Biogen announced an agreement worth an estimated $7.3 billion to acquire Reata Pharmaceuticals and its recently FDA-approved drug for a rare condition, marking one of the company’s largest commercial wagers in its 45-year history.
The biotechnology firm – based in Cambridge, Massachusetts – will be paying $172.50 per share of Reata, an excess of nearly 60% over the stock’s closing price on Thursday. Biogen plans to use both existing cash and new debt to finance the transaction.
By purchasing Reata, Biogen now has access to Skyclarys, a treatment for the neuromuscular disorder Friedreich’s ataxia that received FDA clearance in March. Only around 5,000 people in the U.S. have this condition, making it quite uncommon. Its approval was also contentious, as it came after years of debate with the FDA.
Nonetheless, Wall Street experts believe it has the potential to become a major moneymaker. Although this isn’t a steal, Stifel analyst Paul Matteis said that it was a smart move for Biogen to acquire a synergistic resource with a high floor worth.
Biogen touted its prior achievement with the rare illness medicine Spinraza, which addresses spinal muscular atrophy and generated the firm $1.8 billion in revenue last year, in its announcement of the deal.
In addition, Biogen was successful in gaining approval for Qalsody, a therapy for an inherited type of amyotrophic lateral sclerosis (ALS).
On a conference call on Friday, Biogen’s EVP and CFO, Michael McDonnell, stated that he believes that Biogen is the rightful owner of Skyclarys, and that the company expects substantial synergies with Spinraza and Qalsody.
Biogen has been under pressure from investors to become a more aggressive dealmaker for a long time as the company sees declining sales for its key multiple sclerosis medications.
However, it has shunned major acquisitions in favor of more modest purchases and collaborative research projects. Previous takeover proposals apparently failed because of a breakdown between the board of directors.
This purchase is the largest one Biogen has ever made financially. After adjusting for inflation, the price that Biogen is paying for Reata is more than what it would have been if the company had merged with Idec in 2003 through a stock-for-stock transaction ($6.8 billion).
Baird analyst Brian Skorney remarked, “Optically, Skyclarys is a perfect fit for Biogen. It helps fill a gap on the top line as [its multiple sclerosis business] melts away. However, $7.3B is a hefty price to pay for a drug to fit their needs.”
The acquisition is especially noteworthy since it is the first significant purchase made by Biogen’s new CEO, Chris Viehbacher. Viehbacher was hired last year with the goal of reviving the company following a series of devastating defeats. Despite the biotech’s best efforts, sales of the Alzheimer’s medicine Aduhelm never materialized amidst debate over the treatment’s legality and effectiveness. After initially hiring a large sales staff to promote the drug, the business ultimately decided to cease doing so and laid off a good chunk of the sales force.
Meanwhile, Biogen and its collaborator Eisai are optimistic about their new Alzheimer’s medicine Leqembi. The drug has received final FDA clearance, which might lead to more widespread coverage.