Source: Bidness ETC
Threats from the increase in drug-resistant germs, and the subsequent rise in demand for more effective and high-impact antibiotics has spurred interest in companies such as Cubist Pharmaceuticals Inc (CBST).
The Massachusetts-based drug developer has announced that it plans to introduce four new medicines to the market by 2020, so as to combat infections caused by bacteria that no longer respond to older therapies.
New York-based financial services firm Cowen Group Inc (COWN) said that it is likely that Cubist will receive acquisition offers based on future prospects of these pipeline drugs. The company, according to Cowen Group, may be sold at a 50% premium to its current price.
Large-cap pharmaceutical companies that can easily benefit from the acquisition include Pfizer Inc. (PFE), which could absorb Cubist’s sales force into its acute-care division. Eli Lilly and Co (LLY) and Johnson & Johnson (JNJ) could also come to the table for talks, according to Robert W. Baird & Co.
So far, drug companies had focused on developing cures for serious illnesses such as heart disease and diabetes, instead of using their resources to focus on developing antibiotics. Because these companies did not make antibiotics their priority, and as the traditional antibiotics become ineffective, the need to develop more potent antibiotics is greater than ever.
The World Health Organization realizes that the unmet demand for more powerful antibiotics could lead to common infections becoming deadly. In fact, resistance of bacteria to traditional antibiotics causes at least 23,000 deaths in North America per year, according to the Centers for Disease Control and Prevention.
Some analysts expect that pharmaceutical companies will now be more interested in developing antibiotic drugs because of the Generating Antibiotics Incentives Now (GAIN) Act, which was enacted in 2012. The GAIN Act will allow pharmaceutical companies a longer-than-before time during which they will not face generic competition for their developed antibiotics. Morningstar, Inc. (MORN) analyst David Krempa is of the opinion that provisions of the said Act are expected to lure existing antibiotics businesses to make bids for Cubist to enter the market. Such interest could spur a flurry of mergers and acquisitions (M&A)-related activities.
Cubist is also relatively less risky for investors interested in acquiring small-cap companies, as its intravenously administered bacterial antibiotic Cubicin already brings in $1 billion in revenues for the company. Cubist’s revenue stream sets off the acquisition-related risks when it comes to acquiring companies that do not have existing commercial products.
Cubist is also awaiting approval from the US Food and Drug Administration for its drug ceftolozane/tazobactam, which is an antibiotic that can be used to treat urinary tract infections. The drug is expected to be approved as early as December.
Some analysts, however, believe that the fact that antibiotics typically generate lower income than drugs used to treat chronic illnesses will make companies like Cubist less appealing.
It remains to be seen how things turn out for Cubist, but we at Bidness Etc certainly expect the company to be in M&A-related news a lot this year.
The biopharmaceutical company was valued last week at 2.4 times analysts’ average revenue estimate for 2018. That is a lower valuation than 86% of the US pharmaceutical and biotechnology companies larger than $1 billion, according to data compiled by Bloomberg.