Why Array BioPharma Stock Is on Fire Today

Pfizer moves to acquire the cancer specialist in a deal valued at $11.4 billion.

George Budwell
George Budwell
Jun 17, 2019 at 9:22AM
Health Care

What happened

Shares of the cancer specialist Array BioPharma (NASDAQ:ARRY) jumped by as much as 60.2% on heavy volume in pre-market trading today. The spark?

Array's shares are perking up this morning in response to a $11.4 billion buyout offer from pharma heavyweight Pfizer (NYSE:PFE). The takeover bid comes at a stately 81% premium over Array's enterprise value upon Friday's close. Pfizer plans on paying for this latest oncology acquisition through a mixture of new debt and cash on hand. The deal is slated to close in the second half of 2019. 

M&A Business spelled out with wooden blocks.

Image source: Getty Images.

So what

This midsize acquisition gives Pfizer some interesting new pieces in its already potent oncology lineup that includes top-drawer treatments for breast and prostate cancer. For example, Array's skin cancer combo treatment of Braftovi and Mektovi has gotten off to an exceptional start since launch. Moreover, the company also received breakthrough therapy designation for this same therapy for patients with BRAF-mutated colorectal cancer, when used in combination with Erbitux.

Array, in turn, plans on filing a regulatory application for the therapy's advanced colorectal cancer indication in the second half of this year. Wall Street believes the company's flagship cancer treatment could generate annual sales of between $1 billion to $2 billion for these first two indications within the next decade.  

Now what

With Pfizer's blockbuster nerve-pain medication Lyrica set to lose patent protection soon, the company clearly needed to add a new source of revenue. But it may have just grossly overpaid to diversify its revenue stream ahead of this event. On the plus side, this acquisition should help to tamp down the headwinds stemming from Lyrica's patent expiration. That's key because biopharma investors tend to place a sizable premium on top-line performance. So, all in all, this acquisition appears like a win for the shareholders of both companies.