Citi Believes Reata Has 'Considerable Room' To Operate In $5 Billion PAH Market

Citi analysts Yigal Nochomovitz, Steven Seedhouse and Yang Huang believe Reata Pharmaceuticals, Inc. RETA has considerable room to operate in the $5 billion Pulmonary Arterial Hypertension (PAH) market with Bardoxolone. The brokerage has a Buy rating with a price objective of $32 on shares.

The analysts think Reata's lead drug, Bardoxolone Methyl (Bard), is an antioxidant inflammatory modulator (AIM) being developed for PAH, affecting the arteries in the lungs, causing inflammation and constriction of the blood vessels eventually leading to heart failure.

"Our market research indicates the WW PAH market is ~$5B/yr... Current therapies are vasodilators that work by expanding affected arteries. Recent new approvals had 1) solid launches …and 2) pricing power …, despite undifferentiated mechanisms (also vasodilators)," wrote the analysts in a note.

Citi thinks its Bull-Base-Bear analysis suggested favorable risk/reward setup. The brokerage modeled Bard pricing at $110K/year, which is in line with oral PAH drugs, and approvals in connective tissue disease PAH (CTD-PAH) and idiopathic PAH (I-PAH). The analysts added, "Our estimated peak share is in line with phosphodiesterase type 5 (PDE5) inhibitors and IV prostacyclins (~20K pts on therapy worldwide) but still ~35% less than endothelin receptor antagonists (ERAs)."

The brokerage expects some of the key data results to hit the market in the next year and the following year's first half like Phase 3 data (CATALYST study), Phase 2 data for a 2nd gen AIM in Freidreich's Ataxia and Mitochondrial Myopathies. Aside from that, additional data from the Phase 2 LARIAT study are expected in the second half of the next year providing near-term support for the stock.

The stock shed 0.73 percent on Monday.