Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Cubist Pharmaceuticals, Inc. (CBST)

Q3 2009 Earnings Call

October 15, 2009 5:00 pm ET

Executives

Eileen McIntyre – Senior Director, Corporate Communications

Mike Bonney – President and Chief Executive Officer

Rob Perez – Chief Operating Officer

Steven Gilman – Chief Scientific Officer

David McGirr – Chief Financial Officer

Analysts

Joel Sendek – Lazard Capital Markets

Eun Yang – Jefferies & Co

Tom Russo – Robert W. Baird & Co

Stephen Willey – Thomas Weisel Partners

Jason Kantor – RBC Capital Markets

Howard Lang – Leerink Swann

John Newman – Oppenheimer & Company

Operator

Welcome to the Cubist Pharmaceuticals, Inc., third quarter 2009 conference call. At this time all participants are in listen-only mode. A question and answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ms. Eileen McIntyre, Senior Director of Corporate Communications for Cubist Pharmaceuticals.

Eileen McIntyre

Good afternoon and thank you for joining us for the third quarter 2009 earnings call for Cubist Pharmaceuticals. Before introducing our speakers, I will read the safe harbor statement and describe the context for use of non-GAAP financial measures.

This presentation includes forward-looking statements relating to among other things projected revenues, company financial performance, the ANDA litigation with Teva, our intellectual property protecting Cubicin, our products in pipeline, and our business development efforts. These statements are neither promises nor guarantees and are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those projected or suggested in any of these forward-looking statements.

These and other factors are contained in the company's filings with the SEC including our most recent quarterly report on Form 10-Q. Cubist is providing this information as of the date of this presentation and does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise.

Within this presentation, in order to provide greater transparency regarding Cubist’s operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP figures. In particular, this presentation contains information on non-GAAP net income and net income per share. Any non-GAAP financial measures presented should not be considered an alternative to measures required by GAAP and are unlikely to be comparable to non-GAAP information provided by other companies.

Any non-GAAP financial measures presented are reconciled to the most directly comparable GAAP financial measures in a table included in our news release issued today and available in the news section of our web site. A further discussion of why we feel these measures are important to investors and the reasons for which our management uses these measures is also included in the news release.

Speakers on today's call will include Cubist’s President and CEO, Mike Bonney; Chief Operating Officer, Rob Perez; Chief Scientific Officer, Steven Gilman; and Chief Financial Officer, David McGirr. You will hear first from Mike Bonney.

Mike Bonney

Today, we have reported yet another strong quarter for Cubist. We continue to make great progress toward our goal to building the world’s leading acute care therapeutic company. Our strong top and bottomline results have been achieved in an environment that has been tough for many branded pharmaceuticals. Cubist’s topline performance, growth of 28% in total net revenues versus Q3 of 2008, reflects the unique strength of our anti-MRSA agent, Cubicin, as well as the expertise of our acute care medical and commercial organizations.

Our sequential quarter to quarter growth of 10% in total net revenue and 9.2% in US net product revenues is consistent with our typical seasonal pattern. We estimate that Cubicin now has been used in the treatment of more than 800,000 patients with serious infections caused by gram-positive pathogens such as methicillin-resistant staph aureus.

While continuing to progress clinical development across multiple programs addressing large unmet medical needs for acutely ill patients, we have remained financially disciplined. For the third quarter, we’ve delivered fully diluted fully diluted EPS of $0.42 per share. As you will recall, this year we began the CONSERV 1 an CONSERV 2 Phase II trials for Ecallantide and also initiated Phase I trials for agents being developed to treat multi-drug resistant gram negative and C. difficile infections. We also began a co-development relationship with Alnylam for development of agents to treat RSV infections.

None of this clinical pipeline activity was underway in Q3 a year ago. Steve Gilman will provide a brief update on pipeline activity shortly. With three quarters of 2009 revenue recorded, we have tightened our guidance for Cubicin US net revenue to between $520 and $525 million, which is within the range we announced in January. Our updated guidance range for the full year will represent year over year growth of at least 25%. David will provide more details on the financials for the quarter later in the call; however, I’d like to highlight the fact that as of the end of Q3, our cash and investment position is quite strong, now having moved well beyond the $500 million mark.

Now Rob will provide a perspective on our topline performance through Q3.

Rob Perez

As you've already heard, we continue to compete well in a challenging hospital environment. In spite of increased scrutiny on the use of branded products from the hospital, we have once again seen strong growth for Cubicin and good results from Merrem as well.

In the case of Cubicin, the relative cost of drug acquisition versus the 50-year-old generic Vancomycin has always been part of the complex decision process of the hospital. In today’s extremely cost conscious environment, the pharmaco-economic data and tools we’ve developed over the past year are a very important part of the conversations our clinical business managers have with both physicians and hospital pharmacists.

For Q3, Cubicin US net revenue of $137.7 million was up 26% versus a year ago. We’re pleased that Cubicin growth continues to be extraordinary after almost 7 years on the market. The difference in the growth curve versus Rocephin which was previously considered the standard for success in IV antibiotics continues. For the first 11 months of its sixth year since launch, Cubicin growth versus the same period a year ago is 32%. At the same stage in its launch, Rocephin saw year to year growth of 16%. This comparison is based on gross revenues.

Rocephin went on to achieve peak year sales of greater than $700 million in the US and more than $1 billion worldwide. While year over year growth rates will decline as the product grows and the denominator gets bigger and bigger, we’re confident that Cubicin will remain on track to achieve our peak annual sales expectations of $1 billion.

Factors contributing to its continued anticipated growth include, first, the continued growth of MRSA and the more virulent strength of community-acquired MRSA; second, issues around the clinical efficacy of Vancomycin at the higher end of its susceptibility range that are contributing to changes in the prescribing behavior of infectious disease physicians in particular; third, the opportunity to educate and influence prescribing behavior for appropriate patients among non-infectious disease physicians in the hospital who are the first to see patients with serious skin and bloodstream infections. This is a relatively recent initiative that we discussed in our last call. While it’s still a bit early to track results, our clinical business managers are quite enthusiastic about the opportunities in this audience, and we are picking up new prescribers.

Finally, as hospitals and payers look for ways to treat patients in less costly settings whenever medically appropriate, another important factor continues to be Cubicin’s fit for outpatient infusion. While Cubicin continues to grow both in and out of the hospital, in Q3, we saw differential growth in the outpatient setting of 12% from Q2 versus 7% inpatient.

As most of you know, we’ve clinical trials underway for Cubicin, including a Phase II trial in prosthetic joint infections, a 10 mg/kg MRSA bacteremia trial, and a pediatric clinical program. We’re on track for seeing data from the prosthetic joint infection trial in 2010.

Now a couple of comments on Cubicin’s progress outside the US. We continue to see evidence that Novartis is gaining traction after making some changes in their sales approach in the EU. Because of the way recognize our portion of the EU revenues, it will take some time for this to work its way through our numbers. Another international marketing partner, Astra-Zeneca, has received regulatory approval in China for Cubicin in bloodstream infection associated with right-sided infective endocarditis caused by staph aureus. This is good news and a significant step toward launching in this market. Before Cubicin can be launched in China, Astra-Zeneca must obtain additional distribution and pricing approval. Our forecast for launch in this market is the second half of 2010.

Now turning to Merrem IV, another area where we’re competing well but seeing some impact from the challenging macroenvironment. The revenue target we had set with Astra-Zeneca for 2009 assumed modest growth in the carbapenem market. However, it has been virtually flat this year. As a result we expect to see the fee for revenues delivered in 2009 of $18 million versus the $20 million originally forecasted. When you add in the approximately $5 million bonus we received in Q1 for overachievement in 2008, our 2009 guidance for the total fee we anticipate from Astra-Zeneca is now $23 million.

Overall 2009 has been a challenging year for branded hospital products including antibiotics. According to IMS Health, branded product sales to non-federal hospitals grew by only 1.3% in the most recent 12 months ending June 2009. As measured by IMS, for branded products with annual sales of greater than $100 million, Cubicin was the fastest growing acute care inpatient therapy in this time period. Hospital selling has never been a lay-up, but I believe our performance in the current environment is further evidence of our differential expertise in the acute care marketplace.

Now for a quick update on her pipeline, I'll turn it over to Steve.

Steven Gilman

We're making great progress on all four of our pipeline candidates shown on this slide and are heading towards important data and value inflection points in these development programs over the next three to nine months. Our RSV co-development programs with Alnylam should reach an important juncture by year end. In partnership with Alnylam, we're in the final stages of evaluating all data for the clinical stage RSV-01 program and the preclinical second-generation candidate. We plan to determine next steps in path forward for an RSV therapeutic in pediatric and in adults by year end.

Then, by mid 2010, we expect to be in a position to make important phase II decisions on our two antibiotic candidates now in phase 1 study. Our IV antibiotics in development for the treatment of infections caused by multi-drug-resistant gram negative infections and our oral antibiotic being developed as a treatment for clostridium difficile-associated diarrhea or CDAD.

Key input for these decisions will be safety data from the ongoing phase I single and multiple ascending dose studies. We are on track to complete the studies and make Phase II decisions in the first half of 2010. During 2010, we also anticipate a number of important milestones for our phase II Ecallantide program which we in-licensed from Dyax last year, and our developing for the reduction of blood loss during on pump cardiac surgery. This is our first clinical program outside of the anti-infective space, and we are very pleased with how Ecallantide development is leveraging our acute care medical and clinical capabilities.

As you know, we initiated both the CONSERV I and CONSERV II trials this year. Enrolment is proceeding smoothly, and we are on track to have the data unblinded from these trials in early 2010. We expect to be well prepared for an end of phase II meeting with the FDA in mid-2010 which would be followed by an EMEA with meeting. By ended of 2010, we would expect to finalize our phase III plan based on the takeaways from these regulatory meetings.

One final note: Consistent with our strategy to develop a significant acute care pipeline, we have been looking at ways to supplement our I&D generating research efforts in acute care beyond antibacterials. One example of this is a these clinical collaboration that just initiated with Hydra Biosciences, a privately held company located in Cambridge, Massachusetts, which provides Cubist access to a novel platform of potential acute care therapeutics for the management of pain. This program involves a reallocation of some of our internal current discovery efforts. For a staged appropriate upfront commitment and pay for success milestones, this deal enables us to participate in additional acute care therapeutic area with significant commercial opportunity. Now over to David.

David McGirr

The financial results for Q3 are strong. This reflects both growing revenues and under continued focus on cost. The details of our Q3 results are in the news release we issued earlier, so let’s now focus on few key numbers. Operating net income of $45.5 million for Q3 is up $16.8 million or 58% from Q3 2008. For the nine months ended September 30, 2009, operating net income is $97.2 million which is up 116% from the previous year. Both numbers demonstrate our financial leverage.

Diluted EPS is $0.42 on a GAAP basis and $0.65 on a non-GAAP basis. The provision for income tax distorts the year-over-year comparison of net income. The non-GAAP statement of operations illustrates that effect. The tax provision in Q3 2008 was $1.4 million compared with $15.9 million in 2009. These are the book tax figures, and the cash tax for Q3 was around 6%. We expect full-year cash tax liability to be also around 6%. We entered the quarter with a sold balance sheet, and our cash and investments position landed at $520 million.

Is would now like to spend a few minutes on our guidance for balance of 2009. As you have already heard, our guidance for Cubicin net US revenues has tightened to a range of $520 to $525 million. Cubicin net international revenue remains at around $12.5 million. Merrem IV revenue to Cubist now looks like it'll come in around $23 million. The gross margin is steady around 78%.

On now to operating expenses, R&D including milestones and upfronts paid this year is projected around $170 million. Sales and marketing is expected to be around $85 million, and G&A it looks like it'll come in around $51 million. These estimates would project operating income in the range of $132 to $136 million. That year-end cash position as always is subject to success in business development. It now looks like it will be around $560 million which is a projected increase of more than $140 million from December 2008. Now back to Mike.

Mike Bonney

Cubist continues to execute in a focused and disciplined manner. While today's economic environment presents some challenges, we are adept at maneuvering the complex decision-making process involved in treating seriously ill patients in an acute care setting. The platform we have built from development and clinical through our medical and sales field organizations positions us well for growth as a leader in therapies for acutely ill patients. We are making important progress towards clinical decisions and data across multiple programs over the next year. We also continue to be aggressive in seeking out late stage acute care therapeutic candidates to add to our pipeline. Our cash position today as well as our demonstrated success in the acute care setting puts us in a position to compete for assets. Our goal is to bring in candidates with strong scientific merits in an area of significant medical need while creating the potential to deliver long-term value for Cubist shareholders.

Now let’s open the line up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Joel Sendek – Lazard Capital Markets.

Joel Sendek – Lazard Capital Markets

I have a question on the margins. The sales and marketing margin keeps improving. It’s pretty impressive, and I’m just wondering if you’ve gotten to a certain steady state where you don’t have any further leverage, or is there further leverage in the sale and marketing line. Can you comment on that a little bit?

Rob Perez

We’re at the point where, as we’ve said in that past, we constantly look at the sales and marketing expense and in particular the biggest part of that is the salesforce, and we take a look at whether there is more leverage in additional people. We’re in the process of going through that this year as we’ve done every year. Where we are, we don’t think it’s going to take a significant increase in additional people in order to continue to grow this market. Changes on the margin are possible, but we don’t think you’re going to be looking at doubling up salesforce size. So we think we can continue to grow the product with just incremental changes in the sales and marketing spend.

Joel Sendek – Lazard Capital Markets

The guidance suggests that sales and marketing as a percentage of product sales is going to tick up a little bit from whatever it was in the third quarter, the 13.7%, but is the run rate for next year in the mid teens you think or will it trend lower as sales increase?

Mike Bonney

As Robert just said, Joel, we don’t think that there is loss of additional expense necessary to generate additional return. There may be a little bit around the margin. We’re not going to provide 2010 guidance on this call, but we do think that given our focus on the acute care environment and the way that that market place responds promotional efforts that there is actually a fair amount of leverage in this model over time.

Operator

The next question comes from the line of Eun Yang with Jefferies & Co.

Eun Yang – Jefferies & Co

On the SG&A, sales and marketing, why was the third quarter much lower than the previous quarter?

David McGirr

Really it’s just timing of expenses Eun more than anything. You have some programs and sales meetings for example that hit one quarter versus the next. I wouldn’t really read much into quarter over quarter changes in the sales and marketing line.

Eun Yang – Jefferies & Co

On the R&D side, based on guidance, your R&D increase would be about 40% over third quarter. Is there any clinical trial or event that you expect to spend that much money?

Rob Perez

One of the issues there, you heard Steve Gilman talk about our new deal with Hydra, and we actually signed that just this month, and the first payment was made to them this month, so that’s baked into the number we just gave you, so that is one difference from what you have seen earlier in the year.

David McGirr

The other thing I would add to that Eun is that our clinical trial program which is quite robust in 2009 relative to 2008, continues to ramp, and there is a correlation between expenses there and the patients approved into trials.

Eun Yang – Jefferies & Co

When I look at CONSERV I and CONSERV II studies, CONSERV I is a dose ranging study and CONSERV II is efficacy study comparing to an active control, so is there any reason why you are running those two trials simultaneously instead of running dose ranging study first to identify an optimal dose?

Steven Gilman

Yes. We could have done just the optimal dose, and by the way, both of them are efficacy trials, so I just want to make sure it is not efficacy in one and pure dose ranging. They’re both safety and efficacy trials. The dose ranging trial helps provide us with a good dose estimate for the optimal dose going forward. What we are trying to do with the second trial is actually get a little bit more richer data in a more severe if you will more higher risk patient population, so when we get the dose ranging trial, we can pick a dose and can plan a more robust phase III program and have a better conversation with the agency because we will have information from both sets of patients, both the low risk and the high risk. It just provides us a better data set by which we have a more robust discussion with the agency.

Eun Yang – Jefferies & Co

CONSERV II, is it designed as a non-inferiority?

Steven Gilman

It’s really a comparative. It’s not powered for non-inferiority. It’s a comparability trial, so it’s a simply a comparison of the response rates with tranexamic acid and our drug.

Operator

The next question comes from the line of Tom Russo with Robert W. Baird & Co.

Tom Russo – Robert W. Baird & Co

For the second quarter in a row, I just wanted to ask a couple of questions about the Cubicin number. Can you comment at all on whether there were any unusual trends at the end of the quarter in terms of buying, either that or has anything changed maybe fundamentally in terms of how the sales is slow across the course of the quarter such that more of them are coming towards the end than they used to in past?

Mike Bonney

No. It’s really been fairly consistent. It’s been very consistent with previous years, and there’s really nothing extraordinary about any seasonality within a quarter.

Tom Russo – Robert W. Baird & Co

Can you give us an update where market share is now and maybe the timeframe or what might change in order for that to start moving towards the long-term goal, I think, mid to high teens?

Mike Bonney

Market share through the end of August, this is rolling three months through the end of August 2009, overall is now at 11%, so we have picked up a share point over the last quarter or so, and the way I can describe it is, we define our market very broadly, so you’re not going to see rapid movements in the share, but we are continuing to slowly gain some share. Vancomycin continues to be very sticky. It’s still at 70%, but overall we are seeing some very slow erosion over time, so we’re moving in the right direction, but it’s slow but certainly well on its way as we’ve said before to providing the share we need to hit our $1 billion objective.

Rob Perez

Tom, I also think it’s important to understand that when we talk about share overall, we include in the denominator all uses of the products that we define in this marketplace which includes pneumonia. When we talk about achieving shares for skin and/or bacteremia and endocarditis, we’re using a different denominator, so they’re really not completely comparable numbers, and I just want to make sure everybody is aware of that.

Mike Bonney

Right now, our share overall is 11%. If we took pneumonia out of this, and it’s a very difficult calculation to do when you talk about share overall, our share would be slightly higher than the 11% because the denominator would be smaller for the rest of the products in this mix.

Tom Russo – Robert W. Baird & Co

Given the economic environment and market share trends, can you talk about how you’re thinking about price or how price sensitive the market is? In other words, is it ever better to consider raising price a bit more if market share has been stickier of those institutions that are using a lot of Cubicin if there is something to be said for raising price more even at the expense of share, or is that just going to be what we’ve seen in the past going forward?

Mike Bonney

Obviously, we don’t talk about what we’re going to be doing in the future with price. I think we’ve been relatively aggressive with price, and we really haven’t seen the kind of reaction to that in terms of reduction in demand. Do we think that there is still pricing room in this product in this market? I think we do, but again we evaluate it on an ongoing basis, and we take the price increases we think that make the most sense.

Tom Russo – Robert W. Baird & Co

On Ecallantide enrolment, are you able to be more specific about where you are in enrolling in each of those trials? I know there is one new item that we’ll see in R&D in the fourth quarter, but the new guidance implies about $52 million in the quarter. I was trying to get a sense of how much of a ramp we’re going to be seeing in the Ecallantide enrolment in the fourth quarter?

Steven Gilman

The CONSERV I trial is really off and has been very robust. The CONSERV II trial launched a little later than we thought, and it is now catching up, and that’s why some of the expenses got deferred a little bit into the fourth quarter. In terms of specifics, we don’t get into N number of patients and then track that every day. We do track it every day, but not the specifics certainly every day, but we’re halfway really through the CONSERV I trial and then some, and the CONSERVE II started a little low, but we’re very comfortable that we’ll get both of those trials done, so we can have that FDA meeting in the new year.

Operator

Your next question comes from the line of Jason Kantor – RBC Capital Markets.

Jason Kantor – RBC Capital Markets

On Merrem, you noted that it came in a little bit below where you thought for the year. I know there is an annual bonus that your group is eligible for. I guess this would come in Q1 2010. Where does that number stand relative to your new guidance, and also on the phase I candidate, I’d be really interested to know how that data is going to be disseminated, is a decision going to be made at a time that the data is available to us and what would consider a criteria for a go decision for either of those programs?

Mike Bonney

I can take the Merrem piece. I think it’s at a stage where we don’t expect to achieve an additional bonus for our work in 2009 given that we’re coming a bit light relative to our forecast. As I mentioned, we’re looking at $18 million for the fee this year as opposed to $20 million that we had originally forecasted, so there shouldn’t be an expectation that in 2010 we would have a bonus based on over-achievement of our 2009 number.

Jason Kantor – RBC Capital Markets

I think a lot of us can feel for you on that one, as well.

Mike Bonney

With respect to the Phase I candidate, let me take a crack at this first and then we can have Steve jump in. The decision criteria for the two products are slightly different. Of course the most important decision criteria for both of them are that we are comfortable that through the multiple ascending dose studies, having proceeded from the single ascending dose studies, that we have a reasonable safety margin to expect that we can get the therapeutic levels in Phase II, so that’s the most important criteria. The C. difficile product has the added issue of what’s going on in the competitive environment which we think it has a bit more impact on our decision making on how to proceed with that program than does the gram negative program where we think that there’s a much broader opportunity available and we can more quickly. In terms of data dissemination, it is likely that we will disseminate that we have made the decision to proceed and then look to proceed or not to proceed and then look for an opportunity to present a more wholesome set of data in terms of the dose ranges achieved and what adverse events if any were seen at those dose ranges. Steven, you want to add to that?

Steven Gilman

Nothing more to add, Mike. You said it well.

Jason Kantor – RBC Capital Markets

The collaboration that you’re talking about, could you walk us through it a little more as to what the costs are going to be associated with that, the timing of those costs, and then the timing of what you expect the output of that collaboration is going to be?

Steven Gilman

The upfront that David talked about was $5 million, and we’re supporting high gross internal FDEs on our joint project to about $5 million per year for two years, plus an option to renew it afterwards. In terms of output, this whole collaboration is around a particular iron channel that is important in mediation of pain called the trip A1 receptor iron channel. And so, they have some very interesting inhibitors. They have pharmacology data. They have some FAR, and once we get into the program, we’ll be able to really figure out what the near term I&D candidate potential is, and with some luck, it could be fairly short and, with some luck, it may take us a couple of years.

Operator

Your next question comes from the line of John Newman – Oppenheimer & Company.

John Newman – Oppenheimer & Company

On the inpatient growth for Cubicin, you mentioned that there was a bifurcation between the inpatient and outpatient setting. What does the inpatient growth look like going back to the first quarter, and in terms of the Cubicin number and your tighter guidance range, what does the stocking look like at the hospital level at this point compared to the past quarters?

David McGirr

I can take the stocking number quickly because again we don’t sell through wholesalers, so there really isn’t a lot of stocking that occurs with this product. If there is stocking, it would be at individual hospital level, and we don’t think that that has really much impact. Possibly at year end, each hospital may stock up a little bit more near the end of the year, but we don’t think there’s much of a stocking in fact ever with this product.

Mike Bonney

Just to jump in there, John, the order pattern by institution, which of course we have direct visibility into, really doesn’t change. Depending on the institution, they tend to carry to order 2 to 3 times a month, so you can calculate from that that they’re carrying somewhere in the neighborhood of 1-1/2 weeks to 2 weeks worth of inventory at a time, and that seems to be very consistent with the exception that Rob noted. If pharmacies underspend their budgets and have a little bit of extra at the end of their fiscal year, they may beef it up a little bit, but generally that’s not been a big portion. There hasn’t been a lot of variability with respect to that over the course of most of the quarters of the year. With respect to percent inpatient growth, as Rob said, we’re up 7% this quarter relative to Q2. In Q1, inpatient sales were down. I don’t have the specific numbers, but overall in general in Q1, we see some flattening because of the change in mix in the hospital with more pneumonia infections, where of course Cubicin is not used.

David McGirr

And remember this year’s Q1, we of course had the price increase in Q4, so in terms of the revenue numbers, that exacerbated the difference, but generally, John, we’ve seen a little bit more growth in the last couple of quarters in the outpatient settings, but both segments are growing, and as I mentioned, the growth this quarter was more outpatient than inpatient.

John Newman – Oppenheimer & Company

Do you tend to see increase in hospital buying ahead of the price increases?

Mike Bonney

No. We see no evidence of a pattern at all. One of the real advantages of our distribution model is that given that we’re distributing to thousands and thousands of customers and they are buying many hundreds of SKUs, they really don’t have the same kind of anticipatory patterns that you see when you stock, and keep in mind that’s one of the reasons why we can’t get too much of a pattern on when we take a price increase, so that people can’t assume that there’s going to be one every January 1st, for example. That’s one of the reasons that led us to a Q4 price increase last year.

John Newman – Oppenheimer & Company

In terms of in-licensing or acquisition given that you are facing litigation with Teva, what should expect there? Should we expect to see something there? What kind of timing should we be looking for?

Mike Bonney

I have studiously resisted declaring timing even though this question has been asked routinely, and the reason for that is pretty straight forward. We’re almost always in some level of diligence or conversation with other parties, and as soon as I declare one I think is going to happen, we give up negotiating leverage, so we’re not going to project when we think a deal might be done.

Operator

Your next question comes from the line of Howard Lang – Leerink Swann.

Howard Lang – Leerink Swann

I have a couple of questions regarding international sales. I think this quarter it came in with a pretty noticeable increase from the trend over the last few quarters, at least on a relative basis. It sounds like that’s even a lagging indicator. Can you just provide more color on what’s going on internationally?

Mike Bonney

As we’ve said, Novartis has made some changes to strengthen their commercial model and their commercial effectiveness, and we think that these changes are working and that they are starting to see some benefits with them. They’ve seen a little strong sales growth in the markets where MRSA is high, which are Italy, Spain, and Greece. They’ve had some very effective programs in terms of getting the word out to the key opinion leaders at a great European infectious disease meeting this year. So they’re starting to put it all together operationally, and we’re starting to see the results follow. We’ve been pleased with the increased momentum that they’re seeing.

Howard Lang – Leerink Swann

Regarding Novartis, they recently signed a deal with Paratek. Is there any impact on your relationship with them in Europe? Are they communicating to you in any way regarding their commitment to Cubicin, and also assuming that the product is approved, how do you see its use relative to Cubicin?

Rob Perez

At this stage, there’s really been no impact on the relationship with Novartis subsequent to their signing of the Paratek deal. We do see and we’ve articulated this many times that there is a complementary opportunity if you will to a broader spectrum agent with Cubicin. I think with respect to how Novartis thinks about, one, it’s a good question for Novartis, but I’d also direct you to their press release on this where they talked about the fact that and they’ve been consistent with us on this as well that anti-infectives, antibiotics in particular, are an area of strategic interest to them. They’ve made a number of acquisitions and deals over the course of the time that we’ve had a relationship with them on Cubicin, and they continue to have a strong interest in honing their skills through their efforts on Cubicin in the EU and some other markets around the world. So, we’re very comfortable with where the relationship is and where it’s headed.

Operator

Your next question comes from the line of Stephen Willey – Thomas Weisel Partners.

Stephen Willey – Thomas Weisel Partners

My questions have been answered.

Operator

Your next question comes from the line of Jason Kantor – RBC Capital Markets.

Jason Kantor – RBC Capital Markets

I was wondering if you could just give us any kind of operational update in terms of what next steps there may be in terms of your patent challenge and also whether you are in the process of filing any additional patents on Cubicin that may come into play.

Steven Gilman

There is not a lot of update to provide here. We continue to expect to articulate what the schedule is. The two parties have started discovery, and we’re proceeding in parallel really with the scheduling update trial schedule, and that’s really the only update we have at this point. With respect to the second part of your question, our patents filings, should there be any, will be articulate as they occur.

Operator

Your next question comes from the line of Howard Lang – Leerink Swann.

Howard Lang – Leerink Swann

I think you referenced several times that the hospital market is tough currently. Can you talk about whether that’s because of total use of antibiotics that’s left or is that because the market share is more difficult to grow, and also if the outpatient setting also affected by this dynamic?

Mike Bonney

The comment I made was really in regard to inpatient and all branded products, not just antibiotics. I think the dynamic is that due to the economic condition hospitals are watching their expenses across the board and certainly really taking a hard look at pharmacy, and expensive branded products are definitely under increased scrutiny. So the fact that we’ve able to grow like we’ve grown with Cubicin, I think, is a very good sign. As we’ve discussed previously, we have shifting our messaging a bit to include more information about the value of Cubicin beyond just acquisition costs, but the value to the hospital and, while that initiative is still relatively early, we feel pretty good about it, and I know our people feel like they have the tools necessary to be able to compete in this environment.

Rob Perez

In terms of the outpatient marketplace, we’ve seen far less an impact I think as the numbers we’ve articulated would show. Clearly, the macroeconomic factors affect everybody, but in general, the outpatient market felt a little bit less pressure than the inpatient world.

Mike Bonney

I think it’s one of the benefits of the strategic move we made two years ago to really emphasize the outpatient opportunity and to really push there because not only has it helped us to build this very significant outpatient business, but it also allows us to kind of partner with the hospitals to help to get patients out of the hospital as quickly as possible, and provide them an alternative to having patients stay in the hospital just to get their IV antibiotics. So it works on a couple of different fronts.

Howard Lang – Leerink Swann

Regarding Merrem, will the current relationship extend beyond the current term, which I think is around mid 2010, if I am not mistaken?

Rob Perez

The patent for Merrem expires in the middle of 2010. We have not decided yet whether on either side the relationship will continue, but the way that is structured, it’s a certain amount of money, $20 million to hit a certain forecast, so as long as both sides agree to the forecast even if that forecast is less than it was the previous year, then theoretically, it could continue. So it will depend upon Astra-Zeneca and Cubist agreeing to that forecast and both sides obviously agreeing that it makes sense to continue with the relationship. So it’s possible, but we can’t say yes that it will continue.

Operator

Your next question comes from the line of John Newman – Oppenheimer & Company.

John Newman – Oppenheimer & Company

My question has been answered.

Eileen McIntyre

Thank you all for joining us this evening. I’d appreciate it if you’d mark your calendars now for our fourth quarter and year-end earnings call which is scheduled to take place on Thursday, January 21, 2010, at 5 pm.

Operator

This does conclude today’s teleconference.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cubist Pharmaceuticals, Inc. Q3 2009 Earnings Call Transcript
This Transcript
All Transcripts