Cubist Pharmaceuticals Inc has agreed to pay up to $1.6 billion for Trius Therapeutics Inc and Optimer Pharmaceuticals Inc, expanding its heft in antibiotics at a time when the number of drug-resistant viruses are on the rise.
The widely praised deals will give Cubist, one of the few big players in U.S. antibiotics in the United States, an additional $600 million to $1 billion in revenue on an annual basis from the companies' lead drugs. Antibiotics has often been shunned by many big pharma firms as a field of research due to poor returns.
Cubist, known for its Cubicin antibiotic, will also gain Trius's experimental drug, tedizolid phosphate, that showed promise in treating skin infections in two late-stage studies and which Cubist hopes to launch in late 2014.
"Each of these deals is significant and valuable in its own right. The stars just happened to have aligned and we executed on both at the same time," said Chief Executive Michael Bonney in a conference call with analysts. He added that the deals would collectively be accretive to Cubist by 2015.
Jim Molloy of Janney Montgomery Scott LLC said he had long expected Cubist or Forest Laboratories Inc to go after antibiotic companies such as Durata Therapeutics Inc, Medicines Co and Trius.
"For Cubist, Trius, in many ways, was the cream of the crop," Molloy said.
Cubist will pay $13.50 per share in cash for Trius and another $2.00 per share if Trius meets certain sales targets. A $15.50 per share offer would be about 32 percent more than Trius's closing share price on Tuesday.
For Optimer, Cubist is paying $10.75 per share in cash upfront to Optimer shareholders, and could pay an additional $5 per share contingent on Optimer meeting certain sales milestones.
A $15.75 per share offer would represent a premium of about 19 percent to Optimer's Tuesday's closing price of $13.29, but without the contingent payment, it represents a 19 percent discount.
Trius's tedizolid phosphate is also being tested as a treatment for other infections including the methicillin-resistant Staphylococcus aureus (MRSA), which is estimated to kill some 20,000 people every year in the United States.
"The risk to me is that there is a little bit of overlap in terms of Trius' drug and Cubicin in terms of market opportunity in outpatient complicated skin infection," Baird analyst Brian Skorney said.
But Bonney said he believed Cubicin and tedizolid phosphate would address different patient populations depending on the severity and type of infection.
Trius's drug is expected to be pitched for U.S. approval in the second half of 2013 and European approval in the first half of 2014.
Through Optimer, Cubist will gain access to the antibacterial Dificid, a drug they co-promote and which brought in sales of $19.0 million in the quarter ended June.
Dificid, which treats adult patients who contract infectious diarrhea in hospitals, is also being tested as a treatment to prevent diarrhea in patients under 18 years and to treat the condition in patients undergoing bone marrow transplants.
Baird's Skorney said he does not think Cubist will "create a ton of value" from the Optimer deal, but that it would not "wind up looking like a bad deal."
Optimer's buyout culminates a four-month-long-strategic review process for the company that, faced with compliance issues, put itself on the auction block in February after replacing its Chief Executive Pedro Lichtinger with Chairman Henry McKinnell.
Cubist had been cited as one of the most likely buyers for Optimer. Even before Optimer began a sale process, Cubist had offered to buy the company for $20 per share, two people familiar with the matter told Reuters in May. Optimer had turned down that offer, the people said.
Cubist shares rose about 3 percent to $58.50 after the bell. Trius shares were trading up at $13.75, while those of Optimer were down at $12.15 after hours.
Morgan Stanley & Co LLC is exclusively advising Cubist on the Optimer deal and Barclays is its exclusive advisor on the Trius deal. Ropes & Gray LLP is serving as Cubist's legal counsel.
Optimer is being advised by JP Morgan Securities LLC and Centerview Partners LLC, with Sullivan & Cromwell LLP as legal counsel, while Citi and Centerview Partners LLC are advising Trius and Cooley LLP is serving as its legal counsel.
(Reporting by Vrinda Manocha and Zeba Siddiqui in Bangalore; Editing by Maju Samuel, Saumyadeb Chakrabarty and Edwina Gibbs)