CUBIST PHARMACEUTICALS INC, S-1/A, 1996-10-21

CUBIST PHARMACEUTICALS INC
S-1/A, 1996-10-21
PHARMACEUTICAL PREPARATIONS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996

REGISTRATION NO. 333-6795
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------

PRE-EFFECTIVE

AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

--------------

CUBIST PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 2834 22-3192085
(STATE OR OTHER
JURISDICTION OF
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

24 EMILY STREET
CAMBRIDGE, MA 02139
(617) 576-1999
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

--------------

SCOTT M. ROCKLAGE, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CUBIST PHARMACEUTICALS, INC.
24 EMILY STREET
CAMBRIDGE, MA 02139
(617) 576-1999
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

--------------

WITH COPIES TO:
JUSTIN P. MORREALE, ESQ. STEVEN D. SINGER, ESQ.
JULIO E. VEGA, ESQ. VIRGINIA H. KINGSLEY, ESQ.
BINGHAM, DANA & GOULD LLP HALE AND DORR
150 FEDERAL STREET 60 STATE STREET
BOSTON, MA 02110 BOSTON, MA 02109
(617) 951-8000 (617) 526-6000
--------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>

CUBIST PHARMACEUTICALS, INC.

CROSS REFERENCE SHEET BETWEEN ITEMS IN PART I OF FORM S-1 AND THE PROSPECTUS

<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
----------------------- ---------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page of Prospectus
2.Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front and Outside Back Cover Pages
of Prospectus
3.Summary Information and Risk
Factors....................... Prospectus Summary; Risk Factors
4.Use of Proceeds................. Prospectus Summary; Use of Proceeds
5.Determination of Offering Outside Front Cover Page of Prospectus;
Price......................... Risk Factors; Underwriting
6.Dilution........................ Risk Factors; Dilution
7.Selling Security Holders........ Not Applicable
8.Plan of Distribution............ Outside Front and Inside Front Cover Page
of Prospectus; Underwriting
9.Description of Securities to be Outside Front Cover Page of Prospectus;
Registered.................... Prospectus Summary; Dividend Policy;
Capitalization; Description of Capital
Stock
10.Interests of Named Experts and
Counsel....................... Legal Matters; Experts
11.Information with Respect to Outside Front and Inside Front Cover Pages;
Registrant.................... Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected Financial
Data; Management's Discussion and Analysis
of Financial Condition and Result of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Experts;
Financial Statements
12.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to Completion, Dated October 18, 1996

PROSPECTUS

2,000,000 SHARES

[LOGO OF CUBIST PHARMACEUTICALS, INC. APPEARS HERE]

CUBIST PHARMACEUTICALS, INC.

COMMON STOCK

-------------

All of the 2,000,000 shares of Common Stock offered hereby are being sold by
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company"). Prior to this
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be
between $10.00 and $12.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "CBST."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.

-------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share....................... $ $ $
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Total(3)........................ $ $ $
</TABLE>
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(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, estimated
at $600,000.

(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 300,000 additional shares of
Common Stock on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discounts and Commissions will be
$ , and the Proceeds to Company will be $ . See "Underwriting."

-------------

The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of the shares of Common Stock will be
made through the offices of UBS Securities LLC, 299 Park Avenue, New York, New
York on or about , 1996.

-------------

UBS SECURITIES

HAMBRECHT & QUIST

PACIFIC GROWTH EQUITIES, INC.

, 1996
<PAGE>
CUBIST TARGETS FOR ANTIINFECTIVE DRUGS

Current antiinfective drugs are Protein synthesis is a sequential
categorized according to the four process essential to the life of the
types of essential cell functions cell whereby amino acids are
they inhibit: (i) protein synthesis, incorporated into proteins. Cubist
(ii) cell metabolism, (iii) cell wall focuses on discovering novel anti-
synthesis and (iv) nucleic acid infective drugs that inhibit new
synthesis. targets essential to protein
synthesis. These targets are shown
(i) Protein in the boxes below.
Synthesis

(ii) Cell Ribonuclease P
Metabolism

(iii) Cell Wall [PICTURE OF RIBONUCLEASE
Synthesis Ribosomes P AND tRNA APPEARS HERE]

(iv) Nucleic Acid [PICTURE OF
Synthesis CELL AND Immature Mature
CELL FUNCTION tRNA tRNA
APPEARS HERE]

Enzyme
Ribonuclease P (RNase P)
DNA binds to and cleaves immature
tRNA molecules to produce
mature tRNAs.

mRNA Synthetase Amino Amidotransferase
Acid Glutamine

[PICTURE OF AMINOACYL tRNA [PICTURE OF AMIDOTRANSFERASE
SYNTHETASE CHARGING APPEARS MODIFYING GLUTAMATE tRNA
HERE] APPEARS HERE]
Charged Glutamine
tRNA
Certain bacteria lack glutamine
Aminoacyl tRNA synthetase binds to tRNA synthetase and require
mature tRNA and charges it with a amidotransferase (AdTase) to
specific amino acid. bind to an inappropriately
charged tRNA and modify the
EF-Tu amino acid glutamate to
glutamine.

[PICTURE OF ELONGATION FACTOR Protein
Tu AND CHARGED tRNA APPEARS HERE]
[PICTURE OF CHARGED tRNA,
RIBOSONE,mRNA, AND PROTEIN
Elongation factor EF-Tu binds to CHAIN APPEARS HERE]
charged tRNA and transports it to
the ribosome for protein synthesis. mRNA
Ribosome

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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under "Risk
Factors."

THE COMPANY

Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. The increasing prevalence of drug-resistant bacterial and
fungal pathogens has led to significantly higher mortality rates from
infectious diseases and currently presents a serious crisis worldwide. Cubist's
strategy for combating antiinfective drug resistance is to identify novel
intracellular targets essential for cell function in bacteria and fungi, such
as proteins, RNA or DNA, which if inhibited by a drug would kill or attenuate
the growth of the pathogen. Cubist selects these targets based on a thorough
understanding of their function, thereby providing a foundation for assay
development and identification of leads for drug discovery.

Cubist believes that its rational, target-based, drug discovery strategy
represents a distinct departure from and offers significant advantages over
traditional drug discovery strategies to counter drug resistance. These
traditional strategies have generally involved (i) whole-cell screening
methodologies which provide only limited knowledge of target function, (ii)
chemical modifications of existing antiinfective drugs, such as penicillin, or
(iii) the combination of existing antiinfective drugs with another agent (an
"antibiotic potentiator") to block drug resistance. For decades, antiinfective
drug discovery research has utilized only a fixed number of targets and
chemical structures, thereby limiting the ability of these approaches to
identify new classes of drugs effective against drug-resistant bacteria and
fungi. Cubist believes that the identification of new drug classes inhibiting
new targets will provide a compelling solution to drug resistance. The Company
has identified over 100 proprietary targets and related assays for the
discovery of new drugs. The Company expects that drugs inhibiting these new
targets will be immediately effective against drug-resistant bacteria and fungi
since these pathogens have not had an opportunity to evolve resistance specific
to these new drugs. Furthermore, Cubist's most advanced drug discovery program
could identify a drug which inhibits more than one essential target for a given
pathogen, which would significantly decrease the rate of emergence of drug
resistance.

The increasing prevalence of and rise in mortality rates from infectious
diseases places additional stress on the already overburdened U.S. health care
system. According to estimates from the U.S. Centers for Disease Control and
Prevention (the "CDC"), infectious diseases ranked as the third leading cause
of death in 1992, with mortality rates increasing by 58% during the period from
1980 to 1992, in contrast to mortality rates due to all causes which decreased
by 3% during this period. Based on CDC estimates, approximately two million
hospital-acquired infections occur each year, causing more than eight million
days of extended hospital stay and resulting in more than $4.5 billion in
additional health care costs each year.

According to 1995 sales data compiled by IMS International, an independent
pharmaceutical research firm, antiinfective drugs generated $26 billion in
sales and constituted the third largest pharmaceutical market worldwide, behind
only gastrointestinal and cardiovascular drugs. The growth of the worldwide
antiinfective drug market from 1994 to 1995 was 13%. Of the 100 best-selling
brand name drugs worldwide, 19 are antiinfective drugs addressing bacterial and
fungal infections. In the United States, sales of antiinfective drugs totaled
over $7 billion in 1995, and brand name antiinfective drugs accounted for 15 of
the leading 100 prescription drugs.

3
<PAGE>

glutamine on incorrectly charged tRNAs by the enzyme amidotransferase (the
"Amidotransferase Program") and (iv) transport of amino acid-charged tRNA
molecules to the site of protein synthesis by elongation factors (the
"Elongation Factors Program"). The Company believes that its target-based
programs will enable the development of clinically effective drugs to treat
infectious diseases caused by pathogens such as staphylococci, enterococci,
streptococci and candida. To date, the Company has identified lead candidates
targeting certain aminoacyl-tRNA synthetases, which demonstrate potency and
selectivity and inhibit the growth of bacteria or fungi. Cubist expects to
complete optimization of these lead candidates and select its first drug
candidate for pre-clinical development by the end of 1996. Assuming successful
pre-clinical development, the Company expects to file an Investigational New
Drug ("IND") application by the end of 1997.

A key element of the Company's strategy is to enhance certain of its drug
discovery and development programs and to fund its capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. To date, the Company has entered into agreements based on certain
targets within the Synthetase Program with Bristol-Myers Squibb Company, Merck
& Co., Inc. and Pfizer Inc. Assuming that these collaborative agreements
continue until their scheduled expirations, and that a separate drug is
successfully developed and commercialized from each of the five research
programs to be conducted pursuant to these agreements, Cubist will be entitled
to receive a total of $98.5 million in research support payments, technology
licensing fees, milestone payments and equity investments. In addition, the
Company will be entitled to receive royalties on worldwide sales of any drug
developed and commercialized from the collaborations.

Bristol-Myers Squibb. Cubist is collaborating with Bristol-Myers Squibb
Company ("Bristol-Myers Squibb") to discover antibacterial, antimycobacterial
and antifungal drug candidates from leads detected in the screening of Bristol-
Myers Squibb's compound library against six of Cubist's aminoacyl-tRNA
synthetase targets. If a separate drug is successfully developed and
commercialized through each of the bacterial, mycobacterial and fungal programs
within this collaboration, Cubist will be entitled to receive a total of $56.5
million in research support payments, technology licensing fees, milestone
payments and other payments from Bristol-Myers Squibb, including an equity
investment of $4.0 million made in June 1996. In addition, the Company will be
entitled to receive royalties on worldwide sales of any drug developed and
commercialized from this collaboration.

Merck. Cubist is collaborating with Merck & Co., Inc. ("Merck") to discover
antibacterial drug candidates from leads detected in the screening of Merck's
compound library against three of Cubist's aminoacyl-tRNA synthetase targets.
If a drug is successfully developed and commercialized through this
collaboration, Cubist will be entitled to receive a total of $20.5 million in
research support payments, technology licensing fees, milestone payments and
other payments from Merck. In addition, the Company will be entitled to receive
royalties on worldwide sales of any drug developed and commercialized from this
collaboration.

Pfizer. Cubist is collaborating with Pfizer Inc ("Pfizer") to discover
antibacterial drug candidates from leads detected in the screening of Pfizer's
compound library against six of Cubist's aminoacyl-tRNA synthetase targets. If
a drug is successfully developed and commercialized through this collaboration,
Cubist will be entitled to receive a total of $21.5 million in research support
payments, technology licensing fees, milestone payments and other payments from
Pfizer, including a $5.0 million equity investment. In addition, the Company
will be entitled to receive royalties on worldwide sales of any drug developed
and commercialized from this collaboration.

Apart from these collaborations, Cubist has retained rights to internally
develop and commercialize certain proprietary products which will enable the
Company either to commercialize certain drug candidates independently, or to
enter into future drug development and commercialization alliances with third
parties at a later stage in the development process.

The Company was incorporated under the laws of the State of Delaware on May
1, 1992. The Company's principal executive offices are located at 24 Emily
Street, Cambridge, Massachusetts 02139, and its telephone number is (617) 576-
1999.

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Cubist(TM), Cubist Pharmaceuticals(TM) and the Cubist logo are trademarks of
the Company. All other trademarks and trade names referenced in this Prospectus
are the property of their respective owners.

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered............................ 2,000,000 shares
Common Stock Outstanding after this Offering.... 8,369,669 shares(1)
Use of Proceeds................................. To fund research and development and working
capital and for general corporate purposes.
Proposed Nasdaq National Market Symbol.......... CBST
Risk Factors.................................... The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
</TABLE>

SUMMARY FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sponsored research revenues.... $ -- $ -- $ 1,271 $ 100 $ 2,047
Total operating expenses....... 1,716 4,758 6,673 3,414 4,056
Net interest income (expense).. 28 (55) 6 (10) (64)
-------- -------- -------- ------- -------
Net loss....................... $(1,688) $(4,813) $(5,396) $(3,324) $(2,073)
======== ======== ======== ======= =======
Pro forma net loss per
share(2)...................... $ (0.91) $ (0.32)
======== =======
Pro forma weighted average
shares used in computing
pro forma net loss per
share(2)...................... 5,898 6,449
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments............... $ 4,732 $ 24,592
Working capital...................................... 5,023 24,883
Total assets......................................... 10,355 30,215
Long-term debt and capital lease obligations, less
current portion..................................... 1,206 1,206
Accumulated deficit.................................. (14,005) (14,005)
Total stockholders' equity........................... 6,790 26,650
</TABLE>
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(1) Based on the number of shares outstanding as of September 30, 1996.
Excludes (i) an aggregate of 541,844 shares of Common Stock issuable
pursuant to stock options outstanding as of September 30, 1996, at a
weighted average exercise price per share of $1.66, (ii) 86,619 shares of
Common Stock issuable pursuant to warrants outstanding as of September 30,
1996, at a weighted average exercise price per share of $4.04, and (iii)
Common Stock that may be issued after the closing of this Offering to
Bristol-Myers Squibb pursuant to certain antidilution rights of Bristol-
Myers Squibb.

(2) Computed on the basis described in Note B of the Notes to Financial
Statements.

(3) As adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
hereby and receipt by the Company of the estimated net proceeds therefrom,
based upon an assumed initial public offering price of $11.00 per share and
after deducting the underwriting discount and estimated offering expenses
payable by the Company. See "Use of Proceeds" and "Capitalization."

--------------

Unless otherwise indicated, all information in this Prospectus (i) assumes
the Underwriters' over-allotment option is not exercised, (ii) reflects a one-
for-seven reverse stock split of the Common Stock to be effected prior to the
date of this Prospectus, (iii) reflects the conversion upon the closing of this
Offering of all outstanding shares of the Company's Preferred Stock into an
aggregate of 5,366,869 shares of Common Stock and of all outstanding warrants
to purchase shares of Preferred Stock into warrants to purchase 86,619 shares
of Common Stock, (iv) excludes Common Stock that may be issued after the
closing of this Offering to Bristol-Myers Squibb pursuant to certain
antidilution rights of Bristol-Myers Squibb, (v) reflects the amendment and
restatement of the Company's Amended and Restated 1993 Stock Option Plan
effective upon the closing of this Offering, (vi) reflects the amendment and
restatement of the Company's Amended and Restated By-Laws effective upon the
closing of this Offering and (vii) reflects the amendment of the Company's
Restated Certificate of Incorporation prior to the date of this Prospectus. See
"Capitalization," "Description of Capital Stock" and "Underwriting."

5
<PAGE>

RISK FACTORS

Prospective investors in the shares offered hereby should carefully consider
the following risk factors, in addition to the other information appearing in
this Prospectus.

Early Stage of Product Development; No Assurance of Successful
Commercialization. Since inception, the Company has generated no revenue from
product sales. The Company's research and development programs are at an early
stage, and the Company does not expect that any drugs resulting from its
research and development efforts, or from the joint efforts of the Company and
its collaborative partners, will be commercially available for a significant
number of years, if at all. The Company is currently in the process of
optimizing lead candidates to select drug candidates for pre-clinical
development; however, to date, the Company has not, independently or with its
collaborative partners, completed the optimization of any lead candidates or
selected any drug candidates. Any future drug candidates developed by the
Company will require significant additional research and development efforts,
including extensive pre-clinical (animal and in vitro data) and clinical
testing and regulatory approval, prior to commercial sale. None of the
Company's potential drug candidates have advanced to any phase of pre-clinical
or clinical trials. There can be no assurance that the Company's approach to
drug discovery, acting independently or with the efforts of any collaborative
partner of the Company, will be effective or will result in the development of
any drug. The Company's potential drug candidates will be subject to the risks
of failure inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that any or all of the
Company's drug candidates will be found to be unsafe, ineffective or toxic or
otherwise fail to meet applicable regulatory standards or receive necessary
regulatory clearances; that these drug candidates, if safe and effective, will
be difficult to develop into commercially viable drugs or to manufacture on a
large scale or will be uneconomical to market; that proprietary rights of
third parties will preclude the Company from marketing such drugs; or that
third parties will market superior or equivalent drugs. The failure to develop
safe, commercially viable drugs would have a material adverse effect on the
Company's business, operating results and financial condition.

Uncertainty Due To Unproven Technology. The Company's drug discovery
approach faces technical issues which have not been resolved and requires the
development of multiple novel technologies to create a successful drug
candidate. While the Company has demonstrated that certain compounds have the
ability to inhibit the activity of certain aminoacyl-tRNA synthetases, the
Company has not proven that this activity can be utilized clinically as a
therapeutic. Furthermore, there can be no assurance that the inhibitory
activity already demonstrated in primary screening will continue to be
encouraging in further screening or drug discovery studies. The Company has
not tested any drug candidates in humans, and there can be no assurance that
there will be clinical benefits associated with any such drug candidates.
Furthermore, there can be no assurance that the Company will successfully
address these technological challenges or others that may arise in the course
of development. Any failure of the Company to anticipate or respond adequately
to technological developments will have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the study of antiinfectives will lead to the discovery and
development of any drug candidates in the future or that the Company will be
able to employ its drug discovery approach successfully.

Dependence on Collaborative Partners and Others. A key element of the
Company's strategy is to enhance certain of its drug discovery and development
programs and to fund its capital requirements, in part, by entering into
collaborative agreements with major pharmaceutical companies. In December
1995, the Company entered into a Research Collaboration Agreement with Pfizer
(the "Pfizer Agreement"), and in June 1996, the Company entered into a
Collaborative Research and License Agreement with Bristol-Myers Squibb (the
"Bristol-Myers Squibb Agreement") and a Collaborative Research and License
Agreement with Merck (the "Merck Agreement" and, together with the Pfizer
Agreement and the Bristol-Myers Squibb Agreement, the "Collaborative
Agreements"). Under the Collaborative Agreements, each of Bristol-Myers
Squibb, Merck and Pfizer is responsible for (i) providing libraries of
compounds for screening against certain of the Company's aminoacyl-tRNA
synthetase targets, (ii) selecting, in collaboration with Cubist, compounds
determined to be leads in the screening for subsequent development, (iii)
conducting preclinical and clinical trials and obtaining required regulatory
approvals of drug candidates, and (iv) manufacturing and commercializing
resulting drugs. As a result, the Company's receipt of revenues (whether in
the form of

6
<PAGE>

continued research funding, drug development milestones or royalties on sales)
under the Collaborative Agreements is dependent upon the decisions made by and
the manufacturing and marketing resources of its collaborative partners. The
Company's collaborative partners are not obligated to develop or commercialize
any drug candidates resulting from the Collaborative Agreements. The amount
and timing of resources dedicated by the Company's collaborative partners to
their respective collaborations with the Company is not within the Company's
control. Moreover, certain drug candidates discovered by the Company may be
viewed by the Company's collaborative partners as competitive with such
partners' drugs or drug candidates. Accordingly, there can be no assurance
that the Company's collaborative partners will elect to proceed with the
development of drug candidates which the Company believes to be promising or
that they will not pursue their existing or alternative technologies in
preference to such drug candidates. There can be no assurance that the
interests of the Company will continue to coincide with those of its
collaborative partners, that some of the Company's collaborative partners will
not develop independently or with third parties drugs that could compete with
drugs of the types contemplated by the Collaborative Agreements, or that
disagreements over rights or technology or other proprietary interests will
not occur.

If any of the Company's collaborative partners breaches or terminates its
agreement with the Company, or otherwise fails to conduct its collaborative
activities in a timely manner, the development or commercialization of any
drug candidate or research program under these Collaborative Agreement may be
delayed, the Company may be required to undertake unforeseen additional
responsibilities or to devote unforeseen additional resources to such
development or commercialization, or such development or commercialization
could be terminated. Any such event could materially adversely affect the
Company's financial condition, intellectual property position and operations.
In addition, there have been a significant number of recent consolidations
among pharmaceutical companies. Such consolidations among the companies with
which the Company is collaborating could result in the diminution or
termination of, or delays in, the development or commercialization of drug
candidates or research programs under one or more of the Collaborative
Agreements.

Additional Financing Requirements; Uncertainty of Available Funding. The
Company will require substantial additional funds for its drug discovery and
development programs, for operating expenses, for pursuing regulatory
clearances, for the development of manufacturing, marketing and sales
capabilities and for prosecuting and defending its intellectual property
rights before it can expect to realize significant revenues from commercial
sales. The Company believes that the net proceeds of this Offering, together
with its existing capital resources, interest income and revenue from the
Collaborative Agreements, will be sufficient to fund its operating expenses
and capital requirements as currently planned through mid-1998. However, there
can be no assurance that such funds will be sufficient to fund its operating
expenses and capital requirements during such period. The Company's actual
cash requirements may vary materially from those now planned and will depend
upon numerous factors, including the results of the Company's research and
development and collaboration programs, the timing and results of pre-clinical
and clinical trials, the timing and costs of obtaining regulatory approvals,
the level of resources that the Company commits to the development of
manufacturing, marketing and sales capabilities, the ability of the Company to
maintain existing and establish new collaborative agreements with other
companies to provide funding to the Company, the technological advances and
activities of competitors and other factors. Thereafter, the Company will need
to raise substantial additional capital to fund its operations. The Company
intends to seek such additional funding through public or private financing or
collaborative or other arrangements with corporate partners. If additional
funds are raised by issuing equity securities, further dilution to existing
stockholders may result and future investors may be granted rights superior to
those of existing stockholders. There can be no assurance, however, that
additional financing will be available from any of these sources or, if
available, will be available on acceptable or affordable terms. If adequate
funds are not available, the Company may be required to delay, reduce the
scope of or eliminate one or more of its research and development programs or
to obtain funds by entering into arrangements with collaborative partners or
others that require the Company to issue additional equity securities or to
relinquish rights to certain technologies or drug candidates that the Company
would not otherwise issue or relinquish in order to continue independent
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

7
<PAGE>

History of Losses and Expectation of Future Losses; Uncertainty of Future
Profitability. The Company has incurred a cumulative operating loss of
approximately $14.0 million through June 30, 1996. Losses have resulted
principally from costs incurred in research and development activities related
to the Company's efforts to develop target candidates and from the associated
administrative costs. The Company expects to incur significant additional
operating losses over the next several years and expects cumulative losses to
increase substantially due to expanded research and development efforts, pre-
clinical and clinical trials and development of manufacturing, marketing and
sales capabilities. In the next few years, the Company's revenues may be
limited to research support payments under the Collaborative Agreements and
any amounts received under other research or drug development collaborations
that the Company has established or will establish. There can be no assurance,
however, that the Company will be able to establish any additional
collaborative relationships on terms acceptable to the Company or maintain in
effect the current Collaborative Agreements. The Company's ability to achieve
significant revenue or profitability is dependent on its or its collaborative
partners' ability to successfully complete the development of drug candidates,
to develop and obtain patent protection and regulatory approvals for the drug
candidates and to manufacture and commercialize the resulting drugs. The
Company will not receive revenues or royalties from commercial sales for a
significant number of years, if at all. Failure to receive significant
revenues or achieve profitable operations would impair the Company's ability
to sustain operations. There can be no assurance that the Company will ever
successfully identify, develop, commercialize, patent, manufacture and market
any products, obtain required regulatory approvals or achieve profitability.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

Uncertainty of Patents and Proprietary Rights. The Company's success will
depend in part on its ability to obtain U.S. and foreign patent protection for
its drug candidates and processes, preserve its trade secrets and operate
without infringing the proprietary rights of third parties. Because of the
length of time and expense associated with bringing new drug candidates
through the development and regulatory approval process to the marketplace,
the pharmaceutical industry has traditionally placed considerable importance
on obtaining patent and trade secret protection for significant new
technologies, products and processes. There can be no assurance that any
additional patents will issue from any of the patent applications owned by, or
licensed to, the Company. Further, there can be no assurance that any rights
the Company may have under issued patents will provide the Company with
significant protection against competitive products or otherwise be
commercially viable. Legal standards relating to the validity of patents
covering pharmaceutical and biotechnological inventions and the scope of
claims made under such patents are still developing. There is no consistent
policy regarding the breadth of claims allowed in biotechnology patents. The
patent position of a biotechnology firm is highly uncertain and involves
complex legal and factual questions. There can be no assurance that any
existing or future patents issued to, or licensed by, the Company will not
subsequently be challenged, infringed upon, invalidated or circumvented by
others. In addition, patents may have been granted, or may be granted,
covering products or processes that are necessary or useful to the development
of the Company's drug candidates. If the Company's drug candidates or
processes are found to infringe upon the patents, or otherwise impermissibly
utilize the intellectual property of others, the Company's development,
manufacture and sale of such drug candidates could be severely restricted or
prohibited. In such event, the Company may be required to obtain licenses from
third parties to utilize the patents or proprietary rights of others. There
can be no assurance that the Company will be able to obtain such licenses on
acceptable terms, or at all. There has been significant litigation in the
industry regarding patents and other proprietary rights. If the Company
becomes involved in litigation regarding its intellectual property rights or
the intellectual property rights of others, the potential cost of such
litigation and the potential damages that the Company could be required to pay
could be substantial.

In addition to patent protection, the Company relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, by confidentiality agreements with its collaborative partners, employees
and consultants. There can be no assurance that these confidentiality
agreements will not be breached, that the Company would have adequate remedies
for any such breach, or that the Company's trade secrets, proprietary know-how
and technological advances will not otherwise become known or be independently
discovered by others. See "Business--Patents and Proprietary Technology."

8
<PAGE>

Uncertainty Associated with Pre-clinical and Clinical Testing. Before
obtaining regulatory approvals for the commercial sale of any of the Company's
potential drugs, the drug candidates will be subject to extensive pre-clinical
and clinical trials to demonstrate their safety and efficacy in humans. The
Company is dependent on its collaborative partners to conduct clinical trials
for the drug candidates resulting from the Collaborative Agreements and may
become dependent on other third parties to conduct future clinical trials of
its internally developed drug candidates. The Company has no experience in
conducting pre-clinical or clinical trials, and no pre-clinical or clinical
trials have been commenced with respect to any of the Company's potential drug
candidates or any drug candidate being developed jointly by the Company and
its collaborative partners. Furthermore, there can be no assurance that pre-
clinical or clinical trials of any future drug candidates will demonstrate the
safety and efficacy of such drug candidates at all or to the extent necessary
to obtain regulatory approvals. Companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials, even after
demonstrating promising results in earlier trials. The failure to adequately
demonstrate the safety and efficacy of a drug candidate under development
could delay or prevent regulatory approval of the drug candidate and would
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Government Regulation."

No Assurance of Market Acceptance. There can be no assurance that any drugs
successfully developed by the Company, independently or with its collaborative
partners, if approved for marketing, will achieve market acceptance. The
antiinfective drugs which the Company is attempting to develop will compete
with a number of well-established antiinfective drugs manufactured and
marketed by major pharmaceutical companies. The degree of market acceptance of
any drugs developed by the Company will depend on a number of factors,
including the establishment and demonstration of the clinical efficacy and
safety of the Company's drug candidates, their potential advantage over
existing therapies and reimbursement policies of government and third-party
payors. There is no assurance that physicians, patients or the medical
community in general will accept and utilize any drugs that may be developed
by the Company independently or with its collaborative partners.

Intense Competition. The biotechnology and pharmaceutical industries are
intensely competitive and subject to rapid and significant technological
change. Competitors of the Company in the United States and elsewhere are
numerous and include, among others, major, multinational pharmaceutical and
chemical companies, specialized biotechnology firms and universities and other
research institutions. Many of these competitors employ greater financial and
other resources, including larger research and development staffs and more
effective marketing and manufacturing organizations, than the Company or its
collaborative partners. Acquisitions of competing companies and potential
competitors by large pharmaceutical companies or others could enhance
financial, marketing and other resources available to such competitors. As a
result of academic and government institutions becoming increasingly aware of
the commercial value of their research findings, such institutions are more
likely to enter into exclusive licensing agreements with commercial
enterprises, including competitors of the Company, to market commercial
products. There can be no assurance that the Company's competitors will not
succeed in developing technologies and drugs that are more effective or less
costly than any which are being developed by the Company or which would render
the Company's technology and future drugs obsolete and noncompetitive.

In addition, some of the Company's competitors have greater experience than
the Company in conducting pre-clinical and clinical trials and obtaining U.S.
Food and Drug Administration ("FDA") and other regulatory approvals.
Accordingly, the Company's competitors may succeed in obtaining FDA or other
regulatory approvals for drug candidates more rapidly than the Company.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage, including certain patent and
FDA marketing exclusivity rights that would delay the Company's ability to
market certain products. There can be no assurance that drugs resulting from
the Company's research and development efforts, or from the joint efforts of
the Company and its collaborative partners, will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or
elsewhere.

9
<PAGE>

Impact of Extensive Government Regulation. The FDA and comparable agencies
in foreign countries impose substantial requirements upon the introduction of
pharmaceutical products through lengthy and detailed pre-clinical, laboratory
and clinical testing procedures, sampling activities and other costly and
time-consuming procedures to establish their safety and efficacy. All of the
Company's drug candidates will require governmental approvals for
commercialization, none of which have been obtained. Pre-clinical and clinical
trials and manufacturing of the Company's drug candidates will be subject to
the rigorous testing and approval processes of the FDA and corresponding
foreign regulatory authorities. Satisfaction of these requirements typically
takes a significant number of years and can vary substantially based upon the
type, complexity and novelty of the product. There can be no assurance as to
when Cubist, independently or with its collaborative partners, might first
submit an IND for FDA or other regulatory review. Government regulation also
affects the manufacturing and marketing of pharmaceutical products. See
"Business--The Cubist Programs."

The effect of government regulation may be to delay marketing of the
Company's potential drugs for a considerable or indefinite period of time,
impose costly procedural requirements upon the Company's activities and
furnish a competitive advantage to larger companies or companies more
experienced in regulatory affairs. Delays in obtaining governmental regulatory
approval could adversely affect the Company's marketing as well as the
Company's ability to generate significant revenues from commercial sales.
There can be no assurance that FDA or other regulatory approvals for any drug
candidates developed by the Company will be granted on a timely basis or at
all. Moreover, if regulatory approval of a drug candidate is granted, such
approval may impose limitations on the indicated use for which such drug may
be marketed. Even if initial regulatory approvals for the Company's drug
candidates are obtained, the Company, its drugs and its manufacturing
facilities would be subject to continual review and periodic inspection, and
later discovery of previously unknown problems with a drug, manufacturer or
facility may result in restrictions on such drug or manufacturer, including
withdrawal of the drug from the market. The regulatory standards are applied
stringently by the FDA and other regulatory authorities and failure to comply
can, among other things, result in fines, denial or withdrawal of regulatory
approvals, product recalls or seizures, operating restrictions and criminal
prosecution.

The FDA has developed two "fast track" policies for certain new drugs
(including antibiotics), one policy for expedited development and review and
one policy for accelerated approval. The expedited development and review
policy applies to new drug therapies that are intended to treat persons with
life-threatening and severely-debilitating illnesses, especially where no
satisfactory alternative therapy exists. The accelerated approval policy
applies to certain new drugs that are intended to treat persons with serious
or life-threatening illnesses that provide a meaningful therapeutic benefit to
patients over existing treatments. See "Business--Government Regulation."
There can be no assurance that any drug candidate contemplated by the Company
will qualify for the FDA's various fast track or priority approval policies.
Nor can there be any assurance that such policies will remain as currently
implemented by the FDA.

As with many biotechnology and pharmaceutical companies, the Company is
subject to numerous environmental and safety laws and regulations. Any
violation of, and the cost of compliance with, these regulations could
materially adversely affect the Company's business, operating results and
financial condition. The Company is subject to periodic inspections and has
not received notice of any material violations of any environmental or safety
law or regulation. See "Business--Government Regulation."

Dependence on Key Personnel. The Company is highly dependent upon the
efforts of its senior management and scientific team, including its President
and Chief Executive Officer. Although Dr. Rocklage has entered into an
employment agreement with the Company, the terms of the employment agreement
provide that Dr. Rocklage may terminate his employment with the Company at any
time upon thirty days' written notice. None of the Company's other executive
officers or key employees has entered into an employment agreement with the
Company. The loss of the services of one or more of these individuals might
impede the achievement of the Company's development objectives. Because of the
specialized scientific

10
<PAGE>

nature of the Company's business, the Company is highly dependent upon its
ability to attract and retain qualified scientific and technical personnel.
There is intense competition among major pharmaceutical and chemical
companies, specialized biotechnology firms and universities and other research
institutions for qualified personnel in the areas of the Company's activities.
There can be no assurance that the Company will be able to continue to attract
and retain the qualified personnel necessary for the development of its
business. Loss of the services of, or failure to recruit, key scientific and
technical personnel could adversely affect the Company's business, operating
results and financial condition. See "Business--Employees" and "Management--
Executive Officers, Key Employees and Directors."

Lack of Manufacturing, Marketing and Sales Capability and Experience. Cubist
has not yet invested in the development of manufacturing, marketing or sales
capabilities. The Company has no experience in, and currently lacks the
facilities and personnel to, manufacture products in accordance with Good
Manufacturing Practices ("GMP") as prescribed by the FDA or to produce an
adequate supply of compounds to meet future requirements for clinical trials.
If the Company is unable to develop or contract for manufacturing capabilities
on acceptable terms, the Company's ability to conduct pre-clinical and
clinical trials with the Company's drug candidates, if any, will be adversely
affected, resulting in delays in the submission of drug candidates for
regulatory approvals and in the initiation of new development programs, which
in turn could materially impair Cubist's competitive position and the
possibility of achieving profitability.

The Company has no experience in marketing drugs. The Company has granted
marketing rights to its collaborative partners with respect to drugs developed
through the Collaborative Agreements. The Company may seek to collaborate with
a third party to market those drugs for which it has retained marketing rights
or may seek to market and sell such drugs directly. If the Company seeks to
collaborate with a third party, there can be no assurance that a collaborative
agreement can be reached on acceptable terms. If the Company seeks to market
and sell such drugs directly, the Company will need to hire additional
personnel skilled in marketing and sales as it develops drugs with commercial
potential. There can be no assurance that the Company will be able to acquire,
or establish third-party relationships to provide, any or all of these
capabilities.

Reimbursement and Drug Pricing Uncertainty. The successful commercialization
of, and the interest of potential collaborative partners to invest in, the
development of the Company's drug candidates will depend substantially on
reimbursement of the costs of the resulting drugs and related treatments at
acceptable levels from government authorities, private health insurers and
other organizations, such as health maintenance organizations ("HMOs"). There
can be no assurance that reimbursement in the United States or elsewhere will
be available for any drugs the Company may develop or, if available, will not
be decreased in the future, or that reimbursement amounts will not reduce the
demand for, or the price of, the Company's drugs, thereby adversely affecting
the Company's business. If reimbursement is not available or is available only
to limited levels, there can be no assurance that the Company will be able to
obtain collaborative partners to manufacture and commercialize its drugs, or
would be able to obtain a sufficient financial return on its own manufacture
and commercialization of any future drugs.

Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in
the United States and the concurrent growth of organizations such as HMOs,
which can control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care
or reduce government insurance programs, may result in lower prices for
pharmaceutical products. The cost containment measures that health care
providers are instituting, including practice protocols and guidelines and
clinical pathways, and the effect of any health care reform, could materially
adversely affect the Company's ability to sell any of its drugs if
successfully developed and approved. Moreover, the Company is unable to
predict what additional legislation or regulation, if any, relating to the
health care industry or third-party coverage and reimbursement may be enacted
in the future or what effect such legislation or regulation would have on the
Company's business.

11
<PAGE>

Potential Product Liability and Availability of Insurance. The Company's
business exposes it to potential liability risks that are inherent in the
testing, manufacturing and marketing of pharmaceutical products. The use of
the Company's drug candidates in clinical trials may expose the Company to
product liability claims and possible adverse publicity. These risks will
expand with respect to the Company's drug candidates, if any, that receive
regulatory approval for commercial sale. Product liability insurance for the
biotechnology industry is generally expensive, if available at all. The
Company does not have product liability insurance but intends to obtain such
coverage if and when its drug candidates are tested in clinical trials.
However, such coverage is becoming increasingly expensive and there can be no
assurance that the Company will be able to obtain insurance coverage at
acceptable costs or in a sufficient amount, if at all, or that a product
liability claim would not adversely affect the Company's business, operating
results or financial condition.

Control by Existing Stockholders. Upon completion of this Offering, the
Company's officers, directors and principal stockholders and their affiliates
will own or control approximately 72% of the Company's outstanding Common
Stock. As a result, these stockholders, acting together, will have the ability
to control most matters requiring approval by the stockholders of the Company,
including the election of the Company's Board of Directors.

No Prior Public Market; Stock Price Volatility. Prior to this Offering there
has been no public market for any of the Company's securities. Accordingly,
there can be no assurance that an active trading market will develop after
this Offering or that the Common Stock offered hereby will not decline below
the initial public offering price. The initial public offering price will be
determined by negotiations between the Company and the Representatives. See
"Underwriting." The market price of the Company's securities is likely to be
highly volatile. Factors such as announcements of technological innovations,
new commercial products, preclinical and clinical trials by the Company or its
competitors, other evidence of the safety or efficacy of products of the
Company or its competitors, governmental regulations and developments, health
care legislation, developments relating to patents or proprietary rights of
the Company or its competitors, including litigation, fluctuations in the
Company's operating results, market conditions for biotechnology stocks in
general and other factors may have a significant effect on the market price of
the Company's Common Stock. There has also been a history of significant
volatility in the market price for shares of other companies in the
biotechnology field.

Possible Adverse Impact of Shares Available for Future Sale. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of outstanding options and warrants) in the public market after this Offering
or the prospect of such sales could adversely affect the market price of the
Common Stock and may have a material adverse effect on the Company's ability
to raise any necessary capital to fund its future operations. Upon completion
of this Offering, the Company will have 8,369,669 shares of Common Stock
outstanding. The 2,000,000 shares offered hereby will be freely tradeable
without restriction or further registration under the Securities Act of 1933,
as amended (the "Securities Act"), except for any shares held by "affiliates"
of the Company within the meaning of the Securities Act which will be subject
to the resale limitations of Rule 144 promulgated under the Securities Act
("Rule 144"). The remaining 6,369,669 shares are "restricted" securities that
may be sold only if registered under the Securities Act, or sold in accordance
with an applicable exemption from registration, such as Rule 144. The
officers, directors, employees and other stockholders, who together hold
6,369,669 shares of Common Stock, and options to purchase an additional
541,844 shares of Common Stock, have agreed not to sell directly or
indirectly, any Common Stock without the prior written consent of UBS
Securities LLC for a period of 180 days from the date of this Prospectus (the
"Lock-up Agreements"). Commencing on the expiration of the Lock-up Agreements,
3,821,861 shares of Common Stock will be eligible for sale in the public
market, subject to compliance with Rule 144. In addition, holders of 5,453,488
shares of Common Stock will be entitled to certain registration rights with
respect to such shares. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price of
the Common Stock. In addition, any demand of such holders to include such
shares in Company-initiated registration statements could have an adverse
effect on the Company's ability to raise needed capital. See "Description of
Capital Stock--Registration Rights" and "Shares Eligible for Future Sale."

12
<PAGE>

Potential Anti-Takeover Effect of Certain Charter and By-Law
Provisions. Pursuant to the Company's Restated Certificate of Incorporation,
to be effective upon the closing of this Offering (the "Restated Certificate
of Incorporation"), special meetings of stockholders may be called only by the
Chairman of the Board, the President or a majority of the Board of Directors
of the Company. In addition, the Restated Certificate of Incorporation
authorizes the Board of Directors to issue preferred stock and to determine
its rights and preferences in order to eliminate delays associated with a
stockholder vote on specific issuances. The Company has no present plans to
issue any shares of preferred stock. The Restated Certificate of Incorporation
also provides for staggered elections of the Company's Board of Directors and
specific procedures for director nominations by stockholders and submission of
other proposals for consideration at stockholder meetings. These provisions
may have the effect of deterring hostile takeovers or delaying or preventing
changes in control or management of the Company, including transactions in
which stockholders might otherwise receive a premium for their shares over
then-current market prices. Certain provisions of Delaware law applicable to
the Company could also delay or make more difficult a merger, tender offer or
proxy contest involving the Company, including Section 203 of the Delaware
General Corporation Law (the "DGCL"), which prohibits a Delaware corporation
from engaging in any business combination with any stockholder owning 15% or
more of Company's outstanding voting stock ("interested stockholder") for a
period of three years from the date a stockholder becomes an interested
stockholder unless certain conditions are met. These provisions could also
limit the price that investors might be willing to pay in the future for
shares of Common Stock. See "Description of Capital Stock--Delaware Law and
Certain Charter and By-Law Provisions."

Dilution. The initial public offering price is substantially higher than the
net tangible book value per share of the currently outstanding Common Stock.
Investors purchasing shares of Common Stock in this Offering will therefore
suffer immediate dilution in net tangible book value of $7.82 per share. The
dilution will be increased to the extent that the holders of outstanding
options or warrants to purchase Common Stock at prices below the initial
public offering price exercise such options or warrants. See "Dilution."

Absence of Dividends. The Company has never declared or paid cash dividends
and does not intend to declare or pay any cash dividends in the foreseeable
future. See "Dividend Policy."

13
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $19,860,000
($22,929,000 if the Underwriters' over-allotment option is exercised in full),
based on an assumed initial public offering price of $11.00 per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company.

The Company intends to use the net proceeds for research and development,
working capital and general corporate purposes. The Company may also use a
portion of the net proceeds to acquire or license products or technologies
complementary to the Company's business, although the Company has no
agreements or commitments for any such acquisition or license. Pending such
use, the Company intends to invest the net proceeds in interest-bearing,
investment-grade securities.

The Company believes that the net proceeds of this Offering, together with
its existing capital resources, interest income and revenue from the
Collaborative Agreements, will be sufficient to fund its operating expenses
and capital requirements as currently planned through mid-1998. However, there
can be no assurance that such funds will be sufficient to fund its operating
expenses and capital requirements during such period. The Company's actual
cash requirements may vary materially from those now planned and will depend
upon numerous factors, including the results of the Company's research and
development and collaboration programs, the timing and results of pre-clinical
and clinical trials, the timing and costs of obtaining regulatory approvals,
the level of resources that the Company commits to the development of
manufacturing, marketing and sales capabilities, the ability of the Company to
maintain existing and establish new collaborative arrangements with other
companies to provide funding to the Company, the technological advances and
activities of competitors, and other factors. See "Risk Factors--Additional
Financing Requirements; Uncertainty of Available Funding."

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its capital stock
since its inception and does not anticipate paying cash dividends in the
foreseeable future.

14
<PAGE>

CAPITALIZATION

The following table sets forth at June 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company, as described in Note 1 below, and (iii) the pro forma capitalization
of the Company as adjusted to reflect the receipt of the estimated proceeds
from the sale of 2,000,000 shares of Common Stock being offered by the Company
hereby after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company. This table should be
read in conjunction with the Financial Statements of the Company and Notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
-------- -------------- -----------------
(in thousands)
<S> <C> <C> <C>
Long-term debt and capital lease ob-
ligations, less current portion.... $ 1,206 $ 1,206 $ 1,206
Stockholders' equity:
Preferred Stock, par value $.001
per share; 43,000,000 shares
authorized and 37,568,085 shares
issued and outstanding, actual;
5,000,000 shares authorized and
no shares issued and outstanding,
pro forma and pro forma as
adjusted......................... 38 -- --
Common Stock, par value $.001 per
share; 52,000,000 shares
authorized and 1,006,154 shares
issued and outstanding, actual;
25,000,000 shares authorized, pro
forma and pro forma as adjusted;
6,373,023 issued and outstanding,
pro forma and 8,373,023 shares
issued and outstanding, pro forma
as adjusted(3)................... 1 6 8
Additional paid-in capital........ 20,756 20,789 40,647
Accumulated deficit............... (14,005) (14,005) (14,005)
-------- -------- --------
Total stockholders' equity....... 6,790 6,790 26,650
-------- -------- --------
Total capitalization............. $ 7,996 $ 7,996 $ 27,856
======== ======== ========
</TABLE>
- --------
(1) Presented on a pro forma basis to give effect to (i) the conversion upon
the closing of this Offering of all outstanding shares of the Company's
Preferred Stock into an aggregate of 5,366,869 shares of Common Stock and
(ii) the amendment of the Company's Restated Certificate of Incorporation
prior to the date of this Prospectus.

(2) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
hereby and receipt by the Company of the estimated net proceeds therefrom,
based upon an assumed initial public offering price of $11.00 per share
and after deducting the underwriting discount and estimated offering
expenses payable by the Company. See "Use of Proceeds."

(3) Excludes (i) an aggregate of 541,844 shares of Common Stock issuable
pursuant to stock options outstanding as of September 30, 1996, at a
weighted average exercise price per share of $1.66, (ii) 86,619 shares of
Common Stock issuable pursuant to warrants outstanding as of September 30,
1996, at a weighted average exercise price per share of $4.04, (iii) a net
reduction of 3,354 shares of Common Stock outstanding between June 30,
1996, and September 30, 1996, and (iv) Common Stock that may be issued
after the closing of this Offering to Bristol-Myers Squibb pursuant to
certain antidilution rights of Bristol-Myers Squibb.

15
<PAGE>

DILUTION

As of June 30, 1996, the Company had a net tangible book value of
$6,790,000, or $1.07 per share. Net tangible book value per share is
determined by dividing the net tangible book value (tangible assets less
liabilities) of the Company by 6,373,023 shares of Common Stock outstanding at
such date, after giving effect to the conversion upon the closing of this
Offering of all outstanding shares of the Company's Preferred Stock into an
aggregate of 5,366,869 shares of Common Stock. Net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of Common Stock in this Offering and the net tangible book value
per share of Common Stock immediately after the completion of this Offering.
Without taking into account any changes in net tangible book value after June
30, 1996 other than as described above and to give effect to the sale by the
Company of the 2,000,000 shares of Common Stock offered hereby and the receipt
by the Company of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of June 30, 1996 would have been $3.18
per share. This represents an immediate increase in the pro forma net tangible
book value of $2.11 per share to existing investors and an immediate dilution
in net tangible book value of $7.82 per share to new investors purchasing
shares of Common Stock in this Offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of June 30,
1996....................................................... $1.07
Increase per share attributable to this Offering............ 2.11
-----
Pro forma net tangible book value per share after this
Offering................................................... 3.18
------
Dilution per share to new investors......................... $ 7.82
======
</TABLE>

The following table summarizes as of June 30, 1996, the total number of
shares of Common Stock purchased from the Company (adjusted to give effect to
the automatic conversion of all outstanding shares of Preferred Stock into
5,366,869 shares of Common Stock upon the closing of this Offering), the total
consideration paid, and the average price per share paid by existing
stockholders and by new investors:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 6,373,023 76.1% $21,083,536 48.9% $ 3.31
New investors................... 2,000,000 23.9 22,000,000 51.1 11.00
--------- ----- ----------- -----
Total....................... 8,373,023 100.0% $43,083,536 100.0%
========= ===== =========== =====
</TABLE>

The foregoing table assumes no exercise of outstanding options or warrants
to purchase Common Stock after June 30, 1996, and excludes Common Stock that
may be issued after the closing of this Offering to Bristol-Myers Squibb
pursuant to certain antidilution rights of Bristol-Myers Squibb. At September
30, 1996, there were outstanding options granted under the Amended and
Restated 1993 Stock Option Plan (the "Plan"), exercisable for an aggregate of
541,844 shares of Common Stock at a weighted average exercise price of $1.66
per share. In addition, at September 30, 1996 there were outstanding warrants
to purchase 86,619 shares of Common Stock at a weighted average exercise price
per share of $4.04. The exercise of these options and warrants and the
issuance of Common Stock to Bristol-Myers Squibb after the closing of this
Offering would result in further dilution to new investors. See "Management--
Amended and Restated 1993 Stock Option Plan," "Certain Transactions" and
"Description of Capital Stock--Warrants."

16
<PAGE>

SELECTED FINANCIAL DATA

The following Selected Financial Data should be read in conjunction with the
Company's Financial Statements and the Notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this Prospectus. The data set
forth below, as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995, are derived from the Company's
financial statements which have been audited by Coopers & Lybrand L.L.P.,
independent accountants, and which are included elsewhere in this Prospectus.
The selected financial data as of December 31, 1992 and 1993 and for the
period from inception (May 1, 1992) to December 31, 1992 are derived from and
are qualified by reference to, the Company's financial statements not included
in this Prospectus, all of which have been audited by Coopers & Lybrand
L.L.P., independent accountants. The selected financial data at June 30, 1996
and for the six months ended June 30, 1995 and 1996 are derived from the
Company's unaudited financial statements included elsewhere in this Prospectus
and include, in the opinion of the Company, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
Company's financial position at that date and results of operations for those
periods. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS
(MAY 1, 1992) YEARS ENDED DECEMBER 31, ENDED JUNE 30,
TO DECEMBER 31, ---------------------------- ----------------
1992 1993 1994 1995 1995 1996
--------------- -------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Sponsored research
revenues............... $-- $ -- $ -- $ 1,271 $ 100 $ 2,047
Operating expenses......
Research and
development........... 32 1,169 3,309 4,965 2,595 3,183
General and
administrative........ 6 547 1,449 1,708 819 873
---- -------- -------- -------- ------- -------
Total operating
expenses.............. 38 1,716 4,758 6,673 3,414 4,056
---- -------- -------- -------- ------- -------
Interest income......... 3 45 113 239 90 43
Interest expense........ -- (17) (168) (233) (100) (107)
---- -------- -------- -------- ------- -------
Net loss............... $(35) $ (1,688) $ (4,813) $ (5,396) $(3,324) $(2,073)
==== ======== ======== ======== ======= =======
Pro forma net loss per
share(1)............... $ (0.91) $ (0.32)
======== =======
Pro forma weighted
average common and
common equivalent
shares outstanding(1).. 5,898 6,449
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1993 1994 1995 1996
------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments.................... $ 4,457 $ 1,221 $ 3,056 $ 4,732
Working capital................. 3,937 (92) 3,215 5,023
Total assets.................... 7,241 4,250 7,048 10,355
Long-term debt and capital lease
obligations, less current
portion........................ 1,164 2,032 1,257 1,206
Accumulated deficit............. (1,723) (6,536) (11,932) (14,005)
Total stockholders' equity...... 5,488 823 4,895 6,790
</TABLE>
- --------
(1) Computed on the basis described in Note B of the Notes to the Financial
Statements.

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements which involve
risk and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in "Risk Factors."

OVERVIEW

Since its incorporation on May 1, 1992 and commencement of operations in
February 1993, Cubist has been engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. To date, the Company has raised over $23.5 million in
funding primarily through the sale of preferred stock. Additionally, the
Company has received several SBIR grants from the National Institutes of
Health. The Company has a limited history of operations and has experienced
significant operating losses since inception. The Company expects to incur
significant additional operating losses over the next several years and
expects cumulative losses to increase substantially due to expanded research
and development efforts, pre-clinical and clinical trials and development of
manufacturing, marketing and sales capabilities.

A key element of the Company's strategy is to enhance certain of its drug
discovery and development programs and to fund its capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. To date, the Company has entered into agreements based specifically
on the Synthetase Program with Bristol-Myers Squibb, Merck and Pfizer.
Assuming that the Collaborative Agreements continue until their scheduled
expirations, and that a separate drug is successfully developed and
commercialized from each of the five research programs to be conducted
pursuant to these agreements, Cubist will be entitled to receive a total of
$98.5 million in research support payments, technology licensing fees,
milestone payments and equity investments. In addition, the Company will be
entitled to receive royalties on worldwide sales of any drug developed and
commercialized from the collaborations.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 and 1995

Revenues. Total revenues in the six months ended June 30, 1996, were
$2,046,653 compared to $100,000 in the six months ended June 30, 1995. The
Company recognized $1,915,000 relating to Merck license fees and research
funding. The Company received $16,666 relating to Bristol-Myers Squibb
research funding, $37,000 relating to Pfizer research funding, and $77,987
relating to revenues from SBIR grants. In the six months ended June 30, 1995,
the Company recognized $100,000 relating to revenues from SBIR grants.

Research and Development Expenses. Total research and development expenses
were $3,182,609 in the six months ended June 30, 1996 compared to $2,594,884
in the six months ended June 30, 1995, an increase of $587,725 or 22.6%. The
increase was largely due to increased costs related to additional personnel,
laboratory research supplies and compound purchases to expand the Company's
compound collection.

General and Administrative Expenses. General and administrative expenses
were $873,586 in the six months ended June 30, 1996 compared to $818,977 in
the six months ended June 30, 1995, an increase of $54,609 or 6.7%. The
increase is primarily due to increased legal expenses related to the three
collaborations in the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995.

Interest Income and Expense. Interest income was $43,232 in the six months
ended June 30, 1996, compared to $90,312 in the six months ended June 30,
1995, a decrease of $47,080 or 52.1%. The decrease is primarily due to a
decrease in the average cash balance in the six months ended June 30, 1996, as
compared to the six months ended June 30, 1995. Interest expense was $106,903
in the six months ended June 30, 1996 compared to $100,806 in the six months
ended June 30, 1995, an increase of $6,097 or 6.0%.

18
<PAGE>

Net Loss. The net loss was $2,073,213 during the six months ended June 30,
1996 and $3,324,355 during the six months ended June 30, 1995, a decrease of
$1,251,142 or 37.6% primarily as a result of the revenues and other items
discussed above.

Years ended December 31, 1995 and 1994

Revenues. Total revenues in 1995 were $1,271,333. No revenues were received
in 1994. The Company recognized $283,000 relating to three SBIR Phase I grants
awarded during 1995. In addition, sponsored research revenues were recognized
upon the signing of the Pfizer Agreement in December 1995. Revenues included
$500,000 in license fees and $488,000 in research funding.

Research and Development Expenses. Total research and development expenses
were $4,964,876 in 1995 compared to $3,309,161 in 1994, an increase of
$1,655,715 or 50.0%. The increase was largely due to increased costs related
to additional personnel, increased facility-related expenses reflecting the
construction of 6,500 square feet of additional laboratory space and increased
license and collaboration expenses.

General and Administrative Expenses. General and administrative expenses
were $1,708,513 in 1995 compared to $1,448,928 in 1994, an increase of
$259,585 or 17.9%. The increase is primarily due to increased compensation
expenses reflecting a full year of executive compensation and increased patent
application expenses offset by decreased relocation expenses.

Interest Income and Expense. Interest income was $239,030 in 1995 compared
to $113,338 in 1994, an increase of $125,692 or 110.9%. This increase was due
to an increase in the average cash balance from two equity financings during
1995 raising approximately $9,000,000. Interest expense was $232,980 in 1995
compared to $168,284 in 1994, an increase of $64,696 or 38.4%. This increase
was due to additional capital lease obligations entered into during 1995.

Net Loss. The net loss was $5,396,006 during 1995 and $4,813,035 during
1994, an increase of $582,971 or 12.1%. The increase was primarily due to
additional expenses incurred to support the advancement of the Company's
internal research programs. Offsetting these additional expenses were revenues
associated with the Pfizer Agreement and SBIR Phase I grants.

Years ended December 31, 1994 and 1993

Revenues. No revenues were received during these periods.

Research and Development Expenses. Total research and development expenses
were $3,309,161 in 1994 compared to $1,169,168 in 1993, an increase of
$2,139,993 or 183.0%. The increase was largely due to increased costs related
to additional personnel, as well as increased laboratory research supplies
supporting the advancement of the Company's internal research programs.

General and Administrative Expenses. General and administrative expenses
were $1,448,928 in 1994 compared to $546,843 in 1993, an increase of $902,085
or 165.0%. The increase is primarily due to increased compensation and
recruiting expenses and legal expenses associated with patent filings.

Interest Income and Expense. Interest income was $113,338 in 1994 compared
to $45,028 in 1993, an increase of $68,310 or 151.7%. This increase was due to
an increase in the average cash balance due to an equity infusion during
August 1993 raising approximately $7,100,000. Interest expense was $168,284 in
1994 compared to $16,911 in 1993, an increase of $151,373 or 895.1%. This
increase was due to capital lease obligations entered into during 1994 and a
full year of interest expense incurred in 1994 for debt entered into by the
Company relating to the facility renovation in September 1993.

Net Loss. The net loss was $4,813,035 during 1994 and $1,687,894 in 1993, an
increase of $3,125,141 or 185.2%. The increase was primarily due to additional
expenses incurred to support the advancement of the Company's internal
research programs.

19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations through the sale of
equity securities, equipment financing, sponsored research revenues, license
revenues and interest earned on invested capital. The Company's total cash,
cash equivalent and investments balance at June 30, 1996 was $4,732,273
compared to $3,056,124 at December 31, 1995. The Company raised approximately
$8,468,000 in equity financings, $488,000 in sponsored research revenues,
$283,000 in SBIR grants and $500,000 in licensing revenues during 1995.

Net cash used in operating activities was $6,514,231 in 1995 compared to
$3,753,728 and $1,390,476 in 1994 and 1993, respectively. The cash used in
operations was primarily to fund research and development and for general and
administrative expenses.

The Company has entered into Collaborative Agreements with Bristol-Myers
Squibb, Merck and Pfizer. Assuming that the Collaborative Agreements continue
until their scheduled expirations, and that a separate drug is successfully
developed and commercialized from each of the five research programs to be
conducted pursuant to these agreements, Cubist will be entitled to receive a
total of $98.5 million in research support payments, technology licensing
fees, milestone payments and equity investments. In addition, the Company will
be entitled to receive royalties on worldwide sales of drugs resulting from
these collaborations. Through July 1996, the Company's collaborative partners
have provided the Company with $3.8 million of research support payments and a
technology licensing fee and $4.0 million in equity investments. There can be
no assurance that the Company will receive any additional funding from the
Collaborative Agreements. See "Risk Factors--Dependence on Collaborative
Partners and Others" and "Business--Collaborative Agreements."

As of June 30, 1996, the Company had invested $4,171,086 in property and
equipment, primarily in facility renovations and laboratory equipment under
capital leases. The present value of obligations under capital leases at June
30, 1996 was $1,266,596. Minimum annual principal payments due under capital
leases total $520,060 in 1996 and 1997. Principal payments decline each year
thereafter until expiration in 1999. The Company made principal payments under
capital lease obligations in 1995 and 1994 of $318,272 and $212,428,
respectively. The Company expects its capital expenditures in 1996 to be
approximately $1,000,000, consisting of $300,000 in leasehold improvements and
$700,000 of laboratory and other equipment purchases.

The Company believes that the net proceeds of this Offering, together with
its existing capital resources, interest income and revenue from the
Collaborative Agreements, will be sufficient to fund its operating expenses
and capital requirements as currently planned through mid-1998. These funding
requirements include continued expenditures for research and development
activities, as well as expenditures related to leasehold improvements and the
purchase of additional laboratory and other equipment. The Company has not
entered into any formal commitments to use the proceeds from the Offering for
increased personnel, capital expenditures or any other purpose. The Company's
actual cash requirements may vary materially from those now planned and will
depend upon numerous factors. There can be no assurance that the net proceeds
of this Offering, together with the Company's existing capital resources,
interest income and revenue from the Collaborative Agreements, will be
sufficient to fund the Company's operating expenses and capital requirements
during such period. Thereafter, the Company will need to raise substantial
additional capital to fund its operations. The Company intends to seek such
additional funding through public or private financing or collaborative or
other arrangements with corporate partners. See "Use of Proceeds" and "Risk
Factors--Additional Financing Requirements; Uncertainty of Available Funding."

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." This standard is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company's
analysis of this new standard indicates that it will not have a material
effect on the Company's financial position or results of operations.

20
<PAGE>

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which encourages companies to recognize compensation expense in
the income statement based on the fair value of the underlying common stock at
the date of the awards are granted. However, it will permit continued
accounting under APB Opinion 25, "Accounting for Stock Issued to Employees,"
accompanied by a disclosure of the pro forma effects on net income and
earnings per share had the new accounting rules been applied. The statement is
effective for fiscal year 1996. The Company has determined that it will elect
the disclosure-only alternative permitted under SFAS No. 123. The Company will
be required to disclose pro forma net income and pro forma earnings per share
in the footnotes using the fair value based method beginning in 1996 with
comparable disclosures for 1995. The Company has not determined the impact of
the pro forma adjustments to its net income or earnings per share.

21
<PAGE>

BUSINESS

THE COMPANY

Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. The increasing prevalence of drug-resistant bacterial and
fungal pathogens has led to significantly higher mortality rates from
infectious diseases and currently presents a serious crisis worldwide.
Cubist's strategy for combating antiinfective drug resistance is to identify
novel intracellular targets essential for cell function in bacteria and fungi,
such as proteins, RNA or DNA, which if inhibited by a drug would kill or
attenuate the growth of the pathogen. Cubist selects these targets based on a
thorough understanding of their function, thereby providing a foundation for
assay development and identification of leads for drug discovery.

Cubist believes that its rational, target-based, drug discovery strategy
represents a distinct departure from and offers significant advantages over
traditional drug discovery strategies to counter drug resistance. These
traditional strategies have generally involved (i) whole-cell screening
methodologies which provide only limited knowledge of target function, (ii)
chemical modifications of existing antiinfective drugs, such as penicillin, or
(iii) the combination of existing antiinfective drugs with an antibiotic
potentiator to block drug resistance. For decades, antiinfective drug
discovery research has utilized only a fixed number of targets and chemical
structures thereby limiting the ability of these approaches to identify new
classes of drugs effective against drug-resistant bacteria and fungi. Cubist
believes that the identification of new drug classes inhibiting new targets
will provide a compelling solution to drug resistance. The Company has
identified over 100 proprietary targets and related assays for the discovery
of new drugs. The Company expects that drugs inhibiting these new targets will
be immediately effective against drug-resistant bacteria and fungi since these
pathogens have not had an opportunity to evolve resistance specific to these
new drugs. Furthermore, Cubist's most advanced drug discovery program could
identify a drug which inhibits more than one essential target for a given
pathogen, which would significantly decrease the rate of emergence of drug
resistance.

Cubist's initial focus is on the identification and development of
antiinfective drugs to inhibit selected targets involved in the essential
process of protein synthesis. Cubist's programs are based on targets that are
responsible for the: (i) addition or charging of amino acids to tRNA molecules
by enzymes known as aminoacyl-tRNA synthetases, (ii) cleavage by the enzyme
ribonuclease P of immature tRNA to form mature tRNA prior to its charging with
amino acids by the enzyme ribonuclease P, (iii) modification of the amino acid
glutamate into glutamine on incorrectly charged tRNAs by the enzyme
amidotransferase and (iv) transport of amino acid-charged tRNA molecules to
the site of protein synthesis by elongation factors. The Company believes that
its target-based programs will enable the development of clinically effective
drugs to treat infectious diseases caused by pathogens such as staphylococci,
enterococci, streptococci and candida. To date, the Company has identified
lead candidates targeting certain aminoacyl-tRNA synthetases, which
demonstrate potency and selectivity and inhibit the growth of bacteria or
fungi. Cubist expects to complete optimization of these lead candidates and
select its first drug candidate for pre-clinical development by the end of
1996. Assuming successful pre-clinical development, the Company expects to
file an IND application by the end of 1997.

22
<PAGE>

to be conducted pursuant to these agreements, Cubist will be entitled to
receive a total of $98.5 million in research support payments, technology
licensing fees, milestone payments and equity investments. In addition, the
Company will be entitled to receive royalties on worldwide sales of drugs
resulting from these collaborations. Through July 1996, the Company's
collaborative partners have provided the Company with $3.8 million of research
support payments and a technology licensing fee and $4.0 million in equity
investments.

Apart from these collaborations, Cubist has retained rights to internally
develop and commercialize certain proprietary products which will enable the
Company either to commercialize certain drug candidates independently or to
enter into future drug development and commercialization alliances with third
parties at a later stage in the development process.

OVERVIEW OF INFECTIOUS DISEASE AND DRUG RESISTANCE

Infectious diseases are caused by bacteria and fungi present in the
environment that enter the body through the skin or mucous membranes of the
lungs, nasal passages and gastrointestinal tract, and overwhelm the body's
immune system. These pathogens then establish themselves in various tissues
and organs throughout the body and cause a number of serious and, in some
cases, lethal infections, including those of the bloodstream, heart, lung,
liver and urinary tract.

The increasing prevalence of and rise in mortality rates from infectious
diseases places additional stress on the already overburdened U.S. health care
system. According to estimates from the CDC, approximately two million
hospital-acquired infections occur each year, causing more than eight million
days of extended hospital stay and resulting in more than $4.5 billion in
additional health care costs each year. Based on CDC estimates, infectious
diseases ranked as the third leading cause of death in 1992, with mortality
rates increasing by 58% during the period from 1980 to 1992, in contrast to
mortality rates due to all causes which decreased by 3% during this period, as
shown in the following table:

LEADING CAUSES OF MORTALITY BY INFECTIOUS DISEASE (U.S.)

<TABLE>
<CAPTION>
NO. OF MORTALITY
DEATHS IN PER 100,000 % INCREASE
INFECTIOUS DISEASE 1992 IN 1992 1980-1992
------------------- --------- ----------- ----------
<S> <C> <C> <C>
Respiratory tract.......................... 77,336 30.3 21 %
HIV/AIDS(1)................................ 33,581 13.2 N/A (2)
Bloodstream................................ 19,667 7.7 83
Kidney/Urinary tract....................... 12,399 4.9 40
Heart...................................... 3,950 1.5 36
Gall bladder............................... 2,494 1.0 100
Fungal..................................... 2,298 0.9 200
Other...................................... 14,322 5.5 N/A (2)
--------- ----- ----
All infectious diseases.................... 166,047 65.0 58 %
All deaths................................. 2,175,613 852.0 (3)%
</TABLE>

--------
(1) Although the HIV virus is known to be the underlying cause of AIDS, the
majority of patients infected with AIDS die of opportunistic bacterial
or fungal infections such as pneumonia.
(2) N/A--data not available.
Source: Journal of the American Medical Association estimates (1996).

23
<PAGE>

Antiinfective drugs have, in many cases, proven highly successful in
controlling the serious morbidity and mortality that accompany these
infections. These drugs work by chemically binding to specific targets in a
bacterial or fungal pathogen, thereby inhibiting a cell function essential to
its survival. Currently available antiinfective drugs can be divided into the
following four broad categories, according to the type of essential cell
function they inhibit: (i) protein synthesis (e.g., tetracyclines, macrolides
and aminoglycosides), (ii) cell wall and membrane synthesis (e.g., penicillins,
cephalosporins, carbapenems, glycopeptides and polyenes), (iii) nucleic acid
synthesis (e.g., fluoroquinolones) and (iv) cell metabolism (e.g.,
trimethoprim, sulfonamides, azoles and allylamines).

Recently, there has been a rise in the incidence of infectious diseases
caused by bacteria and fungi that have developed resistance to existing
antiinfective drugs. This phenomenon has been well documented in medical
literature. A number of serious pathogens such as Staphylococcus aureus,
Streptococcus pneumoniae, Enterococcus faecalis, Enterococcus faecium,
Escherichia coli, Haemophilus influenzae, Pseudomonas aeruginosa, Mycobacterium
tuberculosis, Candida albicans, Aspergillus fumigatus and Aspergillus flavus
have shown significant evidence of drug resistance. The figure below shows the
increase in the incidence of hospital-acquired infections caused by drug-
resistant strains of Staphylococcus aureus and enterococci bacteria as
documented by the CDC, indicating significant and increasing levels of drug
resistance prevalent in these common, often lethal, pathogens.

[LINE AND BAR CHARTS INDICATING INCIDENCE OF DRUG RESISTANCE IN
HOSPITAL-ACQUIRED INFECTIONS]

The increasing prevalence of drug-resistant pathogens has contributed to
higher mortality rates from infectious diseases, particularly those caused by
Staphylococcus aureus and Streptococcus pneumoniae. Staphylococcus aureus is
the most common pathogen to cause blood-borne infections and the most
frequently isolated pathogen in skin and soft tissue infections. Recent data
show that methicillin-resistant strains of Staphylococcus aureus have been
found in approximately 24% of the patient population in U.S. nursing homes.
During the years 1990 to 1993, the mortality rate for individuals with blood-
borne methicillin-resistant Staphylococcus aureus was 42%, as compared to 22%
for individuals infected with methicillin-susceptible strains. Streptoccocus
pneumoniae is the most frequently isolated pathogen in children with otitis
media (middle ear infections) and in adults with sinusitis. In the 1990's,
penicillin-resistant Streptococcus pneumoniae has accounted for 10% to 50%
(depending on geographic location) of all pediatric infections in day care
centers. During the years 1991 to 1994, the mortality rate in patients with
blood-borne strains of vancomycin-resistant enterococci was 57%, as compared to
approximately 35% for individuals infected with vancomycin--susceptible
strains.

24
<PAGE>

The increasing prevalence of antiinfective drug resistance is a natural
outcome of the use and overuse of antiinfective drugs. When bacteria or fungi
are exposed to an antiinfective drug, the drug kills or attenuates
the growth of the susceptible pathogen. However, any variant in the bacterial
population that has spontaneously undergone a genetic change that confers drug
resistance will have a selective growth advantage, which is known in
evolutionary terms as natural selection. Thus, the antiinfective drug does not
technically cause the resistance but creates a situation in which the
resistant pathogen can multiply in the presence of the drug, increasing the
population approximately a millionfold in a day and quickly becoming the
predominant microorganism. These resistant bacteria can then spread rapidly
from the infected patient to healthy individuals.

Certain medical practices and sociological factors have facilitated and
accelerated the process of natural selection of drug-resistant bacteria and
fungi and help explain the increase in the rate at which pathogens are
becoming resistant to antiinfective drugs. These practices and factors
include: (i) the use of antibacterial drugs to treat non-bacterial infections,
(ii) the prophylactic use of antiinfective drugs to prevent potential but
unconfirmed infections, (iii) the use of antiinfective drugs active against
multiple pathogens (broad spectrum drugs) to treat an infection before the
specific disease-causing pathogen has been identified, (iv) the lack of
patient compliance with the prescribed course of antiinfective therapy and (v)
long-term antiinfective therapy for patients who are unable to clear
infections due to other conditions such as immunosuppression as a consequence
of organ transplants or cancer chemotherapy, or diseases such as AIDS.

Bacteria and fungi have evolved multiple resistance mechanisms against
currently available categories of antiinfective drugs. These mechanisms
include: (i) utilization of an enzyme to alter the drug's structure by
creating or destroying chemical bonds, (ii) modification of the cell membrane
to block entry of the drug, (iii) utilization of a protein to pump the drug
out of their cells before the drug binds to the target and (iv) alteration of
the target to significantly limit the ability of the antiinfective drug to
bind to the target. Bacteria and fungi change the target by mutation of the
target's protein sequence, chemical modification of the target structure or
the acquisition of a new gene from another pathogen that substitutes for the
target function.

Traditional drug discovery approaches have not met the challenge posed by
drug-resistant pathogens. To date, biology-based approaches have attempted to
identify compounds that kill or attenuate the growth of the pathogen using
whole-cell screening assays. This approach is limited because compounds that
could effectively inhibit a target function inside the cell, but are unable to
penetrate cell membranes, are not identified by whole-cell screening assays.
Thus, entire classes of effective inhibitors of intracellular targets, which
could be modified by medicinal chemistry to penetrate cell membranes, have
potentially been overlooked. Chemistry-based approaches have focused on
chemically modifying the molecular structure of existing antiinfective drugs
or combining existing antiinfective drugs with another agent (an antibiotic
potentiator) to circumvent established drug resistance mechanisms. Despite the
introduction of second and third generation antiinfective drugs, certain
pathogens, such as vancomycin-resistant strains of Enterococcus faecium, have
developed resistance to all currently available drugs. During the past 20
years, these traditional approaches have identified only one new chemical
class of antiinfective drugs to meet the challenge posed by drug-resistant
pathogens.

25
<PAGE>

THE CUBIST SOLUTION

Cubist is combating antiinfective drug resistance by identifying new targets
in bacteria or fungi which if inhibited by a drug would disrupt an essential
cell function and thereby kill or attenuate the growth of the pathogen,
allowing it to be cleared by the immune system. This rational, target-based
approach represents a distinct departure from traditional strategies to
develop drugs that only counter drug resistance. The Company has identified
over 100 proprietary targets and related assays for the discovery of new
drugs. The Company expects that drugs inhibiting these new targets would be
immediately effective against currently drug-resistant bacteria and fungi
since these pathogens have not had an opportunity to evolve resistance
specific to these new drugs. Furthermore, Cubist's most advanced drug
discovery program could identify a drug which inhibits more than one essential
target for a given pathogen, which would significantly decrease the rate of
emergence of drug resistance.

MARKET OPPORTUNITY

Potential Market

According to 1995 sales data compiled by IMS International, antiinfective
drugs generated $26 billion in sales and constituted the third largest
pharmaceutical market worldwide, behind only gastrointestinal and
cardiovascular drugs. The growth of the worldwide antiinfective drug market
from 1994 to 1995 was 13%. Of the 100 best-selling brand name drugs worldwide,
19 are antiinfective drugs addressing bacterial and fungal infections. In the
United States, sales of antiinfective drugs totaled over $7 billion in 1995,
and brand name antiinfective drugs accounted for 15 of the leading 100
prescription drugs.

Antiinfective drugs are segmented into distinctive chemical classes, as
shown in the following table:

1995 ANTIINFECTIVE DRUG SALES

<TABLE>
<CAPTION>
CHEMICAL CLASS WORLDWIDE SALES SELECTED EXAMPLES INDICATED USE
- ------------------------ --------------- ------------------------ ------------------------
($ millions)
<S> <C> <C> <C>
ANTIBACTERIAL
Beta Lactams
Cephalosporins........ $8,540 Ceclor, Ceftriaxone, Bronchitis, pneumonia,
Cefuroxime meningitis
Penicillins........... 4,460 Ampicillin, Amoxicillin, Pneumonia, bronchitis,
Amoxicillin/Clavulanate otitis media, sinusitis
Carbapenems........... 550 Imipenem Bacteremia, pneumonia,
abdominal infections
Fluoroquinolones....... 3,310 Ciprofloxacin, Ofloxacin Urinary tract
infections,
gastroenteritis,
meningitis
Macrolides............. 3,115 Clarithromycin, Otitis media, sinusitis,
Azithromycin, skin and soft tissue
Erythromycin infections, meningitis
Tetracyclines.......... 743 Minocycline, Doxycycline Acne, pelvic
inflammatory disease
Aminoglycosides........ 712 Gentamicin, Amikacin Pneumonia, bacteremia,
abdominal and urinary
tract infections
Glycopeptides.......... 533 Vancomycin Intestinal infections,
Staphylococcus aureus
infections
Aminopyrimidines....... 380 Trimethoprim/Sulfonamide Bronchitis, urinary
tract infections
ANTIFUNGAL
Azoles................. 1,430 Fluconazole, Vaginitis, skin and oral
Itraconazole infections, systemic
Ketoconazole infections
Allylamines............ 190 Terbinafine Vaginitis, skin and oral
infections, systemic
infections
Polyenes............... 190 Amphotericin B, Nystatin Meningitis, pneumonia,
fungemia
</TABLE>
- --------
Source: IMS International (1996).

26
<PAGE>

Currently, several antiinfective drug classes generate over $1 billion in
annual worldwide sales. Within the cephalosporin class alone, there are six
drugs each with worldwide sales of between $300 million and $1.2 billion
annually. In addition, at least three drugs have individually reached
worldwide sales of over $1 billion annually: Augmentin
(amoxicillin/clavulanate) sold by SmithKline Beecham, Cipro (ciprofloxacin)
sold by Bayer Corp. and Rocephin (ceftriaxone) sold by Hoffmann-La Roche Inc.
Each of these drugs replaced previously prescribed drugs (such as penicillin,
tetracycline and erythromycin) whose effectiveness has greatly diminished as a
consequence of bacterial drug resistance. The clinical efficacy of these new
drugs, however, is similarly being threatened by emerging strains of drug-
resistant pathogens.

Cubist is focusing its drug discovery programs on pathogens that have a high
annual incidence rate worldwide and that have become resistant to all but a
few available antiinfective drugs. The CDC has reported that 44% of the two
million hospital-acquired infections in the United States are caused by four
bacteria: staphylococci, enterococci, pneumococci and pseudomonas. The table
below lists the hospital and community-acquired pathogens that are the focus
of Cubist's drug discovery programs, the estimated annual incidence of
infectious disease caused by these pathogens, the types of infectious diseases
caused by these pathogens and the existing drugs to which these pathogens have
developed resistance.

CUBIST'S THERAPEUTIC TARGETS

<TABLE>
<CAPTION>
ESTIMATED EXAMPLES OF
ANNUAL DRUGS SUBJECT TO
PATHOGEN INCIDENCE(1) PRINCIPAL DISEASES RESISTANCE
- -------------------- ------------ ------------------------ ------------------------
<S> <C> <C> <C>
BACTERIAL
Staphylococcus au- 9,000,000 Skin and soft tissue Methicillin, Beta
reus.............. infections, bacteremia Lactams
Streptococcus 8,000,000 Otitis media, sinusitis, Penicillin, Beta Lactams
pneumoniae........ pneumonia
Escherichia coli... 4,800,000 Abdominal infections, Ampicillin,
urinary tract Cephalosporins
infections, bacteremia
Haemophilus 1,000,000 Otitis media, Ampicillin
influenzae........ bronchitis, pneumonia
Enterococcus 850,000 Urinary tract Vancomycin, Beta Lactams
faecium/faecalis.. infections, bacteremia
Helicobacter pylo- 500,000 Gastritis, duodenal Nitroimidazoles,
ri................ ulcer Macrolides
Pseudomonas 220,000 Pneumonia Carbapenems,
aeruginosa........ Aminoglycosides
Mycobacterium tu- 25,000 Rifampicin, Isoniazid
berculosis........ Pneumonia
FUNGAL
Candida albicans... 7,000,000 Vaginitis, skin Fluconazole, Azoles
infections, bacteremia,
hepatitis
Pneumocystis 60,000 None documented(2)
carinii........... Pneumonia
Aspergillus 8,000 Azoles
fumigatis/flavus.. Pneumonia
</TABLE>
- --------
(1) Cubist's estimate of the incidence in 1995 in the United States.
(2) Limited effective therapies available.

27
<PAGE>

Antiinfective Drug Development

The pre-clinical and clinical development path for antiinfective drugs has
been well-established. A novel antiinfective drug has a high likelihood of
efficacy in humans if it has demonstrated (i) appropriate in vitro activity
against a broad spectrum of clinical pathogens, (ii) in vivo activity in
highly-predictive animal models of infection and (iii) effective
pharmacokinetics, such as half-life in the bloodstream.

The FDA has indicated that antibiotic drugs may receive fast track approval
consideration if the antibiotics have been studied for their safety and
effectiveness in treating serious or life-threatening illnesses and the drugs
provide "meaningful therapeutic benefit" to patients over existing treatments
(for example, the ability to treat patients unresponsive to, or intolerant of,
available therapy, or improved patient response over available therapy). See
"Business--Government Regulation."

STRATEGY

The Company's objective is to become the worldwide leader in the discovery
and development of novel antiinfective drugs to treat infectious diseases
caused by drug-resistant pathogens. To achieve this objective, the principal
elements of the Company's strategy are to:

Pursue a Rational, Target-Based Approach to Drug Discovery. Cubist's
strategy for combating antiinfective drug resistance is to identify novel,
intracellular targets essential for cell function in bacteria or fungi which,
if inhibited by a drug, would kill or attenuate the growth of the pathogen.
The principal element of Cubist's drug discovery strategy is to rationally
select novel intracellular targets based on a thorough understanding of cell
function, thereby providing a foundation for assay development and lead
identification. Cubist believes that its rational, target-based strategy
represents a distinct departure from and offers significant advantages over
traditional drug discovery strategies to counter drug resistance.

Establish a Pipeline of New Targets to Address Drug Resistance. Cubist
believes that bacterial and fungal pathogens will eventually develop
resistance against any drug by evolving resistance mechanisms that prevent the
drug from binding to and inhibiting the function of its intended target.
Therefore, Cubist's strategy for combating drug-resistant pathogens is to
identify new targets and develop novel drugs that act upon such targets. The
Company has identified over 100 proprietary targets and related assays for the
discovery of drugs. Furthermore, Cubist's most advanced drug discovery program
could identify a drug which inhibits more than one essential target for a
given pathogen, which would significantly decrease the rate of emergence of
drug resistance.

Integrate Multiple Enabling Technologies. The Company's rational, target-
based approach to the discovery of novel drugs to combat drug-resistant
pathogens utilizes multiple enabling technologies, including genomics,
genetics, molecular biology, biochemistry, high-throughput screening,
medicinal and combinatorial chemistry, microbiology, pharmacology and
toxicology. The Company has assembled a team of scientists with expertise in
each of these disciplines and has successfully integrated these enabling
technologies into a drug discovery process involving the following stages:
target identification and validation, assay development, lead identification
and lead optimization. The Company believes that it has the internal
capability to advance a drug candidate through each of these stages.

Establish Collaborative Relationships to Discover New Drugs and Broaden
Technology Base. The Company employs two collaborative strategies for the
discovery of new antiinfective drugs: (i) collaborations with major
pharmaceutical companies to provide the Company with funding, research and
development resources, access to libraries of diverse compounds and clinical
development, manufacturing and commercialization capabilities and
(ii) alliances with biopharmaceutical companies to access additional compound
libraries for the identification and optimization of lead candidates for the
Company's internal programs. The Company has entered into collaborative
agreements based upon the Synthetase Program with Bristol-Myers Squibb,

28
<PAGE>

Merck and Pfizer. The Company believes that the Collaborative Agreements will
permit it to reduce its capital requirements and to leverage the development
expertise of its collaborative partners to accelerate the commercialization of
drug candidates. The Company has also entered into agreements with Terrapin
Technologies Inc., Pharm-Eco Laboratories, Inc. and ArQule, Inc. to obtain
additional compound libraries for Cubist's internal programs.

Retain Rights to Independently Develop and Market Certain Products. Cubist
intends to continue to retain rights to internally develop and commercialize
certain proprietary products. This will enable the Company either to
commercialize certain drug candidates independently or to enter into future
drug development and commercialization alliances with third parties at a later
stage in the development process. The Company believes that this will enable
it to obtain greater economic benefits from future collaborations. Except for
rights granted to Bristol-Myers Squibb, Merck and Pfizer pursuant to the
Collaborative Agreements, the Company has retained rights to technology
related to its Synthetase Program for internal drug discovery. In addition,
the Ribonuclease P, Amidotransferase and Elongation Factors Programs are
currently being pursued with internal resources.

Maintain and Enhance Strong Proprietary Position. Cubist plans to continue
to pursue an aggressive patent strategy to protect its proprietary drug
discovery technologies. The Company's policy is to diligently protect its
cloned targets, assays, organic synthetic processes, lead compounds, screening
technology and certain other technology. Cubist has eight pending U.S. patent
applications. In addition, Cubist has licensed three issued U.S. patents and
three pending U.S. applications covering inventions made by Dr. Paul R.
Schimmel and Dr. Julius Rebek, Jr., the two scientific founders of the
Company.

29
<PAGE>

THE CUBIST PROGRAMS

Cubist's initial focus is on the identification and development of targets
that are involved in the fundamental process of protein synthesis. This
process involves a sequential order of well-established, enzymatic events that
leads to the incorporation of amino acids into proteins. Antiinfective drugs,
such as tetracyclines and erythromycin, that work by inhibiting protein
synthesis at the ribosome (a cellular component which is the site of
incorporation of amino acids into proteins) have been successfully developed
and commercialized. There are, however, several classes of essential enzyme
targets that function independently of the ribosome during protein synthesis
that have not yet been exploited as effective drug targets. The Company's
programs address targets in the areas of: (i) Synthetases, (ii) Ribonuclease
P, (iii) Amidotransferase and (iv) Elongation Factors. These enzyme targets
are essential for the survival of both bacterial and fungal pathogens. The
Company believes that these targets will enable the development of clinically
useful antiinfective drugs against susceptible and drug-resistant pathogens.

The following table describes the various stages of development of Cubist's
four target-based programs.

[GRAPH OF PROGRAM STATUS APPEARS HERE]

The Synthetase Program

Synthetases are enzymes that play a fundamental role in protein synthesis in
all living organisms. In most organisms, there are 20 essential aminoacyl-tRNA
synthetases, one for each amino acid, which charge its specific amino acid to
a transfer RNA molecule ("tRNA") forming an amino acid-charged tRNA. These
charged tRNAs then interact with messenger RNA ("mRNA") at the ribosome to
incorporate the amino acid into the protein being synthesized. Inhibition of
any one of the 20 aminoacyl-tRNA synthetases from any bacterial or fungal
pathogen, at the amino acid or tRNA binding sites, would disrupt protein
production, thereby killing or attenuating the growth of the pathogen. As a
result, large numbers of targets, each with multiple sites of inhibition, are
available to Cubist for drug discovery. Furthermore, Cubist has demonstrated
that the molecular structures of bacterial or fungal synthetases are
sufficiently different from human synthetases to permit a drug to selectively
recognize and inhibit pathogen synthetases.

30
<PAGE>

INHIBITION OF AMINOACYL - TRNA SYNTHETASE

(ART)

PROTEIN INHIBITION OF PROTEIN
SYNTHESIS SYNTHESIS

Binding of an amino Binding of an inhibitor to
acid to the the aminoacyl-tRNA
aminoacyl-tRNA synthetase alters the
synthetase leads to synthetase structure,
the formation of blocks amino acid binding
charged tRNA and and prevents the formation
protein synthesis of charged tRNA, thereby
inhibiting protein
synthesis

Aminoacyl-tRNA synthetases provide a significant opportunity to combat
bacterial and fungal drug resistance derived from the resistance mechanism of
target alteration, which involves a change to the target's protein sequence,
chemical modification of the target structure or acquisition of a new gene
from another pathogen, substituting for the target function. Because there are
structural and functional similarities among the 20 aminoacyl-tRNA
synthetases, it may be possible to identify a drug that can bind to and
inhibit two similar synthetases, thereby decreasing the rate of emergence of
drug resistance. Thus, a resistance mechanism involving target alteration
would necessitate simultaneous changes in two of the targets. From a
statistical standpoint, the probability of simultaneous alteration of two
targets would be extremely low. Therefore, a single drug active against more
than one aminoacyl-tRNA synthetase would be likely to have the advantage of an
extended therapeutic lifetime by significantly impeding the future emergence
of drug resistance.

Clinical precedent exists for the development of a bacterial aminoacyl-tRNA
synthetase inhibitor. Pseudomonic acid A, commercially marketed as Bactroban,
is an antibacterial drug that is a specific inhibitor of isoleucyl-tRNA
synthetase in several pathogens, including Staphylococcus aureus. The drug can
be used only as a topical agent, however, because it is unstable in the
bloodstream and therefore is not therapeutically effective when administered
systemically. Cubist's goal is to develop systemically-available drugs that
target aminoacyl-tRNA synthetases in either bacteria or fungi.

The Company has developed over 100 proprietary aminoacyl-tRNA synthetase
targets and related assays that are currently being utilized in the discovery
and characterization of leads in its Synthetase Program. These aminoacyl-tRNA
synthetase targets were cloned or purified from Streptococcus pneumoniae,
Staphylococcus aureus, Enterococcus faecalis, Escherichia coli, Haemophilus
influenzae, Mycobacterium tuberculosis and Helicobacter pylori

31
<PAGE>

bacteria, Candida albicans and Pneumocystis carinii fungi and cultured human
cells. The Company is currently developing assays and pursuing targets in
additional pathogens, such as Pseudomonas aeruginosa and Aspergillus
fumigatus.

In its search for leads, Cubist combines automated, high-throughput
screening of its compound libraries with a rational drug design approach.
Cubist has synthesized molecules that structurally mimic the biochemical
intermediates that are formed during the charging of tRNA by aminoacyl-tRNA
synthetase enzymes. These structural mimics bind to the active site of the
enzyme and preclude the amino acid and other substrates from binding, thereby
inhibiting enzyme function. Using this approach, Cubist has discovered several
proprietary leads that inhibit certain aminoacyl-tRNA synthetases. Leads from
Cubist's rational drug design program as well as those identified through
screening compound libraries are currently being optimized to improve
stability, potency, selectivity, whole cell activity and efficacy in animal
models in an effort to identify clinical development candidates.

The Company has entered into agreements based on certain targets within the
Synthetase Program with Bristol-Myers Squibb, Merck and Pfizer. Under these
collaborations, the small molecule compound libraries of Cubist's
collaborative partners are screened for inhibitors of certain aminoacyl-tRNA
synthetases in enzyme assays developed by the Company. Inhibitors are then
characterized for their spectrum of inhibition against a variety of pathogens
as well as for selectivity and whole cell activity using an additional set of
Cubist's assays. Lead candidates which are selected by the collaborative
partners will then enter into a drug development program where medicinal
chemistry, microbiology and pharmacology studies will be conducted to optimize
the leads into drug candidates. The Company has also retained certain rights
to this technology for use in its internal programs. See "Collaborative
Agreements."

Cubist expects to complete the optimization of a lead from its internal
Synthetase Program efforts to select a drug candidate for pre-clinical
development by the end of 1996. Assuming successful pre-clinical development,
Cubist expects to file an IND by the end of 1997. Assuming successful
development of a drug candidate under one or more of its Collaborative
Agreements, Cubist believes a collaborative partner could file an IND as early
as the end of 1998.

The Ribonuclease P Program

The Company's Ribonuclease P Program focuses on the discovery of
antiinfective drugs that inhibit ribonuclease P ("RNase P"), an essential
target in the process of protein synthesis. All tRNAs are initially
synthesized as immature tRNA molecules which are cleaved to the required
functional size and structure by an essential enzyme, RNase P. Inhibition of
RNase P will thus prevent the maturation of tRNA molecules, an essential step
in protein synthesis, thereby killing or attenuating the growth of the
pathogen.

[PICTURE OF RIBONUCLEASE P AND tRNA APPEARS HERE]

RIBONUCLEASE P (RNASE P) BINDS TO AND CLEAVES IMMATURE TRNA MOLECULES TO
PRODUCE MATURE TRNAS

32
<PAGE>

Because RNase P has both RNA and protein components, each can serve as a
target for inhibition. To date, research has shown that both the bacterial RNA
and protein components of RNase P differ from those found in certain mammals.
The Company believes that the differences between the human and bacterial
RNase P enzymes indicate that the bacterial RNase P can be selectively
inhibited.

Cubist has cloned, sequenced and expressed the genes encoding both the
protein and the RNA components of RNase P from certain bacteria. Recombinant
RNase P enzymes that have demonstrated the ability to cleave immature tRNA
serve as the foundation for biological assays. The Company is currently
developing an automated in vitro enzyme assay feasible for high-throughput
screening to identify inhibitors of bacterial RNase P. The Company expects to
commence high-throughput screening for the identification of inhibitors of
RNase P activity in the first quarter of 1997.

The Amidotransferase Program

The Company's Amidotransferase Program focuses on the discovery of
antiinfective drugs that inhibit glutamine amidotransferase ("AdTase"), an
essential target in the process of protein synthesis. Certain bacteria have
only 19 of the 20 required aminoacyl-tRNA synthetases and lack glutamine-tRNA
synthetase. These bacteria still require all 20 amino acids for protein
synthesis and therefore have developed a two-step process to compensate for
the lack of glutamine aminoacyl-tRNA synthetase. In step one, glutamate-tRNA
synthetase attaches glutamate to both glutamate-tRNA and glutamine-tRNA. In
step two, AdTase modifies the glutamate that is charged to the glutamine-tRNA
into glutamine, the appropriate amino acid. The now correctly charged tRNA can
incorporate the amino acid glutamine into the growing protein chain.
Inhibiting AdTase activity would thus limit the synthesis of all proteins that
require glutamine, thereby killing or attenuating the growth of the pathogen.
Mammalian cells do not need AdTase because they have a glutamine-tRNA
synthetase. Therefore, an inhibitor of AdTase is expected to be inherently
selective for the bacterial enzyme.

GLUTAMATE

GLUTAMINE

[PICTURE OF AMIDOTRANSFERASE MODIFYING GLUTAMATE tRNA APPEARS HERE]

CERTAIN BACTERIA LACK GLUTAMINE TRNA SYNTHETASE AND REQUIRE
AMIDOTRANSFERASE (ADTASE) TO BINDTO AN INAPPROPRIATELY CHARGED TRNA AND
MODIFY THE AMINO ACID GLUTAMATE TO GLUTAMINE.

The Company has established that AdTase activity is present in certain
bacteria, including Staphylococcus aureus and Enterococcus faecalis. The
Company has developed an assay to monitor the function of this enzyme. Cubist
is currently adapting this assay for automated, high-throughput screening and
expects to commence such screening for the identification of inhibitors of
AdTase activity in the second half of 1997.

33
<PAGE>

The Elongation Factors Program

The Company's Elongation Factors Program focuses on the discovery of
antiinfective drugs that inhibit elongation factors Tu (EF-Tu) and Ts (EF-Ts),
essential protein targets in the process of protein synthesis. EF-Tu
transports amino acid-charged tRNA to the ribosome and also plays a role in
the continuing synthesis of proteins. During this process EF-Tu becomes
inactivated and its reactivation requires a second elongation factor, EF-Ts. A
crystal structure of EF-Tu associated with some of its substrates including
EF-Ts, has been defined. Inhibition of either EF-Tu or EF-Ts activity will
inhibit protein synthesis and kill or attenuate the growth of the pathogen.
The Company believes that based upon identified structural differences between
the bacterial and humans elongation factors, the bacterial enzymes can be
selectively inhibited.

EF-TU
PROTEIN

MRNA

RIBOSOME
[PICTURE OF ELONGATION FACTOR TU, CHARGED tRNA,
RIBOSOME, mRNA, AND PROTEIN CHAIN APPEARS HERE]

ELONGATION FACTOR EF-TU BINDS TO CHARGED TRNA AND TRANSPORTS IT TO THE
RIBOSOME FOR PROTEIN SYNTHESIS.

Cubist has cloned, sequenced and expressed the genes encoding the EF-Tu and
EF-Ts proteins. Cubist is currently developing an assay for automated, high-
throughput screening and expects to commence such screening for the
identification of inhibitors of EF-Tu and EF-Ts activity in the second half of
1997.

Other Target Discovery Programs

The Company is currently utilizing genomic information to develop additional
biological screening assays for drug discovery. Strategically, the Company
will continue to investigate targets involved in protein synthesis and will
broaden its focus to include additional targets outside of this area, for
example, protein-DNA interactions and cell metabolism.

34
<PAGE>

DRUG DISCOVERY TECHNOLOGIES

The Cubist drug discovery process consists of four primary steps as part of
an integrated platform: (i) target identification and validation, (ii) assay
development, (iii) lead identification and (iv) lead optimization.

[GRAPH OF CUBIST'S DRUG DISCOVERY PROCESS APPEARS HERE]

TARGET IDENTIFICATION AND VALIDATION--the use of microbial genomics and
functional genetics to identify multiple targets for drug discovery. The
Company uses a rational target selection approach which incorporates microbial
genomics and functional genetics to identify and characterize targets. To be
selected for entry into a drug discovery program, targets must be: (i)
essential for the life of the pathogen, so that inhibition of the target's
natural function will kill or attenuate the growth of the pathogen, (ii)
functionally characterized for assay development prior to high-throughput
screening and (iii) structurally divergent between bacteria or fungi and humans
so that the pathogen target can be selectively inhibited.

Cubist utilizes functional genetics to determine whether a particular target
is essential to the survival of the cell. Pathogen death following the
disruption or deletion of a gene encoding the target conclusively establishes
the essential nature of the target. The prevalence of a particular target among
different species of bacteria and fungi defines its spectrum. Structural
divergence between pathogen and human genes suggests the potential for
identifying compounds with selectivity for the pathogen.

ASSAY DEVELOPMENT--the use of molecular biology, biochemistry and enzymology
to characterize targets and validate high-throughput screening assays. Cubist
has built significant assay development capabilities which are an important
component of its proprietary drug discovery programs. Assay quality is the most
important determinant of any screening program's productivity. Established
molecular biology tools enable Cubist to rapidly clone, sequence, express and
purify multiple targets. Cubist then utilizes enzymology and biochemistry
techniques to functionally characterize targets. By characterizing these
targets, Cubist can develop robust, sensitive high-throughput screening assays.
The Company utilizes these assays to identify inhibitors. Cubist employs
proprietary screens to provide a quantitative description of potency, spectrum
and selectivity. In addition, the Company's enzymology studies identify
reaction mechanisms that provide the basis for rational drug design.

LEAD IDENTIFICATION--the use of high-throughput screening of small molecule
libraries, combinatorial chemistry and rational drug design to identify
potential drug candidates. Cubist has implemented automation and robotics to
perform high-throughput screening to address a critical rate-limiting step in
drug discovery: the large number of assays required to empirically screen
synthetic and natural product compound libraries to identify novel inhibitors.
Cubist has achieved a screening throughput rate of 1.5 million compounds per
year through the implementation of robotics and other enhancement techniques,
such as the simultaneous assay of mixtures of compounds. Novel inhibitors are
further characterized using Cubist's secondary screens consisting of
increasingly stringent selection criteria (such as spectrum and selectivity) to
identify drug candidates with the greatest potential for successful
development.

35
<PAGE>

To date, Cubist has assembled a library of over 135,000 structurally-diverse
synthetic small molecules for screening against each of its 100 proprietary
targets. Molecules used in the Cubist screening program currently originate
from four sources: (i) Cubist's proprietary rational design chemistry
programs, (ii) Cubist's proprietary combinatorial chemistry programs, (iii)
academic and industrial collaborations and (iv) commercial sources. Based on
the current rate of growth of the compound collection, the Company estimates
that the number of compounds available for high-throughput screening in its
proprietary programs will more than double during the next year. In addition,
the Company believes that the Collaborative Agreements provide it with access
to additional libraries of over one million structurally diverse molecules for
lead identification.

The Cubist combinatorial chemistry program generates two types of libraries,
general and lead-specific. The general libraries are designed to provide
Cubist with a diversity of molecular structures which can be used in
conjunction with high-throughput screening to identify novel lead compounds
which inhibit selected targets. Cubist constructs lead-specific libraries
based on principles of rational drug design using structural templates
demonstrated to interact with the aminoacyl-tRNA synthetases. Cubist's
proprietary general and lead-specific libraries are being used to identify new
lead inhibitors of the aminoacyl-tRNA synthetases and other enzyme targets.

LEAD OPTIMIZATION--the use of medicinal chemistry, high speed analoging and
pre-clinical evaluation to enhance pharmaceutical properties. Cubist optimizes
lead compounds, which have been identified by its high-throughput screening
and rational drug design approaches, through the iterative use of medicinal
chemistry and in vitro biological assays to enhance pharmaceutical properties.
These lead compounds first enter a high-speed chemical analoging program which
generates large numbers of structurally-related compounds. These analogs are
then evaluated for their (i) spectrum of inhibitory potency against a given
enzyme from a variety of pathogens, (ii) selectivity of the pathogen against
the human enzyme, (iii) inhibitory potency against multiple targets from a
single pathogen to identify a compound that could inhibit more than one target
and (iv) spectrum of activity against whole cells, including drug-resistant
strains, to determine potential clinical indication. Cubist subsequently
evaluates, in animal models, drug candidates exhibiting suitable potency,
spectrum and selectivity to determine their pharmacological and toxicological
properties.

COLLABORATIVE AGREEMENTS

A key element of the Company's strategy is to enter into collaborations with
major pharmaceutical companies to develop its initial products. These
collaborations are expected to provide the Company with funding, research and
development resources, and access to libraries of diverse compounds and
clinical development, manufacturing and commercialization capabilities. To
date, the Company has entered into agreements based on certain targets within
the Synthetase Program with Bristol-Myers Squibb, Merck and Pfizer to screen
the collaborators' respective compound libraries against certain aminoacyl-
tRNA synthetase targets. Assuming that the Collaborative Agreements continue
until their scheduled expirations, and that a separate drug is successfully
developed and commercialized from each of the five research programs to be
conducted pursuant to these agreements, Cubist will be entitled to receive a
total of $98.5 million in research support payments, technology licensing
fees, milestone payments and equity investments. In addition, the Company will
be entitled to receive royalties on worldwide sales of drugs resulting from
these collaborations. Through July 1996, the Company's collaborative partners
have provided the Company with $3.8 million of research support payments and a
technology licensing fee and $4.0 million in equity investments.

36
<PAGE>

Bristol-Myers Squibb

In June 1996, the Company and Bristol-Myers Squibb entered into the Bristol-
Myers Squibb Agreement pursuant to which they agreed to collaborate to
discover and develop novel antiinfective drugs from leads obtained by
screening six of Cubist's aminoacyl-tRNA synthetase targets against Bristol-
Myers Squibb's compound library. In connection with the signing of the
Bristol-Myers Squibb Agreement, Bristol-Myers Squibb made a $4.0 million
equity investment in the Company. See "Certain Transactions." If a separate
drug is successfully developed and commercialized through each of the
bacterial, mycobacterial and fungal programs within the collaboration, Cubist
will be entitled to receive a total of $56.5 million in research support
payments, technology licensing fees, milestone payments and other payments
from Bristol-Myers Squibb, including an equity investment of $4.0 million made
in June 1996. The development, manufacture and worldwide sale of drugs
resulting from the collaboration will be conducted by Bristol-Myers Squibb,
and the Company will be entitled to receive royalties on the worldwide sales
of any drug developed and commercialized from this collaboration. Cubist has
granted Bristol-Myers Squibb an exclusive worldwide license to conduct
research and drug development of drug candidates resulting from this
collaboration. There can be no assurance that any drug candidates will be
discovered through the collaboration or that if discovered, Bristol-Myers
Squibb will elect to proceed with the development of any drug candidates.
Under the terms of the Bristol-Myers Squibb Agreement, Bristol-Myers Squibb is
not obligated to develop or commercialize any drug candidates. As a result,
there can be no assurance that any of the milestone or royalty payments
contemplated by the Bristol-Myers Squibb Agreement will be made.

Merck

In June 1996, the Company and Merck entered into the Merck Agreement
pursuant to which they agreed to collaborate to discover and develop novel
antiinfective drugs from leads obtained by screening three of Cubist's
aminoacyl-tRNA synthetase targets against Merck's compound library. If a drug
is successfully developed and commercialized through this collaboration,
Cubist will be entitled to receive $20.5 million in research support payments,
technology licensing fees and milestone payments from Merck. The development,
manufacture and worldwide sale of drugs resulting from the collaboration will
be conducted by Merck, and the Company will be entitled to receive royalties
on the worldwide sales of any drug developed and commercialized from this
collaboration. Cubist has granted Merck an exclusive worldwide license to
commercialize drugs resulting from this collaboration. There can be no
assurance that any drug candidates will be discovered through the
collaboration or that, if discovered, Merck will elect to proceed with the
development of any drug candidates. Under the terms of the Merck Agreement,
Merck is not obligated to develop or commercialize any drug candidates. As a
result, there can be no assurance that any of the milestone or royalty
payments contemplated by the Merck Agreement will be made.

Pfizer

In December 1995, the Company and Pfizer entered into the Pfizer Agreement
pursuant to which they agreed to collaborate to discover and develop novel
antiinfective drugs from leads obtained by screening six of Cubist's
aminoacyl-tRNA synthetase targets against Pfizer's compound library. If a drug
is successfully developed and commercialized through this collaboration,
Cubist will be entitled to receive $21.5 million in research support payments,
technology licensing fees, milestone payments and other payments from Pfizer,
including a $5.0 million equity investment. The development, manufacture and
sale of drugs worldwide resulting from the collaboration will be conducted by
Pfizer, and the Company will be entitled to receive royalties on the worldwide
sales of any drug developed and commercialized from this collaboration. Cubist
has granted Pfizer an exclusive worldwide license to commercialize drugs
resulting from this collaboration. There can be no assurance that any drug
candidates will be discovered during the collaboration or that, if discovered,
Pfizer will elect to proceed with the development of any drug candidates.
Under the terms of the Pfizer Agreement, Pfizer is not obligated to develop or
commercialize any drug candidates. As a result, there can be no assurance that
any of the milestone or royalty payments contemplated by the Pfizer Agreement
will be made.

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The Company is dependent on its collaborative partners for drug development,
obtaining regulatory approvals and other resources for drug candidates
emerging from these collaborations. See "Risk Factors-- Dependence on
Collaborative Partners and Others" and "Risk Factors--Future Capital Needs;
Uncertainty of Additional Funding."

Other Collaborations

To obtain additional compound libraries for further expansion of the
Company's internal drug discovery programs, Cubist has entered into agreements
with Terrapin Technologies Inc., Pharm-Eco Laboratories, Inc. and ArQule, Inc.
If a drug is successfully developed and commercialized as a result of any of
these agreements, Cubist is granted a license to commercialize the drug and
will pay royalties to its partner on commercial sales. In addition, Cubist has
entered into an agreement with Ceregen, a division of Monsanto Company,
permitting coded access to the Company's combinatorial chemistry library for
screening against certain agricultural targets. If Ceregen successfully
develops and commercializes a product as a result of the agreement, Cubist
will be entitled to royalties on sales.

PATENTS AND PROPRIETARY TECHNOLOGY

Proprietary protection for the Company's compounds, technology and processes
is important to its business. The Company's policy is to diligently protect
its cloned targets, assays, organic synthetic processes, lead compounds,
screening technology and certain other technology by, among other things,
filing, or causing to be filed on its behalf, patent applications for
technology relating to the development of its business in the United States
and elsewhere. Cubist has eight pending U.S. patent applications. To date, the
Company has received a notice of allowance for three of these U.S.
applications covering isolated recombinant nucleic acids encoding tRNA
synthetases and processes of making such synthetases. In addition, Cubist has
licensed three U.S. patents and three U.S. patent applications.

Patent law, as it relates to inventions in the pharmaceutical and
biotechnology fields, is still evolving and involves complex legal and factual
questions for which legal principles are not firmly established. Moreover,
because (i) patent applications in the United States are maintained in secrecy
until patents issue, (ii) patent applications in certain other countries
generally are not published until more than eighteen months after they are
filed, (iii) publication of technological developments in the scientific or
patent literature often lags behind the date of such developments and (iv)
searches of prior art may not reveal all relevant prior inventions, the
Company cannot be certain that it was the first to invent the subject matter
covered by its patent applications or that it was the first to file patent
applications for such inventions. Accordingly, there can be no assurance that
patents will be granted with respect to any of the Company's pending patent
applications or with respect to any patent applications filed by the Company
in the future.

The commercial success of the Company will depend in part on not infringing
patents or proprietary rights of others. There can be no assurance that the
Company will be able to obtain a license to any third-party technology it may
require to conduct its business or that if obtainable, such technology can be
licensed at reasonable cost. Failure by the Company to obtain a license to
technology that it may require to utilize its technologies or commercialize
its products may have a material adverse effect on the Company's business,
operating results and financial condition. In some cases, litigation or other
proceedings may be necessary to defend against or assert claims of
infringement, to enforce patents issued to the Company, to protect trade
secrets, know-how or other intellectual property rights owned by the Company,
or to determine the scope and validity of the proprietary rights of third
parties. Any potential litigation could result in substantial costs to and
diversion of resources by the Company and could have a material adverse effect
on the Company's business, operating results and financial condition. There
can be no assurance that any of the Company's issued or licensed patents would
ultimately be held valid or that efforts to defend any of its patents, trade
secrets, know-how or other intellectual property rights would be successful.
An adverse outcome in any such litigation or proceeding could subject the
Company to significant liabilities, require the Company to cease

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<PAGE>

using the subject technology or require the Company to license the subject
technology from the third party, all of which could have a material adverse
effect on the Company's business, operating results and financial condition.

Much of the know-how of importance to the Company's technology and many of
its processes are dependent upon the knowledge, experience and skills, which
are not patentable, of key scientific and technical personnel. To protect its
rights to and to maintain the confidentiality of trade secrets and proprietary
information, the Company requires employees, Scientific Advisory Board
members, consultants and collaborators to execute confidentiality and
invention assignment agreements upon commencement of a relationship with the
Company. These agreements prohibit the disclosure of confidential information
to anyone outside the Company and require disclosure and assignment to the
Company of ideas, developments, discoveries and inventions made by employees,
advisors, consultants and collaborators. There can be no assurance, however,
that these agreements will not be breached or that the Company's trade secrets
or proprietary information will not otherwise become known or developed
independently by others. See "Risk Factors--Uncertainty of Patents and
Proprietary Rights."

GOVERNMENT REGULATION

Overview

Regulations imposed by United States federal, state and local authorities,
as well as their counterparts in other countries, are a significant factor in
the conduct of the research, development, manufacturing and marketing
activities for the Company's potential drug candidates.

The development, manufacture and marketing of drugs (including antibiotics)
developed by the Company or its collaborative partners are subject to
regulation by numerous governmental agencies in the United States, principally
the FDA, by state and local governments, and in some instances by foreign
governments. Pursuant to the Federal Food, Drug, and Cosmetic Act and the
regulations promulgated thereunder (the "FDC Act"), the FDA regulates the pre-
clinical and, clinical trials, safety, effectiveness, manufacture, labeling,
storage, distribution, and promotion of drugs. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, recall or
seizure of products, total or partial suspension of production, refusals to
permit products to be imported into or exported out of the United States,
failure of the government to grant approval for new drugs or antibiotic
products, withdrawal of marketing approvals, denial or suspension of
government contracts and criminal prosecution.

Product development and approval within the FDA regulatory framework usually
takes a significant number of years, involves the expenditure of substantial
capital resources and is uncertain. Moreover, there is no assurance that the
current regulatory framework will not change or that additional regulatory
standards will not be promulgated at any stage of the Company's or its
collaborative partners' product development that may adversely affect
approval, delay the submission or review of an application or require
additional expenditures by the Company.

U.S. Regulatory Process

New drugs (as well as antibiotics not subject to certification) must be
found safe and effective by FDA through the approval of a new drug application
("NDA") pursuant to section 505 of the FDC Act prior to marketing in
interstate commerce. Prior to this, the pre-clinical data (animal and in vitro
laboratory data) and clinical data (human data) are regulated by FDA pursuant
to regulations and the issuance and continuing FDA oversight of an
investigational new drug application ("IND"). Post-NDA approval, FDA maintains
continuing regulatory control over the marketing of approved drugs regulating
most closely manufacturing, promotional activities and the appropriate
submission of adverse reaction information. Any material changes to the
indication for use, other labeling or manufacturing, require FDA approval of a
Supplement to the NDA prior to any such change being made.

Before testing in the United States of any compounds with potential
therapeutic value in human test subjects may begin, stringent government
requirements for preclinical data must be satisfied. Pre-clinical testing
includes both in vitro and in vivo laboratory evaluation and characterization
of the safety and efficacy

39
<PAGE>

of a drug and its formulation. Laboratories involved in pre-clinical testing
must comply with FDA regulations regarding Good Laboratory Practices. Pre-
clinical testing results obtained from studies in several animal species, as
well as from in vitro studies, are submitted to the FDA as part of the IND and
are reviewed by the FDA prior to the commencement of human clinical trials.
These pre-clinical data must provide an adequate basis for evaluating both the
safety and the scientific rationale for the initial (Phase I) studies in human
volunteers. Unless the FDA objects to an IND, the IND becomes effective 30
days following its receipt by the FDA. There can be no assurance that
submission of an IND will result in the commencement of human clinical trials.
Moreover, once trials have commenced, the FDA may stop the trials by placing
them on "clinical hold" because of concerns about, for example, the safety of
the product being tested. Such clinical holds either before the clinical
studies commence or after commencement may result in either a temporary halt
to the study or abandonment of any further work whatsoever.

Clinical trials, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials must be
conducted in accordance with the FDA's Good Clinical Practices, under
protocols that detail the objectives of the study, the parameters to be used
to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be conducted under the auspices of an independent Institutional Review
Board (the "IRB") at the institution where the study will be conducted. The
IRB will consider, among other things, ethical factors, the safety of human
subjects, informed consent requirements and the possible liability of the
institution. Compounds must be formulated according to FDA's current Good
Manufacturing Practice regulations ("cGMP").

Clinical testing involves the administration of the drug to healthy human
volunteers or to patients under the supervision of a qualified investigator,
usually a physician, pursuant to an FDA-reviewed protocol. Human clinical
trials are typically conducted in three sequential phases.

Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more
rarely, to a group of selected patients with the targeted disease or disorder.
The goal of Phase I clinical trials is typically to test for safety (adverse
effects), dose tolerance, absorption, biodistribution, metabolism, excretion
and clinical pharmacology and, if possible, to gain early evidence regarding
efficacy.

Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the efficacy of the drug for specific
targeted indications, to determine dose tolerance and the optimal dose range
and to gather additional information relating to safety and potential adverse
effects.

Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III
clinical trials are initiated to establish further clinical safety and
efficacy of the investigational drug in a broader sample of the general
patient population at geographically dispersed study sites in order to
determine the overall risk-benefit ratio of the drug and to provide an
adequate basis for product labeling. The Phase III clinical development
program consists of expanded, large-scale studies of patients with the target
disease or disorder, to obtain definitive statistical evidence of the efficacy
and safety of the proposed product and dosage regimen. These studies may
include investigation of the effects in subpopulations of patients, such as
the elderly, children, etc. All of the phases of clinical studies must be
conducted in conformance with the FDA's bioresearch monitoring regulations
(such as IRB, informed consent and sponsor monitoring requirements).

At the same time that the human clinical program is being performed,
additional non-clinical (animal) studies are also conducted. Expensive, long
duration toxicity and carcinogenicity studies are done to demonstrate the
safety of drug administration for the extended period of time required for
effective therapy. Also, a variety of laboratory, animal and initial human
studies are performed to establish manufacturing methods for delivering the
drug, as well as stable, effective dosage forms.

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<PAGE>

Unless exempted by specific regulation, antibiotic products are subject to
additional FDA regulations that pertain to batch certification requirements.
In general, the regulations require testing and certification of each batch of
an antibiotic drug for compliance with the FDA's monograph regulations. If the
FDA determines that the batch conforms to the applicable standards of
identity, strength, quality and purity found in the specific monograph, the
FDA will issue a certificate attesting that the batch conforms to the
applicable monograph standards. Manufacturers also are required to comply with
certain recordkeeping requirements that pertain to certification. If a given
batch does not comply with the stated requirements, the FDA will refuse to
certify the batch and the manufacturer will be prohibited from marketing the
product.

Antibiotic drugs for human use are exempt from batch certification if
certain conditions are satisfied. For example, in the case of an over-the-
counter ("OTC") antibiotic subject to an FDA OTC drug monograph, the drug will
be exempt from batch certification if the drug satisfies the conditions
specified in the applicable OTC drug monograph. For prescription antibiotics,
a drug may be exempt from batch certification if certain other conditions are
satisfied, including among others, that the antibiotic has been approved by
the FDA in an applicable antibiotic application for marketing, and that the
antibiotic product meets the standard of identity, strength, quality and
purity specified in an applicable monograph or in the applicable approved
antibiotic application. Once an antibiotic drug has been approved as safe and
effective, the FDA promulgates a regulation of general applicability,
describing in detail the required specifications of the drug. Thereafter,
anyone who meets the standards in that regulation may obtain FDA clearance for
his or her own product without submission of any data on safety and
effectiveness, other than data demonstrating bioequivalence to the original
product.

All data obtained from a comprehensive development program including
research and product development, manufacturing, pre-clinical and clinical
trials and related information are submitted in an NDA to the FDA and the
corresponding agencies in other countries for review and approval. In addition
to reports of the trials conducted under the IND application, the NDA includes
information pertaining to the preparation of the new drug or antibiotic,
analytical methods, details of the manufacture of finished products and
proposed product packaging and labeling. Although the FDC Act requires the FDA
to review NDAs within 180 days of their filing, in practice longer times may
be required. The FDA also frequently requests that additional information be
submitted, requiring significant additional review time. As a result of the
Prescription Drug User Fee Act, FDA has made commitments to speed the review
of NDAs and NDA Supplements. While implementation of this by the FDA has sped
up certain decision-making by the FDA, it has not, with regard to many drugs,
sped up the overall development and approval time. Any proposed product of the
Company likely would be subject to demanding and time-consuming NDA approval
procedures in virtually all countries where marketing of the products is
intended. These regulations define not only the form and content of safety and
efficacy data regarding the proposed product but also impose specific
requirements regarding manufacture of the product, quality assurance,
packaging, storage, documentation and recordkeeping, labeling, advertising and
marketing procedures.

The FDA has developed two "fast track" policies for certain new drugs, one
policy for expedited development and review, and one policy for accelerated
approval. The expedited review policy applies to new drug therapies, including
antibiotics, that are intended to treat persons with life-threatening and
severely-debilitating illnesses, especially where no satisfactory alternative
therapy exists. The FDA has defined "severely-debilitating" to mean diseases
or conditions that cause major irreversible morbidity. During the
developmental stage of drugs that qualify, the FDA expedites consultation and
review of these experimental therapies.

The FDA's accelerated approval policy applies to certain new drug or
antibiotic products that have been studied for their safety and effectiveness
in treating serious or life-threatening illnesses and that provide "meaningful
therapeutic benefit to patients over existing treatments." This accelerated
approval, or fast track approach, is generally limited to new drugs or
antibiotics that treat patients that are unresponsive to, or

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intolerant of, available therapy, or when there is improved patient response
over currently available therapy. The accelerated approval policy is further
limited to drugs for which the predictive value of the surrogate endpoint, in
terms of clinical outcome, has not been established. At the time of approval,
the FDA may grant approval on a surrogate endpoint or an effect on a clinical
endpoint other than survival or irreversible morbidity. The FDA may impose
certain restrictions on distribution, limiting its use to certain facilities
or specialty-trained physicians or making its use contingent on the
performance of certain specified medical procedures. Postmarketing studies
(Phase IV trials) are usually required to further affirm safety and/or
efficacy. However, if an acceptable clinical endpoint has been established,
the drug must be evaluated for approval under the traditional (non-fast track)
approach.

The FDA determines when a specific new drug or antibiotic product qualifies
for accelerated review. There is no guarantee that an application submitted
for a new drug or antibiotic product will receive fast track consideration by
the FDA or that the FDA will approve an NDA for such drug or antibiotic
product once it has been reviewed. Moreover, the FDA may grant marketing
approval and simultaneously require postmarketing studies. And, the FDA may
subsequently withdraw approval of a new drug or antibiotic product if a
postmarketing study fails to verify the clinical benefit of the new drug or
antibiotic.

Timetables for the various phases of clinical trials and NDA approval cannot
be predicted with any certainty. The Company, its collaborative partners or
the FDA may suspend clinical trials at any time if it is believed that
individuals participating in such trials are being exposed to unacceptable
health risks. Even assuming that clinical trials are completed and that an NDA
is submitted to the FDA, there can be no assurance that the NDA will be
reviewed by the FDA in a timely manner or that once reviewed, the NDA will be
approved. The approval process is affected by a number of factors, including
the severity of the targeted indications, the availability of alternative
treatments and the risks and benefits demonstrated in clinical trials. The
Company's ability to market its products successfully is further dependent on
the patent and marketing exclusivity rights of a competitor's products. With
regard to marketing exclusivity, the FDC Act provides for 5 years of marketing
exclusivity for new chemical entities having received an NDA. In addition,
NDAs or NDA Supplements for other new drugs may receive 3 years of marketing
exclusivity if their approved application contains new clinical investigations
(other than bioavailability) that are essential to the approval and were
conducted by or for the applicant. If the FDA grants such exclusivity, the FDA
will not approve another company's 505(b)(2) application (paper NDA) or
abbreviated NDA ("ANDA" or generic drug application) during that period. The
FDA may deny an NDA if applicable regulatory criteria are not satisfied or may
require additional testing or information with respect to the investigational
drug. Even if initial FDA approval is obtained, further studies, including
post-market studies, may be required in order to provide additional data on
safety and will be required in order to gain approval for the use of a product
as a treatment for clinical indications other than those for which the product
was initially tested. The FDA will also require post-market reporting and may
require surveillance programs to monitor the side effects of the drug. Results
of post-marketing programs may limit or expand the further marketing of the
drug. Further, if there are any modifications to the drug, including changes
in indication, manufacturing process or labeling, an NDA supplement may be
required to be submitted to the FDA. Further new scientific data or analyses
developed after approval may form the basis for the FDA to withdraw the NDA.

Among the other requirements for drug product approval is the requirement
that the prospective manufacturer conform to the FDA's cGMP regulations.
Manufacturers also must continue to expend time, money and effort in product,
recordkeeping and quality control to assure that the product meets applicable
specifications and other requirements. The manufacturer also has obligations
to report postmarketing adverse drug experiences to the FDA. The FDA
periodically inspects manufacturing facilities in the United States to assure
compliance with applicable cGMP and other regulatory requirements. Failure of
the Company (or prospective manufacturer) to comply with cGMP regulations or
other FDA regulatory requirements could have a material adverse effect on the
Company and result in one or more regulatory actions affecting either the
product, the Company and its officials, or both.

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The Company (or prospective manufacturer) also may be subject to certain
user fees that the FDA is authorized to collect under the Prescription Drug
User Fees Act of 1992 for certain drugs. User fees also pertain to the
establishments where the products are made and to the marketed prescription
drug products.

Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and can consume a long
period of time. Delay or failure in obtaining the required approvals,
clearances, permits or inclusions by the Company, its collaborative partners
or its licensees would have an adverse effect on the ability of the Company to
generate sales or royalty revenue. In addition, the impact of new or changed
laws or regulations cannot be predicted.

There can be no assurance that the regulatory framework described above will
not change or that additional regulations will not arise that may affect
approval of or delay an IND or an NDA. In addition, there can be no assurance
that there will not be a change in currently accepted scientific standards
that may affect the ultimate approval of such products. Moreover, because the
Company's present collaborative partners are, and it is expected that the
Company's future collaborative partners may be, primarily responsible for pre-
clinical and clinical trials, regulatory approvals, manufacturing and
commercialization of drugs, the ability to obtain and the timing of regulatory
approvals are not within the control of the Company. Should the collaborative
partners develop regulatory problems, for example, cGMP violations, such
problems may adversely impact upon the Company's resources.

Prior to the commencement of marketing a product in other countries,
approval by the regulatory agencies in such countries is required, whether or
not FDA approval has been obtained for such product. The requirements
governing the conduct of clinical trials and product approvals vary widely
from country to country, and the time required for approval may be longer or
shorter than the time required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general,
each country has its own procedures and requirements.

The Company is also subject to regulation under other federal laws and
regulation under state and local laws, including laws relating to occupational
safety, laboratory practices, the use, handling and disposition of radioactive
materials, environmental protection and hazardous substance control. Although
the Company believes that its safety procedures for handling and disposing of
radioactive compounds and other hazardous materials used in its research and
development activities comply with the standards prescribed by federal, state
and local regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of any such
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.

COMPETITION

The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Competitors of the
Company in the United States and elsewhere are numerous and include, among
others, major, multinational pharmaceutical and chemical companies,
specialized biotechnology firms and universities and other research
institutions. Many of these competitors employ greater financial and other
resources, including larger research and development staffs and more effective
marketing and manufacturing organizations, than the Company or its
collaborative partners. Acquisitions of competing companies and potential
competitors by large pharmaceutical companies or others could enhance
financial, marketing and other resources available to such competitors. As a
result of academic and government institutions becoming increasingly aware of
the commercial value of their research findings, such institutions are more
likely to enter into exclusive licensing agreements with commercial
enterprises, including competitors of the Company, to market commercial
products. There can be no assurance that the Company's competitors will not
succeed in developing technologies and drugs that are more effective or less
costly than any which are being developed by the Company or which would render
the Company's technology and future drugs obsolete and noncompetitive.

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In addition, some of the Company's competitors have greater experience than
the Company in conducting pre-clinical and clinical trials and obtaining FDA
and other regulatory approvals. Accordingly, the Company's competitors may
succeed in obtaining FDA or other regulatory approvals for drug candidates
more rapidly than the Company. Companies that complete clinical trials, obtain
required regulatory agency approvals and commence commercial sale of their
drugs before their competitors may achieve a significant competitive
advantage, including certain patent and FDA marketing exclusivity rights that
would delay the Company's ability to market certain products. There can be no
assurance that drugs resulting from the Company's research and development
efforts, or from the joint efforts of the Company and its collaborative
partners, will be able to compete successfully with competitors' existing
products or products under development or that they will obtain regulatory
approval in the United States or elsewhere.

EMPLOYEES

As of September 30, 1996, the Company had 57 full-time employees, 48 of whom
were engaged in research and development and nine of whom were engaged in
management, administration and finance. Doctorates are held by 24 of the
Company's employees. Each of the Company's employees has signed an agreement
which prohibits the disclosure of confidential information to anyone outside
the Company and requires disclosure and assignment to the Company of ideas,
developments, discoveries and inventions made by the employee.

The Company's employees are not covered by a collective bargaining
agreement. The Company has never experienced an employment-related work
stoppage and considers its employee relations to be good.

PROPERTIES

The Company's headquarters and research and development facilities are
located in a 24,000 square foot facility in Cambridge, Massachusetts at 24
Emily Street. The Company believes that this space will be adequate for its
research and drug development activities for at least the next two years.

SCIENTIFIC ADVISORY BOARD

The Company has established a Scientific Advisory Board consisting of ten
members (including Dr. Schimmel and Dr. Rebek, two of the Company's founders
and directors) with experience in infectious disease, cell and molecular
biology, genetics, enzymology, bacterial pathogenesis, and medicinal and
combinatorial chemistry. The Scientific Advisory Board meets as a group once
per year and members are available individually on an ongoing basis. The
Scientific Advisory Board recommends and reviews with the Company novel
approaches to drug discovery and development. For biographical information
regarding Dr. Schimmel and Dr. Rebek, see "Management."

All of the Company's Scientific Advisory Board members have signed
consulting agreements with the Company and have either purchased shares of
Common Stock or been granted options to purchase Common Stock.

The members of Cubist's Scientific Advisory Board are:

Lan Bo Chen, Ph.D. is a Professor of Pathology at Harvard Medical School and
the Dana-Farber Cancer Institute. He is an expert in cell biology, immunology
and cancer. He consults with the Company on high-throughput screening and cell
culture. Dr. Chen received his B.S. in Chemistry from National Taiwan
University and his Ph.D. in Cell Biology from the Massachusetts Institute of
Technology.

R. Alan B. Ezekowitz, M.D., Ph.D. is Chief of Pediatrics at Massachusetts
General Hospital and Professor of Pediatrics at Harvard Medical School. He is
an expert in molecular biology and cell biology of macrophages and pattern
recognition of foreign molecules in host defenses. He consults with the
Company on opportunistic infections, particularly Pneumocystis carinii in
immunocompromised patients. Dr. Ezekowitz

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<PAGE>

received his M.B.Ch.B. (equivalent to an M.D.) from the University of Cape
Town, Republic of South Africa and received his Ph.D. in Immunology from the
University of Oxford.

David C. Hooper, M.D. is an Associate Physician and Associate Chief of the
Infection Control Unit at Massachusetts General Hospital as well as an
Associate Professor of Medicine at Harvard Medical School. Dr. Hooper is an
expert in the mechanism of action and resistance in fluoroquinolones. He is a
clinical investigator in infectious disease and consults with the Company on
infectious disease clinical problems, antiinfective resistance and mechanisms
of action of antiinfective drugs. Dr. Hooper received his B.A. in Microbiology
from the University of Texas, Austin and his M.D. from Washington University
School of Medicine.

K.C. Nicolaou, Ph.D. is Chairman of the Department of Chemistry and a
Professor of Chemistry at The Scripps Research Institute. Dr. Nicolaou is an
expert on the total synthesis of biologically active natural products such as
macrolides, ionophores, eiconsanoids, saccharides, glycoconjugates and other
plant, bacterial and marine products. He consults with the Company on organic
and natural product synthesis. Dr. Nicolaou received his B.Sc. and Ph.D. in
Chemistry from the University of London.

Joanne Stubbe, Ph.D. is a Professor of Biology and Chemistry at the
Massachusetts Institute of Technology. Dr. Stubbe's expertise is in the
elucidation of enzyme mechanisms, the design of suicide inhibitors, the
mechanism of cleavage of DNA by antitumor agents, purine biosynthesis and the
mechanism of DNA repair enzymes. She consults with the Company on enzyme
kinetics and assay development. Dr. Stubbe received her B.A. in Chemistry from
the University of Pennsylvania and her Ph.D. in Organic Chemistry from the
University of California, Berkeley.

Jack Szostak, Ph.D. is a Professor of Genetics at Harvard Medical School and
a Molecular Biologist at Massachusetts General Hospital. He is an expert in
molecular biology and is known for his work on ribozymes. He consults with the
Company on molecular biology and assay development. Dr. Szostak received his
B.Sc. in Cell Biology from McGill University and his Ph.D. in Biochemistry
from Cornell University.

Andrew Wright, Ph.D. is a Professor of Molecular Biology and Microbiology at
Tufts University School of Medicine. Dr. Wright is an expert on the regulation
of transcription in bacteria and the study of pathogenic mechanisms in
Haemophilus influenzae and Helicobacter pylori. He consults with the Company
on molecular biology and assay development. Dr. Wright received his B.S. in
Chemistry and his Ph.D. in Biochemistry from the University of Edinburgh,
Scotland.

Richard Young, Ph.D. is a Member of the Whitehead Institute for Biomedical
Research and a Professor of Biology at the Massachusetts Institute of
Technology. Dr. Young is a molecular geneticist with expertise in gene
expression, bacterial pathogenesis and vaccine development. He consults with
the Company on selection of pathogenic organisms, molecular biology and assay
development. Dr. Young received his B.S. in Biology from Indiana University
and his Ph.D. in Molecular Biophysics and Biochemistry from Yale University.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The executive officers, key employees and directors of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <S> <C>
Scott M. Rocklage, Ph.D.(5)................ 42 President, Chief Executive Officer and Director
Francis P. Tally, M.D. .................... 56 Vice President of Research and Development
Arthur F. Kluge, Ph.D. .................... 52 Vice President of Chemistry
Neal M. Farber, Ph.D. ..................... 45 Vice President of Corporate Development
Thomas A. Shea............................. 36 Director of Finance & Administration, Treasurer
Philip A. Wendler, Ph.D. .................. 43 Director of Pharmacology
Susan K. Whoriskey, Ph.D. ................. 37 Director of Molecular Biology
John K. Clarke(2)(5)....................... 43 Chairman of the Board of Directors
Paul R. Schimmel, Ph.D.(5)................. 56 Director
Julius Rebek, Jr., Ph.D.(4)................ 52 Director
Ellen M. Feeney(1)(2)(3)................... 36 Director
Terrance G. McGuire(1)(3).................. 40 Director
Barry Bloom, Ph.D.(1)(4)................... 68 Director
George Conrades(2)(4)...................... 57 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Class I Director--term expires in 1997.
(4) Class II Director--term expires in 1998.
(5) Class III Director--term expires in 1999.

Dr. Rocklage has served as President and Chief Executive Officer and as a
member of the Board of Directors of the Company since July 1994. From 1990 to
1994, Dr. Rocklage served as President and Chief Executive Officer of Nycomed
Salutar, Inc., a diagnostic imaging company. From 1992 to 1994, he also served
as President and Chief Executive Officer and Chairman of Nycomed
Interventional, Inc., a medical device company. From 1986 to 1990, he served
in various positions at Salutar, Inc., a diagnostic imaging company and was
responsible for designing and implementing research and development programs
that resulted in three drug products in human clinical trials, including the
approved drug Omniscan. Dr. Rocklage received his B.S. in Chemistry from the
University of California, Berkeley and his Ph.D. in Chemistry from the
Massachusetts Institute of Technology.

Dr. Tally has served as Vice President of Research and Development since
March 1995. From 1986 to 1995, he served as Executive Director of Infectious
Disease, Molecular Biology and Natural Products Research at the Lederle
Laboratories of American Cyanamid/American Home Products, where he was
responsible for worldwide clinical studies for piperacillin/tazobactam which
was registered for sales in Europe in 1992, approved by the FDA in 1993 and
marketed as Zosyn. From 1975 to 1986, he served as Senior Physician in
Infectious Disease at the New England Medical Center and Associate Professor
of Medicine at Tufts Medical Center. Dr. Tally received his A.B. in Biology
from Providence College and his M.D. from George Washington University School
of Medicine.

Dr. Kluge has served as Vice President of Chemistry since October 1995. From
1973 to 1995, Dr. Kluge served in various positions at Syntex Corporation
(which later became Roche Bioscience following the acquisition of Syntex by
Hoffmann-La Roche Inc.), including Vice President and Director, Institute of
Organic Chemistry, where he invented two currently marketed pharmaceutical
products: laidlomycin propionate and ketorolac. Dr. Kluge received his B.A. in
Chemistry from Park College, his M.S. and Ph.D. in Chemistry from the
University of Massachusetts and his M.B.A. from the University of Santa Clara.

Dr. Farber has served as Vice President of Corporate Development since April
1996. From 1993 to 1995, Dr. Farber served as Director of Business Development
at T Cell Sciences, Inc., a biotechnology company.

46
<PAGE>

From 1982 to 1993, Dr. Farber served in various positions at Biogen, Inc., a
biotechnology company. Dr. Farber received his B.Sc. in Chemistry and
Biochemistry from the Hebrew University, Israel and his Ph.D. in Biochemistry
from Columbia University.

Mr. Shea has served as Treasurer and Chief Accounting Officer since June
1996 and has served as Director of Finance and Administration since September
1993. From 1987 to 1993, he served as Manager of Accounting/MIS and Budget and
Financial Analyst at ImmuLogic Pharmaceutical Corporation, a biotechnology
company. Mr. Shea received his B.S. in Accounting/Law from Babson College.

Dr. Wendler has served as Director of Pharmacology since August 1994. From
1988 to 1994, he served in various scientific positions at Sandoz Chemicals
Biotech Research Corporation. Dr. Wendler received his B.S. in Biochemistry
from Trinity College and his Ph.D. in Biological Science (Biochemistry) from
the University of Rhode Island.

Dr. Whoriskey has served as Director of Molecular Biology since January
1996. From 1993 to 1995, she served as a Research Scientist and then Group
Leader of Molecular Biology at the Company. From 1989 to 1993, she was a
Research Fellow in the Department of Genetics at Harvard Medical School.
Dr. Whoriskey received her B.S. in Microbiology from the University of
Massachusetts, Amherst and her Ph.D. from the Molecular Biology Institute at
the University of California, Los Angeles.

Mr. Clarke is a founder of the Company and has served as Chairman of the
Board of Directors since its incorporation. From May 1992 to June 1994, Mr.
Clarke served as acting President and Chief Executive Officer of the Company.
Since 1982, he has been a general partner of DSV Management in Princeton, New
Jersey, the general partner of DSV Partners IV ("DSV"). He is a founder and
director of Alkermes, Inc. and DNX, Inc., biotechnology companies. Mr. Clarke
received his B.A. in Biology and Economics from Harvard College and his M.B.A.
from The Wharton School of the University of Pennsylvania.

Dr. Schimmel is a scientific founder of the Company and has served as a
director of the Company since its incorporation. Since 1967, he has served as
a Professor of Biochemistry and Biophysics at the Massachusetts Institute of
Technology and since 1992, he has been the John D. and Catherine T. MacArthur
Professor of Biochemistry and Biophysics. Dr. Schimmel is an expert in
molecular biology, protein translation and aminoacyl-tRNA synthetases. He is a
member of the National Academy of Sciences and the American Academy of Arts
and Sciences. Dr. Schimmel was a founder and is a director of Repligen
Corporation and Alkermes, Inc., biotechnology companies. Dr. Schimmel received
his A.B. in Pre-Medicine from Ohio Wesleyan University and his Ph.D. in
Biochemistry from the Massachusetts Institute of Technology.

Dr. Rebek is a scientific founder of the Company and has served as a
director of the Company since its incorporation. Since July 1996, he has
served as the Director of the Institute for Chemical Biology at The Scripps
Research Institute. From 1989 to June 1996, Dr. Rebek served as Professor of
Chemistry at the Massachusetts Institute of Technology, and from 1991 to June
1996, he served as the Camille Dreyfus Professor of Chemistry. Dr. Rebek is an
expert in synthetic organic chemistry, molecular recognition and combinatorial
chemistry. He is a member of the National Academy of Sciences and the American
Academy of Arts and Sciences. Dr. Rebek serves on the Scientific Advisory
Board of Procept, Inc., a biotechnology company. He is also a Founding Member
of the Scientific Advisory Board of Darwin Molecular, Inc., a genomics
company. Dr. Rebek received his B.S. in Chemistry from the University of
Kansas and his Ph.D. in Chemistry from the Massachusetts Institute of
Technology.

Ms. Feeney has served as a director of the Company since September 1993.
Since 1991, she has served as a principal of Weiss, Peck & Greer, L.L.C., and
since 1989, she has been a General Partner of WPG Venture Partners II, L.P.,
the general partner of WPG Enterprise Fund, L.P. ("WPG Enterprise"), Weiss,
Peck & Greer Venture Associates II, L.P. ("WPG Venture") and WPG Venture
Advisers, L.P., the adviser of Weiss, Peck & Greer Venture Associates II
(Overseas), L.P. ("WPG Overseas"). Ms. Feeney is a director of Heartstream,
Inc., a medical device company, and several private health care companies. Ms.
Feeney received her B.S. in Biology and Philosophy from Duke University and
her M.S. in Human Genetics from the University of California, Davis.

47
<PAGE>

Mr. McGuire has served as a director of the Company since September 1993.
Since 1995, he has been a Founding General Partner of Polaris Venture
Partners, and since 1989, has served as a general partner of Beta Partners
Limited Partnership, each of which is a venture capital firm. Since 1992, he
has served as a general partner of Alta V Management Partners L.P., which is
the general partner of Alta V Limited Partnership ("Alta"), a fund associated
with Burr, Egan, Deleage & Co. He is a director of Integ, Inc., a diagnostic
company, and several private health care companies. Mr. McGuire received his
B.S. in Physics and Economics from Hobart College, his M.S. in Engineering
from Dartmouth College and his M.B.A. from the Harvard Business School.

Dr. Bloom has served as a director of the Company since September 1993. Dr.
Bloom has more than 40 years experience in the pharmaceutical industry. From
1952 to 1993, Dr. Bloom served in various positions at Pfizer Inc, including
Executive Vice President of Research & Development. He is a director of Vertex
Pharmaceuticals, Inc. and Neurogen Corp., biotechnology companies, Southern
New England Telecommunications Corporation, Catalytica Fine Chemicals, Inc., a
chemical manufacturer and supplier, and Incyte Pharmaceuticals, Inc., a
genomics company. Dr. Bloom received his S.B. in Chemistry and his Ph.D. in
Organic Chemistry from the Massachusetts Institute of Technology.

Mr. Conrades has served as a director of the Company since June 1996. Since
1994, he has served as President and Chief Executive Officer of BBN
corporation, a corporation providing Internet services and research and
development and he has served as Chairman since 1995. From 1961 to 1992, Mr.
Conrades served in various positions at IBM, including Senior Vice President,
Corporate Marketing and Services. He is a member of the Board of Directors of
Westinghouse, Inc. and CRA Managed Care, Inc. Mr. Conrades received his B.A.
in Physics and Mathematics from Ohio Wesleyan University and his M.B.A. from
the University of Chicago.

BOARD OF DIRECTORS

Effective upon the consummation of this Offering, the Company's Board of
Directors will be divided into three classes, with one class of directors
elected each year at the annual meeting of stockholders for a three-year term
of office. All directors of one class hold their positions until the annual
meeting of stockholders at which their respective successors are elected and
qualified. Ms. Feeney and Mr. McGuire serve in the class whose term expires in
1997; Dr. Bloom, Mr. Conrades and Dr. Rebek serve in the class whose term
expires in 1998; and Mr. Clarke, Dr. Rocklage and Dr. Schimmel serve in the
class whose term expires in 1999. Executive officers of the Company are
elected annually by the Board of Directors and serve at the discretion of the
Board of Directors or until their successors are duly elected and qualified.

The Board of Directors has appointed an Audit Committee and a Compensation
Committee. The Audit Committee reviews the scope and results of the annual
audit of the Company's financial statements conducted by the Company's
independent accountants, the scope of other services provided by the Company's
independent accountants, proposed changes in the Company's financial and
accounting standards and principles, and the Company's policies and procedures
with respect to its internal accounting, auditing and financial controls, and
makes recommendations to the Board of Directors on the engagement of the
independent accountants, as well as other matters which may come before it or
as directed by the Board of Directors. The Compensation Committee administers
the Company's compensation programs, including the Plan, and performs such
other duties as may from time to time be determined by the Board of Directors.

DIRECTOR COMPENSATION

In 1995, the Company paid $6,000 to Dr. Bloom in connection with attendance
at meetings of the Board of Directors. No other director has received
compensation for his or her service on the Board of Directors or any committee
thereof, except that in May and June of 1996, the Company has granted to each
non-employee director a nonstatutory stock option exercisable for 7,142 shares
at an exercise price of $1.96 and $5.95, respectively. See "Certain
Transactions."

Following this Offering, Dr. Bloom and Mr. Conrades will receive a fee of
$1,000 for each Board meeting attended and will be reimbursed for expenses
incurred in connection with their attendance. In addition, upon first joining
the Board each director who is not an officer or employee of the Company will
be granted

48
<PAGE>

automatically a stock option exercisable for 7,000 shares of Common Stock at
fair market value, and each time that he or she is serving as a director on
the business day immediately following an annual meeting of stockholders, such
director will be automatically granted on such business day a stock option
exercisable for 700 shares of Common Stock at fair market value. See "Amended
and Restated 1993 Stock Option Plan."

EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company during the fiscal year
ended December 31, 1995 to the Chief Executive Officer and the other executive
officers of the Company (the "Named Executive Officers") whose 1995
compensation exceeded $100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- --------------------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($)(1) BONUS($) COMPENSATION($)(2) OPTIONS(#) COMPENSATION($)
- ------------------ ------------ -------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Scott M. Rocklage....... $180,434 $50,000 $6,072 14,285 $23,587(3)
President, Chief
Executive Officer and
Director
Francis P. Tally........ 165,280 -- 8,258 -- --
Vice President of
Research and
Development
Nancy Gray(4)........... 113,228 11,440 -- 5,714 --
Vice President of
Corporate Development
</TABLE>
- -------
(1) Salary includes amounts, if any, deferred pursuant to the Company's 401(k)
Plan.
(2) Other Annual Compensation consists of long-term disability insurance
premiums paid by the Company on behalf of the Named Executive Officer.
(3) The Company forgave $23,587 of principal and accrued interest owed by Dr.
Rocklage under certain promissory notes. See "Certain Transactions."
(4) Dr. Gray resigned from the Company in February 1996, at which time options
for 4,285 shares were terminated and restricted stock totaling 17,857
shares were repurchased by the Company.

The following table sets forth certain information with respect to grants of
stock options under the Plan to the Named Executive Officers during the year
ended December 31, 1995.

OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM($)(2)
-------------------------------------------------- --------------------
PERCENT OF
NUMBER TOTAL
OF SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES IN PRICE PER EXPIRATION
NAME OPTIONS(#)(1) FISCAL YEAR(%) SHARE($) DATE 5% 10%
- ---- ------------- --------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Scott M. Rocklage....... 14,285 6.05% $0.42 10/18/05 $ 9,773 $ 15,562
Francis P. Tally........ -- -- -- -- -- --
Nancy Gray(3)........... 5,714 2.42 0.35 -- 4,561 7,262
</TABLE>
- -------
(1) Represents incentive stock options granted under the Plan to Dr. Rocklage
on October 18, 1995 and to Dr. Gray on January 1, 1995. Each option is
exercisable in 16 equal quarterly installments, and has a maximum term of
10 years from the date of grant, subject to earlier termination in the
event of the optionee's cessation of service with the Company. The options
are exercisable during the holder's lifetime only by the holder and they
are exercisable by the holder only while the holder is an employee of the
Company and for certain limited periods of time thereafter in the event of
termination of employment.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed appreciation rates of 5% and 10% in the fair market
value of shares of Common Stock from the fair market value on the date of
grant, which rates are set by the Securities and Exchange Commission and
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of option exercise prices,
but do not include deductions for taxes or other expenses associated with
the exercises. Actual gains, if any, are dependent on the performance of
the Common Stock and the date on which the option is exercised. There can
be no assurance that the amounts reflected will be achieved or will
otherwise be indicative of the actual amounts received, if any.
(3) Dr. Gray resigned from the Company in February 1996, at which time options
for 4,285 shares were terminated.

49
<PAGE>

The following table sets forth information with respect to (i) the number of
unexercised options held by the Named Executive Officers as of December 31,
1995 and (ii) the value of unexercised in-the-money options (options for which
the fair market value of the Common Stock exceeds the exercise price) as of
December 31, 1995. In fiscal 1995, there were no option exercises by the Named
Executive Officers.

AGGREGATED OPTION VALUES IN THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1995(#) AT DECEMBER 31, 1995 ($)(1)
------------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Scott M. Rocklage....... 0 14,285 $ 0 $6,000
Francis P. Tally........ -- -- -- --
Nancy Gray (2).......... 1,429 4,285 700 2,100
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock as of December 15, 1995
of $0.84 per share, as determined by the Company's Board of Directors,
less the aggregate exercise price.
(2) Dr. Gray resigned from the Company in February 1996, at which time options
for 4,285 shares were terminated.

AMENDED AND RESTATED 1993 STOCK OPTION PLAN

The Plan provides for grants of stock options intended to qualify for
preferential tax treatment (the "Incentive Stock Options") under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory stock options that do not qualify for such treatment. All
employees of the Company are eligible for stock options under the Plan in
amounts and at prices determined by the Compensation Committee, provided that,
in the case of Incentive Stock Options, the price will not be less than 100%
of the fair market value of the Common Stock on the date of grant, or not less
than 110% of the fair market value of the Stock on the grant date if the
optionee owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock.

Each director who is not an officer or employee of the Company (a "Non-
Employee Director") who is first elected to the Board of Directors during the
term of the Plan will receive, on the director's election date, an option to
purchase 7,000 shares of Common Stock. In addition, each time that a Non-
Employee Director is serving as a director on the business day immediately
following an annual meeting of stockholders, he or she will be automatically
granted on such business day a stock option exercisable for 700 shares of
Common Stock at fair market value, which will become exercisable in four equal
installments on the last day of each subsequent fiscal quarter if the optionee
remains a director on that date.

The Plan will be administered by the Compensation Committee. The
Compensation Committee will select participants (other than for automatic
grants to Non-Employee Directors as set forth in the Plan) and, in a manner
consistent with the terms of the Plan, determine the number and duration of
the options to be granted and the terms and conditions of the option
agreements. The Compensation Committee has the right to alter, amend or revoke
the Plan.

The Plan provides that each outstanding option will immediately become fully
exercisable upon a "Change in Corporate Control" of the Company, as defined in
the Plan. A "Change in Corporate Control" includes the acquisition by any
third party (as hereinafter defined), directly or indirectly, of more than 80%
of the Common Stock outstanding at the time, without the prior approval of the
Company's Board of Directors. A "third party" for purposes of the foregoing
means any person other than the Company or a subsidiary or employee benefit
plan or trust maintained by the Company or any of its subsidiaries together
with any of such person's "affiliates" and "associates" as defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.

A total of 1,500,000 shares of Common Stock of the Company is reserved for
issuance under the Plan. The maximum number of shares will increase, effective
as of January 1, 1998 and each January 1 thereafter during the term of the
Plan, by an additional number of shares of Common Stock equal to 15% of the
excess, if any, of (i) the total number of shares of Common Stock and Common
Stock equivalents issued and

50
<PAGE>

outstanding as of the close of business on December 31 of the preceding year
over (ii) the total number of shares of Common Stock and Common Stock
equivalents issued and outstanding as of the close of business
on December 31 of the year prior to such preceding year. The maximum number of
shares that may be subject to incentive stock options granted under the Plan
is 3,000,000 shares, and the maximum number of shares that may be subject to
stock options granted to any person (including Non-Employee Directors) under
the Plan in a given year is 500,000 shares.

Incentive Stock Options granted under the Plan are not transferable except
by will or the laws of descent and distribution, and may be exercised during
the life of the optionee only by the optionee. Nonstatutory stock options
granted under the Plan are not transferable except by will or the laws of
descent and distribution and except that nonstatutory stock options may be
transferred if and to the extent authorized by the Compensation Committee.

401(K) PLAN

The Company has implemented a retirement savings plan (the "401(k) Plan"),
which covers all full-time employees. Pursuant to the 401(k) Plan, an employee
may elect to reduce his or her current compensation by up to 15% (subject to
certain overall dollar limits) and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan allows employees with six
months continuous service to make certain tax-deferred voluntary
contributions, which the Company generally intends to match with a 1.5%
contribution, but in any event not to exceed $500. The 401(k) Plan is intended
to qualify under Section 401 of the Code, so that contributions by employees,
and earned income thereon, are not taxable to employees until withdrawn from
the 401(k) Plan. The administrator of the 401(k) Plan will invest each
employee's account at the direction of each such employee, who can choose
among certain investment alternatives provided.

EMPLOYMENT AGREEMENT

Dr. Rocklage, the Company's President and Chief Executive Officer, is
employed pursuant to an employment agreement with the Company, dated June 20,
1994 (the "Employment Agreement"). Under the terms of the Employment
Agreement, Dr. Rocklage will receive an annual base salary in 1996 of $185,000
and is entitled to a performance bonus of up to $50,000, subject to review by
the Company's Board of Directors, upon the Company's achievement of certain
milestones for such year that have been mutually agreed upon by Dr. Rocklage
and the Board of Directors prior to the commencement of such fiscal year.
Pursuant to the terms of the Employment Agreement, on July 21, 1994 the
Company granted to Dr. Rocklage a stock option exercisable for 188,121 shares
of the Company's Common Stock at an exercise price of $0.35 per share, and
sold to Dr. Rocklage 263,370 shares of Series B Convertible Preferred Stock
(convertible into 37,624 shares of Common Stock) at a purchase price of $0.50
per share ($3.50 per share on an as-converted basis). To purchase the shares
of Series B Convertible Preferred Stock and to exercise his option, Dr.
Rocklage issued two promissory notes to the Company. See "Certain
Transactions." The Employment Agreement also provides Dr. Rocklage with
medical insurance and other fringe benefits. Dr. Rocklage's employment with
the Company may be terminated by the Company at any time by giving written
notice of termination and may be terminated by Dr. Rocklage at any time upon
thirty days' written notice of termination. Upon any termination by the
Company of Dr. Rocklage's employment without cause, Dr. Rocklage is entitled
to severance pay in an amount equal to three months of his then current annual
base salary.

None of the Company's other executive officers has entered into an
employment agreement with the Company. See "Risk Factors--Dependence on Key
Personnel."

COMPENSATION COMMITTEE INTERLOCKS

In 1995, the members of the Compensation Committee of the Board of Directors
were Mr. Clarke, Dr. Schimmel and Dr. Rebek, none of whom is an employee of
the Company. As of July, 1996, the members of the Compensation Committee are
Mr. Clarke, Mr. Conrades and Ms. Feeney, none of whom is an employee of the
Company.

51
<PAGE>

CERTAIN TRANSACTIONS

In August 1993, the Company sold an aggregate of 14,270,000 shares of its
Series B Convertible Preferred Stock (convertible into 2,038,571 shares of
Common Stock), at a purchase price of $0.50 per share ($3.50 per share on an
as-converted basis) to a group of stockholders, including DSV, Alta, WPG
Enterprise, WPG Venture, and Interwest Partners V, L.P. ("Interwest"), Dr.
Schimmel, Dr. Rebek, and the Julius Rebek, Jr. Retirement Plan. Mr. Clarke, a
director of the Company, is a general partner of DSV Management, the general
partner of DSV. Ms. Feeney, a director of the Company, is a general partner of
WPG Venture Partners II, L.P., the general partner of WPG Enterprise and WPG
Venture. Mr. McGuire, a director of the Company, is a general partner of Alta
V Management Partners, L.P., the general partner of Alta. Dr. Schimmel and Dr.
Rebek are directors of the Company. The Julius Rebek, Jr. Retirement Plan is
an affiliate of Dr. Rebek.

In August 1993, Dr. Schimmel executed a promissory note to the Company in
the amount of $250,000 with a 4% annual interest rate in connection with his
purchase of Series B Convertible Preferred Stock. This note has been paid in
full.

In June 1994, the Company entered into an Employment Agreement with Dr.
Rocklage, President, Chief Executive Officer and a director of the Company.
See "Management--Employment Agreement." In consideration for the performance
of services by Dr. Rocklage under the Employment Agreement, the Company
granted to Dr. Rocklage an incentive stock option to purchase 188,121 shares
of Common Stock, at a purchase price of $0.35, the fair market value of the
Common Stock on the date of grant. Dr. Rocklage purchased 263,370 shares of
Series B Convertible Preferred Stock (convertible into 37,624 shares of Common
Stock), at a purchase price of $0.50 per share ($3.50 per share on an as-
converted basis). In July 1994, Dr. Rocklage executed a promissory note to the
Company in the amount of $131,685 with a 4% annual interest rate to purchase
his shares of Series B Convertible Preferred Stock. This note is secured by
263,370 shares of Series B Convertible Preferred Stock (convertible into
37,624 shares of Common Stock). In November 1994, Dr. Rocklage executed a
promissory note to the Company in the amount of $65,842 with a 4% annual
interest rate in connection with the exercise of his stock option agreement.
One-third of the principal and interest on the promissory note has been
forgiven and the remainder will be forgiven in equal installments on November
28, 1996 and November 28, 1997.

In December 1994, the Company consummated a financing in which it issued
Convertible Demand Promissory Notes in the aggregate principal amount of
$1,000,000 (the "Notes") to a group of existing investors including DSV, Alta,
WPG Enterprise, WPG Venture and Interwest.

In February 1995, the Company sold an aggregate of 9,428,644 shares of its
Series C Convertible Preferred Stock (convertible into 1,346,949 shares of
Common Stock), at a purchase price of $0.60 per share ($4.20 per share on an
as-converted basis) to a group of existing investors, including DSV, Alta, WPG
Enterprise, WPG Venture and Interwest. The purchase price of the Series C
Convertible Preferred Stock was paid in part by the conversion and
cancellation of the Notes (plus accrued interest) previously issued by the
Company to certain investors.

In May 1995, the Company issued a warrant to each of Dr. Schimmel and Dr.
Rebek to purchase 120,000 shares of Series C Convertible Preferred Stock
(convertible into 17,142 shares of Common Stock), at an exercise price of
$0.60 per share ($4.20 per share on an as-converted basis).

In May 1995, the Company sold an aggregate of 5,589,169 shares of its Series
C Convertible Preferred Stock (convertible into 798,452 shares of Common
Stock), at a purchase price of $0.60 per share ($4.20 per share on an as-
converted basis) to a group of new investors, including H&Q Healthcare
Investors, H&Q Life Sciences Investors, and Rovent II Limited Partnership.

In May 1996, the Company granted to certain of its officers stock options
under the Plan exercisable for an aggregate of 126,507 shares of Common Stock
at an exercise price of $1.96 per share, and the Company granted to certain of
its directors stock options exercisable for an aggregate of 42,857 shares of
Common Stock at an exercise price of $1.96 per share.

52
<PAGE>

In June 1996, the Company sold a total of 2,816,902 shares of Series D
Convertible Preferred Stock (convertible into 402,414 shares of Common Stock),
at a purchase price of $1.42 per share ($9.94 per share on an as-converted
basis), to Bristol-Myers Squibb. In addition, the Company may issue Common
Stock after the closing of this Offering to Bristol-Myers Squibb pursuant to
certain antidilution rights of Bristol-Myers Squibb.

In June 1996, the Company granted George Conrades, a director of the
Company, a stock option exercisable for 7,142 shares of Common Stock at an
exercise price of $5.95 per share.

For a description of certain transactions and certain employment and other
arrangements between the Company and certain of its directors and executive
officers, see "Management--Director Compensation" and "--Employment
Agreements."

The Company believes that the securities issued in the transactions
involving the Company described above were sold by the Company at their then
fair market value and that the terms of the transactions described above were
no less favorable than the Company could have obtained from unaffiliated third
parties.

The Company has adopted a policy, effective following the consummation of
this Offering, that all future transactions between the Company and its
officers, directors and affiliates must (i) be approved by a majority of those
members of the Company's Board of Directors that are not parties, directly or
indirectly through affiliates, to such transactions and (ii) be on terms no
less favorable to the Company than could be obtained from unrelated third
parties.

53
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996, giving effect to
the sale of 2,816,902 shares of Series D Convertible Preferred Stock
(convertible into 404,414 shares of Common Stock) to Bristol-Myers Squibb on
June 1996 and the conversion of all outstanding shares of the Company's
Preferred Stock into an aggregate of 5,366,869 shares of Common Stock by (i)
each person known to the Company to be the beneficial owner of more than 5% of
the shares of Common Stock, (ii) each director of the Company, (iii) each of
the Named Executive Officers and (iv) all current directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
DSV Partners IV(2).............................. 1,643,499 25.77% 19.62%
221 Nassau Street
Princeton, NJ 08542
Entities affiliated with
Interwest Management Partners(3)................ 789,213 12.37 9.42
300 Sandhill Road
Building 3, Suite 255
Menlo Park, CA 94025-7112
Entities affiliated with
Burr, Egan, Deleage & Co.(4).................... 786,356 12.33 9.39
One Post Office Square, Suite 3800
Boston, MA 02109
Entities affiliated with
Weiss, Peck & Greer, L.L.C.(5).................. 667,308 10.46 7.96
555 California Street, Suite 4760
San Francisco, CA 94104
Entities affiliated with
H&Q Capital Management(6)....................... 428,571 6.72 5.12
50 Rowes Wharf
Boston, MA 02110
Bristol-Myers Squibb Company(7)................. 402,414 6.31 4.80
P.O. Box 4000
Princeton, NJ 08543
Entities affiliated with
Advent International Corporation(8)............. 357,142 5.60 4.26
101 Federal Street
Boston, MA 02110
Scott M. Rocklage(9)............................ 240,302 3.77 2.87
Francis P. Tally................................ 92,857 1.46 1.11
Nancy Gray(10).................................. 12,142 * *
John K. Clarke(11).............................. 1,643,499 25.77 19.62
Paul R. Schimmel(12)............................ 302,856 4.74 3.61
Julius Rebek, Jr.(13)........................... 241,000 3.77 2.88
Ellen M. Feeney(14)............................. 667,308 10.46 7.96
Terrance G. McGuire(15)......................... 778,178 12.20 9.29
Barry Bloom(16)................................. 8,928 * *
George Conrades................................. * * *
All current executive officers and directors as
a group (12 persons)(17)........................ 3,988,944 62.54 47.61
</TABLE>

54
<PAGE>

- --------
* Less than 1% of the outstanding shares of Common Stock.

(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the Commission under the Securities and Exchange Act of
1934, as amended. Shares of Common Stock issuable pursuant to options,
warrants and convertible securities, to the extent such securities are
currently exercisable or convertible within 60 days of May 31, 1996, are
treated as outstanding for computing the percentage of the person holding
such securities but are not treated as outstanding for computing the
percentage of any other person. Unless otherwise noted, each person or
group identified possesses sole voting and investment power with respect
to shares, subject to community property laws where applicable. Shares
not outstanding but deemed beneficially owned by virtue of the right of a
person or group to acquire them within 60 days are treated as outstanding
only for purposes of determining the number of and percent owned by such
person or group.

(2) DSV Management is the general partner of DSV and as such shares voting
and investment power with respect to the shares owned by DSV. DSV
Management may be deemed to beneficially own all of the shares owned by
DSV although DSV Management disclaims beneficial ownership except to the
extent of its proportionate partnership interest in DSV. Mr. Clarke is a
general partner of DSV Management.

(3) Consists of 783,986 shares held by Interwest and 5,227 shares held by
Interwest Investors V. Interwest Management Partners V is the general
partner of Interwest and as such Interwest Management Partners V shares
voting and investment power with respect to the shares owned by
Interwest. Interwest Management Partners V may be deemed to beneficially
own all of the shares owned by Interwest although it disclaims beneficial
ownership except to the extent of its proportionate direct partnership
interests in Interwest. Mr. Arnold Oronsky, a consultant to the Company,
is a general partner of Interwest Management Partners V. Mr. Oronsky may
be deemed to beneficially own all of the shares owned by Interwest
Investors V although he disclaims beneficial ownership except to the
extent of his proportionate partnership interest in Interwest Investors
V.

(4) Consists of 778,178 shares held by Alta and 8,178 shares held by Customs
House Partners. Alta V Management Partners, L.P. is the general partner
of Alta and as such shares voting and investment power with respect to
the shares owned by Alta. Alta V Management Partners, L.P. may be deemed
to beneficially own all of the shares owned by Alta although Alta V
Management Partners, L.P. disclaims beneficial ownership except to the
extent of its proportionate partnership interest in Alta. Mr. McGuire is
a general partner of Alta V Management Partners, L.P. The principals of
Burr, Egan, Deleage & Co. and 14 other persons and/or entities are
general partners of Customs House Partners and as such share voting and
investment power with respect to the shares owned by Customs House
Partners. The various general partners of Customs House Partners
beneficially own shares owned by Customs House Partners in proportion to
their partnership interests therein.

(5) Consists of 354,741 shares held by WPG Enterprise, 256,380 shares held by
WPG Venture and 56,187 shares held by WPG Overseas (the "WPG Group"). WPG
Venture Partners II, L.P. is the general partner of WPG Enterprise and
WPG Venture and is the investment adviser of WPG Overseas. In such
capacities, WPG Venture Partners II, L.P. shares voting and investment
control with respect to the shares owned by the WPG Group. WPG Venture
Partners II, L.P. may be deemed to beneficially own all of the shares
owned by the WPG Group although WPG Venture Partners II, L.P. disclaims
beneficial ownership except to the extent of its proportionate
partnership interest in each of the partnerships in the WPG Group. Ms.
Feeney is a general partner of WPG Venture Partners II, L.P.

(6) Consists of 238,095 shares held by H&Q Healthcare Investors and 190,476
shares held by H&Q Life Sciences Investors. H&Q Capital Management, Inc.
is the general partner of H&Q Healthcare Investors and H&Q Life Sciences
Investors and as such H&Q Capital Management, Inc. shares voting and
investment power with respect to the shares owned by H&Q Healthcare
Investors and H&Q Life Sciences Investors. H&Q Capital Management, Inc.
may be deemed to beneficially own all of the shares owned by H&Q
Healthcare Investors and H&Q Life Sciences Investors although H&Q Capital
Management, Inc. disclaims beneficial ownership except to the extent of
its proportionate partnership interest in each of H&Q Healthcare
Investors and H&Q Life Sciences Investors.

(7) Consists of the purchase in June 1996 of 2,816,902 shares of Series D
Convertible Preferred Stock and excludes Common Stock that may be issued
after the closing of this Offering to Bristol-Myers Squibb pursuant to
certain antidilution rights of Bristol-Myers Squibb.

(8) Includes the ownership by the following venture capital funds managed by
Advent International Corporation: 295,238 shares held by Rovent II
Limited Partnership, 59,523 shares held by Advent Performance Materials
Limited Partnership, 2,381 shares held by Advent International Investors
II Limited Partnership. In its capacity as manager of these funds, Advent
International Corporation exercises sole voting and investment power with
respect to all shares held by these funds. Advent International
Corporation exercises its voting and investment power through a group of
three persons: Douglas R. Brown, President and Chief Executive Officer,
Jason S. Fisherman, Vice President responsible for the investment in the
Company, and Janet L. Hennessy, Vice President responsible for monitoring
public securities, none of whom may act independently and a majority of
whom must act in concert to exercise voting or investment power over the
beneficial holdings of such entity. Therefore, no individual in this
group other than Advent International Corporation is deemed to have sole
voting or investment power. Advent International Corporation may be
deemed to beneficially own all 357,142 shares.

(9) Includes 2,678 shares of Common Stock which Dr. Rocklage has the right to
acquire within 60 days of May 31, 1996 upon exercise of stock options.

(10) Dr. Gray resigned from the Company in February 1996.

(11) Consists of shares held by DSV. Mr. Clarke, Chairman of the Board of
Directors of the Company, is a general partner of DSV

55
<PAGE>

Management, the general partner of DSV. Mr. Clarke shares voting and
investment power with respect to the shares owned by DSV. Mr. Clarke may
be deemed to beneficially own the shares held by DSV although he disclaims
beneficial ownership except to the extent of his proportionate partnership
interest therein.

(12) Includes 17,142 shares of Common Stock which Dr. Schimmel has the right
to acquire within 60 days of May 31, 1996 upon the exercise of his stock
options and warrants and 65,714 shares held by the Paul R. Schimmel
Profit-Sharing Plan.

(13) Includes 17,142 shares of Common Stock which Dr. Rebek has the right to
acquire within 60 days of May 31, 1996 upon the exercise of his stock
options and warrants and 3,857 shares held by the Julius Rebek, Jr.
Retirement Plan, over which Dr. Rebek has sole voting power and
beneficial ownership. Also includes 21,999 shares owned by Dr. Rebek's
wife and 53,571 shares owned by the Julius Rebek, Jr. Family Trust. Dr.
Rebek disclaims beneficial ownership of all shares owned by his wife and
the Julius Rebek, Jr. Family Trust.

(14) Consists of shares held by the WPG Group. Ms. Feeney, a director of the
Company, is a general partner of WPG Venture Partners II, L.P., the
general partner of WPG Enterprise and WPG Venture and the adviser to WPG
Overseas. Ms. Feeney shares voting and investment control with respect to
the shares owned by the WPG Group. Ms. Feeney may been deemed to
beneficially own the shares held by the WPG Group although she disclaims
beneficial ownership except to the extent of her proportionate
partnership interest therein.

(15) Consists of shares held by Alta. Mr. McGuire, a director of the Company,
is a general partner of Alta V Management Partners, L.P., the general
partner of Alta. Mr. McGuire shares voting and investment control with
respect to the shares owned by Alta. Mr. McGuire may been deemed to
beneficially own the shares held by Alta although he disclaims beneficial
ownership except to the extent of his proportionate partnership interest
therein.

(16) Includes 1,785 shares of Common Stock which Dr. Bloom has the right to
acquire within 60 days of May 31, 1996 upon the exercise of his stock
options.

(17) Includes 52,763 shares of Common Stock which all directors and executive
officers have the right to acquire within 60 days of May 31, 1996 upon
the exercise of their stock options.

56
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this Offering, the Company will be authorized to issue
25,000,000 shares of Common Stock, $0.001 par value per share, of which
8,369,669 shares will be issued and outstanding, and 5,000,000 shares of
undesignated Preferred Stock, $0.001 par value per share, of which no shares
will be issued and outstanding.

COMMON STOCK

Upon the closing of this Offering, the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") will authorize the
issuance of up to 25,000,000 shares of Common Stock, $0.001 par value per
share. Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor and subject to any
preferential dividend rights of any then outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to any
liquidation preference of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered by
the Company in this Offering will be, when issued and paid for, fully paid and
nonassessable.

As of September 30, 1996, there were 6,369,669 shares of Common Stock
outstanding held by 86 stockholders (after giving effect to the conversion of
all outstanding shares of Preferred Stock into an aggregate of 5,366,869
shares of Common Stock effective upon the closing of this Offering, but
without giving effect to Common Stock that may be issued after the closing of
this Offering to Bristol-Myers Squibb pursuant to certain antidilution rights
of Bristol-Myers Squibb).

PREFERRED STOCK

Upon the closing of this Offering, the Restated Certificate will have an
authorized class of undesignated preferred stock consisting of 5,000,000
shares, $0.001 par value per share. The Board of Directors will be authorized,
subject to any limitations prescribed by law, without further stockholder
approval, to issue from time to time shares of preferred stock in one or more
series. Each such series of preferred stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or
relative rights or privileges as shall be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.

The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock that may
be issued in the future. Such rights may include voting and conversion rights
which could adversely affect the holders of Common Stock. Satisfaction of any
dividend preferences of outstanding preferred stock would reduce the amount of
funds available, if any, for the payment of dividends on Common Stock. See
"Dividend Policy." Holders of preferred stock would typically be entitled to
receive a preference payment in the event of a liquidation, dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. Additionally, the issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue any shares of
preferred stock.

WARRANTS

As of September 30, 1996, there were outstanding warrants exercisable for up
to 86,619 shares of Common Stock (after giving effect to the conversion of all
outstanding warrants to purchase shares of the Company's

57
<PAGE>

Preferred Stock into warrants for shares of Common Stock which will occur upon
the closing of this Offering). Such warrants have expiration dates ranging
from 2003 to 2006 and have a weighted average exercise price equal to $4.04
per share. The holders of the warrants are entitled to certain registration
rights in respect of the shares of Common Stock issuable upon exercise of
their respective warrants. See "Registration Rights."

REGISTRATION RIGHTS

Certain persons and entities have rights with respect to the registration of
Common Stock under the Securities Act. Immediately after the closing of this
Offering, those rights will cover approximately 5,960,631 shares of Common
Stock (the "Registrable Shares"), which will include 86,619 shares of Common
Stock issuable upon exercise of warrants. In general, in the event that the
Company proposes to register any shares of Common Stock under the Securities
Act for its own account or the account of other stockholders at any time or
times, subject to certain exceptions, the Company must, upon the written
request of a holder of Registrable Shares, use its best efforts to cause to be
registered under the Securities Act all of the Registrable Shares requested to
be registered, provided, however, that the Company is not required to register
Registrable Securities in excess of the amount, if any, of Common Stock which
the principal underwriter of an underwritten offering shall agree to include
in such offering. The holders of 5,960,631 of the Registrable Shares will also
have the right to require the Company to prepare and file from time to time a
registration statement under the Securities Act with respect to their
Registrable Shares, provided that such holders may not exercise such right
more than once with respect to a registration statement on Form S-1 or more
than three times in any calendar year with respect to a registration statement
on Form S-3. Upon receipt of any such request from such holders, the Company
will be required to use its best efforts to effect such registration, subject
to certain conditions and limitations. If such holders are unable to include
in such registration statement on Form S-1 at least 90% of the Registrable
Shares that such holders have requested for inclusion, then such holders will
have the right to require that the Company prepare and file a second
registration statement on Form S-1 and the Company will be required to use its
best efforts to effect such registration, subject to certain conditions and
limitations.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the DGCL. Subject
to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the Board of Directors
or unless the business combination is approved in a prescribed manner. A
"business combination" includes certain mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or within three
years prior did own, 15% or more of the corporation's voting stock.

The Restated Certificate of Incorporation and Amended and Restated By-Laws
(the "By-Laws") provide that, effective upon the consummation of this
Offering, any action required or permitted to be taken by the stockholders of
the Company may be taken only at duly called annual or special meetings of the
stockholders, and that special meetings may be called only by the Chairman of
the Board of Directors, the President or a majority of the Board of Directors
of the Company. These provisions could have the effect of delaying until the
next annual stockholders' meeting stockholder actions that are favored by the
holders of a majority of the outstanding voting securities of the Company,
including actions to remove directors. These provisions may also discourage
another person or entity from making a tender offer for the Company's Common
Stock, because such person or entity, even if it acquired all or a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only
at a duly called stockholders meeting, and not by written consent.

58
<PAGE>

The Company's Restated Certificate of Incorporation and By-Laws provide
that, effective upon the consummation of this offering, for nominations for
the Board of Directors or for other business to be properly brought by a
stockholder before a meeting of stockholders, the stockholder must first have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a notice of nominations or other business to be brought before a
stockholders meeting must be delivered not less than 50 days prior to such
stockholders meeting, provided that in the event that less than 55 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, a notice of nominations or other business to be brought
before such stockholders meeting must be delivered within seven days following
the day on which such notice of the date of the stockholders meeting was given
or such public disclosure was made. The notice must contain, among other
things, certain information about the stockholder delivering the notice and,
as applicable, background information about each nominee or a description of
the proposed business to be brought before the meeting.

The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless the corporation's certificate
of incorporation or by-laws, as the case may be, requires a greater
percentage. The Company's Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 75% of the outstanding voting
stock of the Company to amend or repeal any of the foregoing provisions, or to
reduce the number of authorized shares of Common Stock and preferred stock. A
75% vote is also required to amend or repeal any of the foregoing By-Law
provisions. Such 75% stockholder vote would in either case be in addition to
any separate class vote that might in the future be required pursuant to the
terms of any preferred stock that might be outstanding at the time any such
amendments are submitted to stockholders. The By-Laws may also be amended or
repealed by a majority vote of the Board of Directors.

The Company's Restated Certificate of Incorporation and By-Laws provide for
the division of the Board of Directors into three classes, as nearly equal in
size as possible, with staggered three-year terms. See "Management--Executive
Officers, Key Employees and Directors." Any director may be removed only for
cause and then only by the vote of a majority of the shares entitled to vote
for the election of directors.

The Company's Restated Certificate of Incorporation empowers the Board of
Directors, when considering a tender offer or merger or acquisition proposal,
to take into account factors in addition to potential economic benefits to
stockholders. Such factors may include (i) comparison of the proposed
consideration to be received by stockholders in relation to the then current
market price of the Company's capital stock, the estimated current value of
the Company in a freely negotiated transaction and the estimated future value
of the Company as an independent entity, and (ii) the impact of such a
transaction on the employees, suppliers and customers of the Company and its
effect on the communities in which the Company operates.

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company.

The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the DGCL relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary
damages resulting from a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions that involve intentional
misconduct or a knowing violation of law. These provisions do not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of a
director's fiduciary duty. There provisions will not alter a director's
liability under federal securities laws. The Company's Restated Certificate of
Incorporation and By-Laws also contain provisions indemnifying the directors
and officers of the Company to the fullest extent permitted by the DGCL. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is The First
National Bank of Boston.

59
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
8,369,669 shares of Common Stock. Of these shares, the 2,000,000 shares sold
in this Offering will be freely tradeable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 6,369,669 shares outstanding upon completion of this Offering will
be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). Sales of Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price
of the Common Stock. The executive officers, directors, employees and other
stockholders of the Company who beneficially own an aggregate of 6,369,669
shares of Common Stock outstanding prior to this Offering have agreed that
they will not, without the prior written consent of UBS Securities LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them for a period of 180 days
after the effective date of this Offering (the "Lock-Up Period"). See
"Underwriting."

Upon expiration of the Lock-Up Period, approximately 177,139 Restricted
Shares held by non-affiliates will be eligible for sale in the public market
without restriction pursuant to Rule 144(k) and approximately 3,120,475
Restricted Shares held by affiliates and approximately 68,068 Restricted
Shares held by non-affiliates will be so eligible subject to compliance with
the volume limitations of Rule 144 described below. The remaining 2,547,808
Restricted Shares may be sold pursuant to Rule 144 only after they have been
fully paid for and held for at least two years from the later of the date of
issuance by the Company or acquisition from an affiliate (which dates do not
occur until after the expiration of the Lock-Up Period).

Beginning 90 days after the date of this Prospectus, certain shares issued
or issuable upon exercise of options granted by the Company prior to the date
of this Prospectus will also be eligible for sale in the public market
pursuant to Rule 701 under the Securities Act. In general, Rule 701 permits
resales of shares issued pursuant to certain compensatory benefit plans and
contracts commencing 90 days after the issuer becomes subject to the reporting
requirements of the Securities and Exchange Act of 1934, as amended, in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirements, contained in Rule 144. If all the
requirements of Rule 701 are met, upon expiration of the Lock-Up Period an
aggregate of 456,179 shares of Common Stock currently outstanding, and an
aggregate of 541,844 shares of Common Stock issuable upon exercise of
currently outstanding options will be eligible for sale pursuant to such rule
commencing on the 181st day after this Prospectus.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who beneficially owned Restricted Shares for at
least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding the sale, and who has beneficially owned for at least three years
the shares proposed to be sold, would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above.

The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule
changes will be enacted. If enacted, such modifications will have a material
effect on the times when shares of the Company's Common Stock become eligible
for resale.

60
<PAGE>

The Company is unable to estimate accurately the number of Restricted Shares
that will be sold under Rule 144 since this will depend in part on the market
price for the Common Stock, the personal circumstances of the sellers and
other factors.

Rule 144A under the Securities Act would permit, subject to certain
conditions, the sale by the current holders of Restricted Shares of all or a
portion of their shares to certain "qualified institutional buyers," as
defined in Rule 144A.

The Company intends to file a Form S-8 registration statement under the
Securities Act to register all shares of Common Stock issuable under the Plan.
That registration statement is expected to be filed within 180 days after the
date of this Prospectus and is expected to become effective immediately upon
filing. Shares covered by such registration statement will be eligible for
resale in the public market after the effective date of such registration
statements, subject to Rule 144 limitations applicable to affiliates and to
the Lockup Period, if applicable.

In addition, upon completion of this Offering, the holders of 5,453,488
shares of Common Stock (including holders of warrants to purchase 86,619
shares of Common Stock) will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock--Registration Rights."

61
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC,
Hambrecht & Quist LLC and Pacific Growth Equities, Inc. are acting as
representatives (the "Representatives"), have agreed to purchase from the
Company the following respective number of shares of Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
UBS Securities LLC.................................................
Hambrecht & Quist LLC..............................................
Pacific Growth Equities, Inc.......................................
</TABLE>

<TABLE>
<S> <C>
---------
Total.......................................................... 2,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if
any Underwriter defaults in its obligation to purchase shares, and the
aggregate obligations of the Underwriters so defaulting do not exceed 10% of
the shares offered hereby, the remaining Underwriters, or some of them, must
assume such obligations.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering
price set forth on the cover of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters
may allow and such dealers may reallow a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.

The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares
of Common Stock to be purchased by it shown in the above table bears to the
total number of shares of Common Stock offered hereby. The Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters to
the extent the option is exercised.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The executive officers, directors, employees and other stockholders of the
Company who beneficially own an aggregate of 6,369,669 shares of Common Stock
outstanding prior to this Offering have agreed that they will not, without the
prior written consent of UBS Securities LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common
Stock owned by them for a period of 180 days after the effective date of this
Offering. The Company has agreed that it will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares
of Common Stock, options or warrants to acquire

62
<PAGE>

shares of Common Stock for a period of 180 days after the date of this
Prospectus, except that the Company may grant additional options under its
stock option plans, or issue shares upon the exercise of outstanding stock
options.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market and economic conditions, are certain financial information of the
Company, the history of, and the prospects for, the Company and the industry
in which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present stage of the Company's development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to the Company. The initial public offering
price set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price
is subject to change as a result of market conditions and other factors. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
this Offering at or above the initial offering price.

The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "CBST."

LEGAL MATTERS

Bingham, Dana & Gould LLP, Boston, Massachusetts will pass on the validity
of the shares offered hereby for the Company. Justin P. Morreale, Esq., a
partner at Bingham, Dana & Gould LLP, is the Secretary of the Company and owns
42,857 shares of Common Stock. David L. Engel, Esq., a partner at Bingham,
Dana & Gould LLP, owns 5,952 shares of Common Stock. Certain legal matters
will be passed upon for the Underwriters by Hale and Dorr, Boston,
Massachusetts.

EXPERTS

The balance sheets of the Company as of December 31, 1994 and 1995 and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995 included in this
Prospectus and in the Registration Statement have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given upon the authority of that firm as experts in accounting and auditing.

The statement in this Prospectus under the captions "Risk Factors--
Uncertainty of Patents and Proprietary Rights" and "Business--Patents and
Proprietary Rights" have been reviewed and approved by Hamilton, Brook, Smith
& Reynolds, P.C. patent counsel to the Company, as experts on such matters,
and are included herein in reliance upon that review and approval. David E.
Brook, Esq., a shareholder at Hamilton, Brook, Smith & Reynolds, P.C. owns
14,285 shares of Common Stock. Dr. Helen Wendler, an attorney at Hamilton,
Brook, Smith & Reynolds, P.C., is the spouse of Dr. Philip Wendler. Dr. Philip
Wendler owns 10,285 shares of Common Stock and has stock options exercisable
for 26,142 shares of Common Stock.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act
of 1933, as amended (the "Securities Act") with respect to shares of Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement
are qualified in all respects by such reference. For further information with
respect to the Company

63
<PAGE>

and the Common Stock, reference is hereby made to the Registration Statement
and to the exhibits and schedules thereto, which may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: the New York Regional Office located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and the Chicago Regional Office located
at the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of this material also may be obtained from the
Commission's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.

64
<PAGE>

CUBIST PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited) and June 30, 1996 Pro forma Stockholders' Equity
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the (unaudited) six month periods ended June 30, 1995 and
1996..................................................................... F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the (unaudited) six month periods ended June 30, 1995 and
1996..................................................................... F-5
Statements of Changes in Stockholders' Equity for the years ended December
31, 1993, 1994 and 1995 and for the (unaudited) six month period ended
June 30, 1996............................................................ F-6
Notes to Financial Statements............................................. F-8
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Cubist Pharmaceuticals, Inc.:

We have audited the accompanying balance sheets of Cubist Pharmaceuticals,
Inc. as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cubist Pharmaceuticals,
Inc. as of December 31, 1995 and 1994, and the results of its operations and
cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.

Boston, Massachusetts

January 12, 1996, except as to Coopers & Lybrand L.L.P.
the information in Notes L and M,
for which the date is October 17, 1996

F-2
<PAGE>

CUBIST PHARMACEUTICALS, INC.

BALANCE SHEETS

DECEMBER 31, PRO FORMA
------------------------- STOCKHOLDERS'
JUNE 30, EQUITY
1994 1995 1996 JUNE 30, 1996
----------- ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 1,220,983 $ 2,049,555 $ 4,732,273
Short-term investments
..................... -- 1,006,569 --
Accounts receivable... -- 988,000 1,915,000
Prepaid expenses and
other current
assets............... 82,709 66,996 734,086
----------- ------------ ------------
Total current assets.. 1,303,692 4,111,120 7,381,359
Property and equipment.. 3,282,436 3,834,953 4,171,086
Less: Accumulated
depreciation and
amortization......... (486,246) (1,056,802) (1,368,476)
----------- ------------ ------------
Property and
equipment, net....... 2,796,190 2,778,151 2,802,610
Other assets............ 150,181 158,571 171,260
----------- ------------ ------------
Total assets........ $ 4,250,063 $ 7,047,842 $ 10,355,229
=========== ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...... $ 375,270 $ 124,856 $ 413,266
Accrued expenses...... 647,353 189,663 768,614
Deferred revenue...... -- -- 550,000
Current portion of
long-term debt....... 96,997 168,565 177,164
Current portion of
capital lease
obligations.......... 276,062 413,223 449,646
----------- ------------ ------------
Total current
liabilities........ 1,395,682 896,307 2,358,690
Long-term debt, net of
current portion........ 346,943 479,745 389,378
Long-term capital lease
obligation, net of
current portion........ 684,587 777,017 816,950
Venture capital bridge
loan payable........... 1,000,000 -- --
----------- ------------ ------------
Total liabilities... 3,427,212 2,153,069 3,565,018
----------- ------------ ------------
Commitments (Note I)
Stockholders' Equity:
Preferred Stock non-
cumulative;
convertible--$.001 par
value; authorized
43,000,000 shares;
issued 1994 19,733,370
shares; issued 1995
34,751,183 shares;
issued June 1996
37,568,085 shares; and
no shares issued pro
forma.................. 19,733 34,751 37,568 $ --
Common Stock--$.001 par
value; authorized
52,000,000 shares;
issued 1994 910,027
shares; issued 1995
1,016,662 shares;
issued June 30, 1996
1,006,154 shares and
6,373,023 shares pro
forma.................. 910 1,017 1,006 6,373
Additional paid-in
capital................ 7,338,075 16,790,878 20,756,723 20,788,924
Accumulated deficit..... (6,535,867) (11,931,873) (14,005,086) (14,005,086)
----------- ------------ ------------ ------------
Total stockholders'
equity............. 822,851 4,894,773 6,790,211 $ 6,790,211
----------- ------------ ------------ ============
Total liabilities
and stockholders'
equity............. $ 4,250,063 $ 7,047,842 $ 10,355,229
=========== ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-3
<PAGE>

CUBIST PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of the financial statements.

F-4
<PAGE>

CUBIST PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(1,687,894) $(4,813,035) $(5,396,006) $(3,324,355) $(2,073,213)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 130,269 355,977 570,556 265,914 311,674
Changes in assets and
liabilities:
Accounts receivable.. -- -- (988,000) -- (927,000)
Prepaid expenses and
other current
assets.............. (69,669) (12,688) 15,713 (32,279) (667,090)
Other assets......... (58,112) -- (8,390) -- --
Accounts payable and
accrued expenses.... 294,930 716,018 (708,104) (655,757) 867,360
Deferred revenue..... -- -- -- -- 550,000
----------- ----------- ----------- ----------- -----------
Total adjustments... 297,418 1,059,307 (1,118,225) (422,122) 134,944
----------- ----------- ----------- ----------- -----------
Net cash used in
operating activities... (1,390,476) (3,753,728) (6,514,231) (3,746,477) (1,938,269)
Cash flows from
investing activities:
Purchase of equipment.. (86,612) (150,726) -- (193,875) (276,742)
Leasehold
improvements.......... (1,183,692) (688,329) (99,325) (88,335) (4,361)
Purchase of short-term
investments........... (2,612,158) -- (3,942,610) (3,379,296) --
Redemption of short-
term investments...... -- 2,612,158 2,936,041 443,254 1,006,569
Redemption of long-term
investments........... (511,934) 511,934 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided
by/(used in) investing
activities............. (4,394,396) 2,285,037 (1,105,894) (3,218,252) 725,466
Cash flows from
financing activities:
Issuance of stock...... 6,709,690 148,314 8,467,928 8,008,850 3,968,651
Proceeds from venture
capital bridge loan... -- 1,000,000 -- -- --
Proceeds from long-term
debt.................. 543,393 -- 345,500 345,500 --
Repayments of long-term
debt.................. (13,373) (86,080) (141,130) (64,229) (81,767)
Proceeds from capital
lease financing....... -- -- 94,671 286,522 229,216
Principal payments of
capital lease
obligations........... -- (212,428) (318,272) (178,754) (207,889)
Deposits relating to
capital lease
obligations........... (42,760) (5,001) -- (10,090) (12,690)
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 7,196,950 844,805 8,448,697 8,387,799 3,895,521
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 1,412,078 (623,886) 828,572 1,423,070 2,682,718
Cash and cash
equivalents at
beginning of year...... 432,791 1,844,869 1,220,983 1,220,983 2,049,555
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year................... $ 1,844,869 $ 1,220,983 $ 2,049,555 $ 2,644,053 $ 4,732,273
=========== =========== =========== =========== ===========
Supplemental disclosures
of cash flow
information:
Cash paid during the
year for interest..... $ 16,911 $ 168,284 $ 232,980 $ 100,806 $ 106,903
Capital lease
obligations entered
into.................. $ 916,926 $ 256,151 $ 547,862 $ 336,712 $ 284,245
</TABLE>

Supplemental disclosure of non-cash transaction: Settlement of venture capital
bridge loan--Note G.

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE>

CUBIST PHARMACEUTICALS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
# OF SHARES # OF SHARES # OF SHARES # OF SHARES # OF SHARES $ $
PREFERRED A PREFERRED B PREFERRED C PREFERRED D COMMON PREFERRED COMMON
----------- ----------- ----------- ----------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/92
Balance......... 5,000,000 -- -- -- 444,898 $ 5,000 $ 445
--------- ---------- ---------- ----- ------- ------- ------
Common Stock
Issued to
Consultants..... 78,571 79
Series B
Preferred Stock
par $.001 at
$.50 share...... 14,270,000 14,270
Notes Receivable
Preferred
Stock...........
MIT Agreement
2% outstanding.. 23,170 23
Exercise of
Common Stock
Options......... 223
Net Loss........
--------- ---------- ---------- ----- ------- ------- ------
12/31/93
Balance......... 5,000,000 14,270,000 -- -- 546,862 $19,270 $ 547
========= ========== ========== ===== ======= ======= ======
Series B
Preferred Stock
par $.001 at
$.50 share...... 463,370 463
Common Stock par
$.007 at $.07
and $.35 share.. 60,714 61
Exercise of
Common Stock
Options......... 302,451 302
Notes Receivable
Preferred Series
B...............
Notes Receivable
Common Stock....
Issuance of
Stock Options...
Amortization of
Deferred
Compensation....
Net Loss........
--------- ---------- ---------- ----- ------- ------- ------
12/31/94
Balance......... 5,000,000 14,733,370 -- -- 910,027 $19,733 $ 910
========= ========== ========== ===== ======= ======= ======
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL
------------------------------------
$ $
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
12/31/92
Balance......... $ 495,269 -- -- $ (34,938) $ 465,776
----------- ----------- ------------ ------------ -------------
Common Stock
Issued to
Consultants..... 471 550
Series B
Preferred Stock
par $.001 at
$.50 share...... 7,120,730 7,135,000
Notes Receivable
Preferred
Stock........... $(435,000) (435,000)
MIT Agreement
2% outstanding.. 9,115 9,138
Exercise of
Common Stock
Options......... 2 2
Net Loss........ (1,687,894) (1,687,894)
----------- ----------- ------------ ------------ -------------
12/31/93
Balance......... $7,625,587 $(435,000) -- ($1,722,832) $5,487,572
=========== =========== ============ ============ =============
Series B
Preferred Stock
par $.001 at
$.50 share...... 231,221 231,684
Common Stock par
$.007 at $.07
and $.35 share.. 21,189 21,250
Exercise of
Common Stock
Options......... 86,485 86,787
Notes Receivable
Preferred Series
B............... (131,685) (131,685)
Notes Receivable
Common Stock.... (65,842) (65,842)
Issuance of
Stock Options... 17,150 $(17,150)
Amortization of
Deferred
Compensation.... 6,120 6,120
Net Loss........ (4,813,035) (4,813,035)
----------- ----------- ------------ ------------ -------------
12/31/94
Balance......... $7,981,632 $(632,527) $(11,030) $(6,535,867) $ 822,851
=========== =========== ============ ============ =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE>

CUBIST PHARMACEUTICALS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
# OF SHARES # OF SHARES # OF SHARES # OF SHARES # OF SHARES $ $
PREFERRED A PREFERRED B PREFERRED C PREFERRED D COMMON PREFERRED COMMON
----------- ----------- ----------- ----------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Series C
Preferred Stock
par $.001 at
$.60 share...... 15,017,813 $15,018
Series C
Preferred Stock
Offering
Expenses........
Common Stock par
$.007 at $.35
and $.42 share.. 114,082 114
Exercise of
Common Stock
Options......... 785 1
Repurchase of
Common Stock.... (8,232) (8)
Repayment of
Notes Receivable
Preferred Series
B Notes
Receivable
Preferred Series
B...............
Notes Receivable
Common Stock....
Forgiveness of
Promissory
Notes...........
Issuance of
Stock Options...
Amortization of
Deferred
Compensation....
Net Loss
--------- ---------- ---------- --------- --------- ------- ------
12/31/95
Balance......... 5,000,000 14,733,370 15,017,813 -- 1,016,662 $34,751 $1,017
========= ========== ========== ========= ========= ======= ======
Series D
Preferred Stock
par .001 at
$1.42 share..... 2,816,902 $ 2,817
Series D
Preferred Stock
Offering
Expenses........
Exercise of
Common Stock
Options......... 19,042 19
Repurchase of
Common Stock.... (29,550) (30)
Amortization of
Deferred
Compensation....
Net Loss........
--------- ---------- ---------- --------- --------- ------- ------
6/30/96 Balance
(unaudited)..... 5,000,000 14,733,370 15,017,813 2,816,902 1,006,154 $37,568 $1,006
========= ========== ========== ========= ========= ======= ======
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL
-------------------------------------
$ $
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Series C
Preferred Stock
par $.001 at
$.60 share...... 8,995,670 9,010,688
Series C
Preferred Stock
Offering
Expenses........ (45,787) (45,787)
Common Stock par
$.007 at $.35
and $.42 share.. 47,274 47,388
Exercise of
Common Stock
Options......... 274 275
Repurchase of
Common Stock.... (2,873) (2,881)
Repayment of
Notes Receivable
Preferred Series
B Notes
Receivable
Preferred Series
B............... 435,000 435,000
Notes Receivable
Common Stock.... (4,989) (4,989)
Forgiveness of
Promissory
Notes........... 23,615 23,615
Issuance of
Stock Options... 28,020 (28,020)
Amortization of
Deferred
Compensation.... 4,619 4,619
Net Loss (5,396,006) (5,396,006)
------------ ----------- ------------ ------------- -------------
12/31/95
Balance......... $17,004,210 $(178,901) $(34,431) $(11,931,873) $4,894,773
============ =========== ============ ============= =============
Series D
Preferred Stock
par .001 at
$1.42 share..... 3,997,183 4,000,000
Series D
Preferred Stock
Offering
Expenses........ (38,410) (38,410)
Exercise of
Common Stock
Options......... 7,580 7,599
Repurchase of
Common Stock.... (9,798) (9,828)
Amortization of
Deferred
Compensation.... 9,290 9,290
Net Loss........ (2,073,213) (2,073,213)
------------ ----------- ------------ ------------- -------------
6/30/96 Balance
(unaudited)..... $20,960,765 $(178,901) $(25,141) $(14,005,086) $6,790,211
============ =========== ============ ============= =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-7
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

A. NATURE OF BUSINESS

Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company founded in May 1992 and is engaged in the research,
development and commercialization of novel classes of antiinfective drugs to
treat infectious diseases caused by bacteria and fungi, primarily those
resistant to existing antiinfective drugs. Cubist has established multiple
technology licenses and collaborations, has established a network of advisors
and collaborators and is located in Cambridge, Massachusetts. Prior to 1995,
the Company operated as a development stage enterprise, devoting substantially
all of its efforts to establishing the new business and carrying on research
and development activities.

B. ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements are stated on an accrual basis.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities, of
disclosure of contingent assets and liabilities at the date of the financial
statements, and of the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents consist of short-term interest-bearing instruments (U.S.
Government treasuries and money market accounts) with original maturities of
three months or less. These investments are carried at cost which approximates
market value.

Short-term Investments

Short-term investments, with an original maturity of more than three months
and less than one year when purchased, consisted entirely of U.S. Government
agency securities at December 31, 1995. Short-term investments, all of which
are held to maturity, are stated at amortized cost, which approximates market
value.

Pro Forma Stockholders' Equity (Unaudited)

Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A, B, C, and D Convertible preferred stock (the
"Preferred Stock") will convert into 5,366,869 shares of common stock. In the
event that the initial public offering price is less than $10.00 per share,
the Company has agreed to issue to Bristol-Myers Squibb, promptly after the
closing of this Offering, additional shares of Common Stock such that the
average cost per share to Bristol-Myers Squibb of all shares of Common Stock
held by it immediately after the closing of this Offering shall be equal to
the initial public offering price per share. The unaudited pro forma
presentation of stockholders' equity has been prepared assuming the conversion
of all the Preferred Stock into Common Stock on June 30, 1996, and assuming
that the initial public offering price per share in connection with this
Offering is $11.00 (the midpoint of the range set forth on the cover page of
this Prospectus).

Pro Forma Net Loss Per Common Share (Unaudited)

The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the
treasury stock method) outstanding after certain adjustments described below.
Common equivalent shares are not included in the per share calculations where
the effect of their inclusion would be anti-dilutive, except that, in
accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 83, all common and common equivalent shares issued during the

F-8
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
twelve-month period prior to the filing of the initial public offering, even
when anti-dilutive, have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method and the expected
initial public offering price of $11.00 per share. The pro forma net loss per
common share gives effect to the mandatory conversion of all outstanding
shares of Preferred Stock into 5,366,869 shares of Common Stock upon the
closing of this offering.

Historical Net Loss Per Common Share

Net loss per common share on a historical basis is computed in the same
manner as pro forma net loss per common share, except that Series A, B, C and
D Preferred Stock are not assumed to be converted. Net loss per common share
on a historical basis is as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss to common
stockholders........... $(1,687,894) $(4,813,035) $(5,396,006) $(3,324,355) $(2,073,213)
Net loss per common
share.................. (1.79) (4.40) (3.73) (2.34) (1.41)
Weighted average number
of common and common
equivalent shares
outstanding............ 942,306 1,093,181 1,446,914 1,420,923 1,471,562
</TABLE>

Fully diluted net loss per common share is the same as primary net loss per
common share.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets, generally three years for computer equipment and five years for
laboratory equipment, furniture and fixtures. Leasehold improvements are
stated at cost and are amortized over the lesser of the life of the lease or
their estimated useful lives. The leasehold improvements are also utilized as
collateral up to a value of $648,310, which relates to the balance of long-
term debt. Maintenance and repairs are charged to expense as incurred, while
major betterments are capitalized. When assets are retired or otherwise
disposed of, the assets and related allowances for depreciation and
amortization are eliminated from the accounts and any resulting gain or loss
is reflected in income.

Research and Development

All research and development costs are expensed as incurred.

Income Taxes

Research and experimentation and other tax credits, when utilized, will be
recorded using the flow-through method of accounting as a reduction of the
current provision for federal and state income taxes.

Reclassification

Certain amounts in the 1994 financial statements have been reclassified to
conform to the current year presentation.

F-9
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
Interim Financial Statements

The balance sheet as of June 30, 1996, the statement of operations and cash
flows for the six months ended June 30, 1996 and 1995 and the statement of
changes in stockholder's equity for the six months ended June 30, 1996 are
unaudited, have been prepared on a basis substantially consistent with the
audited financial statements and, in the opinion of management, include all
adjustments (consisting of normal, recurring adjustments) necessary for a fair
presentation of results for these interim periods. The results for the six
months ended June 30, 1996 are not necessarily indicative of results to be
expected for the entire year, although the Company expects to incur a
significant loss for the year ending December 31, 1996.

Recent Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This standard is effective for financial statements for
fiscal years beginning after December 15, 1995. The Company's analysis of this
new standard indicates that it will not have a material effect on the
Company's financial position or results of operations.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which encourages companies to
recognize compensation expense in the statement of operations based on the
fair value of the underlying common stock at the date the awards are granted.
However, it will permit continued accounting under APB Opinion 25, "Accounting
for Stock Issued to Employees," accompanied by a disclosure of the pro forma
effects on net income/(loss) and earnings per share had the new accounting
rules been applied. The statement is effective for fiscal year 1996. The
Company has determined that it will elect the disclosure-only alternative
permitted under SFAS No. 123. The Company will be required to disclose pro
forma net income and pro forma earnings per share in the footnotes using the
fair value based method beginning in 1996 with comparable disclosures for
1995. The Company has not determined the impact of the pro forma adjustments
to its net income or earnings per share.

C. PROPERTY AND EQUIPMENT

At December 31, property and equipment consisted of:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Leasehold improvements............................... $1,967,156 $2,066,480
Laboratory equipment................................. 930,254 1,319,606
Furniture and fixtures............................... 216,921 226,891
Computer equipment................................... 168,105 221,976
---------- ----------
3,282,436 3,834,953
Less accumulated depreciation and amortization....... (486,246) (1,056,802)
---------- ----------
Property and equipment, net.......................... $2,796,190 $2,778,151
========== ==========
</TABLE>

F-10
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

D. ACCRUED EXPENSES

At December 31, accrued expenses consisted of:

<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Payroll and benefits...................................... $ 53,824 $ 57,723
Vacation.................................................. 41,863 40,255
Construction.............................................. 488,000 --
Legal, audit and patent................................... 63,666 80,185
Utilities................................................. -- 11,500
-------- --------
Total accrued expenses.................................... $647,353 $189,663
======== ========
</TABLE>

E. LICENSE AGREEMENT

The Company has entered into two agreements with the Massachusetts Institute
of Technology ("MIT"), pursuant to which MIT has granted the Company exclusive
worldwide licenses to certain patent rights owned by MIT. The Company has the
right to sell or license worldwide any product or process derived from these
patent rights. In return for these licenses, the Company has paid to MIT
license issue fees of $50,000 and $75,000, respectively. The Company also has
paid license maintenance fees of $25,000 in total each year commencing January
1, 1994. In addition, the Company issued shares of common stock equal to 2% of
the outstanding common and preferred shares at the completion of the Series B
round of financing and will pay royalties from future sales. License fees are
expensed as incurred.

F. COLLABORATIVE RESEARCH AGREEMENT

On December 15, 1995, the Company entered into a collaborative research
agreement with Pfizer. Under the terms of the agreement, Pfizer is required to
pay the Company a technology licensing fee upon execution and research support
payments. These payments are recognized as income earned under the terms of
the agreement. In addition, Pfizer will reimburse the Company for expenses
related to the screening of Pfizer compounds against the Company's targets and
certain milestone payments. These payments are recognized as revenue when the
related expenses are incurred. During 1995, the Company included in sponsored
research revenues $500,000 for the technology licensing fee and $488,000 for
certain research and development revenues in accordance with the agreement.
Pfizer also has an option to initiate a drug discovery program using compounds
from the drug screening program. Upon initiation of a drug discovery program,
Pfizer is obligated to purchase $5,000,000 of the Company's Preferred Stock.

G. STOCKHOLDERS' EQUITY

Preferred Stock

In February 1995, the Company sold an aggregate of 9,428,644 shares of its
Series C Convertible Preferred Stock at a purchase price of $0.60 per share to
a group of existing investors. The purchase price of the Series C Convertible
Preferred Stock was paid in part by the conversion and cancellation of
$1,000,000 of Convertible Demand Promissory Notes which had been issued in
December 1994 to certain existing investors.

Upon consummation of the reverse stock split of Common Stock described in
footnote M, the Company's Convertible Preferred Stock will be convertible to
Common Stock at a rate of 1 common share to 7 preferred shares (refer to
footnote M) at the option of the shareholder. The holders of the Company's
outstanding Preferred Stock have agreed to convert all of their shares of
Preferred Stock into Common Stock

F-11
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

at a rate of 1 common share to 7 preferred shares upon the first public
offering where proceeds exceed $15,000,000, provided that such public offering
occurs on or prior to June 25, 1997. In the event that the initial public
offering price is less than $10.00 per share, the Company has agreed to issue
to Bristol-Myers Squibb, promptly after the closing of this Offering,
additional shares of Common Stock such that the average cost per share to
Bristol-Myers Squibb of all shares of Common Stock held by it immediately
after the closing of this Offering shall be equal to the initial public
offering price per share. The Company has also granted warrants to purchase
240,500 shares of Series B Convertible Preferred Stock at a purchase price of
$0.50, 92,500 shares of Series C Convertible Preferred Stock at a purchase
price of $0.60 and 33,333 shares of Series C Convertible Preferred Stock at a
purchase price of $0.90 per share. These warrants expire on either the fifth
anniversary of the closing of an initial public offering of the Company's
Common Stock or on August 30, 2003, February 28, 2005 and February 26, 2006,
respectively, whichever is earlier.

Common Stock

As of December 31, 1995, 1,016,662 shares of Common Stock were issued to
employees, scientific founders and consultants of the Company. Certain of
these shares issued are subject to repurchase, at the Company's option, at the
original issuance price in accordance with vesting provisions upon termination
of the relationship. At December 31, 1995, 306,350 shares remain subject to
repurchase.

Notes Receivable from Related Parties

The Company has accepted promissory notes from the Chief Executive Officer
in consideration for the Preferred Stock and Common Stock options issued to
him. The aggregate principal amount of these notes at December 31, 1995 is
$178,901 and is reflected in stockholders' equity as a reduction to paid-in
capital. These notes have an annual interest rate of 4% and fall due between
July 21, 1996 and November 28, 1997. During 1995, $23,615 of principal and
accrued interest under the promissory notes was forgiven and it its expected
that additional amounts will be forgiven in 1996 and 1997.

H. STOCK OPTIONS

The Company has a stock option plan under which options to purchase 571,428
shares of its Common Stock may be granted to employees, directors, officers or
consultants. The options are granted at fair market value on the date of the
grant as determined by the Board of Directors, vest ratably over a four-year
period and expire ten years from the date of grant. In addition, the Company
has issued to certain consultants and directors nonqualified stock options to
purchase 73,428 shares of its Common Stock. During 1995 and 1994, the Company
has allowed employees and consultants to exercise their full grants to take
advantage of certain favorable tax benefits. The Company has reserved the
right to repurchase any unearned shares at the original purchase price if the
employee or consultant does not fulfill their vesting requirement.

F-12
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

From inception to December 31, 1995, the Company granted options for 380,857
shares (net of cancellations and repurchased shares) under its stock option
plan at prices ranging from $0.07 to $0.42 per share, of which options for
255,371 shares were exercised at prices ranging from $0.07 to $0.42. There
were 25,617 employee shares exercisable at year-end (32,303 shares at December
31, 1994). The Company has granted options for 73,428 shares to consultants
and directors under its stock option plan, of which 39,857 options were
exercised since inception. Stock option activity is summarized as follows:

<TABLE>
<CAPTION>
SHARES OPTION PRICE
------- ------------
<S> <C> <C>
Outstanding at December 31, 1993........................ 124,571 $ .07-$.35
Granted............................................... 227,335 $ .07-$.35
Exercised............................................. 302,451 $ .07-$.35
Cancelled............................................. 7,241 $ .07-$.35
------- ----------
Outstanding at December 31, 1994........................ 42,214 $ .07-$.35
Granted............................................... 121,442 $ .07-$.42
Exercised............................................. 785 $ .07-$.35
Cancelled............................................. 3,814 $ .07-$.35
------- ----------
Outstanding at December 31, 1995........................ 159,057 $ .07-$.42
Granted............................................... 384,715 $.42-$5.95
Exercised............................................. 15,627 $ .35-$.42
Cancelled............................................. 7,485 $ .35-$.42
------- ----------
Outstanding at June 30, 1996 (unaudited)................ 520,660 $.07-$5.95
======= ==========
</TABLE>

During 1995, 8,232 shares of previously exercised options were repurchased
because vesting schedules were not fulfilled. These options were originally
exercised during 1994.

I. LEASE COMMITMENTS

The Company leases its facilities under an operating lease agreement which
expires on September 15, 2003 and is renewable at the Company's option for one
additional five-year period. Under the terms of the lease, the Company is
obligated to pay its prorated share of common operating expenses and real
estate taxes as well as base rents. In addition, the Company entered into an
amendment to the agreement with the landlord under which the landlord provided
financing to the Company for a portion of the buildout cost ($543,393) at an
interest rate of 12% per year payable in equal monthly installments of $19,773
over five years through October 1998, and $7,685 thereafter through February
2000. At December 31, 1995, the outstanding principal balance was $347,070.
The Company also provided a security deposit of $100,000 upon execution of the
lease. The security deposit bears interest in a segregated account, and is
partially refundable ($79,000 plus interest) upon the fifth anniversary, and
fully refundable plus interest within thirty days after the expiration of the
lease, provided no event of default has occurred. The Company has also
financed an additional $345,500 during the first quarter of 1995 relating to a
6,510 square foot facility expansion completed during the first week of
January 1995. This additional debt is payable over five years with an annual
interest rate of 12%. No additional security deposit was required. At December
31, 1995, the outstanding principal balance was $301,240.

F-13
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

The Company leases certain laboratory equipment under long-term capital
leases. The cost of this equipment included in fixed assets was $1,720,940 at
the end of 1995 and $1,173,078 at the end of 1994, with associated accumulated
depreciation of $627,366 at December 31, 1995 and $302,621 at December 31,
1994. The Company has an option to purchase all of the leased equipment at a
price to be negotiated at lease end. Future lease payments for non-cancelable
leases for the respective years ended December 31 are as follows:

<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
1996 $ 148,615 $ 520,060
1997 148,615 520,060
1998 157,676 220,969
1999 179,680 105,568
2000 179,680 --
2001 and thereafter 486,444 --
---------- ----------
Total minimum lease payments $1,300,710 1,366,657
---------- ----------
Less amount representing interest payments 176,417
----------
Present value of minimum lease payments 1,190,240
Less current portion 413,223
----------
Long-term obligation $ 777,017
==========
</TABLE>

Lease payments under operating leases were $207,898 in fiscal year 1995 and
$269,991 in fiscal year 1994.

J. EMPLOYEE BENEFITS

The Company instituted a 401(k) savings plan in 1993, in which substantially
all of its permanent employees are eligible to participate. Participants may
contribute up to 15% of their annual compensation to the plan, subject to
certain limitations. The Company contributes a matching amount of up to 1.5%
of a participant's total compensation or $500 annually, whichever is less. The
Company contributed $14,072 during 1995 and $9,524 during 1994.

K. INCOME TAXES

The Company follows the liability method of accounting for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," whereby a deferred tax
liability is measured by the enacted tax rates which will be in effect when
any differences between the financial statements and tax basis of assets
reverse. The deferred tax liability can be reduced by net operating losses
being carried forward for tax purposes.

At December 31, 1995, the Company had available federal and state net
operating loss carryforwards of approximately $11,678,000. The federal and
state net operating loss and tax credit carryforwards begin to expire in the
years 2007 and 1997, respectively. Research and experimentation tax credits of
approximately $325,000 begin to expire in 2008. The net operating loss
carryforwards may be subject to an annual limitation in any given year in the
event of certain occurrences, including significant changes in ownership. The
Company has established a valuation reserve against the deferred tax benefit
arising from these carryforwards due to the uncertainty of earning sufficient
taxable income to receive the benefit and accordingly has not given
recognition to these tax benefits in these financial statements. These
carryforwards are also subject to review by the Internal Revenue Service.

F-14
<PAGE>

CUBIST PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

L. SUBSEQUENT EVENTS

Collaborative Agreements

In June 1996, the Company entered into a collaborative research agreement
with Bristol-Myers Squibb. Under the terms of the agreement, Bristol-Myers
Squibb purchased from the Company $4,000,000 of the Company's Preferred Stock
upon execution of the agreement, and has agreed to make payments to the
Company upon the achievement of certain milestones. These milestone payments
are recognized as income as earned under the terms of the agreement. In
addition, Bristol-Myers Squibb will reimburse the Company for research and
development expenses relating to the production of certain targets and also
for expenses relating to the screening of Bristol-Myers Squibb compounds
against the Company's targets over three years, with an option to fund a
fourth year. These payments are recognized as revenue when the related
expenses are incurred.

In June 1996, the Company entered into a collaborative research agreement
with Merck & Co., Inc. ("Merck"). Under the terms of the agreement, Merck will
pay the Company a technology licensing fee upon execution and certain
milestone payments. These payments are recognized as income as earned under
the terms of the agreement. In addition, Merck will reimburse the Company for
research and development expenses relating to the production of certain
targets; for expenses relating to the screening of Merck compounds against the
Company's targets; and for expenses relating to compound optimization. These
payments are recognized as revenue when the related expenses are incurred.

Common Stock Option Grants

On May 28, 1996, the Company granted 214,285 incentive stock options to
certain employees of the Company at a purchase price of $1.96 per share. In
addition, the Company issued 42,857 shares of non-qualified options at an
exercise price of $1.96 per share to directors of the Company. On June 11,
1996, the Company granted 4,285 incentive stock options to certain employees
of the Company at a purchase price of $5.95 per share, and the Company granted
10,714 nonstatutory stock options to a director and a consultant of the
Company at a purchase price of $5.95 per share. In addition, in June 1996, the
Company increased the options available for grant under the Amended and
Restated 1993 Stock Option Plan to 1,500,000 shares.

Warrants

During February 1996, the Company issued a warrant exercisable for 33,333
shares of Series C Convertible Preferred Stock (convertible to Common Stock
upon the closing of the Company's initial public offering) to Comdisco, Inc.
in conjunction with a $500,000 increase of the Company's equipment lease line
over 1996.

M. REVERSE STOCK SPLIT

On October 17, 1996, the Company effected a 1-for-7 reverse stock split of
the Common Stock. Accordingly, all share and per share amounts have been
adjusted to reflect the stock split as though it had occurred at the beginning
of the initial period presented.

F-15
<PAGE>

INHIBITION OF AMINOACYL - TRNA SYNTHETASE

Amino Acid Inhibitor

Aminoacyl - tRNA Synthetase

tRNA
Charged tRNA Inhibited
Synthetase

Protein Synthesis Inhibition of Protein
Synthesis

Binding of an amino acid
to the aminoacyl -tRNA Binding of an inhibitor to
synthetase leads to the the aminoacyl - tRNA
formation of charged synthetase alters the
tRNA and protein synthetase structure,
synthesis. blocks amino acid binding
and prevents the formation
of charged tRNA, thereby
inhibiting protein
synthesis.

- --------------------------------------------------------------------------------

AMINOACYL - TRNA SYNTHETASE TARGETS FOR DRUG DISCOVERY

S.
aureus
E.
faecalis
C.
albicans
H.
influenzae
S.
pneumoniae
E. coli
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Aminoacyl - tRNA Synthetases

Elevated cubes represent certain screening leads that exhibit significant
inhibitory activity against specific aminoacyl - tRNA synthetase targets.
Glutamine - tRNA synthetase, shown in black, is not present in certain
pathogens.
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date
of this Prospectus.

-------------

Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 22
Management............................................................... 46
Certain Transactions..................................................... 52
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 62
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 63
Index to Financial Statements............................................ F-1
</TABLE>

Until , 1996 (25 days after the date of the Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

2,000,000 SHARES

[LOGO OF CUBIST PHARMACEUTICALS, INC. APPEARS HERE]

CUBIST PHARMACEUTICALS, INC.

COMMON STOCK

-------------------

PROSPECTUS
, 1996

-------------------

UBS SECURITIES

HAMBRECHT & QUIST

PACIFIC GROWTH EQUITIES, INC.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount, are
estimated as follows:

<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................................... $ 12,888
NASD Fees.......................................................... 4,238
Nasdaq National Market Listing Fees................................ 39,696
Printing and Engraving Expenses.................................... 100,000
Legal Fees and Expenses............................................ 225,000
Accountants' Fees and Expenses..................................... 125,000
Expenses of Qualification Under State Securities Laws, Including
Attorneys' Fees................................................... 20,000
Transfer Agent and Registrar's Fees................................ 10,000
Miscellaneous Costs................................................ 63,178
--------
Total.......................................................... $600,000
========
</TABLE>

- --------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
to the extent and under the circumstances set forth therein.

The Restated Certificate of Incorporation and the Amended and Restated By-
Laws of the Company, copies of which are filed herein as Exhibit 3.3 and 3.4,
provide for advancement of expenses and indemnification of officers and
directors of the Registrant and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under
certain stated conditions to the fullest extent permissible under Delaware
law.

Section 9 of the Underwriting Agreement between the Registrant and the
Underwriters, a copy of which is filed herein as Exhibit 1.1, will provide for
indemnification by the Registrant of the Underwriters and each person, if any,
who controls any Underwriter, against certain liabilities and expenses, as
stated therein, which may include liabilities under the Securities Act of
1933. The Underwriting Agreement also provides that the Underwriters shall
similarly indemnify the Registrant, its directors, officers and controlling
persons, as set forth therein.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Described below is information regarding all unregistered securities of the
Company sold by the Company within the past three years. The share and per
share amounts set forth below have been adjusted to reflect the Company's one
for seven reverse stock split to occur prior to the consummation of this
Offering.

Between incorporation (May 1992) and June 1996, the Company has issued and
sold an aggregate of approximately 459,513 shares of its Common Stock, at
prices ranging from $0.007 to $0.42 per share, with an aggregate offering
price of approximately $150,601 to certain of its officers, employees and
consultants. The offers and sales of these shares were made in reliance upon
Rule 701 promulgated under the Securities Act and are deemed to be exempt
transactions as sales of an issuer's securities pursuant to a written plan or
contract relating to the compensation of such individuals and upon Section
4(2) of the Securities Act as transactions not involving any public offering.

II-1
<PAGE>

From its incorporation (May 1992) to June 1996, the Registrant has entered
into stock option agreements with certain employees, officers, directors and
consultants to the Company covering approximately 827,337 shares of its Common
Stock pursuant to the Registrant's Amended and Restated 1993 Stock Option
Plan. The purchase price under the options is $0.007 to $5.95 per share based
on the fair market value of the Common Stock on the date of grant. These
grants and sales were made in reliance upon Rule 701 under the Securities Act
and are deemed to be exempt transactions as sales of an issuer's securities
pursuant to a written contract relating to the compensation of such
individuals.

In August 1993, the Registrant issued and sold an aggregate of 14,270,000
shares of Series B Convertible Preferred Stock (convertible into 2,038,571
shares of Common Stock) at a purchase price of $0.50 per share ($3.50 per
share on an as-converted basis), to a group of investors. The issuance and
sales of such shares of Series B Convertible Preferred Stock were made in
reliance upon Rule 506 of Regulation D promulgated under the Securities Act
and Section 4(2) of the Securities Act.

In August 1993, the Registrant issued a warrant for the purchase of 240,500
shares of Series B Convertible Preferred Stock (convertible into 34,357 shares
of Common Stock) at an exercise price of $0.50 per share to Comdisco ($3.50
per share on an as-converted basis). In January 1994, the Company issued and
sold an aggregate of 200,000 shares of Series B Convertible Preferred Stock
(convertible into 28,571 shares of Common Stock) at a purchase price of $0.50
per share ($3.50 per share on an as-converted basis) to Comdisco, Inc. The
issuance and sale of such warrant and shares for the purchase of Series B
Convertible Preferred Stock were made in reliance upon Section 4(2) of the
Securities Act.

In January 1994, the Registrant issued and sold 39,496 shares of Common
Stock to the Massachusetts Institute of Technology ("MIT") pursuant to a
License Agreement between MIT and the Company. The issuance and sale of such
shares of Common Stock were made in reliance upon Section 4(2) of the
Securities Act.

In July 1994, the Registrant issued and sold 263,370 shares of Series B
Preferred Stock (convertible into 37,624 shares of Common Stock) at a purchase
price of $0.50 per share ($3.50 per share on an as-converted basis) to Dr.
Scott M. Rocklage, President, Chief Executive Officer and a director of the
Company. The issuance and sale of such shares of Series B Preferred Stock were
made in reliance upon Section 4(2) of the Securities Act.

In December 1994, the Registrant issued $1,000,000 of Convertible Demand
Promissory Notes (the "Notes") to a group of investors. The Notes were issued
in reliance upon Section 4(2) of the Securities Act. The entire amount of
indebtedness was converted to 1,684,644 shares of Series C Convertible
Preferred Stock (convertible into approximately 240,663 shares of Common
Stock) in connection with an offering of Series C Convertible Preferred Stock
in February 1995.

In February 1995, the Registrant issued and sold an aggregate of 7,744,000
shares of Series C Convertible Preferred Stock (convertible into approximately
1,106,285 shares of Common Stock) to a group of investors, at a purchase price
of $0.60 per share ($4.20 per share on an as-converted basis). In addition,
the Registrant issued a warrant to Comdisco, Inc. to purchase 92,500 shares
(convertible into 13,214 shares of Common Stock) at an exercise price of $0.60
per share ($4.20 per share on an as-converted basis). The issuance and sales
of such shares of Series C Convertible Preferred Stock were made in reliance
upon Rule 506 of Regulation D promulgated under the Securities Act and Section
4(2) of the Securities Act.

In May 1995, the Registrant issued and sold an aggregate of 5,589,169 shares
of Series C Convertible Preferred Stock (convertible into approximately
798,452 shares of Common Stock) at a purchase price of $0.60 per share ($4.20
per share on an as-converted basis) to a group of investors. In addition, the
Registrant issued options to each of Dr. Schimmel and Dr. Rebek, to purchase
120,000 shares of Series C Convertible Preferred Stock (convertible into
17,142 shares of Common Stock) at an exercise price of $0.60 per share ($4.20
per share on an as-converted basis). The issuance and sales of such shares of
and options for Series C Convertible Preferred Stock were made in reliance
upon Rule 506 of Regulation D promulgated under the Securities Act and Section
4(2) of the Securities Act.

II-2
<PAGE>

In February 1996, the Registrant issued a warrant to Comdisco, Inc. for up
to 33,333 shares of Series C Convertible Preferred Stock (convertible into
4,761 shares of Common Stock) at an exercise price of $0.90 per share ($6.30
per share on an as-converted basis). The issuance and sale of such shares of
Series C Convertible Preferred Stock were made in reliance upon Section 4(2)
of the Securities Act.

In June 1996, the Registrant issued 2,816,902 shares of Series D Convertible
Preferred Stock (convertible into 402,414 shares of Common Stock) to Bristol-
Myers Squibb Company at a purchase price of $1.42 per share ($9.94 per share
on an as-converted basis). The issuance and sale of such shares of Series D
Convertible Preferred Stock were made in reliance upon Section 4(2) of the
Securities Act. In addition, the Company may issue Common Stock after the
closing of this Offering to Bristol-Myers Squibb pursuant to certain
antidilution rights of Bristol-Myers Squibb.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*1.1 Proposed Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant (as filed with the Secretary of State of the State
of Delaware on October 17, 1996).
*3.3 Form of Restated Certificate of Incorporation of the Registrant (to
be filed with the Secretary of State of the State of Delaware upon
the closing of the Offering).
*3.4 Amended and Restated By-Laws of the Registrant, as amended to date.
*4.1 Specimen certificate for shares of Common Stock.
*4.2 Description of Capital Stock (contained in the Restated Certificate
of Incorporation of the Corporation of the Registrant, filed as
Exhibit 3.3).
*5.1 Opinion of Bingham, Dana & Gould LLP, with respect to the legality of
the shares being registered.
*+10.1 (a) License Agreement between the Registrant and the Massachusetts
Institute of Technology, dated November 4, 1992, as amended by the
First Amendment, dated January 20, 1995, and the Second Amendment,
dated May 17, 1995.
(b) Patent License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated July 21, 1994.
*+10.2 License Agreement between the Registrant and the Board of Trustees of
the Leland Stanford Junior University, dated April 1, 1994.
*10.3 Employment Agreement between the Registrant and Scott M. Rocklage,
dated June 20, 1994.
*10.4 Consulting Agreement between the Registrant and Paul R. Schimmel,
dated May 1, 1992.
*10.5 Consulting Agreement between the Registrant and Julius Rebek, Jr.,
dated May 1, 1992.
*10.6 Amended and Restated 1993 Stock Option Plan.
*+10.7 Collaborative Research Agreement between the Registrant and Pfizer
Inc, dated December 15, 1995.
*+10.8 Collaborative Research and License Agreement between the Registrant
and Merck & Co., Inc., dated June 13, 1996.
*+10.9 Collaborative Research and License Agreement between the Registrant
and Bristol-Myers Squibb Company and the Registrant, dated June 25,
1996.
*+10.10 Supply and Services Agreement, dated as of November 1, 1995, by and
between Terrapin Technologies, Inc. and the Registrant.
*10.11 Screening Agreement, dated November 28, 1995, between the Registrant
and Monsanto Company.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*+10.12 Letter Agreement, dated January 18, 1996, between Pharm-Eco
Laboratories, Inc. and the Registrant.
*10.13 Agreement with ArQule, Inc., dated June 4, 1996.
*10.14 Lease Agreement between Registrant and Harry F. Stimpson III, trustee
under the will of Harry F. Stimpson dated April 30, 1993, regarding
24 Emily Street, Cambridge, MA., as amended by the First Amendment to
Lease, dated September 19, 1994.
*10.15 Form of Employee Confidentiality and Non Disclosure Agreement.
*10.16 Master Lease Agreement between the Registrant and Comdisco, Inc.,
dated as of August 30, 1993, as amended on February 7, 1995, and as
further amended on February 26, 1996.
*10.17 Series B Convertible Preferred Stock Purchase Warrant between the
Registrant and Comdisco, Inc., dated August 30, 1993.
*10.18 Series C Convertible Preferred Stock Purchase Warrants between the
Registrant and Comdisco, Inc., dated February 28, 1995 and February
26, 1996.
*10.19 Form of Series C Convertible Preferred Stock Purchase Option issued
to each of Dr. Paul Schimmel and Dr. Julius Rebek, Jr. in May, 1995.
*10.20 Amended and Restated Shareholders' Rights Agreement by and among the
Registrant and the parties signatory thereto.
10.21 Conversion Agreement, dated September 30, 1996, between the
Registrant and certain shareholders of the Registrant representing at
least sixty percent of each of the Series A, B and C Convertible
Preferred Stock of the Registrant.
10.22 Conversion Agreement, dated September 18, 1996, between the
Registrant and Bristol-Myers Squibb Company.
*11 Computation of Income Per Share.
*23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
*24.1 Power of Attorney (included in signature page to Registration
Statement).
*27 Financial Data Schedule.
</TABLE>

- --------
* Previously filed.

+ Confidential Treatment requested as to certain portions.

(b) Financial Statement Schedules:

All financial statement schedules have been omitted because either they are
not required, are not applicable, or the information is otherwise set forth in
the Financial Statements and Notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-4
<PAGE>

The undersigned registrant hereby undertakes:

(1) To provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.

(2) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT, CUBIST PHARMACEUTICALS, INC., DULY CAUSED THIS PRE-EFFECTIVE
AMENDMENT NO. 3 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CAMBRIDGE, COMMONWEALTH OF MASSACHUSETTS, ON THIS
18TH DAY OF OCTOBER, 1996.

Cubist Pharmaceuticals, Inc.

/s/ Scott M. Rocklage
By: _________________________________
SCOTT M. ROCKLAGE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT NO. 3 HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:

SIGNATURE TITLE DATE

/s/ Scott M. Rocklage President, Chief
- ------------------------------------- Executive Officer October 18,
SCOTT M. ROCKLAGE and Director 1996
(Principal
Executive Officer)

* Treasurer (Principal
- ------------------------------------- Financial and October 18,
THOMAS A. SHEA Accounting Officer) 1996

* Chairman of the
- ------------------------------------- Board of Directors October 18,
JOHN K. CLARKE 1996

II-6
<PAGE>

SIGNATURE TITLE DATE

* Director
- ------------------------------------- October 18,
BARRY BLOOM 1996

* Director
- ------------------------------------- October 18,
GEORGE CONRADES 1996

* Director
- ------------------------------------- October 18,
ELLEN M. FEENEY 1996

* Director
- ------------------------------------- October 18,
TERRANCE G. MCGUIRE 1996

* Director
- ------------------------------------- October 18,
JULIUS REBEK, JR 1996

* Director
- ------------------------------------- October 18,
PAUL R. SCHIMMEL 1996

/s/ Scott M. Rocklage
*By: ________________________________
SCOTT M. ROCKLAGE,
ATTORNEY-IN-FACT

II-7
<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S> <C>
*1.1 Proposed Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant (as filed with the Secretary of
State of the State of Delaware on October 17, 1996).
*3.3 Form of Restated Certificate of Incorporation of the Registrant
(to be filed with the Secretary of State of the State of
Delaware upon the closing of the Offering).
*3.4 Amended and Restated By-Laws of the Registrant, as amended to
date.
*4.1 Specimen certificate for shares of Common Stock.
*4.2 Description of Capital Stock (contained in the Restated
Certificate of Incorporation of the Corporation of the
Registrant, filed as Exhibit 3.3).
*5.1 Opinion of Bingham, Dana & Gould LLP, with respect to the
legality of the shares being registered.
*+10.1 (a) License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated November 4, 1992,
as amended by the First Amendment, dated January 20, 1995, and
the Second Amendment, dated May 17, 1995.
(b) Patent License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated July 21, 1994.
*+10.2 License Agreement between the Registrant and the Board of
Trustees of the Leland Stanford Junior University, dated April
1, 1994.
*10.3 Employment Agreement between the Registrant and Scott M.
Rocklage, dated June 20, 1994.
*10.4 Consulting Agreement between the Registrant and Paul R.
Schimmel, dated May 1, 1992.
*10.5 Consulting Agreement between the Registrant and Julius Rebek,
Jr., dated May 1, 1992.
*10.6 Amended and Restated 1993 Stock Option Plan.
*+10.7 Collaborative Research Agreement between the Registrant and
Pfizer Inc, dated December 15, 1995.
*+10.8 Collaborative Research and License Agreement between the
Registrant and Merck & Co., Inc., dated June 13, 1996.
*+10.9 Collaborative Research and License Agreement between the
Registrant and Bristol-Myers Squibb Company and the Registrant,
dated June 25, 1996.
*+10.10 Supply and Services Agreement, dated as of November 1, 1995, by
and between Terrapin Technologies, Inc. and the Registrant.
*10.11 Screening Agreement, dated November 28, 1995, between the
Registrant and Monsanto Company.
*+10.12 Letter Agreement, dated January 18, 1996, between Pharm-Eco
Laboratories, Inc. and the Registrant.
*10.13 Agreement with ArQule, Inc., dated June 4, 1996.
*10.14 Lease Agreement between Registrant and Harry F. Stimpson III,
trustee under the will, of Harry F. Stimpson dated April 30,
1993, regarding 24 Emily Street, Cambridge, MA., as amended by
the First Amendment to Lease, dated September 19, 1994.
*10.15 Form of Employee Confidentiality and Non Disclosure Agreement.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*10.16 Master Lease Agreement between the Registrant and Comdisco, Inc.,
dated as of August 30, 1993, as amended on February 7, 1995, and as
further amended on February 26, 1996.
*10.17 Series B Convertible Preferred Stock Purchase Warrant between the
Registrant and Comdisco, Inc., dated August 30, 1993.
*10.18 Series C Convertible Preferred Stock Purchase Warrants between the
Registrant and Comdisco, Inc., dated February 28, 1995 and February
26, 1996.
*10.19 Form of Series C Convertible Preferred Stock Purchase Option issued
to each of Dr. Paul Schimmel and Dr. Julius Rebek, Jr. in May, 1995.
*10.20 Amended and Restated Shareholders' Rights Agreement by and among the
Registrant and the parties signatory thereto.
10.21 Conversion Agreement, dated September 30, 1996, between the
Registrant and certain shareholders of the Registrant representing at
least sixty percent of each of the Series A, B and C Convertible
Preferred Stock of the Registrant.
10.22 Conversion Agreement, dated September 18, 1996, between the
Registrant and Bristol-Myers Squibb Company.
*11 Computation of Income Per Share.
*23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
*24.1 Power of Attorney (included in signature page to Registration
Statement).
*27 Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
+Confidential Treatment requested as to certain portions.

<PAGE>

EXHIBIT 3.2

CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
CUBIST PHARMACEUTICALS, INC.

CUBIST PHARMACEUTICALS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that:

FIRST. The Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting in its entirety Articles FOURTH,
FIFTH, SIXTH and SEVENTH thereof and by substituting in lieu thereof the
following new Articles FOURTH, FIFTH, SIXTH, SEVENTH, EIGHTH, NINETH, TENTH and
ELEVENTH:

"FOURTH. The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 68,000,000, consisting solely
of:

25,000,000 shares of common stock, $.001 par value per share ("Common
Stock"); and

43,000,000 shares of preferred stock, $.001 par value per share
("Preferred Stock"), of which

5,000,000 shares of Preferred Stock have been designated as Series A
Convertible Preferred Stock, $.001 par value per share ("Series A Preferred
Stock");

14,973,870 shares of Preferred Stock have been designated as Series B
Convertible Preferred Stock, $.001 par value per share ("Series B Preferred
Stock");

15,383,646 shares of Preferred Stock have been designated as Series C
Convertible Preferred Stock, $.001 par value per share ("Series C Preferred
Stock"); and

2,816,902 shares of Preferred Stock have been designated as Series D
Convertible Preferred Stock, $.001 par value per share ("Series D Preferred
Stock").
<PAGE>

- 2 -

At such time as no shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Parity Preferred Stock (as defined in Section 1 below) are issued and
outstanding, including without limitation because all of such shares have
been converted into shares of Common Stock in accordance with this Restated
Certificate of Incorporation, all authorized shares of each such class and
series of stock, automatically and without further actions, shall be
reclassified as authorized but unissued shares of undesignated Preferred
Stock of no particular class or series, and any and all of such shares may
thereafter be issued by the Board of Directors of the Company in one or
more series, and the terms of any such series may be determined by the
Board of Directors, as provided in Section 3 below.

The following is a statement of the powers, designations, preferences,
privileges, and relative, participating, optional, and other special rights
of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Parity Preferred Stock and
Common Stock, respectively:

1. DEFINITIONS. The following terms shall have the respective
-----------
meanings provided therefor below in this Section 1:

"Applicable Adjustment Price" shall mean (i) with respect to the
---------- ---------- -----
Series A Preferred Stock, the Series A Adjustment Price, (ii) with respect
to the Series B Preferred Stock, the Series B Adjustment Price, (iii) with
respect to the Series C Preferred Stock, the Series C Adjustment Price,
(iv) with respect to the Series D Preferred Stock, the Series D Adjustment
Price and (v) with respect to each series of Parity Preferred Stock, the
Parity Preferred Stock Adjustment Price applicable to such series of Parity
Preferred Stock.

"Applicable Conversion Rate" shall mean (i) with respect to the Series
---------- ---------- ----
A Preferred Stock, the Series A Conversion Rate, (ii) with respect to the
Series B Preferred Stock, the Series B Conversion Rate, (iii) with respect
to the Series C Preferred Stock, the Series C Conversation Rate, (iv) with
respect to the Series D Preferred Stock, the Series D Conversion Rate and
(v) with respect to each series of Parity Preferred Stock, the Parity
Preferred Stock Conversion Rate applicable to such series of Parity
Preferred Stock.
<PAGE>

- 3 -

"Conversion Rates" shall mean, collectively, the Series A Conversion
---------- -----
Rate, the Series B Conversion Rate, the Series C Conversion Rate, the
Series D Conversion Rate and the Parity Preferred Stock Conversion Rate
applicable to each series of Parity Preferred Stock.

"Convertible Securities" shall have the meaning provided therefor in
----------- ----------
Section 2.4(e)(i) hereof.

"Designated Preferred Stock" shall mean the Series A Preferred Stock,
---------- --------- -----
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Parity Preferred Stock.

"Original Issuance Price Per Share" shall mean (i) with respect to the
-------- -------- ----- --- -----
Series A Preferred Stock, $0.10 per share, subject to Proportional
Adjustment, (ii) with respect to the Series B Preferred Stock, $0.50 per
share, subject to Proportional Adjustment, (iii) with respect to the Series
C Preferred Stock, $0.60 per share, subject to Proportional Adjustment,
(iv) with respect to the Series D Preferred Stock, $1.42 per share, subject
to Proportional Adjustment, and (v) with respect to each series of Parity
Preferred Stock, the original issuance price of the first share issued of
such series of Parity Preferred Stock, subject to Proportional Adjustment.

"Parity Preferred Stock" shall mean any and all series of Preferred
------ --------- -----
Stock ranking pari passu with the Series A Preferred Stock, the Series B
---- -----
Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock, as to dividends and liquidation preference.

"Parity Preferred Stock Adjustment Price" shall mean, at the relevant
------ --------- ----- ---------- -----
time of reference thereto, the quotient obtained by dividing (i) the
Original Issuance Price Per Share for such Series of Parity Preferred Stock
(without giving effect to any Proportional Adjustment to such Original
Issuance Price Per Share) by (ii) the Parity Preferred Stock Conversion
Rate in effect at such time for such series of Parity Preferred Stock.

"Parity Preferred Stock Conversion Rate" shall mean the rate at which
------ --------- ----- ---------- ----
outstanding shares of such series of Parity Preferred Stock may be
converted into shares of Common Stock, which rate shall be subject to
adjustment from time to time pursuant to Section 2.4(e) hereof.
<PAGE>

- 4 -

"Proportional Adjustment" shall mean a proportional or other equitable
------------ ----------
adjustment made to the Original Issuance Price Per Share of each series of
Designated Preferred Stock upon the occurrence of a stock split, reverse
stock split, stock dividend, stock combination, reclassification or other
similar change with respect to such series of Designated Preferred Stock.

"Permitted Shares" shall mean, collectively, (a) any shares of Common
--------- ------
Stock or Convertible Securities issued or issuable to employees or
consultants, or to persons who were to become employees or consultants, of
the Corporation pursuant to stock option, stock incentive, stock
appreciation, stock bonus or compensation rights plans or any other
employee benefit plans presently in effect or which may hereafter be
adopted by the Corporation, or pursuant to stock option, employment,
consulting, restricted stock or other agreements or arrangements of any
kind, provided, however, that in no event shall the number of such shares
-------- -------
of Common Stock referred to in this clause (a) exceed twenty percent
(20%) of the sum of the shares of Common Stock issued and outstanding from
time to time and the shares of Common Stock issuable upon conversion of all
series of Designated Preferred Stock; (b) up to 276,484 shares of Common
Stock issuable by the Corporation to The Massachusetts Institute of
Technology ("MIT") pursuant to that certain License Agreement, which became
effective as of November 17, 1992, between the Corporation and MIT; (c) the
issuance of up to 125,833 shares of Series C Preferred Stock upon exercise
of warrants issued to Comdisco, Inc.; (d) the issuance of up to 240,000
shares of Series C Preferred Stock upon exercise of outstanding options
issued to Julius Rebek, Jr. and Paul R. Schimmel; (e) the issuance of up to
240,500 shares of Series B Preferred Stock issuable upon exercise of
warrants issued to Comdisco, Inc.; and (f) any shares of Common Stock or
Convertible Securities issued or issuable upon conversion of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Parity Preferred Stock or any other Convertible
Securities.

"Series A Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $0.10 by (ii) the
Series A Conversion Rate in effect at such time.

"Series A Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series A Preferred Stock may be converted
<PAGE>

- 5 -

into shares of Common Stock, which rate, on the Series D Original Issuance
Date, shall be equal to 1 share of Common Stock for each share of Series A
Preferred Stock and thereafter shall be subject to adjustment from time to
time pursuant to Section 2.4(e) hereof.

"Series B Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $0.50 by (ii) the
Series B Conversion Rate in effect at such time.

"Series B Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series B Preferred Stock may be converted into shares of Common
Stock, which rate, on the Series D Original Issuance Date, shall be equal
to 1 share of Common Stock for each share of Series B Preferred Stock and
thereafter shall be subject to adjustment from time to time pursuant to
Section 2.4(e) hereof.

"Series C Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $0.60 by (ii) the
Series C Conversion Rate in effect at such time.

"Series C Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series C Preferred Stock may be converted into shares of Common
Stock, which rate, on the Series D Original Issuance Date, shall be equal
to 1 share of Common Stock for each share of Series C Preferred Stock and
thereafter shall be subject to adjustment from time to time pursuant to
Section 2.4(e) hereof.

"Series D Adjustment Price" shall mean, at the relevant time of
------ - ---------- -----
reference thereto, the quotient obtained by dividing (i) $1.42 by (ii) the
Series D Conversion Rate in effect at such time.

"Series D Conversion Rate" shall mean the rate at which outstanding
------ - ---------- ----
shares of Series D Preferred Stock may be converted into shares of Common
Stock, which rate, on the Series D Original Issuance Date, shall be equal
to 1 share of Common Stock for each share of Series D Preferred Stock and
thereafter shall be subject to adjustment from time to time pursuant to
Section 2.4(e) hereof.

"Series D Original Issuance Date" shall mean the date of issuance by
------ - -------- -------- ----
the Corporation of the first share of Series D Preferred Stock.
<PAGE>

- 6 -

2. SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK, SERIES C PREFERRED
----------------------------------------------------------------------
STOCK, SERIES D PREFERRED STOCK AND PARITY PREFERRED STOCK
----------------------------------------------------------

2.1. Voting. Except as may be otherwise provided in this Restated
------
Certificate of Incorporation or by law, each series of the Designated
Preferred Stock shall vote together with all other classes and series of
stock of the Corporation as a single class on all actions to be taken by
the stockholders of the Corporation. Each share of Designated Preferred
Stock shall entitle the holder thereof to such number of votes per share on
each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which such share of Designated
Preferred Stock is then convertible. The different series of Designated
Preferred Stock shall not be construed to constitute different classes of
stock for the purposes of voting by classes unless expressly so provided in
this Restated Certificate of Incorporation.

2.2. Dividends. The holders of any series of Designated Preferred
---------
Stock shall be entitled to receive, for each share of such series of
Designated Preferred Stock, dividends if, when and as declared by the Board
of Directors out of funds legally available therefor; provided, however,
-------- -------
that, so long as any shares of such series of Designated Preferred Stock
shall be outstanding, the Corporation shall not declare or pay any dividend
upon any shares of any other series of Designated Preferred Stock or Common
Stock, unless the Corporation shall first pay, or simultaneously therewith
declare and set apart a sum sufficient for the payment of, a dividend upon
all of the outstanding shares of such series of Designated Preferred Stock
in a per share amount, computed on an as-converted basis in the manner
provided in the sentence below, equal to the per share amount of the
dividend upon Common Stock or such other series of Designated Preferred
Stock (computed on an as-converted basis in the manner provided in the
sentence below), as the case may be. For purposes hereof, the per share
amount of any dividend paid or payable upon outstanding shares of any
series of Designated Preferred Stock shall be deemed equal to the amount
obtained by dividing the dividend paid or payable upon each of such
outstanding shares of such series of Designated Preferred Stock by the
number of shares of Common Stock into which each such outstanding share of
such series of Designated Preferred Stock shall then be convertible.
<PAGE>

- 7 -

2.3. Liquidation Preference.
----------- ----------

(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the affairs of the Corporation, voluntarily or involuntarily,
the holders of outstanding shares of any series of Designated Preferred
Stock shall be entitled to receive pro rata, prior to any distribution to
the holders of the Common Stock or any other stock ranking junior to such
series of Designated Preferred Stock (collectively, "Junior Stock") but
pari passu with the rights of holders of outstanding shares of each other
---- -----
series of Designated Preferred Stock to receive their respective
liquidation preference pursuant to this Section 2.3(a), a preferential
amount with respect to each share of such series of Designated Preferred
Stock equal to the sum of (i) the Original Issuance Price Per Share for
such series of Designated Preferred Stock and (ii) all dividends and
distributions, if any, then declared and unpaid on account of such share.
If upon such liquidation, dissolution or winding up, the assets of the
Corporation are insufficient (after payment of the liquidation preference
of any class or series of preferred stock ranking senior on liquidation to
the Designated Preferred Stock) to provide for the payment in full of the
liquidation preference payable with respect to each outstanding share of
each series of Designated Preferred Stock, such assets as are available
shall be paid out pro rata among the outstanding shares of all series of
Designated Preferred Stock in proportion to the respective amounts that
would be payable in respect of such shares if the liquidation preference
payable with respect to each outstanding share of each series of Designated
Preferred Stock were paid in full. After payment or setting apart for
payment of the liquidation preference payable with respect to each
outstanding share of each series of Designated Preferred Stock, the
remaining assets of the Corporation, if any, shall be distributed among the
holders of the Junior Stock.

(b) Merger or Acquisition. A consolidation or merger of the
------ -- -----------
Corporation with or into any other corporation or corporations (other than
a merger in which the holders of capital stock of the Corporation
immediately prior to the merger directly or indirectly beneficially own a
majority of the capital stock of the surviving corporation immediately
after the merger), or a sale of all or substantially all of the assets of
the Corporation, shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 2.3.
<PAGE>

- 8 -

2.4. Conversion of Designated Preferred Stock.
---------- -- --------------------------

The holders of outstanding shares of any series of Designated
Preferred Stock shall have conversion rights in accordance with the
following provisions:

(a) Right to Convert. Outstanding shares of each series of Designated
----- -- -------
Preferred Stock may, at the option of the holder thereof, be converted into
shares of Common Stock of the Corporation (as such shares of Common Stock
may be constituted on the conversion date) at any time and from time to
time at the Applicable Conversion Rate for such series of Designated
Preferred Stock.

(b) Mechanics of Conversion. The holder of a share or shares of any
-----------------------
series of Designated Preferred Stock may exercise the conversion right as
to any thereof by delivering to the Corporation during regular business
hours, at the principal executive offices of the Corporation or at the
corporate trust office of any transfer agent of the Corporation for the
shares of such series of Designated Preferred Stock or at such other place
as may be designated by the Corporation, the certificate or certificates
for the shares to be converted, duly endorsed or assigned in blank or to
the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares and stating the name or names
(with addresses) in which the certificate or certificates for Common Stock
are to be issued and by payment of any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares in any name
other than that of the holder of record on the books of the Corporation of
the shares of such series of Designated Preferred Stock converted.
Conversion shall be deemed to have been effected on the date such delivery
is made, and such date is referred to herein as the "Conversion Date". As
promptly as practicable after conversion, the Corporation shall issue and
deliver to or upon the written order of such holder, at such office or
other place designated by the Corporation, a certificate or certificates
for the number of full shares of Common Stock to which such holder is
entitled and a check or cash in respect of any fraction of a share as
provided below. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a
shareholder of record on the Conversion Date unless the transfer books of
the Corporation are closed on that date, in which event he shall be deemed
to have become a shareholder of record on the next succeeding date on which
the transfer books are open, but the Applicable Conversion Rate for the
shares of the
<PAGE>

- 9 -

series of Designated Preferred Stock converted shall be that in effect on
the Conversion Date. No payment or adjustment shall be made upon any
conversion on account of any dividends declared but unpaid on the shares of
any series of Designated Preferred Stock surrendered for conversion or on
account of any dividends on the shares of Common Stock issued upon such
conversion.

(c) Mandatory Conversion. All outstanding shares of each series of
--------------------
Designated Preferred Stock shall be deemed automatically converted into
shares of Common Stock at the Applicable Conversion Rate for such series of
Designated Preferred Stock upon the occurrence of a closing of a public
offering for the account of the Corporation of the Common Stock of the
Corporation or securities convertible into or exchangeable for shares of
Common Stock of the Corporation, (I) where the holders of sixty percent in
voting power of the shares of such series of Designated Preferred Stock
then outstanding, voting, consenting or otherwise acting as a single class
separate from the holders of all other series or classes of capital stock
of the Company, elect in writing or at a duly called meeting of
stockholders of the Corporation to effect such automatic conversion, or
(II) where the aggregate sales price of the securities included in such
public offering and in all other public offerings for the account of the
Corporation of Common Stock or securities convertible into or exchangeable
for shares of Common Stock of the Corporation closed prior thereto (before
deduction of any underwriting commissions, discounts or commissions or
expenses of sale) is at least $15,000,000 and where in such public offering
the price per share of Common Stock (or, if securities convertible into or
exchangeable for Common Stock have been sold, the aggregate sales price of
such securities plus the aggregate consideration payable to the Corporation
upon the conversion or exchange of such securities into shares of Common
Stock divided by the total number of shares of Common Stock into which such
securities are convertible or exchangeable) is not less than (i) if such
closing occurs on or prior to the first anniversary of the Series D
Original Issuance Date, the amount obtained by dividing $1.56 by the
Applicable Conversion Rate for such series of Designated Preferred Stock,
as in effect prior to the closing of such public offering, or (ii) if such
closing occurs after the first anniversary of the Series D Original
Issuance Date, the amount obtained by dividing $1.85 by the Applicable
Conversion Rate for such series of Designated Preferred Stock, as in effect
prior to the closing of such public offering. On or after the date of the
closing of such public offering, and in any event within ten days after
receipt of notice, by mail, postage prepaid from the Corporation of the
<PAGE>

- 10 -

occurrence thereof, each holder of shares of any series of Designated
Preferred Stock shall surrender such holder's certificates evidencing such
shares at the principal executive offices of the Corporation or at the
corporate trust office of any transfer agent for the shares of such series
of Designated Preferred Stock or at such other place as may be designated
by the Corporation, and shall thereupon be entitled to receive certificates
evidencing the number of shares of Common Stock into which such shares of
such series of Designated Preferred Stock shall have been converted. On the
date of the closing of such public offering, each holder of shares of any
series of Designated Preferred Stock shall be deemed to have become a
holder of record of the shares of Common Stock issuable upon conversion
thereof, notwithstanding that the certificates representing such shares of
such series of Designated Preferred Stock shall not have been surrendered
as provided above, that notice from the Corporation shall not have been
received by any holder of shares of Designated Preferred Stock, or that the
certificates evidencing such shares of Common Stock shall not then be
actually delivered to such person.

(d) Fractional Shares. The Corporation shall not be required to
-----------------
issue any fraction of a share upon conversion of any share or shares of any
series of Designated Preferred Stock. If more than one share of any series
of Designated Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the total number
of shares of such series of Designated Preferred Stock so surrendered. If
any fractional interest in a share of Common Stock would be deliverable
upon conversion, the Corporation shall make an adjustment therefor in cash.
Adjustment in cash shall be made on the basis of the current market price
of one share of Common Stock on the Conversion Date. A determination of the
current market price made in good faith by the Board of Directors for the
purposes of this Section 2.4(d) or Section 2.4(e)(iv) hereof shall be
conclusive and binding upon all the shareholders of the Corporation.

(e) Conversion Rate Adjustments. The Conversion Rates shall be
---------------------------
subject to the following adjustments:

(i) If the Corporation shall pay to the holders of its Common Stock a
dividend in shares of Common Stock or in securities convertible into its
Common Stock (the "Convertible Securities"), each of the Conversion Rates,
as in effect immediately
<PAGE>

- 11 -

prior to the record date fixed for the determination of the holders of
Common Stock entitled to such dividend, shall be increased, effective at
the opening of business on the full business day next following such record
date, by multiplying such Conversion Rate by a fraction, the numerator of
which is the number of shares of Common Stock issued and outstanding on
such record date plus the number of shares of Common Stock issued, or
issuable upon conversion of the Convertible Securities issued, in payment
of such dividend and the denominator of which is the number of shares of
Common Stock issued and outstanding on such record date.

(ii) If the Corporation shall split the outstanding shares of its
Common Stock into a greater number of shares or combine the outstanding
shares of its Common Stock into a smaller number of shares, each of the
Conversion Rates, as in effect immediately prior to such action, shall be
increased in the case of a split or decreased in the case of a combination,
effective at the opening of business on the full business day next
following the day such action becomes effective, so that each holder of
shares of any series of Designated Preferred Stock thereafter surrendered
for conversion shall be entitled to receive the number of shares of Common
Stock which such holder would have been entitled to receive as a result of
such split or combination if such shares of such series of Designated
Preferred Stock had been converted immediately prior to the date such split
or combination, as the case may be, became effective.

(iii) If the Corporation shall issue or sell options, warrants or
rights to subscribe for or purchase shares of its Common Stock, other than
Permitted Shares, at a price per share (plus the consideration per share of
Common Stock, if any, received for such options, warrants or rights) less
than the Applicable Adjustment Price with respect to any series of
Designated Preferred Stock, as in effect immediately prior to such issuance
or sale, or to subscribe for or purchase any Convertible Securities at a
price per share (plus the consideration per share of Convertible
Securities, if any, received for such options, warrants or rights) which
when divided by the conversion rate applicable to those Convertible
Securities is less than the Applicable Adjustment Price with respect to any
series of Designated Preferred Stock, as in effect immediately prior to
such issuance or sale, the Applicable Conversion Rate with respect to such
series of Designated Preferred Stock, as in effect immediately prior to
such issuance or sale, shall be increased, effective at the opening of
business on the first full business day next following such issuance or
sale, to an amount determined by multiplying such
<PAGE>

- 12 -

Applicable Conversion Rate by a fraction the numerator of which is the
number of shares of Common Stock of the Corporation outstanding immediately
prior to said date plus the number of shares of Common Stock issuable on
exercise of such options, warrants or rights (or, in the case of
Convertible Securities, the number of shares of Common Stock into which the
Convertible Securities issuable on exercise of such options, warrants or
rights would then be convertible) and the denominator of which is the
number of shares of Common Stock outstanding immediately prior to said date
plus the number of shares of Common Stock of the Corporation which the
aggregate subscription or purchase price for the total number of such
shares issuable on exercise of such options, warrants or rights (including
the consideration, if any, received by the Corporation for such options,
warrants or rights) would purchase at the Applicable Adjustment Price with
respect to such series of Designated Preferred Stock, as in effect
immediately prior to such issuance or sale. On the expiration of such
options, warrants or rights, the Applicable Conversion Rate with respect to
any then outstanding shares of such series of Designated Preferred Stock
shall forthwith be readjusted to the Applicable Conversion Rate for such
series of Designated Preferred Stock which would have obtained at the time
of such expiration if the adjustment made at the time such options,
warrants or rights were issued or sold had been made upon the basis of the
issuance of only the number of shares of Common Stock or Convertible
Securities actually issued upon the exercise of such options, warrants or
rights, but such readjustment shall not affect any conversion theretofore
made.
(iv) If the Corporation shall distribute to the holders of its
Common Stock any evidences of its indebtedness, or any options, warrants or
rights to subscribe for any security other than its Common Stock or
Convertible Securities, or any other assets (excluding dividends and
distributions in cash to the extent permitted by law), the Applicable
Conversion Rate with respect to each series of Designated Preferred Stock
in effect immediately prior to the record date fixed for the determination
of the holders of Common Stock entitled to such distribution shall be
increased, effective at the opening of business on the next following full
business day, to an amount determined by multiplying such Applicable
Conversion Rate by a fraction the numerator of which is the current market
price of one share of Common Stock on such record date (determined in
accordance with the provisions of Section 2.4(d) hereof) and the
denominator of which is such current market price less the fair market
value (as determined by an independent
<PAGE>

- 13 -

appraiser selected with the approval of at least seventy percent (70%) of
the members of the Board of Directors of the Corporation then in office,
whose determination, in the absence of fraud, shall be conclusive) of the
amount of evidences of indebtedness, options, rights, warrants or other
assets (excluding cash dividends and distributions, as aforesaid) so
distributed which is applicable to one share of Common Stock.

(v) If the Corporation shall issue shares of its Common Stock or
Convertible Securities other than Permitted Shares and other than pursuant
to a transaction described in Sections 2.4(e)(i) - 2,4(e)(iv) hereof, at a
price per share of less than the Applicable Adjustment Price with respect
to any series of Designated Preferred Stock, as in effect immediately prior
to such issuance, (or, in the case of Convertible Securities, at a price
per share which when divided by the conversion rate applicable thereto is
less than the Applicable Adjustment Price with respect to any series of
Designated Preferred Stock, as in effect immediately prior to such
issuance), the Applicable Conversion Rate with respect to such series of
Designated Preferred Stock, as in effect immediately prior to such
issuance, shall be increased, effective at the opening of business on the
next following full business day, to an amount determined by multiplying
such Applicable Conversion Rate by a fraction the numerator of which is the
number of shares of Common Stock of the Corporation outstanding immediately
prior to such issuance plus the number of additional shares of Common Stock
to be so issued (or, in the case of Convertible Securities, the number of
additional shares of Common Stock into which the Convertible Securities to
be so issued would be convertible) and the denominator of which is the
number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock of the Corporation which
the aggregate purchase price for the total number of additional shares of
Common Stock or Convertible Securities to be so issued would purchase at
the Applicable Adjustment Price with respect to such series of Designated
Preferred Stock, as in effect immediately prior to such issuance.

No adjustment of the Applicable Conversion Rate with respect to any series
of Designated Preferred Stock, as provided in this Section 2.4(e), shall be
made by reason of the issuance of shares of Common Stock or Convertible
Securities of the Corporation, or options, warrants or rights to subscribe
therefor, for cash, property or services, except as provided in Sections
2.4(e)(iii) and 2.4(e)(v)

<PAGE>

- 14 -

hereof. To the extent that any shares of Common Stock or Convertible
Securities of the Corporation, or options, warrants or rights to subscribe
therefor, shall be issued for a cash consideration, the consideration
received by the Corporation therefor shall be deemed to be the amount of
the cash received by the Corporation therefor without deduction therefrom
of any expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Corporation in connection therewith. In
the case of the issuance of Common Stock or Convertible Securities, or
options, warrants or rights to subscribe therefor, for a consideration all
or part of which shall be property received or services performed, the
value of such property or services for the purposes of Sections 2.4(e)(iii)
and 2.4(e)(v) hereof shall be determined, irrespective of the accounting
treatment thereof and without deduction therefrom of any reasonable
expenses incurred or any underwriting commissions, discounts or concessions
paid or allowed by the Corporation in connection therewith, by at least
seventy percent (70%) of the members of the Board of Directors of the
Corporation then in office, whose determination, in the absence of fraud,
shall be conclusive. Notwithstanding anything in this Restated Certificate
of Incorporation to the contrary, any adjustment, pursuant to the
provisions of this Section 2.4(e), to the Applicable Conversion Rate with
respect to any series of Designated Preferred Stock may be waived by the
holders of sixty percent in voting power of the shares of such series of
Designated Preferred Stock then outstanding, voting, consenting or
otherwise acting as a single class separate from the holders of all other
series or classes of capital stock of the Company.

(f) Adjustment for Mergers, Consolidations, Etc. In case of any
-------------------------------------------
reclassification or change of the outstanding shares of Common Stock of the
Corporation (except a split or combination of shares) or in case of any
consolidation or merger to which the Corporation is a party (except a
merger in which the Corporation is the surviving corporation and which does
not result in any reclassification of or change in the outstanding Common
Stock of the Corporation, except a split or combination of shares as to
which Section 2.4(e)(ii) is applicable) or in case of any sale or
conveyance to another corporation of all or substantially all of the
property of the Corporation, effective provision shall be made by the
Corporation or by the successor or purchasing corporation so that (A) each
holder of then outstanding shares of any series of Designated Preferred
Stock shall thereafter have the right to convert such shares into the kind
and amount of stock and other securities and property receivable
<PAGE>

- 15 -

upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock of the
Corporation into which such shares of such series of Designated Preferred
Stock might have been converted immediately prior thereto, and (B) there
shall be subsequent adjustments of the Applicable Conversion Rate with
respect to such series of Designated Preferred Stock which shall be
equivalent, as nearly as practicable, to the adjustments provided for in
Section 2.4(e) hereof. The provisions of this Section 2.4(f) shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, sales or conveyances.

(g) Taxes. The issuance of shares of Common Stock of the
-----
Corporation on conversion of shares of any series of Designated Preferred
Stock shall be without charge to the converting holder of such shares for
any tax in respect of the issuance of such shares of Common Stock, but the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of such
shares of Common Stock in any name other than that of the holder of record
on the books of the Corporation of such shares of such series of Designated
Preferred Stock converted, and the Corporation shall not be required to
issue or deliver any certificate for shares of Common Stock unless and
until the person requesting issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.

(h) Reservation of Stock Issuable Upon Conversion. Shares of Common
---------------------------------------------
Stock issued on conversion of shares of any series of Designated Preferred
Stock shall be issued as fully paid shares and shall be non-assessable by
the Corporation. The Corporation shall at all times reserve and keep
available for the purpose of effecting the conversion of shares of each
series of Designated Preferred Stock such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the conversion of
all outstanding shares of such series of Designated Preferred Stock, and,
to the extent necessary in order to reserve a sufficient number of such
shares of Common Stock, the Corporation shall, subject to appropriate
shareholder action, amend its Certificate of Incorporation to increase the
number of duly authorized but unissued shares of its Common Stock.

(i) No Reissuance of Preferred Stock. Shares of any series of
--------------------------------
Designated Preferred Stock converted as provided herein shall
<PAGE>

- 16 -

not be reissued and the Board of Directors shall take appropriate action
from time to time to effect reductions in the number of shares of such
series of Designated Preferred Stock which the Corporation is authorized to
issue.

(j) Notice of Adjustment. Upon any adjustment of the Applicable
--------------------
Conversion Rate or the Applicable Adjustment Price with respect to any
series of Designated Preferred Stock, then and in each such case, the
Corporation shall give written notice thereof, by hand or registered or
certified mail, postage and charges prepaid, or by express overnight
delivery, or by telecopy or telex (in which cases, the original notice
shall be sent by means reasonably intended to result in delivery of the
original notice to the recipient thereof on the next business day)
addressed to each holder of such series of Designated Preferred Stock
subject to conversion under this Section 2.4 at the address of such holder
as shown on the books of the Corporation, which notice shall state the
Applicable Conversion Rate for such series of Designated Preferred Stock
resulting from such adjustment, setting forth in reasonable detail the
method upon which such calculation is based.

(k) Other Notices. In case at any time:
-------------

(i) the Corporation shall declare any dividend upon its Common Stock
payable in cash, stock or Convertible Securities or make any other
distribution to the holders of its Common Stock;

(ii) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class,
any Convertible Securities, or other rights;

(iii) there shall be any capital reorganization or reclassification
of the capital stock of the Corporation, or a consolidation or merger of
the Corporation with or into, or a sale of all or substantially all its
assets to, another entity or entities; or

(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;

then, in any one or more of said cases, the Corporation shall give, by any
of the means specified in Section 2.4(j) hereof, addressed to each holder
of shares of any series of Designated Preferred Stock at the address of
such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on
<PAGE>

- 17 -

which the books of the Corporation shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up and (b)
in the case of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, at least 20 days'
prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the
date on which the holders of Common Stock shall be entitled thereto and
such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.

3. ADDITIONAL SERIES OF PREFERRED STOCK. The Board of Directors is
-------------------------------------
hereby expressly authorized to provide for, designate and issue, out of the
authorized but unissued shares of Preferred Stock, one or more other series
of Preferred Stock in addition to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
subject to the terms and conditions set forth herein. Before any shares of
any such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares of any such series:

(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the
par value thereof;

(b) whether the shares of such series shall have voting rights
or powers, in addition to any voting rights required by law, and, if so,
the terms of such voting rights or powers, which may be full or limited;

(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or series;
<PAGE>

- 18 -

(d) whether the shares of such class or series shall be subject
to redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;

(e) the amount or amounts payable with respect to shares of such
class or series upon, and the rights of the holders of such class or series
in, the voluntary or involuntary liquidation, dissolution or winding up, or
upon any distribution of the assets, of the Corporation;

(f) whether the shares of such class or series shall be subject
to the operation of a retirement or sinking fund and, if so, the extent to
and manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such class or series for
retirement or other corporate purposes and the terms and provisions
relative to the operation thereof;

(g) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other class
or series of any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;

(h) the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment
of dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the Common
Stock or shares of stock of any other class or series;

(i) the conditions or restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the creation
of indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such class or series or of any other
class or series; and

(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.

The powers, designations, preferences and relative,
participating, optional or other special rights of each series of
<PAGE>

- 19 -

Preferred Stock, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other series at any
time outstanding. The Board of Directors is hereby expressly authorized
from time to time to increase (but not above the total number of authorized
shares of Preferred Stock) or decrease (but not below the number of shares
thereof then outstanding) the number of shares of stock of any series of
Preferred Stock designated to any one or more series of Preferred Stock
pursuant to this Section 3. Different series of Preferred Stock shall not
be construed to constitute different classes of stock for purposes of
voting by classes unless expressly so provided in the resolution or
resolutions adopted by the Board of Directors creating or establishing any
such series of Preferred Stock.

4. COMMON STOCK
------------

4.1. Increase or Decrease in Authorized Number. The number of
------------------------------------------
authorized shares of Common Stock may be increased or decreased (but not
below the combined number of shares thereof then outstanding and those
reserved for issuance upon conversion of the outstanding shares of all
series of Designated Preferred Stock) by the affirmative vote of the
holders of the majority of the stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the Delaware General
Corporation Law.

4.2. Voting Rights. Except as otherwise required by law, each holder
-------------
of Common Stock shall have one vote in respect of each share of Common
Stock held of record on all matters submitted to a vote of stockholders of
the Corporation. Except as otherwise required by law, and subject to the
voting rights provided to the holders of any series of Preferred Stock
(other than Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock), the holders of Common Stock
and the holders of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and/or Series D Preferred Stock shall vote
together as a single class on all matters submitted to the shareholders for
a vote.

4.3. Dividends. Each share of Common Stock issued and outstanding
---------
shall be identical in all respects with each other such share, and no
dividends shall be paid on any shares of Common Stock unless the same
dividend is paid on all shares of Common Stock outstanding at the time of
such payment. Except for and subject to those rights expressly granted to
the holders of Preferred
<PAGE>

- 20 -

Stock and except as may be provided by the laws of the State of Delaware,
the holders of Common Stock shall have all other rights of stockholders,
including, without limitation, (a) the right to receive dividends, when and
as declared by the Board of Directors, out of assets lawfully available
therefor, and (b) in the event of any distribution of assets upon a
liquidation or otherwise, the right to receive ratably and equally all the
assets and funds of the Corporation remaining after the payment to the
holders of the Preferred Stock or of any other class or series of stock
ranking senior to the Common Stock upon liquidation of the specific
preferential amounts which they are entitled to receive upon such
liquidation.

5. REVERSE STOCK SPLIT. Immediately upon the filing with the
-------------------
Secretary of State of Delaware of the Certificate of Amendment that, among
other things, amends Article FOURTH of the Corporation's Restated
Certificate of Incorporation for purposes of including the provisions of
this Section 5 in said Article FOURTH (the "Effective Time"), a one-for-
seven reverse stock split of the Common Stock (the "Reverse Stock Split")
shall become effective such that each share of Common Stock that is issued
and outstanding or held in treasury immediately prior to the Effective Time
shall be automatically combined and changed (without any further act) into
one-seventh (1/7) of one share of fully paid and nonassessable Common Stock
of the Corporation, all without changing the par value per share of the
Common Stock. No fractional share of Common Stock shall be issued to any
holder of record of shares of Common Stock as a result of the Reverse Stock
Split, but in lieu of any fraction of a share which would otherwise be
issuable to any such holder of record, there shall be paid by the
Corporation an amount of cash equal to the pro rata value of such
fractional share. Each stock certificate of the Corporation that represents
shares of Common Stock and that is outstanding at any time prior to the
Effective Time shall immediately after the Effective Time represent one-
seventh (1/7) of the number of shares of Common Stock shown on the face of
such stock certificate, excluding fractional shares which are subject to
cash settlement as provided above. Within a reasonable time after the
Effective Time, notice shall be given to the shareholders of record of the
Common Stock instructing them to surrender their stock certificates
representing shares of Common Stock issued prior to the Effective Time to
the Corporation for cancellation and reissuance of new certificates
representing the number of shares of Common Stock to which such
shareholders are entitled after adjustment for the Reverse Stock Split. The
aggregate amount of capital represented by the
<PAGE>

- 21 -

aggregate number of shares of Common Stock outstanding immediately prior to
the Effective Time shall be appropriately adjusted to reflect the change in
the aggregate number of shares of Common Stock outstanding immediately
after the Effective Time without changing the par value per share of the
Common Stock.

FIFTH. The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation and for
defining and regulating the powers of the Corporation and its directors and
stockholders and are in furtherance and not in limitation of the powers
conferred upon the Corporation by statute:

(a) Effective as of the closing (or the first closing) of the
Corporation's registered initial public offering of Common Stock (the "IPO
Closing"), the Board of Directors shall be divided into three classes of
directors, such classes to be as nearly equal in number of directors as
possible, having staggered three-year terms of office, the term of office
of the directors of the first such class ("Class I") to expire as of the
first annual meeting of the Corporation's stockholders following the IPO
Closing, those of the second class ("Class II") to expire as of the second
annual meeting of the Corporation's stockholders following the IPO Closing,
and those of the third class ("Class III") as of the third annual meeting
of the Corporation's stockholders following the IPO Closing, such that at
each annual meeting of stockholders after the IPO Closing, nominees will
stand for election for three-year terms to succeed those directors whose
terms are to expire as of such meeting. At each annual meeting of
stockholders held from and after the IPO Closing, those directors elected
at such meeting to succeed those directors whose terms expire at such
meeting, shall serve for a term expiring as of the third annual meeting of
stockholders after their elections. Notwithstanding anything expressed or
implied to the contrary in the foregoing provisions of this Article FIFTH,
each director shall continue to serve as such until the expiration of his
term as set forth above in this paragragph (a) and his successor is duly
elected and qualified or until his or her earlier death, incapacity,
resignation or removal. Subject to the right, if any, of holders of any
series of Preferred Stock to remove any director elected by the holders of
such series and/or any other series of Preferred Stock, any director
serving as such pursuant to this paragraph (a) of Article FIFTH may be
removed only for cause and only by the vote of the holders of a majority of
the shares of the Corporation's stock entitled to vote for the election of
directors.
<PAGE>

- 22 -

Those directors in office immediately prior to the IPO Closing shall be
allocated among Class I, Class II and Class III as determined by a
resolution or resolutions of the Board of Directors, which may have been
adopted prior to the effectiveness of this Restated Certificate of
Incorporation.

(b) The Board of Directors shall have the power and authority: (1)
to adopt, amend or repeal any or all of the By-Laws of the Corporation,
subject only to such limitations, if any, as may be from time to time
imposed by other provisions of this Restated Certificate of Incorporation,
by law, or by the By-Laws; and (2) to the full extent permitted or not
prohibited by law, and without the consent of or other action by the
stockholders, to authorize or create mortgage, pledges or other liens or
encumbrances upon any or all of the assets, real, personal or mixed, and
franchises of the Corporation, including after-acquired property, and to
exercise all of the powers of the Corporation in connection therewith.

(c) Effective from and after the IPO Closing, any vacancies or new
directorships in the Board of Directors, including unfilled vacancies or
new directorships resulting from the removal of directors with cause or
form any increase in the number of directors, may be filled only by the
vote of a majority of the remaining directors then in office, although less
than a quorum or by the sole remaining director; provided, however, that
the foregoing provisions set forth in this paragraph (c) shall be subject
to any contrary provisions of the Delaware General Corporation Law and/or
the rights of the holders of any series of Preferred Stock with respect to
the filling of vacancies or new directorships in the Board of Directors.

(d) Directors need not be stockholders of the Corporation.

SIXTH. No director of the Corporation shall be personally liable to
the Corporation or to any of its stockholders for monetary damages for
breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability; provided, however, that, to the extent
-------- -------
required from time to time by applicable law, this Article SIXTH shall not
eliminate or limit the liability of a director, to the extent such
liability is provided by applicable law, (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of Title 8 of the
Delaware Code, or (iv) for any transactions from which the director derived
an improper personal benefit. No amendment to or repeal of this Article
SIXTH shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of
such director occurring prior to the effective date of such amendment or
repeal.

SEVENTH. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or
proceeding, by reason of being or having been a
<PAGE>

- 23 -

director or officer of the Corporation or serving or having served at the
request of the Corporation as a director, trustee, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit
plan, whether the basis of such proceeding is alleged action or failure to
act in an official capacity as a director, trustee, officer, employee or
agent or in any other capacity while serving as a director, trustee,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, against
all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such person in connection therewith, as
further provided in the By-Laws.

EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class or series of them, any court
of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of (S)391 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under the
provisions of (S)279 of Title 8 of the Delaware Code, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class or
series of stockholders of the Corporation, as the case may be, to be
summoned in such a manner as the said court directs. If a majority of the
number representing three-fourths (3/4ths) in value of the creditors or
class of creditors, and/or of the stockholders or class or series of
stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the compromise or
arrangement and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all creditors or
class of creditors, and/or stockholders or class or series of stockholders
of the Corporation, as the case may be, and also on the Corporation.

NINTH. The Board of Directors, when considering a tender offer or
merger or acquisition proposal, may take into account factors in addition
to potential short-term economic benefits

<PAGE>

- 24 -

to stockholders of the Corporation, including without limitation (A)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the Corporation's capital
stock, the estimated current value of the Corporation in a freely
negotiated transaction, and the estimated future value of the Corporation
as an independent entity and (B) the impact of such a transaction on the
employees, suppliers, and customers of the Corporation and its effect on
the communities in which the Corporation operates.

TENTH. Effective from and after the IPO Closing: (i) any action
required or permitted to be taken by the stockholders of the Corporation
may be taken only at a duly called annual or special meeting of the
stockholders, and not by written consent in lieu of such a meeting; and
(ii) subject to the right, if any, of the holders of any series of
Preferred Stock to call special meetings of stockholders of the
Corporation, special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board of Directors, the President, or a
majority of the total number of directors which the Corporaton would have
if there were no vacancies.

ELEVENTH. Effective from and after the IPO Closing, the affirmative
vote of the holders of at least seventy-five percent (75%) of the
outstanding voting stock of the Corporation (in addition to any separate
class vote that may in the future be required pursuant to the terms of any
outstanding Preferred Stock) shall be required (i) to amend or repeal the
provisions of Articles FOURTH (to the extent such provisions relate to the
authority of the Board of Directors to issue shares of Preferred Stock in
one or more series, the terms of which may be determined by the Board of
Directors), FIFTH, SEVENTH, NINTH, TENTH or ELEVENTH of the Corporation's
Restated Certificate of Incorporation, as amended from time to time, (ii)
to amend, adopt or repeal the Corporation's By-Laws (provided, however,
-------- -------
that the provisions of this Article ELEVENTH shall in no way limit the
power or authority of the Board of Directors to amend, adopt or repeal By-
Laws), or (iii) to reduce the number of authorized shares of Common Stock
or Preferred Stock."

SECOND. The amendments to the Corporation's Restated Certificate of
Incorporation were duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
<PAGE>

- 25 -

IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President and attested by its Secretary this 16th
day of October, 1996.

CUBIST PHARMACEUTICALS, INC.

By /s/ Scott M. Rocklage
_____________________________
Scott M. Rocklage,
President

ATTEST:

/s/ Justin P. Morreale
__________________________
Justin P. Morreale,
Secretary

<PAGE>

CUBIST PHARMACEUTICALS, INC.

CONVERSION AGREEMENT
--------------------

This Conversion Agreement, dated as of September 30, 1996 (this
"Agreement"), is between Cubist Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), and the undersigned shareholders of the Company.

W I T N E S S E T H:
-------------------

WHEREAS, the Company proposes to effect an underwritten initial public
offering (the "IPO") of shares of its Common Stock, $0.001 par value (the
"Common Stock"), and has engaged UBS Securities LLC, Hambrecht & Quist LLC, and
Pacific Growth Equities, Inc. as the representatives of the syndicate of
underwriters that will underwrite, on a firm commitment basis, the IPO;

WHEREAS, in connection with the IPO, the Company has filed with the
Securities and Exchange Commission a registration statement on Form S-1
(Registration No. 333-6795) (as amended, the "Registration Statement") for
purposes of registering under the Securities Act of 1933, as amended (the
"Securities Act"), 2,000,000 shares (2,300,000 if the underwriters exercise
their over-allotment option) of Common Stock;

WHEREAS, DSV Partners IV holds one hundred percent (100%) of the voting
power of the issued and outstanding shares of the Company's Series A Convertible
Preferred Stock, $0.001 par value (the "Series A Stock");

WHEREAS, (i) DSV Partners IV, (ii) Alta V Limited Partnership, (iii)
Customs House Partners, (iv) WPG Enterprise Fund, L.P., (v) Weiss, Peck & Greer
Venture Associates II, L.P., (vi) Interwest Partners V, and (vii) Interwest
Investors V collectively hold at least sixty percent (60%) of the voting power
of the issued and outstanding shares of the Company's Series B Convertible
Preferred Stock, $0.001 par value (the "Series B Stock");
<PAGE>

WHEREAS, (i) DSV Partners IV, (ii) Alta V Limited Partnership, (iii)
Customs House Partners, (iv) WPG Enterprise Fund, L.P., (v) Weiss, Peck & Greer
Venture Associates II, L.P., (vi) Interwest Partners V, (vii) Interwest
Investors V, (viii) H&Q Healthcare Investors, and (ix) H&Q Life Sciences
Investors collectively hold at least sixty percent (60%) of the voting power of
the issued and outstanding shares of the Company's Series C Convertible
Preferred Stock, $0.001 par value (the "Series C Stock", and together with the
Series A Stock and the Series B Stock, the "Preferred Stock");

WHEREAS, pursuant to Section 2.4 of the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation"), the holders of at
least sixty percent (60%) of the voting power of the issued and outstanding
shares of any series of Preferred Stock may, by making a written election, cause
the automatic conversion, upon and simultaneously with the closing of the IPO,
of all of the issued and outstanding shares of such series of Preferred Stock
into that number of shares of Common Stock into which all of such shares of such
series of Preferred Stock are then convertible; and

WHEREAS, the undersigned, being individually or collectively the holders of
at least sixty percent (60%) of the voting power of the issued and outstanding
shares of each of the Series A Stock, the Series B Stock, and the Series C
Stock, desire to make an election to cause, pursuant to Section 2.4 of the
Restated Certificate of Incorporation, the automatic conversion of all of the
issued and outstanding shares of each series of Preferred Stock into shares of
Common Stock upon and simultaneously with the closing of the IPO.

NOW, THEREFORE, in consideration of the foregoing premises, the parties
hereto hereby agree as follows:

1. Conversion. Pursuant to Section 2.4 of the Company's Restated
----------
Certificate of Incorporation, the undersigned hereby elect to cause the
automatic conversion, upon and simultaneously with the closing of the IPO, of
all of the issued and outstanding shares of each series of Preferred Stock
(without any further action being required by the Company or any shareholder of
the Company) into that number of shares of Common Stock into which all of such
shares of such series of Preferred Stock are then convertible pursuant to, and
in accordance with, the applicable provisions of the Restated Certificate of
Incorporation, as amended and in effect immediately prior to the closing of the
IPO.
<PAGE>

2. Miscellaneous Provisions. In the event of any conflict between this
------------------------
Agreement and any provision of the Restated Certificate of Incorporation
relating to conversion of shares of Preferred Stock, the provisions of this
Agreement shall govern. This Agreement may be executed in any number of
counterparts which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.

IN WITNESS WHEREOF, and intending to become legally bound, the undersigned
have caused this Agreement to be duly executed as of the date first above
written.

[remainder of page intentionally left blank]
<PAGE>

THE COMPANY

CUBIST PHARMACEUTICALS, INC.

By: /s/ Scott M. Rocklage
-----------------------
Scott M. Rocklage
President

HOLDER OF 100% OF
SERIES A CONVERTIBLE PREFERRED STOCK:

DSV PARTNERS IV

By: DSV Management, General Partner

By: /s/ John K. Clarke
--------------------
John K. Clarke,
General Partner

HOLDERS OF AT LEAST 60% OF
SERIES B CONVERTIBLE PREFERRED STOCK:

DSV PARTNERS IV

By: DSV Management, General Partner

By: /s/ John K. Clarke
--------------------
John K. Clarke,
General Partner
<PAGE>

ALTA V LIMITED PARTNERSHIP

By: Alta V Management Partners, L.P., General Partner

By: /s/ Terrance McGuire
----------------------
Terrance McGuire
General Partner

CUSTOMS HOUSE PARTNERS

By: /s/ Francis F. Kingsley
-------------------------
Name: Francis F. Kingsley
Title: Managing General Partner

WPG ENTERPRISE FUND, L.P.

By: WPG Venture Partners II, L.P., General Partner

By: /s/ Ellen M. Feeney
---------------------
Name: Ellen M. Feeney
Title: General Partner

WEISS, PECK & GREER VENTURE ASSOCIATES II, L.P.

By: WPG Venture Partners II, L.P., General Partner

By: /s/ Ellen M. Feeney
---------------------
Name: Ellen M. Feeney
Title: General Partner
<PAGE>

INTERWEST PARTNERS V

By: Interwest Management Partners V, General Partner

By: /s/ Arnold Oronsky
--------------------
Arnold Oronsky,
General Partner

INTERWEST INVESTORS V

By: /s/ Arnold Oronsky
--------------------
Arnold Oronsky,
General Partner

HOLDERS OF AT LEAST 60% OF
SERIES C CONVERTIBLE PREFERRED STOCK:

DSV PARTNERS IV

By: DSV Management, General Partner

By: /s/ John K. Clarke
-------------------
John K. Clarke,
General Partner

ALTA V LIMITED PARTNERSHIP

By: Alta V Management Partners, L.P., General Partner

By: /s/ Terrance McGuire
----------------------
Terrance McGuire
General Partner
<PAGE>

CUSTOMS HOUSE PARTNERS

By: /s/ Francis F. Kingsley
-------------------------
Name: Francis F. Kingsley
Title: Managing General Partner

WPG ENTERPRISE FUND, L.P.

By: WPG Venture Partners II, L.P., General Partner

By: /s/ Ellen M. Feeney
---------------------
Name: Ellen M. Feeney
Title: General Partner

WEISS, PECK & GREER VENTURE
ASSOCIATES II, L.P.

By: WPG Venture Partners II, L.P., General Partner

By: /s/ Ellen M. Feeney
---------------------
Name: Ellen M. Feeney
Title: General Partner

INTERWEST PARTNERS V

By: Interwest Management Partners V, General Partner

By: /s/ Arnold Oronsky
-------------------
Name: Arnold Oronsky
Title: General Partner
<PAGE>

INTERWEST INVESTORS V

By: /s/ Arnold Oronsky
--------------------
Name: Arnold Oronsky
Title: Attorney-In-Fact

H&Q HEALTHCARE INVESTORS

By: /s/ Alan G. Carr
------------------
Name: Alan G. Carr
Title: President

H&Q LIFE SCIENCES INVESTORS

By: /s/ Alan G. Carr
------------------
Name: Alan G. Carr
Title: President

<PAGE>

CUBIST PHARMACEUTICALS, INC.

CONVERSION AGREEMENT
--------------------

This Conversion Agreement, dated as of September 18, 1996 (this
"Agreement"), is between Cubist Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), and Bristol-Myers Squibb Company, a Delaware corporation
("BMS").

W I T N E S S E T H:
-------------------

WHEREAS, the Company proposes to effect an underwritten initial public
offering (the "Initial Public Offering") of shares of its Common Stock, $.001
par value per share ("Common Stock"), and has engaged UBS Securities LLC,
Hambrecht & Quist LLC and Pacific Growth Equities, Inc. as the representatives
of the syndicate of underwriters that will underwrite, on a firm commitment
basis, the Initial Public Offering;

WHEREAS, in connection with the Initial Public Offering, the Company has
filed with the Securities and Exchange Commission a registration statement on
Form S-1 (Registration No. 333-6795) (as amended, the "Registration Statement")
for purposes of registering under the Securities Act of 1933, as amended (the
"Securities Act"), 2,000,000 shares (2,300,000 if the underwriters exercise
their over-allotment option) of Common Stock;

WHEREAS, as a condition to the consummation of the Initial Public Offering,
the Company is requesting that BMS agree to convert all of its 2,816,902 shares
(the "BMS Series D Shares") of Series D Convertible Preferred Stock, $0.001 par
value per share ("Series D Preferred Stock"), into shares of Common Stock,
$0.001 par value per shares ("Common Stock"), upon and simultaneously with the
closing of the Initial Public Offering, all subject to and upon the terms and
conditions set forth in this Agreement; and

WHEREAS, BMS is willing to convert all of the BMS Series D Shares into
shares of Common Stock upon and simultaneously with the closing of the Initial
Public Offering, subject to and upon the terms and conditions set forth in this
Agreement.
<PAGE>

NOW, THEREFORE, in consideration of the foregoing premises, the parties
hereto hereby agree as follows:

1. Conversion. Subject to the conditions set forth below in this
----------
Section 1, BMS hereby agrees that, upon and simultaneously with the closing of
the Initial Public Offering, all of the BMS Series D Shares shall automatically
(without any further action being required by the Company or BMS) convert into
that number of shares of Common Stock into which the BMS Series D Shares are
then convertible pursuant to, and in accordance with, the applicable provisions
of the Company's Restated Certificate of Incorporation, as amended and in effect
immediately prior to the closing of the Initial Public Offering (the "Restated
Certificate of Incorporation"). The agreement and obligation of BMS to convert
the BMS Series D Shares into shares of Common Stock pursuant to this Section 1
is subject to the conditions that (i) the aggregate gross proceeds to the
Company from the sale of Common Stock pursuant to the Initial Public Offering
shall be at least $15,000,000, (ii) the closing of the Initial Public Offering
shall occur on or prior to the first anniversary of the date on which the
Company sold and issued to BMS the BMS Series D Shares, (iii) the Company shall
have effected a one-for-seven reverse stock split of its Common Stock prior to
the effective date of the Initial Public Offering and (iv) all of the issued and
outstanding shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock of the Company shall,
at or prior to the closing of the Initial Public Offering, convert into shares
of Common Stock, and, immediately following the closing of the Initial Public
Offering, no share of any series of Preferred Stock of the Company shall be
outstanding. If any of the conditions set forth in the foregoing clauses (i)
through (iv) is not satisfied, this Agreement shall become null and void.

2. Antidilution Provisions. For and in consideration of BMS' agreement
-----------------------
to convert the BMS Series D Shares pursuant to Section 1 hereof, the Company
hereby agrees that, in the event that the price per share of the Common Stock
offered by the Company in connection with the Initial Public Offering, as set
forth in the cover page of the final prospectus relating to the Initial Public
Offering (the "Initial Public Offering Price Per Share"), shall be less than
$10.00 (before deduction of any underwriting discounts, commissions or expenses
of sale payable in connection with the Initial Public Offering), the Company
shall issue to BMS, promptly after the closing of the Initial Public Offering,
such number of additional shares of Common Stock, at no cost to BMS, as shall be
equal to (A) the quotient obtained by dividing (i) $4,000,000.85 by (ii) the
Initial Public Offering Price Per Share, minus (B) the number of shares of
-----
Common Stock issued to BMS upon conversion of the BMS
<PAGE>

Series D Shares pursuant to Section 1 above. If the remainder obtained by
subtracting the number in clause (B) above from the number in clause (A) above
is less than zero, the Company shall not be required to issue any shares of
Common Stock to BMS pursuant to this Section 2. The obligation of the Company to
issue additional shares of Common Stock to BMS pursuant to this Section 2 shall
be subject to the conversion of the BMS Series D Shares into shares of Common
Stock pursuant to the provisions of Section 1 hereof.

3. Representation and Warranty. This Agreement constitutes the valid and
---------------------------
binding agreement of each party hereto, enforceable against such party in
accordance with its terms, except to the extent enforcement thereof may be
limited by insolvency, bankruptcy and similar laws affecting generally the
enforcement of creditor's rights and by the discretionary nature of equitable
remedies.

4. Miscellaneous Provisions. In the event of any conflict between this
------------------------
Agreement and any provision of the Restated Certificate of Incorporation
relating to conversion of shares of Series D Preferred Stock, the provisions of
this Agreement shall govern. This Agreement may be executed in any number of
counterparts which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.

IN WITNESS WHEREOF, and intending to become legally bound, the Company and
BMS have caused this Agreement to be duly executed as of the date first above
written.

CUBIST PHARMACEUTICALS, INC.

By: /s/ Scott M. Rocklage
-----------------------
Scott M. Rocklage, President

BRISTOL-MYERS SQUIBB COMPANY

By: /s/ Bruce J. Wendel
---------------------
Name: Bruce J. Wendel
Title: VP Business Development

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Amendment No. 3 to the Registration
Statement on Form S-1 (File #333-6795) of our reports dated January 12, 1996,
except as to the information in Notes L and M for which the date is October
17, 1996, on our audits of the financial statements of Cubist Pharmaceuticals,
Inc. We also consent to the references to our firm under the captions
"Selected Financial Data" and "Experts."

Coopers & Lybrand L.L.P.

Boston,
Massachusetts
October 18,
1996

<PAGE>

EXHIBIT 23.3

HAMILTON, BROOK, SMITH & REYNOLDS, P.C.
TWO MILITIA DRIVE, LEXINGTON, MASSACHUSETTS 02173-4799
TELEPHONE: (617) 861-6240 FACSIMILE: (617) 861-9540
CONSENT OF SPECIAL COUNSEL FOR CUBIST PHARMACEUTICALS, INC.

We hereby consent to the reference to our name, and to the statements with
respect to us, in Cubist Pharmaceuticals, Inc.'s Registration Statement on
Form S-1 and the Prospectus relating thereto under the caption "Experts".

HAMILTON, BROOK, SMITH & REYNOLDS, P.C.
BY: /S/ DAVID E. BROOK

Dated: October 18, 1996