Survey of Investors, Hedge Funds Blasé on Merck & Co., Cubist Pharmaceuticals, Inc. Deal

December 8, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

A quick survey of 183 biotech market participants, a group which was 30 percent hedge funds, told ISI Group that Monday they think Merck ’s $9.5 billion acquisition of Cubist Pharmaceuticals, Inc. had a reasonable price tag and seems like a largely unremarkable deal.

Analyst Mark Schoenebaum, a biotech market watcher and medical doctor, polled the group for quick feedback Monday afternoon. He found that when asked how does the deal impacted the market’s view of Merck’s management, 53 percent said no change, 23 percent said for the better, while 25 percent for the worse.

Merck said Monday it will buy Lexington, Mass.-based Cubist Pharmaceuticals, Inc. for approximately $8.4 billion. Deal terms include $102 per share in cash, with $1.1 billion in net debt, for a total of $9.5 billion. The group was largely sanguine about the overall quality or impact of the deal.

“On a scale of 1 (horrible) to 6 (awesome) what do you think, in general, of Merck's decision to buy Cubist (please answer from Merck's point of view!)?,” asked Schoenebaum. To that question, respondents ranked the deal a middling 3.55.

When it came to the $9.5 billion Merck will shell out for Cubist, 50 percent of respondents said they thought the company paid “about right” for the drugmaker. However, it was a close draw, with 47 percent remarking that Merck had paid too much—and a scant 2 percent thinking the deal terms were too low.

For now, most Wall Street and Main Street investors appear to be sitting on the sidelines to see how well the deal—which is not expected to be accretive until 2016—plays out.

“At first blush, do you think Cubist's guidance of $2 billion in 2017 revenue is achievable (up from ~$1.2 billion this year)?” asked Schoenebaum. Participants were split on the issue, with 48 percent saying yes, and 52 percent saying no.