Cubist Pharmaceuticals is one of biotech’s unlikely stories. Rising from a fortuitous licensing deal to become a leader in the antibiotics field, Lexington, MA-based Cubist made the big leap from startup to profitable mid-cap biotech; one with an established franchise and the cash flow to buy companies of its own.
In biotech, however, that type of success makes you a buyout target, and Cubist (NASDAQ: [[ticker:CBST]]) has long been rumored an attractive one. So in that sense, it is no surprise that Merck swooped in and agreed to acquire Cubist this morning in a deal worth $9.5 billion.
Merck is paying $102 per share for Cubist, a 35 percent premium to the company’s average closing price over the past five trading days, and a 37 percent premium to Cubist’s closing price on Friday. The deal values Cubist’s equity at $8.4 billion, and includes $1.1 billion in net debt and other considerations, bringing the total transaction to $9.5 billion.
The deal comes just as longtime Cubist CEO Mike Bonney (pictured above) was headed out the door. Bonney, who left Biogen to take over Cubist some 12 years ago, announced plans to retire in October. By doing so, he was making way for Robert Perez, who’s been at the company for more than a decade; the transition was set to become official on Jan. 1. Now, however, Perez won’t get very long in the head seat of an independent Cubist, assuming the deal closes in the first quarter as the two companies expect.
The buyout gives Merck (NYSE: [[ticker:MRK]]) ownership of a company that’s made a name for itself as a leader in the antibiotics space. It was an unusual story; Bonney came to Cubist just as an antibiotic it was developing called daptomycin failed a Phase 3 trial in pneumonia. Eli Lilly had originally discovered daptomycin, but stopped developing the drug after some early data tied it to some potentially dangerous side effects. Cubist grabbed the rights to the drug for about $1 million up front and some royalties, believing it could solve the drug’s issues.
It’s turned out to be one of the shrewdest biotech deals in recent memory. After the failed trial, Cubist figured out what went wrong, and won FDA approval of daptomycin in 2003. Sold as Cubicin, the drug now generates close to $1 billion annually, and has become a mainstay for MRSA skin infections and other infections.
On the back of daptomycin, Cubist became profitable o in 2007, and soon made the transition to an acquirer. While Cubicin still accounted for some 90 percent of its sales in 2013, Cubist bought Calixa Therapeutics in 2009 a deal that gave it the antibiotic now known as Zerbaxa (formerly CXA-201, or ceftolozane/tazobactam); it’s seeking FDA approval for Zerbaxa to treat complicated urinary tract infections, a ruling that could come within weeks. Cubist then made two large acquisitions on the same day last year. It bought partner Optimer Pharmceuticals, snagging all the rights to a clostridium difficile-associated diarrhea treatment fidaxomicin (Dificid); and acquired Trius Therapeutics, grabbing ahold of tedizolid phosphate (Sivextro), which is approved to treat skin infections caused by susceptible gram-positive bacteria.
This type of story isn’t one seen often in the antibiotics space, for a few reasons: for one, a historical lack of clarity around the standards antibiotics must meet to gain FDA approval, and for another, antibiotics just don’t get the same type of pricing power that life-saving drugs in other diseases do. Those factors have led, in part, to a dearth of startups in the space and a lack of innovation in the field. That has started to turn around of late—drug-resistant bacterial infections are on the rise, and government initiatives like the Generating Antibiotic Incentives Now (GAIN) Act have started to spur antibiotic R&D by offering more market exclusivity and shorter timelines to approval—but there’s still a long way to go.
Rumors of the deal were first reported by the New York Times Friday night. It’s a natural fit for Merck, with its history in anti-infective therapies. Merck says the deal should add more than $1 billion to its 2015 revenue. It is holding a call this morning to discuss the buyout.
“Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late-stage pipeline medicines,” said Merck chairman and CEO Kenneth C. Frazier, in a statement. “Combining this expertise with Merck’s strong capabilities and global reach will enable us to create a stronger position in hospital acute care while addressing critical areas of unmet medical need, such as antibiotic resistance.”
