Biogen, amid layoffs, ponies up $7.3B for rare disease specialist Reata and potential blockbuster Skyclarys

On Monday during a quarterly earnings call, when Biogen CEO Chris Viehbacher was asked about the company’s potential to execute M&A, he randomly offered “we’ve got, I think, about $7.3 billion in cash?”

Four days later, Biogen has revealed a proposal to acquire Reata Pharmaceuticals. The Massachusetts biotech will pay $172.50 per share for the Plano, Texas-based rare disease specialist in a deal that comes to—you guessed it—$7.3 billion.

With the purchase—which is a 59% markup on Reata’s shares from close of the market on Thursday—Biogen gains Skyclarys, the first treatment for the rare, inherited neurologic disorder Friedreich’s ataxia. It was approved by the FDA in February of this year and carries sales potential of $1.5 billion in 2030, according to analysts.

On a conference call Friday to bookend the busy week, Viehbacher called Biogen “the natural owner for Skyclarys.”

When the deal is done, Biogen will be able to synergize the Skyclarys commercialization with two of its other products—Spinraza for spinal muscular atrophy (SMA) and newly approved Qalsody for amyotrophic lateral sclerosis (ALS), he said.

The deal comes after Biogen revealed during its quarterly report that it plans to lay off 1,000 employees—or 11% of its workforce—by the end of 2024. The move is part of Viehbacher’s revamp of the company which has seen revenue declines each of the last three years—from $14.4 billion in 2019 to $10.2 billion last year.

Viehbacher, who was hired in November of last year, dubbed his initiative “Fit For Growth.”

“There is a need for reengineering,” Viehbacher said Friday. “It wasn’t just a cost reduction exercise. We’re moving layers in the organization.”

The approval of Skyclarys was the first in the 21-year history of Reata. The company has a few investigational drugs for other neurological conditions in the pipeline, though none are in the late stages of development.  

“With its clear understanding of the rare disease patient journey and existing commercial infrastructure, we believe Biogen will establish Skyclarys as the standard of care in the treatment of this devastating genetic disease,” Reata CEO Warren Huff said in a release.

There is a lucrative priority review voucher (PRV) that comes with Skyclarys. Biogen said that it hasn’t decided if it will sell or use the PRV, which can be used to speed the FDA’s review of drug applications.  

As for the future, Biogen will continue to consider M&A deals, according to CFO Michael McDonnell.

“We’re not stretching the balance sheet to a point where we have to go completely dark on business development activities for a period of time,” McDonnell said.

As for the possibility of FTC examination of the deal, William Blair’s Myles Minter points out that there is no “pipeline overlap” between the companies. Minter's team doesn't "expect the same level of scrutiny” for this deal that other large biopharma buyouts are currently receiving.

In a poll of investors by Mizuho, 55% said it was not a good transaction for Biogen, while 41% favored it. Additionally, 52% of respondents believe peak sales of Skyclarys will fall between $1 billion and $1.5 billion.

While more than one investor called Biogen’s acquisition “desperate” and “expensive,” others lauded the move.

“(It’s the) right type of deal. In stark contrast to prior speculative M&A, this is commercial stage/derisked,” one investor wrote. “The valuation is rich but I don’t think they overpaid.”