Cubist Maintains Growth Streak, As Investors Fear Generic Threat, Thin Pipeline

1/25/10

Cubist Pharmaceuticals has grown into one of the big success stories in biotech industry of the past few years, based almost entirely on the sales of a single product. The Lexington, MA-based company’s big hit is an intravenous antibiotic for deadly infections called daptomycin (Cubicin). Even though this has propelled Cubist into profitable territory, the company’s (NASDAQ:CBST) stock price has been flat for more than four years amid concerns on Wall Street about potential threats to its antibiotics franchise.

Last week, I visited the company’s headquarters and met with CEO Michael Bonney and discussed the successes and challenges he faces at Cubist. This month the company announced 2009 revenue of $562.1 million, a 30-percent jump from the year before. Revenues have grown rapidly every year since the market debut of daptomycin in 2003. But Bonney was clear that the company doesn’t plan to rest on its laurels, and the firm is taking more aggressive measures than in previous years to bring a second commercial product to market. (The company also sells an antibiotic called meropenem on behalf of AstraZeneca in the U.S., but that agreement brought Cubist only $22.5 million in revenue last year.)

Indeed, analysts have criticized the company’s lack of an encore to its success with daptomycin. Bonney acknowledged that the company’s critics have a point, and that he’s tackling it now.

“I think we could have been a little more aggressive at pipeline building earlier than we started to,” Bonney said. “It’s always a fine balancing act between [profitability] and how much you are going to spend, and there’s no formula that I’ve found in any textbook that says this is how you do it. But I do think, with the benefit of hindsight, that is something we could have done differently.”

Cubist has more than just its pipeline to worry about. It generates 93 percent of its revenue from daptomycin, a compound used in hospitals to treat lethal MRSA (Methicillin-resistant Staphylococcus aureus) infections and other bugs. And while analysts say daptomycin has potential to reach $1 billion in peak annual sales, that is no sure thing. Generic drug maker Teva Pharmaceutical has plans to market a cheaper generic copy of the drug before Cubist’s patents for the product expire between 2016 and 2019. Cubist plans to prove in its pending lawsuit against Teva that its patents protect its lead antibiotic from generic competition.

Cubist’s problem isn’t exactly unique in the biotech game; there are a number of mid-sized drug developers whose success hinges largely on one product. A couple of those companies include Cheshire, CT-based Alexion Pharmaceuticals (NASDAQ:ALXN), which gets all of its sales revenue from one product, eculizumab (Soliris), a treatment for a rare blood disorder called paroxysmal nocturnal hemoglobinuria, as well as Emeryville, CA-based … Next Page »

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