Biogen: Reata Acquisition Adds to Neurology Portfolio at Lower Risk but High Price

We’re lowering our Biogen BIIB fair value estimate to $327 per share from $340 following the announced pending acquisition of rare neurology drug firm Reata Pharmaceuticals for $7.3 billion. Reata recently gained Food and Drug Administration approval of Skyclarys for Friedreich ataxia, a rare genetic neuromuscular disorder, in the United States and expects to expand the launch to Europe in 2024. We think Reata fits well with Biogen’s strategy of expanding in rare diseases to support its wide moat, following Biogen’s successful global launch of spinal muscular atrophy drug Spinraza and the recent launch of amyotrophic lateral sclerosis drug Qalsody. Reata’s pipeline drug cemdomespib is also entering phase 2 development for diabetic neuropathic pain, although given limited data, we do not assign the drug value in our Biogen model.

Skyclarys was approved in February and carries a list price of $370,000. We expect peak sales to surpass $1 billion, given the lack of treatment options and long patent life (likely through 2037). While we think the drug is a good fit for Biogen strategically, we think the deal comes at a steep price, unless we assume very high market penetration and no competition over the next several years. While most competition is in earlier stages of development, we’re keeping an eye on PTC Therapeutics, which could still find a way to market despite mixed data in phase 3, as well as Larimar Therapeutics, which will have phase 2 data for an enzyme replacement therapy later this year. Following the acquisition, we expect Biogen will de-emphasize further acquisitions in the midterm and focus instead on additional collaborations in neurology, immunology, and rare diseases.