Once a pharma gets its first drug approved, one of the hardest things to do is to capture the spoils. It's easy to burn through boatloads of cash to market the drug, or to get cornered into a marginal commercialization deal and settle on getting royalties from a large-cap pharmaceutical marketing partner.
That's why the deal Cubist Pharmaceuticals (Nasdaq: CBST) struck yesterday looks pretty impressive, at least on the surface. The one-drug wonder (so far, anyway) inked a deal to sell an antibiotic that AstraZeneca (NYSE: AZN) developed, and which has long been approved for marketing in the United States.
Cubist markets its own antibiotic, Cubicin, by itself, and a host of antibiotics from the likes of behemoths Pfizer (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ) compete with the drug, either directly or indirectly. Now, being able to market AstraZeneca's antibiotic Merrem means that if a hospital doesn't need Cubicin or has decided to use a Cubicin competitor, Cubist's sales team will still have an opportunity during its sales meetings to sell the hospital on Merrem.
Small specialty pharmas are usually asset-rich and cash-poor, with few resources to devote to selling a drug. Having to build out an expensive sales force to market only one drug can make competing for doctors' attention difficult, especially when other drugmakers' sales teams can offer a wider variety of compounds to get their foot in the doctors' door.
So getting a sales force in place that can sell a range of complementary compounds makes it cheaper for a drugmaker to sell those compounds. Salespeople have more to sell, and being able to market a portfolio of niche drugs spreads out the cost of maintaining that sales force.
If a compound doesn't have a huge sales potential, it might not be worth the bother. But in Cubist's case, Cubicin -- which just won market approval in 2003 -- generated sales of $290 million last year and has already become profitable.
Getting to add Merrem to its sales pitch to acute-care units should increase Cubist's top line, but it'll have a minimal impact on sales expenditures. That's a winning combination.
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