Cubist Pharmaceuticals Inc (CBST) is all set to announce its fourth quarter and full year 2010 results on January 20, 2011. The Zacks Consensus Estimate for the fourth quarter is 34 cents, representing a year-over-year decrease of 24.4%. The Zacks Consensus Estimate for 2010 is $1.60, up 12.1%.
Third quarter 2010 recap
Cubist Pharma’s third quarter 2010 earnings (excluding special items but including stock-based compensation expense) of 39 cents per share surpassed the year-ago earnings by 21.9%. On a reported basis (including special items) the company earned 50 cents per share as against 42 cents in the year-ago quarter. The Zacks Consensus Estimate for the third quarter was 41 cents per share. Results in the quarter were helped by strong US sales of its antibiotic injection, Cubicin (daptomycin).
Revenue in the third quarter of 2010 climbed 13% year-over-year to $162.1 million. However, revenue was short of the Zacks Consensus Revenue Estimate of $169 million.
(Read our full coverage on the earnings report at Strong Cubicin Sales Drive Cubist )
Agreement of Estimate Revisions
Over the past thirty days, seven analysts covering Cubist Pharma have reduced their earnings estimate for the final quarter of 2010 with no movements in the opposite direction. The annual estimates for 2010 have been lowered by 6 analysts with no movements in the opposite direction. The predominant downward bias is attributable to the softness in US sales of Cubist’s growth driver, Cubicin, due to cost pressure on branded drugs in US hospitals.
Magnitude of Revisions
Estimates for the fourth quarter and full year 2010 have gone down by 3 cents and 4 cents, respectively. The reduction in estimates is due to the top line being pressurized by low Cubicin sales.
This concern was highlighted in the recently released preliminary sales data for the fourth quarter and full year 2010. Cubist’s preliminary revenues for the fourth quarter of 2010 declined 3% to $161.8 million due to reduced sales of Cubicin. Moreover, fourth quarter revenues were also hurt by the absence of service revenues pertaining to Cubist Pharma’s marketing agreement with AstraZeneca plc (AZN) involving AstraZeneca’s antibiotic, Merrem. The deal ended in June last year.
Our Take & Recommendation
The softness in Cubicin sales, which accounts for the bulk of the company’s revenues, bothers us. We are concerned about the unabated cost pressure on branded drugs in hospitals and the chances of it persisting through 2011. Moreover, the pending litigation with Teva Pharmaceutical Industries Ltd (TEVA), which is seeking to launch a generic version of Cubicin, is also a matter of great concern.
The ongoing litigation poses a significant threat to the Cubicin franchise and could be a source of overhang on Cubist’s shares in the foreseeable future. Moreover, the competition confronting Cubicin is another challenge for the company. Cubicin faces competition from Pfizer‘s (PFE) Zyvox and Tygacil, and Theravance‘s (THRX) Vibativ.
These concerns cause us to place an ‘Underperform’ recommendation on Cubist, which is supported by the Zacks #4 Rank (short-term ‘Sell’ rating) assigned to the company.
ASTRAZENECA PLC (AZN): Free Stock Analysis Report
CUBIST PHARM (CBST): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
THERAVANCE INC (THRX): Free Stock Analysis Report
Zacks Investment Research
