Biotech Stock Mailbag: Gleaming the Cubist

The Biotech Stock Mailbag is once again open for business.

Before I get to your emails, I want to make sure everyone has seen my recent event calendars listing upcoming FDA approvals and clinical trial results. There were two of the latter, which you can read here and here.

This is helpful information for health care investors, so clip and save.

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The first email comes from John M., who writes, "Adam, what do you think about Cubist Pharmaceuticals(CBST Quote)? It seems almost forgotten. Do you think it is a takeout candidate?"

I don't know if Cubist is a takeout candidate, but I do like the stock. The company sells Cubicin, a successful antibiotic that treats the methicillin resistant Staphylococcus aureus (MRSA) bug along with other microbial nasties. The drug's sales grew 31% in the first quarter to $112 million.

At $17 a share, Cubist trades at 10 times consensus 2010 earnings estimate, which is cheap in my book, especially for a company with a drug that can do $500 million plus this year and $1 billion at peak.

The overhang on Cubist today, and the reason why some investors stay away, is the ongoing Cubicin patent challenge from Teva Pharmaceuticals(TEVA Quote). I believe the Cubicin patents are strong and valid. Teva is not going to win this patent fight and launch a generic Cubicin early.

Instead, Teva will be forced to concede to some kind of negotiated deal with Cubist that pushes a generic release back until very close to the Cubicin patent expirations in 2019.