AbbVie – Cerevel M&A deal lifts Reviva, Karuna

Neurology-focused biopharma companies Reviva Pharmaceuticals (NASDAQ:RVPH) and Karuna Therapeutics (NASDAQ:KRTX) were among notable gainers in the pre-market Thursday after AbbVie (NYSE:ABBV) announced an $8.7B all-cash deal to acquire their rival Cerevel Therapeutics (NASDAQ:CERE).

With AbbVie (ABBV) offering $45 a share for Cerevel (CERE), the Cambridge, Massachusetts-based biotech has climbed ~13%, adding to its ~43% rise over the past three months. AbbVie (ABBV), which is adding CERE's schizophrenia candidate emraclidine with the deal, has dropped ~1%.

Meanwhile, Cupertino, California-based Reviva Pharma (RVPH) has added ~9%, as the company's portfolio also includes a schizophrenia candidate called brilaroxazine, which recently met the primary and secondary endpoints in a Phase 3 trial.

The company plans to start a registrational Phase 3 trial called RECOVER-2 in Q1 2024 and intends to submit a marketing application for brilaroxazine to the FDA in 2025.

Karuna (KRTX), whose lead candidate, KarXT, is currently under FDA review for schizophrenia, is trading marginally higher.

Wells Fargo analyst Mohit Bansal expects a mixed reaction in KTTX after the AbbVie-Cerevel deal and details why the pharma giant might have overlooked the company though it's a direct competitor to its latest buyout target.

The reason for picking Cerevel (CERE) ahead of Karuna (KRTX) "could be related to perceived clean IP profile of the lead schizophrenia asset and once-a-day dosing," Bansal wrote, adding that the CERE deal makes strategic sense for ABBV.

The analyst notes that the company's valuation for CERE "may be reasonable" given its opportunity to benefit from peak adjusted sales worth more than $3B and its ability to own three late-stage assets despite clinical risk.