Merck to acquire Cubist for $8.4 Billion to strengthen antibiotic pipeline

Merck & Company said on Monday that it had agreed to acquireCubist Pharmaceuticals for $8.4 billion, plus the assumption of $1.1 billion in debt. The deal will give Merck, the second-largest American drug maker after Pfizer, control of the largest antibiotics company, and deepen its ties with hospitals.

The deal fits into Merck’s strategy of buying midsize drug makers that complement its existing products.

Merck will pay $102 a share in cash for Cubist, a 35 percent premium above Cubist’s average share price for the five most recent trading days.

Cubist, based in Lexington, Mass., makes drugs to treat dangerous bacteria and superbugs, including diseases that can cause pandemics. Its biggest seller, Cubicin, fits nicely into Merck’s hospital division, one of four areas that executives recently identified as priorities for the company. Sales in Merck’s hospital acute care division were 10 percent higher in the first three quarters of this year than in the same period last year.

Why this deal? 

“Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late-stage pipeline medicines,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “Combining this expertise with Merck’s strong capabilities and global reach will enable us to create a stronger position in hospital acute care while addressing critical areas of unmet medical need, such as antibiotic resistance.”

“Combining with Merck is an exciting opportunity to accelerate Cubist’s established leadership in antibiotics and deliver significant, certain and immediate value to shareholders,” said Michael Bonney, chief executive officer, Cubist. “We have a deep respect for Merck, and it is clear that they share our commitment to addressing the growing, global problem we are facing in combating antibiotic-resistant bacteria. Under Merck’s robust commercial platform, global reach and scientific expertise, we believe Cubist’s programs can thrive. We’re proud of the company that our team has built and are confident that Cubist’s important mission and focus on significant unmet medical needs will continue.”

For more than 20 years, Cubist has been committed to global public health through the discovery, development and supply of antibiotics to treat serious and potentially life-threatening infections caused by a broad range of increasingly drug-resistant bacteria. Cubist’s antibiotic CUBICIN®, the only approved once-a-day therapy for both S. aureus bacteremia and complicated skin and skin structure infections (cSSSI), has been used to treat more than two million patients and continues to be an important therapy in the acute care environment. Cubist’s in-line and late-stage pipeline of anti-infective medicines, including ZERBAXA™ which is pending approval from the U.S. Food and Drug Administration, will enhance Merck’s hospital acute care business in a variety of therapeutic areas, including Gram-positive and Gram-negative multi-drug resistant infections.

The $8.4 billion price has been approved unanimously by the boards of both companies and includes the assumption of about $1.1 billion in debt, bringing the enterprise value of the deal to $9.5 billion. Merck, through a subsidiary, will begin a tender offer to investors to acquire all of Cubist’s outstanding shares.

Shares of Cubist jumped 35 percent on Monday, to about $100.60. Merck shares closed 0.6 percent higher, at $61.88.

“We’re certainly satisfied with the price we got for shareholders,” Mr. Bonney said.

The transaction is subject to approval by regulators and Cubist shareholders. The deal is expected to close in the first quarter. DealBook reported that a deal was in the works after the market closed on Friday.

Last month, Cubist posted third-quarter sales of $309 million, a 16 percent increase from the period a year earlier.

Merck makes vaccines, prescription products and oncology treatments. It posted revenue of about $10.6 billion in the third quarter. It said Cubist would add more than $1 billion to its expected 2015 revenues.

The deal is the latest bolt-on acquisition for Merck, which has been looking to bolster its portfolio of drugs even as it faces increased competition from generic drug producers. It agreed in June, for example, to a $3.85 billion deal for Idenix Pharmaceuticals, a maker of treatments for hepatitis C.

But Merck has also shed noncore businesses. Earlier this year, it sold its consumer business to Bayer for $14.2 billion.

Ref: 1. Press release of Cubist, http://www.cubist.com/media/news-releases/merck-to-acquire-cubist-pharmaceuticals-for-$102-p. 2.