Here’s an alternative perspective on AbbVie’s acquisition of Cerevel last December for US$8.7 bn.
AbbVie is a Top 5 pharma (~US$300bn mc) with neuroscience being one of its key focus areas. AbbVie has been using various strategies to navigate around patent expiry of its blockbuster drug, Humira, which reached US$21 bn p.a. in peak sales in 2022. One of those strategies has been acquisition.
When considering acquisition, AbbVie especially wished to bolster the number of psychiatric drugs in its CNS pipeline. In its takeover presentation it stated that it desired to be a leader in mood, thought and anxiety disorders with high unmet need.
The most prevalent psychiatric disorders have a G7 patient population of ~113 million. Cerevel’s pipeline of drugs address the disease areas of Parkinson’s disease, Schizophrenia, Alzheimer’s disease psychosis, Epilepsy, Panic disorder, Dementia-related apathy, Mood disorders, MDD/Schizophrenia and Bipolar 1 related mania. AbbVie’s pipeline already contained assets related to Parkinson’s disease, Alzheimer’s disease and Bipolar Depression, providing synergies.
Cerevel’s pipeline contained 5 separate clinical-stage drugs in a total of 7 indications as well as 2 more drugs at IND pre-clinical stage. Two assets were within 12 months of registrational trial readouts.
As is the case in most pharma acquisitions, there was one particular asset that AbbVie was targeting. This was Cerevel’s second-in-pipeline drug, emraclidine, a novel mechanism of action drug which was in Phase 2 in Schizophrenia (estimated by analysts to be a US$10bn market) and Phase 1 in Alzheimer’s disease Psychosis. Emraclidine for Schizophrenia was being tested in two large Phase 2 trials (with a total of ~750 patients) as well as a supportive open label safety and tolerability Phase 2 trial in a further 850 patients. The Phase 2 trial results were due in less than 12 months and were expected to be allowed as registrational trials. While there are approved therapies in Schizophrenia, their side effect profile leads to high patient drop-out rates.
The first-in-pipeline drug, tavapadon, was in three large Phase 3 trials as well as an open-label extension trial for the management of Parkinson’s disease. Very positive results in one of these trials was announced just 4 months after Cerevel’s acquisition was announced. Tavapadon has been tested to be used as both a monotherapy and adjunctive therapy (i.e. in combination with another primary therapy). Jefferies predict that tavapadon has the capacity to be a blockbuster drug.
Other big pharma also expressed interest in acquiring Cerevel but preferred to wait until the results of the Phase 2 trials in emraclidine in Schizophrenia were known. AbbVie decided to take the risk and move earlier to avoid a bidding war post-trial results.
At the time of acquisition, Cerevel had already completed 8 clinical trials, had 6 ongoing trials and a further 3 in planning.
In the three years prior to acquisition, Cerevel had spent A$1 bn+ on R & D.
Less favourably for Neuren:
Cerevel had five clinical-stage drugs; Neuren has one.
Cerevel had two further drugs in pre-clinical. Neuren has none.
Cerevel was in clinic in seven indications. Neuren is in clinic in four indications.
Cerevel had two drugs within 12 months of registrational trial readouts. NNZ-2591 hasn’t entered any registrational trial yet and the details (size, cost, duration, endpoints etc.) of any registrational trial are still to be worked out.
Cerevel’s drugs have been tested in many hundreds of patients, including in blinded trials. Neuren’s NNZ-2591 clinical trials to date have been very small and open label. There is a massive difference in the amount of clinical data generated by the two companies.
Cerevel has sunk much more money than Neuren into R & D – over A$1m in the past 3 years.
Cerevel’s drugs address a combined global market of tens of millons of diagnosed patients. Neuren’s current four NNZ-2591 indications address a global market of ~400,000 mostly undiagnosed patients.
More favourably for Neuren:
Neuren already draws ongoing revenue from global licensing of trofinetide, with no associated costs.
Neuren’s development costs for each of its orphan indications will be substantially lower than Cerevel’s non-orphan indications.
As orphan indications, all of Neuren’s programs will be able to reap the various considerable benefits of orphan designation.
Orphan drugs, especially non-oncology orphan drugs, have a much higher likelihood of approval than drugs in the indications that Cerevel is pursuing.
Far less competition exists in the indications that Nueren is pursuing. In some indications, Neuren has the potential to be first-to-market.
If successfully approved, NNZ-2591 will command much higher pricing than Cerevel’s drugs.
NNZ-2591 is unlikely to be impacted by IRA price negotiation, whereas Cerevel’s drugs in Parkinson’s and Alzheimer’s will almost certainly be.
Neuren owns NNZ-2591 outright whereas Cerevel’s drugs were licensed from Pfizer. Tiered royalties on aggregate net sales as well as certain regulatory and commercial milestone payments are payable.
In summary, Cerevel and Neuren are quite different beasts and, in my view, don't make great comparators.
NEU Price at posting:
$21.41 Sentiment: Hold Disclosure: Held
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