We're Cautious On The Reata Pharmaceuticals IPO

Reata Pharmaceuticals Inc. (NASDAQ: RETA) expects to raise $52 million in its upcoming IPO. Based in Irving, Texas, Reata is a clinical stage biopharmaceutical company, developing products that target serious, life-threatening diseases, such as pulmonary arterial hypertension

Reata Pharmaceuticals will offer 4.0 million shares at an expected price range of $14 to $16.

RETA filed for the IPO on January 4, 2016.

Underwriters: Citigroup Global Markets, Cowen & Co., and Piper Jaffray & Co.

Business Summary: Clinical Stage Company Developing Methods of Modulating Certain Proteins

As described in its 

, Reata Pharmaceuticals is a clinical stage biopharmaceutical company, developing products that can modulate the activity of certain proteins involved in inflammation, oxidative stress and mitochondrial function. The purpose is to meet the medical needs of patients with various life-threatening diseases that currently have no treatment options.

(Source)

The company is focusing on product candidates that regulate certain proteins, called transcription factors. RETA's leading product candidates include RTA 408 and bardoxolone methyl, a class of small molecules called antioxidant inflammation modulators. Reata is participating in LARIAT, a Phase II study of bardoxolone methyl for the treatment of pulmonary hypertension and pulmonary arterial hypertension, caused by interstitial lung disease.

RTA 408 is in Phase II clinical development for the treatment of a number of diseases, including mitochondrial myopathies and Friedreich's ataxia. The company has a total of nine product candidates in Phase I through Phase III development.

The company intends to use the net proceeds from the IPO for further clinical trials, preclinical studies, working capital and general corporate purposes.

Executive Management Highlights

As RETA describes in its SEC Filings, Chairman, CEO and President Warren Huff also serves as a venture partner at StarTech Medical Ventures. His previous experience includes senior positions at OpenPages Inc., inLight Inc., and Ergo Science Corporation. Mr. Huff received his J.D. from the Southern Methodist University School of Law and graduated with a B.A. in business administration from University of Texas at Austin.

CFO Jason Wilson has served in his position since 2006. His previous experience includes positions at Caris Diagnostics, and Ernst & Young LLP. He holds a B.B.A. in Accounting from Henderson University and an M.B.A. from University of Central Arkansas.

Potential Competition: Actelion Pharmaceuticals, Bayer AG, Gilead Sciences and Others

Reata Pharmaceuticals faces competition from a wide variety of other pharmaceutical companies, including Actelion Pharmaceuticals, Karos Pharmaceuticals, Eiger Pharmaceuticals, Gilead Sciences, Bial-Portela, Arena Pharmaceuticals, and United Therapeutics Corporation.

Financial Overview: Early Stage Losses

Reata Pharmaceuticals provided the following figures from its financial documents for the year ended December 31:

As of March 31, 2016

Conclusion: Consider Caution

We do hear the deal is quite popular at the moment; at the same time, we're cautious about the firm's early losses and risk factors, which include heavy reliance on lead product candidates and an unclear path to profitability, depending on clinical trials.

We suggest investors consider caution here.