NEW YORK (TheStreet) -- Shares of Merck (MRK - Get Report) are tumbling after a Delaware court denied Cubist's (CBST) bid to stop Hospira (HSP) from selling a generic version of Cubicin in 2016. Research firm Leerink Swann wrote that the price the company paid to acquire the antibiotics maker may have been $2B-$3B too high in light of the generic competition on the way for its current flagship product.
WHAT'S NEW: A federal judge, ruling on a lawsuit filed by drug maker Hospira, last night determined that four of the five patents on Cubicin are invalid since they weren't based on new inventions. The patents that were struck down expire in 2019 or 2020. The court upheld a fifth patent for Cubicin that expires on June 15, 2016. Cubist said it would appeal the judge's decision.
ANALYST REACTION: In a note to investors, Leerink Swann analyst Seamus Fernandez wrote that the ruling could enable several companies to introduce generic versions of Cubicin in late 2016. If the judge's decision is upheld on appeal, it will significantly affect the profits that Merck can generate form the Cubist acquisition, the analyst stated. If Merck could sell Cubicin without generic competition in the U.S. through 2018, the acquisition would boost Merck's profits by 22c per share in 2017/2018, Fernandez estimated. Conversely, if generic versions of Cubicin enters the U.S.e market in late 2016, the Cubist acquisition would increase Merck's profits by just 5c per share in 2017 and 1c per share in 2018, the analyst estimated. Given the impact of the patent ruling, the price that Merck paid for Cubist now looks $2B-$3B too high, Fernandez stated. He kept a Market Perform rating on Merck.
PRICE ACTION: In early afternoon trading, Merck fell 3% to $59.93, Cubist retreated 4.2% to $96.36 and Hospira was fractionally lower near $60 per share.
Reporting by Larry Ramer.