Cubist Pharma Misses on Earnings, Sales Strong


Cubist Pharmaceuticals Inc.’s  (CBST) fourth quarter 2013 earnings (excluding special items) of 29 cents per share fell well short of the Zacks Consensus Estimate of 33 cents. Moreover, earnings were short of the year-ago figure by approximately 31% due to higher expenses.

Including one-time items, Cubist Pharma incurred fourth quarter loss of 8 cents per share, as opposed to the year-ago earnings of 51 cents.

Revenues in the fourth quarter of 2013 climbed 21.9% to $299.7 million. The year-over-year rise was attributable to strong sales of antibiotic injection, Cubicin (daptomycin). Cubicin accounted for the bulk of the revenues reported in the quarter. Revenues surpassed the Zacks Consensus Estimate of $288 million.

The biopharmaceutical company’s full year earnings were $1.45 per share, down 32.6% and below the Zacks Consensus Estimate of $1.53 per share. Revenues came in at $1.1 billion, up 14% and just above the Zacks Consensus Estimate of $1.04 billion. Revenues in 2013 were marginally above the company’s projected range of $1.010–$1.035 billion

The Fourth Quarter in Details

Net product sales in the U.S. climbed 21% to $274.8 million. Most of the U.S. sales came from Cubicin. Net sales of the product in the U.S. climbed 15.2% to $248.9 million in the fourth quarter of 2013. Apart from revenues from Cubicin sales, total product revenue at Cubist Pharma comprises Entereg (up 26% to $13.8 million) and Dificid sales ($12.2 million) in the U.S. and sales in international markets (up 44% to $20.9 million).

Cubist Pharma gained full control of Dificid (fidaxomicin), an antibiotic for treating patients suffering from clostridium difficile-associated diarrhea (:CDAD), following the completion of its acquisition of Optimer Pharmaceuticals in Oct 2013.This strengthened the company’s antibiotics portfolio. Moreover, Cubist Pharma had acquired another antibiotics maker, Trius Therapeutics, in the third quarter of 2013. During the quarter, Cubist Pharma recognized $1.2 million as service revenues.

Both research and development (R&D) and selling, general and administrative (SG&A) expenses were on the upswing during the final quarter of 2013 leading to a rise in operating costs (on a reported basis). The 82% increase in SG&A costs in the fourth quarter of 2013 was due to the merger & acquisition activity of Cubist Pharma. R&D expenses during the quarter climbed approximately 40% primarily due to development costs related to Cubist Pharma’s pipeline candidates.

The acquisition of Trius added tedizolid phosphate (TR-701) to Cubist Pharma’s pipeline. The candidate is under priority review in the U.S. for treating acute bacterial skin and skin structure infections (:ABSSSI). A final decision from the U.S. Food and Drug Administration (:FDA) is expected on Jun 20, 2014. European approval of the candidate for the same indication is expected to be sought by Jun 30, 2014. Cubist Pharma intends to commence phase III studies on the candidate in the hospital-acquired bacterial pneumonia (:HABP)/ventilator-associated bacterial pneumonia (:VABP) indication by Mar 31, 2014.

Ceftolozane/tazobactam is another interesting candidate in Cubist Pharma’s pipeline. The impressive top-line data on ceftolozane/tazobactam from the phase III studies in the complicated urinary tract infections (cUTI) and complicated intra-abdominal infections (cIAI) indications is encouraging. On the back of positive results from these two phase III studies, the company intends to submit a New Drug Application (:NDA) for ceftolozane/tazobactam to the FDA in the first half of 2014 for both indications. Cubist Pharma also intends to do the same in the EU in the latter half of the year. Furthermore, Cubist Pharma intends to initiate a phase III study on ceftolozane/tazobactam in patients suffering from in HABP/ VABP by Jun 30, 2014.

2014 Outlook
Apart from announcing its earnings results, Cubist Pharma also provided guidance for 2014. The company now expects revenues in the range of $1.19–$1.275 billion, well over 2013 levels. The Zacks Consensus Estimate of $1.24 billion is towards the upper end of the guided range. Net U.S. sales of Cubicin are expected in the range of $0.97–$1.02 billion. Revenues from Dificid and Entereg are projected in the range of $205–$235 million.  Service and other revenues are expected in the range of $15–$20 million. Gross margin (on an adjusted basis) is expected in the range of 77%–78%.

The company expects R&D costs (inclusive of milestone payments) for 2014 in the range of $460 - $480 million. Selling, general and administrative expenses in 2014 are now expected in the range of $310-$320 million.

The Way Forward at Cubist Pharma- Our View

We expect Cubicin sales to remain strong. Moreover, the full control over Dificid following Optimer’s acquisition will boost revenues further at Cubist Pharma. Moreover, the pipeline led by late-stage candidates, ceftolozane/tazobactam and tedizolid phosphate is also encouraging. Approval of the candidates will drive the company’s long-term growth.  We expect investor focus to remain on Cubist Pharma’s pipeline going forward.

Cubist Pharma currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Forest Laboratories, Inc. (FRX), Actelion Ltd. (ALIOF) and Medivation, Inc. (MDVN). While Forest Laboratories and Actelion carry a Zacks Rank # 1 (Strong Buy), Medivation holds a Zacks Rank #2 (Buy).

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