[This report updates an earlier version to include the federal court decision to invalidate four patents pertaining to Cubicin, and a statement issued by Merck in response to the decision].
Merck & Co. will acquire Cubist Pharmaceuticals in a $9.5 billion deal the buyer says will strengthen its offerings in one of its key therapeutic areas—hospital acute care—while addressing antibiotic resistance among areas of unmet medical need.
Cubist brings to Merck its product line, anchored by Cubicin® (daptomycin), the only approved once-daily therapy for both S. aureus bacteremia and complicated skin and skin structure infections (cSSSI).
Cubicin’s U.S. product revenues accounted for 81% of Cubist’s total revenues during the first nine months of 2014. The antibiotic generated $703.6 million in the U.S., up 6.8% from $659.1 in January-September 2013. (Cubist does not furnish product-specific data for its international product revenues, which totaled $51.3 million during the period).
Yet Cubicin was dealt a significant setback Monday afternoon, when the U.S. District Court for the District of Deleware invalidated four of five Cubist patents pertaining to the drug, in a lawsuit filed by Hospira. Two of the invalidated patents were set to expire in 2019, the other two in 2020. The court upheld a fifth Cubicin patent that expires on June 15, 2016, allowing for generic versions of the drug three years earlier than previously anticipated, barring a successful appeal.
In response, Merck issued a statement upholding its earlier financial projections associated with the deal, and maintaining that it will stay the course and carry out its planned acquisition of Cubist: “The company continues to believe the acquisition of Cubist will create strong fundamental value for Merck’s shareholders. The combined strength of both companies will provide both incremental and long-term value.”
Besides Cubicin, Cubist’s product line includes Dificid® (fidaxomicin) for Clostridium difficile in adults; Sivextro® (tedizolid phosphate), approved by the FDA June 20 and indicated in adults for acute bacterial skin and skin structure infections (ABSSSI) caused by designated susceptible bacteria; and Entereg® (alvimopan), indicated to accelerate the time to upper and lower gastrointestinal recovery following surgeries that include partial bowel resection with primary anastomosis.
Of these, only Entereg has been marketed by Cubist more than one year. Cubist took over marketing of Dificid when it bought Optimer Pharmaceuticals for $801 million last year, and Entereg when it acquired Adolor for up to $415 million in 2011.
Entereg generated $43.8 million in U.S. revenues during Q1-Q3 2014, up 17.6% from a year earlier. Dificid racked up $47.7 million during the nine-month period, and Sivextro, $2.4 million.
Also attractive to Merck was Cubist’s in-line and late-stage pipeline of anti-infective medicines, including Zerbaxa™ which is under FDA review with a Prescription Drug User fee Act (PDUFA) target decision date of December 21. Merck reasons that Zerbaxa and the Cubist pipeline will enhance its hospital acute care business in a variety of therapeutic areas, including Gram-positive and Gram-negative multidrug resistant infections.
“Combining with Merck is an exciting opportunity to accelerate Cubist’s established leadership in antibiotics and deliver significant, certain and immediate value to shareholders,” Cubist CEO Michael Bonney said in a statement. “Under Merck’s robust commercial platform, global reach and scientific expertise, we believe Cubist's programs can thrive.”
Hospital acute care became one of Merck’s four therapeutic areas in October 2013, when the pharma giant launched a restructuring of R&D and commercial operations that eliminated 8,500 jobs—but which the company said will save it $2.5 billion a year when fully implemented in 2015. The company cited unmet medical need and the potential for growth since hospitals represent 25% of overall healthcare spending.
“Merck believes now is an optimal time to significantly grow its hospital acute care presence because of the positive regulatory and reimbursement trends in the hospital setting and the increasingly important role that hospitals are expected to provide in healthcare overall,” the company stated in announcing the Cubist acquisition.
Merck said Cubist will complement its hospital acute care portfolio, which grew by more than 10% excluding foreign exchange during the first three quarters of 2014, compared with the year-ago period.
Merck’s best-selling acute care product, the antifungal Cancidas (caspofungin) grew in sales 5.9% during January-September 2014 compared with Q1-Q3 2013, to $505 million; followed by the antibacterial Invanz (ertapenem), up 8.3% to $390 million; the antifungal Noxafil (posaconazole) for protection against Aspergillus and Candida infections, up 32% to $280 million; muscle relaxation reversing drug Bridion (sugammadex), up 18.9%, to $245 million; and the antibacterial Primaxin (imipenem and cilastatin), whose sales slid 5.1% to $243 million.
Merck’s acute-care pipeline includes actoxumab/bezlotoxumab (MK-3415A), an investigational combination of therapeutic antibodies targeting two C.difficile pathogenic toxins (A and B), now being evaluated in clinical trials for the prevention of recurrence of C.difficile infection; and relebactam (MK-7655), an investigational class A and C beta-lactamase inhibitor for severe bacterial infections, also in clinical trials.
Kenneth C. Frazier, Merck’s chairman and CEO, said in a statement that Cubist “has built a strong portfolio of both marketed and late-stage pipeline medicines.”
“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,” Frazier added.
Merck agreed to pay $8.4 billion in equity and another $1.1 billion in net debt for Cubist. At $102 per share, the equity portion of the acquisition represents a 35% premium above Cubist’s average stock price for the most recent five trading days before today.
Merck said it expects the acquisition to add more than $1 billion of revenue to its 2015 base. While the transaction will be neutral to non-GAAP EPS in 2015, Merck expects it to be significantly accretive to non-GAAP EPS in 2016 and beyond. Merck added that the acquisition will be accretive to its growth in both sales and earnings.
The boards of directors of both companies have approved the acquisition, which is expected to close in the first quarter of 2015.
