Cubist Pharmaceuticals Inc. (CBST) filed Quarterly Report for the period ended 2009-09-30.
Cubist Pharmaceuticals Inc. is a biopharmaceutical company focused on the research development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. In the U.S. Cubist markets CUBICIN the first antibiotic in a new class of antiinfectives called lipopeptides. The Cubist product pipeline includes our lipopeptide program and our natural products screening program. Cubist is headquartered in Lexington MA. Cubist Pharmaceuticals Inc. has a market cap of $980.8 million; its shares were traded at around $16.98 with a P/E ratio of 10.5 and P/S ratio of 2.3.
Highlight of Business Operations:
We had a total of $519.8 million in cash and cash equivalents and investments as of September 30, 2009, as compared to $417.9 million as of December 31, 2008. Our net income for the three months ended September 30, 2009, was $25.4 million, or $0.44 and $0.42 per basic and diluted share, respectively. Our net income for the three months ended September 30, 2008, was $25.0 million, or $0.44 per basic and diluted share.
Our net income for the nine months ended September 30, 2009, was $56.9 million, or $0.99 and $0.98 per basic and diluted share, respectively. Our net income for the nine months ended September 30, 2008, was $33.4 million, or $0.59 and $0.58 per basic and diluted share, respectively. As of September 30, 2009, we had an accumulated deficit of $261.6 million.
MERREM I.V. In July 2008, we entered into an exclusive agreement with AstraZeneca to promote and provide other support in the U.S. for MERREM I.V., an established (carbapenem class) I.V. antibiotic. Under the agreement, we promote and support MERREM I.V. using our existing U.S. acute care sales and medical affairs organizations. AstraZeneca will continue to provide marketing and commercial support for MERREM I.V. We recognize revenues from this agreement as service revenues. The agreement establishes a baseline annual payment by AstraZeneca to us of $20.0 million, received in quarterly increments, to be adjusted up or down by a true-up payment or refund at the end of the year based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount, subject to a minimum annual payment of $6.0 million. We recognize revenues related to this agreement over each annual period of performance based on the minimum annual payment amount that we can receive under the agreement with AstraZeneca. We assess the amount of revenue we recognize at the end of each quarterly period to reflect our actual performance against the annual baseline sales amount that could not be subject to adjustment based on future quarter performance. Amounts received in excess of revenue recognized are included in deferred revenues. We are also entitled to earn a percentage of the gross profit on sales exceeding the annual baseline sales amount. The revenue for any such sales over the baseline amount will be recognized upon Cubist’s receipt of an annual report from AstraZeneca, which is expected to be received annually one quarter in arrears. Service revenues from MERREM I.V. of $1.5 million and $9.0 million for the three and nine months ended September 30, 2009, respectively, represent (i) the minimum payment amounts of $1.5 million and $4.5 million that we are entitled for the three and nine months ended September 30, 2009, respectively, for 2009 performance, under the agreement with AstraZeneca; and (ii) a $4.5 million payment reflecting the percentage of gross profit that we received during the first quarter for sales exceeding the 2008 annual baseline sales amount, which was recorded in the first quarter of 2009. We do not currently expect to achieve the full year 2009 annual baseline sales amount. As a result, we expect that service revenues related to 2009 U.S. sales of MERREM I.V. will be less than the $20.0 million baseline annual payment. Based on our 2009 sales expectations, we also do not expect to receive any gross profit percentage payment for 2009 sales in the first quarter of 2010. In addition, given anticipated market conditions for carbapenems and the potential impact of the June 2010 expiration of the composition of matter patent for MERREM I.V. in the U.S., we are currently working with AstraZeneca to determine the baseline sales amount for 2010, or a shorter agreed upon period. However, we cannot assure you that we will be able to reach an agreement with AstraZeneca on the baseline sales amount, which may result in early termination of the agreement.
Cubist’s net revenues from sales of CUBICIN, which consists of U.S. product revenues, net, and international product revenues, were $141.6 million in the three months ended September 30, 2009, and $110.6 million in the three months ended September 30, 2008, an increase of $31.0 million, or 28%. Gross U.S. revenues from sales of CUBICIN totaled $150.9 million and $116.3 million for the three months ended September 30, 2009 and 2008, respectively. The $34.7 million increase in gross U.S. revenues was primarily due to increased vial sales of CUBICIN in the U.S., which resulted in higher gross revenues of $24.8 million, as well as price increases for CUBICIN in October 2008 and June 2009, which resulted in $9.9 million of additional gross U.S. revenues. Gross U.S. product revenues are offset by allowances for sales returns, Medicaid rebates, chargebacks, discounts and wholesaler management fees of $13.2 million and $7.1 million for the three months ended September 30, 2009 and 2008, respectively. The increase in allowances against gross product revenue was primarily driven by increases in chargebacks and Medicaid rebates due to increased U.S. sales of CUBICIN, as well as the price increases described above. International product revenues of $3.9 million and $1.4 million for the three months ended September 30, 2009 and 2008, respectively, consisted primarily of CUBICIN product sales to, and royalty payments based on CUBICIN net sales in the EU from, Novartis AG, or Novartis, our EU partner for CUBICIN.
Total research and development expense in the three months ended September 30, 2009, was $35.5 million as compared to $28.6 million in the three months ended September 30, 2008, an increase of $6.9 million, or 24%. The increase in research and development expenses was due primarily to (i) an increase of $5.4 million in clinical trial expenses due to the higher number of studies that we are conducting; (ii) an increase of $2.3 million in collaboration expense primarily related to our agreement with Alnylam; and (iii) an increase of $1.4 million in salaries and other employee benefits due to an increase in headcount. These increases were offset by a $2.8 million decrease in process development expenses.
Interest expense in the three months ended September 30, 2009, was $5.3 million as compared to $5.0 million in the three months ended September 30, 2008, an increase of $0.3 million, or 6%. In January 2009, we adopted accounting guidance for convertible debt with a cash conversion option. This accounting guidance required us to adjust prior periods as if it had been in effect in prior periods. Interest expense for the three months ended September 30, 2009 and 2008, included $3.3 million and $3.1 million, respectively, of interest expense relating to the amortization of a debt discount as a result of the application of the accounting standard. The adoption of this standard is discussed in Note F., “Debt,” in the accompanying notes to the condensed consolidated financial statements.
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