Wednesday, August 23, 2006

Calls of Note Part 2

- Merrill Lynch comments on Cubist Pharma (NASDAQ:CBST) after Theravance (NASDAQ:THRX) announced th´at phase III telavancin studies in skin infections achieved the primary endpoint of non-inferiority vs. vancomycin, but did not show superiority in patients with resistant (MRSA) infections.

Firm notes the Telavancin data were in-line with their expectations but not strong enough to
support the bear case on Cubist that telavancin will replace Cubicin (CBST's drug) use in skin infections or compete directly with Cubicin in its large niche of bacteremia and endocarditis. They expect Cubist stock to rally now that the overhang of telavancin data is removed. Reiterates BUY.

They believe that a second 1x/day antibiotic will help expand the market for Cubicin, with both Cubist and Theravance/Astellas sales forces will be detailing physicians about the benefits of 1x/day IV antibiotics. Ultimately, they expect telavancin approval and commercial launch will help both drugs capture market share from vancomycin, benefiting Cubist in the long-term. Head-to-head comp less likely; bact/endo market safe.

Notablecalls: Think the news removes a significant overhang and I would not be surprised to see CBST trade up as much as 10% on the news.

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