Arena Pharmaceuticals Soars 80.4% on Pfizer’s $6.7B Acquisition Deal

Multinational pharmaceutical and biotechnology firm Pfizer, Inc. (PFE) has signed an agreement to acquire California-based biopharmaceutical company Arena Pharmaceuticals, Inc. (ARNA) for approximately $6.7 billion in cash.

Following the announcement on Monday, shares of Arena reached an all-time high of $94.08 and closed 80.4% up. Shares of Pfizer jumped 4.6% to close at $55.20.

Transaction Details

As per the terms of the agreement, Pfizer will acquire all outstanding common shares of Arena for $100 per share.

The transaction has received unanimous approval from the Boards of Directors of both companies.

Management Comments

The President and CEO of Arena, Amit D. Munshi, said, “Pfizer’s capabilities will accelerate our mission to deliver our important medicines to patients. We believe this transaction represents the best next step for both patients and shareholders.”

The Global President & General Manager of Pfizer Inflammation and Immunology, Mike Gladstone, said, “The proposed acquisition of Arena complements our capabilities and expertise in Inflammation and Immunology, a Pfizer innovation engine developing potential therapies for patients with debilitating immuno-inflammatory diseases with a need for more effective treatment options.”

About Arena

Arena Pharmaceuticals is a clinical-stage company that is developing innovative potential therapies for the treatment of several immuno-inflammatory diseases. Its portfolio includes development-stage therapeutic candidates in gastroenterology, dermatology and cardiology.

One of the company’s lead candidates is an oral, selective sphingosine 1-phosphate (S1P) receptor modulator called etrasimod.

Etrasimod’s development program includes a Phase 2/3 study in Crohn’s Disease, two Phase 3 studies in ulcerative colitis (UC), ongoing Phase 2 studies in eosinophilic esophagitis and alopecia areata, and a planned Phase 3 study in atopic dermatitis.

For etrasimod, Gladstone said, “Utilizing Pfizer’s leading research and global development capabilities, we plan to accelerate the clinical development of etrasimod for patients with immuno-inflammatory diseases.”

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Wall Street’s Take on Arena

After the acquisition was announced, Credit Suisse (CS) analyst Martin Auster downgraded the rating on the stock to Hold from Buy and raised the price target to $100 from $98 (11% upside potential).

Additionally, SMBC Nikko analyst David Hoang downgraded Arena’s rating from Buy to Hold. However, the analyst did not provide a price target.

Overall, the stock has a Moderate Buy consensus rating based on 3 Buys and 8 Holds. The average Arena Pharmaceuticals price target of $97.88 implies 7.2% upside potential. Shares have gained nearly 35% over the past six months.

Risk Analysis

According to TipRanks’ Risk Factors tool, Arena is at risk mainly from three factors: Finance & Corporate, Legal & Regulatory and Tech & Innovation, which account for 28%, 24% and 20%, respectively, of the total 54 risks identified for ARNA stock.

Under the Finance & Corporate risk category, the company has 15 risks, under the Legal & Regulatory category, there are 13 risks, and Arena has 11 risks under the Tech & Innovation category. The details of these risks can be found on the TipRanks website.

Wall Street’s Take on Pfizer

Following the announcement of the deal, Mizuho Securities analyst Vamil Divan maintained a Hold rating on the stock with a price target of $44 (20.3% downside potential).

Divan said, “The deal represents good value for Pfizer, despite the seemingly high price tag.”

Further, BMO Capital analyst Evan Seigerman reiterated a Buy rating on Pfizer with a price target of $60 (8.7% upside potential).

Seigerman said, “We are positive on the Arena acquisition and believe Pfizer is making good use of the deluge of cash from COVID-19 vaccines/boosters to further bolster its pipeline.”

“Etrasimod, if approved for UC, is estimated to drive approximately $900 million in global revenues by 2026 per Evaluate Pharma with additional upside through indication expansion into Crohn’s disease, atopic dermatitis, and eosinophilic esophagitis,” he added.

Overall, the stock has a Moderate Buy consensus rating based on 7 Buys and 10 Holds. The average Pfizer stock forecast of $53.67 implies 2.8% downside potential. Shares have gained around 50% year-to-date.

Smart Score

According to TipRanks’ Smart Score rating system, Pfizer scores a 9 out of 10, suggesting that the stock is likely to outperform market averages.