Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CBST > SEC Filings for CBST > Form 10-Q on 5-Nov-2012All Recent SEC Filings

Show all filings for CUBIST PHARMACEUTICALS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CUBIST PHARMACEUTICALS INC


5-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains and incorporates by reference "forward-looking statements." In some cases, these statements can be identified by the use of forward-looking terminology such as "may," "will," "could," "should," "would," "expect," "anticipate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward-looking information. You are cautioned that forward-looking statements are based on current expectations and are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including the risks and uncertainties described or discussed in Item 1A under the heading "Risk Factors" in Part II of this report. The forward-looking statements contained and incorporated herein represent our judgment as of the date of this Quarterly Report on Form 10-Q, and we caution readers not to place substantial reliance on such statements. The information contained in this Quarterly Report on Form 10-Q is provided by us as of the date of this Quarterly Report on Form 10-Q, and, except as required by law, we do not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding our expectations with respect to:

(i) our financial performance, including revenues, expenses, capital expenditures, gross margin and income taxes and our expected available cash and use of cash, including for the repayment of the remaining outstanding amount of our 2.25% convertible subordinated notes, or 2.25% Notes, in the fourth quarter of 2012;

(ii) the commercialization and manufacturing of CUBICIN® (daptomycin for injection) and ENTEREG® (alvimopan) and the commercial success of DIFICID® (fidaxomicin);

(iii) the strength of our intellectual property portfolio protecting CUBICIN and our ability to enforce this intellectual property portfolio; and

(iv) our expectations regarding our drug candidates, including the anticipated timing and results of our clinical trials, timing of our meetings with, and submissions to, regulatory authorities, including the timing of our submission of a supplemental New Drug Application, or sNDA, seeking label expansion for the use of ENTEREG and a New Drug Application, or NDA, seeking approval of ceftolozane/tazobactam, or CXA-201, for the treatment of complicated urinary tract infections, or cUTI, and complicated intra-abdominal infections, or cIAI, indications, and the development, regulatory filing and review and commercial potential of our other drug candidates, such as CB-5945 and CB-315, and the costs and expenses related thereto.

This Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the condensed consolidated financial statements and accompanying notes to assist readers in understanding our results of operations, financial condition and cash flows. We have organized the MD&A as follows:

† Overview: This section provides a summary of our financial highlights, business developments and product and product pipeline updates for the three and nine months ended September 30, 2012.

† Results of Operations: This section provides a review of our results of operations for the three and nine months ended September 30, 2012 and 2011.

† Liquidity and Capital Resources: This section provides a summary of our financial condition, including our sources and uses of cash, capital resources, commitments and liquidity.

† Commitments and Contingencies: This section provides a summary of our material legal proceedings and commitments and contingencies that are outside our normal course of business, as well as our commitment to make potential future milestone payments to third parties as part of our various business agreements.

† Critical Accounting Policies and Estimates: This section describes our critical accounting policies and the significant judgments and estimates that we have made in preparing our condensed consolidated financial statements.

† Recent Accounting Pronouncements: This section provides a summary of recently issued accounting pronouncements.


Table of Contents

Overview

We are a biopharmaceutical company headquartered in Lexington, Massachusetts, focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Such products and product candidates are used, or are being developed to be used primarily in hospitals and other acute care settings, including home infusion and hospital outpatient clinics. Cubist has two marketed products, CUBICIN and ENTEREG. We acquired ENTEREG in connection with the acquisition of Adolor Corporation, or Adolor, in December 2011. We also co-promote DIFICID in the United States, or U.S., under our co-promotion agreement with Optimer Pharmaceuticals, Inc., or Optimer. In addition, Cubist has three drug candidates that have reached Phase 3 clinical trials and several earlier-stage and pre-clinical programs, each being developed to address areas of significant medical needs.

CUBICIN is a once-daily, bactericidal, intravenous antibiotic with proven activity against methicillin-resistant Staphylococcus aureus (S. aureus), or MRSA. CUBICIN is approved in the U.S., the European Union, or EU, Japan and many other countries for the treatment of certain infections caused by Gram-positive bacteria, including treatment for certain bloodstream infections. ENTEREG is approved in the U.S. to accelerate upper and lower gastrointestinal, or GI, recovery following partial large or small bowel resection surgery with primary anastomosis. ENTEREG is not approved for marketing outside of the U.S. DIFICID is approved in the U.S. for the treatment of Clostridium difficile-associated diarrhea, or CDAD.

Financial Highlights



The following table is a summary of our selected financial results for the
periods presented:



                                          Three Months Ended       Nine Months Ended
                                            September 30,            September 30,
                                           2012         2011        2012        2011
                                             (in millions, except per share data)
U.S. CUBICIN revenues, net              $    208.3    $  186.4   $    593.2    $ 508.7
U.S. ENTEREG revenues, net                    10.1           -         29.2          -
International product revenues                12.0         9.8         36.0       25.8
Total worldwide product revenues, net   $    230.4    $  196.2   $    658.4    $ 534.5

Net income                              $     40.3    $   24.2   $    116.2    $  26.2
Basic net income per common share       $     0.63    $   0.40   $     1.83    $  0.43
Diluted net income per common share     $     0.55    $   0.33   $     1.59    $  0.41

Business Developments

The following is a summary of significant business developments that occurred during the nine months ended September 30, 2012, or that impacted the period thereof. For additional 2011 developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission, or SEC, on February 27, 2012, or 2011 Form 10-K.

ANDA Notification/Patent Litigation in U.S.

In February 2012, we received a Paragraph IV Certification Notice Letter from Hospira, Inc., or Hospira, notifying us that it had submitted an Abbreviated New Drug Application, or ANDA, to the U.S. Food and Drug Administration, or FDA, seeking approval to market a generic version of CUBICIN. Hospira's notice letter advised that it is seeking FDA approval to market daptomycin for injection, 500 mg/vial, prior to the expiration of U.S. Patent Nos. 6,468,967 and 6,852,689, which expire on September 24, 2019, U.S. Patent No. RE39,071, which expires on June 15, 2016, U.S. Patent No. 8,058,238, which expires on November 28, 2020, and U.S. Patent No. 8,003,673, which expires on September 4, 2028. In May 2012, we received a second Paragraph IV Certification Notice Letter from Hospira notifying us that it had submitted to the FDA an amendment to its ANDA. Hospira's second notice letter advised that it is seeking FDA approval to market daptomycin for injection, 500 mg/vial, prior to the expiration of U.S. Patent No. 8,129,342, which expires on November 28, 2020. In August 2012, we received a third Paragraph IV Certification Notice Letter from Hospira notifying us that it had submitted to the FDA an NDA seeking approval to market a generic version of CUBICIN. Hospira's third notice letter


Table of Contents

advised that it is seeking FDA approval to market daptomycin for injection, 350 mg/vial, prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689, RE39,071, 8,058,238 and 8,129,342. Each of these patents is listed in the FDA's list of "Approved Drug Products with Therapeutic Equivalence Evaluations," or the Orange Book. Each of the notice letters further stated that Hospira is asserting that each claim in the respectively referenced patents is invalid, and/or unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the drug product respectively described by Hospira's ANDA, as amended, and NDA. On March 21, 2012, Cubist filed a patent infringement lawsuit against Hospira in response to its initial ANDA filing. On July 9, 2012, Cubist filed a new complaint against Hospira to allege infringement of U.S. Patent No. 8,129,342 in response to Hospira's amendment to its ANDA. On September 17, 2012, Cubist filed a patent infringement lawsuit against Hospira in response to its NDA filing. The complaints, which were each filed in the U.S. District Court for the District of Delaware, respectively allege infringement of U.S. Patent Nos. 6,468,967; 6,852,689; RE39,071; 8,058,238; and 8,129,342. The complaints seek (i) an order preventing the effective date of the FDA's approval of Hospira's ANDA and NDA until the expiration of the patents in the respective lawsuits; (ii) an order preventing Hospira from making, using, selling, offering for sale, marketing, distributing or importing Hospira's generic versions of CUBICIN until the expiration of the patents in the respective lawsuits; and
(iii) an award of attorney's fees. By statute, the FDA is automatically prohibited from approving Hospira's ANDA for 30 months from Cubist's receipt of Hospira's first Paragraph IV notification letter for such ANDA and from approving Hospira's NDA for 30 months from Cubist's receipt of Hospira's first Paragraph IV notification letter for such NDA, as respectively applicable, unless the court enters a judgment finding the patents invalid, unenforceable or not infringed before expiration of the respective 30-month period or otherwise shortens the respective 30-month period. The court has scheduled a trial date in these related actions beginning on February 18, 2014, and a claims construction hearing (commonly referred to as a Markman hearing) on April 10, 2013. Any final, unappealable, adverse result in these litigations would likely have a material adverse effect on our results of operations and financial condition. We are confident in our intellectual property portfolio protecting CUBICIN, including the patents listed in the Orange Book.

Acquisition of Adolor

In December 2011, we completed our acquisition of Adolor. Under the terms of the agreement and plan of merger, we paid Adolor's former stockholders $4.25 in cash for each share of Adolor common stock, or approximately $220.8 million, in aggregate, which we funded from our existing cash balances. Adolor's former stockholders also received one non-transferable contingent payment right, or CPR, which represents the right to receive up to an additional $4.50 in cash for each share of Adolor common stock owned, or up to approximately $233.8 million in aggregate, which Cubist is required to pay upon achievement of certain regulatory milestones, sales milestones or a combination of both, related to CB-5945. The fair value of the purchase price was estimated to be $331.0 million and was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. See Note C., "Business Combinations and Acquisitions," in the accompanying notes to condensed consolidated financial statements for additional information.

Repurchase of 2.25% Notes

In June 2012, we repurchased $74.7 million aggregate principal amount of our outstanding 2.25% Notes, in privately-negotiated transactions. Cubist repurchased the 2.25% Notes at an average price of approximately $136.07 per $100 par value of debt plus accrued interest and transaction fees, resulting in a cash outflow of $102.6 million. The repurchase resulted in a net loss of $3.7 million for the nine months ended September 30, 2012, as calculated under accounting guidance for debt with conversion and other options. See Note G., "Debt," in the accompanying notes to condensed consolidated financial statements for additional information.

In October 2012, we called for redemption the remaining $34.5 million aggregate principal amount of our outstanding 2.25% Notes, and we elected to pay all settlements of the 2.25% Notes, under redemption or upon conversion, in cash. We expect to pay an estimated amount of approximately $50 million in aggregate to settle the 2.25% Notes. Actual amounts to be paid during the fourth quarter of 2012 for the settlement of the 2.25% Notes may differ from this estimate. See Note N., "Subsequent Event," in the accompanying notes to condensed consolidated financial statements for additional information.

Co-Promotion of DIFICID

During the three months ended September 30, 2012, we received a $3.5 million payment from Optimer, representing a portion of Optimer's gross profits on net sales of DIFICID in the U.S. that exceeded the 2012 annual sales target, as stipulated in the co-promotion agreement. In addition, during the second quarter of 2012, we earned a $5.0 million bonus from Optimer, representing the achievement of an annual sales target under the terms of the co-promotion agreement. See


Table of Contents

Note A., "Basis of Presentation and Accounting Policies," in the accompanying notes to condensed consolidated financial statements for additional information.

Product and Product Pipeline Updates

We are developing CXA-201 as a potential therapy for the treatment of certain serious Gram-negative bacterial infections in the hospital, including those caused by multi-drug-resistant Pseudomonas aeruginosa. First patient enrollment in a Phase 3 clinical trial of CXA-201 for the treatment of cIAI occurred in December 2011, which triggered a $30.0 million milestone payment that we made to the former stockholders of Calixa Therapeutics Inc., or Calixa, in January 2012. We also have an ongoing Phase 3 clinical trial of CXA-201 for the treatment of cUTI. We plan to file an NDA for cUTI and cIAI indications by the end of 2013 and a subsequent filing of a marketing authorization application outside the U.S., assuming positive Phase 3 clinical trial results in both cUTI and cIAI. We also are planning to pursue the development of CXA-201 as a potential treatment for hospital-acquired bacterial pneumonia, or HABP, and ventilator-associated bacterial pneumonia, or VABP, and expect to begin an open-label, Phase 3 clinical trial of CXA-201 for VABP in the first half of 2013.

In October 2012, we announced first patient enrollment in a Phase 3 long-term safety study of CB-5945. We are developing CB-5945 for the treatment of opioid-induced constipation, or OIC, in patients with chronic, non-cancer pain. We are assessing opportunities for finding a partner for CB-5945. Also, in July 2012, we announced first patient enrollment in a Phase 3 clinical trial of CB-315, which we are developing for the treatment of CDAD.

In April 2012, we announced that a Phase 4 clinical study of ENTEREG in patients undergoing radical cystectomy met its primary endpoint of time to achieve recovery of both upper and lower GI function. We expect to submit an sNDA seeking label expansion for the use of ENTEREG to accelerate the time to upper and lower GI recovery in patients undergoing this procedure by the end of 2012.

In addition, we continue to seek opportunities to build our pipeline of acute care therapies through our business development efforts and through our clinical development of compounds that we have developed internally.

Results of Operations for the Three Months Ended September 30, 2012 and 2011



Revenues



The following table sets forth net revenues for the periods presented:



                                    Three Months Ended September 30,
                                       2012                  2011          % Change
                                              (in millions)
U.S. product revenues, net       $           218.4     $           186.4         17 %
International product revenues                12.0                   9.8         22 %
Service revenues                               7.2                   3.0        139 %
Other revenues                                 0.6                   2.5        -74 %
Total revenues, net              $           238.2     $           201.7         18 %

Product Revenues, net

Cubist's net U.S. product revenues included $208.3 million of sales of CUBICIN and $10.1 million of sales of ENTEREG for the three months ended September 30, 2012, as compared to $186.4 million of net U.S. product revenues from sales of CUBICIN for the three months ended September 30, 2011. We did not have ENTEREG revenues for the three months ended September 30, 2011, because we had not yet acquired Adolor. Gross U.S. product revenues totaled $250.9 million and $213.1 million for the three months ended September 30, 2012 and 2011, respectively. The $37.8 million increase in gross U.S. product revenues was due to: (i) price increases of 5.5% for CUBICIN in January and July 2012, which resulted in $24.3 million of additional gross U.S. product revenues; (ii) an increase of approximately 1.3% in vial sales of CUBICIN in the U.S., which resulted in higher gross U.S. product revenues of $2.9 million; and (iii) the addition of ENTEREG to our product portfolio in December 2011, which resulted in additional gross U.S. product revenues of $10.6 million.


Table of Contents

Gross U.S. product revenues are offset by provisions for the three months ended September 30, 2012 and 2011, as follows:

                                                   Three Months Ended September 30,
                                                      2012                  2011
                                                             (in millions)
Gross U.S. product revenues                     $           250.9     $           213.1
Provisions offsetting U.S. product revenues:
Contractual adjustments                                     (13.5 )               (10.9 )
Governmental rebates                                        (19.0 )               (15.8 )
Total provisions offsetting product revenues                (32.5 )               (26.7 )
U.S. product revenues, net                      $           218.4     $           186.4

Contractual adjustments include pricing and early payment discounts extended to our external customers, as well as provisions for sales returns and wholesaler distribution fees. Governmental rebates represent estimated amounts for Medicaid rebates, Medicare coverage gap discount program rebates and chargebacks related to 340B/Public Health Service, or 340B/PHS, and Federal Supply Schedule, or FSS, drug pricing programs. The increase in provisions against gross product revenue was primarily driven by increases in chargebacks, Medicaid rebates, including the amount of rebates and the number of individuals eligible to participate in the Medicaid program, and pricing discounts due to increased U.S. sales of CUBICIN and the price increases described above.

International product revenues increased $2.2 million for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, primarily related to an increase in product sold to Novartis AG, or Novartis, for Novartis' distribution of CUBICIN in its territories.

Service Revenues

For the three months ended September 30, 2012 and 2011, service revenues were $7.2 million and $3.0 million, respectively. Service revenues for the three months ended September 30, 2012 and 2011, represent the ratable recognition of the quarterly service fee earned in accordance with the co-promotion agreement we entered into with Optimer in April 2011 to promote and provide medical affairs support for DIFICID in the U.S. In addition, during the three months ended September 30, 2012, we received a $3.5 million payment representing a portion of Optimer's gross profits on net sales of DIFICID in the U.S. that exceeded the 2012 annual sales target, as stipulated in the co-promotion agreement. See Note A., "Basis of Presentation and Accounting Policies," in the accompanying notes to condensed consolidated financial statements for additional information.

Costs and Expenses



The following table sets forth costs and expenses for the periods presented:



                                          Three Months Ended September 30,
                                             2012                  2011             % Change
                                                    (in millions)
Cost of product revenues               $            55.7     $            48.4              15 %
Research and development                            70.2                  46.2              52 %
Contingent consideration                             1.5                   2.1             -29 %
Selling, general and administrative                 40.4                  35.9              12 %
Total costs and expenses               $           167.8     $           132.6              27 %

Cost of Product Revenues

Cost of product revenues were $55.7 million and $48.4 million for the three months ended September 30, 2012 and 2011, respectively. Included in our cost of product revenues are royalties owed on worldwide net sales of CUBICIN and U.S. net sales of ENTEREG under our license agreements with Eli Lilly & Co., or Eli Lilly, costs to procure, manufacture and distribute CUBICIN and ENTEREG, and the amortization expense related to certain intangible assets. The increase in our cost of product revenues during the three months ended September 30, 2012, as compared to the three months ended


Table of Contents

September 30, 2011, is primarily attributable to the increase of sales of CUBICIN, the addition of ENTEREG to our product portfolio and amortization expense of $4.6 million related to the ENTEREG intangible asset. Our gross margin for the three months ended September 30, 2012 and 2011, was 76% and 75%, respectively.

Research and Development Expense



Research and development expense for the three months ended September 30, 2012
and 2011, consisted of the following:



                                            Three Months Ended September 30,
                                                2012                 2011           % Change
                                                      (in millions)
External expenses                         $           40.6     $           19.5            108 %
Unallocated internal research and
development expenses                                  29.6                 22.4             32 %
Milestone and upfront payments                           -                  4.3           -100 %
Total research and development expenses   $           70.2     $           46.2             52 %

The increase in research and development expenses for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, is primarily due to an increase of $17.7 million in clinical trial expenses primarily related to CXA-201 and CB-315, as well as an increase of $5.2 million in employee-related expenses due to additional headcount. This was partially offset by a decrease in milestone expense primarily related to a $4.0 million development milestone paid to Astellas Pharma Inc., or Astellas, related to the development of CXA-201 during the three months ended September 30, 2011, which did not recur during the three months ended September 30, 2012.

Contingent Consideration Expense

Contingent consideration expense for the three months ended September 30, 2012 and 2011, represents the change in the fair value of the contingent consideration liability relating to potential amounts payable to Calixa's former stockholders pursuant to our agreement to acquire Calixa in December 2009 and to Adolor's former stockholders pursuant to our agreement to acquire Adolor in December 2011. Contingent consideration expense for the three months ended September 30, 2012 and 2011, relates to the time value of money.

Contingent consideration expense may fluctuate significantly in future periods depending on changes in estimates, including probabilities associated with achieving the milestones and the period in which we estimate these milestones will be achieved.

Selling, General and Administrative Expense

The increase in selling, general and administrative expense for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, is primarily due to an increase in employee-related expenses as a result of increased headcount and an increase in promotional expenses for ENTEREG and CUBICIN.

Other Income (Expense), net



The following table sets forth other income (expense), net, for the periods
presented:



                                       Three Months Ended September 30,
                                           2012                 2011         % Change
                                                (in millions)
Interest income                     $              0.8     $           0.6         37 %
Interest expense                                  (7.6 )              (7.9 )       -3 %
Other income (expense)                            (3.4 )               0.5       -819 %
Total other income (expense), net   $            (10.2 )   $          (6.8 )       49 %


Table of Contents

Other Income/Expense

. . .

  Add CBST to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CBST - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.