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Reata Pharmaceuticals Disaster Continues – Down Another 45% Premarket

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Updated 9 Dec 2021

Reata Pharmaceuticals Inc (NASDAQ: RETA) stock is down another 45% in premarket trading today. This follows on from the Food and Drug Administration’s refusal to grant approval to Reata’s kidney drug, bardoxolone methyl. Or, at least, the refusal of the relevant committee to agree that the evidence supports granting that license.

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The specific drug under discussion is Reata’s bardoxolone methyl. The is a treatment for a rare chronic kidney disease caused by Alport Syndrome. As this would be a daily treatment for suffers hopes were high of FDA approval and of a significantly profitable marketplace. 

The FDA committee (specifically, the “Renal Drugs Advisory Committee”) has demurre3d, thinking that the evidence showing significant positive effects isn’t sufficient, and not enough to pass the benefits as against risks test. The full FDA does not have to accept the committee’s decision but it normally does. So, in a useful sense that’s a denial, at least for the moment, of authorization.

This highlights the importance of the FDA in the valuation of clinical-stage pharmaceutical companies like Reata. The stock valuation depends, crucially, on whether the FDA will grant authorization. Other licensing authorities are extremely unlikely to authorize if the FDA doesn’t and no one will try to come to market without authorization at all.  

It is concerns about this process that has been hitting the Reata stock price this past week. At the beginning of the month, Reata Pharmaceuticals was at $91 on hopes about the upcoming decision as to whether the committee would approve. As it turned out there was advance notice on the 6th that there were problems with the submission – Reata plunged to $49 and change. Effectively the FDA committee at that point was saying that the studies of effectiveness were not robust. Small changes in methods could remove the evidence that is. This has been followed by some recovery, up into the mid $50s and then today.

That relevant FDA committee met and voted “no” on whether the treatment had proved its effectiveness and also beat the benefits against risks test. Note that FDA approval requires both, proof of effectiveness and also safety, not one or the other alone. 

So, the stock sinks again today, down that 45% premarket to bounce around in the low $30s.

This is not the end of the process but it is a significant indication. The full FDA does not have to – have to – accept the committee’s decision but it normally does. There is an ability to continue to represent before the full decision is taken.

This provides a trading opportunity. The next important date seems to be Feb 2022, when that final decision should be made by. A reversal of the committee’s finding would be a significant and unusual surprise. The Reata share price will likely move based upon sentiment over what that decision is going to be. The more the thinking is that reversal is possible the better it will do. It would be unusual though for it to happen.

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