CERE - Cerevel: Drop On Data Delay For EMPOWER Program Provides Buy Opportunity

2023-08-04 13:26:12 ET

Summary

• Cerevel Therapeutics Holdings, Inc. experienced a drop in shares due to a delay in releasing top-line results from studies on emraclidine for schizophrenia treatment.
• Emraclidine is also being developed for Alzheimer's Disease Psychosis, with a phase 1 study already initiated.
• The company has a well-capitalized financial position and multiple upcoming data readouts for other drugs in its pipeline.

Cerevel Therapeutics Holdings, Inc. ( CERE ) has an extensive pipeline, however, shares of the company dropped after it reported that there would be a delay for the release of top line results from a few of its studies. In particular, these would be trials dealing with the use of emraclidine to treat patients with schizophrenia.

The use of this drug is being explored for the treatment of this patient population in two adequately-controlled phase 2 trials, which are known as EMPOWER-1 and EMPOWER-2, respectively. Slower than expected trial enrollment for both U.S. sites and other global sites caused the delay for the release of top line results. Thus, it is expected that top line results from both of these studies won't be released until the 2nd half of 2024.

However, there is another opportunity here as well.

That's because emraclidine is also being developed for the treatment of patients with Alzheimer's Disease Psychosis as well. A phase 1 multiple-ascending dose [MAD] study in elderly healthy volunteers between the ages of 65-85 has already been initiated. Despite the delay, the company has an extensive pipeline with many programs in it. Another important clinical candidate to highlight would be the advancement of darigabat, which is being explored in a phase 2 proof of concept study known as REALIZE, for the treatment of patients with focal epilepsy. A data readout from this study is expected to happen in mid-2024.

I believe that Cerevel Therapeutics stock trading much lower due to slower than anticipated enrollment creates a buying opportunity. Especially when you consider that the stock has declined by more than 20% in the past 2 days. Not only that, but it has another drug in its pipeline known as Tavapadon, which is being explored in three phase 3 trials, either with the drug as a monotherapy or as an adjunctive treatment for patients with Parkinson's Disease. Results from the TEMPO-3 study are expected in the 1st half of 2024, and then results from TEMPO-1 and TEMPO-2 are going to be released in the 2nd half of 2024.

EMPOWER Study Program To Target Large Schizophrenia Market

Cervel Therapeutics is advancing the use of its drug emraclidine for the treatment of patients with schizophrenia. Schizophrenia is a type of disorder whereby there are delusions, hallucinations and unusual physical behavior. It is not known what exactly causes it, but it could be a combination of things such as genetics, altered brain chemistry and the environment as well. In most people with schizophrenia, symptoms tend to start in the mid-to-late 20's but it can start later on up to the mid-30s. There are some symptoms that these patients with schizophrenia experience and they are as follows:

• Delusions
• Hallucinations
• Poor hygiene
• Lack of motivation
• Disorganised thinking
• Change in body language and emotions
• Slow movement
• Change in sleep patterns.

It is a very large market opportunity as well, for any company who is able to develop a drug to treat this disorder. It is said that the global schizophrenia drug market size could reach $9.48 billion by 2026 . Whether Cerevel Therapeutics is able to capture this market highly depends upon the release of top line results from the EMPOWER program.

In June of 2022, Cervel Therapeutics initiated two identical phase 2 trials as part of the EMPOWER program. These two studies are known as EMPOWER-1 and EMPOWER-2 respectively. In addition, it also opened up a 52-week open-label extension study so it can have the necessary safety database needed for eventual approval. The two adequately-powered placebo-controlled phase 2 studies are using emraclidine as a once daily medication for the treatment of patients with schizophrenia. It is expected that about 372 patients are to be recruited into this this study who are to receive either one of two doses of emraclidine [10 mg QD or 30 mg QD] or placebo for a total of 6-weeks. The primary endpoint of this study is going to be a change from Baseline at Week 6 in the Positive and Negative Syndrome Scale [PANSS] total score.

The thing is that the PANSS scale is used to measure symptom severity of patients with schizophrenia. It contains several types of scales used to measure these patients, such as the following:

• 7 positive symptom scales
• 7 negative system scales
• 16 general psychopathology symptoms scales.

Patients are rated from 1 to 7 on each symptom scale with a total minimum score of 30 and a maximum score of 210. Thus, a decrease in the PANSS total score means an improvement in schizophrenia symptoms. It is not that any negative data was released, thus I believe the stock should not have traded lower the way it did. That's because the announcement was that, with slower-than-expected enrollment in the U.S. , plus delays in the startup of certain ex-U.S. clinical sites, both trial data readouts are now expected in the 2nd half of 2024.

Expansion Opportunity With Emraclidine

A good thing about Cerevel Therapeutics is that it has an advanced pipeline. However, another important item to note is that emraclidine is also being developed for the treatment of patients with Alzheimer's Disease Psychosis. Alzheimer's Disease [AD] is a progressive disease that destroys memory and other important mental functions. What happens with respect to this disorder is that cells and brain cell connections degenerate and die. From there, this leads to memory being destroyed and other important mental functions as well.

It is expected that the Alzheimer's Disease ("AD") market across the eight major markets will reach $13.7 billion by 2030 . This is a large market opportunity for sure, but there is one major point to consider and that is the focus of emraclidine is to be used to for AD psychosis. Even if only accounting for AD patients with psychosis, then it is still a good market opportunity. Why is that? That's because it is said psychosis symptoms are experienced by as many as 30% of Alzheimer's patients. Thus, even if only capturing a portion of this AD market, it would still be a good thing.

In order for Cerevel to advance this program forward, it has already initiated a phase 1 multiple ascending dose trial to evaluate safety/efficacy of emraclidine in elderly healthy volunteers, ages 65-85. The FDA has already granted Fast Track designation of this drug for the AD psychosis patient population.

Financials

According to the 10-Q SEC Filing , Cerevel Therapeutics had cash, cash equivalents and marketable securities of $825.1 million as of June 30, 2023. It believes that it has enough cash to fund its operations into 2025. This is a good thing, because it will be enough cash to get it through several of the data readouts, which are expected in 2024.

Based on this cash projection, it is now well capitalized to fund its operations for quite some time. Thus, I don't believe that there is a near-term risk of dilution. Not only that, but should this biotech need to raise cash later on, it does have an option to do so. That's because back in November 2021, it entered into an open market sales agreement with Jefferies LLC, as the sales agent, whereby the company could issue and sell up to $250 million worth of its common stock from time-to-time to generate cash. As of June 30, 2023 and December 31, 2022, no sales have been made under this ATM program.

Risks To Business

There are several risks that investors should be aware of before investing in Cerevel Therapeutics. The first risk to consider would be with respect to the ongoing EMPOWER program, which is being explored through the use of two studies known as EMPOWER-1 and EMPOWER-2. Both of these identical placebo controlled phase 2 studies are using the drug emraclidine for the treatment of patients with schizophrenia. That's because results from both of these mid-stage studies are expected to be released in the 2nd half of 2024. There is no assurance that the primary endpoint will be met in one or both of these studies. In addition, another item to consider is that this is the new expected timeline.

If somehow enrollment continues to be slow for some reason, then it is quite possible that results to be released from this EMPOWER program might be delayed even further.

The second risk to consider would be the ongoing phase 1 study, which is using emraclidine for the treatment of patients with Alzheimer's Disease Psychosis. That's because there is no assurance that once results from this study are released, that they will turn out to be positive. If that happens, then it is quite possible that this program might end up being cut entirely.

A third risk to consider would be the use of its drug known as Tavapadon, which is being explored in several studies for the treatment of patients with Parkinson's Disease.

It is expected that Cerevel will release results from the phase 3 TEMPO-3 study in the 1st half of 2024 and then results from TEMPO-1 and TEMPO-2 in the 2nd half of 2024. There is no guarantee that the results from one or both of these studies will turn out to be positive. A fourth and final risk to consider would be the release of results from a phase 2 proof-of-concept study, which is using its drug darigabat, which is being developed for the treatment of patients with focal epilepsy. Results from this mid-stage study are expected to be released in mid-2024.

The hope is that the proof of concept results establish that indeed darigabat is capable of helping these patients with focal epilepsy. However, there is no assurance that this drug will be successful in being able to treat this patient population.

Conclusion

Cerevel Therapeutics has an extensive pipeline, and I believe that the stock price declining on the back of delay might create a nice buying opportunity. Of course, it is not good that there was a delay in recruitment for the EMPOWER studies, but it is not the end of the world. Not only that, but as I showed above, it has several other data readouts which are rapidly approaching. These would be with respect to the data readouts of Tavapadon for the treatment of patients with Parkinson's Disease and darigabat for the treatment of patients with focal epilepsy.

All of these Cerevel Therapeutics Holdings, Inc. studies are expected to be released in 2024. If positive, I believe they could provide a boost for shareholder value. Plus, Cerevel has a host of other drugs it is advancing for its neuroscience pipeline.

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