Pfizer expanding in cancer with $10.6B deal for Array BioPharma

Pfizer Inc. said Monday that it plans to buy Array BioPharma Inc. for $10.6 billion to gain Array's promising new medicines for cancer, which could end or limit the use of punishing chemotherapy for some patients.

The agreed price of $48 in cash is 62% above Array’s close last Fridayalready a record high. The company’s shares have soared thanks to drugs that target a mutation that’s found across a wide variety of tumor types, and could be used in treating a broad set of cancers in patients who carry the mutation. Array’s drugs, Braftovi and Mektovi, are already approved in the U.S. for use in advanced melanoma.

Pfizer said in a statement that it will get royalties from the uses of drugs that Array has licensed out to other companies. It will acquire a pipeline of drugs in development, as well as future revenue from Braftovi and Mektovi in some other malignancies, such as colon cancer.

Array shares rose 58% early Monday, to $46.67 per share. Pfizer was little changed.

Cancer has become one of the hottest areas for deal activity between drug and biotechnology companies. Research efforts dating back decades have helped scientists understand how genetic mutations cause some cancers to grow, and other scientific advances have helped them learn how tumors evade the body’s defenses. That knowledge has created an array of targets for drugmakers to attack, leading to new tailored therapies often defined by a tumor cell’s specific biology rather than its location in the body.

Unlike other biotech stocks, many of which have pulled back from recent 2018 highs, Array’s shares have been on a steady march upward.

The stock was already at a record before the deal announcement, following Array’s news last month of positive clinical trial results using Braftovi and Mektovi with Indianapolis-based Eli Lilly and Co.’s Erbitux. That combination could be the first chemotherapy-free regimen for some patients who have advanced colon cancer.

Array’s drug targets a mutation called BRAF, which can show up in some forms of melanoma, colorectal and thyroid cancers, among others. Other drugs on the market target that mutation as well.

Roche Holding AG’s Zelboraf is projected to bring in $168.7 million this year, according to a survey of analysts compiled by Bloomberg. Novartis AG’s Tafinlar is used in combination with another drug, Mekinist, and the combination is expected to bring in $1.24 billion this year, according to analysts.

Pfizer offered $10.6 billion in cash

The deal could also boost other biotech stocks, especially companies with drugs in the later stages of development that could be appetizing for big drugmakers.

“We expect this announcement to provide a tailwind for the sector,” said Stephen Willey, an analyst with Stifel Nicolaus & Co. He called the premium for the Array deal appropriate, given the company’s positive clinical trial news.

Array has invented more than a dozen medicines now under control of other companies, including drugs for Loxo Oncology, which Lilly acquired in February for about $8 billion.

The deal is Pfizer’s biggest since its 2016 acquisition of Medivation for $14 billion, another blockbuster cancer deal that the New York-based company used to expand its oncology offerings. With that takeover, Pfizer gained Xtandi, a prostate cancer drug that last year Xtandi brought it $699 million.

“From an overall capital allocation perspective, our priorities don’t change,” Pfizer Chief Financial Officer Frank D’Amelio said on a conference call Monday. The company will continue to look at dividends, buybacks and small or mid-size deals, and doesn’t see the need for a large merger, he said.

Pfizer has lagged drugmakers like Merck & Co. and Bristol-Myers Squibb Co. that have brought to market best-selling drugs that use the immune system to attack tumors. But the company has acquired or developed a set of other treatments for breast, prostate other cancers that target disease based on its biological profile. Such methods can result in more effective drugs, fewer side-effects, or both.

Pfizer plans to fund the deal with a combination of debt and cash. It said it expects the deal to close in the second half of this year. The deal comes with a $400 million termination fee, according to a regulatory filing by Array.

Guggenheim Securities and Morgan Stanley & Co. served as Pfizer’s financial advisers, and Wachtell, Lipton, Rosen & Katz gave legal advice. Centerview Partners was Array’s financial adviser, and Skadden, Arps, Slate, Meagher & Flom LLP served as its legal adviser.

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