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Earnings Preview: Cubist Pharma

CBST

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Cubist Pharmaceuticals Inc. (CBST - Analyst Report) is all set to unveil its fourth quarter and full year 2011 results on January 19, 2012. The Zacks Consensus Estimate for the fourth quarter is 29 cents, representing a year-over-year decrease of 33.14%. The Zacks Consensus Estimate for 2011 is 74 cents, down 57.23%.

Third quarter 2011 recap

Cubist Pharma’s third quarter 2011 earnings (excluding special items but including stock-based compensation expense) of 76 cents per share raced past the Zacks Consensus Estimate by 44 cents. Results in the quarter were helped by strong sales of antibiotic injection, Cubicin (daptomycin). Earnings also surpassed the year-ago adjusted earnings by 6 cents.

Revenue in the third quarter climbed 24% year over year to $201.7 million, handsomely beating the Zacks Consensus Estimate of $183 million. Net sales of Cubicin in the US climbed 21% year over year to $186.4 million in the third quarter.

(Read our full coverage on the earnings report at Cubist Tops, Guides up ).

Agreement of Estimate Revisions

Over the past seven days, most analysts covering Cubist Pharma have left their earnings estimates for the final quarter as well as annual 2011 unchanged. The last 7 days has seen only 2 analysts revising their estimates for the final quarter of 2011, 1 in either direction. The annual estimates for 2011 too have witnessed similar movements. We believe that most analysts have preferred to adopt a wait-and-watch approach until Cubist unfurls its results on January 19 before revising their estimates.

We believe Cubist Pharma’s results in the final quarter of 2011 will be driven by strong sales of Cubicin. This has been hinted at by the management as well while unveiling the company’s preliminary results earlier this month. (Read our full coverage on the preliminary sales report at Cubist's Preliminary Sales Impress ).

We are also pleased by the company’s agreement with Optimer Pharmaceuticals Inc. to co-promote Dificid in the US for C. difficile acquired diarrhea. The agreement will bring in service revenues to Cubist Pharma.

Magnitude of Estimate Revisions

Given the lack directional pressure, earnings estimate for the fourth quarter of 2011 has gone up by a penny over the last 7 days. Similarly, the earnings estimate for 2011 has gone up by a penny over the past 7 days.

Our Recommendation

Currently, we have an Underperform recommendation on Cubist Pharma. The stock carries a Zacks #3Rank (Hold rating) in the short run.

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