Cubist Pharmaceuticals Inc (CBST), Optimer Pharmaceuticals, Inc. (OPTR), Trius Therapeutics, Inc. (TSRX): Will This Biotech Company’s Big Bet Pay Off?

What new treatments does Cubist gain?

By acquiring Optimer Pharmaceuticals, Inc. (NASDAQ:OPTR), Cubist will own Dificid, rather than merely receiving service revenues from sales. Yet Dificid’s lackluster sales of $16.8 million last quarter, which came in below the consensus estimate for $20 million, show that it can only be considered a secondary revenue stream like Entereg, rather than a top product like Cubicin. Optimer Pharmaceuticals, Inc. (NASDAQ:OPTR) has been researching alternative applications for Dificid as well.

By acquiring Trius Therapeutics, Inc. (NASDAQ:TSRX), Cubist gains the antibiotic tedizolid phosphate, a treatment for Gram-positive staph infections currently in Phase IV treatment. Trius Therapeutics, Inc. (NASDAQ:TSRX) co-developed tedizolid phosphate with Bayer for overseas markets. Trius Therapeutics, Inc. (NASDAQ:TSRX) is also working on GyrB/ParE, a treatment for Gram-negative infections (which are more resistant to antibiotics), which is currently in the discovery/pre-clinical phase.

The Foolish Bottom Line

Investors should recognize Cubist’s primary motivations for acquiring Optimer Pharmaceuticals, Inc. (NASDAQ:OPTR) and Trius Therapeutics, Inc. (NASDAQ:TSRX) – diversification and domination. By diversifying its pipeline, it can avoid being classified as a one-trick pony completely dependent on its best-selling antibiotic, Cubicin. It can also expand horizontally and add more antibiotics to its pipeline, expanding its reach into other Gram-positive and Gram-negative treatments. Most importantly, the acquisition could double Cubist’s annual revenue to $2 billion by 2017 and clear the road for future growth after Cubicin’s patent expiration.

Investors shouldn’t be in a big hurry to invest in Cubist, however. The stock’s 5-year PEG ratio of 2.09 suggests sluggish earnings growth ahead, and its forward P/E of 36.3 is considered a premium to its industry peers. Lastly, the company only reported $1 billion in cash last quarter, but is shouldering $408.2 million in debt. This means Cubist will have to take on even more debt to finance its acquisition of Optimer and Trius.

For now, biotech investors should still keep a close eye on how the Cubist deal plays out, since it could alter the market for antibiotics significantly, but it would be prudent to wait to see if these two costly investments pay off first.

The article Will This Biotech Company’s Big Bet Pay Off? originally appeared on Fool.com and is written by Leo Sun.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Cubist Pharmaceuticals. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.