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Merck to acquire Cubist Pharmaceuticals for $9.5B to expand hospital acute care pipeline

Monday, December 8, 2014

Shying away from mega-mergers to instead focus on mid-sized drug makers that complement its product pipeline, Merck said this morning it will acquire Cubist Pharmaceuticals for $9.5 billion, including $1.1 billion in debt.

The deal is the latest in this banner year of multi-billion-dollar healthcare transactions. Merck will pay $102 a share in cash for Cubist, or about $8.45 billion—a 35% premium above Cubist’s average share price in the five most recent trading days. Last Friday, Cubist shares closed at $74.36, zooming to $100.73 this morning.

Launched in 1992, Cubist is among the oldest biopharmaceutical companies in Massachusetts. Based in Lexington, the company develops drugs to treat dangerous bacteria and superbugs for diseases that could cause pandemics in the developing world. The company’s flagship product is Cubicin (daptomycin for injection), a gram-positive antibiotic that is the only FDA-approved, once-daily therapy for complicated skin and skin structure infections.

Another anti-infective in Cubist’s late-stage pipeline is Zerbaxa, pending FDA approval with a PDUFA date two weeks away. The drug treats complicated urinary tract infections and complicated intra-abdominal infections.

“Under Merck’s robust commercial platform, global reach and scientific expertise, we believe Cubist’s programs can thrive,” Michael W. Bonney, Cubist CEO said in a news release. “We’re proud of the company that our team has built and are confident that Cubist’s important mission and focus on significant and unmet medical needs will continue.”

Prior to the announcement, the company had said it plans to introduce four new drugs that target bacterial infections and projected that would increase worldwide revenues to $2 billion by 2017, more than double the company’s 2012 sales. It also forecast Cubicin revenues could reach $1 billion by 2017.

During an early morning conference call with investors and analysts, Merck’s chairman and CEO Kenneth Frazier said combining Merck’s global reach and marketing and commercialization capabilities with Cubist’s development expertise, “will enable us to create a stronger position in hospital acute care while addressing crucial areas of unmet medical needs, such as antibiotic resistance.”

Last year, Merck identified the hospital acute care segment as one of the company’s key priority areas in which it believe it can have the greatest impact in addressing significant unmet medical needs, the company said in its press release.

“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 said. For the first three quarters of 2014, its hospital acute care portfolio grew by more than 10%, compared to the same period in 2013.

With both companies’ boards of directors unanimously approving the deal—acquisition talks were first reported by The New York Times and other media outlets last Friday—the transaction is subject to regulatory approvals. The deal is expected to close in the first quarter of 2015 and will be accretive to both Merck’s sales and earnings growth.

As the nation’s second largest drug maker after Pfizer, Merck makes prescription products and oncology treatments, vaccines and animal health products.

In June, Merck added hepatitis C viral infection treatments to its drug pipeline, with the $3.85 billion acquisition of Idenix Pharmaceuticals. Frazier told Bloomberg News at the time that megadeals were “very time-consuming and distracting to what we’re here to do, which is invest in new medicines.”

He also indicated he would not try an inversion deal, in which a U.S. company acquires an overseas rival and reincorporates abroad to lower its federal tax bill.

“We’re trying to get Congress to look at how all U.S. firms are at a huge disadvantage,” Frazier told Bloomberg, alluding to the relatively high American corporate tax rate.

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