Saturday, December 6, 2014

Pete Loftus, at the WSJ, Hears That Merck May "Bolt On Acquire" Cubist, For Around $8 Billion

Obviously. . . nothing at all has been announced by either company (so consider this a well-sourced, double confirmed. . . overnight rumor), but Cubist is already partnering with Merck in Japan, selling its lead product, Cubicin® (a ground-breaking new approach to treating the deadly Staph aureus, often hospital-acquired, and thus more than occasionally conventional drug-resistant), there. And, from first hand experiences with my youngest when he was 11, I can report that S. aureus is a very dangerous bug. So this is a market in which premium pricing might easily prevail. Some independent analysts' reports project that the Cubicin franchise will be the leading antibacterial -- by sales volume -- worldwide -- by 2017.

In addition, as we think about Merck's strategic interest here, we would note that Cubist already has on market a fine Clostridium difficile drug [Merck's offering in that space Actoxumab/bezlotoxumab (MK-3415A) is not yet approved by FDA, my regular readers will recall], and Cubist has acquired rights to another very promising Clostridium difficile Phase II candidate, via a recent smallish acquisition it made, itself -- of Optimer Pharmaceuticals.

So, yes -- I think this rumor has legs -- Pete has a really excellent track record, regularly and accurately running down, and double sourcing, pending M&A deals in the life sciences space, pre-announcement -- so I bet he has this one just about. . . right. We might well know by this coming Monday, or late Sunday night, even. Does Cubist's board have a meeting scheduled this weekend? Anyone? Anyone?

Even with the excellent financial performance by Cubist, of late -- IF (and that is a big "if") Merck is paying something like seven times sales. . . that is a rather frothy valuation -- even for Whitehouse Station -- a company with as strong a balance sheet, and as deep pockets, as Merck. Of course, we may yet learn that the "net price" for the rumored deal is closer to five times sales, once all the ancillary deals are disclosed, vetted and factored in to the final and netted price. That would be my guess, here. But it is a pure guess, based only on the fact that Mr. Frazier is a very disciplined bidder, and he has no need to overpay here. Now we wait, for some announcement. Here's a bit from Pete's -- in the mean time (do go read it all, at the WSJ):

. . . .Merck would pay about $100 per share for Cubist, one of the people said. That’s roughly 34% over Cubist’s closing price Friday of $74.36.

Cubist specializes in drugs to treat infectious diseases and other conditions, primarily in a hospital setting. Its flagship drug is Cubicin, an intravenous antibiotic used to treat serious infections that had $967 million in sales in 2013. Analysts expect sales of the drug will continue to rise in coming years.

Antibiotics traditionally hasn’t been considered one of the drug industry’s most lucrative areas, but some analysts believe new versions could garner higher prices as it becomes more important for hospitals to reduce infections and as resistance to traditional antibiotics grows. . . .

In closing, I will note that Clostridium difficile drug franchises may face the reality that purified stool implants (or more recently, carefully insulated oral capsules!) solve the same problem at a fraction of the drugs' costs (see archive graphic, lower right). Just so you know. I think though, Merck is after the S. aureus, Cubicin rights, worldwide. That's a free standing soon-to-be-multi-blockbuster franchise.

I suppose I should also say that clearing Hart-Scott, or antitrust review in the EU, and/or Japan -- will not likely pose any real problem here.

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