2014 has already been a year of M&A records in the biopharmaceutical industry, and on Monday December 8 yet another major transaction occurred, this time in the antibiotics space with the takeover of Cubist Pharmaceuticals (CBST) by Merck (MRK). Under the terms of the deal, Cubist shareholders will receive $102 per share in cash, representing a premium of ~37% relative to Cubist’s close on Friday. The deal values Cubist at ~$9.5 billion, inclusive of Merck assuming $1.1 billion in debt.
The antibiotics space just lost its largest standalone player. Following the takeovers of Trius and Optimer both by Cubist, and Actavis’ (ACT) takeover of Durata Therapeutics in the third quarter, the industry is down to just three mid-cap standalones: Cempra (CEMP), Paratek (PRTK), and Tetraphase (TTPH). At a $900 million market cap, TTPH just took the spot as largest publicly traded Abx pure-play [Anacor (ANAC) with its antifungal Kerydin is a $1.5B company], which itself became the subject of takeover speculation this year, with Roche (RHHBY) and Actelion (ALIOY) named as potential suitors.
All three of these drug developers rallied 10% Monda on the coattails of the Merck-Cubist deal.
We first highlighted the CBST opportunity in May of 2013, and the stock has returned over 109% (based on Merck’s $102 per share offer price), versus a return of ~70% for the NASDAQ Biotechnology Index over the same time frame. Just this year we alluded to the possibility that Cubist could become a takeover target. Speculation surrounding Cubist at that time centered on Shire (SHPG), but we noted that the mid-tier revenue-generating Cubist was a logical acquisition target for any large pharma, as the world’s leading pure-play antibiotics company.
With the takeover, Merck will capitalize on a slew of regulatory incentives designed to accelerate the development of new antibiotics. Central to the government’s strategy has been the GAIN Act (Generating Antibiotic Incentives Now), which offers a variety of sweeteners including priority review status and longer exclusivity to developmental/approved antibiotics.
Read PropThink’s deep-dive on Cempra from last year, here, as well as recent updates.
One or more of PropThink’s contributors are long CBST, MRK, CEMP, or SHPG.
