How Pfizer’s $6.7 billion takeover of Arena Pharmaceuticals could work for investors

Did you know that Pfizer ( DPF 0.36% ) does more than just a COVID-19 vaccine? Comirnaty is getting so much attention it would be easy to forget he wasn’t always a Pfizer vaccine.

Pfizer markets Comirnaty in collaboration with BioNTech (BNTX -5.46% ), a relatively small biotech company that at the start of the pandemic lacked the resources to rapidly develop a new vaccine. It’s not unusual. The vast majority of top-selling products from Pfizer, and all other major pharmaceutical companies, have external origins.

Licensing a successful drug is great, but it’s usually more lucrative to own the whole thing. To that end, Pfizer recently completed a $6.7 billion acquisition of Arena Pharmaceuticals for full access to Etrasimod, an investigational anti-inflammatory drug for people with ulcerative colitis and other autoimmune diseases. immune.

Etrasimod is not going to outperform Pfizer’s COVID-related products, but this acquisition could be very beneficial for shareholders. Here’s why.

Etrasimod could be a blockbuster

On March 23, 2022, Pfizer told investors that Etrasimod had achieved the primary endpoint of a Phase 3 trial with patients with ulcerative colitis. After 12 weeks of treatment, a significantly higher percentage of patients randomized to receive Etrasimod achieved clinical remission compared to the placebo group. Pfizer is saving the juicy details for an upcoming scientific conference, but that’s likely bad news for a similar drug from Bristol Myers Squibb ( BMY 1.20% ) called Zeposia.

Last May, the FDA approved Zeposia to treat patients with ulcerative colitis, an indication that is expected to generate around $1.4 billion in sales for Bristol Myers by 2026. Zeposia is a capsule that works the same way than Etrasimod to prevent unnecessary inflammation that won approval to treat multiple sclerosis in 2020. In a pivotal trial that led to its approval for ulcerative colitis, Zeposia helped 18% of patients achieve remission clinical after 10 weeks of treatment, compared to 6% of patients who received a placebo.

Image source: Getty Images.

Etrasimod modulates the same sphingosine 1-phosphate (SNP1) receptors that Zeposia acts on, and I wouldn’t be surprised to learn that it’s significantly more effective. Pfizer didn’t make its final bid for Arena Pharmaceuticals until it saw ulcerative colitis Phase 3 data, months after Bristol Myers began marketing Zeposia to ulcerative colitis patients.

Zeposia got its first FDA approval in 2020 as a new treatment for multiple sclerosis (MS). Etrasimod will likely pay more as a treatment for ulcerative colitis, but a possible MS indication could add more than $1 billion to overall Etrasimod sales down the road.

What to look for next

By the end of March, Pfizer plans to publish the results of a 52-week study in patients with ulcerative colitis and Etrasimod. After one year of treatment, 37% of patients who received Zeposia achieved remission, which is 19% better than patients who received placebo.

There will be ins and outs to sort out, but investors want to keep an eye out for a treatment difference of at least 20% over placebo when Pfizer reads the 52-week results. If Etrasimod clearly outperforms Zeposia, it could start adding revenue to Pfizer’s turnover in 2023.

In 2021, Pfizer has manufactured over 3 billion doses of Comirnaty and is producing an antiviral treatment for COVID-19 called Paxlovid at a breakneck pace. In February, the company told investors to expect $54 billion in combined sales from Paxlovid and Comirnaty in 2022. That’s about half of management’s estimate for total revenue this year. year.

Record sales of Paxlovid and Comirnaty certainly overshadow the company’s acquisition of Arena Pharmaceuticals. The important takeaway for individual investors is that getting smart deals like the one he struck for Arena is the only way for Pfizer to continue to grow after strong demand for Paxlovid and Comirnaty wanes.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.