Morningstar | Pfizer Announces Strategically Sound Acquisition of Array at a Reasonable Price
Pfizer's announced acquisition of Array adds several well-positioned drugs, but we don't expect any major changes to our fair value estimate, and we continue to view Pfizer as undervalued. Strategically, Array brings Pfizer several solid marketed and pipeline drugs with a focus in oncology and rare diseases, where pricing power is typically very strong. Overall, adding Array’s drugs to Pfizer's portfolio should reinforce its wide moat.We believe the key assets in the deal are Array's approved cancer drugs Braftovi and Mektovi. The drug combination has already gained approval in BRAF mutated melanoma (close to 50% of melanoma patients) based on excellent clinical data. While these drugs lost the first-mover advantage to other drugs with similar mechanisms of action to Novartis and Roche, the clinical data from Array's drugs looks better from a cross-trial comparison, which is not scientifically appropriate but can give signals for comparisons. Additionally, Braftovi and Mektovi face competition from Merck's and Bristol's PD-1 drugs in melanoma. Importantly, outside of melanoma, the Braftovi-Mektovi combination showed excellent data in BRAF mutated colorectal cancer (10%-15% of colorectal cancer), setting up a potential first-mover advantage in that area. Also, PD-1 drugs haven't shown as compelling data in colorectal cancer. Beyond Braftovi and Mektovi, we believe strong royalty streams from several outlicensed drugs and ARRY-797 for a rare cardiovascular disease also provide good opportunities.
The acquisition cost of Array is $11.4 billion (enterprise value), which looks appropriately priced relative to the potential cash flows. Pfizer expects to fund the deal with some cash on hand and debt that looks easily obtainable in the current debt-friendly market. We expect the deal to close in the second half of 2019, in line with Pfizer's guidance.
Pfizer is a research-based biopharmaceutical company. The company is engaged in discovering, developing, manufacturing and distributing of healthcare products, including medicines and vaccines. The company manages its commercial operations through three businesses: Pfizer Biopharmaceuticals Group, which includes Oncology, Inflammation and Immunology, Rare Disease, Hospital, Vaccines and Internal Medicine business units, as well as a hospital business unit; Upjohn, which includes the company's solid oral dose brands such as Lyrica, Lipitor, Norvasc, Celebrex, Viagra, and certain generic medicines; and Consumer Healthcare, which is an over-the-counter medicines business.
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