Mizuho Securities Downgrades Cubist Pharmaceuticals Post Acquisition Announcement

Mizuho Securities downgraded Cubist Pharmaceuticals Inc (NASDAQ: CBST) Tuesday from Buy to Neutral and raised its price target from $97 to $102.

Analyst Mario Corso noted that after the "market close [Monday] 4 of 5 Cubicin patents were invalidated via court decision, making generics possible in mid-2016, we do not expect this to derail the [Merck & Co., Inc. (NYSE: MRK)] transaction given that this likelihood was considered in the offer, although not excluding the possibility that terms could be altered.”

“Merck announced it is acquiring CBST for $102/share in cash, valuing the company at $8.4bn or $9.5bn including $1.1bn in net debt. MRK is interested in revenue growth opportunities in the acute care/hospital, as well as adding to its pipeline of antibacterial agents that can be leveraged on a worldwide basis,” according to Corso.

The analyst note concluded that “if we genercize Cubicin in June 2016 (which notably isn't the worse case scenario, it could have been immediate generics if all patents were invalidated), it reduces our DCF valuation by ~$10, as generics were previously set to begin mid-2018.”

Cubist Pharmaceuticals Inc recently traded at $96.29, down 4.28 percent.