Cubist Pharma Strikes Deal to Buy Adolor for up to $415M

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With its share price breaking through to a 52-week high, Cubist Pharmaceuticals (NAS: CBST) has decided to beef up its pipeline of acute care products with a deal to buy Adolor Pharmaceuticals (NAS: ADLR) for $190 million in cash and even more than that in back-end milestone payments based on the success of a mid-stage drug for opioid-induced constipation. Cubist says the buyout values Adolor at up to $415 million, net cash.

In the acquisition, Adolor shareholders, whose stock was worth $1.92 at Friday's close, will get $4.25 in cash and up to $4.50 more for a conditional repayment rate based on a set of key milestones. The Exton, Pa.-based biotech's lead program is ADL5945, an oral treatment that posted positive mid-stage data for opioid-induced constipation back in August. Cubist can now take the therapy into phase 3 studies next year, adding that it hopes to find an ex-U.S. partner for the treatment. Adolor also markets Entereg.

Cubist's immediate challenge will be to make its case that the buyout makes strategic sense. The Lexington, Mass.-based company has built its reputation on antibiotics, making Adolor's pipeline an add-on in new specialty arenas. And the past two years have been tough on Adolor shareholders, who had to watch as Pfizer dropped out of a $262 million partnership last year and the biotech announced back-to-back layoffs in 2009 and then again in 2010 after sales of Entereg fell below expectations.

"This transaction is an excellent strategic fit for Cubist and the latest milestone in what has been a transformational year for the company," Cubist CEO Michael Bonney said. "Entereg is a first-in-class therapy with strong growth potential, and we believe our experienced sales force and strong commercial platform will realize the potential of this important hospital product. With the addition of ADL5945, Cubist will have a truly outstanding late-stage pipeline with three strong candidates addressing significant markets. We are excited about the acquisition of Adolor and believe it will deliver significant value to our shareholders, hospital customers and patients."

Adolor's $4.50 CPR in the deal is based on the success of ADL5945. Cubist will pay $3 a share if ADL5945 receives FDA approval and another $1.50 per share if ADL5945 wins an EU OK. Both approvals will have to arrive before July 1, 2019.

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