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Why Shares of Reata Pharmaceuticals Rocketed More Than 150% in October

By John Bromels - Nov 12, 2019 at 12:02AM

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A drug trial showed promise in treating a particularly stubborn disease.

What happened

Shares of biopharma company Reata Pharmaceuticals ( RETA 6.38% ) climbed 156.7% in October, according to data from S&P Global Market Intelligence. Shares had been stagnant since January.

So what

Reata's big month came in three stages. First, shares increased by a modest 13% after the company announced it was buying back the rights to develop, produce, and market a series of next-generation Nrf2 activators, including bardoxolone and omaveloxolone. Nrf2 is a protein that regulates antioxidant production and helps prevent cell damage. The rights had formerly been licensed to Reata's partner AbbVie.

An eye dropper puts liquid into a row of test tubes.

A top drug class has been the gift that keeps on giving for Reata. Image source: Getty Images.

But the big jump -- 57% -- came on Oct. 14, when Reata announced the positive top-line results of a midstage trial involving one of those drugs, omaveloxolone, and its potential to treat Friedreich's ataxia, a neurodegenerative disease caused by abnormally low levels of a protein called frataxin. Nobody is sure what frataxin's function is in the body, but it's prevalent in the kidney, liver, and heart and seems to be related to the body's assembly of iron-sulfur clusters. In the trial, patients treated with omaveloxolone over 48 weeks saw statistically significant benefits compared with those who took a placebo. 

The results were particularly significant because Friedreich's ataxia currently has no approved treatment for slowing the progression of the disease. Over the next several days, as the market digested this news, Reata's shares rose an additional 30.5% for a total gain of 156.7% for the month. 

Now what

The next step for Reata, of course, is to try to get omaveloxolone approved by the FDA and other regulatory agencies as a treatment for Friedreich's ataxia. Given the lack of any current approved treatment, swift action would seem likely, but of course, there's no guarantee. 

For investors looking for big gains from pharmaceutical stocks, the ship has probably sailed as far as this particular drug and this particular disease are concerned. Yes, full FDA approval would probably boost shares a bit further, but they've already gone up so much that the biggest gains are almost certainly in the rearview mirror. 

However, it's worth noting that Reata has now had two recent successes with this drug class: On Nov. 11, the company reported positive results from a phase 3 trial of bardoxolone to treat chronic kidney disease caused by Alport syndrome. The stock barely budged in response. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Reata Pharmaceuticals, Inc. Stock Quote
Reata Pharmaceuticals, Inc.
RETA
$91.06 (6.38%) $5.46
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$115.91 (0.55%) $0.63

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