Merck's CEO Doesn't Think That Valuations In The Biotech Industry Are 'Rich'

Merck & Co., Inc. (NYSE: MRK) announced that it has agreed to acquire Cubist Pharmaceuticals Inc (NASDAQ: CBST) for $9.5 billion. Although the deal and the price is great source of joy for Cubist shareholders, the same cannot be said for Merck shareholders as some analysts on the Streets are questioning the excessive premium that Merck is going to pay for the deal.

 CNBC's Meg Tirrell recently reported on the valuation of the deal and patent challenges Merck may face if the deal goes through.

“[…] That’s one thing analysts are looking at now, they are now saying that the price that Merck is paying for Cubist indicates that it's paying a lot for its pipeline. They have been noting that there are some potential patent challenges to its $1 billion antibiotic, Cubicin, and so they are really looking for more pipeline readouts and more information about the pipeline assets to see whether Merck overpaid here,” Tirrell said.

“I did speak with Ken Frazier the CEO of Merck on phone just now and we talked about valuations in biotech. He said he doesn’t necessarily see them as rich, even though we have seen this incredible run up in the NASDAQ biotech index over the last couple of years. He thinks really it’s a reflection of the optimism of the medical innovation that’s happening right now, optimism in the market that companies are really bringing forward new innovative products and he says this is a good example of that.”