Merck & Co. Buys Cubist Pharmaceuticals

In a bid to strengthen its presence in the hospital acute care market, Merck & Co. has agreed to pay $8.4 billion for leading antibiotics firm Cubist Pharmaceuticals. Merck also takes on $1.1 billion in debt, bringing the overall deal value to $9.5 billion.

Merck is billing the deal as an opportunity to significantly expand its presence in hospital acute care, a market that it says accounts for $60 billion in annual sales, industrywide, and is growing twice as fast as the overall health care market.

The deal adds several key products to Merck’s anti-infectives portfolio and pipeline, most notably Zerbaxa, a gram-negative antibiotic that combines ceftolozane and tazobactam. The Food & Drug Administration is expected later this month to approve the drug to treat urinary tract infections, but Cubist is also developing the drug to treat hospital-acquired pneumonia.

Cubist’s products complement Merck’s own late-stage drug candidates in the antibiotics arena, which include MK-3415A, a combination of two antibodies targeting toxins made by Clostridum difficile, and MK-7655, a β-lactamase inhibitor.

Although most big pharma companies exited antibiotics in the 1990s and early 2000s, Merck has maintained a presence in the space. However, it has significantly pared back its activities over the years. In 2008, Merck shut down its decades-old natural products discovery group in Madrid, and later donated its natural products library to the Hepatitis B Foundation’s Institute for Hepatitis & Virus Research, now the Baruch S. Blumberg Institute, in Doylestown, Pa.

“There was a period of time when generating semisynthetic antibiotics directed against a similar set of targets was a reasonable thing to do, and there was room for a lot of those that were narrowly differentiated,” Roger M. Perlmutter, head of Merck Research Laboratories, said this morning on a call with analysts. “That period of time ended about 20 years ago.” However, he added, new approaches to developing antibiotics “hold a lot of promise.”

Merck did not provide details about the fate of Cubist’s internal R&D operation. But Adam H. Schechter, president of Merck’s human health business, emphasized on the call that the deal was about “growth opportunity and revenue growth, not about rapid cost synergies at this time.”

Still, experts worry about the shrinking number of antibiotics discovery engines. Lynn Silver, an antibiotics consultant who worked at Merck for 20 years, notes that last year Cubist acquired Trius Therapeutics, one of the best antibiotics discovery groups in the industry. “There’s very little else to buy up,” she adds.