What happened

Shares of the rare disease specialist Reata Pharmaceuticals (RETA) jumped by 94.1% over the first three and a half days of trading this week, according to data provided by S&P Global Market Intelligence. The big gain after Reata announced that the Food and Drug Administration (FDA) approved its Friedreich's ataxia candidate, Skyclarys (omaveloxolone), for patients 16 and older. 

Friedreich's ataxia is a recessive genetic disorder characterized by the progressive loss of motor abilities and sensation due to nerve damage. Skyclarys is the first FDA-approved treatment for the ultra-rare genetic disorder.   

So what

Although this condition only affects approximately 5,000 individuals in the U.S., Wall Street still thinks Skyclarys could rake in over $1 billion a year in U.S. sales at peak. That's a big opportunity for a company with a market cap of $3.1 billion at the time of this writing. 

Why isn't Reata stock trading even higher after such a landmark approval? Early commercial-stage drugs tend to take a few quarters to begin to penetrate the market. Skyclarys, for its part, is expected to rake in approximately $400 million in U.S. sales in 2030. That's not a bad start for a newly approved rare disease medicine, but it is also far from the upper end of the drug's long-term commercial opportunity. 

Now what

Is Reata's stock a buy on this news? If you're a patient investor, I think the answer is yes. By most analyst estimates, Reata's shares are still undervalued based on Skyclarys' long-term prospects.