know, so how disruptive could that be to a marketing position? Ultimately, I guess if you're established, you know, maybe that heads off some of that, but I imagine a QD profile could be a bit of a risk. I think one's TID and one's Q-QD, all things being equal in Alzheimer's psychosis, I agree you could be at a disadvantage. As it relates to schizophrenia, I've said this, I think you've heard me, I don't see it as a market share battle or a horse race or a fight to the death. I think the thesis here for the muscarinic class, we're gonna be the first mover, is do you believe muscarinics will get to 30% to 40% of the schizophrenia market, whether they're used alone or in combination as an adjunctive treatment? It's hard to compare KarXT to another agent because we have a full data package and have dosed 1,500 patients, and that is, you know, not the case with alternatives at this point. If we were one of two- Mm-hmm. The class fundamentally changed how physicians were using pharmacotherapy in schizophrenia, both companies are gonna be very successful. If we were one of three, the same is true because if you look next door, you have one of 12 D2 antagonists for bipolar depression and depression, and they, to be fair, are more similar than different. I think about this very differently, and I think about a shift in the category to a new class, just like we were talking about with CGRPs and triptans. You know, Biohaven and AbbVie are sharing it. What's relevant there is not that the market share between the two companies is split, maybe it's roughly 50/50 now. What's relevant is CGRPs displaced a portion of the triptans because they have a better benefit risk profile. Yep. Okay. Yeah. let's see. Do you think that either the schizophrenia or ADP market is more attractive than the other? Yeah ...you know, size of the opportunity perspective? From a size perspective, schizophrenia right now is larger than Alzheimer's psychosis, but Alzheimer's psychosis has a higher prevalence. You know, the FDA, I think, has been very constructive here because you saw it in the, in the REXULTI advisory committee. Mm-hmm. You know, there are no FDA-approved treatment options, and they may be also with Auvelity. I think the Alzheimer's psychosis market, assuming the benefit risk profiles of these drugs are good, and the one thing about ours is we're not a D2. Even with the better tolerated D2 antagonists, at higher doses they look a little bit more similar to the original ones than they do, than when you look at their safety and tolerability profile in bipolar depression or depression. I think there's a potential for that category to develop and become as relevant as the schizophrenia market is. Mm-hmm. Right now, it's not there, and a lot's gonna depend on the data that gets produced and how physicians their experience with these drugs in an Alzheimer's population. There's no doubt today in a long-term care setting, they're diagnosing Alzheimer's psychosis as schizophrenia because of the black box warning. That's happening. Mm-hmm. There's certainly a need for FDA-approved treatment options with a good benefit risk profile, and I think the broad efficacy of KarXT in those three areas could be relevant. We'll get the approval for psychosis, but you can't deny that it works on cognition. Yeah Probably has an effect on agitation and aggression. Yeah. Practically speaking, you mentioned REXULTI, you know, being developed for agitation. How cleanly bifurcated do you think the agitation versus psychosis, ADA versus ADP markets are? You know, the ADA drugs will probably get out a couple years ahead, and just kind of wondering if that, you know, impacts the market from your perspective or it's so nascent and untouched that- Yeah you're not so worried about it 'cause it's this white space. Yeah. It's certainly... There's a lot of overlap. I think most psychiatrists think about if you treat the root cause psychosis, you'll deal with the behavioral problems. You know, 'cause as I said, I could give a benzodiazepine to somebody and relieve agitation and aggression, but am I getting to the root cause? I think there's room in this category, and I don't wanna contradict myself 'cause in schizophrenia I don't see it as a one of one of two, one of three. Yeah. I think in Alzheimer's psychosis, response to therapies will also be highly idiosyncratic, and even very effective products are not gonna work for everybody. I think what they want, though, is a safety and side effect profile that is more reassuring than the ones that exist today. Yep. Yeah. Okay. Well, we're pretty close to our time. Anything we missed? I don't think so. I don't think so, no. We got plenty of balance sheet. Got plenty of balance sheet, yep. All right. They don't call you the best color man in the business for nothing.