Biogen has announced its planned acquisition of rare disease biotech, Reata Pharmaceuticals for a sum of US$7.3bn, including debt. Shareholders will receive US$172.50 per share in cash, a premium of 59% on the previous day closing price.
Reata specialises in neurological rare disease. The company’s first drug, Skyclarys, was approved by the FDA in February this year. Skyclarys was approved as a treatment for the rare inherited neurodegenerative disease, Friedreich’s ataxia, in patients over 16 years. There are no other approved therapies for Friedreich’s ataxia. The estimated US population living with the disease is 5,000 - 10,000 with a registered population of 5,000.
Skyclarys’ approval was based on demonstrated modest improvement compared with natural disease progression in a year-long pivotal Phase 2 trial in 103 individuals. The drug's list price is US$370,000 and analysts’ predictions for US peak sales range from US$400m to US$1bn+. As commercialization only commenced at the end of June following a manufacturing-caused delay, no sales have yet been reported. Reata has already filed for additional EU approval.
Following in its pipeline, Reata has one drug in Phase 1 and two other preclinical drugs. Current assets are US$450m, current liabilities US$580m and for FY22, the company posted a loss of US$312m.
On FDA approval in February, Reata’s market cap surged from US$1.1 bn to US$3.44bn and was at US$4.1 bn immediately prior to Biogen’s bid last Friday.
CEO of Biogen, Chris Viehbacher, was hired last November to put the company back on track and rescue a stagnating share price. Patent expiry and increased and cheaper competition has led to falling revenue from Biogen’s MS franchise and its Alzheimer’s drug, Aduhelm, which was approved two years ago, has been shrouded in controversy.
Viehbacher has said that the "sizeable" Reata deal won’t prevent future acquisitions.
The Reata deal is of relevance to smaller biotechs with rare disease drug portfolios because it provides hard evidence that such assets can be highly attractive and valuable to larger pharma, given the right fit and right timing.
While this deal probably has more relevance for Neuren Pharmaceuticals (NEU) which has recently launched a rare neurological disease drug and has current Phase 2 trials in four other rare neurological diseases, it also offers hope to PYC shareholders.
PYC is also targeting rare diseases, albeit with a much earlier-stage pipeline. Its lead asset in a rare eye disease is now in clinic and two further drug candidates, one ophthalmological and one neurological, are at preclinical stage.
But PYC, in my opinion, does have a few advantages over Neuren.
The first is the potentially greater efficacy of its drugs. If PYC’s proprietary antisense approach does what it is supposed to do, it should have a major impact by halting disease progression.
The second is PYC’s higher chance of clinical success. Although Neuren’s portfolio is aimed at orphan monogenic diseases, its drugs don’t target the causative gene. In comparison, PYC’s drugs target the single gene variant identified as the root cause of the disease. This doubles the likelihood of clinical success.
Thirdly, PYC is “unencumbered”. Neuren has now globally licensed its lead asset with Acadia Pharmaceuticals and consequently has some restrictions on its following asset as part of that licence agreement. Although licensing with Acadia has been lucrative for Neuren, and enabled its lead asset to progress through Phase 3 to market at Acadia’s expense, I believe that the now-embedded presence of Acadia may well deter other potential acquirers. PYC doesn’t have this complication.
Finally, I believe that we will see growing interest by pharma in acquiring rare disease drugs, partly driven by desire to reduce the impact of the newly introduced US Inflation Reduction Act (IRA). The IRA was passed into law last year and comes into effect in 2026. It will introduce compulsory drug price negotiation with the Government for selected drugs, penalize price increases and expand required discounts. Orphan drugs are exempt from the provisions, provided they are approved in just one indication. Hence, PYC’s portfolio of rare disease drugs, each of which targets a specific gene in a specific disease, might be viewed as more attractive than a portfolio of one or two drugs which have been developed in multiple indications.
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