Summary
- Pfizer will strengthen its oncology portfolio through the Array acquisition, expected to be completed in H2-2019.
- At $48/share, the all-cash deal will be financed by debt and cash, putting the enterprise value of Array at $11.4B.
- The deal will be EPS dilutive due to additional opex requirement in an initial couple of years but is guided to turn accretive 2022 onwards.
- It is in-line with Pfizer’s inorganic expansion strategy and the valuation premium is in line with other acquisitions in the oncology space.
- The deal strengthens Pfizer’s presence and makes the stock worth a look, in our view.
Pfizer (PFE) is a major global pharmaceutical company with a presence across many clinical/therapeutic areas. Through the Array BioPharma (ARRY) acquisition, it has a golden opportunity to capitalize on the lucrative oncology space. The acquisition is timely as Array is set to benefit from strong future pipeline revenue from its new drug sales and licenses. It also has a strong R&D culture and pre-clinical portfolio.
The acquisition will dilute Pfizer's EPS in the initial years but should turn accretive from 2022 onwards. Although Pfizer still faces risks in the form of generic drugs, we believe the company's strengthened new launch portfolio and focused acquisition strategy will boost the stock. At ~13x EV/EBITDA, Pfizer trades at the lower end of its peer group, thus, we think the stock is worth a look at current levels.
Pfizer to acquire Array
On June 17, Pfizer announced that it would acquire Array Biopharma, the commercial-stage oncology-focused biotech company. Pfizer will pay $48/share for Array, which is a huge 62% premium to Array’s last trading price of $29.59 (June 14 close). The offer values Array equity and debt (enterprise value) at $11.4B.
(Source: Slide 6 of Investor Deck)
This will be an all-cash deal, financed primarily by debt. At these levels, Pfizer is paying an EV/Revenue multiple of 31x and 17x for 2020 and 2021, respectively, certainly seems pricey on paper. The deal is set for completion in H2 – 2019. The acquisition will slightly increase Pfizer opex in initial years with the deal turning EPS accretive in 2022.
