CERE - Cerevel: High Priced Stock Doing Interesting Science

2023-06-04 06:38:16 ET

Summary

• Cerevel has some interesting data in various CNS indications.
• However, the company has a very high valuation.
• It seems a lot of the company's potential is baked into its price.

I covered Cerevel ( CERE ) two years ago. Cerevel is a spinoff of certain neurology assets developed by Pfizer. It was originally backed by $350mn from Bain Capital, and went public through a SPAC. Two years ago, it posted solid results from a phase 1 trial of its muscarinic M4 positive allosteric modulator CVL-231 in schizophrenia.

Their current pipeline:

The most advanced asset is still Tavapadon, which is in three Phase 3 TEMPO trials in Parkinson's Disease, and will produce data in 1H 2024. CVL-231 has now moved up; known as emraclidine, it is now in two phase 2 EMPOWER trials in schizophrenia with data in 1H 2024. Emraclidine also has a phase 1 trial in ADP/Alzheimer's Disease psychosis. There's Darigabat, in two phase 2 trials for epilepsy and panic disorder. The epilepsy REALIZE trial will produce data next year. Finally, there's CVL-871 in a phase 2 trial in Dementia-Related Apathy.

The last important data event at Cerevel happened way back in 2021, when emraclidine demonstrated antipsychotic effect in a phase 1 trial. I covered this event then. As I noted :

What we see here is that both the 30 mg once daily and 20 mg twice daily doses showed clinically meaningful improvements in PANSS Total Score as well as differed with statistical significance from placebo. For the 30 mg QD dose, improvement was 19.5 pts at week 6, while for the 20 mg BID dose, it was 17.9 pts. Surprisingly, the lower dose had a better efficacy profile. Management hasn't addressed this issue yet, but surely, this will be something to try to understand at a future date. The differences with placebo were 12.7 pts and 11.1 pts respectively, and both were statistically significant with p=0.023 and p=0.047 respectively. The drug was generally well tolerated, with similar discontinuation rates.

I remarked about Karuna Therapeutics' KarXT at that time, and how Cerevel's molecule did comparatively better in the same indication. KarXT is now in phase 3 trials in schizophrenia.

Emraclidine's two phase 2 trials have 372 patients each. The primary endpoint is change from baseline in PANSS total score at Week 6. Data is expected in the first half of next year.

The next candidate, darigabat, is a selective GABAA receptor inhibitor. Over other benzodiazepine medicines like lorazepam, the molecule has demonstrated several benefits. The company can potentially have similar anticonvulsant activity with an improved tolerability profile, reduced potential for abuse, and can be used as a chronic therapy. In a previous proof of concept photoepilepsy trial, darigabat demonstrated anticonvulsant activity comparable to lorazepam at ~60% and 80% RO / receptor occupancy. Historically, Benzodiazepines have been able to achieve 10% to 15% receptor occupancy with significant somnolence. The high RO of darigabat along without significant somnolence is a solid achievement. The current phase 2 trial is intended to establish these results and explore use in additional epilepsy indications.

Benzodiazepine is also used in common panic disorder attacks, however, it carries the same toxicity burden. Other medications like SSRIs/SNRIs also come with severe limitations. Here, in a phase 1 trial in acute anxiety, darigabat saw positive data for the endpoint of change in Panic Symptoms List Score (PSL-IV) at Day 8. There was statistically significant improvement versus placebo for Darigabat 7.5 mg BID as well as Darigabat 25 mg BID, compared to Alprazolam 1 mg BID, which did not attain stat sig.

The final candidate we will discuss is Tavapadon, which is the only D1/D5 selective partial agonist being developed in Parkinson's. The molecule selectively activates direct motor pathways. In a Phase 2 trial, tavapadon demonstrated 4.8 point MDS-UPDRS III difference vs. placebo at week 15 (p=0.04). The safety profile was benign, with most AEs consisting of headache and nausea.

Tavapadon also had a competitive profile against commonly used schizophrenia drug levodopa. While L-Dopa is a full agonist with short half-life, Tavapadon is a PARTIAL agonist with LONG half-life. This resulted in fewer doses per day and fewer events of troublesome dyskinesia.

In recent news , in February, CERE stock fell after the company extended the timeline for its trials. The company said that "due to enrollment challenges and other factors," it did not expect a 2023 readout for the REALIZE proof-of-concept trial for darigabat in focal epilepsy.

The company also acquired a new CEO who will take over from June.

Financials

CERE has a market cap of $5.1bn and a cash balance of $836mn. Research and development expense for the first quarter ended March 31, 2023, was $78.2 million, while general and administrative expense was $21.4 million. At that rate, the company has a cash runway of 10 quarters.

The company is heavily owned by institutions and PE/VC firms. Bain Capital is the largest stakeholder, followed by Pfizer, Perceptive and others. Insiders have very few buys, no sales, and a large number of option exercises in the last two years.

Bottom Line

CERE has some good data and decent cash, but at $5bn, a lot of its potential seems baked into its current price. I like what they are doing, but don't especially prefer the cost at which they are doing it. I will wait for better prices.

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