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Still Neutral on Cubist Pharma

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On Aug 19, we maintained our Neutral recommendation on Cubist Pharmaceuticals Inc. . We are encouraged by the impressive performance of Cubist Pharma in the second quarter of 2013. Our investment thesis is supported by a Zacks Rank #3 (Hold).

Why the Reiteration?

On Jul 18, Cubist Pharma reported higher-than-expected revenues in the second quarter of 2013. Revenues climbed 12.2% to $258.8 million driven by strong sales of Cubicin, an antibiotic injection. Net product sales in the U.S. climbed 14.1% to $239.5 million. Most of the U.S. sales came from Cubicin. Net sales of the product in the U.S. climbed 13.4% to $227.1 million in the second quarter of 2013.

Cubicin performed well in the international markets as well with sales of the drug climbing 31.6% to $15 million. The strong sales of Cubicin in the second quarter of 2013 have pleased us following a disappointing first quarter. We are pleased by the strong sales of Cubicin in the second quarter after the disappointing first quarter performance.

At the second quarter 2013 conference call, the company stated that it was well on track to achieve revenues in excess of $1 billion in 2013, well over 2012 levels. Revenue growth is expected to be driven by strong Cubicin sales. Cubicin sales for 2013 are projected in the range of $900-$925 million, up 11%-14% year over year. We too expect Cubicin to continue performing well, thereby driving growth at Cubist Pharma. At its investor day, in Jun 2012, the company stated that it expects global revenue to grow to $2 billion by 2017.

We are also encouraged by Cubist Pharma’s decision to acquire antibiotics makers Optimer Pharmaceuticals and Trius Therapeutics. The acquisitions, on completion by year end, should strengthen Cubist Pharma’s antibiotics portfolio.

We prefer to remain on the sidelines until the acquisitions materialize. We retain our Neutral recommendation on the stock.

Stocks that Warrant a Look

While we expect Cubist Pharma to perform in line with its peers and industry levels in the coming months and advice investors to wait for a better entry point before accumulating shares, one can look at Alexion Pharmaceuticals, Inc. (ALXN - Free Report) as a good buying opportunity. This biopharmaceutical company – sporting a Zacks Rank #2 (Buy) – has performed encouragingly over the last few quarters with potential to rise significantly from current levels. Gilead Sciences Inc. (GILD - Free Report) is another company that is favorably placed in the biopharma space with a Zacks Rank #1 (Strong Buy).

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