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What does the Arena acquisition mean for the Pfizer share price?

Pfizer share price: Pfizer logo

Pfizer is set to bolster its pipeline of immunology and inflammatory drugs with the $6.7bn acquisition of Arena Pharmaceuticals, a clinical-stage company that develops solutions for cardiovascular and metabolic diseases. 

The Arena buyout is expected to close in the first half of 2022. Following the announcement on 13 December, the Pfizer share price jumped 4.5% and went on to close the trading week ending on 17 December at $59.48 – 11% higher. As of 20 December, the Pfizer share price is up 72.3% in the year to date. 

Etrasimod drug potential boosts the Pfizer share price 

Arena Pharmaceuticals has developed several innovative potential therapies, but the one that has caught Pfizer’s attention is Etrasimod – a drug candidate for treating immune-mediated and inflammatory diseases. It’s an investigational drug for treating bowel conditions, such as ulcerative colitis and Crohn’s disease, as well as skin conditions, such as atopic dermatitis. 

“The proposed acquisition of Arena complements our capabilities and expertise in inflammation and immunology, a Pfizer innovation engine developing potential therapies for patients with debilitating immuno-inflammatory diseases with a need for more effective treatment options,” Mike Gladstone, global president of Pfizer’s inflammation and immunology department, said in a press release. 

“Utilising Pfizer’s leading research and global development capabilities, we plan to accelerate the clinical development of Etrasimod for patients with immuno-inflammatory diseases,” he added. 

Given the potential for Etrasimod to be successful in further clinical trials, the drug could help to bolster Pfizer’s revenue. During the third quarter of 2021, revenue from inflammation and immunology was $1.09bn, down 7% from $1.17bn in the year-ago period. The segment accounted for just less than 5% of the total revenue of $24.09bn, which was up 134% from $10.27bn. It was also the only part of Pfizer’s business to report a year-on-year decline in growth for both the most recent quarter and the trailing nine months.

Gladstone has indicated that the company expects the Arena acquisition to be a significant revenue contributor between 2025 and 2030. This will be timely because Pfizer’s market exclusivity period for its blockbuster arthritis drug Xeljanz ends in December 2025. In the third quarter of 2021, Xeljanz brought in $610m in sales – 55% of the inflammation and immunology segment’s revenue. 

From Arena Pharmaceutical’s side of things, the buyout makes sense as it’ll give the company access to the research and development needed to make Etrasimod a commercial success. 

Amit D. Munshi, president and CEO of Arena Pharmaceutical, said in a press release: “Pfizer’s capabilities will accelerate our mission to deliver our important medicines to patients. We believe this transaction represents the best next step for both patients and shareholders.”

The partnership will help Etrasimod to compete with Bristol Myers Squibb’s Zeposia drug, which earlier this year received approval from the US Food and Drug Administration to be used in treating adults with ulcerative colitis. In 2020, Zeposia was approved for use in treating multiple sclerosis. Sales of Zeposia are forecast to be between $1.6bn and $5bn, according to Fierce Biotech. 

Vaccine profits could mean further acquisitions for Pfizer 

The all-cash acquisition of Arena has only been possible thanks to Pfizer being flush with cash from its Covid-19 vaccine success. 

Pfizer splits 50% of the profit from its Covid-19 vaccine with BioNTech. In the third quarter of 2021, its vaccine segment saw sales of $14.58bn, up from $1.71bn reported in the year-ago quarter. Net profit for the quarter was $8.14bn, compared to $1.46bn in the third quarter of 2020. 

Given that the company earned significant capital from pandemic treatments and vaccines, it’s not outside the realms of possibility that Pfizer could buy up more assets in the future. In November, Pfizer closed a $2.26bn acquisition of Trillium Therapeutics, a clinical-stage immuno-oncology company that was in penny stock territory at the end of 2019. The deal was first announced back in August. 

These mergers and acquisitions (M&A) indicate that Pfizer is on the path to becoming a “smaller, more focused, science-based company with a singular focus on innovative pharma”, as CEO Albert Bourla outlined in 2019.

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