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Arena, completing its turnaround, sells to Pfizer for nearly $7 billion

Pfizer has agreed to acquire Arena Pharmaceuticals for about $6.7 billion in a deal that validates the San Diego biotech’s plan to reshape itself around a portfolio of inflammation drugs in recent years.

Pfizer will buy Arena for $100 per share in cash, more than double the biotech’s closing price on Friday. Both boards have unanimously agreed to the transaction, which is subject to approvals from regulators and shareholders.

The acquisition adds to Pfizer’s focus on inflammatory diseases, a portfolio led by the so-called JAK inhibitors Xeljanz and abrocitinib. Arena is developing a suite of inflammatory drugs led by etrasimod, an experimental treatment in advanced testing for several diseases. The drug is a pill targeting a signaling molecule known as sphingosine-1 phosphate, or S1P, that’s thought to play a role in inflammation.

S1P is also the target of Bristol Myers Squibb’s Zeposia, which was just approved in May to treat ulcerative colitis, adding to another approval in multiple sclerosis. Arena believes its drug is more effective, but critical clinical trial results will have to bear out that hypothesis.

The treatment is in Phase 3 testing for ulcerative colitis and Crohn’s disease — both of which are expected to produce results next year — and in a Phase 2 study in eosinophilic esophagitis. Another late-stage trial in eczema is currently planned. Pfizer aims to “accelerate the clinical development” of etrasimod, said Mike Gladstone, the head of its inflammation and immunology division, in a statement.

Arena is perhaps best known for winning approval of an obesity drug known as Belviq in 2012. Belviq was one of three obesity drugs to reach the market in the U.S. early last decade, and each of them struggled commercially. Vivus and Orexigen Therapeutics, the developers of the two other drugs, for example, each eventually filed for bankruptcy. Arena shares bottomed out at less than $14 apiece in 2016.

The biotech has since found a second life, however. Arena cut its losses by selling Belviq to partner Eisai in January 2017 — three years before a post-marketing study linked the medicine to higher rates of cancer. In the meantime, the company put its resources behind etrasimod and other medicines for inflammation, cardiovascular diseases, skin conditions and more.

That plan has worked out. Etrasimod showed enough promise in Phase 2 testing in 2018 that the company steadily built its value and launched several other studies. And the company will now sell itself for a price that approaches the roughly $111 per share total it traded at just after Belviq’s U.S. approval nearly 10 years ago, while avoiding the “lingering commercial uncertainties” it would have faced if it had launched the drug on its own, wrote RBC Capital Markets analyst Kennen MacKay.

Indeed, Pfizer will now have to prove etrasimod can separate itself from Zeposia, a decision that surprised RBC’s MacKay given data from Arena’s Phase 3 trials in ulcerative colitis and Crohn’s disease are expected in a matter of months. Still, the deal could “help entrench” both etrasimod and Xeljanz in ulcerative colitis and other diseases, given Pfizer’s commercial experience in inflammation, he wrote.