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Karuna Therapeutics drops 12% after CEO change

Clinical-stage biotech Karuna Therapeutics (NASDAQ:KRTX) shed ~12% on Tuesday after naming former Allergan executive Bill Meury as president, chief executive officer, and board member, effective Jan. 03, 2023.

Steve Paul, who currently serves as the president, CEO, and chairman, will assume the roles of president of R&D and chief scientific officer in addition to his board membership. The company also announced that lead independent director Christopher Coughlin would become the new board chairman following the departure of Paul.

Meury most recently served as a partner at healthcare-focused private equity firm Hildred Capital after multiple senior leadership roles at Allergan, which Abbvie (ABBV) acquired in 2020 after a $63B deal.

The leadership change comes as the company expects to submit a marketing application for schizophrenia therapy KarXT to the FDA in mid-2023.

Meanwhile, Wall Street analysts argued that the CEO transition hurt Karuna's (KRTX) prospects as a potential buyout candidate.

Noting that the leadership transition is a "surprise," Citi analyst Neena Bitritto-Garg with a Buy rating on the stock, argued that the announcement could drag KRTX shares on Tuesday "as further takeout spec/premium comes out of shares."

Citing the views on Karuna (KRTX) as a "prominent M&A candidate," Stifel's Paul Matteis expects the company shares to come down in a "natural reaction that there must be no imminent buyer (why else would this happen now?)."

"While many investors' preferred finale to KRTX is an outright sale, this is a good hire for being in the right position to launch KarXT as it offers the management team much needed commercial expertise," Matteis, who has a Buy rating on the stock, added.

In December 2021, Goldman Sachs listed Karuna (KRTX) as a potential M&A candidate for 2022.