Cubist Pharmaceuticals, Inc. (NASDAQ:CBST)

Must own in pharma area and possible takeover

Clear takeover target for big pharma

Cubist is a tasty treat at this price. I missed an opportunity to pick them up below 30 in the depths of the recent decline - I imagine I was saving a few stocks for a deeper dip. Now that I've had time to make a more measured assessment, I see the stock as having all the ingredients for a successful mid-cap biotech/pharma outperform pick.

1. Growing revenues. Sequential quarterly numbers of 161M, 163M, and most recently 177M. Yes, all the revenues come from a single drug. But sales have been steadily growing for years and there's no generic until 2018. Cubicin was also recently approved in Japan which might give some juice to the top line.

2. Strong pipeline. Novel anti-pseudomonal cephalosporin CXA-201 has moved into phase III trials in UTI and will soon do the same with intra-abdominal infections. The company reported encouraging phase II data for c.diff antibiotic CB-183,215 in June but has not yet decided if and when to progress this candidate to a phase III trial.

3. Share price significantly off of recent highs. The share price was over 38 in June. There's only one thing bringing the stock down, and that's broad market uncertainty. When fund managers liquidate a speculative position because they can't remember what that ticker stood for, it's an opportunity for sector-focused traders to come in and pull the babies from the bathwater.

Comically simple speculation approach - buying the rumor, hoping to sell the news. I like Cubist a lot, but I'll hit the high points.

*Rumored offer by Shire is probably legit, and will stir up BD execs at many other companies to take a peek. Confusingly, the articles all say the private offer was $44.5/share, or $2B, but with just shy of 60M shares outstanding it seems like that would be more in the $2.7B range. Current cap is $2.28B. A takeunder seems very unlikely, although they could be backing out CBST's debt when they cite the $2B figure, but with a big chunk of assets on their balance sheet as well I'm guessing the $2B is off substantially.

*Cubicin offers a way to buy revenues over a stretch of time when many companies will have a gap due to the patent cliff (cubicin IP expires mid-2016).

*Lots of upside to this company, including a seasoned ID sales force, some interesting pipeline products, and profitability.

MFI + highly rated on CAPS

Some great buzz about this company right now. Good clinicals taking place, nice earnings and some great growth potential. I like this for the long term...

cubisin is the only effective antibiotic that fights MERSA which is a major problem in hospitals. Cubist holds the patent and will win a challenge soon against TEVA who is making a generic. Winning the suit will send cbst much higher for a long time. It will also be a takover target.

MP(sp)

We think the current $20.15 is a good entry point for this stock, as we noted over the weekend in a post on our blogsite.
http://waxink.blogspot.com/2010/05/cubist-pharmaceutical-acutely-aware.html

From my ValueGrowth screen

good

Inexpensive and managements expansion plans seem bullish.

A knock out drug with only a lawsuit stopping a buyout at a higher price

Boomers are getting older ,generics are cheaper and Obama"s health plan.

It seemed like a good idea at the time, but now I don't know why. Anything Cuban should do well? Right??? :)

40% profit margins, 80% ROE. Reasonable cash/debt ratio. Good pipeline, good partners, good revenue, good products.

Quality rises to the top. You get what you pay for.
End of 2009 should be at least 40-50% higher than today!

Only one of a handful of pharma companies focused on developing treatments for infectious diseases.

Here’s another pitch I wanted to write about a smaller drug manufacturer by the name of Cubist Pharmaceuticals. I predicted Vertex Pharmaceuticals would do well back early this year and they are up almost 50% since I recommended them back in January. Now onto Cubist Pharmaceuticals. They are a smaller company with one marketable drug and another important drug (DX-88, which they say has a market potential of $500 million) going through to its 2nd phase 2 testing. This prediction is based on a few things, mostly from management’s tendency to low-ball earnings (or just do really well when they thought they wouldn’t).

The company’s big drug is Cubicin, an antibiotic for fighting MRSA, which was once solely a hospital insulated disease. Now that it has leaked out of hospitals and into the environment (epidemic is the term used by doctors), there seems to be growing demand for the number 1 drug.

Last quarter the company reported EPS .31-basic and .26-diluted on 88.3 million in revenue. Now here comes the interesting analysis. The company said that they projected revenue for the this year at 380-395 million in the U.S. and about 6.5 million abroad (Year over year (total) revenue growth of 28.48-34.1%, which in itself is strange because from 06’-07’ (total) revenue growth was 51.3%). Anyhow, the company’s 1st quarter earnings accounted for 20.2 and 20.6% in 06’ and 07’ respectively. Now, in the 1st quarter of 08’, the company’s earnings account for 22.84% of this year’s projected earnings (It accounted for 12% more revenue than it has over the past 2 1st quarters). This might get confusing but stick with it…so year over year revenue growth for the 1st quarter only from 06’-07’ was 48.4% while 07’-08’ was 47.8%. This starts to show that the company could exceed earnings this year and that the 12% more revenue than expected for the 1st quarter is actually what the company should have been predicting.

Now, if we apply that 12% premium to the low end of the year end projection, we get revenues of 432 million, completely beating the company’s estimate as well as Wall Street’s (avg. of 400.37 million). This is further solidified by the fact that MSRA is becoming an epidemic and that demand will not slow down.

If you take our new number of 432 million in revenue and get the net income by using the company’s projected COGS, SG&A and other expenses…you get a net income of 81.3 million, a close to 100% increase in net income from FY07. Using the company’s 2% increase in shares outstanding year over year (for this year it should be around 56.81 million), we come to a full year basic EPS of $1.43. Multiply that by MSN’s analysts’ forward P/E estimate of 16.20 (which even seems on the low end)…you arrive at a year end price target of $23.17 for a 21.6% return from today’s closing price. Using the current P/E would give you a price target of $27 for a return of 41.7% [these numbers are on the low end and are the safest, but I believe in a price target of over $30] ...sounds like a good deal to me…I’m setting a 1 year outperform rating and will most likely invest 20 shares now at $19.05 and another $20 on any dip below $18.75-$18.50, especially going into earnings next month…hope this helps…

This company make a drung called Daptomyocin. The drug is affective against MRSA and is used internationally for skin infections and bactermia. In many ways ths drug is a heavy hitting antiboitic used has last line of defense in the hospital setting. The drug is last line because it is theorized that gram positive bacterium like MRSA should be able to evolve quickly to be 100% drug resistant.

Further this company continues to be late with deliveries to hosptials nationwide. That combined with several recent questionable buys of small biotech firms makes this stock a underpreform for the short term and potentially the long term.