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At a glance, Cubist Pharmaceuticals’ (CBST) $190m purchase of ailing Adolor (ADLR) is a transaction that makes sense strategically. With the staph-fighting antibacterial Cubicin already on the market and earning a healthy income, the Massachusetts group will add a second hospital-specific drug to its arsenal in gastrointestinal treatment Entereg and a second GI asset in phase III ready ADL5945.

Now freed from the threat of generic competition for Cubicin until 2018, Cubist has been on the lookout for acquisitions and found a ready target in Adolor, which had recently reacquired Entereg from GlaxoSmithKline (NYSE:GSK) following sometimes challenging efforts to attain hospital formulary coverage. Cubist executives reckon its marketing team will have better luck than GSK in penetrating the specialised market, a gamble that will need to succeed to pay for ADL5945’s clinical programme.

Struggling asset

Entereg relieves intestinal impairment following abdominal or pelvic surgery, which can be brought about by several factors, including the use of opioid pain relievers. Its chief advantage is that it speeds recovery and reduces the length of hospital stays. However, it is covered by a black box warning for myocardial infarction in chronic use and is limited under its risk evaluation and mitigation strategy to just 15 doses – once pre-surgery and twice a day for a week following surgery.

Under its GSK partnership, Pennsylvania-based Adolor earned $25.4m in 2010 and GSK $36m in the profit-sharing co-marketing arrangement. However, in a call with investors, Cubist executives said one of the difficulties was that GSK’s more primary care-oriented sales representatives detailed the drug alongside respiratory treatment Advair, limiting the uptake.

In the hands of a hospital-focused team Entereg has a better chance, Cubist executives said. Following the disappointing sales under the GSK deal, Adolor reacquired Entereg rights in Septemer for $25m with payments spread over six years – an act which likely increased interest from suitors like Cubist.

Cubist executives have set a $100m sales target for Entereg before generic competition, which could come as soon as expiration of its composition of matter patent in 2016.

Ambitious targets

Along with eliminating duplication estimated to save $30m in 2012, that is a sales-growth goal that Cubist will need to achieve for the deal to be profitable by the 2012 target. With a phase III programme for ADL5945, a treatment for opoid induced constipation, slated to begin in 2012, research and development costs for Cubist are likely to increase substantially.

Cubist already has a phase III programme for antibacterial CXA-201 well underway, with a target enrollment in four trials of more than 3,000 patients. Cubist executives said multiple phase III trials on the Adolor candidate will need to take place to establish a safety database for a drug destined for long-term use. As a result, that programme will probably also need to also number in the thousands.

Thus, contingent payouts have been structured into the deal: up to an additional $225m to Adolor shareholders based on US and European approval and favourable labels that position the drug for the peak sales of $1bn that Cubist executives have structured the deal on.

In buying Adolor, Cubist has picked an acquisition target that aligns well with its own skill set. However, it has set some high bars for success; investors will be anxious to see if the deal is as lucrative as the company’s executives believe it will be.

Source: Cubist's Adolor Acquisition Aligns Well With Its Own Skill Set