Shares of Reata Pharmaceuticals (RETA) recently jumped about 54% higher in a single trading session. This biotech stock was already way up this year thanks to the recent approval of its first drug, Skyclaris, in February.
A juicy buyout offer with a steep premium is what sent Reata Pharmaceuticals' stock price through the roof last week. Biogen (BIIB 3.18%) agreed to buy the drugmaker for $7.3 billion in cash. The offered price represents a 59% premium to the biotech stock's closing price the previous day.
Every time a big drugmaker buys a little one for a steep premium, investors start wondering about which stock might be next to leap higher. Let's have a look at what attracted Biogen to Reata in the first place to make an educated guess about which biotech stock could receive the next big buyout offer.
What Biogen wants from Reata
Reata's only marketable product, Skyclaris, recently became the first approved treatment for a rare disease called Friedreich's ataxia, a progressive disorder that typically confines patients to their wheelchairs 10 to 20 years after the first symptoms show up. The U.S. Food and Drug Administration (FDA) approved the once-daily capsule to treat the disease this February, after it improved Freidrich's ataxia rating scale scores for patients in clinical testing.
There aren't many addressable patients with Friedreich's ataxia, but rare-disease drugs regularly come with annual list prices that run to six figures. High prices aren't the only advantages to marketing rare-disease drugs.
The Inflation Reduction Act allows the Centers for Medicare and Medicaid Services to negotiate the maximum prices Medicare will pay for many top-selling drugs. One exemption to Medicare negotiations is for rare-disease drugs approved to treat a single indication, such as Skyclaris.
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Why BridgeBio could attract big pharma interest
BridgeBio (BBIO 2.26%) stock recently jumped in response to positive data for acoramidis, an oral transthyretin (TTR) stabilizer that could compete fiercely with Pfizer's Vyndaqel.
For most of us, TTR is a transport protein that carries vitamin A and thyroid hormones. For an estimated 400,000 people worldwide, though, it unravels and aggregates into plaques that damage the heart and peripheral nerves.
TTR amyloidosis is a small enough indication to qualify for an orphan-disease exclusion but still large enough to drive blockbuster sales. The FDA approved Vyndaqel to treat cardiomyopathy caused by TTR amyloidosis in 2019, and it's already on pace to generate around $2.8 billion in annual sales.
BridgeBio gladly tells anyone who will listen that its TTR stabilizer is better at holding this complex protein together than Pfizer's treatment. Twelve-month walking test data from this the phase 3 attribute trial with acoramidis failed to show a benefit, but TTR amyloidosis progresses slowly. After 30 months of treatment, patients randomized to receive acoramidis were 50% less likely to have been hospitalized with cardiovascular problems than the placebo group.
With hardly any other drugs besides Skyclaris in development, Reata presented Biogen with a clear-cut acquisition opportunity. BridgeBio already has two commercial-stage treatments and more than half a dozen new drug candidates in clinical-stage testing. Given its size and scope, a big pharma partnership deal is probably more likely than an outright buyout.
A buy for individual investors?
BridgeBio stock has already climbed more than 350% this year and at recent prices sports a $5.5 billion market cap. If approved, annualized sales of acoramidis could exceed $2 billion within a few years of its launch.
Biotech stocks tend to trade at mid-single-digit multiples of total sales. In other words, BridgeBio would look like a bargain now if acoramidis were its only asset. There's still a lot that can go wrong, but this stock has a chance to provide market-beating gains for patient investors. Buying some shares now to hold for the long run could be a smart move for those of you with an above-average risk tolerance.
