Biohaven's Volatile Path to Approval: Is the Buy Rating Justified?

In the high-stakes world of biotech investing, few stories encapsulate the tension between risk and reward as vividly as Biohaven Pharmaceuticals. The company's recent regulatory setbacks, financial maneuvers, and shifting strategic priorities have left investors grappling with a critical question: Is the recent Buy rating from Citi justified, or is Biohaven's stock a cautionary tale in the making?

A Regulatory Setback and Strategic Reassessment

Biohaven's lead asset, troriluzole (Vyglxia), was poised to become the first treatment for spinocerebellar ataxia (SCA) until the FDA issued a Complete Response Letter (CRL) in late 2025. The agency cited flaws in the real-world evidence study, including potential bias and unmeasured confounding factors, despite the study showing a 50-70% slowing of disease progression in treated patients. This rejection triggered a 44% plunge in Biohaven's stock price and downgrades from major analysts, including BofA Securities and Bernstein.

The CRL has forced Biohaven to reassess its strategy. The company announced a 60% reduction in annual R&D spending and a pivot to three key programs: extracellular degraders, the Kv7 activator opakalim, and antimyostatin therapies. While this restructuring aims to conserve cash, it also underscores the fragility of Biohaven's pipeline.

Financial Constraints and Capital Raising

Biohaven's financial health remains precarious. As of September 30, 2025, the company held $263.8 million in cash, a figure analysts project will last only three quarters under current spending plans. To stave off liquidity crunches, Biohaven launched a $150 million public offering, but this move has drawn skepticism. Bernstein noted that the offering reflects "low confidence in upcoming data catalysts" and raised concerns about the company's ability to fund operations without further dilution.

The firm's GAAP net loss for Q3 2025 reached $173.4 million, highlighting the financial toll of repeated clinical and regulatory setbacks. While Biohaven's cash reserves are robust on paper, its operational runway is shrinking, creating a high-stakes environment where every delay or failure could force emergency financing.

Upside Potential: Troriluzole and the Kv7 Program

Despite the gloom, Biohaven's pipeline still holds tantalizing upside. UBS estimates that troriluzole could achieve $840 million in peak sales if approved, with a 40% probability of success in its base case model. Even after the CRL, the drug remains a key value driver, particularly if Biohaven can address the FDA's concerns through additional data or a revised trial design.

The Kv7 program, now the company's central focus, offers another potential lifeline. Opakalim is advancing in Phase 3 trials for major depressive disorder and epilepsy, with top-line results expected in late 2025 and early 2026. However, Bernstein has cut its probability of success estimate for the program by 20%, citing unconventional Phase 2 dose-finding strategies. This skepticism is warranted: without robust Phase 2 data, the risk of late-stage failure remains high.

Risk-Reward Dynamics in High-Beta Biotech

The Citi Buy rating hinges on a narrow but plausible scenario: that Biohaven secures FDA approval for troriluzole or generates positive data from the Kv7 program. If either event materializes, the stock could rebound sharply, given its low valuation and limited competition in niche markets like SCA. However, the risks are equally severe.

First, regulatory uncertainty looms large. The FDA's rejection of troriluzole's NDA and its skepticism toward the Kv7 program's methodology suggest that approval is far from guaranteed. Second, Biohaven's financial constraints could force further dilution, eroding shareholder value. Third, even if the company succeeds in late-stage trials, commercialization risks-such as pricing pressures or competition-could limit revenue potential.

Conclusion: A High-Risk, High-Reward Proposition

For investors with a high tolerance for volatility, Biohaven presents an alluring but perilous opportunity. The Citi Buy rating is justified only if one assumes a favorable resolution to the FDA's concerns and a successful Kv7 trial. However, given the company's dwindling cash reserves, regulatory hurdles, and reduced probability of success for its key programs, the risk-reward profile tilts heavily toward caution.

In the end, Biohaven's story is a microcosm of biotech investing: a race against time, money, and the unpredictable whims of regulators. For those willing to bet on a Hail Mary, the rewards could be transformative. For others, the path to approval may prove too volatile to justify the risk.