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Is Pfizer's Acquisition of Arena a Good Move for Investors?

By Keith Speights and Brian Orelli, PhD – Updated Jan 3, 2022 at 10:03AM

Key Points

  • Pfizer plans to acquire Arena for $6.7 billion.
  • Arena's pipeline appears to be a good fit for Pfizer.
  • The price tag of the deal also seems reasonable for Pfizer, but maybe not for some Arena shareholders.

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It seems to be.

Pfizer (PFE 0.49%) announced in December that it plans to acquire Arena Pharmaceuticals (ARNA). In this Motley Fool Live video recorded on Dec. 15, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not this acquisition is a good move for Pfizer shareholders.

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Keith Speights: Well, of course, Pfizer's COVID-19 vaccine success has really built the company's coffers. Pfizer has a growing cash stockpile, and the company is using some of that money.

On Monday of this week, Pfizer announced that it plans to acquire Arena Pharmaceuticals. Ticker there, by the way, is A-R-N-A. And this deal's price tag is around $6.7 billion. This was obviously great news for Arena shareholders. Its stock soared 80% or so, after the news. But Brian, do you think this is a good move for Pfizer shareholders?

Brian Orelli: Before we get to whether it's a good move for Pfizer, maybe we can just pause and consider how great a turnaround story that Arena Pharmaceuticals has been. The company, if people haven't followed it, gained FDA approval for a weight loss drug called Belviq back in 2012. The drug didn't have any commercial appeal, or not much, and shares sank over the following four years.

But the company took its knowledge of targeting G-protein-coupled receptors that Belviq targeted, and then they used it to target other G-protein-coupled receptors. The company developed etrasimod, which is their lead drug.

It treats a bunch of different autoimmune diseases, including ulcerative colitis, Crohn's disease, atopic dermatitis. It also has a couple of other pipeline candidates in phase 2 development. And it seems like a great move by Pfizer to pick it up at this price. It's sitting on some risk obviously, because none of the drugs have gotten through phase 3 development yet. But I think the upside is pretty big here.

It seems like Arena shareholders are probably thinking the same thing, that they [Pfizer] got a little bit of steal, because on the day it was announced, Arena's shares closed at around $90. They're leaving 10% on the table. That says to me that investors think it might not close, possibly because Pfizer is getting such a good deal that they might get blocked by a large investor in Arena.

Keith Speights: I am a Pfizer shareholder. I like this deal, and I 100% agree with you, Brian. Arena has just been a phenomenal turnaround story. It was, like you said, in 2012 or so, it was one of several companies that had obesity drugs that a lot of investors had high hopes for, thought they would be mega-blockbusters. Didn't pan out for any of the companies, I don't think, including Arena. But Arena has really turned things around.

But as a Pfizer shareholder, I do like this deal, and I like the size of this deal for Pfizer. A $6 [billion] or $7 billion deal, Pfizer can make several of those and potentially improve its growth prospects for the long term. I think this is a smart move.

I think you're right, though. I think some investors think there's a possibility that the deal won't go through. We'll just have to wait and see what happens here.

Brian Orelli, PhD has no position in any of the stocks mentioned. Keith Speights owns Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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