CBST Beats on EPS, Misses on Sales - Analyst Blog

Cubist Pharmaceuticals Inc's (CBST) fourth quarter 2010 earnings (excluding special items but including stock-based compensation expense) of 42 cents per share surpassed the Zacks Consensus Estimate by 23.5% but fell short of the year-ago earnings by 30%.  On a reported basis (including special items), the company earned 24 cents per share as against 38 cents in the year-ago quarter.

Revenue in the reported quarter slipped 3% to $161.8 million. Revenues, though in line with the recently announced preliminary sales, were short of the Zacks Consensus Estimate of $164 million. Revenues at Cubist were hurt in the reported quarter by the absence of service revenues pertaining to Cubist's marketing agreement with AstraZeneca plc (AZN) involving AstraZeneca's antibiotic Merrem. The deal concluded in June last year.

Net revenues from US sales rose 4.8% to $154.9 million in the reported quarter. Net product revenues from international sales jumped 29.7% to $6.3 million in the fourth quarter of 2010. Cubicin is approved in the US and several other markets for treating severe bacterial infections of the skin and bloodstream.

In 2010, Cubist earned (excluding special items but including stock-based compensation expense) $2.20 per share surpassing the year-ago earnings by 10% and the Zacks Consensus Estimate by 37.5%. Annual earnings were driven by higher Cubicin sales. On a reported basis (including special items), the company earned $1.55 as against $1.36 in 2009.

Revenues in 2010 climbed 13.2% to $636.4 million. Full year revenues were helped by increases in US (up 14.4%) as well as international revenues (up 84%).  2010 revenues also included $8.5 million in service revenues pertaining to Cubist's agreement with AstraZeneca. Annual revenues were short of the Zacks Consensus Revenue Estimate of $638 million.

Pipeline Update

In addition to posting financial results, Cubist presented an update on its pipeline. Enrollment in a mid-stage study with CXA-201 for complicated intra-abdominal infections (cIAI) is currently underway. The study, which should enroll 120 patients, is expected to be completed in the second half of the year.

Cubist intends to start late-stage studies of the candidate in patients suffering from complicated urinary tract infection (cUTI) and cIAI by the end of the year. Moreover, enrollment is underway for an early-stage study in patients with epithelial lining fluid (ELF).  

The study is expected to provide headway regarding the design of registration trials evaluating CXA-201 in patients with nosocomial pneumonia (NP). Late stage studies for the indication are expected to start in 2012.

The other pipeline candidate at Cubist is CB-183,315, which is being developed for treating patients suffering from severe C.difficile-associated diarrhea. A mid-stage study for CB-183,315 is underway. The company expects to report data from the study in the second half of the year.

Our Take & Recommendation

The softness in Cubicin sales, which accounts for the bulk of the company's revenues, bothers us. We are concerned about the unabated cost pressure on branded drugs in hospitals and the chances of it persisting through 2011. Moreover, the pending litigation with Teva Pharmaceutical Industries Ltd (TEVA), which is seeking to launch a generic version of Cubicin, is also a matter of great concern.

The ongoing litigation with Teva poses a significant threat to the Cubicin franchise and could be a source of overhang on Cubist's shares in the foreseeable future. Moreover, the competition confronting Cubicin is another challenge for the company. Cubicin faces competition from Pfizer's (PFE) Zyvox and Tygacil, and Theravance's (THRX) Vibativ.

These concerns cause us to place an ‘Underperform' recommendation on Cubist, which is supported by the Zacks #4 Rank (short-term ‘Sell' rating) assigned to the company.

 
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