Merck to take on superbugs with Cubist Pharma buy

Merck & Co Inc (MRK.N) said it would buy Cubist Pharmaceuticals Inc (CBST.O) for $8.4 billion plus assumption of debt, giving the major drugmaker an entry into the market for drugs that combat so-called superbugs.

The deal is the latest sign that large pharmaceutical companies are turning their attention back to antibiotics after decades of low investment.

The spread of superbugs that evade even the most powerful antibiotics threatens modern medicine, the World Health Organization said in April, warning of "a post-antibiotic era" in which common infections were killers once again.

The U.S. Centers for Disease Control and Prevention estimated last year that more than 2 million people in the United States are sickened every year by superbug infections, with at least 23,000 dying as a result.

Merck said on Monday that the deal, which will give it access to Cubist's antibiotic Cubicin, is expected to add more than $1 billion to revenue in 2015 after closing in the first quarter, but will be neutral to non-GAAP earnings per share until 2016.

Cubist's third-quarter sales rose 16 percent, driven by strong sales of Cubicin.

The company's lead drug in development, Ceftolozane/Tazobactam, is widely expected to win marketing approval from the U.S. Food and Drug Administration later this month as a treatment for complicated urinary tract infections.

Merck will pay $102 per share for Cubist, a premium of 37 percent to the Lexington, Massachussetts-based company's closing share price of $74.36 on Friday.

The deal includes assumption of $1.1 billion in debt.

"Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late-stage pipeline medicines," Merck CEO Kenneth Frazier said in a statement.

"Combining this expertise with Merck's strong capabilities and global reach will enable us to create a stronger position in hospital acute care while addressing critical areas of unmet medical need, such as antibiotic resistance."

Merck has said it is focusing on acute care within hospitals - considered a hotbed for superbug infections such as bacterial pneumonia - as a top priority.

Many drugmakers have cut investment in the past because antibiotics are typically low-priced and used for only short periods, generating poor returns. That has fueled demands for a rethink of the antibiotic market model.

It has also left Cubist as a leading investor in the field, with an annual research budget for antibiotics of $400 million.

More recently, however, there have been signs of a revival, with Roche Holding AG (ROG.VX), GlaxoSmithKline Plc (GSK.L) and Sanofi SA (SASY.PA) all investing in new approaches to fight superbugs.

Cubist shares were trading at $101.04 premarket. Merck shares were unchanged from Friday's close at $61.50.

The New York Times, citing people briefed on the matter, first reported the deal on Friday.

The Cubist deal is Merck's second big acquisition this year. The company bought Idenix Pharmaceuticals for $3.85 billion in June to boost its hepatitis C drug portfolio.

Reuters