Zai License Agreement	3 Months Ended
Mar. 31, 2023
Research and Development [Abstract]
Zai License Agreement	Note 5. Zai License Agreement Terms of Agreement On November 8, 2021, the Company and Zai Lab (Shanghai) Co., Ltd. ("Zai") entered into a license agreement (the "Zai License Agreement"), pursuant to which Karuna granted to Zai the right to exclusively develop, manufacture and commercialize KarXT in Greater China, including mainland China, Hong Kong, Macau, and Taiwan (the “Licensed Territory”). Zai will fund substantially all development, regulatory, and commercialization activities in the Licensed Territory. Under the terms of the Zai License Agreement, the Company received a non-refundable $35.0 million upfront payment and payment of certain taxes on its behalf. The Zai License Agreement also provides that the Company is eligible to receive total development and regulatory milestone payments of up to $80.0 million, total sales milestone payments of up to $72.0 million and low double-digit to high-teens tiered royalties based on annual net sales of KarXT in the Licensed Territory, subject to reduction under specified circumstances. Receipt of sales milestone payments and royalties are not contingent on any further participation by the Company in the development of KarXT in the Licensed Territory. The Zai License Agreement will expire upon the latest of the following dates with respect to the last licensed product in any region in the Licensed Territory: (i) the date of expiration of the last valid claim covering such licensed product in such region, (ii) the date that is a specific period after the date of the first commercial sale of such licensed product in such region and (iii) the expiration date of any regulatory exclusivity for such licensed product in such region. Zai may terminate the Zai License Agreement for convenience, subject to the terms thereto, by providing written notice to the Company, which termination will be effective following a prescribed notice period. In addition, the Company may terminate the Zai License Agreement under specified circumstances if Zai or certain other parties challenge the Company’s patent rights or if Zai or its affiliates fail to complete certain development activities with respect to the licensed product for a specified period of time, subject to specified exceptions. Either party may terminate the Zai License Agreement for the other party’s uncured material breach, with a customary notice and cure period, or insolvency. After termination or expiration, the Company is entitled to retain a worldwide, exclusive, and perpetual license from Zai to exploit the licensed product, which license would be non-exclusive after expiration (but not termination), subject to a reasonable royalty to be agreed by the parties if terminated for the Company’s uncured material breach. Revenue Recognition The Company concluded that the distinct units of account within the agreement are reflective of a vendor-customer relationship and therefore within the scope of ASC 606, Revenue From Contracts with Customers. Under the provisions of ASC 606, the Company identified one performance obligation. The Company provided an exclusive license to intellectual property, bundled with the associated know-how and certain professional services that are not substantive. Under the terms of the Zai License Agreement, Zai has the sole right to manufacture, or have manufactured, KarXT for use in development and commercialization in the Licensed Territory. At the election of Zai, the Company may supply KarXT to Zai at the fully burdened manufacturing cost plus a specified margin, as defined within the Zai License Agreement. This provision was determined to be an option to acquire additional goods or services at a price that approximates the stand-alone selling price for that good or service, and therefore does not represent a material right, or separate performance obligation, within the context of the Zai License Agreement. For the three months ended March 31, 2023, the Company recognized $0.7 million in revenue associated with sales of clinical drug supply to Zai. For the three months ended March 31, 2022, no revenue was recognized for sales of clinical drug supply. The Company determined the transaction price of the Zai License Agreement was equal to $37.0 million, which includes the upfront fee of $35.0 million and payments to taxing authorities on the Company’s behalf. In estimating the stand-alone selling price, the Company determined that there were no significant financing components, noncash consideration or amounts that may be refunded to the customer, and as such the total unconstrained consideration of $37.0 million was included in the total transaction price. License of Intellectual Property. The license to the Company's intellectual property represents a distinct performance obligation. The license and associated know-how was transferred to Zai in the fourth quarter of 2021 to satisfy this performance obligation. The Company allocated the full transaction price to the license of the Company's intellectual property and accordingly recognized revenue of $37.0 million as license revenue in its Consolidated Statement of Operations for the year ended December 31, 2021. Milestone Payments. The potential development and regulatory milestone payments, as well as sales milestone payments, are paid upon achievement of certain milestones as defined in the Zai License Agreement. For the three months ended March 31, 2023 and 2022 there was no revenue related to milestone payments recognized pursuant to the Zai License Agreement. For all remaining development and regulatory milestones, which, as of March 31, 2023, can total up to $70.0 million, it was determined that their achievement is highly dependent on factors outside of the Company's control. These payments have been fully constrained until the Company concludes that achievement of the milestone is probable, and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods, and as such have been excluded from the transaction price. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of each milestone and any related constraint and, if necessary, adjust its estimate of the overall transaction price. As of March 31, 2023, the Company has not recognized any revenue associated with sales milestones. Royalties. Any consideration related to royalties will be recognized if and when the related sales occur, as they were determined to relate predominantly to the license granted to Zai and, therefore, have also been excluded from the transaction price. As of March 31, 2023, the Company has not recognized any revenue associated with royalties. There was no deferred revenue as of March 31, 2023 or December 31, 2022 related to the Zai License Agreement.

Zai License Agreement

3 Months Ended

Mar. 31, 2023

Note 5. Zai License Agreement

Terms of Agreement

On November 8, 2021, the Company and Zai Lab (Shanghai) Co., Ltd. ("Zai") entered into a license agreement (the "Zai License Agreement"), pursuant to which Karuna granted to Zai the right to exclusively develop, manufacture and commercialize KarXT in Greater China, including mainland China, Hong Kong, Macau, and Taiwan (the “Licensed Territory”). Zai will fund substantially all development, regulatory, and commercialization activities in the Licensed Territory.

Under the terms of the Zai License Agreement, the Company received a non-refundable $35.0 million upfront payment and payment of certain taxes on its behalf. The Zai License Agreement also provides that the Company is eligible to receive total development and regulatory milestone payments of up to $80.0 million, total sales milestone payments of up to $72.0 million and low double-digit to high-teens tiered royalties based on annual net sales of KarXT in the Licensed Territory, subject to reduction under specified circumstances. Receipt of sales milestone payments and royalties are not contingent on any further participation by the Company in the development of KarXT in the Licensed Territory.

The Zai License Agreement will expire upon the latest of the following dates with respect to the last licensed product in any region in the Licensed Territory: (i) the date of expiration of the last valid claim covering such licensed product in such region, (ii) the date that is a specific period after the date of the first commercial sale of such licensed product in such region and (iii) the expiration date of any regulatory exclusivity for such licensed product in such region. Zai may terminate the Zai License Agreement for convenience, subject to the terms thereto, by providing written notice to the Company, which termination will be effective following a prescribed notice period. In addition, the Company may terminate the Zai License Agreement under specified circumstances if Zai or certain other parties challenge the Company’s patent rights or if Zai or its affiliates fail to complete certain development activities with respect to the licensed product for a specified period of time, subject to specified exceptions. Either party may terminate the Zai License Agreement for the other party’s uncured material breach, with a customary notice and cure period, or insolvency.

After termination or expiration, the Company is entitled to retain a worldwide, exclusive, and perpetual license from Zai to exploit the licensed product, which license would be non-exclusive after expiration (but not termination), subject to a reasonable royalty to be agreed by the parties if terminated for the Company’s uncured material breach.

Revenue Recognition

The Company concluded that the distinct units of account within the agreement are reflective of a vendor-customer relationship and therefore within the scope of ASC 606, Revenue From Contracts with Customers.

Under the provisions of ASC 606, the Company identified one performance obligation. The Company provided an exclusive license to intellectual property, bundled with the associated know-how and certain professional services that are not substantive.

Under the terms of the Zai License Agreement, Zai has the sole right to manufacture, or have manufactured, KarXT for use in development and commercialization in the Licensed Territory. At the election of Zai, the Company may supply KarXT to Zai at the fully burdened manufacturing cost plus a specified margin, as defined within the Zai License Agreement. This provision was determined to be an option to acquire additional goods or services at a price that approximates the stand-alone selling price for that good or service, and therefore does not represent a material right, or separate performance obligation, within the context of the Zai License Agreement. For the three months ended March 31, 2023, the Company recognized $0.7 million in revenue associated with sales of clinical drug supply to Zai. For the three months ended March 31, 2022, no revenue was recognized for sales of clinical drug supply.

The Company determined the transaction price of the Zai License Agreement was equal to $37.0 million, which includes the upfront fee of $35.0 million and payments to taxing authorities on the Company’s behalf. In estimating the stand-alone selling price, the Company determined that there were no significant financing components, noncash consideration or amounts that may be refunded to the customer, and as such the total unconstrained consideration of $37.0 million was included in the total transaction price.

License of Intellectual Property. The license to the Company's intellectual property represents a distinct performance obligation. The license and associated know-how was transferred to Zai in the fourth quarter of 2021 to satisfy this performance obligation. The Company allocated the full transaction price to the license of the Company's intellectual property and accordingly recognized revenue of $37.0 million as license revenue in its Consolidated Statement of Operations for the year ended December 31, 2021.

Milestone Payments. The potential development and regulatory milestone payments, as well as sales milestone payments, are paid upon achievement of certain milestones as defined in the Zai License Agreement. For the three months ended March 31, 2023 and 2022 there was no revenue related to milestone payments recognized pursuant to the Zai License Agreement.

For all remaining development and regulatory milestones, which, as of March 31, 2023, can total up to $70.0 million, it was determined that their achievement is highly dependent on factors outside of the Company's control. These payments have been fully constrained until the Company concludes that achievement of the milestone is probable, and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods, and as such have been excluded from the transaction price. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of each milestone and any related constraint and, if necessary, adjust its estimate of the overall transaction price.

As of March 31, 2023, the Company has not recognized any revenue associated with sales milestones.

Royalties. Any consideration related to royalties will be recognized if and when the related sales occur, as they were determined to relate predominantly to the license granted to Zai and, therefore, have also been excluded from the transaction price. As of March 31, 2023, the Company has not recognized any revenue associated with royalties.

There was no deferred revenue as of March 31, 2023 or December 31, 2022 related to the Zai License Agreement.