Cubist Pharmaceuticals is a US-based biopharmaceutical company focused on the production of acute care drugs.
Cubicin, an antibiotic used in the treatment of bacterial infections such as MRSA, accounts for almost 90 per cent of the company’s revenues.
Under the terms of a licensing agreement agreed in 1997, Cubist pays royalties to research and development firm Eli Lilly until 2016, equating to roughly half of the production costs of Cubicin. Once this expires, Cubist’s profitability in the US should improve markedly.
Many investors appear to have misunderstood the terms of the company’s settlement with Teva, the world’s largest producer of generic drugs. From 2018 when Cubicin’s patent expires Cubist will supply Teva with the drug, which is difficult to manufacture. In return, Cubist will receive more than half of the profits from sales of the product. We believe that analyst forecasts of a significant decline in profitability in the coming years have been overstated.
Cubist also has a promising pipeline of new drugs currently in development, including CXA-201, a highly effective novel antibiotic which is in the third phase of clinical trials. It has also been granted a valuable extra five years from generic competition in the US. Cubist’s balance sheet and strong pipeline mean the company is undervalued by the market.
Neil Veitch is manager of the SVM World Equity fund
