Cubist Pharmaceuticals, Inc. (CBST)

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Cubist (CBST) Proprietary Antibiotics Netting $500 Million Annually And Is Forecasted To Grow, According To Industry Analyst

On Tuesday April 6, 2010, 2:13 pm EDT
67 WALL STREET, New York - April 6, 2010 - The Wall Street Transcript has just published its Biotechnology & Pharmaceuticals Report offering a timely review of the sector to serious investors and industry executives. This Special Feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling [phone] or via The Wall Street Transcript Online.

Topics covered: Clinical, Financial & Regulatory Risks To Drug Development - Easing Capital Markets - Managing Inherent Volatility - FDA Approval Process - Small- & Mid-Cap M&A Rally - Basket Investment Approach - Impact Of Health Care Reform - Therapeutic Cardiovascular Plays - Investable Trend In Antibody Technology

Companies include: Genentech/Roche (RHHBY); Medivation (MDVN); Seattle Genetics (SGEN); AEterna Zentaris (AEZS); Abbott (ABT); Alexion (ALXN); Amgen (AMGN); Antares Pharmaceuticals (AIS); Ardea (RDEA); Astellas (4503); AstraZeneca (AZN); Auxilium (AUXL); Biogen (BIIB); CardioGenics (CHNG); Celera (CRA); Celgene (CELG); Celldex (CLDX); Corcept (CORT); and many more.

In the following brief excerpt from this Biotech and Pharmaceutical Special Report, industry experts discuss the outlook for the sector for investors.

Dr. Jason Kantor, Ph.D., joined RBC Capital Markets in 2005 as a Managing Director and Senior Biotechnology Equity Research Analyst. In 2004 Fortune magazine ranked Dr. Kantor as an "All-Star Analyst," and The Wall Street Journal ranked him second in its "Best on the Street" survey. Dr. Kantor received his B.A. cum laude in biology from the University of California, San Diego, and his Ph.D. in cell and developmental biology from Harvard University.

TWST: You mentioned the small- and mid-cap M And A rally. Would you talk about that for a minute?

Dr. Kantor: What I mean by that is in 2009 we saw Medarex and Genentech (DNA) taken out; we've already seen OSI Pharmaceuticals (OSIP) in play in the past weeks, and we've seen Facet (FACT), which was originally a target for Biogen (BIIB), ultimately getting taken out by Abbott (ABT) at a significant premium to where the Biogen deal was proposed. What we are seeing is a number of small- to mid-cap companies and, in some cases, large companies that are the targets of acquisition. Whenever that's the case and whenever you see companies paying 40%, 50%, 60% or more premium, you begin to see the other companies with similar profiles reflecting increased valuation.

TWST: Tell us about Pharmacyclics. What is your view on that company?

Dr. Kantor: Pharmacyclics (PCYC) is kind of a comeback story. It had been left for dead for a long time and it's really a remake. What I mean by that is its lead program, several years back, failed at the FDA. The company had acquired some preclinical early-stage projects from Celera (CRA) and has been diligently moving those forward. And it was not until late in 2009, at the American Society of Hematology meeting, where we saw the first clinical data for two of their drugs. The data in two different hard-to-treat lymphoma studies for two different drugs was actually quite impressive, and essentially put the company and the stock back on people's radar screen. And you can see the stock performance has been quite remarkable over the period from fall 2009 to today.

TWST: You mentioned OSI Pharma. Why is that company getting so much attention right now?

Dr. Kantor: There was an unsolicited hostile bid by Astellas (4503) to acquire the company for $52 a share, which was a significant premium to where the stock closed in the high $30s prior to that bid. That's the reason that OSI is in the news today. And the question is whether or not there will be another company bidding higher, or whether or not Astellas will need to raise their bid. Obviously with the stock trading in the high $50s, the overwhelming sentiment of investors is that OSI will get taken out at a higher price than $52 proposed in the unsolicited bid.

TWST: What about Celgene? What's happening with them?

Dr. Kantor: We highlighted Celgene (CELG) as our best idea, big-cap name for 2010. It is one of the top-growth stocks in biotech. It has a high p/e multiple, so it's certainly not without risk. But what's driving it here is the expansion globally of its multiple myeloma franchise and specifically REVLIMID. And what I like about it and what other folks like about it is the longevity of that growth curve. What I mean by that is there are significant new markets both geographically as well as in new disease indications for REVLIMID to enter over the next several years, such that we have good visibility on long-term, double-digit top-line growth. We also have very high margins in Celgene and in fact improving margins with product mix and geographic mix.

TWST: What about ImmunoGen?

Dr. Kantor: ImmunoGen (IMGN) is one of the few pure-play antibody technology companies, and this has been one of the very fruitful areas of M And A and deal-making that we've seen. For example, Genentech and Medarex, both antibody companies, Facet is another antibody company, and there are actually only a handful of remaining pure-play antibody companies. There is also a technology platform that's becoming very highly validated, called antibody-drug conjugation. This technology space is essentially controlled by an even smaller group of companies, including ImmunoGen and another one that I cover, Seattle Genetics (SGEN). There is scarcity value, that's one of the reasons we like ImmunoGen. The other reason of course is their lead program with Genentech/Roche (RHHBY) called T-DM1, which is a new drug for the treatment of breast cancer that has had some very exciting data and for which we expect Roche will file an NDA in the first half of 2010.

TWST: Who are your top picks right now and why?

Dr. Kantor: Our 2010 pick on the large-cap side is Celgene and on the small- to mid-cap side is Seattle Genetics, another pure-play antibody company with a deep pipeline of proprietary and partnered antibodies. And then I would add to that list, if you have a slightly longer time horizon, Cubist (CBST), which has proprietary antibiotics, which they sell directly with over $500 million in annual sales and growing. And we view this as the value play based on its low price-to-sales ratio.

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