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Pfizer-Array Biopharma Deal Bump Up Biotech ETFs

The largest U.S. drug maker Pfizer PFE struck a deal to acquire the cancer drugmaker Array Biopharma Inc ARRY for $11 billion in an all-cash consideration. This would be Pfizer’s biggest contract win since its 2016 acquisition of Medivation for $14 billion. Per the terms of the deal, Pfizer will pay $48 in cash for each of Array shares outstanding, representing 62% premium to the closing price on June 14 and indicating a market capitalization of $10.64 billion.

This proposed buyout strengthens Pfizer's innovative biopharmaceutical business and is expected to accelerate its growth trajectory, particularly in the long term. It sets the stage to create a potentially industry-leading franchise for colorectal cancer alongside Pfizer’s existing expertise in breast and prostate cancers.

In the United States, colorectal cancer is the third most common cancer type in men and women. An estimated 140,250 patients were diagnosed with cancer of the colon or rectum in 2018 and approximately, 50,000 are anticipated to die of the diseases annually. BRAF mutations are assumed to occur in up to 15% of the colorectal cancer cases, reflecting a poor prognosis for these patients (read: Cancer-Fighting Stocks & ETF: What You Need to Know).

In addition to the combination therapy for BRAF-mutant metastatic melanoma, Array boasts a broad pipeline of targeted cancer medicines under development as well as a portfolio of out-licensed plus potentially best-in-class and/or first-in-class medicines, which are expected to generate significant royalties over time.

The deal, which is expected to be completed in the second half of the year, is likely to reduce Pfizer's adjusted earnings per share by 4-5 cents this year and in 2020. However, the transaction will be neutral in 2021 and accretive to EPS in 2022.

Market Impact

Following this merger announcement, shares of Array BioPharma soared about 57% to close the day, crushing its average volume as nearly 82.9 million shares moved hands compared with 4 million on average. Meanwhile, shares of Pfizer slid 0.3% (read: Biotech ETFs in Focus on String of Q1 Earnings Beats).

The news also bolstered biotech ETFs, mostly with high exposure to Array BioPharma. Particularly, ALPS Medical Breakthroughs ETF SBIO was the biggest winner from this development, rising 7.7% on the day, followed by at least 4% gains for SPDR S&P Biotech ETF XBI, Invesco Dynamic Biotechnology & Genome ETF PBE and ARK Genomic Revolution Multi-Sector ETF ARKG.

Below, we profile these ETFs in detail and discuss some of the specifics behind their rally (see: all the Healthcare ETFs here):

SBIO

This fund provides exposure to 70 companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. Array BioPharma takes the top spot at 9.1% allocation. The product charges 50 basis points in fees per year from investors and trades in a moderate average daily volume of about 53,000 shares. It has AUM of $174.3 million in its asset base and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

XBI

With AUM of $4 billion, XBI provides equal-weight exposure across 120 stocks by tracking the S&P Biotechnology Select Industry Index. Array BioPharma occupies the second position with 2.2% share. The ETF has 0.35% in expense ratio and trades in an average daily volume of 5.2 million shares. It has a Zacks ETF Rank  2 with a High risk outlook.

PBE

This fund follows the Dynamic Biotech & Genome Intellidex Index. It holds 30 stocks in its basket with ARRY accounting for 2.9% share. It has managed $228.3 million in its asset base while trades in a modest volume of 25,000 shares per day. Expense ratio comes in at 0.59%. The product has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Top and Flop ETFs So Far in Q2).

ARKG

This is an actively managed ETF, focusing on the companies that are expected to benefit from extension and enhancement of the quality of human and other life by incorporating technological and scientific developments as well as improvements and advancements in genomics into their business. The fund holds 37 stocks in its basket and has 0.75% in expense ratio. It has accumulated $402 million in its asset base and trades in average daily volume of 154,000 shares.

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Pfizer Inc. (PFE): Free Stock Analysis Report
 
Invesco Dynamic Biotechnology & Genome ETF (PBE): ETF Research Reports
 
ALPS Medical Breakthroughs ETF (SBIO): ETF Research Reports
 
SPDR S&P Biotech ETF (XBI): ETF Research Reports
 
Array BioPharma Inc. (ARRY): Free Stock Analysis Report
 
ARK Genomic Revolution ETF (ARKG): ETF Research Reports
 
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