Pfizer, Inc. PFE announced a definitive agreement to buy small cancer drugmaker, Array BioPharma Inc. ARRY for $48 per share in cash for a total enterprise value of approximately $11.4 billion.
Pfizer is paying a premium of 62% over Array BioPharma’s closing price of $29.59 on Friday.
The deal, if successful, will strengthen Pfizer’s cancer portfolio as Array BioPharma makes targeted small molecule drugs for treating cancer and other high-burden diseases. Array BioPharma’s first commercial therapy, Braftovi plus Mektovi, approved as a treatment for BRAF-mutant melanoma, the deadliest form of skin cancer, was launched in July last year. The therapy has shown strong uptake since its launch. It generated almost $72 million in its first three commercial quarters and registered sequential growth of more than 50% in the quarter ending March 2019.
The company is also conducting label expansion studies for the combination therapy. A phase III BEACON study is evaluating the combination therapy plus Lilly’s LLY Erbitux (cetuximab) in second or third-line metastatic colorectal cancer (mCRC) with BRAF V600E mutation. Interim data from the study announced in May showed that the triple combination regimen met both the primary endpoint of significant improvement in overall survival and progression-free-survival compared to current standard-of-care therapies.
Array BioPharma plans to submit regulatory applications seeking approval in the second half of 2019. If approved, the triple combination therapy could be the first chemotherapy-free, targeted regimen for patients with BRAF-mutant mCRC. A phase II study is also evaluating the combination of Braftovi and Mektovi plus Erbitux in first-line mCRC with similar mutation. The study is expected to be completed in late 2020.
The CRC indication provides opportunity for long-term growth. It will definitely diversify Pfizer's oncology lineup into melanoma and CRC from Pfizer’s existing strong portfolio of breast and prostate cancer drugs.
Meanwhile, the company has several collaboration and licensing deals with other pharma companies, which generate milestone payments and sales royalties. The acquisition thus brings to Pfizer a large portfolio of royalty-generating out-licensed medicines. The company also has two wholly-owned pipeline candidates – ARRY-797 and ARRY-382 – in mid-to-late stage studies which are being evaluated for cardiomyopathy and cancer, respectively.
The transaction has been approved by the boards of both the companies. Pfizer plans to fund the transaction mainly with debt and the rest with existing cash. The deal is expected to be dilutive to earnings in 2019 and 2020 by 4 cents to 5 cents a share, neutral in 2021 and accretive from 2022. The transaction is expected to close in the second half of this year
While Array BioPharma’s stock shot up almost 57% on Monday, near an all-time high, Pfizer stock was up slightly at the close of trading after declining in pre-market hours. A group of investors found the deal expensive. Pfizer’s shares have declined 1.8% this year so far against an increase of 2.1% for the industry.
This year has been good as far as M&A activity in the pharmaceuticals/biotech industry is concerned. Oncology and immuno-oncology are key areas of focus. Bristol-Myers Squibb BMY, one of the largest pharma giants, is on track to close its previously announced acquisition of leading biotech company, Celgene for a whopping $74 billion. This will be one of the largest acquisitions in recent times.
Other important acquisition announcements include Lilly’s purchase of small cancer biotech, Loxo Oncology, and Merck’s acquisition of Immune Design and pending acquisitions of small private cancer biotechs, Peloton Therapeutics and Tilos Therapeutics. Roche is also due to acquire Spark Therapeutics for $4.8 billion, per a deal announced in February.
The surge in M&A activity is expected to continue in the overall drug/biotech sector as companies look to use huge cash reserve and combat rivalry woes.
Pfizer currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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