Pfizer (PFE), a leading multinational pharmaceutical and biotechnology company, has agreed to acquire Arena Pharmaceuticals (ARNA) to strengthen its pipeline of medicines for inflammatory bowel diseases.
The company announced on December 13 that it has reached a deal to buy Arena for $100 per share in an all-cash transaction valued at approximately $6.7 billion. Shares of Arena surged 90% following the announcement of the deal, which does not come as a surprise considering the premium Pfizer agreed to pay for the company. The deal is expected to close in the first half of next year.
Arena Pharmaceuticals is an American biopharmaceutical company that focuses on the development of therapeutic medicines for the treatment of immuno-inflammatory illnesses.
The company’s pipeline projects cover various fields such as gastroenterology, dermatology, and cardiology, and its acquisition by Pfizer is likely to benefit shareholders of both the companies because of scale advantages. I remain bullish on Pfizer despite its stock price reaching record highs.
Acquisition Will Expand Pfizer’s Innovative Drug Pipeline
Pfizer’s revenue more than doubled in the third quarter in comparison to the corresponding quarter last year, with $13 billion in sales of its COVID-19 vaccine accounting for the majority of this growth.
In 2021, the pharmaceutical giant expects to earn up to $36 billion from its Comirnaty vaccine. Last September, the FDA approved a booster dose of Comirnaty for those 65 years and older and for people aged 18-64 years who are at high risk of severe COVID-19 complications, and who have had frequent exposure to the virus.
The company plans to use the excess cash generated from vaccine sales on the expansion of its drug portfolio, and acquiring Arena seems a logical move to achieve this objective.
Pfizer is working on possible therapeutics for individuals suffering from debilitating immuno-inflammatory illnesses who require more effective treatments. According to the Centers for Disease Control and Prevention, around 3 million Americans are suffering from chronic and inflammatory bowel diseases.
Through this acquisition, Pfizer will get access to Arena’s flagship medicine, Etrasimod, and the company plans to speed up the clinical development of Etrasimod for patients with immuno-inflammatory illnesses by leveraging the company’s world-class research and development capabilities.
Etrasimod is a treatment drug candidate with two Phase 3 studies in ulcerative colitis, a Phase 3 study in Crohn’s Disease, a planned Phase 3 study in atopic dermatitis, and current Phase 2 studies in eosinophilic esophagitis and alopecia areata.
Findings related to Etrasimod’s efficacy in treating ulcerative colitis are expected to be released in the first quarter of next year. According to BMO Capital Markets, the medicine might generate $900 million in global sales by 2026.
The results of a midstage Crohn’s disease trial are expected in the second quarter of 2022 as well, and Arena’s pipeline also includes two cardiovascular assets in development – Temanogrel and Apd418.
Temanogrel is used for the treatment of systemic sclerosis-related microvascular blockage and Raynaud’s phenomenon, and Apd418 is used for the treatment of acute heart failure. Both of these drugs are in Phase 2 trials at the moment.
Pharmaceutical Outlook Is Promising
According to Research and Markets, the global pharmaceuticals market will reach a value of $1.7 trillion by 2025, growing at a compounded annual growth rate of 8%.
North America is the largest region in the global pharmaceuticals industry and is expected to be one of the fastest-growing regions in the next five years because of multibillion-dollar research and development expenditure incurred by leading pharmaceutical companies. Innovative drugs and ongoing research and development will be the most essential factors driving the growth of this industry globally.
According to Grand View Research, the global inflammatory bowel disease treatment market was valued at $19.2 billion in 2020, and is expected to grow at a compound annual growth rate of 4.8% from 2021 to 2028.
One of the primary factors projected to drive the market for inflammatory bowel disease treatment is the increased rate of Crohn’s disease and ulcerative colitis. Every year, approximately 70,000 new instances of inflammatory bowel disease are diagnosed in the United States, which has prompted both government and private institutions to pump millions of dollars into the pharmaceutical sector to develop a treatment for these diseases.
PFE Forecast
Based on the ratings of 17 Wall Street analysts offering 12-month price targets for Pfizer stock, the average PFE Forecast comes to $54.47, which implies 8.1% downside potential.
Pfizer is a cash-rich business, and the company is bringing in billions of dollars with its COVID-19 vaccine. The company is likely to utilize this excess cash to invest in the business to pursue growth opportunities, which suggests its stock could still be undervalued in the market.
UBS analyst Colin Bristow boosted his price target for Pfizer stock to $60 on December 13, and it could be a matter of time until a few more analysts go down the same path.
Takeaway
Pfizer is not a young company anymore, but is still finding growth avenues through strategic deals and well-planned investments.
The company seems well positioned to grow in the post-pandemic era, building on its success in the last couple of years.
Disclosure: At the time of publication, Dilantha De Silva did not own any shares mentioned in this article.
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