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Merck Expands In Antibiotics With Cubist Buy

Pharma: Deal takes the big drugmaker further into hospital acute care

by Lisa M. Jarvis
December 15, 2014 | A version of this story appeared in Volume 92, Issue 50

Line structures of ceftolozane and tazobactam.
Zerbaxa is a combination drug made from ceftolozane (left) and tazobactam (right).

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

Merck says hospital acute care accounts for $60 billion in annual drug sales industrywide and is growing twice as fast as the overall health care market.

The deal adds several products to Merck’s anti-infectives portfolio and pipeline, notably Cubicin, Cubist’s top seller, and Zerbaxa, a gram-negative antibiotic that combines ceftolozane and tazobactam. The Food & Drug Administration is expected later this month to approve Zerbaxa to treat complicated urinary tract and intra-abdominal infections. Cubist is also developing it 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 Clostridium 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, albeit at a reduced scale. The firm shut down its decades-old natural products discovery group in Madrid in 2008 and later donated its natural products library to the Hepatitis B Foundation.

“There was a period of time when generating semisynthetic antibiotics directed against a similar set of targets was a reasonable thing to do,” Roger M. Perlmutter, head of Merck Research Laboratories, told stock analysts in a conference call. “That period of time ended about 20 years ago.” However, new approaches to developing antibiotics “hold a lot of promise,” he added.

Merck did not provide details about the fate of Cubist’s R&D operation, which includes about 300 scientists. 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 groups. Lynn L. 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 teams in the industry. “There’s very little else to buy up,” she adds.

The stock market’s view of Merck’s deal dimmed several hours after it was announced when a U.S. District Court ruled against Cubist in a dispute over patent protection for Cubicin. Cubist plans to appeal the decision, but the possibility of early generics competition, which could hit the market by late 2016 rather than 2018, makes Merck’s purchase price look high by as much as $3 billion, argues Leerink analyst Seamus Fernandez. Merck and Cubist say the deal will go forward.



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