Merck Acquiring Cubist, Focusing On Hospital Care

ig pharma Merck (NYSE:MRK) agreed to buy antibiotic specialist Cubist Pharmaceuticals (NASDAQ:CBST) Monday in a deal valued at $9.5 billion. Cubist soared 35% in the stock market today, while Merck dropped a fraction.

Merck is acquiring Cubist for $102 a share in cash, yielding an equity value of $8.4 billion, plus $1.1 billion in net debt. Merck said the buyout should add more than $1 billion annually to its revenue base, which is currently about $43 billion. It’s expected to have no impact on 2015 earnings but to be accretive after that.

Cubist, founded in 1992, scored its first blockbuster drug with the 2003 launch of Cubicin, a powerful antibiotic used to treat Staphylococcus aureus and severe skin infections. In 2012, with the end of Cubicin’s patent looming, the company announced an ambitious plan to launch four products by 2017, which it expected to double revenue but which turned profit growth negative for two years. However, with the June launch of Sivextro, another skin-infection drug, growth returned and is expected to ramp up the next two years.

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Rumors that Merck and Cubist were in talks first broke Friday, leaving analysts the weekend to ponder the implications. In a note Sunday, RBC Capital Markets analyst Adnan Butt noted that the second of the four new drugs, Zerbaxa, is expected to be approved by Dec. 21 and could bring $1.5 billion in peak annual sales. He also noted the ways the companies fit together.

“Along with MRK, other large biopharma companies that participate in the infectious-disease arena include Actavis (NYSE:ACT), Astellas, Pfizer (NYSE:PFE) and Sanofi (NYSE:SNY),” Butt wrote. “Of these, MRK has specifically reported a focus on acute-care hospital (channel), particularly antibiotic-resistant bacteria.”

The press release Monday underlined Merck’s commitment in that area.

“Hospitals are a central hub for health care delivery around the world and currently represent 25% of overall health care spend,” it said. “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 health care overall.”

Follow Amy Reeves on Twitter: @IBD_AReeves.