AbbVie's $8.7 billion bet on Cerevel is risky but smart, analysts say

By Bhanvi Satija and Khushi Mandowara

(Reuters) - AbbVie's decision to buy Cerevel Therapeutics before key data on the drug developer's experimental schizophrenia treatment may have helped it avoid a potential bidding war but comes with several risks, analysts said.

North Chicago, Illinois-based AbbVie said late Wednesday it would buy Cerevel for $8.7 billion, gaining a portfolio of drugs being tested for a range of neurological conditions, including emraclidine for schizophrenia.

"Boldly buying Cerevel now avoids a possible bidding war post-data," Stifel analysts wrote in a note.

Cerevel is still testing emraclidine in mid-stage studies, meaning the deal is not "de-risked" since the treatment could fail in trials, analysts said.

"With this deal, however, AbbVie would be taking on development risk given that Cerevel has not shown much data for their lead asset, emraclidine," Wells Fargo analyst Mohit Bansal said.

Adding to concerns, schizophrenia drug trials have had a historically higher chance of failure compared to most other disease spaces, and Cerevel's rival Karuna Therapeutics has a two-year lead on emraclidine.

But the payoff could be high, analysts and investors said.

"They (Abbvie) wanted to get ahead of the data because it may have made the asset more expensive," said Evan Seigerman, BMO Capital Markets analyst.

"If the data was good, it would have made the process even more competitive," he said. At least two other investors and analysts shared similar views.

AbbVie has been looking to bolster sales and replace revenue as its blockbuster arthritis drug Humira faces a raft of new competition.

The drugmaker expects emraclidine to retain market exclusivity until early 2040s, its executives told investors on a conference call on Thursday.

With a portfolio that has two other experimental neurological drugs for Alzheimer's and Parkinson's disease, Cerevel makes an attractive target, Jeff Jonas, a portfolio manager at Gabelli Funds, said.

"I think it's a very logical deal. AbbVie's already in schizophrenia and Parkinson's, and to a certain extent, into Alzheimer's. This is building their long term pipelines since all these things are still two plus years away from market," Jonas added.

(Reporting by Bhanvi Satija and Khushi Mandowara in Bengaluru; Writing by Manas Mishra; Editing by Krishna Chandra Eluri)