2023-07-28 17:20:10 ET
Summary
- Biogen Inc. has announced plans to acquire Reata Pharmaceuticals, Inc. for $7.3 billion, validating the potential of Skyclarys.
- Skyclarys, the sole FDA-approved treatment for Friedreich's ataxia, has considerable market potential, justifying the acquisition price.
- Despite potential regulatory obstacles, the acquisition is likely to boost Skyclarys' value and global impact, with recommendation for RETA stock at "Hold."
Introduction
Reata Pharmaceuticals, Inc. ( RETA ), a trailblazer in the pharmaceutical industry, is dedicated to confronting serious health conditions where few or no authorized treatments exist. The company has marked a significant milestone with the development of Skyclarys, a drug that has been given the green light by the FDA to combat Friedreich's ataxia ((FA)).
In a previous evaluation , I underscored the tenacity of Reata, even in the face of production delays for Skyclarys and setbacks with bardoxolone. Factors like financial stability, proactive management, and the forecasted success of Skyclarys painted a promising picture. I deemed the 20% dip in valuation to be unjustified and subsequently improved my rating for Reata from a "Hold" to a "Buy" for shares below $80. My projection was underpinned by the upcoming FDA decision and the planned mid-August 2023 launch of Skyclarys as potential drivers for the stock's performance. Since this bullish recommendation in May, RETA has surged by 108%.
Recent developments: Today, Biogen Inc. ( BIIB ) has agreed to acquire Reata at $172.50 per share, catapulting the company's valuation to $7.3 billion.
Before we dig into the details of the deal and its implications for investors, let's quickly review Reata's most recent quarterly earnings.
Financial Performance
As at the end of Q1 2023, Reata reported a decrease in cash and equivalent assets from $387.5 million at the end of 2022 to $321.0 million. Expenses related to Research and Development climbed to $55.5 million from the previous year's $39.8 million. Likewise, Selling, General, and Administrative expenses saw a significant increase, rising to $54.9 million from $24.8 million. Reata's GAAP net loss for Q1 2023 escalated to $116.1 million from a net loss of $73.8 million during the same period in the prior year. Despite these figures, Reata's current cash holdings are estimated to sustain operations until the end of 2026.
Biogen's $7.3 Billion Acquisition of Reata
Biogen and Reata have publicized a definitive agreement for Biogen to acquire Reata at $172.50 per share in cash. This agreement, valuing Reata at approximately $7.3 billion, is a testament to Biogen's faith in Reata's potential, particularly its one-of-a-kind therapeutic, Skyclarys.
Skyclarys is the only FDA-approved treatment for FA in the U.S. It addresses a considerable market potential, which substantiates the acquisition price. With an annual price tag of $370,000, Skyclarys targets an important demographic—around 4,500 potential FA patients aged over 16 years within the U.S market. Assuming a high market share estimate of 80%, Skyclarys could potentially serve about 3,600 patients, yielding peak U.S. annual revenues close to $1.332 billion, per my estimates . With globally-focused Biogen at the helm, they have the potential to surpass my projections and reach even greater heights in a much shorter timeframe.
These impressive revenue forecasts significantly justify the acquisition price Biogen agreed upon. For Reata shareholders, the deal promises a considerable return on their investment. The per-share acquisition price of $172.50 provides a notable cash return. The transaction is projected to conclude in the fourth quarter of 2023, provided it meets the standard closing conditions, including approval from Reata shareholders and regulators.
My Analysis & Recommendation
In summary, the forthcoming takeover of Reata Pharmaceuticals by Biogen represents a momentous stage for all stakeholders. Biogen's proposed purchase price of $172.50 per share, contrasted with Reata's prior trading price near $108 per share, indicates a remarkable potential for return on investment for current shareholders. From my perspective, Reata's management has exceptionally managed to squeeze out the maximum value from this transaction.
While the path to the deal's closure might face potential obstacles such as regulatory approvals and market volatility, the chances of the acquisition falling apart appear to be low. This is largely due to Skyclarys' unique positioning in a market with few alternatives and the definitive agreement that is already in place between the two companies.
Once the acquisition is complete, Reata will no longer exist as a separate entity but will be absorbed into Biogen. This transformative event means that the future of Reata and its flagship product, Skyclarys, will be intricately linked with Biogen's strategic direction. Under Biogen's aegis, Skyclarys stands to witness an expanded global footprint, thereby enhancing its long-term value for the stakeholders.
Considering the context of this acquisition, I am updating my investment recommendation for Reata Pharmaceuticals, Inc. to a "Hold" position. This recommendation takes into account the ongoing developments and advises existing Reata investors to maintain their current positions until further clarity is achieved regarding the deal's completion. Nevertheless, investors should remain actively involved in managing their portfolios and make adjustments according to their individual risk tolerance and investment goals. Alternatively, this could also present investors a favorable opportunity to secure profits and explore potential targets for the next biotechnology acquisition.
For further details see:
Biogen's Bold $7.3B Acquisition Of Reata: Analyzing The Impact On Investors