Cerevel Therapeutics: Time For A Risk Arbitrage Play?

Core Viewpoint - Cerevel Therapeutics (CERE) is being acquired by AbbVie (ABBV) for $45 per share, totaling approximately $8.7 billion, which is seen as beneficial for both companies and their shareholders [2][5][15] - The deal is currently under review by the FTC, with expectations that it will close by the end of the year, presenting a potential short-term arbitrage opportunity for investors [2][4][15] Company Overview - CERE was established as a spinout from Pfizer's CNS pipeline assets, with a focus on developing drugs for schizophrenia, Parkinson's disease, and epilepsy [2][4] - The lead assets include emraclidine for schizophrenia, tavapadon for Parkinson's, and darigabat for epilepsy, with emraclidine being the primary value driver due to its potential market size [4][6][8] Financials - CERE had approximately $1.065 billion in cash at the end of March 2024, with a burn rate of about $96.9 million per quarter, indicating financial stability to continue operations if the deal is delayed [9] - The acquisition price of $45 per share represents a significant premium over CERE's stock price prior to the announcement, which closed at $40.74 on May 31, 2024, indicating a potential upside of over 10% for investors [2][3][15] Market Context - AbbVie is seeking to enhance its CNS portfolio, which is currently overshadowed by its immunology products, particularly Humira, which generated $18 billion in sales in 2023 [5][12] - The urgency for AbbVie to replace potential revenue losses from Humira, which is facing biosimilar competition, has driven the acquisition strategy, including the purchase of CERE [5][12] Regulatory Environment - The FTC is conducting a review of the acquisition, requesting additional information, which is not typical for deals of this size, leading to speculation about potential market overlaps [4][10] - Historical precedents of similar acquisitions, such as ABBV's purchase of ImmunoGen and Bristol Myers Squibb's acquisition of Karuna Therapeutics, suggest that the CERE deal may ultimately be approved [10][11] Competitive Landscape - CERE's emraclidine faces competition from other CNS drugs, including ABBV's own Vraylar, which could influence the FTC's review process [6][12] - The competitive dynamics in the CNS space, particularly for schizophrenia treatments, are complex, with multiple companies developing similar assets [6][10] Conclusion - The acquisition of CERE by AbbVie is positioned as a strategic move to bolster AbbVie's CNS capabilities while providing CERE shareholders with a profitable exit [2][5][15] - Investors are advised to consider the potential for a short-term gain of approximately 10% as the deal progresses through regulatory scrutiny [2][3][15]