Merck & Co. reaffirms plans to acquire Cubist despite patent setback for Cubicin

Merck & Co. on Tuesday stated that it still plans to proceed with its previously announced agreement to acquire Cubist Pharmaceuticals for $8.4 billion despite a court ruling that will permit generic competition for the latter's antibiotic Cubicin (daptomycin). In the ruling, the US District Court for the District of Delaware invalidated four patents that would have protected Cubicin from generic competition until 2020 while upholding a fifth patent that expires in June 2016. Merck noted that the ruling remains subject to appeal.

The company further said that the ruling does not alter its forecast that the acquisition will be accretive to earnings starting next year. "The combined strength of both companies will provide both incremental and long-term value, and Merck expects the transaction to add more than $1 billion of revenue to its 2015 base, with strong growth potential thereafter," Merck stated. The drugmaker noted that it still expects the acquisition to close in the first quarter of 2015.

Commenting on the news, ISI analyst Mark Schoenebaum remarked "it appears that [Merck] cannot walk away from this deal for today's news only," noting that under the terms of the merger agreement, the legal outcome is not considered a "material adverse event." Meanwhile, Leerink Partners analyst Seamus Fernandez indicated that generic forms of Cubicin could be launched in the US by late 2016. The analyst estimated that based on the ruling, Merck's offer price "looks $2 billion to $3 billion high…this is a very tough start to a relatively sound strategic deal."

Cubicin, which accounts for more than 80 percent of Cubist's revenue, amassed $967 million in revenue in 2013, a figure the company estimates will exceed $2 billion by 2017.

For related analysis, see ViewPoints: Buyer's blues for Merck & Co. as Cubist loses patent case and ViewPoints: Does Merck & Co.'s acquisition of Cubist square up?

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