A view of the Merck & Co. campus in Linden, N.J.Jeff Zelevansky/Reuters
Merck & Co. has agreed to buy Cubist Pharmaceuticals Inc. for $8.4-billion (U.S.) in cash to add products to help fight the growing threat of drug-resistant bacteria.
Merck will begin a $102-a-share tender offer for Cubist, the companies said in a statement Monday. The price is 37 per cent above Cubist's closing level on Dec. 5. Including net debt, the deal is valued at about $9.5-billion.
Chief executive officer Ken Frazier said the deal will add to Merck's line of drugs used in hospitals, one of four areas of strategic focus the drug maker announced last year. "We will continue to look at our portfolio to bolster those areas where we can have leadership and market growth, and to divest those things that have better opportunities outside our business," Frazier said on a conference call discussing the deal.
Cubist has said it plans to introduce four new drugs by 2020 to combat bacterial infections that are resistant to other treatments because of overuse. The rising threat of drug– resistant bugs has spurred public health authorities to urge companies to invest in new antibiotics, a field drug makers had largely abandoned to focus on more profitable therapeutic areas such as cancer or hepatitis C.
Frazier said the deal got started over a dinner with Cubist CEO Michael W. Bonney in New York. "Mike and I both started with a conversation about how important these societal assets are," Frazier said in a telephone interview. "Because our companies are very much interested in this area of medicine which is critical for public health, we've always been able to have good conversations about our respective companies."
CEO Change
Cubist ran a comprehensive process and had other bidders, said Robert Perez, Cubist's president and chief operating officer, who is scheduled to succeed Bonney as chief executive officer on Jan. 1. Bonney has been CEO since June 2003.
"There was interest from other companies," Perez said by telephone. He declined to say how many bidders Cubist had or who they were.
Cubist surged 35 per cent to $100.69 at 2:45 p.m. New York time. Merck rose less than 1 per cent to $61.77.
Perez may only be CEO for a month or two, as the companies said they expect to close the deal in the first quarter.
"There's nothing I would've loved more than to have the privilege of leading this company moving forward, but this is the right deal for the patients," he said.
Perez declined to say what he would do next, saying he was focused on completing the deal.
No Megadeals
Merck's Frazier, 59, has previously said the second-biggest U.S. drug maker was trying to make small- to mid-size acquisitions in areas that would complement its stable of treatments. The company wasn't interested in megadeals that are "very time consuming and distracting to what we're here to do, which is invest in new medicines," Frazier told Bloomberg News in July. Along with drugs used in hospitals, Merck is focusing on vaccines, cancer and diabetes.
Merck had cash and equivalents of $14.3-billion at the end of September and total debt of $27.8-billion, according to data compiled by Bloomberg.
Cubicin, Cubist's top drug, was approved in 2003 by the U.S. Food and Drug Administration for serious skin infections. Its use was expanded in 2006 to include bloodstream infections. Cubicin generates more than 80 per cent of Cubist's sales, which the Lexington, Massachusetts-based company has forecast will reach $2-billion by 2017.
Complementary Programs
Cubist's products may complement Merck's own infectious disease program. One of its experimental drugs, called relebactam, received fast-track status from the FDA in September, meaning the agency will accelerate the approval process. Relebactam works by inhibiting beta-lactamase, an enzyme produced by some bacteria that can cause resistance to widely used antibiotics, including penicillin.
"We have a great deal of interest in Cubist's science," Frazier said in Monday's interview. "Of course this deal also provides us with attractive in-line products that we can leverage, given our own hospital acute-care portfolio and commercial position around the world."
Relebactam also received designation as a Qualified Infectious Disease Product, which would give it five extra years of market exclusivity when approved.
Bacterial Targets
Merck also has an antibody targeting Clostridium difficile in a final-stage trial. Cubist already had a drug approved that works against the bacteria, which cause infectious diarrhea.
The U.S. Centers for Disease Control and Prevention has said antibiotic resistance is killing at least 23,000 Americans a year, making it "one of our most serious health threats."
The deal comes with a $250-million breakup fee, according to Merck. Bankers from JPMorgan Chase & Co. and Deutsche Bank AG advised Merck, which received legal advice from Hughes Hubbard & Reed and Baker & McKenzie. Morgan Stanley and Goldman Sachs Group Inc. advised Cubist, and Ropes & Gray served as its legal adviser.