Cubist has the latest and the greatest formulations to combat superbugs in the hospital. Before a recent experience, I would have had no idea why Merck would pay so much for a company that has its chief drug, cubicin, going off patent possibly as soon as 2018.
First, we have had CEO Mike Bonney on several times for the show. Each time, he impressed me as someone who was after unmet needs, specifically diseases unique to hospital patients who catch them and are often killed by them.
I had been very skeptical of the company because of the patent issues. We know that no matter how terrific a drug might be, when it goes off patent, the margins are killed and they take the stock with it.
However, management made it clear that the pipeline was filled with new drugs that could attack diseases specific to hospital stays, and the company was well ahead of everyone else with some important phase three trials that could make a real difference.
Each time I spoke to the management of Cubist, I was astounded at the size of the unmet needs and the logic of shortening the hospital stay. The company had made some terrific acquisitions of companies that had formulations to stop hospital-related diarrhea, as well as a hard skin disease.
The second reason I am intrigued and excited by this merger has to do with a sad recent personal experience with my late dad at a hospital in Philadelphia. You see, he had entered the hospital with a broken hip. Pop had become frail, but he had all his senses and was very clear-headed, when he spoke to me right after the break. He was rushed to a hospital, and unfortunately he had to wait for a bed and for treatment. My sister and I had to push really hard for him to get a timely operation, because the longer an elderly person has to wait, the less likely he would have a quick recovery.
What shocked me was the calm way an excellent doctor explained the high mortality rates for older people who receive a simple operation. You see, they had to stay in the hospital to recuperate, and they couldn't get outpatient to physical therapy right away, as younger people can. The older you got, the more likely you would die, and the mortality statistics were somewhat staggering. He said that as many as 30% of the people who had the operation at my dad's age (he was 92) had typically not survived the first year.
I was pretty mystified. Pop got to inpatient rehabilitation, but he caught a superbug. It was something called acute respiratory distress syndrome. Doctors described it as an extreme form of pneumonia that fills the lungs with liquid, making it harder and harder to breath, until the patient dies. Needless to say, we were aghast at this rapid progression. The lungs were filling up by the hour, requiring increasing amounts of oxygen to breathe, and we demanded that doctors give Pop every single drug imaginable to knock this illness out.
But sadly, there wasn't one. This is precisely the kind of illness that doctors have nothing for.
I don't know if Cubist has some secret weapon against this hospital-borne disease, but it was pretty darned clear that this scourge kills a great many people, and the fatality odds are directly related to it. The frequency these illnesses strike, and the helplessness of the medical profession to treat them, make this acquisition pretty prescient in my humble opinion.
Did Merck overpay? Not if Cubist has a solution for this particular illness Pop had, or other illnesses like it. The charitable trust owns Merck, and I think that it's a testament to the prospects of Cubist that the stock has been barely dinged, despite the energy-related downturn. For the sake of all others who get hospital-borne diseases, let's hope Cubist has the cures we need to get people out of the hospital, and into safer confines as fast as possible.
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Editor's Note: This article was originally published at 2:15 p.m. EST on Real Money on Dec. 8.