Why Maverick opens new position in Cubist Pharmaceuticals

Smita Nair

Overview: Maverick Capital's 1Q14 positions (Part 4 of 7)

(Continued from Part 3)

Maverick Capital and Cubist Pharmaceuticals

Lee Ainslie’s Maverick Capital started new positions in Ashland Inc. (ASH), 21st Century Fox (FOXA), Cubist Pharmaceuticals Inc. (CBST), and Ctrip.com International (CTRP). Top positions sold were eBay Inc. (EBAY) and Zoetis Inc. (ZTS).

Maverick Capital initiated a new position in Cubist Pharmaceuticals (CBST), which accounts for a 1.78% position in the fund’s 1Q portfolio.

Cubist is a biopharmaceutical company focused on the research, development, and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Its products and product candidates are used, or are being developed to be used, in hospitals and other acute care settings, including home infusion and hospital outpatient clinics.

The company has grown its pipeline via acquisitions. Last year, Cubist acquired Trius Therapeutics, and obtained rights to the late-stage product candidate tedizolid phosphate. In October, 2013, it acquired Optimer Pharmaceuticals and gained rights to the marketed product, Dificid.

Cubist has a strong product portfolio and pipeline

Cubist derives most of its revenues from sales of its three products, namely Cubicin, Dificid, and Entereg in the U.S. Cubicin (daptomycin) is an antibacterial agent used (intravenously) to treat a wide variety of bacterial infections, including skin infections and infections of the blood. Total revenues for Cubicin were $966.7 million in 2013. Dificid is a macrolide antibiotic for the treatment of Clostridium difficile-associated diarrhea (or CDAD). The third product Entereg is an oral, peripherally-acting mu-opioid receptor antagonist for faster recovery of stomach and intestinal functions after a gastrointestinal (or GI) surgery.

The company said as of March 31, 2014, it has four product candidates that completed or are in Phase three clinical trials, three of which, assuming successful clinical trial results and regulatory approvals, could be used to treat hospitalized patients with serious infections. In March, Cubist said that U.S Food and Drug Administration (or FDA) voted to recommend approval of its investigational antibiotic Sivextro (tedizolid phosphate). The FDA found substantial evidence of the safety and effectiveness of Sivextro for the treatment of acute bacterial skin and skin structure infections (or ABSSSI). News reports noted that the FDA was positive about Durata Therapeutics’ (or DRTX) Dalbavancin, which is also used to treat acute bacterial skin infections.

In April, Cubist said it had submitted a New Drug Application (NDA) to the FDA for approval of its investigational antibiotic ceftolozane or tazobactam for the treatment of Complicated Urinary Tract Infections (or cUTI) and Complicated Intra-Abdominal Infections (or cIAI). The management said on the latest earnings call that, “We now have the potential for two promising antibiotic candidates to be approved in the U.S. this year.”

1Q results miss estimates, but revenues grew 14%

Cubist’s 1Q14 results missed estimates, but total net revenues were $261.2 million, up 14% compared to $229.9 million in 1Q13. The company noted in its 10Q filing that revenue grew “primarily due to the addition of Dificid to our product portfolio as a result of our acquisition of Optimer in October, 2013, and an increase of $10.2 million in net U.S. Cubicin product revenues.”

Generally Accepted Accounting Principles (or GAAP) diluted earnings per share (or EPS) was $0.30 compared to $0.09 in 1Q13. Non-GAAP diluted EPS was $0.10 compared to $0.34 in 1Q13.

Cubicin net product revenues increased 5% to $212.2 million from $202.0 million in 1Q13. Cubist noted that 1Q was its softest quarter due to the severe winter weather and Cubicin’s “lack of efficacy in pneumonia.” Entereg net product revenues were $13.9 million, up 24% compared to $11.2 million in 1Q13. Dificid net product revenues were $14.4 million, down from $16.6 million in the same period last year.

Cubicin revenue forecast at $1 billion for 2014

For 2014, Cubist expects revenues in the range of $1.19 billion to $1.275 billion. The company expects Cubicin to generate between $970 million and $1 billion in revenues this year. Revenues from Dificid and Entereg were forecast in the range of $205–$235 million.

Continue to Part 5

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