You don't become one of the largest and most successful drug developers on the planet by chance. Pfizer (PFE) has carefully curated its portfolio of drug products and managed pipelines across numerous therapeutic areas. More than once, the pharma titan has created spinoffs for strategic or competitive reasons.
That's exactly how Cerevel Therapeutics (CERE) got its start. The drug developer was created in 2018 when Pfizer deprioritized its neuroscience pipeline and Bain Capital provided an initial cash infusion of $350 million. The business went public through a SPAC in late 2020 and bagged another $440 million in funding.
The assets provided by Pfizer proved to be quite valuable. Shares of Cerevel Therapeutics more than doubled in summer 2021 on phase 1 results for an experimental schizophrenia drug called emraclidine. The results were impressive, but the asset is behind a late-stage asset from Karuna Therapeutics (KRTX) that just crushed a phase 3 clinical trial.
Results from the competitive landscape forced the hand of Cerevel Therapeutics. It more than doubled its cash balance in a series of transactions to support the continued development of its pipeline -- leaving nothing to chance as financial conditions tighten.
Juicing the Cash Balance
Cerevel Therapeutics, now valued at over $5 billion, is one of the premier precommercial drug developers. It wields a pipeline spanning eight unique neuroscience assets being investigated as potential treatments for schizophrenia, Parkinson's disease, dementia, substance abuse, and other ailments.
A large, maturing neuroscience pipeline will be expensive to develop. Unlike rare diseases, the company's therapeutic area of choice requires pivotal studies with hundreds of enrolled patients. The business reported R&D expenses of $127.5 million in the first half of 2022, an increase of 73% compared to the prior year.
Although Cerevel Therapeutics exited June 2022 with $531 million in cash, it decided to raise an additional $554 million from debt and stock offerings in mid-August.
The competitive landscape shows why action was needed.
Keeping Pace with a Key Competitor
The funding creates a no-doubter funding pathway to develop the pipeline into the second half of this decade. Not many precommercial drug developers can boast that.
The fundraising was announced just two days after Karuna Therapeutics revealed a no-doubter of its own. The company's lead drug candidate, KarXT, delivered a best-case scenario in a pivotal phase 3 clinical trial in schizophrenia. The drug candidate met the primary endpoint and key secondary endpoints, all measured against placebo for a period of five weeks.
Karuna Therapeutics expects to submit a new drug application (NDA) to the U.S. Food and Drug Administration (FDA) in mid-2023, which suggests the drug could earn approval in the first half of 2024 and launch by mid-2024. By comparison, Cerevel Therapeutics doesn't expect to deliver phase 2 results for emraclidine until the first half of 2024.
The competition isn't settled just yet. Investors need to focus on characteristics that could differentiate KarXT and emraclidine.
- Selectivity: Both KarXT and emraclidine hit the same molecular target, the M4 muscarinic receptor. However, KarXT also whacks M1, M2, and M3 muscarinic receptors, whereas the emraclidine is selective for M4. That could provide a potential advantage if a more selective drug compound provides safer or more durable treatment over longer treatment periods. For instance, KarXT treatment was associated with elevated heart rates.
- Dosing: KarXT was administered with a flexible dose given twice daily, with the dose level increasing over time. That could complicate the durability of treatment observed beyond five weeks. By contrast, emraclidine is administered as a fixed dose given once daily. That will be easier to track and model for longer treatment periods.
The late-stage data for KarXT appears to position the asset for eventual FDA approval and commercial success. While emraclidine is relatively far behind, it could provide a better and more convenient treatment option for individuals thanks to its selectivity.
In other words, KarXT may race to a commercial lead in this head-to-head matchup, but it may just be paving the way for its competitor to gobble up the opportunity.
Investors aren't out of the woods yet. There are multiple development, regulatory, and commercial derisking events on the horizon for both Karuna Therapeutics and Cerevel Therapeutics. Just don't make the mistake of sleeping on this Pfizer spinout.
