Summary
- Pfizer acquires Array in a +$11 billion deal.
- While very large in dollar terms, the deal is just a bolt-on deal for Pfizer, adding some growth potential and pipeline to the business.
- I see the rationale behind the deal as Pfizer could use some growth to create excitement.
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Pfizer (PFE) made a big move as it announced the acquisition of Array BioPharma (NASDAQ:ARRY) in a +$11 billion deal in order to rejuvenate top-line growth, a deal which did not spark a major reaction from its shareholders despite a huge premium. This more or less suggests that shareholders gave approval to the deal as it brings growth, albeit at a very steep multiple, but more importantly adds significant research results and a pipeline to Pfizer as well.
Deal Terms and Rationale
Pfizer has reached a deal to acquire Array BioPharma for $48 per share in cash which amounts to a $11.4 billion deal on an enterprise value basis. Array is a commercial stage biopharmaceutical company which focuses on the development of targeted small molecule medicines to treat cancers and other diseases.
Array has a portfolio which includes combined use of BRAFTOVI (encorafenib) and MEKTOVI (binimetinib) for treatment of mutant unresectable or metastatic melanoma. The combination is currently investigated across 30 clinical trials across many solid tumour indications, including Phase 3 BEACON trials for metastatic colorectal cancer.
This type of cancer is the third most common among both men and women, with an estimated 140,000 diagnosed with colon or rectum cancer of which 50,000 are estimated to die. So-called BRAF mutations cause up to an estimated 15% of these cases, with poor prognosis.
Pfizer's CEO Albert Bourla notes that this deal reinforces the commitment of both effective deployment of capital for patients' lives and shareholder value, while it is complementary to expertise of the business in breast and prostate cancer.
Pfizer expects that most of the deal will be paid for with debt and the remainder with existing cash holdings. Dilution is seen at four to five cents per share in 2019 and 2020, the deal is seen neutral to 2021's earnings per share and accretive thereafter. A major reason behind the "late" accretion is the premium paid for the shares, of course. Shares traded around $20 in early May, rose to nearly $30 in June following favourable research results, as Pfizer paid a +60% premium on top of that, representing about $4 billion in actual premium being paid.
