UPDATE: Pfizer books Arena for immuno-inflammatory portfolio in $6.7B deal

Arena Pharmaceuticals has been in need of a new R&D show since a phase 2 pain drug flopped earlier this year, and, now, the biotech has landed the biggest ticket in town: Pfizer.

The Big Pharma will add Arena to its bill in a deal valued at $6.7 billion, bringing on a suite of immuno-inflammatory disease candidates that target patients with an unmet need.

Arena’s star asset is etrasimod, which is in development for ulcerative colitis (UC), Crohn’s disease and eosinophilic esophagitis. The S1P modulator is currently in late-stage testing in UC and Crohn’s with a phase 3 planned in atopic dermatitis. Additional phase 2 studies are ongoing in eosinophilic esophagitis and alopecia areata.

Etrasimod previously posted strong results in an extension of a phase 2 UC study called OASIS, which showed sustained improvement at 46 weeks among patients who had achieved clinical response, remission or endoscopic improvements by week 12.

RELATED: Arena's pain drug fails phase 2b, prompting review of 'strategic options'

Mike Gladstone, global president and general manager of Pfizer Inflammation & Immunology, said Arena will nicely tuck into the pharmaceutical giant’s immuno-inflammatory disease portfolio. 

Patients with UC often experience flare-ups and have disease that is not fully controlled on existing medicines, Gladstone said. Pfizer therefore saw a need to bolster its portfolio with a differentiated treatment prospect such as etrasimod. He said this therapy is "at the heart of this deal," specifically the near-term launch in inflammatory bowel disease and later UC. 

With the weight of a Big Pharma now behind Arena, Gladstone said they will step on the gas to develop etrasimod.

"Pfizer brings significant value to this potential medicine as well," he said. "We have the infrastructure established to bring potential therapies to patients sooner with an accelerated trajectory."

Analysts cheered the deal as a bolt-on that could bring value in the long term, when the wave of cash from Pfizer's new COVID franchise finally crests. Revenue from the Arena buy will contribute to Pfizer's bottom line during the "critical years" of 2025 to 2030, according to Gladstone. 

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In addition, RBC Capital Markets said Pfizer's interest validated the "best-in-class potential for etrasimod." But etrasimod is not all Pfizer is after.

The company also flagged two earlier-stage cardiovascular therapies called temanogrel and APD418. The former is in phase 2 testing in patients with microvascular obstruction and Raynaud's phenomenon secondary to systemic sclerosis. APD418, meanwhile, is being examined in acute heart failure.

Arena's clinical program has faced some ups and downs beyond etrasimod. The cannabinoid receptor 2 agonist olorinab missed its primary endpoint in an irritable bowel syndrome test earlier this year, leading the biotech to consider "strategic options" for the asset. The company pointed to etrasimod and its three potential indications at the time, while searching for sub-population data that could provide some hope for the cannabinoid drug's future. 

It's worth noting that Pfizer has plenty on the go in inflammatory disease. Analysts wanted to know on a morning investor call whether Pfizer expected the Arena deal to draw scrutiny from the Federal Trade Commission. Gladstone acknowledged that the agency is closely examining all transactions right now and that could push out the timeline for completion. 

The boards of both companies have unanimously approved the transaction, so there also shouldn't be any push back internally.

RELATED: Pfizer to become $100B behemoth next year thanks to COVID-19 drug and vaccine: analyst

Pfizer plans to engage with regulators "to show the pro-competitive rationale for this transaction" and the need for different mechanisms of action in this disease area. Arena's portfolio beyond etrasimod is also very different from what Pfizer has in early stage development. Executives are therefore confident that the regulators will agree the Arena transaction is good to go. 

One of the key assets in Pfizer's inflammatory portfolio is of course Xeljanz, the blockbuster JAK inhibitor that was among those recently slapped with a new warning labels and restrictions due to concerns about possible heart-related side effects in the drug class. Gladstone said that etrasimod will be used earlier in the treatment lineup than JAKs, meaning there should be no competitive concerns from regulators on that front. 

The Arena deal should not be considered a replacement for the potential lost revenue from Pfizer's current and future JAK inhibitors, Gladstone stressed. But Mizuho Securities analysts said the addition of etrasimod will certainly provide diversity in Pfizer's pipeline amid the JAK drama. 

Pfizer picking up the gauntlet on etrasimod will help as the therapy was facing stiff competition in UC from Bristol Myers Squibb's similar S1P modulator ozanimod. That drug, now known as Zeposia, was approved in UC last year, adding to an indication in a type of multiple sclerosis. 

RELATED: Bristol Myers' multiple sclerosis drug Zeposia snags first-in-class nod to treat ulcerative colitis

S1P modulators work by blocking the ability of immune cells to enter the central nervous system, thus tamping down inflammation. Other rivals in the class are Novartis' Gilenya and newer entry Mayzent, both approved in MS indications. 

As for the deal details, Pfizer is putting up $100 per share in cash for the biotech. This will be an all-cash deal, which is not surprising given the billions Pfizer has collected from COVID-19 vaccine Comirnaty. Analysts and other industry insiders have been wondering where Pfizer would begin to dispense some of that hard-earned cash as the revenue piled up throughout the pandemic. 

Editor's note: This story was updated at 2:35 p.m. ET on Dec. 13, 2021, with additional details from Pfizer's investor call as well as analyst commentary.