Cubist Says Adolor Deal Offers “Free Option on Billion-Dollar Program”

10/26/11Follow @arleneweintraub

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the strengths of the sales force in the hospital setting,” wrote Oppenheimer analyst Christopher Holterhoff in a report issued after the Adolor deal was announced. Holterhoff has a $45 price target on Cubist’s shares.

Rob Perez, chief operating officer of Cubist, says he believes his company’s expertise in the hospital market gives it a sales advantage that larger companies don’t have. “We allow the people closest to the customer—the salespeople—to have much more autonomy than most large companies do,” Perez says. “Hospitals are difficult to segment, so you have to give people on the street the freedom to do what’s necessary locally. Big Pharma has many more people, so their models are driven by the home office.” He adds that Cubist will simply add Adolor’s product “to the bags” of the same 200 people who have been selling Cubist’s antibiotics. “We’ll allow them to manage their local business like an account within each hospital.”

Nevertheless, the rich valuation Cubist placed on Adolor was largely driven by ADL5945, which is expected to enter Phase 3 testing next year—one of two late-stage drug candidates that Bonney estimates could have peak sales potential of $1 billion a year. Bonney points out that last year there were 6 million prescriptions written in the U.S. for three-month courses of opioid painkillers. That means ADL5945 could be used not only in Cubist’s core inpatient setting, but also by people who are being treated chronically, on an outpatient basis, with opioid drugs. “There’s a big primary-care piece to this,” Bonney says. He adds that Cubist will be looking for a partner to help offset the costs of developing the drug and then selling it to primary-care physicians.

Cubist’s other billion-dollar opportunity, says Bonney, is CXA201, an antibiotic it is developing to treat complicated urinary tract and abdominal infections. The drug acts against a type of bacteria that accounts for 40 percent of hospital-acquired pneumonias, Bonney says.

Cubist will likely face competition on both drugs. Bonney says he’s aware of “a number of similar products” to ADL5945 that are neck-in-neck in the development process. “We think 5945 strikes the best balance of efficacy and safety,” he says, adding that the billion-dollar estimate “assumes a modest market share.”

The Adolor deal caps off “one heck of a year,” Bonney says. During the company’s third-quarter conference call on October 19, Cubist beat analyst estimates by announcing sales of $202 million and earnings-per-share of 33 cents. Bonney says sales of daptomycin have been stronger than expected, largely because of a new course of administration that the FDA approved for the drug late last year. Instead of infusing the drug for 30 minutes, outpatient staff can choose to administer it in a two-minute injection. The quicker route has been a popular choice, Bonney says.”Fifty percent of our business is outpatient clinics, where beds are at a premium,” he says. “This way, a nurse can hook the patient up to an IV, and two minutes later, that bed is available. It changes the economics for the hospital. And the patient gets to go home sooner.”

With $800 million in cash still on the balance sheet, Cubist could go looking for more deals, but Bonney and Perez says the Adolor deal satisfies their most immediate priorities. “We’re getting a commercial-stage product and almost a free option on a billion-dollar program,” Perez says. Adds Bonney, “I almost think we’re getting paid, because the gross margin on [alvimopan] is more than what’s necessary to progress the Phase 3 program on 5945, even without a partner. So we’re getting paid for a huge option on a multibillion-dollar market.”

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