Why Investors Should Love Pfizer's Acquisition of Trillium

Pfizer (PFE -1.05%) announced in August that it plans to acquire Trillium Therapeutics (TRIL) for nearly $2.3 billion. In this Motley Fool Live video recorded on Aug. 25, Motley Fool contributors Keith Speights and Brian Orelli discuss why investors should love Pfizer's latest deal.

Keith Speights: Let's stay with Pfizer for a minute. Pfizer has already started to put some of its growing cash stockpile to use. Of course that cash continues to increase because in large part, because of the COVID-19 vaccine sales. But Pfizer announced on Monday that it's acquiring Trillium Therapeutics, ticker there for Trillium is TRIL, and the company's spending close to a little under $2.3 billion for this deal.

Brian, my question to you is this: Should investors love or hate Pfizer's planned acquisition of Trillium?

Brian Orelli: I'd say love for sure. It seems like a great fit with Pfizer's oncology program. Trillium is focused on CD47, which tumors use to tell the immune system not to eat them, so sometimes here called that "don't eat me" signal. Their drugs work well, Trillium's drugs work well on their own, but Pfizer is obviously buying the company not only for its drugs to work on their own, but also buying to combine them with its other drugs.

If the combinations work better, that can increase the sales of not only Trillium's drug, but also Pfizer's drug either by moving it into earlier stage or not having declining sales because somebody else comes in and shows that their drugs are slightly better than Pfizer's drug. The combination can actually help Pfizer not only make money off of Trillium's drug, assuming they get approved, but also by combining them and showing and improving sales of its own Oncology franchise.

The only thing that looks suspect on the love part is the price. Pfizer's paying $18.50 per share, which was over three times the price of where it closed on Friday before the acquisition was announced. Many small-cap biotechs had a really rough year, and that's also true of Trillium.

It started the year in the $14 range. If you think it went from 14 to 18.50 since the beginning of the year, that doesn't really look like Pfizer's overpaying. Pfizer is actually an investor in Trillium so I'm guessing they have a pretty good idea of how to value Trillium's drugs.

The last point is that Pfizer is paying $2.26 billion for Trillium, which is considerably less than Gilead paid for Forty Seven, which is also developing CD47 drugs, although Forty Seven was in later stage than Trillium. That explains the difference, almost twice as much that Gilead paid for Forty Seven compared to the 2.26 billion that Pfizer paid for Trillium.

Speights: Brian, I totally agree with you. I'm a Pfizer shareholder and I totally agree with you on the merits of this deal. I think it is one that investors should love. It was a great fit.

You made a point, Brian, that I think should really be stressed. Pfizer already owned a stake in Trillium, the company had a close connection with the small biotech so they had a pretty good feel of what the potential for Trillium's pipeline programs are, and so that's important. This wasn't something where you had a big drugmaker going in blind, not knowing a whole lot about a smaller company and buying it. Pfizer has known Trillium for a while now.

I like this deal. I hope Pfizer makes more deals like this. Of course, they have plenty of cash to do more deals.

Orelli: Yeah, I think it's a perfect fit for the company's oncology franchise, and then hopefully they can get some boost of their other areas of expertise as well.

Speights: I would even go as far to say, Brian, at least over the last year or two, this is one of the better biotech acquisitions I've seen in terms of just good strategic fit, not paying up too much. There are some deals that aren't as good, but this is probably one of the better ones.