Watching the Pot™

Hot on the heels of acquiring immuno-oncology company Trillium Therapeutics for about $2.22 billion last month, Pfizer was quickly seeking additional promising drug candidates to complement its development pipeline.

This month, it inked a $6.7 billion all-cash deal with Arena Pharmaceuticals. While the boards of directors of both Pfizer and Arena have unanimously approved the transaction, it still must be cleared by regulators and Arena stockholders – who are surely happy with the immediate 80% gain in Arena share value. The deal is expected to close in the first half of 2022.

Arena is known primarily for its etrasimod, an oral therapy for immuno-inflammatory diseases, including ulcerative colitis and Crohn’s disease. But it is also known for its dedicated cannabinoid research and development arm. And notably, the acquisition includes Arena’s investigational drug Olorinab, an oral, full agonist of the cannabinoid type 2 (CB2) receptor, formulated to treat visceral pain associated with gastrointestinal disorders. Its selectivity for CB2 versus CB1 makes it promising for pain relief without psychoactive effects.

This means that Pfizer is now entering the cannabis space. And it is not the first major pharmaceutical company to do so. In early 2021, Jazz Pharmaceuticals acquired GW Pharmaceuticals and its FDA-approved cannabinoid therapy Epidiolex, a treatment for children with severe seizures. Tilray made a medical cannabis distribution arrangement with drug giant Novartis AG in 2018. And in 2017, Johnson & Johnson brought Avicanna on board.

As cannabis products show more promise for viable therapies for debilitating conditions, more large pharmaceutical companies are likely to follow in Pfizer’s footsteps. For those cannabis companies seeking their very own billion-dollar cash deal, a strong patent portfolio, well-aligned with the assets that bring the most value to the business, is essential. It not only provides confidence in a secure market presence that minimizes competition, but can also provide freedom to operate comfort, both of which are big factors in the total company valuation.

This article appeared in the December 2021 issue of MarkIt to Market®. To view our past issues, as well as other firm newsletters, please click here.