Reata Pharma Soars on Amgen Takeover Rumor

Reata Pharmaceuticals soars Friday on rumors the company could be targeted by Amgen.
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Shares of Reata Pharmaceuticals (RETA) - Get Report soared Friday on rumors the clinical stage biopharmaceutical company might be acquired by drugmaking giant Amgen (AMGN) - Get Report.

Amgen, meanwhile, was falling 6.2% to $212.29, the worst performer on both the S&P 500 and the Nasdaq, after offering a weaker-than-expected outlook for the year.

Investors apparently reacted when Amgen CEO Bob Bradway was discussing kidney medicine during the company's fourth-quarter earnings call.

"We have not found in our own discovery research efforts that we've been able to find the kinds of game-changing innovation that we want to invest in from a discovery standpoint," he said, according to a transcript of the call. "So we're not investing in discovery, research and nephrology right now. But we are going to look for business development opportunities there."

SVB Leerink analyst Joseph Schwartz said in a note to clients that Plano, Texas-based Reata is testing drugs for several kidney diseases, including Alport syndrome and autosomal dominant polycystic kidney disease.

"Unfortunately, Amgen's internal (research and development) efforts have been unable to find the 'kinds of game-changing innovation that we want to invest in,' " Schwartz said. "So the company will 'look for innovation and large effect size.' "

Even if Amgen doesn't acquire Reata, Schwartz said it "remains a logical takeout candidate."

While Reata was climbing, Amgen was falling, becoming the biggest loser on both the S&P 500 and the Nasdaq, after beating Wall Street's fourth-quarter earnings expectations but offering a weaker-than-expected outlook for this year.

Amgen posted earnings of $3.64 a share, ahead of analysts' estimates of $3.41. The company’s revenue of $6.2 billion also beat analyst expectations of $6 billion.

For the full year, the company forecast earnings of $14.85 to $15.60 a share on revenue as high as $25.6 billion. Analysts had estimated 2020 adjusted earnings of $16.14 a share on revenue of $25.5 billion.

Baird analyst Brian Skorney downgraded Amgen to underperform from neutral, but raised his price target to $185, up from $173.

Writing in a note to clients that Amgen is a "great company and the strong execution in the face of some serious headwinds has been more than reflected in the stock," Skorney said he believes the stock's "current premium reflects a level of enthusiasm that just isn't warranted" given the company's stage of maturity.

Skorney added that he thinks the "exuberance is overdone" and called for a pullback in Amgen shares.

Morgan Stanley analyst Matthew Harrison said he would expect some pressure on Amgen shares after the company's 2020 revenue guidance was 1% below at the mid-point and its EPS guidance missed consensus by 6%.

Still, he believes management is being conservative "across the board with costs" and he also points to "many major pipeline readouts" as key drivers in 2020. Harrison kept his overweight rating on the stock his price target unchanged at $277.