Merck ($MRK) is shelling out $9.5 billion for antibiotics specialist Cubist Pharmaceuticals ($CBST), joining the wave of major drugmakers with a renewed interest in anti-infectives.
Under the deal, Merck will hand over $102 in cash for each Cubist share, a 35% premium to the company's average stock price last week. That gives Cubist an equity value of $8.4 billion, and Merck is signing up to cover another $1.1 billion in debt, expecting to close the acquisition in the first quarter of next year.
In exchange, Merck gets an established leader in antibiotics with a wide pipeline of new treatments. Cubicin, Cubist's anchor product, pulls in roughly $1 billion a year, and the company recently launched Sivextro, a superbug treatment it picked up in its $707 million deal for Trius Therapeutics last year. The Lexington, MA, company is expecting FDA approval this month for ceftolozane/tazobactam, a combination antibiotic designed to fight complicated urinary tract and intra-abdominal infections, and its pipeline includes treatments for hospital-acquired bacterial pneumonia, Clostridium difficile and opioid-induced constipation.
That promise, coupled with the growing scourge of treatment-resistant infections around the world, has made Cubist a much-discussed buyout target over the last year, with Pfizer ($PFE), Johnson & Johnson ($JNJ) and Eli Lilly ($LLY) all rumored to have taken a look at the company.
And Merck, in taking the plunge, follows a trend among the world's largest drugmakers, whose history of inattention to antibiotic R&D is in part responsible for the current increase in demand--and market opportunity--for anti-infectives. Now, buoyed by government incentives, Big Pharma is creeping back into the space, with the likes of Roche ($RHHBY) and Actavis ($ACT) spending big to beef up their pipelines.
Merck has zeroed in on acute care as a key agent for growth, and management expects Cubist's portfolio to complement its growing presence in the space. Merck is awaiting an FDA decision on the once-rejected anesthetic sugammadex and has a pipeline of anti-infectives including treatments for C. difficile and severe bacterial infections.
|Cubist CEO Michael Bonney
Buying Cubist is also a major bet on future R&D, as the company has outlined an ambitious plan to deliver four new antibiotic treatments by 2020 that involves spending big on research, including $400 million in 2014 alone. Cubist CEO Michael Bonney, who is stepping down at the end of the year, said Merck is on board with his company's vision.
"We have a deep respect for Merck, and it is clear that they share our commitment to addressing the growing, global problem we are facing in combating antibiotic-resistant bacteria," Bonney said in a statement. "Under Merck's robust commercial platform, global reach and scientific expertise, we believe Cubist's programs can thrive. We're proud of the company that our team has built and are confident that Cubist's important mission and focus on significant unmet medical needs will continue."
- read the statement