What do you do when you have billions of dollars burning a hole in your pocket? You spend some money.
That's exactly what Pfizer (PFE +0.09%) has done in recent months as its coffers have filled with COVID-19 vaccine cash. The big drugmaker closed on its $2.22 billion acquisition of Trillium Therapeutics in November 2021. But an even bigger deal was right around the corner.
Less than a month after finalizing the purchase of Trillium, Pfizer announced plans to buy Arena Pharmaceuticals for $6.7 billion. This transaction closed on March 11, 2022. And now Pfizer's $6.7 billion bet could already be about to pay off big-time.
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Best-in-class potential
Pfizer had especially great expectations for Arena's crown jewel, etrasimod. When the acquisition was announced, Arena was already evaluating the experimental oral sphingosine 1-phosphate (S1P) receptor modulator in a couple of phase 3 studies targeting ulcerative colitis.
Over the past two weeks, Pfizer announced the results from both of those late-stage studies. The outcomes were exactly what the pharma giant was banking on.
The first study, called Elevate 12, measured the effects of etrasimod after 12 weeks following administration of the drug. The second study, Elevate 52, measured the effects of estrasimod at week 52. The results were overwhelmingly positive in both clinical trials.
Etrasimod achieved all primary and secondary endpoints in the two studies. The drug also demonstrated a favorable safety profile, just as it did in earlier clinical studies where any adverse events were usually mild to moderate in severity.
Pfizer chief development officer of inflammation and immunology Michael Corbo stated, "These data underscore etrasimod's potential, if approved, as a best-in-class therapy." Bristol Myers Squibb (BMY +1.04%) already has received U.S. approval for its S1P receptor modulator, Zeposia, in treating ulcerative colitis and relapsed multiple sclerosis.
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Key Data Points
Paying off
With those terrific results, Pfizer unsurprisingly plans to file for regulatory approvals of etrasimod in treating ulcerative colitis this year. The chances of winning those approvals appear to be quite good. And that means Pfizer's $6.7 bet could start paying off relatively soon.
How much could etrasimod make if it's approved? Morningstar projects that the drug could capture 20% of the $5 billion ulcerative colitis market, which translates to around $1 billion in sales. However, Wells Fargo analyst Derek Archila is more optimistic. He thinks etrasimod could generate $2.5 billion in peak annual sales.
If etrasimod truly is a best-in-class S1P receptor modulator, its sales could surpass those of Zeposia. Bristol Myers Squibb expects that Zeposia could rake in more than $3 billion in sales by 2029.
Just how much etrasimod might make hinges on the drug securing approvals in other indications. Pfizer is also evaluating etrasimod in treating Crohn's Disease, atopic dermatitis, eosinophilic esophagitis, and alopecia areata.
More bets to come?
Pfizer appears to be on track for a quick win with its acquisition of Arena. Will the big drugmaker make more similar bets in the near future? It seems likely.
Of course, Pfizer has already made smaller bets. For example, the company teamed up with Voyager Therapeutics in October to use Voyager's adeno-associated virus (AAV) capsid technology. However, that deal only cost Pfizer $30 million upfront -- the equivalent of pocket change for the company.
Pfizer ended 2021 with a cash stockpile totaling more than $31 billion. The company continues to generate such strong profits thanks in large part to its COVID-19 products that its cash position probably didn't fall much even after shelling out $6.7 billion in cash for Arena.
But we only have to listen to Pfizer CEO Albert Bourla to know that more big bets are probably on the way. Bourla talked about some of Pfizer's recent deals in the company's fourth-quarter conference call and added, "I see this pace of business development accelerating going forward."
Indeed, Bourla predicted that Pfizer could strike deals that allow it to add "at least $25 billion of risk-adjusted revenues to our 2030 top-line expectations." If he's right, this big pharma stock could be an even better bet for investors than it seems to be now.
