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Cubist Pharmaceuticals, Inc. (NASDAQ:CBST)

July 30, 2013 6:00 pm ET

Executives

Eileen C. McIntyre - Vice President of Investor Relations

Michael W. Bonney - Chief Executive Officer and Director

Robert J. Perez - President and Chief Operating Officer

Michael John Tomsicek - Chief Financial Officer and Senior Vice President

Steven C. Gilman - Chief Scientific Officer and Executive Vice President of Research & Development

Analysts

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Matthew Harrison - UBS Investment Bank, Research Division

Steve Byrne - BofA Merrill Lynch, Research Division

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

Ken Cacciatore - Cowen and Company, LLC, Research Division

Eun K. Yang - Jefferies LLC, Research Division

Alan Carr - Needham & Company, LLC, Research Division

Howard Liang - Leerink Swann LLC, Research Division

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

James F. Molloy - Janney Montgomery Scott LLC, Research Division

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

Ritu Baral - Canaccord Genuity, Research Division

Operator

Good day. My name is Teresa, and I will be your event manager today. At this time, I would like to welcome everyone to the Cubist Pharmaceuticals Planned Acquisitions of Trius Therapeutics and Optimer Pharmaceuticals Webinar. [Operator Instructions] And please note that today's web conference is being recorded. We will be taking questions over the phone at the end of today's presentation. [Operator Instructions] At this time, I would like to turn today's program over to your first presenter, Eileen McIntyre, Vice President of Investor Relations. Eileen, you may now begin.

Eileen C. McIntyre

Good evening. Thank you for joining us. Before we begin, let me read our Safe Harbor statement. Today's presentation includes forward-looking statements relating to our business and the proposed transactions with Trius and Optimer, including those set forth on this slide. We may also make forward-looking statements during the Q&A session following our prepared remarks. These statements are neither promises or guarantees and there a number of risks and uncertainties that could cause actual results to differ materially from those set forth in these forward-looking statements. These and other risk factors are further described in the Risk Factors section of Cubist's, Trius' and Optimer's most recent quarterly report on Form 10-Q filed with the SEC. Forward-looking statements are made as of today's date, and we do not undertake any obligation to update any forward-looking statements. We will also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Cubist's operating performance. Please refer to the slide being shown regarding our use of non-GAAP financial measures and the reconciliations between our non-GAAP financial measures and GAAP financial measures at the end of this presentation.

Speakers on today's call include: Cubist's Chief Executive Officer, Mike Bonney; Chief Operating Officer and President, Rob Perez; and Chief Financial Officer, Mike Tomsicek. Joining us for the Q&A portion of the call is Chief Scientific Officer, Steve Gilman.

And now I will turn the call over to Mike Bonney. Mike?

Michael W. Bonney

Thanks, Eileen. Good evening, and thank you for joining us. Earlier today, Cubist announced our planned acquisitions of both Trius Therapeutics and Optimer Pharmaceuticals. We see a compelling rationale for these transactions that are predicated on the strategic acceleration of Cubist's leadership in the discovery, development and commercialization of therapies for patients treated in acute care settings across the globe; the unique and complimentary nature of the assets from both companies; and the financially sound structure of the deals, which we expect, on a combined basis, to be accretive to earnings in 2015.

Before we go more deeply into the specifics, let me take a moment to articulate the context for these 2 planned acquisitions. As many of you know, Cubist's mission is to provide therapies for seriously ill patients treated in and around the hospital. We focus on therapies that are designed to deliver, not only safety and efficacy, but value by reducing the use of acute care resources, helping to get patients home sooner and helping to reduce the need for readmissions.

Consistent with this strategy, last year, Cubist announced our 5-year Building Blocks of Growth, setting out aggressive but achievable goals for 2017 including $2 billion in total annual revenue; 4 products in late-stage clinical development; $700 million in non-GAAP adjusted operating income. We also pledged at that time to continue to drive our highly differentiated culture at Cubist into the future. The assets and expertise we plan to acquire in Trius and Optimer simply stated our great fit with Cubist. We believe that in our hands, the approved therapy deficit, the late-stage antibiotic candidate, tedizolid phosphate, and the preclinical assets at Trius can all contribute meaningfully to our 2017 Building Blocks of Growth goals and continue to propel us for many years after that. We expect these assets will make an important contribution to top line and bottom line results between now and 2017.

In time, we see these combined assets growing to contribute $600 million to $1 billion in net revenue annually. And due to their strategic fit, they will strongly leverage Cubist's resources already in place or plan for our existing portfolio. Let me repeat, on a combined basis, assuming both transactions close, we expect these acquisitions to be accretive to Cubist's earnings in 2015.

Importantly, we also see these 2 organizations making meaningful contributions to the Cubist culture, while strengthening our talent pool and expertise as we continue to discover, develop and commercialize therapies for the dynamic acute care hospital environment.

Rob will now speak to the highly complimentary nature of these transactions to our current acute care portfolio. And Mike Tomsicek will speak to the sound financials behind the deals. Rob?

Robert J. Perez

Thanks, Mike. This is an important and exciting day for Cubist, for our shareholders and for patients. In essence, these acquisitions provide Cubist with additional complementary solutions for our acute care customers. They leverage our field-based hospital sales and medical teams currently in the U.S. and soon to be built in Europe, and may significantly accelerate our strategy of being the therapeutic leader in the acute care space.

Let me review the key drivers of value that we see in each of the planned acquisitions. I'll start with Trius. We have known the leadership of this organization for some time. Jeff Stein and the entire Trius team have demonstrated a commitment to scientific excellence and diligent development work. And, if successful, the redevelopment program, tedizolid, should be a very important addition to the global infectious disease armamentarium.

Tedizolid is a unique late-stage asset that is highly complementary to Cubist's portfolio. It is a once-daily, short-course IV, and importantly, orally-administered drug candidate in development for the potential treatment of certain Gram-positive infections including those caused by MRSA.

As Trius has previously announced, tedizolid recently met all primary and secondary endpoints in 2 Phase III clinical trials, studying patients with acute bacterial skin and skin structure infections. And we expect an NDA to be filed in the second half of 2013. Based on the accelerated FDA review cycle associated with its QIDP designation and assuming approval, we plan to launch tedizolid in the U.S. in late 2014.

Assuming final agreement with regulatory authorities, Trius expects to initiate a Phase III clinical program in hospital-acquired and ventilator-associated bacterial pneumonia caused by Gram-positive bacteria in the second half of 2013. We expect tedizolid to leverage our outstanding acute care commercial and medical organizations in the U.S., as we don't anticipate significant additions to our U.S. customer-facing organization to support its launch. Assuming approval, tedizolid should also enable us to accelerate our commercial buildout in Europe. We look forward to working with the Trius team to submit the MAA to the European Medicines Agency, which we expect to occur in the first half of 2014.

We also believe tedizolid's approval and launch in Europe can accelerate the potential launch of our late-stage antibiotic candidate for Gram-negative infections, ceftolozane/tazobactam. The acquisition of Trius will also give Cubist an additional international partner, Bayer, which has the rights to tedizolid in Asia, Africa, Latin America and most of the Middle East. Under the agreement with Bayer, upon completion of the acquisition, Cubist will be eligible for milestone payments for the achievement of certain development, regulatory and commercial milestones and will be entitled to receive double-digit royalties on annual net sales in the license territories. Bayer also agreed to cover 25% of the cost of developing tedizolid for pneumonia.

I'll spend a minute now on how we expect Cubist and tedizolid, if approved, will complement each other inside and outside the hospital. We believe CUBICIN and tedizolid will address different patient populations based on the severity and type of infection. Assuming an initial approval in skin, tedizolid, with its once-daily, IV, and oral forms of an administration and short-course duration, could be an attractive option for patients with less serious MRSA skin infection who would benefit from treatment options beyond vancomycin and linezolid. This contrasts with CUBICIN, which is an IV-only cyclic lipopeptide, and is generally used with sicker patients with more serious skin or bloodstream infections.

Ultimately, assuming a successful trial and approval for nosocomial pneumonia caused by Gram-positive bacteria, tedizolid will offer an alternative to both linezolid and vancomycin in lung infections where CUBICIN is not approved. The bottom line is that we believe tedizolid will offer an important option for patients with certain Gram-positive infections while well-tolerated, once-daily, short-course oral therapy would be beneficial. And we are very excited about adding it to the Cubist infectious disease portfolio.

Now, turning to the planned acquisition of Optimer. We obviously know Optimer and DIFICID quite well. Our U.S. sales organization has been co-promoting DIFICID with Optimer in U.S. hospitals for 2 years. And we anticipate a smooth integration of the product into the Cubist acute care franchise. DIFICID generated approximately $69 million in net revenue in the U.S. and Canada in the last 12 months. And it remains one of the most successful hospital antibiotic launches ever in dollar terms. DIFICID's differentiated profile makes it a very attractive asset in an important growing market with significant unmet need. We believe that Cubist's commercial and medical expertise and direction can help DIFICID achieve its growth potential over it's long patented life.

DIFICID is the first antibacterial drug approved in more than 25 years to treat Clostridium difficile-associated diarrhea, or CDAD. Approved in May 2011, DIFICID has FDA-labeled superiority for sustained response versus oral vancomycin, a rarity in the antibiotic world and an established safety profile. To ensure that this important therapy has the commercial support it needs, we have reached an agreement with Optimer for an extension of the original co-promotion agreement to cover the period between now and when the acquisition closes. Optimer has out-licensed fidaxomicin to AstraZeneca for Latin America, and to Astellas for Europe, Japan and certain other countries in the Middle East and Africa. It is approved and marketed in Europe today under the trade name DIFICLIR, and Astella's pharma Europe began selling DIFICLIR in 2012.

We don't anticipate having to make substantial new investment to support DIFICID's growth in the U.S. but we do plan to add some enhancements to ensure we are maximizing its value. After the transaction closes, we expect to continue work that Optimer began by continuing their bone marrow transplant study. We also plan to continue to build robust health economics data by supporting ongoing Phase IV work, as well as other post marketing studies, that can help to reinforce the value of DIFICID to appropriate patient populations.

CDAD is a serious, often debilitating, disease associated with increased hospitalization and mortality. As a spore-forming bacteria, Clostridium difficile is a very difficult bug to eradicate. Recurrence of disease is a problem both for the patients, who had increased risk of dying, and for the health care system, which absorbs additional cost. Having multiple therapeutic options with different mechanisms of action to reduce these recurrence rates, we believe will be of tremendous benefit to patients and health care systems. As you know, Cubist has an oral antibiotic, surotomycin, now in Phase III studies, as a potential treatment for CDAD. Surotomycin and DIFICID are very different compounds with very different mechanisms of action. If surotomycin is approved, we believe seriously-ill patients will benefit from having another complementary option with a different mechanism of action for the treatment of CDAD.

In summary, we believe that DIFICID will provide Cubist with significant long-term growth potential and allow us to continue to offer our acute care customers the best possible alternatives to address significant unmet medical needs that exist in and outside the hospital.

Before Mike Tomsicek reviews the terms of this acquisition agreements, I'd like to pause to congratulate all involved within Cubist, as well as the Trius and Optimer organizations, for bringing us to this pivotal moment. Our announcement today reflects not only the tremendous value that has been built in each of our organizations but the professionalism, dedication and discipline with which these deals have been negotiated.

Now, over to Mike.

Michael John Tomsicek

Thanks, Rob. Let me add my endorsement both to the strategic fit and value of the transactions we are announcing today.

First, addressing Trius. Cubist has agreed to acquire all outstanding shares of the company for $13.50 per share or approximately $707 million. In addition to the upfront cash payment, each Trius shareholder will receive 1 non-tradable, contingent value right for each they own -- for each share they own. The CVR entitles the holder to receive an additional cash payment of up to $2 based on achieving certain milestones for 2016 net sales in the U.S., Canada and Europe. Specifically, the CVR will pay out $1 if these revenues reached $125 million and stepwise to a maximum of $2 if sales reach $135 million for 2016. These CVR milestones, if achieved, will benefit both Cubist and Trius shareholders. The total transaction is valued at up to $818 million and it has been approved by the Boards of Directors of both companies. This transaction is subject to regulatory review and other customary closing conditions, much of which we do not control. However, Cubist's objective is to close the acquisition by year end.

The success of this transaction is predicated on its strong strategic fit. We will be as disciplined around our investment in this program as we've always been but this transaction is about unlocking the growth opportunity we see for this drug. And we do intent invest in tedizolid to ensure we maximize that opportunity. We expect this transaction to be accretive to Cubist within the Building Blocks of Growth timeframe and for many years beyond.

Now, the Optimer agreement. Cubist has agreed to acquire all outstanding shares of the company for $10.75 per share in cash or approximately $535 million. In addition to the upfront cash payment, each Optimer stockholder will receive 1 publicly-traded contingent value right for each share they own. The CVR entitles the holder to receive an additional cash payment of up to $5 based on achieving certain milestones for the period from July 1, 2013 to December 31, 2015, for net sales in the U.S. and Canada. Specifically, the CVR will pay out $3 if these revenues exceed $250 million, $4 if these revenues exceed $275 million or $5 if sales exceed $300 million for that period.

I think it's important to note that if we hit these sales milestones, both Cubist and Optimer shareholders will benefit. The total transaction is valued at up to $801 million and it has been approved by the Boards of Directors for both companies. This transaction is also subject to shareholder approval, as well as regulatory review and other customary closing conditions, much of which we do not control. However, Cubist's objective is to close the acquisition by year end. Our co-promote agreement has been extended to cover the period through close, therefore, near-term commercial operations for DIFICID will remain unchanged. It is important to point out that Optimer has knowledge and expertise resident in its people that we believe would be quite valuable as Cubist grows. We would hope to bring this expertise to the Cubist organization. All the same, we fully expect the Optimer deal to be accretive to Cubist in its first year after close.

Referring now to both the deals. Cubist will pay for these transactions mostly with cash on hand but we will seek additional financing. We have been working closely with our banking partners to detail financing alternatives available to us, including the range of debt instruments. We will implement the alternative that is best for shareholders in a timeframe that makes sense for this transactions.

Now, back to Mike Bonney.

Michael W. Bonney

Thanks, Mike. A few years ago, the Infectious Disease Society of America issued a challenge to the industry and the public policymakers, demanding that we find a way to deliver at least 10 new antibiotics by the year 2020. Much has happened since the IDSA's 10 by 20 goals were published. Assuming the successful completion of the planned acquisitions we have announced today and the success of our combined late-stage pipeline, we would ultimately be responsible for 4 of these new antibiotic therapies by 2020. This would be a seminal global health achievement and would be extremely meaningful to all Cubist employees. And importantly, to the physicians and patients that experienced these tough-to-treat infections everyday.

Equally important, we believe our continued investment in the critical work of developing antibiotics for serious infections caused by multidrug resistant bacteria positions us as an expert voice with health care policymakers across the globe. With the planned acquisitions of Trius and Optimer, we believe that Cubist will have the opportunity to maximize the value of 2 unique assets, tedizolid and DIFICID, for the benefit of shareholders, patients and the physicians and health care institutions responsible for their care.

Assuming that each of these transactions is completed, this is what our product portfolio will look like in 2014. This translates for shareholders into strong top line and bottom line growth and an outstanding late-stage pipeline that we believe puts us on a course to achieve our Building Blocks of Growth and thrive well into the future beyond 2017.

Let me close our prepared remarks by highlighting how these deals represent the kind of strategic acceleration for Cubist that really drives shareholder value. These transactions are right in our wheelhouse, bringing us 1 antibiotic we know intimately and another in the Gram-positive space where we've been a pioneer over the past decade. Both products play straight into our views around the importance of delivering value in hospitals and across the health care environment as a whole. Tedizolid, if approved, and DIFICID, will each play roles we expect in accelerating our international profitability and should enhance our ability to build key relationships with key opinion leaders, payors, regulators and other critical stakeholders ahead of the launch, assuming approval of ceftolozane/tazobactam. And importantly, as we enter a powerful growth cycle for the company, they will bring us some expertise and capabilities that we would have had to build on our own for our late-stage pipeline candidates. Finally, I just want to add that each of these planned acquisitions is significant and valuable in its own right and we would be equally excited about doing either one by itself. The stars just happened to have aligned in such a way that we can do both. We are fortunate to have an excellent deep team here to execute on both transactions and ensure a seamless integration process.

We'll now open the line up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Adnan Butt with RBC Capital Markets.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

The first question is strategic is nature. What's the rationale for both at the same time versus one at a time? Did you see any competitive pressures in terms of closing these deals that you decided to undertake both? And the second question, what are your peak sales expectations for tedizolid and DIFICID? If you can give them by -- if you could give your expectations by drug and region, that would be very helpful.

Michael W. Bonney

Sure, Adnan. Clearly, these are assets that we know very well, in DIFICID and tedizolid, and it really, as I said, in the prepared remarks, the stars aligned so we're able to execute on both of them at the same time. That is -- I would like to take credit for being able to manage that but that was really a function of where each of those individual companies where and where we are at this point. At this point, in this announcement, we've said that the peak combined revenue of the 2 in the territories where we'll have these products are between $600 million and $1 billion annually. We're not going to start slicing things up by product or region at this stage.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Can you -- Mike, can you comment a bit on what level of R&D funding is required to support these programs at this time?

Michael W. Bonney

We won't. We will be providing a guidance, of course, in our -- as we typically do in our January year-end conference call, in January of 2014.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Okay. And finally, the plans to build out Europe are still in place?

Michael W. Bonney

Absolutely. They are still in place. Given the timeline that has been articulated for anticipated filing in the EU, it is likely to -- for tedizolid, it is likely that will precede our filing in the EU for ceftolozane/tazobactam and allows us, assuming that all goes well, to start the build in the European Union a bit sooner than we otherwise would have.

Operator

And your next question comes from the line of Matthew Harrison with UBS.

Matthew Harrison - UBS Investment Bank, Research Division

I wondered if you could be -- and I know you just answered the question around R&D spend, but I wondered if you could be somewhat more specific around what you're thinking in terms of investments. It sounds like we should expect incremental SG&A investments that are not that big and then you'll be funding or continuing to fund the lung studies for Trius, as well as the bone marrow study for Optimer. I mean, directionally -- and it sounds like I think you also made the comment that this should be accretive, the 2 deals together by 2015. I mean, should we think about that accretion as being something substantial where this -- just help us think about how we should think about those costs versus -- because obviously, the Trius costs will outweigh the Optimer accretions. So, maybe if you could just help us, directionally, think about that.

Michael W. Bonney

Well, a couple of things. First off, Matt. Assuming both of these transactions close, the sum will be accretive in 2015. So I just want to make sure that's very clear. So it is our belief that the revenue that we will be generating in that year, gross margin, if you will, from DIFICID plus the gross margin from tedizolid, assuming regulatory success, will be greater than the cost of continuing develop the 2 products. In terms of the R&D spend, overall, we're, of course, not going to provide guidance at this stage but it is our intent to continue the investment in these 2 assets that both Optimer and Trius have already articulated.

Robert J. Perez

And, Matt, this is Rob. I can speak to the SG&A part of your question in that. As I said, we don't anticipate significant additions though there is some complementary capabilities at these companies that we do hope to leverage. So I think that the good news is both of these products are pretty much into the existing commercial and field-based medical infrastructure that we have but there is some building around the edges that we, frankly, would have had to do anyway. And in addition, in Europe, where we're building or beginning to put plans in place to build for ceftolozane/tazobactam, the addition of tedizolid in Europe will offset some of those build cost, so definitely works in that way as well.

Matthew Harrison - UBS Investment Bank, Research Division

Okay, helpful. And 2 smaller other things. One, maybe if you could just remind us how much the lung study cost you when you ran it with CUBICIN. And then, second, just can you give us any sense of how much cash you want to keep on the balance sheet so we can get a sense of how much that might need to be raised?

Michael W. Bonney

Sure. I, frankly, don't remember the cost of running the pneumonia study 13 years ago, so I can't give you any guidance there. And any guidance I would give you, even if I could remember probably is out of date at this point. We have been, and we will continue to be, based on our January earnings call when we provided guidance, very clear about how we allocate our R&D resources. With respect to the -- what was the second part of your question, Matt?

Matthew Harrison - UBS Investment Bank, Research Division

You said the -- I guess, I was trying to -- how much -- yes.

Michael W. Bonney

[indiscernible]. Mike?

Michael John Tomsicek

Right. I can't be specific in terms of the cash balance but we will maintain sufficient cash in order to pursue the programmatic and BD activities that we had established before this transaction and leave enough cash to operate comfortably with the contingencies that might come up. And that will become apparent when we place the financing in the coming weeks.

Operator

And your next question comes from the line of Steve Byrne with Bank of America.

Steve Byrne - BofA Merrill Lynch, Research Division

Your comment about being accretive in 2015, does that assume that you would not be including in that any kind of an accrual for the CVR payment?

Michael John Tomsicek

Yes. We -- in terms of discussing accretive, it would definitely be on a non-GAAP basis. We haven't crossed the purchase accounting details but our comment in accretive would be on a non-GAAP basis, excluding those types of accounting transactions or charges.

Steve Byrne - BofA Merrill Lynch, Research Division

Okay. Mike, maybe you can help me with these, the structure of these CVR payments. It seems as if the most successful you are, the less you get to keep in both of these. Is that a fair way to look at this?

Michael John Tomsicek

Well, I think the way we would think about this, Steve, is to say the more successful we are, the more willing we are to share some of the upside with the current shareholders in each institution. And given that they are relatively near term, they signal a trajectory that we are very comfortable with that creates value for both via the CVR, the current shareholders of the companies we're going to acquire, as well as for Cubist's shareholders because we'll be on a very strong trajectory for 2 assets with very long patent lives. It's great way to align incentives, in the case of Optimer, specifically, to ensure that we're all pulling oars in the same direction as we continue this co-promote up until the point of close.

Steve Byrne - BofA Merrill Lynch, Research Division

Okay. And then, Rob, you laid out a nice outlook on how there's a complementary relationship between tedizolid and CUBICIN. Do you see any differentiation in the C. diff market that could exist between DIFICID and surotomycin?

Robert J. Perez

We certainly think they could be complementary, Steve. I mean, we really can't comment on exactly how until we see the data on surotomycin. But what we do know is that in these kind of relapsing markets, physicians and patients need options because none of these products prevent relapses. Relapses occur regardless. So having multiple options is something that we've always felt, and we've said for a long time, is important for surotomycin, and certainly, it's part of the value proposition for DIFICID. So we think they can be complementary.

Michael W. Bonney

If I might be so bold, Steve, and I know it's a bit of a leap, but think of other relapsing market places like multiple sclerosis where there are multiple mechanisms of actions marketed and developed -- developed or marketed by individual companies that are, again, complementary because in a complex disease state where you have relapsing disease, the docs want to -- if the first one doesn't work, the docs want to have something different to try next one going forward. And that's how we see surotomycin and DIFICID in this very relapsing marketplace of C. difficile-associated diarrhea.

Operator

And your next question comes from the line of Terence Flynn with Goldman Sachs.

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

I was, first, just wondering about if there's anything to read into your confidence in CXA, just given the timing of these 2 transactions? And then secondly, how should we think about, I guess, pricing with tedizolid, given ZYVOX going generic in the future and how you guys think about that? And maybe remind us how differentiated you feel this product is.

Michael W. Bonney

What if I take this first one here, Terence, and Rob will pick up the second one.

You should read absolutely nothing to our conference with CXA except that it continues to be very high and that we think tedizolid, if approved in Europe, fits beautifully into the bag just as it would in the U.S. of that organization have to build there. And in fact, if we can stick to the indicated timelines, it will allow us to go through a regulatory process, go through a health technology assessment process and start introducing the drug before we get ceftolozane there. So it's a wonderful way to smooth the runway, if you will, for ceftolozane/tazobactam, so that's the first one. Rob will comment, probably in a no-comment type of way, about the pricing but will talk about the differentiation.

Robert J. Perez

Yes, I won't talk about pricing. But we think tedizolid is a unique product in this market space not only from ZYVOX but from the rest of the products in the market. And we think, in particular, as more and more hospitals are trying to find oral solutions, we really wanted to have a competitor, and, we think, the best competitor in this space. So we think the short-course, once-daily therapy are both -- they are both differentiating features versus ZYVOX. We'll have to see what the label ultimately says for tedizolid but we certainly have seen in clinical trials, the potential for improved, an improved safety profile, particularly in the area of drug-drug interactions and patients on SSRIs, for example. So we think there are a number of ways that you could potentially differentiate this product from ZYVOX, but I think it is important to note that it's not just different from ZYVOX. We think that there's a patient population that can benefit from this and that ultimately, we're going to look to see, if we can show those patients who go on vancomycin immediately that, potentially -- at least skin infections, initially, that tedizolid could be a very good choice there.

Operator

And your next question comes from the line of Ken Cacciatore with Cowen & Company.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Just a question on intellectual properties for both products; could you just give us a sense of what covers them and the durability on both franchises? And then in discussions with Optimer, I was wondering -- it would be probably nice to start talking to Astellas about maybe getting those international rights back. So, wondering if there's any chance that you've entered into discussions with Astellas on that or could we expect that you might enter into discussions with them on getting the international rights so you could help leverage that?

Michael W. Bonney

Okay, Ken, let me give a crack at these questions. IP for tedizolid phosphate, the U.S. IP is through at -- and this is composition of matter -- at least September of 2026. And, of course, there would be an opportunity for patent term extension once approved, based on development and regulatory timelines. And in Europe, that, again, where there are patent term extensions -- prior to patent term extension, it extends through December of 2024. DIFICID, there's quite a robust patent portfolio around DIFICID that extends through 2027. So we see this as very long runway products, if you will. With respect to Astellas, we never comment about any business development activities until such time as there's a done deal here, as a matter of policy. We're always looking, of course -- as a general comment, we're always looking to leverage our commercial infrastructure. So to the degree we can find any kind assets of that fits into either our current U.S. or our planned EU, we would be very interested in that.

Operator

And your next question comes from the line of Eun Yang with Jefferies.

Eun K. Yang - Jefferies LLC, Research Division

In terms of the Optimer acquisition, do you think that there will be any FTC issue between DIFICID and surotomycin?

Michael W. Bonney

Certainly, certainly. Any of these acquisitions, Eun, are subject to the normal regulatory reviews, et cetera. But we see these products as complimentary and I don't think we should make any comments beyond that at this stage. We've answered a couple of times about how we think they compliment each other and that's how we think about it.

Eun K. Yang - Jefferies LLC, Research Division

Now, in terms of DIFICID, although the initial launch was great and actually sales have been kind of flattened out for the last few quarters. So what would you do differently in order to improve the sales from current levels?

Robert J. Perez

Well, first of all, I think it's important, you need to realize that right now, our role is as a co-promote partner. We don't control anything until the deal is closed. But as a co-promote partner, both Cubist and Optimer are committed to working to revitalize the growth in DIFICID. And then following that, as Mike said, we think that DIFICID has a long life and we believe that with our commercial and medical expertise and direction, there are ways for us to continue to realize its growth potential. So in the near term, it's a matter of making sure that we're helping on the co-promote and supporting Optimer up until deal closure.

Operator

And your next question comes from the line of Alan Carr with Needham & Company.

Alan Carr - Needham & Company, LLC, Research Division

Touching on some earlier subjects, I wondered if -- you mentioned before that Trius is planning some work with VAP and then obviously, Optimer has been working on bone narrow transplants with DIFICID. Are there other indications that you all might be looking at here, in the longer term here, to sort of build on these?

Michael W. Bonney

I find it very difficult to ever rule anything out as our understanding of human disease evolves. But right now, our view is that ventilator-associated pneumonia in the Gram-positive space is a significant unmet medical need and so we're very enthusiastic about supporting that with tedizolid. And we think that the bone marrow transplant trial makes a lot of sense, given the difficulties associated with those -- with both the incidents and difficulty associated with patients who have EMTs when they get C. diff. So at this point, I'm not going to make any commitments but neither would I shut the door if opportunities exist to develop more robust data for one or both of these products.

Operator

And your next question comes from the line of Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

Will you -- so in terms of sales force, will you be using the same sales force for potentially all 4 products: CUBICIN, DIFICID, tedizolid and CXA-201, maybe even a fifth one, with surotomycin? And how would you prioritize these within the sales force?

Robert J. Perez

Yes, that's not something we're going to get into, Howard, in terms of our sales force strategy. And as I've said before, right now, we're focused on helping these organizations to accomplish what they need to accomplish in the near term. So we don't control these companies up until the deal is closed. So we're supporting through the co-promote agreement with our current hospital organization, the same one that we used with the co-promote previously. And that's really about all I'll say in terms of further sales force strategy.

Michael W. Bonney

I would simply add, Howard, that we don't envision significant expansion in any way, shape or form except for the addition of a European infrastructure as we've been planning for ceftolozane.

Howard Liang - Leerink Swann LLC, Research Division

I guess, I'm just more -- and I'm not asking, say, about your sales and marketing strategy, more of a -- from a rationale of the transaction perspective, do you plan to use one sales force for 4 different products?

Robert J. Perez

Well, that to me, gets to strategy.

Michael W. Bonney

But I take your point, Howard. But I think that, as Mike said, that key take away is, from an investment standpoint, we're not looking at significant new investments. There are some capabilities we -- we'll add but frankly, we would need to add those anyway. be It for the build out of Europe or for the build out of surotomycin in the future. So there are some capabilities that we need to add around the edges. How we divide up the sales team and who does what is something that I wouldn't say right now until we made that decision.

Howard Liang - Leerink Swann LLC, Research Division

Okay. And can you talk about the size or if there's any termination fee and the size of termination fee for either the transaction?

Michael W. Bonney

Yes. There are, in certain circumstances, of course, break fees that go each way. You'll see the details in the disclosures. They're, I would say, customary.

Operator

Your next question comes from the line of Brian Skorney with Robert W. Baird.

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

I guess, just in terms of tedizolid, when are you assuming ZYVOX goes generic in the U.S. and the EU? And could you kind of give some level of quantification on in terms of where you think the overlap might be between CUBICIN and ZYVOX, as well as tedizolid and ZYVOX, and also, tedizolid and CUBICIN?

Michael W. Bonney

Let me start with the overlap while we check our notes to make sure we give you the right information on linezolid. First, with tedizolid and CUBICIN, we truly see this as complementary. Whenever we do market research, it comes back to us from our customers in the U.S. that they see these differently. Linezolid is used largely for pneumonia. When it's used in skin, it tends to be the less sick, more healthy patients maybe is a better way to put it. When CUBICIN is chosen, it's chosen for patients who are either very fragile and in the case of skin or patients who have very serious infections including bacteremia endocarditis. The timeline for linezolid to go generic in the U.S. and EU, we're still....

Robert J. Perez

2015. It's mid-2015 in the U.S. Let's see if I have the actual month. Q2 2015 in the U.S. and Q1 2016 in Europe. I just want to make sure we have the dates accurate.

Operator

Your next question comes from the line of Jim Molloy with Janney.

James F. Molloy - Janney Montgomery Scott LLC, Research Division

2 things I want touch on. I mean, it seems that the -- any thoughts on the FDA? It seems that they've really taken a much more proactive stance on getting these new antibiotics sort of through, at least on the clinical trial design. Any thoughts on approvability or thoughts that the FDA were getting this through? And then the follow-up would be, there's a number of these Gram-positives out there, and what in particular, I know you went through your prepared marks, but as you compared and contrasted these various ABs, could you just talk about what made Trius stand out?

Michael W. Bonney

Okay. Sure, Jim. I think it is fair to say that the FDA has, over the last, I would say, number of quarters, maybe they've even expanded that for the last year or 2, has demonstrated a much greater willingness to be creative. I think the most recent evidence of that is their pathogen-specific guidance that was issued at the end of June. We do think that the Trius team is an exceptionally high-quality team that has developed this drug. And it's very clear that they have had the appropriate interactions with the agency, so stay tuned on that. With respect to the Gram-positive space, I'll turn over to Rob.

Robert J. Perez

Yes. So, Jim, we certainly have been watching and followed all of the potential entrants to the Gram-positive space. And I can tell you that virtually -- unanimously, within Cubist, the product that we were most interested in was tedizolid. And the reason for that is we felt like the unmet need in the Gram-positive space is kind of shrinking. There's a lot of products that are already fulfilling many of the needs of the market but what is really needed, we thought, was a safe oral therapy that was -- that could be used in a convenient, short-course way. So when we looked at all of the things that were still yet to the fulfilled, we thought that Trius ticked -- the tedizolid ticked most of the boxes. So -- and one of the things that we've really seen, even with CUBICIN, is the move to try to get people out of the hospital as quickly as possible. And hospitals have, over the last decade, used orals to be able to do that. In many instances, they're using orals that either are aren't as effective against MRSA or they use orals that maybe they're concerned about some safety issues. So we think that tedizolid is able to kind of fill that niche. So it was the product that we thought could carve out a meaningful difference in the Gram-positive MRSA market.

Operator

And your next question comes from the line of Irina Rivkind with Cantor.

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

Are you going to also be developing the Trius Gram-negative products forward? And maybe you can expand on your plan for that and where that -- those product fit in with CXA-201? And then, the other question I have is just about your appetite for M&A. I mean, now that you guys have these 2 transactions and a lot of new products launching, is your appetite somewhat diminished for the time being?

Michael W. Bonney

Thanks, Irina. Steve's going to handle the first question about the GyrB/ParE program.

Steven C. Gilman

Yes. Well, we've been interested and follow Trius' pre-clinical work. We like what we've seen in that molecule, it's a little early yet so we got to complete some sort of later states toxicology studies and the like. But we're very interested in that, we know the target well and we like the targets, so we'll how that develops.

Michael W. Bonney

It does provide, I think, and opportunity for us to be sort of at the forefront of potentially a new class of antibiotics, which has always been very exciting. With respect for appetite for M&A, certainly, assuming both these transactions close, we'll be looking at more of the -- our focus will be more on the development stage tuck-ins, think of the Adynxx deal as opposed to significant M&A. Again, it's hard for us ever to say never but certainly in the foreseeable future, our focus will be on building out the portfolio for products once this bowl of both the 2 new companies plus our own very robust late-stage pipeline works its way through the regulatory process.

Operator

Your next question comes from the line of Ritu Baral with Canaccord.

Ritu Baral - Canaccord Genuity, Research Division

How do you view the demand elasticity around DIFICID as far as the price? That's been a significant focus of investors around the DIFICID opportunity. And also, any opinions, one way or the other, on recent pricing strategy changes Optimer's undertaken?

Robert J. Perez

Yes, so I'm not going to comment on Optimer's pricing. What I can tell you is, as far as products that have a high price, and making an argument for the price, meaning acquisition price, making an argument for the value of those products to the hospitals or health care systems, that's something that we think we know very well. We live it every day with CUBICIN. And so, what we see in DIFICID is a product that has a tremendous value in terms of visibility to meet a significant unmet need in C. difficile-associated diarrhea. It's also one of the only anti-infective that has an FDA-labeled superiority claim. So we think that there's significant differentiation with DIFICID. And we're not going to talk about pricing with it but I can tell you that having a high-priced product is not something that makes us nervous. We deal with that everyday and we think we're the right company to be able to realize that value.

Ritu Baral - Canaccord Genuity, Research Division

And just a quick follow-up to that. As far as the types of pharmacoeconomic data that can be generated around DIFICID, what do you feel are the most compelling analytics for the drug?

Robert J. Perez

Well, I think the health care environment is moving towards products like DIFICID and CUBICIN that are -- that have a benefit to the health care system that's beyond just acquisition cost. So, for example, some of the changes to the way hospitals are either reimbursed or even penalized for readmissions, break right in the direction of a product like DIFICID, which can help to keep people out of the hospital. Even the NTAP payment, which was granted to DIFICID, kind of a historic move granting it to an oral therapy, I think suggests that there are -- there's value associated with the product beyond just what it costs to acquire. So we're very, very interested and looking very forward to working with the entire pharmacoeconomic and health outcomes data with this product. And we're looking forward with working with Optimer over the next several months to support their continued launch.

Operator

And your final question comes from a follow-up from Eun Yang with Jefferies & Company.

Eun K. Yang - Jefferies LLC, Research Division

Now, you are going to continue to promote DIFICID with Optimer until the deal closes, are you getting like $3.7 million per quarter as a service fee?

Michael John Tomsicek

Under the co-promote agreement, our base fee will not change going forward. That agreement will be unchanged from what we saw in these past 12 months.

Michael W. Bonney

Well, thank you, all, for joining us this evening. The planned acquisitions of Trius and Optimer contribute to the continuing transformation of Cubist into the world's premier acute care biopharma company. The value that we believe these assets can deliver to patients and the Cubist's shareholders results from considerable skill and hard work of the employees of Trius and Optimer. As we work to complete these transactions and integrate the organizations, we look forward to meeting you and speaking with many of you. Thanks to you, all, for your attention this evening and have a great night.

Operator

Thank you, again, for joining us today. This concludes our web conference. You may now disconnect.

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Source: Cubist Pharmaceuticals Inc., Optimer Pharmaceuticals, Inc. - M&A Call
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