Rich recognition finally arrives for Array

Despite inventing and licensing out experimental small molecules for more than 20 years, Array Biopharma only seriously moved onto investors’ radars in the past 18 months. Pfizer’s $11.4bn bid for the company, announced today, shows that industry has also finally taken notice. 

With a marketed cancer combination and a substantial royalty stream portfolio the attraction of Array is understandable. What is more surprising is the price that was needed to get the deal done: at 62% above Array’s closing share price on Friday the premium looks even chunkier when considering that the company’s stock had already doubled in value so far this year. 

Pfizer can readily afford this, of course, though on an investor call this morning the pharma giant was bombarded with questions about how it had come to its valuation. These enquiries were largely rebuffed, and the company’s vagueness shows how Array’s many moving parts are still very hard to value.

Deal drivers

Pfizer executives described three main value drivers for the deal: the Braftovi/Mektovi combination, which won approval in melanoma last year, the royalty stream portfolio detailed below, and a research platform that Pfizer said would be maintained as an independent entity. 

It has to be assumed that Braftovi/Mektovi was the primary source of value here. While Pfizer made clear that melanoma would continue to be a focus, as third to market in this tumour type behind Novartis and Roche the combo has long been seen as the trailing franchise.

Hence Array’s decision to focus on Braf-driven colorectal cancer, an inspired strategy that could well be responsible for piquing the interest of a suitor (Colorectal cancer could see Array stand alone at last, May 22, 2019). 

It is here that Braftovi/Mektovi recently scored a win in the Beacon trial, and the potential in this setting has largely driven Array’s recent share price. While Pfizer’s forecast of blockbuster sales in this setting can partly be read as justification of the purchase price, analysts are also pretty optimistic. EvaluatePharma’s sellside consensus sits at $702m in 2024 in colorectal cancer. 

Still, much depends on evidence of efficacy in earlier settings, and all eyes are on the first-line, phase II Anchor trial, which reads out early next year. Andy Schmeltz, general manager of Pfizer Oncology, said on the call that that Beacon raised hopes for a similarly strong readout; presumably the company also hopes that the data are strong enough to support accelerated approval. 

Pfizer must also be hoping for a win in trials testing Mektovi in combination with checkpoint inhibitors; success here could really potentially make a big difference to future market potential. Three studies are ongoing; first to report, any time now, is a combo with Bristol-Myers Squibb's Opdivo, in patients with colorectal cancer with microsatellite stable (MSS) disease and a Ras mutation. 

At the end of the day much has yet to fall into place for Braftovi/Mektovi. And the same can be said for Array’s royalty stream business, which includes several very promising agents, though most have yet to get into pivotal testing. 

While Array was certainly successful at inventing and licensing out novel agents, many of its deals were struck at an early stage, the root of much criticism for the business model (In sticking to the knitting has Array given up too much?, January 31, 2019). Royalties due are thus low, and though they represent pure profit these projects would surely have to become hugely successful to move the needle at Pfizer. 

The pharma giant predicted that the Array royalty stream would come into its own in the mid-2020s; again, executives declined to name the big contributors, but presumably the Loxo assets must be figure highly. 

Finally, Array’s research engine was also spoken of highly by Pfizer executives, with a promise of one new compound to enter the clinic each year. One could even emerge this year – although what the target might be was kept under wraps. 

Of course, another way to look at this deal is that Pfizer has paid $11.4bn for another oncology growth driver – and cash-rich big pharma is always happy to pay up for a new talking point. What is certain is that one group of shareholders will be delighted today. After years of seeing the family silver sold off cheaply, Array investors have finally got a real payday.