Wall Street’s recent roller-coaster ride has made it clear to investors that not all biotechnology companies are created equal. The share prices of most of the firms that have products, sales and earnings have suffered far less than its industry counterparts who still are betting on the come.
One of the former that has held its ground remarkably well, relatively speaking, is Lexington, Mass.-based Cubist Pharmaceuticals (NASDAQ:CBST). While the Nasdaq Biotechnology Index has retreated by more than 20% in the past month, Cubist is down only about 12%.
With a nearly $2 billion market cap, Cubist still sells for a hefty P/E of 43 based on trailing earnings, so investors thinking about buying the stock on the dip might want to factor that into their evaluation. The big question facing the company is whether it can ever return to its glory days of yesteryear. That occurred in early 2000 when Cubist shares nearly hit $66, more than twice what the stock trades for these days.
If the company and its investors are going to ever again enjoy those salad days, Cubist is going to have to become more than a one-trick pony. The company has been riding its core drug Cubicin since 2003, when it created a buzz by becoming one of the first really new antibiotics to hit the market in years. It also had a very different mechanism of action than the standard therapies. To this day, Eli Lilly (NYSE:LLY) probably regrets giving up on the drug and selling it to Cubist.
Cubicin clearly is the company’s workhorse. During the second quarter of the year, sales of the drug accounted for almost all the company’s revenue. Sales of the product in the U.S. climbed 9% to more than $168 million; internationally, they rose 17% to nearly $8 million.
The company had other positive developments during the quarter. For one, Cubist entered into a two-year agreement with Optimer Pharmaceuticals (NASDAQ:OPTR) to co-promote Optimer’s fidaxomicin in the U.S. to treat a type of diarrhea.
Another piece of good news was the company’s favorable settlement of a patent dispute with Teva (NASDAQ:TEVA), which was trying to market a generic version of Cubicin. Under the terms of the agreement, Teva has to wait until December 2017 before it can start selling the copy, a year later if Cubist gets approval for Cubicin for pediatrics.
But Cubist desperately needs more products, and on that front, the company seems to be making progress. It’s received positive top-line results from recently completed Phase II studies of its two antibiotic pipeline candidates. One is for treating complicated intra-abdominal infections in adults; the company plans to initiate Phase III for the drug by year’s end. The other drug is for treating severe and sometimes life-threatening diarrhea, and Cubist plans to make a decision in several months whether to put this compound into Phase III studies.
The company also might appeal to investors because it’s been mentioned as a takeover candidate, with Shire (NASDAQ:SHPGY) the likely suitor.
Barry Cohen does not own shares of any of the aforementioned companies.
