Cubist Results in Line With Expectations

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Cubist released first-quarter results that were in line with expectations. U.S. Cubicin sales,which make up nearly 90% of total company sales, increased 9% to $202 million for the quarter, which is in line with consensus estimates. Cubist maintained its forecast for full-year Cubicin sales of $900-$925 million, and our estimates put sales near the low end of that range. Gross margins increased 110 basis points over the prior year largely owing to Cubicin price increases.

As expected, income fell versus the prior year resulting from Cubist’s heightened research and development, or R&D, investments. R&D for the quarter was $114 million versus $51 million in the prior year, partially because of a $25 million acquisition, and partially because of the increased spending required for the firm’s three ongoing Phase 3 studies. We expect to see Phase 3 data from the firm’s lead candidate, ceftolozane/tazobactam, in the second or third quarter of this year.

We were encouraged to see Cubist put some of its large cash pile to work this quarter, which will help the firm reduce its reliance on Cubicin. The company spent $25 million to acquire Asia-Pacific and Middle East territory rights to its pipeline product ceftolozane/tazobactam from Astellas. It also entered into an option agreement of undisclosed value with Adynxx, which gives Cubist exclusive rights to acquire Adynxx after completion of Phase 2 trials of the firm’s pain drug. Despite these deals, Cubist still finished the quarter with more than $900 million in cash. Also during the quarter, rumors surfaced that Cubist was interested in acquiring Optimer Pharmaceuticals, but we believe such a deal would be unlikely. Cubist currently promotes Optimer’s lead product Difficid, which treats C. Difficile, as part of an agreement expiring in July 2013, but it also has its own product, CB-315 for C. Difficile, which is currently in Phase 3 trials. We do not see the value in Cubist using nearly all of its cash to add a second C. Difficile product to its portfolio.

 

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