10-Q 1 krtx-20220630.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ____________

Commission File Number: 001-38958

 

Karuna Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-0605902

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

99 High Street, 26th Floor

Boston, Massachusetts

02110

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (857) 449-2244

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

KRTX

 

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of August 3, 2022, the registrant had 29,953,422 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Consolidated Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Comprehensive Loss

3

 

Consolidated Statements of Stockholders’ Equity

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

Signatures

33

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

KARUNA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

June 30,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

136,096

 

 

$

206,953

 

Investment securities, available-for-sale

 

 

271,318

 

 

 

287,038

 

Accounts receivable

 

 

4,750

 

 

 

1,750

 

Prepaid expenses and other current assets

 

 

11,489

 

 

 

21,138

 

Deferred offering costs

 

 

528

 

 

 

455

 

Total current assets

 

 

424,181

 

 

 

517,334

 

Restricted cash

 

 

261

 

 

 

261

 

Right-of-use lease assets - operating, net

 

 

5,580

 

 

 

6,453

 

Property and equipment, net

 

 

3,079

 

 

 

3,092

 

Other non-current assets

 

 

455

 

 

 

531

 

Total assets

 

$

433,556

 

 

$

527,671

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,920

 

 

$

1,939

 

Accrued expenses

 

 

17,686

 

 

 

16,099

 

Current portion of operating lease liability

 

 

2,262

 

 

 

2,175

 

Total current liabilities

 

 

23,868

 

 

 

20,213

 

Operating lease liability, net of current portion

 

 

4,175

 

 

 

5,328

 

Other non-current liabilities

 

 

104

 

 

 

104

 

Total liabilities

 

 

28,147

 

 

 

25,645

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized and 0 
   shares outstanding as of June 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000,000 shares authorized at
   June 30, 2022 and December 31, 2021;
29,933,103 and 29,770,558 
   shares issued and outstanding at June 30, 2022 and December 31,
   2021, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

819,433

 

 

 

790,391

 

Accumulated deficit

 

 

(411,032

)

 

 

(287,871

)

Accumulated other comprehensive loss

 

 

(2,995

)

 

 

(497

)

Total stockholders’ equity

 

 

405,409

 

 

 

502,026

 

Total liabilities and stockholders’ equity

 

$

433,556

 

 

$

527,671

 

 

The accompanying notes are an integral part of these consolidated financial statements

1


 

Karuna Therapeutics, Inc.

CONSOLIDATED Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

License revenue

 

$

5,278

 

 

$

 

 

$

5,278

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

52,487

 

 

 

24,147

 

 

 

96,293

 

 

 

44,333

 

General and administrative

 

 

17,843

 

 

 

10,384

 

 

 

32,631

 

 

 

20,161

 

Total operating expenses

 

 

70,330

 

 

 

34,531

 

 

 

128,924

 

 

 

64,494

 

Loss from operations

 

 

(65,052

)

 

 

(34,531

)

 

 

(123,646

)

 

 

(64,494

)

Other income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

490

 

 

 

106

 

 

 

727

 

 

 

249

 

Sublease income

 

 

147

 

 

 

9

 

 

 

286

 

 

 

9

 

Impairment loss on right-of-use assets

 

 

 

 

 

 

 

 

 

 

 

(677

)

Total other income (loss), net

 

 

637

 

 

 

115

 

 

 

1,013

 

 

 

(419

)

Net loss before income taxes

 

 

(64,415

)

 

 

(34,416

)

 

 

(122,633

)

 

 

(64,913

)

Income tax provision

 

 

(528

)

 

 

 

 

 

(528

)

 

 

 

Net loss attributable to common stockholders

 

$

(64,943

)

 

$

(34,416

)

 

$

(123,161

)

 

$

(64,913

)

Net loss per share, basic and diluted (Note 6)

 

$

(2.17

)

 

$

(1.17

)

 

$

(4.13

)

 

$

(2.27

)

Weighted average common shares outstanding used in
   computing net loss per share, basic and diluted

 

 

29,896,332

 

 

 

29,482,511

 

 

 

29,851,396

 

 

 

28,639,210

 

 

The accompanying notes are an integral part of these consolidated financial statements

2


 

Karuna Therapeutics, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

 

$

(64,943

)

 

$

(34,416

)

 

$

(123,161

)

 

$

(64,913

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on available-for-sale
   investments

 

 

(460

)

 

 

(14

)

 

 

(2,498

)

 

 

(44

)

Comprehensive loss

 

$

(65,403

)

 

$

(34,430

)

 

$

(125,659

)

 

$

(64,957

)

 

The accompanying notes are an integral part of these consolidated financial statements

3


 

Karuna Therapeutics, Inc.

CONSOLIDATED Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance, December 31, 2021

 

 

29,770,558

 

 

$

3

 

 

$

790,391

 

 

$

(287,871

)

 

$

(497

)

 

$

502,026

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

10,636

 

 

 

 

 

 

 

 

 

10,636

 

Exercise of common options

 

 

60,700

 

 

 

 

 

 

1,282

 

 

 

 

 

 

 

 

 

1,282

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,038

)

 

 

(2,038

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(58,218

)

 

 

 

 

 

(58,218

)

Balance, March 31, 2022

 

 

29,831,258

 

 

$

3

 

 

$

802,309

 

 

$

(346,089

)

 

$

(2,535

)

 

$

453,688

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

12,132

 

 

 

 

 

 

 

 

 

12,132

 

Exercise of common options

 

 

101,845

 

 

 

 

 

 

4,992

 

 

 

 

 

 

 

 

 

4,992

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(460

)

 

 

(460

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(64,943

)

 

 

 

 

 

(64,943

)

Balance, June 30, 2022

 

 

29,933,103

 

 

$

3

 

 

$

819,433

 

 

$

(411,032

)

 

$

(2,995

)

 

$

405,409

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Income (loss)

 

 

Equity

 

Balance, December 31, 2020

 

 

26,988,458

 

 

$

3

 

 

$

482,955

 

 

$

(144,066

)

 

$

39

 

 

$

338,931

 

Issuance of common stock upon
   public offering, net of $
17,250 
   in under-writing discounts and
   commissions and $
233 in
   offering costs

 

 

2,395,834

 

 

 

 

 

 

270,017

 

 

 

 

 

 

 

 

 

270,017

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,822

 

 

 

 

 

 

 

 

 

5,822

 

Exercise of common options

 

 

56,876

 

 

 

 

 

 

671

 

 

 

 

 

 

 

 

 

671

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

(30

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(30,497

)

 

 

 

 

 

(30,497

)

Balance, March 31, 2021

 

 

29,441,168

 

 

$

3

 

 

$

759,465

 

 

$

(174,563

)

 

$

9

 

 

$

584,914

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

7,466

 

 

 

 

 

 

 

 

 

7,466

 

Exercise of common options

 

 

102,642

 

 

 

 

 

 

2,388

 

 

 

 

 

 

 

 

 

2,388

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(34,416

)

 

 

 

 

 

(34,416

)

Balance, June 30, 2021

 

 

29,543,810

 

 

$

3

 

 

$

769,319

 

 

$

(208,979

)

 

$

(5

)

 

$

560,338

 

 

The accompanying notes are an integral part of these consolidated financial statements

4


 

Karuna Therapeutics, Inc.

CONSOLIDATED Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(123,161

)

 

$

(64,913

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

22,768

 

 

 

13,288

 

Impairment loss on right-of-use assets

 

 

 

 

 

677

 

Amortization of premiums and accretion of discounts on
   investment securities

 

 

463

 

 

 

423

 

Depreciation and amortization expense

 

 

517

 

 

 

164

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accrued interest on investment securities

 

 

67

 

 

 

349

 

Accounts receivable

 

 

(3,000

)

 

 

 

Prepaid expenses and other current assets

 

 

9,649

 

 

 

(1,328

)

Right-of-use assets

 

 

873

 

 

 

583

 

Other non-current assets

 

 

76

 

 

 

(729

)

Accounts payable

 

 

1,967

 

 

 

1,101

 

Accrued expenses

 

 

1,544

 

 

 

499

 

Operating lease liability

 

 

(1,066

)

 

 

(325

)

Deferred rent

 

 

 

 

 

35

 

Other non-current liabilities

 

 

 

 

 

104

 

Net cash used in operating activities

 

 

(89,303

)

 

 

(50,072

)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investment securities

 

 

(90,507

)

 

 

(190,450

)

Maturities of investment securities

 

 

103,199

 

 

 

251,947

 

Sales of investment securities

 

 

 

 

 

8,990

 

Acquisition of property and equipment

 

 

(451

)

 

 

(786

)

Net cash provided by investing activities

 

 

12,241

 

 

 

69,701

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from public offering, net of underwriting discounts
   and commissions

 

 

 

 

 

270,250

 

Payment of offering costs

 

 

(69

)

 

 

(233

)

Proceeds from exercise of stock options

 

 

6,274

 

 

 

3,059

 

Net cash provided by financing activities

 

 

6,205

 

 

 

273,076

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(70,857

)

 

 

292,705

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

207,214

 

 

 

53,205

 

Cash, cash equivalents and restricted cash at end of period

 

$

136,357

 

 

$

345,910

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flows information

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable
   and accrued expenses

 

$

53

 

 

$

702

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

4

 

 

$

 

Lease liabilities arising from obtaining right-of-use assets

 

$

 

 

$

6,040

 

 

The accompanying notes are an integral part of these consolidated financial statements

5


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of the Business and Basis of Presentation

Description of the Business

Karuna Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in July 2009 as Karuna Pharmaceuticals, Inc. and is headquartered in Boston, Massachusetts. In March 2019, the Company changed its name to Karuna Therapeutics, Inc. The Company is an innovative clinical-stage biopharmaceutical company driven to create and deliver transformative medicines for people living with psychiatric and neurological conditions.

Since the Company’s inception, it has focused substantially all of its efforts and financial resources on organizing and staffing the Company, acquiring and developing its technology, raising capital, building its intellectual property portfolio, undertaking preclinical studies and clinical trials and providing general and administrative support for these activities. The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other early stage companies, including dependence on key individuals, regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability, the impact of the ongoing and evolving COVID-19 coronavirus pandemic, and the need to obtain adequate additional financing to fund the development of its product candidates.

The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company experienced negative operating cash flows of $89.3 million for the six months ended June 30, 2022 and had an accumulated deficit of $411.0 million as of June 30, 2022. The Company expects to continue to generate operating losses for the foreseeable future.

The Company expects that its cash, cash equivalents and available-for-sale investments of $407.4 million as of June 30, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the date of issuance of these consolidated financial statements.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Karuna Securities Corporation, a Massachusetts corporation. All inter-company transactions and balances have been eliminated in consolidation.

The accompanying consolidated balance sheet as of June 30, 2022 and the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the statements of cash flow for the six months ended June 30, 2022 and 2021 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2022 and the results of its operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.

Note 2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. During the three and six months ended June 30, 2022, there were no material changes to the Company’s significant accounting policies.

6


 

Recently Issued Accounting Pronouncements

New pronouncements issued but not effective until after June 30, 2022 are not expected to have a material impact on the Company’s consolidated financial statements.

Note 3. Prepaid Expenses and Other Assets and Accrued Expenses

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

June 30,
2022

 

 

December 31,
2021

 

Research and development expenses

 

$

10,148

 

 

$

18,066

 

Insurance

 

 

45

 

 

 

2,364

 

Other

 

 

1,296

 

 

 

708

 

Total prepaid expenses and other current assets

 

$

11,489

 

 

$

21,138

 

 

The Company also had other non-current assets of $0.5 million as of June 30, 2022 and December 31, 2021. As of June 30, 2022, other non-current assets consisted of a security deposit of $0.4 million and less than $0.1 million in prepaid research and development and other expenses, as well as less than $0.1 million in deferred rent. As of December 31, 2021, other non-current assets consisted of a security deposit of $0.4 million, $0.1 million in prepaid expenses, and less than $0.1 million in deferred rent.

Accrued expenses consisted of the following (in thousands):

 

 

 

June 30,
2022

 

 

December 31,
2021

 

Research and development expenses

 

$

11,124

 

 

$

8,316

 

Payroll and related expenses

 

 

3,843

 

 

 

6,989