KEY POINTS
- Pfizer recently completed a $6.7 billion acquisition of Arena Pharmaceuticals.
- Pfizer bought Arena Pharmaceuticals to access Etrasimod, an experimental anti-inflammation drug for the treatment of ulcerative colitis and multiple sclerosis.
- To inspire Pfizer's buyout, Etrasimod probably looked like a more effective treatment option in phase 3 clinical trial results that haven't been shared publicly yet.
Here's why America's largest pharmaceutical company splashed out on an experimental treatment you've probably never heard of.
Did you know that Pfizer ( PFE 0.36% ) makes more than just a COVID-19 vaccine? Comirnaty gets so much attention that it would be easy to forget that it wasn't always a Pfizer vaccine.
Pfizer markets Comirnaty in collaboration with BioNTech ( BNTX -5.46% ), a relatively small biotechnology company that, at the beginning of the pandemic, lacked the resources to rapidly develop a new vaccine. This isn't unusual. The vast majority of top-selling products from Pfizer, and every other big pharmaceutical company, have external origins.
NYSE: PFE
Licensing a successful drug is all fine and good, but it's usually more lucrative to own the whole thing. To this end, Pfizer recently completed a $6.7 billion acquisition of Arena Pharmaceuticals for complete access to Etrasimod, an experimental anti-inflammation drug for people with ulcerative colitis and other autoimmune disorders.
Etrasimod isn't 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 met the main goal in a phase 3 trial with ulcerative colitis patients. After 12 weeks of treatment, a significantly higher percentage of patients randomized to receive Etrasimod achieved clinical remission compared to the placebo group. Pfizer's saving the juicy details for an upcoming scientific conference, but they're probably bad news for a similar drug from Bristol Myers Squibb ( BMY 1.20% ) called Zeposia.
Last May, the FDA approved Zeposia to treat ulcerative colitis patients, an indication expected to generate around $1.4 billion in sales for Bristol Myers by 2026. Zeposia is a capsule that works the same way as Etrasimod to prevent unnecessary inflammation that earned approval to treat multiple sclerosis in 2020. In a pivotal trial leading to its approval for ulcerative colitis, Zeposia helped 18% of patients achieve clinical remission after 10 weeks of treatment compared to 6% of patients given 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 it's significantly more effective. Pfizer didn't make its final bid for Arena Pharmaceuticals until it saw phase 3 ulcerative colitis data, which was months after Bristol Myers began marketing Zeposia to ulcerative colitis patients.
Zeposia earned its first FDA approval in 2020 as a new treatment for multiple sclerosis (MS). Etrasimod will probably earn more as an ulcerative colitis treatment, but an eventual 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 expects to report results from a 52-week study with ulcerative colitis patients and Etrasimod. After a year of treatment, 37% of patients given Zeposia achieved remission, which was 19% better than patients who received a placebo.
There will be some ins and outs to sort through, but investors want to keep an eye open for a treatment difference of at least 20% compared to placebo when Pfizer reads out 52-week results. If Etrasimod clearly outperforms Zeposia it could begin adding revenue to Pfizer's top line in 2023.
In 2021, Pfizer manufactured over 3 billion doses of Comirnaty, and it's producing an antiviral treatment for COVID-19 called Paxlovid at a hair-raising pace. In February, the company told investors to expect $54 billion in combined sales of Paxlovid and Comirnaty in 2022. That works out to around half of management's estimate for total revenue this year.
Record-breaking sales of Paxlovid and Comirnaty certainly overshadow the company's Arena Pharmaceuticals acquisition. The important takeaway for individual investors is that making smart deals like the one it made for Arena is the only way Pfizer can continue growing after high demand for Paxlovid and Comirnaty subsides.
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