Cubist Tops, Riding on Cubicin - Analyst Blog

(

) second quarter 2010 earnings (excluding special items but including stock-based compensation expense) of 66 cents per share surpassed the year-ago earnings by 43.5%. On a reported basis, the company earned 45 cents per share as against 40 cents per share in the year-ago quarter. The Zacks Consensus Estimate for the reported quarter was 41 cents per share. Results in the quarter were helped by strong U.S. sales of its antibiotic injection, Cubicin (daptomycin).

Revenue in the reported quarter climbed 29% year-over-year to $168.5 million. Cubicin, which is approved in the United States and several other markets for the treatment of severe bacterial infections of the skin and bloodstream, accounted for over 90% of the company’s total revenue in the quarter. Net sales of the product in the US climbed 23% year-over-year to $155 million in the reported quarter. Net product revenues from international sales of the product jumped 141% year-over-year to $6.6 million in the second quarter of 2010.

Furthermore, Cubist recognized $6.5 million in the reported quarter pertaining to its marketing agreement with

(

) involving AstraZeneca's antibiotic Merrem. Operating income during the quarter increased almost 50% year-over-year to $53.7 million.

In addition to posting financial results, Cubist presented an update on its pipeline. Following the acquisition of Calixa in 2009, Cubist gained rights to Calixa’s lead compound CXA-201 (containing CXA-101). CXA-201 is being developed as an intravenous therapy to treat certain serious bacterial infections caused by pseudomonas aeruginosa.

A mid-stage study with CXA-201 for complicated intra-abdominal infections (cIAI) is currently underway. The study will enroll 120 patients. Meanwhile, the mid-stage study with CXA-101 for complicated urinary tract infections (cUTI) met its goal and came out with encouraging results. Furthermore, during the reported quarter, Cubist initiated a mid-stage study with its antibacterial candidate CB-183,315 for treating patients suffering from severe C.difficile-associated diarrhea.

Cubist is a Zacks #4 Rank (Sell) stock. The near-term pressure on the stock arises from the pending litigation with

(

), which is seeking to launch a generic version of Cubicin. The ongoing litigation poses a significant threat to the Cubicin franchise and will be a source of overhang on the company’s shares in the foreseeable future.

However, we are pleased to see that Cubist is working on expanding its pipeline through partnerships and acquisitions. The acquisition of Calixa Therapeutics is an example of the company’s efforts to expand its pipeline. Consequently, the more stable long-term outlook for the company prompts our Neutral stance on the stock in the long-term.