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Does PFE, ARNA Deal Signal Robust Pharma M&A Activity in 2022?

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Pfizer (PFE - Free Report) announced a definitive agreement to acquire Arena Pharmaceuticals for $100 per share or $6.7 billion in an all-cash deal on Monday. The deal will add Arena’s lead candidate, etrasimod, a next-generation and selective sphingosine-1-phosphate (S1P) receptor modulator, to Pfizer’s inflammation and immunology pipeline.

Etrasimod is in late-stage development for ulcerative colitis (UC). It is also being studied across multiple gastroenterology and dermatology indications. In addition, Arena’s pipeline includes pipeline candidates like temanogrel and APD41, which are in mid-stage development for cardiovascular diseases.

While Pfizer’s stock rose 4.6% on Monday, Arena’s shares were up 80.4% in response to the merger news. Pfizer’s stock has risen 55.6% this year so far compared with an increase of 18.5% for the industry.

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The buyout offer came at a significantly high premium of 100% of Arena’s Friday’s closing price of $49.94. The Arena deal is Pfizer’s biggest after the $11 billion acquisition of Array BioPharma in 2019.

In 2021, M&A activity in the pharma and biotech recovered after a dull 2020 when deal-making was hurt by pandemic-led disruption. Though deals were not as plentiful as 2018 and 2019, most of the M&A deals of 2021 were valued at more than $1 billion. Some of the larger deals were Merck’s (MRK - Free Report) $11.5 billion acquisition of Acceleron Pharma, Jazz Pharmaceuticals’ (JAZZ - Free Report) acquisition of GW Pharmaceuticals for $7.2 billion and Sanofi’s (SNY - Free Report) purchase of Translate Bio for $3.2 billion.

Merck’s pipeline was boosted by the addition of the promising phase III pipeline candidate for pulmonary arterial hypertension, sotatercept, following the acquisition of Acceleron.

Jazz Pharmaceuticals’ neuroscience portfolio was strengthened by the addition of two drugs — Epidiolex and Sativex (nabiximols) — following the abovementioned acquisition.

Sanofi’s efforts to develop transformative vaccines and therapies using mRNA technology accelerated post its acquisition of Translate Bio.

The Pfizer-Arena deal has raised hopes that M&A activity will pick up significantly in 2022. The deal is being seen as the first of many more to come in 2022 as big drugmakers have huge piles of cash and borrowing power to strike deals. Given that it takes several years and millions of dollars to develop new therapeutics from scratch, large pharmaceutical companies regularly buy innovative small/mid-cap biotech companies to build out their pipelines and drive growth.

Fast-growing and lucrative markets such as oncology and cell and gene therapy are likely to remain focus areas for M&A activities. Importantly, after the success of the mRNA vaccines of Pfizer and Moderna, the mRNA technology has already begun to attract a lot of attention.

Importantly, drugmakers like Pfizer, J&J and Moderna have huge cash resources at their disposal, benefiting from significant revenues from their COVID-19 vaccine sales. Pfizer, may as well make another bolt-on acquisition announcement next year, given strong sales from its COVID-19 vaccine Comirnaty and potentially its oral antiviral pill Paxlovid, which is expected to be granted emergency approval soon.

Though all the deals of 2021 were relatively smaller than the previous mega-mergers of AstraZeneca-Alexion, Bristol-Myers-Celgene and AbbVie-Allergan, a large transaction, at $50 billion or more, cannot be ruled out in 2022.

Both Pfizer and Arena Pharma have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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