Merck to buy Cubist Pharmaceuticals (CBST) for $7 Billion

Merck & Co. (MRK:US) is in talks to acquire Cubist Pharmaceuticals Inc. (CBST:US), a maker of antibiotics, in a deal valued at more than $7 billion, a person familiar with the matter said.

Merck would pay about $100 a share, and an agreement could be announced as early as next week, the person said. An offer in that range would represent a 34 percent premium over Cubist’s closing share price yesterday.

Cubist (CBST) - monthly chart

MRK - monthly chart

Cubist has said it plans to introduce four new drugs by 2020 to combat bacterial infections that are resistant to other treatments because of overuse. The rising threat of drug-resistant bugs has spurred public health authorities to urge companies to invest in new antibiotics, a field drugmakers had largely abandoned to focus on more profitable therapeutic areas such as cancer or hepatitis C.

Merck Chief Executive Officer Ken Frazier, 59, has said the second-biggest U.S. drugmaker was trying to make small- to midsize acquisitions (MRK:US) in areas that would complement its stable of treatments. The company wasn’t interested in megadeals that are “very time consuming and distracting to what we’re here to do, which is invest in new medicines,” Frazier told Bloomberg News in July.

Merck Chief Executive Officer Ken Frazier 

Steve Cragle, a spokesman for Whitehouse Station, New Jersey-based Merck, and Julie DiCarlo, a Cubist spokeswoman, didn’t respond to requests for comment.

Merck had cash (MRK:US) and equivalents of $14.3 billion at the end of September and total debt of $27.8 billion, according to data compiled by Bloomberg.

Best-Selling Drug

Cubicin, Cubist’s top drug, was approved in 2003 by the U.S. Food and Drug Administration for serious skin infections. Its use was expanded in 2006 to include bloodstream infections. Cubicin generates more than 80 percent of Cubist’s sales (CBST:US), which the Lexington, Massachusetts-based company has forecast will reach $2 billion by 2017.

Cubist’s products may complement Merck’s own infectious disease program. One of its experimental drugs, called relebactam, received fast-track status from the FDA in September, meaning the agency will accelerate the approval process. Relebactam works by inhibiting beta-lactamase, an enzyme produced by some bacteria that can cause resistance to widely used antibiotics, including penicillin.

Relebactam also received designation as a Qualified Infectious Disease Product, which would give it five extra years of market exclusivity when approved.