Biogen has agreed to acquire Reata Pharmaceuticals for approximately $7.3 billion, the companies said, in a deal intended to bolster the buyer’s neurological drug portfolio with Reata’s recently-approved treatment for Friedreich’s ataxia (FA), whose commercial launch in the U.S. is now underway.
Reata made history in April when it won the FDA’s first-ever approval for a drug indicated to treat FA, a rare neurological disease affecting about 5,000 patients in the U.S., according to a 2021 study based on Reata-sponsored research.
Skyclarys® (omaveloxolone) is an oral, once-daily treatment for Friedreich’s ataxia in adults and adolescents aged 16 years and older. Reata was delayed several weeks in commercially launching Skyclarys in the U.S., because it first needed to resolve a manufacturing issue affecting the purity of the drug.
Late last month, the FDA signaled Reata was in the clear to proceed with the launch when it approved a Prior Approval Supplement that updated the drug substance specification for Skyclarys.
Skyclarys is under regulatory review in Europe.
“We believe Biogen has the foundation in place to accelerate the delivery of Skyclarys to patients around the world,” Christopher Viehbacher, Biogen’s president and CEO, said in a statement. “This is a unique opportunity for Biogen to bolster our near-term growth trajectory, and Skyclarys is an excellent complement to our global portfolio of treatments for neuromuscular and rare disease.”
Biogen is struggling to rebuild its sales following a decline in its largest product category of multiple sclerosis drugs. Product revenue for MS drugs fell 15% year-over-year during the second quarter, from $1.427 billion to $1.209 billion.
For the first six months of this year, product revenue skidded 17% from January-June 2022, from $2.821 billion to $2.335 billion. Leading the decline was Tecfidera® (dimethyl fumarate), whose product revenues fell 36% during Q2, to $254.2 million from $397.9 million a year earlier. For the first six months of 2023, Tecfidera product revenues slid 34.5%, to $528.7 million from $807.8 million.
The company is pinning its hopes for a turnaround on new drugs for neurological indications. Earlier this month, the FDA granted full approval for Leqembi® (lecanemab), co-developed with Eisai, seven months after the agency gave the Alzheimer’s disease drug an accelerated approval. Another new drug Biogen hopes will generate new sales is Qalsody™ (tofersen), an amyotrophic lateral sclerosis (ALS) treatment for adults with a mutation in the superoxide dismutase 1 (SOD1) gene. Biogen won FDA approval for Qalsody in April.
Blockbuster potential
Skyclarys has the potential to be a “blockbuster” drug with sales exceeding $1 billion, Jefferies analyst Michael Yee estimated in a research note supporting Biogen’s buyout of Reata.
“We est[imate] peak sales ~$1.5-2B for U.S. + OUS [outside-U.S.], so 4x sales is not a problem for us given high margin for oral pill in rare disease and IP beyond 2033 (+2037 with extension) and in our NPV analysis,” Yee wrote. NPV stands for “net present value,” the value of an investment over its lifetime, discounted to its value today.
Yee added that he foresaw no opposition to the acquisition from the U.S. Federal Trade Commission (FTC) since Skyclarys is the first and only approved drug indicated for FA.
The FTC has increasingly challenged multibillion-dollar biotech acquisitions—such as Illumina’s planned purchase of cancer blood test developer Grail, for which the sequencing giant was fined approximately €432 million ($477 million) by the European Commission; and Amgen’s $27.8 billion buyout of Horizon Therapeutics, which the biotech giant has vowed to pursue despite FTC opposition.
Also supportive of the Biogen-Reata deal is Evan David Seigerman, a managing director and senior research analyst at BMO Capital Markets: “We’re positive on the deal given Biogen’s established presence in rare neurological disease (and) relatively low cost, Seigerman wrote in a research note reported by Reuters.
Reata investors appeared to agree with Seigerman and Yee: Reata shares rocketed 52% on Friday, to $165.43 as of 1:55 p.m. ET from $108.55 at Thursday’s close of trading. Biogen shares inched up 1% to $266.29 as of 1:55 p.m. ET.
At $172.50 per share cash, the price Biogen agreed to pay for Reata represents a 58.9% premium to Reata’s Thursday pre-deal announcement price.
The boards of both Biogen and Reata have approved the acquisition, which is expected to close in the fourth quarter.
Biogen said it expected its acquisition of Reata to “slightly” lower its non-GAAP diluted earnings per share (EPS) this year but be neutral in 2024 and “significantly” add to EPS starting in 2025, even after including associated transaction costs.
Biogen added that it will update its full-year 2023 financial guidance for investors to reflect the Reata acquisition when it releases third quarter earnings results later this year.
“Biogen’s expertise and commercial footprint make it the optimal choice to help Skyclarys realize its full potential,” stated Warren Huff, Reata’s chairman and CEO. “With its clear understanding of the rare disease patient journey and existing commercial infrastructure, we believe Biogen will establish Skyclarys as the standard of care in the treatment of this devastating genetic disease.”
