Merck Reaffirms Commitment to Cubist Deal Despite Patent Ruling

By Chelsey Dulaney 

Merck & Co. said its $8.4 billion acquisition of Cubist Pharmaceuticals Inc. will proceed as planned, even after a federal court ruled that the company's flagship antibiotic could be subject to generic competition in two years.

Shares of Merck were off 3% in premarket trading, while Cubist was down 2%.

Merck announced plans to buy Cubist on Monday, part of its deeper push into antibiotics, an area seeing renewed interest because of the rise of dangerous new infections.

Cubicin, an intravenous antibiotic used to treat serious infections--including those caused by bacteria resistant to older antibiotics--currently accounts for more than 80% of Cubist's sales. The drug logged $967 million in revenue last year.

But a federal judge in Delaware issued an order Monday afternoon concluding that certain claims in Cubist patents covering Cubicin were invalid because the claimed inventions would have been obvious to people skilled in drug development. The patents are due to expire in 2019 and 2020.

Cubist said late Monday that the court decision wouldn't affect the company's proposed sale to Merck. The company said the judge upheld the validity of one patent, which will prohibit Hospira Inc. from selling generic Cubicin before June 2016. The company said it plans to appeal the portion of the judge's ruling that invalidated claims for later-expiring patents. Hospira has challenged the validity of a U.S. patent for the drug.

Merck on Tuesday said it still expects the deal to modestly add to earnings next year and contribute more than $1 billion in revenue.

The deal, which also includes the assumption of $1.1 billion in debt, is worth $102 a share, a 37% premium to Friday's close.

Lexington, Mass.-based Cubist is one of few companies that specializes in drugs to treat infectious diseases and other conditions, primarily in a hospital setting.

Write to Chelsey Dulaney at [e-mail]

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