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Shares of Karuna Therapeutics Inc.
rocketed 48% into record territory in premarket trading Friday, after the biopharmaceutical company announced an agreement to be bought by Bristol Myers Squibb Co.
in a deal valued at $14 billion.

Under the terms of the deal, Bristol Myers will pay $330 in cash for each Karuna share outstanding, which represents a 53.4% premium to Thursday’s closing price of $215.19.

A key Karuna asset is the investigational schizophrenia treatment KarXT. The drug is under review at the U.S. Food and Drug Administration, with an approval decision expected in September of next year.

The deal comes on the heels of a similar move by AbbVie Inc.
AbbVie earlier this month announced an $8.7 billion deal to buy Cerevel Therapeutics Holdings Inc.
which also has a key investigational drug in development for schizophrenia.

The Karuna deal also helps Bristol Myers “establish a footprint in Alzheimer’s,” Bristol Myers CEO Christopher Boerner said on a call with investors Friday, because KarXT drug has the potential to be the first approved treatment for Alzheimer’s disease psychosis. Roughly 40% of Alzheimer’s patients diagnosed in the U.S. have psychosis, chief commercialization officer Adam Lenkowsky said on the call.

“There are tremendous opportunities in neuroscience, and Karuna strengthens our position and accelerates the expansion and diversification of our portfolio in the space,” Boerner said in a statement.

The deal makes sense for Bristol Myers, Mizuho Securities analysts said in a note Friday, in part because the company’s current neuroscience research and development efforts are mostly focused on neurodegeneration and neuroinflammation rather than psychiatric treatments. That gap in the Bristol Myers portfolio also reduces the risks that the deal could be subject to regulatory scrutiny, the analysts wrote.

The launch of KarXT, expected in late 2024, “represents a multibillion-dollar peak sales opportunity. That should contribute meaningfully to our growth in the back end of the decade and into the 2030s,” Lenkowsky said on the call.

The deal includes an estimated $1.3 billion in cash held by Karuna. Bristol Myers said it will fund the transaction primarily through new debt issuance.

The move comes as Bristol Myers shares have struggled, falling 29% in the year to date. Given the strong late-stage clinical trial data for KarXT, the Karuna deal gives Bristol Myers some additional growth beyond its current portfolio without a lot of extra risk, BMO Capital Markets analysts said in a note Friday.

Karuna’s stock gained 9.5% year to date through Thursday, while the S&P 500
has advanced 23.6%.

Bristol Myers’ stock dropped 0.4% ahead of the open Friday.

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