Is RETA Stock A Buy?

Is RETA Stock A Buy? Reata Pharmaceuticals Inc (NASDAQ:RETA) is an experimental drug company focused on oral antioxidative and anti-inflammatory drugs. The company’s leading treatments are based on the bardoxolone methyl and RTA 408 compounds, which are both undergoing clinical studies.

The pharmaceutical company has treatment candidates with the potential to help with immunology, corneal endothelial cell loss associated with cataract surgery, mitochondrial myopathies, Friedreich’s ataxia, Alzheimer’s disease, cystic fibrosis, and some forms of cancer.

Many of these diseases are genetic and have no cure. This makes Reata Pharmaceuticals an easy pick at first glance for those who believe in the future of medicine. But caution is warranted. After all, the race for a coronavirus vaccine proved how some companies with an early lead can still fail to prove efficacy in late-stage clinical trials.

We check the temperature of Reata Pharmaceuticals to see if investors should buy at a fever pitch price levels?

What Makes Reata Pharmaceuticals Different?

Reata Pharmaceuticals is a Plano, Texas-based pharmaceutical company founded in 2002. Its stated goal is to understand the biology and complex, interconnected molecular pathways of human pathophysiology and biology.

The company’s research is focused on the development and commercialization of small-molecule therapeutics using novel action mechanisms. This includes two investigational Nrf2 activators currently undergoing clinical trials: bardoxolone methyl for the treatment of chronic kidney diseases and omavexolone for Friedreich’s ataxia.

These inhibit HSP90 and RORyt, respectively, to treat neurological and autoimmune diseases. The company also has a robust pipeline based on these being successful, although that still needs to be proven by the U.S. Food and Drug Administration (FDA).

Should it prove successful, Reata Pharmaceuticals could be a huge boon for investors. The chronic kidney diseases drug market alone was valued at $12.328 billion in 2020 and is expected to grow by a CAGR of 4.0 percent through 2027. This has some investors wondering if they should invest now.

Is Reata Pharmaceuticals Stock a Buy?

Reata Pharmaceuticals is valued at approximately a $5 billion during this interim phase while waiting for its clinical trial results. Even at current price levels, shares could potentially be worth triple or more if its two most-advanced treatments are clinically approved.

Bardoxolone could prove effective for up to 60,000 patients in the United States alone. Of course, the company is still in the clinical stage, so there’s no guarantee it will ever develop a life-saving product that is approved by the FDA.

The company held about $777.6 million in the second quarter of 2021, compared to $818.2 million at the end of 2020. As such, it has a lengthy runway of financial support that can finance the next half decade or more of research. It spends about $40 million per quarter on research and development.

Reata Pharmaceuticals Financials

Reata Pharmaceuticals reported a $67.5 million loss in the first quarter of 2021. This compares to a $48.9 million loss in the same quarter of the prior year and it equates to a loss of -$1.86 per share on both a basic and diluted basis.

It does have some revenue. In the first quarter of 2021, the company earned $944,000 in license, milestone, and other revenue. This compares to $1.35 million in the same quarter of the prior year.

Total expenses for that quarter were $55 million, while it showed $777 million of cash and equivalents on its books. It also held $369 million in shareholder equity. Those costs continue to bleed cash and place earnings red quarter after quarter for the foreseeable future.

FDA Approval Required For Reata To Pop

The biggest risk to investing in Reata Pharmaceuticals is the same as any drug company – its success is entirely based on FDA approval. It needs to prove efficacy in at least one of its treatments, and early data doesn’t guarantee late-stage clinical trial success.

Investors who are considering investing in this company need to understand that its revolutionary treatments are not yet proven. Should they work, they will still need to be approved by insurance companies and successfully marketed toward target demographics.

Until then, you can’t count your chickens before they hatch in this game. We could very well learn that the treatments are no more effective than placebos, and that could hinder potential gains.

That’s always the risk you take when investing in pre-revenue, clinical-stage companies working on experimental treatments. But analysts are optimistic in their valuation targets for the company.

Reata Pharmaceuticals Valuation

Analysts are optimistic that share prices can reach as high as $237 per share based on a discounted cash flow forecast analysis, offering possibly some very large upside from current price levels.

Some skeptics argue that RETA is overvalued at the moment and investors should wait until the price drops further before jumping on. For eager beavers, the upside opportunity is so large that sitting on the sidelines is risky. Nevertheless, conservative investors could equally wait for a pullback to optimize returns long-term should the stock pop on positive FDA news.

FDA approval isn’t easy to receive however. And Operation Warp Speed slowed many treatments while coronavirus vaccine candidates were prioritized. It could be a long wait before this gets pushed through the bureaucracy.

Is Reata Pharmaceuticals Stock a Buy? The Bottom Line

Reata Pharmaceuticals is a clinical-stage pharmaceutical company that has two potential treatments for life-threatening diseases. Each is in late-stage clinical trials and could prove effective. If they do, it will be a big financial boon for the company and open up a steady revenue source. That also proves efficacy and could open a slew of new uses.

However, it’s not guaranteed to happen, and investors could be in for a long wait. Invest cautiously as you should with any pharma stock pick.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.