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unveiled positive results of a trial of its drug CVL-231 in adult schizophrenia patients on Tuesday, setting off a shake-up among stocks of biotechs focused on the disorder.
Shares of Cerevel (ticker: CERE) jumped 136.2% on Tuesday, before the biotech company announced late in the day that it was selling an additional 14 million shares of its stock. Cerevel shares dropped 9.1% in premarket trading on Wednesday.
(ticker: KRTX), a biotech developing its own schizophrenia treatment, dropped 8.9% on Tuesday, though it was up 0.1% in the premarket hours on Wednesday.
In notes on Tuesday, analysts said that the data from Cerevel was strong, but that the Karuna selloff was overdone.
“Based on our review of what Cerevel presented, we agree the data look impressive from both an efficacy and safety perspective, but also feel drawing broad conclusions from a small, single-center Phase 1b trial is risky,” wrote Mizuho analyst Vamil Divan, who has a Buy rating on Karuna. “We also point investors to the size of the schizophrenia market, the potential for both drugs to move into other large adjacent indications, and the first-mover advantage [Karuna’s drug] will likely enjoy as reasons why we remain bullish on KRTX.”
The Cerevel study was a small Phase 1b trial of CVL-231 in adults with schizophrenia. The study tested CVL-231 at two different dose levels, and the company said that both dose levels showed “clinically meaningful antipsychotic activity.” The company also said that the drug was well-tolerated.
Cerevel was spun out of
(PFE) in 2018. It merged with a special purpose acquisition company, or SPAC, to go public late last year. The stock is now up 79.1% so far this year.
In a note on Tuesday, Jefferies analyst Michael Yee wrote that Cerevel had put up “solid top-line data.”
“This drug CVL-231 will move forward into Phase II, and we note CERE has a big pipeline and the catalyst flow is rich over the next 6-18 months,” Yee wrote, referring to factors that could lift the stock.
Karuna’s schizophrenia drug, which it calls KarXT, further along in the development process than CVL-231, is now in two separate Phase 3 trials. In a note on Tuesday, Citi analyst Mohit Bansal wrote that CVL-231 and KarXT are similar in that both target a receptor in the nervous system known as M4, but that KarXT also targets another receptor, called M1.
“We think it is equally important,” Bansal wrote of M1. “Its stimulation has potential to cause cognition benefit, which could become a key difference for Karuna”
Even if that is not the case, Bansal wrote, Karuna’s drug is 18 months ahead of Cerevel’s, and the market is very large.
Karuna shares are up 9.6% so far this year.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
