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Cubist Pharmaceuticals, Inc.’s (CBST - Analyst Report) second quarter 2012 earnings (excluding special items but including stock-based compensation expense) came in at 68 cents per share, up 28.3% from the year-ago period.

Reported earnings came in at 58 cents, compared to a loss of 34 cents in the year-ago quarter. The earnings results comfortably surpassed the Zacks Consensus Estimate of 48 cents. Results in the quarter were primarily helped by strong sales of antibiotic injection, Cubicin (daptomycin) in the US.

Revenue in the second quarter of 2012 climbed 30.0% to $230.6 million, beating the Zacks Consensus Estimate of $226.0 million.

The Quarter in Detail

Cubicin, which is approved in the US and several other markets for the treatment of severe bacterial infections of the skin and bloodstream, accounted for the bulk of the revenues reported in the quarter.

Net product sales in the US climbed 24.5% to $209.9 million, with Cubicin accounting for a major part of the sales. Cubicin net sales in the US increased 18.7% to $200.2 million due to strong volume growth in the reported quarter. We remind investors that this is the first time that Cubicin quarterly sales crossed the $200 million mark in the US.

Net revenues from international sales of Cubicin jumped 46.7% to $11.4 million, in the second quarter of 2012, due to the impressive performance in some of Novartis AG’s (NVS - Snapshot Report) areas, mainly France, Turkey and Brazil. Total Cubicin sales climbed 20% in the reported quarter to $212 million.

Entereg, which became a part of Cubist Pharma’s portfolio following the December 2011 acquisition of Adolor Corporation, delivered revenues of $9.7 million in the quarter. Cubist Pharma is working on growing Entereg sales. The company has increased its call targets and expects to accelerate the Entereg launch.

Meanwhile, Cubist Pharma is looking to expand Entereg’s label. In April, 2012, the company announced successful results from a phase IV study of Entereg in patients undergoing radical cystectomy. Cubist Pharma plans to submit a supplemental New Drug Application (sNDA) with the US Food and Drug Administration (FDA) by this year for the same indication. Entereg is currently marketed to expedite gastrointestinal recovery following bowel resection surgery.

During the quarter, Cubist Pharma recognized $8.7 million as service revenues pertaining to its two-year agreement with Optimer Pharmaceuticals Inc. for the co-promotion of Optimer’s Dificid (fidaxomicin) in the US. The service revenue recognized includes a $5 million bonus for achieving sales target. The drug, developed by Optimer, is approved for treating patients suffering from c. difficile-associated diarrhea (CDAD). Dificid is available in the US since July 2011. Cubist Pharma also recorded $0.7 million as other revenues in the second quarter of 2012.

Notably, during the reported quarter, Cubist Pharma started enrolling patients in one of the two pivotal phase III studies evaluating the safety and efficacy of CB-315 in patients suffering from CDAD. The company also presented positive results from a phase II study of CB-5945 in patients suffering chronic non-cancer pain and opioid-induced constipation. Cubist Pharma plans to start a phase III study with CB-5945 by year end for this indication.

2012 Projection Tweaked

Cubist Pharma increased its forecast for adjusted operating income to $265–$275 million from $260–$265 million.

Cubist Pharma lowered its research and development guidance by $10 million to $275–$285 million (old guidance: $285–$295 million). The company shifted the planned $10 million cost to 2013 plan due to timing issues.

Our Recommendation

Currently, we have a Neutral recommendation on Cubist Pharma. While we are impressed with Cubicin’s performance and the second quarter results, we remain concerned about Cubist Pharma’s overt dependence on Cubicin. The stock carries a Zacks #3 Rank (Sell rating) in the short run.

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