Investors consider value of Cubist's Trius, Optimer buys
This article was originally published in Scrip
The market has had a full 24 hours to digest the news that Cubist Pharmaceuticals will buy two antibiotic developers to expand its portfolio of hospital-administered medicines, and investors weighed in with pretty clear opinions about the transactions, which will return up to $1.62 billion to Trius Therapeutics and Optimer Pharmaceuticals shareholders.
Lexington, Massachusetts-based Cubist announced both of the acquisitions after the stock market closed on 30 July and on 31 July Cubist's stock price gained $5.33, or 9.4%, to close at $62.33. It was the highest closing price that the stock has achieved in the past 12 months, bringing the company's market cap to $4.1 billion.
"These proposed acquisitions are strategically and financially compelling transactions, and the fact that we were able to reach definitive agreements with each [company] is a great opportunity for us," Cubist president and chief operating officer Rob Perez told Scrip.
The company anticipates that Trius's late-stage drug tedizolid and Optimer's commercial antibiotic Dificid (fidaxomicin) could generate $600 million to $1 billion combined in annual sales at their peak (scripintelligence.com, 31 July 2013).
"We know these companies and the assets very well, and are confident we can work with Trius and Optimer to ensure that we reach this target range," Mr Perez said.
The upfront buyout terms of $13.50 per share for Trius was a premium to the company's 30 July stock price, but the $10.75 offer for Optimer was a discount to the firm's share value.
Both transactions include contingent value rights that give Trius investors up to $2 more per share and provide Optimer investors up to $5 per share in additional returns if tedizolid and Dificid meet certain sales goals. Trius investors get $707 million now and up to $111 million later, while Optimer's investors get $535 million up front and up to $266 million over the next two and a half years.
"These are two different transactions for two different companies. The more successful we are, the more willing we are to share some of the upside with the current shareholders in each institution," Mr Perez said. "Given that the timeframes are relatively near-term, they signal a trajectory that we are very comfortable with that creates value for both the current shareholders of the companies we're going to acquire as well as for Cubist's shareholders."
Trius closed up 20.4% on 31 July at $14.10 per share – its highest price in the past year – and Optimer closed down 5.9% at $12.51 once investors had time to digest the acquisition terms being offered to both companies.
Underlying Trius value
What Trius offers Cubist is an antibiotic on the verge of seeking marketing approvals in the US and EU to treat acute bacterial skin and skin structure infections (ABSSSI), including methicillin-resistant Staphylococcus aureus (MRSA).
Trius completed two Phase III studies that confirmed tedizolid's non-inferiority to Pfizer's Zyvox (linezolid). The company will submit a new drug application (NDA) to the US FDA during the second half of 2013 and a marketing authorization application (MAA) to the European Medicines Agency (EMA) during the first half of 2014 – around the same time that tedizolid is launched in the US, assuming the drug wins FDA approval (scripinteligence.com, 26 March 2013).
There is some concern that tedizolid sales will take a significant hit if generic versions of Zyvox launch in 2015 or 2016 as currently expected, but Mr Perez said Cubist believes that tedizolid's oral formulation will differentiate the product from intravenous Zyvox and other antibiotics.
"In particular, as more and more hospitals are trying to find oral solutions, Cubist wanted to have a competitor and, we think, the best competitor in this space," he said.
There are 29 generic and 10 brand-name antibiotics approved to treat ABSSSI and seven drugs besides tedizolid are in Phase III development for the same indication, according to Sagient Research's BioMedTracker database. BioMedTracker gives tedizolid a 75% chance of FDA approval – the highest likelihood of the Phase III antibiotics.
Despite the existing competition among drug developers, global health authorities are encouraging companies to increase development of antibiotics that treat antibacterial-resistant infections. The FDA's Qualified Infectious Disease Product (QIDP) designation provides access to priority review and fast-track status for new antibiotics, and the agency granted a QIDP designation for oral and intravenous formulations of tedizolid in January.
In May, the US Patent and Trademark Office endorsed a Trius patent for the company's combination formulation of tedizolid and the antibiotic daptomycin – Cubist's top-selling drug Cubicin (scripintelligence.com, 14 May 2013).
However, Mr Perez indicated that Cubist's decision to buy Trius was based on tedizolid on its own, not the tedizolid-Cubicin combination potential, which may be able to treat daptomycin-resistant infections and extend the commercial life of Cubicin.
"Trius is an excellent strategic fit with Cubist that adds a unique, complementary late-stage asset and extends our leadership in the acute care hospital environment," he said.
Cubist has indicated that tedizolid and Cubicin are complementary assets, because the Trius drug will treat patients with less severe infections than are treated by intravenous Cubicin.
For its part, Trius said in a question-and-answer sheet regarding the Cubist acquisition, which was distributed to its employees on 30 July, that the company was not looking for a buyer when Cubist and other potential buyers came calling.
"After a thorough assessment of strategic alternatives, the board concluded that the proposal put forth by Cubist is the best alternative to maximize value for shareholders," Trius told its staff.
The Optimer opportunity
Cubist and Optimer have had a co-promotion agreement for Dificid in the US and Canada since 2011 (scripintelligence.com, 6 April 2011). The antibiotic, which is approved to treat Clostridium difficile-associated diarrhea (CDAD), is sold under the trade name Dificlir in the EU by Astellas. The Japanese company also has the rights to Dificid/Dificlir in Russia, Africa and Japan.
Mr Perez didn't offer any details when asked about Cubist's strategy for increasing Dificid sales, but he said the company's hospital-based commercial infrastructure and experience marketing the drug puts Cubist in a unique position "to maximize Dificid's full potential for the benefits of patients, hospitals and our shareholders" in the context of a growing CDAD market.
The only other therapy approved to treat CDAD is the generic antibiotic vancomycin and BioMedTracker lists just three drugs in Phase III development to treat the potentially deadly infections, including Cubist's surotomycin.
Canaccord Genuity analyst Ritu Baral noted in a 31 July report that the market consensus for Dificid sales between July 2013 and December 2015 is about $315 million, which would be enough to trigger full payout for the contingent value rights issues to Optimer shareholders.
Scrip asked Mr Perez if the lower upfront value for the Optimer acquisition compared with the Trius transaction had anything to do with ongoing internal and government investigations of a stock option grant to Optimer co-founder Michael Chang (scripintelligence.com, 10 April 2012 and 27 February 2013). Without getting into the particulars of the questionable transaction, the Cubist executive indicated that it was not a barrier to the Optimer deal.
"We conducted a thorough due diligence review of Optimer and we are comfortable moving forward with the acquisition," he said.
Impact on employees
Optimer also provided a Q&A about the company's acquisition to its employees, but gave little assurance that the nearly 300 workers will continue to have jobs after Cubist takes over.
"Until the deal closes, we do not expect any changes to day-to-day business operations that are outside the ordinary course of business. Decisions regarding continuing employees will be made by Cubist," Optimer said.
The Trius-issued Q&A said the company expects layoffs, if there are any, to be minimal. Cubist will notify employees who won't retain their jobs within 30 days of the deal's closing date in the third quarter of 2013.
Mr Perez was less clear when asked about plans for the companies' San Diego-based operations and the Trius and Optimer employees.
"We have the highest regard for the talented employees at both companies. We look forward to meeting with them, listening to them and working with them to improve the lives of patients with difficult-to-treat infections," he said.