Reata has filed the preliminary proxy statement related to its recently announced merger/acquisition by Biogen for US $7.3bn.
These statements are always of interest because of the detailed background information that is revealed on the deal process.
I have provided a slightly briefer version of the background information below; a link to the original document can be found at the end.
Notably, interest was first expressed to Reata in May by a big pharma to collaborate on Skyclarys in Europe but that particular interest had morphed into an unsolicited acquisition proposal within two months. It quickly became a contest between the big pharma (Party A) and Biogen, with Biogen’s winning bid just 50c higher than the big pharma’s final offer. The process from first bid to agreed deal took 3 weeks.
Also of note is that the Reata Board’s rejection of early bids was based on the belief that these bids placed limited, if any, value on Reata’s pipeline beyond Skyclarys and also did not fully account for the strong early patient enrolments following the Skyclarys launch.
While the identity of the losing party isn’t revealed, I’d speculate it was one of the two big pharma capitalized at over $200 bill US+ which Little T reported came in late to the Daybue ROW negotiations. For those wondering which big pharma are in that megasphere, think, in order of market cap size, Eli Lilly, J&J, AstraZeneca/Alexion, Novartis, AbbVie, Merck, Roche and Pfizer. In my view, the final 5 are the most likely to have interest in neurology rare disease assets.
Background of the Merger
On February 28, 2023, Reata announced that the FDA approved Skyclarys for the treatment of Friedreich's ataxia.
On May 16, 2023, an introductory meeting was held between Reata’s President, COO and CFO and members of the business development group of a large-cap pharmaceutical company (“Party A” to discuss potential opportunities for collaboration between Reata and Party A in Europe.
In light of the recent commercial approval of Skyclarys and the resulting increased likelihood that Reata may receive unsolicited inbound acquisition proposals, the Board held a meeting on June 6, 2023, with members of Reata’s senior management and representatives of Goldman Sachs, Reata’s long-time financial advisor for a variety of strategic matters, including collaboration, partnership and licensing transactions. During the meeting, representatives of Goldman Sachs discussed current biopharma M&A considerations, including recently announced transactions, reviewed process considerations related to unsolicited inbound acquisition proposals by third parties, and provided a preliminary illustrative valuation analysis of Reata that had been prepared by Goldman Sachs using, among other things, unaudited prospective revenue information prepared by Reata’s senior management and provided to Goldman Sachs for purposes of the preliminary illustrative valuation analysis. During this meeting, the Board, together with members of Reata’s senior management and representatives of Goldman Sachs, discussed the increased likelihood that Reata may receive unsolicited inbound acquisition proposals in light of the recent changes in the prospects for commercialization of Skyclarys. While a number of potential third parties that could pursue an acquisition of Reata were discussed, it was generally agreed in the Board meeting that Biogen and Party A were among the most likely third parties to pursue and complete an acquisition of the Company at a compelling valuation.
On June 16, 2023, in order to further facilitate discussions regarding opportunities for collaboration, Reata and Party A executed a confidentiality agreement.
On June 24, 2023, the President and Chief Executive Officer of Biogen, contacted Reata to request an introductory call, which was scheduled for July 10, 2023.
On July 7, 2023, Reata received a phone call from a member of senior management of Party A informing that Party A intended to make an offer to acquire Reata. Party A then submitted an unsolicited written non-binding proposal to acquire all of the outstanding shares of Common Stock at $140.00 per share in cash (the“Party A July 7 Offer”.
On July 9, 2023, the Board met with legal counsel (V&E) and representatives of Goldman Sachs to review and discuss the Party A July 7 Offer. Representatives from Goldman Sachs provided the Board with a preliminary illustrative valuation analysis of Reata based, among other things, on Reata senior management’s revenue forecasts that were provided to Goldman Sachs for purposes of such analysis and that were substantially identical to the forecasts provided to Goldman Sachs for its presentation to Reata’s Board on June 6, 2023. The valuation analysis was updated to reflect the most recent stock price of Reata and background information on Party A, including prior acquisition history and analyst commentary regarding potential M&A activity. Representatives of V&E provided an overview of certain legal aspects involved in a decision whether to engage in a sale transaction, including a review with the Board of the fiduciary duties of the Board applicable to a consideration of the Party A July 7 Offer. Following the discussion, the Board determined that the Party A July 7 Offer substantially undervalued Reata compared to its value as a standalone company and that the Board would not be willing to consider a potential sale of the Company at the Party A July 7 Offer price. The Board instructed Reata senior management to reject the Party A July 7 Offer and focus on executing Reata’s standalone operating plan. Later that day, Mr. Huff of Reata communicated the Board’s decision to reject the Party A July 7 Offer to a member of senior management of Party A.
On July 10, 2023, a meeting was held with the CEO and Head of Corporate Development of Biogen during which it was indicated that Biogen had an interest in exploring strategic opportunities with Reata and requested to enter into a confidentiality agreement to permit the sharing of non-public information.
Later on July 10, 2023, Party A submitted a revised written non-binding proposal to acquire all of the outstanding shares of Common Stock at $147.00 per share in cash (the “Party A July 10 Offer”. Party A requested that, if the Board rejected the Party A July 10 Offer on the basis that it undervalued Reata, Reata provide guidance as to the Board’s perspective on Reata’s valuation.
On July 11, 2023, Reata executed a confidentiality agreement with Biogen, which included a customary standstill provision that did not preclude Biogen from making a private proposal to the Board at any time and that terminated upon the announcement of an acquisition transaction of the Company. It was agreed to meet on July 14, 2023, to discuss exploring strategic opportunities.
On July 13, 2023, the Board and representatives of Goldman Sachs and V&E, met to review and discuss the Party A July 10 Offer and the status of discussions with Party A and related considerations. Following discussion, the Board determined that the Party A July 10 Offer again substantially undervalued Reata compared to its value as a standalone company and that the Board would not be willing to consider a potential sale of the Company at the Party A July 10 Offer price. The Board instructed senior management to reject the Party A July 10 Offer and focus on executing Reata’s standalone operating plan. In addition, however, the Board authorized Reata’s senior management to make certain non-public information of Reata available to Party A, as requested by Party A, due to the Board’s belief that the Party A July 10 Offer placed limited, if any, value on any portion of Reata’s business other than omaveloxolone and did not fully account for the strong patient enrollments since the commercial availability of Skyclarys. The Board authorized Reata’s senior management to communicate to Party A its decision to reject the Party A July 10 Offer and offer to make available certain non-public information of Reata.
At the conclusion of the July 14 Meeting between Reata and Biogen, Biogen submitted a written non-binding proposal to acquire all of the outstanding shares of Common Stock at $150.00 per share in cash (the Biogen July 14 Offer” and requested a two-week exclusivity period following an agreed-upon due diligence start date.
Later on July 14, 2023, Reata communicated the Board’s decision to reject the Party A July 10 Offer to a member of senior management of Party A and noted that, as requested, if Party A continued to be interested in evaluating a potential acquisition of Reata, given the Board’s belief the Party A July 10 Offer substantially undervalued Reata compared to its value as a standalone company, Reata was willing to provide certain non-public information of Reata that could help provide context for Reata’s views as to its standalone value, and to further discuss such non-public information with representatives of Party A. It was also disclosed to Party A also noted to such member of senior management of Party A that, while Reata had not made any determination to engage in a sale of the Company and was focused on executing Reata’s standalone operating plan, Reata had received an alternative, unsolicited all-cash offer that was higher than the Party A July 10 Offer.
From July 15 to July 16, 2023, Reata prepared, and provided Biogen and Party A access to, a virtual data room including certain non-public information of Reata, and until July 27, 2023, representatives of Reata, including representatives from Goldman Sachs and V&E, received and responded to additional due diligence requests from, and held multiple videoconference and teleconference due diligence meetings with, representatives from Biogen, its financial advisors and legal counsel, and with representatives from Party A and Party A’s financial advisor and outside legal counsel.
On July 16, 2023, the Board met with representatives of Goldman Sachs and V&E, to review and discuss the Biogen July 14 Offer and the status of discussions with Biogen and with Party A and related considerations. Also during this meeting, representatives of V&E refreshed the Board about the fiduciary duties applicable to the Board in the context of receiving acquisition proposals. Following the discussion, the Board determined that the Biogen July 14 Offer substantially undervalued Reata compared to its value as a standalone company and that the Board would not be willing to consider a potential sale of the Company at the Biogen July 14 Offer price. The Board instructed senior management to reject the Biogen July 14 Offer and Biogen’s request for exclusivity and to focus on executing Reata’s standalone operating plan. The Board also authorized Reata’s senior management to communicate the same to Biogen.
On July 18, 2023, Party A submitted a revised written non-binding proposal to acquire all of the outstanding shares of Common Stock at $155.00 per share in cash (the “Party A July 18 Offer”. Party A also requested that Reata provide a draft merger agreement for the potential transaction to Party A by July 20, 2023, and agree to grant Party A a 10-day period of exclusivity, with a goal of negotiating definitive agreements and completing due diligence concurrently, with a target announcement date of July 28, 2023.
On July 19, 2023, Reata advised Biogen that it had received a competing all-cash offer that was higher than the Biogen July 14 Offer and, as directed by the Board, shared additional non-public information regarding Reata’s business.
On July 20, 2023, the Board met with representatives of Goldman Sachs and V&E, to review and discuss the Party A July 18 Offer, the status of discussions with Biogen and with Party A, and related considerations and next steps, including whether or not to deliver a draft merger agreement to Biogen and Party A at such time given that neither party had, as of such date, provided a proposal at a price at which the Board would consider supporting a sale of the Company, but that the delivery of a draft merger agreement could facilitate competitive dynamics between Biogen and Party A. In connection with this discussion, the Board also discussed with members of Reata’s senior management and representatives of V&E and Goldman Sachs the likelihood that delivering a draft merger agreement would make it possible that a transaction could be negotiated relatively quickly assuming a compelling proposal was made from a financial point of view, and in such context discussed whether contacting any other third parties to solicit their interest in acquiring Reata would be reasonably likely to result in a more favorable acquisition proposal from a third party than would be reasonably likely to be obtained from Biogen or Party A. The Board also discussed related considerations, such as the increased risk of leaks created by contacting additional third parties and the potential negative effects on the competitive dynamics emerging between Biogen and Party A if third parties were contacted. Also, during this meeting, representatives of V&E refreshed the Board about the fiduciary duties applicable to the Board in the context of receiving acquisition proposals. Following the discussion, the Board determined that the Party A July 18 Offer substantially undervalued Reata compared to its value as a standalone company and that the Board would not be willing to consider a potential sale of the Company at the Party A July 18 Offer price. The Board instructed senior management to reject the Party A July 18 Offer and Party A’s request for exclusivity and instead focus on executing Reata’s standalone operating plan. The Board also authorized Reata’s senior management to communicate the same to Party A. The Board also determined that contacting additional third parties was not in the best interest of Reata and its stockholders at the time given, among other reasons, the Board had not received any proposal at which it would actively consider selling the Company, the risk of leaks, and the Board’s determination, with input from Goldman Sachs, that Biogen and Party A were the most likely potential parties to acquire Reata at a full and fair valuation, taking into account the business, strategy, assets and prospects of Reata on a standalone basis and including the value of not only Skyclarys, but also Reata’s other product candidates. During the Board meeting, representatives of V&E reviewed with the Board the provisions of the form merger agreement that V&E had prepared with input from members of Reata’s management. Following the presentation and discussion, the Board determined to send both Biogen and Party A the form merger agreement. Following the Board meeting, Reata communicated the Board’s decision to reject the Party A July 18 Offer and Party A’s request for exclusivity to a member of Party A’s senior management and noted that, as requested, a form merger agreement would be provided to them the following day.
On July 21, 2023, Biogen submitted a revised written non-binding proposal to acquire all of the outstanding shares of Common Stock at $172.50 per share in cash (the “Biogen July 21 Offer”. Biogen also sent a draft merger agreement for the potential transaction and an exclusivity agreement providing for exclusivity until July 31, 2023. Following receipt of the Biogen July 21 Offer, at the direction of the Board, Goldman Sachs informed Party A’s financial advisor that Reata had received a competing all-cash offer that was higher than the Party A July 18 Offer. Representatives of Reata then uploaded the form merger agreement that V&E had prepared to the virtual data room for both parties, and Mr. Soni of Reata informed Messrs. Viehbacher and Keeney of Biogen that, due to the competitive nature of the process, Reata would not review Biogen’s merger agreement draft and that Biogen should instead provide its comments to Reata’s form merger agreement.
On July 22, 2023, the Board met with representatives of Goldman Sachs and V&E, to review and discuss the Biogen July 21 Offer, the status of discussions with Biogen and with Party A, and related considerations. Also, during this meeting, representatives of V&E refreshed the Board about the fiduciary duties applicable to the Board in the context of receiving acquisition proposals.
During these discussions, the representatives of Goldman Sachs advised the Board that the Biogen July 21 Offer was at a valuation that was within the illustrative preliminary valuation ranges for Reata that Goldman Sachs had previously reviewed with the Board. The Board, together with members of Reata’s senior management and representatives of Goldman Sachs and V&E, discussed the potential benefits of a transaction at or above the Biogen July 21 Offer price for Reata’s stockholders. The Board, together with members of Reata’s senior management and representatives of Goldman Sachs and V&E, again discussed whether contacting any other third parties would be reasonably likely to result in a more compelling proposal than a proposal that could be obtained from Biogen or Party A and considered the potential benefits and risks of doing so that had been previously discussed at the July 20, 2023 meeting of the Board. Following the discussion, the Board determined to reject the Biogen July 21 Offer and Biogen’s request for exclusivity and authorized Reata’s senior management to communicate to Biogen that its offer was in the“zip code” at which the Board would consider engaging in a transaction to sell the Company, but that the Board could not fully evaluate the Biogen July 21 Offer without reviewing Biogen’s proposed revisions to the form merger agreement. The Board also determined that contacting additional third parties at that time was not in the best interests of Reata’s stockholders or reasonably likely to result in a third party proposal for Reata that was more valuable, from a financial point of view, to Reata’s stockholders than the highest proposal that would be received from Biogen or Company A without soliciting third parties. The reasons for this decision included, among other reasons, the general risk of leaks related to contacting third parties, the delay that would result from waiting for a third party to prepare a proposal (which would increase the risk of leaks and potentially be detrimental to the competitive dynamics that had emerged between Biogen and Company A), the Board’s determination, with input from Goldman Sachs, that Biogen and Party A were the most likely potential parties to acquire Reata at a full and fair valuation, taking into account the business, strategy, assets and prospects of Reata on a standalone basis and including the value of not only Skyclarys, but also Reata’s other product candidates, and the fact that the form merger agreement would permit Reata to terminate the Merger Agreement and accept a superior proposal prior to receipt of stockholder approval if a third party made an unsolicited offer to acquire Reata that the Board determined was superior, from a financial point of view, subject to complying with certain provisions in the Merger Agreement, including payment of a customary termination fee. Lastly, after excusing Goldman Sachs from the meeting, the Board also reconfirmed the terms of Reata’s engagement with Goldman Sachs and authorized members of Reata’s senior management to execute an engagement letter with Goldman Sachs.
Following the Board meeting on July 22, 2023, Reata entered into an engagement letter with Goldman Sachs with respect to its retention as a financial advisor in connection with a possible strategic transaction on terms that had been approved by the Board during its July 22, 2023, meeting.
Additionally, following the Board meeting on July 22, 2023, pursuant to the Board’s authorization and at the direction of the Board, Goldman Sachs communicated the Board’s decision to reject the Biogen July 21 Offer and Biogen’s request for exclusivity to Lazard and noted that the Biogen July 21 Offer was in the “zip code” at which the Board would consider engaging in a transaction to sell the Company, but that the Board could not fully evaluate the Biogen July 21 Offer without reviewing Biogen’s proposed revisions to the form merger agreement.
On July 24, 2023, representatives of Cravath submitted a mark-up of the form merger agreement on behalf of Biogen.
On July 25, 2023, representatives of Party A’s outside legal counsel submitted a mark-up of the form merger agreement on behalf of Party A.
Also, on July 26, 2023, at the direction of Reata, representatives of V&E sent drafts of the support agreements for certain of Reata’s stockholders and Reata’s disclosure schedules to the Merger Agreement to representatives of Cravath and to Party A’s outside legal counsel.
On July 27, 2023, Biogen submitted its final offer to acquire all of the outstanding shares of Common Stock at $172.50 per share in cash along with a revised mark-up of the draft merger agreement. Among other things, the revised mark-up (i) included a reverse termination fee payable by Biogen upon a failure to close in certain circumstances related to antitrust approval in an amount equal to 4.0% of Reata’s fully diluted equity value, (ii) lowered the Company termination fee to 3.5% of Reata’s fully diluted equity value, and (iii) revised the limitations on Biogen’s obligation under the regulatory efforts covenant to only exclude actions (A) involving Biogen and its affiliates, (B) involving omaveloxolone, and (C) that would reasonably be expected to be material to Reata and its subsidiaries, taken as a whole.
Also on July 27, 2023, Party A submitted its final offer to acquire all of the outstanding shares of Common Stock at $172.00 per share in cash along with a revised mark-up of the draft merger agreement. Among other things, the revised mark-up (i) increased the reverse termination fee payable by Party A upon a failure to close in certain circumstances related to antitrust approval to 6.0% of Reata’s fully diluted equity value, (ii) lowered the Company termination fee to 3.0% of Reata’s fully diluted equity value, (iii) revised the limitations on Party A’s obligation under the regulatory efforts covenant to include an express obligation to contest any proceeding related to the potential transaction, and (iv) deleted the“springing”closing conditions relating to the competition authorities in certain foreign jurisdictions.
After receipt of both proposals, the Board met later on July 27, 2023 with members of Reata’s senior management and representatives of Goldman Sachs and V&E, to review the key issues raised in the revised mark-ups and the final offers from each party, including weighing whether to provide each party an opportunity to resubmit a final offer, given that the proposals submitted by each of Biogen and Party A on July 27 were very similar from the perspective of both price and deal certainty, but weighing that against the fact that both parties understood their offers to be their“best and final” and that requesting a further modification to the offers could unpredictably extend the timeline to signing a potential transaction, which could increase the risk of a leak, and could incentivize Party A and Biogen to not engage in a further round. The Board was also advised that news reporters were inquiring about a possible deal and that a news story was likely by the next day. Also, during this meeting, representatives of V&E refreshed the Board about the fiduciary duties applicable to the Board in the context of receiving and evaluating acquisition proposals. Following discussion, the Board, based on the higher price offered by Biogen, authorized Reata to proceed to negotiate the form of a definitive merger agreement with Biogen regarding the potential transaction, with a goal of approving a transaction later that day and executing a definitive merger agreement prior to the opening of trading the next morning, July 28, 2023.
Following the Board meeting, at the direction of Reata, until the execution of the Merger Agreement on June 28, 2023, Reata and Biogen and their respective outside legal counsel exchanged drafts of and engaged in numerous discussions and negotiations concerning the terms of, the Merger Agreement, Reata’s disclosure schedules to the Merger Agreement, and the Support Agreements.
Later on the night of July 27, 2023, the Board met via videoconference with Messrs. Soni and Wortley of Reata and representatives of Goldman Sachs and V&E. Prior to the meeting, the directors had received (i) a substantially final draft of the Merger Agreement, together with a summary thereof prepared by V&E, and (ii) a financial presentation prepared by Goldman Sachs. Representatives of V&E reviewed with the Board the fiduciary duties applicable to the Board’s consideration of the Merger Agreement and the Merger, including their duties in connection with a decision to sell Reata.
Representatives of Goldman Sachs then reviewed with the Board its financial analyses of the Merger Consideration in the potential transaction with Biogen. Goldman Sachs then rendered to the Board its oral opinion, which was subsequently confirmed by the delivery of Goldman Sachs’written opinion addressed to the Board dated July 28, 2023, that, as of such date, and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration of $172.50 in cash per share to be paid to the holders (other than Biogen and its affiliates) of Common Stock, taken in the aggregate, pursuant to the Merger Agreement, was fair, from a financial point of view, to such holders of Common Stock. Representatives of V&E then reviewed with the Board the terms of the Merger Agreement and the support agreements. Based on the discussions and deliberations at this meeting and prior meetings, the various discussions and reviews with representatives of V&E and Goldman Sachs, and various other factors, including those described in “The Merger—Recommendation of the Board and Reasons for the Merger, the Board unanimously approved resolutions (i) determining that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of Reata and its stockholders, and declared it advisable for Reata to enter into the Merger Agreement, (ii) approving and declaring advisable the execution and delivery by Reata of the Merger Agreement, the performance by Reata of its covenants and agreements contained in the Merger Agreement, and the consummation of the Merger and the other transactions contemplated by the Merger Agreement upon the terms and subject to the conditions contained therein, (iii) directing that the adoption of the Merger Agreement be submitted to a vote at a special meeting of Reata stockholders, and (iv) resolving, subject to the terms and conditions set forth in the Merger Agreement, to recommend that the Merger Agreement be adopted by Reata stockholders.
On July 28, 2023, shortly following the foregoing Board meeting, Reata, Biogen and Merger Sub finalized the Merger Agreement, as well as Reata’s disclosure schedules to the Merger Agreement, and entered into the Merger Agreement. In connection with the execution of the Merger Agreement, the applicable stockholders of Reata entered into the Support Agreements.
On July 28, 2023, Reata and Biogen released a joint press release before markets in the United States opened announcing their execution of the Merger Agreement.
to discuss potential opportunities for collaboration between Reata and Party A in Europe.
(20min delay)
