Cubist Pharma Posts Weak Earnings on Soft Cubicin Sales - Analyst Blog

Cubist Pharmaceuticals Inc.'s CBST first quarter 2014 earnings (excluding special items) of 10 cents per share fell well short of the Zacks Consensus Estimate of 34 cents due to lower-than-expected revenues. Moreover, earnings were short of the year-ago figure by approximately 71%.

Including one-time items, Cubist Pharma reported earnings of 30 cents per share as opposed to the year-ago figure of 9 cents.

Revenues in the first quarter of 2014 climbed 14% to $261.2 million. Revenues fell well short of the Zacks Consensus Estimate of $306 million. The top line was hurt by weak sales of antibiotic injection, Cubicin (daptomycin). We expect the stock price to decline substantially following the dismal results.

The First Quarter in Details

Net product sales in the U.S. climbed 12.8% year over year to $240.5 million. Most of the U.S. sales came from Cubicin. Net sales of the product in the U.S. climbed 5% year over year to $212.2 million. Sales of the drug were however down 14.7% sequentially.  Apart from revenues from Cubicin sales, total product revenue at Cubist Pharma comprises Entereg (up 24% to $13.9 million) and Dificid sales ($14.4 million) in the U.S. and sales in international markets (up 37.3% to $17 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 has strengthened the company's antibiotics portfolio. Moreover, Cubist Pharma had acquired another antibiotics maker, Trius Therapeutics, in the third quarter of 2013. Consequently, Cubist Pharma did not recognize any service revenue during the quarter, as against $3.6 million a year ago.

Both research and development (R&D) and selling, general and administrative (SG&A) expenses were on the upswing during the first quarter of 2014. The 43% increase in adjusted SG&A costs in the first quarter of 2014 was due to the pre-launch expenses for Sivextro and ceftolozane/tazobactam. Adjusted R&D expenses during the quarter climbed approximately 29.9% primarily due to development costs related to Cubist Pharma's pipeline candidates.

The acquisition of Trius added Sivextro (tedizolid phosphate) 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. We remind investors that in Mar 2014, an advisory panel of the U.S. Food and Drug Administration (FDA) voted in favor of approving Sivextro. We expect the antibiotic to be approved by the FDA in June.

Once approved, Sivextro will try to take share from Pfizer's PFE Zyvox. Phase III data showing that Sivextro is non-inferior to Zyvox should help it capture share. Less frequent dosing and a shorter treatment period should also work in Sivextro's favor. Cubist Pharma has sought EU approval for the candidate for treating complicated skin and soft tissue infections (cSSTI) indication. A final decision from the European Commission EC is expected in the first half of 2015.

Cubist Pharma's antibiotic pipeline also includes ceftolozane/tazobactam (complicated urinary tract and intra-abdominal infections). U.S. approval has been sought by the company. EU approval for the indications will be sought in the latter half of the year. Furthermore, Cubist Pharma intends to initiate a phase III study on ceftolozane/tazobactam in patients suffering from hospital-acquired bacterial pneumonia (HABP)/ventilator-associated bacterial pneumonia (VABP) by Jun 30, 2014.

Surotomycin is another interesting phase III candidate in the company's pipeline. It is being developed for treating C. difficile acquired diarrhea (CDAD). Cubist believes that it will have 4 antibiotics in the market by 2015. The biopharmaceutical company intends to spend approximately $400 million in 2014 alone to develop its antibiotic pipeline.

2014 Outlook Maintained
 
Apart from announcing its earnings results, Cubist Pharma reiterated the guidance for 2014 provided by it while releasing its fourth quarter and full year 2013 results in January. The company still expects revenues in the range of $1.19–$1.275 billion. The Zacks Consensus Estimate of $1.0 billion is below the guided range. Net U.S. sales of Cubicin are still expected in the range of $0.97–$1.02 billion. All other product revenues are still projected in the range of $205–$235 million. Service and other revenues are still expected in the range of $15–$20 million. Gross margin (on an adjusted basis) is still expected in the range of 77%–78%.

The company still 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 still expected in the range of $310–$320 million.

Cubist Pharma currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the biopharma space include Regeneron Pharmaceuticals REGN and Gilead Sciences GILD. While Regeneron carries a Zacks Rank # 1 (Strong Buy), Gilead holds a Zacks Rank #2 (Buy).