How AbbVie can still benefit from Cerevel acquisition despite emraclidine setback

AbbVie (NYSE:ABBV) and its shareholders were dealt a major setback Monday morning after results from a late-stage trial on schizophrenia asset emraclidine missed the primary endpoint.

AbbVie gained the candidate through its $8.7B acquisition of Cerevel therapeutics which closed in August.

The crown jewel of the acquisition was seen as emraclidine, an allosteric modulator that selectively targets the muscarinic acetylcholine 4 receptor subtype. It was seen as a potential next-generation schizophrenia treatment and an asset that would help AbbVie deal with patent cliffs on some of its key drugs approaching by the end of the decade.

Even before today’s trial results, AbbVie lost ground after the U.S. FDA approved Bristol Myers Squibb’s (BMY) Cobenfy (xanomeline and trospium chloride) in September as a new schizophrenia treatment. Bristol gained Cobenfy through its $14B acquisition of Karuna Therapeutics that closed in March.

AbbVie, however, can still make the most out of its Cerevel purchase. Emraclidine is also in phase 1 for Alzheimer’s disease psychosis, which also has FDA Fast Track designation. However, this is a much smaller market than the schizophrenia indication would have been.

Tavadapan is in phase 3 for Parkinson’s disease, as a monotherapy for early-stage forms of the disease and in combination with levodopa for later stages. The drug is a partial agonist that selectively targets dopamine D1/D5 receptor subtypes.

Also in phase 2, the company has CVL-871 for dementia-related apathy and also has Fast Track status. It also targets dopamine D1/D5 receptor subtypes.

In phase 2, Cerevel has darigabat, a positive allosteric modulator (PAM) that selectively targets GABA_A, for epilepsy and panic disorder.

The emraclidine results, however, will likely weigh on AbbVie for some time though. Wells Fargo sees a potential $25-$30 per share downside for AbbVie while Bristol could see $5-$6 per share in upside.

Seeking Alpha analyst O’Neil Trader is sticking by AbbVie despite the setback and is maintaining a buy rating. “This is by no means an investment thesis killer for the company and I continue to see it as well-positioned to deliver long-term shareholder value. I expect the company to be able to develop or acquire new assets that will make up for the loss of emraclidine.”

AbbVie is down ~12% in early Monday afternoon trading.