Biogen is making one of the biggest business bets in its 45-year history, announcing Friday a deal to buy Reata Pharmaceuticals and its newly approved rare disease drug for approximately $7.3 billion.
The Cambridge, Massachusetts-based biotechnology company will pay $172.50 per Reata share, which represents a premium of about 59% over the stock’s closing price Thursday. Biogen expects to fund the deal with cash on hand as well as additional debt.
Acquiring Reata gives Biogen access to Skyclarys, a drug for the neuromuscular condition Friedreich’s ataxia that gained U.S. approval in March. The disease is uncommon, affecting an estimated 5,000 people in the U.S. And its clearance was controversial, following years of back-and-forth with the Food and Drug Administration.
Still, analysts on Wall Street see an opportunity for it to become a significant seller. “While this isn’t a bargain, we think this is a good move for Biogen for a synergistic asset that has a high floor value,” wrote Paul Matteis, an analyst for Stifel, in a note to clients.
In announcing the deal, Biogen noted its past success with the rare disease drug Spinraza, which treats spinal muscular atrophy and last year earned the company $1.8 billion. Biogen also recently won approval of Qalsody, a treatment for an inherited form of amyotrophic lateral sclerosis, or ALS.
"We believe that Biogen is the natural owner of Skyclarys, and we do expect significant synergies with Spinraza and Qalsody,” said Biogen executive vice president and CFO Michael McDonnell, on a Friday conference call.
Investors have for years pressed Biogen, which faces shrinking sales for its mainstay multiple sclerosis drugs, to become a more active dealmaker.
But it has avoided making expensive acquisitions, favoring instead smaller purchases and research alliances. One reason was a divided board of directors, which reportedly quashed previous buyout plans.
In dollar terms, the acquisition is Biogen’s largest. A stock-for-stock combination with Idec in 2003 was valued at $6.8 billion, which would be worth more than what Biogen is paying for Reata after accounting for inflation.
“Optically, Skyclarys is a perfect fit for Biogen. It helps fill a gap on the top line as [its multiple sclerosis business] melts away,” wrote Baird analyst Brian Skorney. “However, $7.3B is a hefty price to pay for a drug to fit their needs.”
The buyout is also notable as the first major deal under new CEO Chris Viehbacher, who was appointed last year with a mandate to rebuild Biogen after a bruising stretch of setbacks. While the biotech successfully pushed its Alzheimer’s drug Aduhelm through to U.S. approval, sales never materialized amid controversy over its clearance and its potential benefit. The company eventually stopped marketing it and laid off much of the salesforce it had hired to support the drug’s launch.
Biogen has higher hopes for a newer Alzheimer’s drug, Leqembi, which it developed with partner Eisai. The drug recently secured full FDA approval, potentially opening up broader reimbursement.
Still, the company is further cutting costs, announcing this week plans to lay off 1,000 employees in an effort to trim $1 billion in operating expenses by 2025. Under Viehbacher, Biogen has also reorganized its research and development leadership, and trimmed pipeline programs that it saw as high risk.
“I've said that I'd like to get Biogen a little stronger in rare diseases, and I see this acquisition as a move in that direction,” Viehbacher said on the conference call.
Reata has a number of research programs behind Skyclarys, which is also under regulatory review in Europe. They are all early stage, however, and Viehbacher noted that Biogen hadn’t given them much value in coming up with the deal’s price.
Still, he said some of Reata’s technology could fit “very well” with diseases like Alzheimer’s and ALS. “I do think that Reata is potentially much more than just a company around Skyclarys.”
Biogen expects the acquisition to be dilutive to earnings this year, but then add significantly starting in 2025.
Reata shareholders must approve the deal, which the companies anticipate closing in the fourth quarter. Biogen has already received support from investors representing about 36% of the voting power of Reata’s common stock.
Biogen shares rose by about 0.5% after initially falling on the news. Investors surveyed by Mizuho analyst Salim Syed Friday morning were split over whether Biogen overpaid and whether rosy revenue estimates for Skyclarys would pan out.
One risk raised by several analysts is the review by European regulators, which have at times appeared more cautious in their assessment of neurological disease drugs.
“Biogen is confident in EU approval,” Evercore’s Umer Raffat wrote in an investor note. “I think it is v[ery] v[ery] high risk.”
Editor’s note: This story has been updated with additional detail throughout.