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Merck (MRK), Cubist (CBST) Deal Likely to Go Ahead Despite Unfavorable Litigation, Says RBC

December 9, 2014 9:51 AM EST
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Price: $101.94 --0%

Rating Summary:
    6 Buy, 13 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 10 | New: 11
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RBC Capital maintained an Outperform rating on Cubist Pharmaceuticals (NASDAQ: CBST) with a price target of $102. Analyst Adnan Butt thinks an acquisiiton by Merck's (NYSE: MRK) is likely to go through despite an adverse ruling in a patent dispute with Hospira (NYSE: HSP).

"Despite the unexpectedly unfavorable ruling in the Cubicin patent litigation, we believe MRK is likely to go ahead with its acquisition of CBST because the outcome was exempted from the material adverse effects clause. MRK understood the risks and still bid because CBST still has several marketed products, a deep pipeline, infrastructure that can be leveraged, and the process was likely competitive," said Butt.

"What could MRK still find attractive about CBST? CBST has a $1B franchise in Cubicin. Zerbaxa is expected to be as big if not bigger ($1-2B+ worldwide), and Sivextro and Dificid are also meaningful ($600M-$1B per CBST guidance). Even without Cubicin, revenues could be $2B+ at peak. The infrastructure adds to these positive attributes. Upon appeal, there is a possibility that MRK and CBST could prevail. Most importantly, MRK wants to expand in the areas where CBST has a footprint and if the process for acquiring CBST were competitive then it makes even more sense that the material adverse effect clause exempted litigation risk," he added.

For an analyst ratings summary and ratings history on Cubist Pharmaceuticals click here. For more ratings news on Cubist Pharmaceuticals click here.

Shares of Cubist Pharmaceuticals closed at $100.60 yesterday.



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