Killing the Superbug: “Owning this stock is like holding a winning lottery ticket” (Skousen)

By Travis Johnson, Stock Gumshoe, November 15, 2010

Mark Skousen, who is one of those Ph.D-type doctors (economics) and thankfully doesn’t always insist on being called Dr. Skousen (yes, we’re looking at you Dr. Leeb), is pitching a health care stock today as a teaser for his Forecasts and Strategies newsletter.

And like some folks we’ve heard from in the past, he’s teasing a “superbug” killer — a stock with a drug that can wipe out a particularly nasty variety of cooties: MRSA.

You’ve probably heard of MRSA (Methicillin-resistant Staphylococcus aureus), which is basically an antibiotic-resistant staph infection. Antibiotic resistance has turned into a major health care issue after years of overprescribing (and antibioitic-laced meats, etc.), and this particular strain of infection that’s resistant to the standard antibiotics is becoming a bigger and bigger public health issue because it can spread pretty quickly, particularly through hospitals, and the typical nasty skin infection can turn into something far worse. I’ve had MRSA infections myself, as have our kids (child care centers are another place where they spread easily), and I can certainly verify that it’s an extremely nasty and painful skin infection even when it doesn’t turn into a critical systemic infection (though I can also tell you that the powerful antibiotics we were given to fight these infections worked just fine for us … for now, at least … but they were definitely newer, more expensive non-generic drugs).

But can fighting MRSA make you rich? Well, this teaser tells us, “Yes!” Let’s look at some of the details from the ad and see if we can figure out which MRSA-fighting stock this is:

“I’ve just uncovered the most exciting investment opportunity I’ve seen in more than 30 years as a professional economist, bestselling author and editor of one of the nation’s most successful investment letters.

“I stumbled on it by accident when my research staff and I began looking into unusual trading activity in a little-known pharmaceutical firm that is treating one of the world’s fastest-growing pandemics.

“The virus is called MRSA (pronounced MUHR-sah). You may already be familiar with it.”

OK, so that’s more evidence that Skousen is a doctor of economics, not medicine —
MRSA is a bacterial infection, not a virus. But we’re told that one particular company is already saving lives in this fight:

“MRSA is insidious, killing tens of thousands of healthy Americans each year. (And millions more around the globe.) However, a little-known pharmaceutical company is now saving these lives and raking in hundreds of millions of dollars in the process.”

He goes on to say that the “hot new drug” will soon b “flying off pharmacy shelves” … and that you probably haven’t heard of the company but …

“… a cadre of the world’s richest and most sophisticated investors are already piling into this stock. Why? Because this is the closest thing to a ‘can’t-lose’ investment I’ve ever seen.”

We get some more clues about the company behind this drug:

“… cutting-edge drug maker is a key player in acute care, a sector of the health industry that is immune to troubles in the broad economy.”

And …

“In fact, even though this is a publicly traded company, 100% of the firm’s outstanding shares are currently in the hands of the world’s richest, most powerful investors.”

100%, eh? That’s pretty unusual. And Skousen also tells us that he sees three catalysts on the horizon that will drive the shares higher:

“1. The company will announce blockbuster growth in sales and profits that exceeds Wall Street’s most optimistic estimates. (You may not realize it, but huge earnings surprises like these are the primary cause of huge short-term gains. This news will drive the stock up to the first level.

“2. The drug maker will announce both refinements to its existing MRSA-killer and successful FDA trials of other drugs in its existing pipeline. These announcements will blast the stock to the next level.

“3. Following these announcements, several pharmaceutical giants will slug it out in a bidding war to acquire the company outright. This last development — coming on the heels of the first two — will drive the stock into the stratosphere, allowing you to pocket profits of up to $416,000.”

He tells us that he’s confident in these events happening because he has “cultivated high level contacts in business and government,” and he sounds pretty confident that this “new class of antibiotics” is the only solution to the MRSA crisis. As he puts it …

“… one pharmaceutical firm holds the solution. It patented prescription knocks MRSA dead. Own this small-cap stock and you could make buckets of money in the weeks ahead.”

So who is it? Well, I scoured through the letter and came up with a few more clues to feed into the mighty, mighty Thinkolator — and these couple paragraphs have a couple more specifics for us …

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“… this pharmaceutical firm is already one of the 100 Fastest-Growing Companies in the U.S. But it has hit a homerun with its patented antibiotic, one of the few FDA approved drugs for use against a stubborn superbug.

“This has been the most successful launch of an antibiotic in U.S. medical history. But the company is hardly resting on its laurels.

“Its sole focus is the development and commercialization of other anti-infective products for use by hospitals and other acute care facilities. It’s a narrow focus, but one with incredible commercial possibilities.”

And that’s enough — to match those clues, this must be Cubist Pharmaceuticals (CBST)

Cubist is an established pharmaceutical company, with a strong salesforce and one product of note: an intravenous antibioitic called Cubicin that is used in treating MRSA as well as other complex infections. And they are on Fortune’s 100 fastest growing companies list (they’re number 31 this year), thanks to Cubicin sales. And yes, Cubicin was the most successful antibiotic release in history (that’s in terms of sales — I imagine most people would consider penicillin to have been a “more successful” release when it went into widespread use, particularly in World War II).

Cubicin has been approved for several years, driving some nice revenue and earnings growth for Cubist, though it’s arguably still a second-line drug in most infection cases (it’s quite a bit more expensive than the old standbys like Vancomycin, though it is still growing and taking market share). More concerning for Cubist lately has been a patent challenge from Teva Pharmaceuticals — CBST apparently has a key patent expiration in 2016, but it looks like Teva is fighting the patent and filing to get approval for a generic version much sooner. I have no idea what’s happening with this, I haven’t dug into the details, but from what I can tell the trial is still expected to begin in April of next year — Cubist still says that they expect Cubicin sales to reach the $1 billion level and more, so it seems likely that there’s some fear of either this lawsuit or the patent expiration (2016 or 2019, depending on which patents you consider most important) keeping the shares somewhat depressed.

Cubist clearly knows that they’re perhaps overly dependent on one drug in a competitive environment (there are also other new MRSA-fighters either already approved or on the verge of being released, with Teflaro from Forest Labs as just one newly approved example), so they’ve been building up their pipeline — they gave up on one of their acute care drugs that failed in trials earlier, but bought out another biotech last year (Calixa Therapeutics) and have some Phase II trials underway on those newly acquired antibiotic compounds.

So … it looks like the question is whether the new compounds in development will help to buttress their product portfolio before Cubicin’s patent expiration, and whether you think the patent and their exclusivity will hold up for the next 5-10 years as Cubicin sales continue to grow. The company is certainly reasonably priced right now, with revenues up 13% year over year in the last quarter and similar earnings growth to go along with a trailing PE of 14 and a forward PE of 13. They seem to have plenty of cash, especially with a recent convertible note offering that will help them repay older debt and invest more in their pipeline, and they have apparently also been making partnership deals to put their salesforce to work selling drugs from other companies — not a huge deal, but perhaps encouraging that they’re thinking about diversifying revenue.

Cubist has a reasonably informative website, including investor fact sheets and presentations that are up to date with their current earnings info, so that’s a good place to start if you’re curious.

And to go beyond that, you’ll have to know more about Cubist than I do — all I know is that I’m quite confident that this is the stock Skousen is touting, and that it’s a pretty big company for a biotech and small for a pharmaceutical firm (market cap around $1 billion), and it is definitely extremely dependent on one drug … though it is a heckuva drug. If you think that sounds either appealing or frightening, let us know with a comment below.


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