Merck & Co, Inc, Acquiring Superbug Company Cubist for $9.5B

Merck announced a definitive agreement to acquire Cubist Pharmaceuticals, a biopharmaceutical company focused on superbugs.


Merck announced a definitive agreement to acquire Cubist Pharmaceuticals, a biopharmaceutical company focused on superbugs. Cubist is an antibiotics company focused on difficult-to-treat infections.

Its flagship drug, Cubicin, is an intravenous antibiotic administered for the treatment of skin and blood infections. Cubicin generated 3Q:14 revenue of $257M, which represented 83% of the company's 3Q:14 sales of $309M. Consensus estimates that Cubist (covered by Matthew Harrison) will generate total company 2014-2016 revenue, including pipeline drivers, of $1.2B, $1.4B, and $1.6B, respectively. Note that according to an April 5, 2011 press release, Teva can start selling a generic version of Cubicin in June 2018. In addition, Cubist patent litigation with Hospira remains ongoing.

$9.5B total deal value; 18.6x consensus' Cubist 2016 EBITDA presynergies; significant accretion to start in 2016.

Merck is paying $102/share, which represents an equity value of $8.4B. Including $1.1B in net debt yields total value of $9.5B. The $8.4B equity value represents 5% of Merck's market cap of $175B. Consensus projects Cubist's 2016 EBITDA will be $512M, which implies a deal multiple of 18.6x 2016 EBITDA pre-synergies. Merck did not detail expected synergies but stated in its press release that it expects the deal to be significantly accretive to non-GAAP EPS in 2016 and beyond.

Deal fits with Merck's strategic vision to re-focus on pharmaceuticals and acquire companies that target significant unmet need.

Recall Merck sold its Consumer business to Bayer earlier this year and communicated plans to re-deploy capital in pharmaceuticals. It recently acquired Idenix Pharmaceuticals to bolster its Hep-C portfolio.

Morgan Stanley is acting as financial advisor to Cubist Pharmaceuticals, Inc. (“Cubist”) in relation to its definitive agreement to be acquired by Merck & Co., Inc., as announced on December 8, 2014. The proposed acquisition is subject to the successful tender offer for the shares of Cubist, the expiration or termination of the waiting period under the Hart Scott Rodino Antitrust Improvements Act, and other customary conditions. This report and the information provided herein is not intended to (i) provide advice with respect to whether to tender Cubist shares, (ii) serve as an endorsement of the proposed transaction, or (iii) result in the procurement or exchange of a security by a security holder. Cubist has agreed to pay fees to Morgan Stanley for its services, including transaction fees that are contingent upon the consummation of the proposed transaction. Please refer to the notes at the end of this report.