Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Anatomy of an Earnings Jump: Cubist Pharmaceuticals Inc (CBST)

Cubist Pharmaceuticals Inc (NASDAQ:CBST)Shares of Cubist Pharmaceuticals Inc (NASDAQ:CBST) exploded upward on Friday, finishing up over 9%. The company reported strong second-quarter results Thursday, beating average analyst estimates for both revenue and EPS. Total net revenues were $258.8 million, up 12.2% over Q2 2012, while non-GAAP diluted EPS was $0.42. Average analyst estimates were $254.73 million for revenue and EPS of $0.38.

Management highlighted strong growth in revenue (up 13.5% over Q2 2012  to $227.1 million) from Cubicin, the company’s flagship product, which fights complicated bacterial infections such as MRSA. In Q1, Cubicin sales had fallen 9% compared to the previous year, so some of the jump should be attributed to this recovery.

Cubist Pharmaceuticals Inc (NASDAQ:CBST) also reported it has received fast-track status from the Food and Drug Administration for all three potential indications of its late-stage pipeline drug, ceftolozane/tazobactam (CXA-201), which targets serious Gram-negative bacterial infections. Shares are up more than 30% this year based on Friday’s close, and investors looking for growth should be pleased with Cubist Pharmaceuticals Inc (NASDAQ:CBST)’s top-line growth, especially the increase in Cubicin sales. However, the potential indications of CXA-201 are more important going forward, as the market turns its attention to Cubist’s pipeline.

Diversifying revenue stream
There are several factors to consider in Cubist Pharmaceuticals Inc (NASDAQ:CBST)’s long-term outlook. Multi-drug resistant “superbugs” represent a serious global threat. Look for future health care legislation similar to the 2012 Generating Antibiotic Incentives Now (GAIN) Act to encourage stronger investment in antibiotic R&D. The most significant threat in Cubist Pharmaceuticals Inc (NASDAQ:CBST)’s future is the generic competition that Cubicin is expected to face in 2017. Cubicin accounted for around 90% of the company’s 2012 revenue. If a replacement can’t be found, the company could be in trouble. Cubicin also faces competition from similar drugs such as Zyvox, marketed by Pfizer Inc. (NYSE:PFE).

Cubist’s late-stage pipeline is the key area to watch. Those events include the new drug application for CXA-201 — which should follow results from the phase 3 trials that are expected in the second half of 2013 — as well as phase 3 trial results for two other drugs, CB-315 and CB-5945. Analysts expect CXA-201 to be Cubist’s next big blockbuster drug, so getting this drug through clinical trials and under FDA review is of paramount importance.

Long term, Cubist Pharmaceuticals Inc (NASDAQ:CBST) needs to diversify its revenue streams. If it can’t, bacteria will be the least of its worries.

The article Anatomy of an Earnings Jump: Cubist Pharmaceuticals originally appeared on and is written by Jake Keator.

Jake Keator has no position in any stocks mentioned. The Motley Fool recommends Cubist Pharmaceuticals.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.