Last week’s deal saw big pharma giant Pfizer Inc. (PFE) agree to buy Array Biopharma for $10.64 billion in cash, in the latest biotech news. Pfizer aims to bolster its cancer treatment portfolio amid rising competition from generic drug manufacturers. Pfizer’s blockbuster pain drug Lyrica, used to treat fibromyalgia, lost patent protection at the end of 2018, opening up the drug to generic competitors.
Why Array Biopharma
The largest U.S. pharmaceutical company is paying a 62% premium to gain access to Array’s two approved treatments for skin cancer as well as its other experimental drugs for colorectal cancers. Pfizer’s new Chief Executive Officer Albert Bourla has been leading the race to diversify Pfizer’s portfolio, announcing the “15 in 5” plan to launch 15 experimental treatments worth at least $1 billion in annual sales potential over the next five years. “[The acquisition] sets the stage to create a potentially industry-leading franchise for colorectal cancer alongside Pfizer’s existing expertise in breast and prostate cancers,” Bourla said, according to CNBC.
Earnings Expectations
Pfizer is paying $48 per Array share, which rose 60% to $47.38 in premarket trading last Monday. Pfizer said it will complete the deal in the second half of 2019, and the transaction is expected to add to earnings beginning 2022, as well as reduce adjusted earnings per share by between 4–5 cents this year and in 2020.
In addition to last week’s deal announcement, Pfizer also gained U.S. Food and Drug Administration approval for a rare heart disease drug and managed to beat first-quarter estimates this year. But is this enough to make Pfizer a buy? After its shares climbed 18% in 2018, it had a rough start to 2019 with shares slipping 2% since January. Pfizer also underperformed in comparison with other pharma stocks so far this year.
Investing in biotechs is a traditionally risky business given the very high cost of research and development—and the low revenue in return—during the development phase of a drug. It is also a highly competitive industry. Biotech ETFs offer exposure to biotechs with the diversification of an index fund which can lessen risk. But it is worthwhile to note biotech ETFs tend to be more volatile than the broader equities market.
Bottom Line
While Pfizer is making headway in diversifying its drug pipelines as it loses patent protection for its older, blockbuster drugs, it still has a long way to go to start outperforming its competitors this year. The significant performance of Seattle Genetics, Inc. (SGEN), Celgene Corp. (CELG), and Incyte Corp. (INCY) have made these stocks the hottest biotechs so far in 2019, with Pfizer left behind.
Sources:
https://www.pharmaceutical-technology.com/comment/pfizers-blockbuster-drug-lyrica-comes-off-patent-2018/
https://www.investors.com/news/technology/pfizer-stock-pfizer-earnings-lilly-stock-lilly-earnings-merck-stock-merck-earnings/
https://www.investors.com/news/technology/pfizer-stock-buy-now/
https://www.investopedia.com/investing/biotech-stocks/
https://www.wsj.com/articles/pfizer-to-acquire-array-biopharma-for-11-4-billion-enterprise-value-11560769500
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
