Wednesday, December 10, 2014

Antibiotics go Wild and Crazy!

This week Merck announced that it will acquire Cubist for $9.5 billion at a 35% premium over the stock price. Cubist is a mid-size pharmaceutical company with a recently diversified portfolio of products all acquired through acquisition. They currently market Cubicin and Dificid for Gram positive infections and C. difficile respectively.  Cubicin is already a $1 billion seller. They will soon market tedizolid and ceftolozane-tazobactam through their acquisitions of Trius and Calixa. Merck is clearly targeting the specialty hospital marketplace with this acquisition and may hope to complement the Cubist products with their own imipenem-cilastatin-MK-7655.  7655 is currently in Phase II trials for urinary tract infections where it has been for two years now.

This announcement is bittersweet for me. This clearly continues a string of good news for antibiotics and antibiotic R&D.  It is further proof that large pharmaceutical companies now agree that antibiotics can provide a return on investment and that they are willing to put there money where there mouths are. The acquisition of Cubist will also bolster the appetite of investors beyond the excitement provided by Cubists own acquisitions of Optimer and Trius last year.

On the negative side, there are always the “synergies” that go along with these mergers.  The Merck investment in their antibiotic R&D portfolio has been exceedingly modest over the last decade or so.  Will this change or will Merck now go about ridding itself of the Cubist R&D organization to achieve its promised cost-savings?  On the risk side, essentially all of Cubist’s late stage antibiotics have come from external sources.  Their own discovery organization has contributed little to the late stage pipeline.  Merck’s own discovery organization has provided only MK-7655 – a knock off or avibactam – and little else for many years.  How Merck will deal with the two discovery groups is a matter of concern and remains a complete unknown at least to me.

Speaking about the commercial side, Merck is selling ertapenem, launched in 2002 where it is doing reasonably well. Cubist has done a yeoman’s job with Cubicin bringing in $1 billion in revenues almost exclusively from the US since its launch in 2003. Cubist has never had a real European marketing organization and has depended on unreliable partners like Novartis for their meager European sales. Will Merck be able to do better? One would hope so.

Recently, Cubist lost the first round in a battle over their more recent patents for Cubicin.  The patents that were denied by the court included methods for purification of Cubicin and for the current dosing regime that was discovered in preclinical and later in clinical studies to reduce muscle toxicity and at the same time maintain antibiotic efficacy. While these patents are subject to appeal, it is not clear the Cubist will prevail.  That said, Merck has clearly determined that the future revenues to be gained by Cubist’s new products, tedizolid and ceftolozane-tazobactam are worth the price they have offered even without the additional 4-5 years of exclusivity for Cubicin that may be wiped off the map by the courts.

 With the re-entry or expansion of large pharma’s efforts in antibiotics, the deep pockets of pharma have opened once again.  That means that venture capital and perhaps even private equity will now also loosen their purse strings to support new antibiotic research and development.  A new golden age for antibiotics is knocking at our door.  Lets be sure to welcome it with our ongoing efforts to improve the regulatory and financial climate for new antibiotics.

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