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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
Commission file number: 0-21379
Cubist Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3192085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Emily Street, Cambridge, MA 02139
(Address of principal executive offices and Zip Code)
(617) 576-1999
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-X is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/
The aggregate market value of the registrant's common stock, $.001 par value
per share ("Common Stock"), held by non-affiliates of the registrant as of March
14, 1997 was approximately $55,422,808 based on 5,155,610 shares held by such
non-affiliates at the closing price of a share of Common Stock of $10.75 as
reported on the Nasdaq National Market on such date. Affiliates of the Company
(defined as officers, directors and owners of 10 percent or more of the
outstanding share of Common Stock) owned 4,392,741 shares of Common Stock
outstanding on such date. The number of outstanding shares of Common Stock of
the Company on March 14, 1997 was 9,548,351.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be delivered
to stockholders in connection with the Annual Meeting of Stockholders to be
held on May 19, 1997 are incorporated by reference into Part III hereof. With
the exception of the portions of such Proxy Statement expressly incorporated
into this Annual Report on Form 10-K by reference, such Proxy Statement shall
not be deemed filed as part of this Annual Report on Form 10-K.
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CUBIST PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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ITEM PAGE
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Part I
1 Business.......................................................................................... 4
2 Description of Property........................................................................... 22
3 Legal Proceedings................................................................................. 22
4 Submission of Matters to a Vote of Security Holders............................................... 23
Part II
5 Market For Registrant's Common Stock and Related Stockholder Matters.............................. 23
6 Selected Financial Data........................................................................... 24
7 Management's Discussion and Analysis of Financial Condition and Results of Operations............. 25
8 Financial Statements and Supplementary Data....................................................... 29
9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.............. 43
Part III
10 Directors and Executive Officers of the Registrant................................................ 43
11 Executive Compensation............................................................................ 43
12 Security Ownership of Certain Beneficial Owners and Management.................................... 43
13 Certain Relationships and Related Transactions.................................................... 43
Part IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 44
Signatures........................................................................................ 47
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Except for the historical information contained herein, this Annual
Report on Form 10-K may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, but not limited to, (i)
statements about the adequacy of the Company's cash, cash equivalents, other
capital resources, interest income and future revenues due under the
Company's collaborative agreements to fund its operating expenses and capital
requirements as currently planned through mid-1998 and (ii) certain
statements identified or qualified by words such as "likely", "will",
"suggests", "may", "would", "could", "should", "expects", "anticipates",
"estimates", "plans", "projects", "believes", or similar expressions (and
variants of such words or expressions). Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance and
results of operations may differ materially from those projected or suggested
in the forward-looking statements due to certain risks and uncertainties,
including, but not limited to, the risks and uncertainties described or
discussed in the section "Risk Factors" in this Annual Report on Form 10-K.
The forward-looking statements contained herein represent the Company's
judgment as of the date of this Annual Report on Form 10-K, and the Company
cautions readers not to place undue reliance on such statements.
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PART I
ITEM 1. 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. 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.
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 or 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.
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 the 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 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
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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.
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, by chemical modification of the target structure or by 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.
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. During the past 20 years, these traditional approaches have
identified only one new chemical class of antiinfective drugs. Cubist believes
that the identification of new drug classes inhibiting new targets will prove to
be a more effective approach to the problem of antiinfective drug resistance.
THE CUBIST APPROACH
Cubist is 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 antiinfective drugs. The Company expects that drugs
inhibiting these new targets would be immediately effective against currently
drug-resistant
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bacteria and fungi since these pathogens have not had an opportunity to
evolve resistance specific to these new drugs.
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 and 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 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.
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 bacteria, Candida
albicans and Pneumocystis carinii fungi and cultured human cells.
Through a combination of automated, high-throughput screening and a rational
drug design approach, Cubist has identified several proprietary leads that
inhibit certain aminoacyl-tRNA synthetases. These leads 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.
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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.
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 has developed an automated
in vitro enzyme assay for high-throughput screening to identify inhibitors of
bacterial RNase P and is currently screening for the identification of such
inhibitors.
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.
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 screening for the identification of inhibitors of AdTase
activity upon completion of such adaptation.
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
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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.
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 of inhibitors of EF-Tu and EF-Ts activity.
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 seek to
broaden its focus to include additional targets outside of this area.
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.
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.
Assay Development-the use of molecular biology, biochemistry and enzymology
to characterize targets and validate high-throughput screening assays.
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,
together with other enhancement techniques, to perform high-throughput screening
of compound libraries in order to identify novel inhibitors.
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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.
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.
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
The Company has entered into agreements based on certain targets within the
Synthetase Program with Bristol-Myers Squibb Company ("Bristol-Myers Squibb"),
Merck & Co., Inc. ("Merck") and Pfizer Inc. ("Pfizer") to screen the
collaborators' respective compound libraries against certain aminoacyl-tRNA
synthetase targets. 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. Through December 31, 1996, the Company's collaborative partners
have provided the Company with $5.6 million of funding in the form of research
support payments, technology licensing fees and a milestone payment and with a
$4.0 million equity investment.
BRISTOL-MYERS SQUIBB
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In June 1996, Cubist and Bristol-Myers Squibb entered into a
Collaborative Research and License Agreement (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 collaboration, Bristol-Myers Squibb
has made a $4.0 million equity investment in Cubist, has made a $1.0 million
milestone payment and has made research support payments to Cubist. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations." Under the terms of the Bristol-Myers
Squibb Agreement, Cubist is entitled to receive additional research support
payments and, if certain milestones are achieved, additional milestone
payments from Bristol-Myers Squibb. Cubist has granted to Bristol-Myers
Squibb an exclusive worldwide license to commercialize drugs resulting from
this collaboration. The development, manufacture and worldwide sale of drugs
resulting from the collaboration will be conducted by Bristol-Myers Squibb,
and Cubist will be entitled to receive royalties on the worldwide sales of
any drug developed and commercialized from this collaboration.
MERCK
In June 1996, the Company and Merck entered into a Collaborative Research
and License Agreement (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. In connection with the collaboration, Merck
has made research support payments and has paid technology licensing fees to
Cubist. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations." Under the terms of the Merck
Agreement, Cubist is entitled to receive additional research support payments
and, if certain milestones are achieved, milestone payments from Merck. Cubist
has granted Merck an exclusive worldwide license to commercialize drugs
resulting from this collaboration. 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.
PFIZER
In December 1995, the Company and Pfizer entered into a Research
Collaboration Agreement (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. In connection with the collaboration, Pfizer has made
research support payments and has paid technology licensing fees to Cubist. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations." Under the terms of the Pfizer Agreement,
Cubist is entitled to receive additional research support payments and, if
certain milestones are achieved, milestone payments and a $5.0 million equity
investment from Pfizer. Cubist has granted Pfizer an exclusive
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worldwide license to commercialize drugs resulting from this collaboration.
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.
OTHER COLLABORATIONS
To obtain additional compound libraries for further expansion of the
Company's internal drug discovery programs, Cubist has entered into screening
agreements with ArQule, Inc., Genzyme Corporation, Pharmacopeia, Inc. and
Terrapin Technologies, Inc. pursuant to which Cubist screens such party's
compound libraries against Cubist's proprietary targets. If a lead is identified
as a result of such screening activities, Cubist has a right of first
negotiation with the owner of such lead to enter into a drug development and
commercialization collaboration.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company seeks to 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. Cubist has 11 pending U.S. patent applications and one pending
international patent application. To date, the Company has received a notice of
allowance for four 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. 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 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.
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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.
GOVERNMENT REGULATION
OVERVIEW
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 Food and
Drug Administration ("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. 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.
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U.S. Regulatory Process
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 of a drug and its formulation. 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 an investigational
new drug application ("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. 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.
Clinical trials involve 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, although the
phases may overlap with one another. Clinical trials must be conducted 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.
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. All of the
phases of clinical studies must be conducted in conformance with the FDA's
bioresearch monitoring regulations.
13
<PAGE>
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 a new drug application
("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. 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
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 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
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<PAGE>
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
ocmpeting 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
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 March 14, 1997, the Company had 57 full-time employees, 47 of whom
were engaged in research and development and 10 of whom were engaged in
management, administration and finance. Doctorates are held by 22 of the
Company's employees. The Company's employees are not covered by a collective
bargaining agreement. The Company has
15
<PAGE>
never experienced an employment-related work stoppage and considers its
employee relations to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ ---- -----------------------------------------------------
<S> <C> <C>
Scott M. Rocklage, Ph.D. .................. 42 President, Chief Executive Officer and Director
Francis P. Tally, M.D. .................... 56 Vice President, Drug Development and Medical Affairs
Arthur F. Kluge, Ph.D. .................... 52 Vice President of Chemistry
Thomas A. Shea............................. 37 Director of Finance & Administration, Treasurer
</TABLE>
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 Drug Development since January
1997. From March 1995 to January 1997, he served the Company as Vice
President of Research and Development. From 1986 to 1995, Dr. Tally 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
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<PAGE>
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.
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.
RISK FACTORS
Stockholders and prospective purchasers of the Company's Common Stock
should carefully consider the following risk factors, in addition to the
other information appearing in this Annual Report on Form 10-K.
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 signification 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. While the Company has demonstrated
that certain compounds have the ability to inhibit the activity of certain
aminoacyl-tRNA synthetases,
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<PAGE>
the Company has not proven that this activity can be utilized clinically as a
therapeutic. There can be no assurance that the Company's drug discovery
approach will lead to the discovery or development of any drugs or drug
candidates or that there will be any clinical benefits associated with any
drugs or drug candidates discovered and developed by the Company.
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.
To date, the Company has entered into collaborative agreements with
Bristol-Myers Squibb, Merck and Pfizer (collectively, the "Collaborative
Agreements"). The Company's receipt of revenues (whether in the form of
continued research funding, technology licensing fees, 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.
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 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
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<PAGE>
financing will be available from any of these sources or, if available, will
be available on acceptable or affordable terms.
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES. The Company has
incurred a cumulative operating loss of approximately $15.7 million through
December 31, 1996. 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.
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. 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 costs 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.
IMPACT OF EXTENSIVE GOVERNMENT REGULATION. The FDA and comparable
agencies in foreign countries impose substantial requirements upon the
introduction of pharmaceutical products
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<PAGE>
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 on 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.
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 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 prosecutions.
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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters and research and development facilities are
located in a 24,000 square foot facility leased by the Company 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
20
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Since October 25, 1996, the effective date of the Company's initial
public offering, the Company's common stock has traded on the Nasdaq National
Market under the symbol "CBST". Prior to such date, no established public
trading market existed for the Company's common stock. The following table
sets forth, for the period indicated, the high and low sale prices per share
of the Company's common stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fourth Quarter (commencing on October 25, 1996).............................. $ 7.00 $ 5.50
</TABLE>
HOLDERS
As of March 14, 1997, the Company had approximately 114 stockholders of
record. This does not reflect persons or entitles who hold their stock in
nominee or "street" name through various brokerage firms.
DIVIDENDS
THE COMPANY HAS NOT PAID DIVIDENDS ON ITS COMMON STOCK.
The Company anticipates it will continue to reinvest earnings to finance
future growth, and therefore does not intend to pay dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Described below is information regarding all securities of the Company
sold by the Company during the fiscal year ended December 31, 1996, which
were not registered under the Securities Act of 1933, as amended (the
"Securities Act"). The share and per share amounts set forth below have been
adjusted to reflect the Company's one for seven reverse stock split of its
common stock effected on October 17, 1996.
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<PAGE>
In February 1996, the Company issued a warrant to Comdisco, Inc. for up
to 33,333 shares of Series C Convertible Preferred Stock at an exercise price
of $0.90 per share. The issuance of such warrant was made in reliance upon
Section 4(2) of the Securities Act. Upon the closing of the Company's initial
public offering of its common stock, the warrant became exercisable for up to
4,761 shares of Common Stock at an exercise price of $6.30.
In June 1996, the Company issued and sold 2,816,902 shares of Series D
Convertible Preferred Stock to Bristol-Myers Squibb Company at a purchase
price of $1.42 per share. The issuance and sale of such shares was made in
reliance upon Section 4(2) of the Securities Act. Upon the closing of the
Company's initial public offering of its common stock, such shares of Series
D Convertible Preferred Stock converted into 402,414 shares of Common Stock.
The effective purchase price paid by Bristol-Myers Squibb Company for such
402,414 shares of Common Stock was $9.94 per share. In addition, the Company
issued 264,262 shares of Common Stock to Bristol-Myers Squibb Company
promptly after the closing of the Company's initial public offering pursuant
to certain antidilution rights of Bristol-Myers Squibb.
In December 1996, the Company granted stock options to certain employees
and officers of the Company exercisable for approximately 28,959 shares of
Common Stock. The grants were made under the Company's Amended and Restated
1993 Stock Option Plan. The exercise prices of the stock options ranged from
$1.96 per share to $6.00 per share. These grants were made in reliance upon
Rule 701 under the Securities Act.
ITEM. 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEARS ENDED DECEMBER 31, (MAY 1, 1992)
------------------------------------------ TO DECEMBER 31,
1996 1995 1994 1993 1992
--------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Total revenues............................................. $ 4,985 $ 1,271 $ -- $ -- $ --
Research and development expenses.......................... 6,871 4,965 3,309 1,169 32
General and administrative expenses........................ 1,989 1,708 1,449 547 6
Net loss................................................... (3,799) (5,396) (4,813) (1,688) (35)
Net loss per share......................................... $ (1.39) $ (3.99 $ (4.82) $ (1.99)
Weighted average number of common shares outstanding....... 2,737 1,352 999 848
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short and long-term investments............. $ 19,329 $ 3,056 $ 1,221 $ 4,457
Total assets.............................................................. 23,452 7,048 4,250 7,241
Long-term obligations..................................................... 1,053 1,257 2,032 1,164
Stockholder's equity...................................................... 20,299 4,895 823 5,488
</TABLE>
ITEM. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
22
<PAGE>
drugs to treat infectious diseases caused by bacteria and fungi, primarily
those resistant to existing antiinfective drugs. 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 collaborative agreements
based specifically on its aminoacyl-tRNA synthetase program with
Bristol-Myers Squibb, Merck and Pfizer. Through December 31, 1996, the
Company's collaborative partners have provided the Company with $5.6 million
of funding in the form of research support payments, a technology licensing
fees and a milestone payment and with a $4.0 equity investment. Under the
collaborative agreements, the Company is entitled to receive additional
research support payments, additional technology licensing fees and, if
certain drug development milestones are achieved, milestone payments. In
addition, the Company will be entitled to receive royalties on worldwide
sales of any drug developed and commercialized from these collaborations.
RESULTS OF OPERATIONS
Years ended December 31, 1996 and 1995
REVENUES. Total revenues in the year ended December 31, 1996 were
$4,985,000 compared to $1,271,000 in the year ended December 31, 1995, an
increase of $3,714,000 or 292.2%. The revenue recognized in the year ended
December 31, 1996 primarily consisted of $1,500,000 in technology licensing
fees from the Merck collaboration; $2,116,000 in research support funding
from the Bristol-Myers Squibb, Merck and Pfizer collaborations; $1,000,000 in
milestone payments from the Bristol-Myers Squibb collaboration; and $369,000
in SBIR grants. In the year ended December 31, 1995, revenues consisted of
$500,000 in technology licensing fees and $488,000 in research support
funding from the Pfizer collaboration and $283,000 from SBIR Phase I grant
funding.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the year ended December 31, 1996 were $6,871,000 compared to
$4,965,000 in the year ended December 31, 1995, an increase of $1,906,000 or
38.4%. The increase was largely due to increased costs related to additional
personnel, purchases of compounds to expand the Company's compound collection
and purchases of laboratory research supplies that are utilized by such
additional personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
in the year ended December 31, 1996 were $1,989,000 compared to $1,709,000 in
the year ended December 31, 1995, an increase of $280,000 or 16.4%. The
increase was primarily due to costs relating to additional personnel and
recruiting, relocation, and legal expenses.
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<PAGE>
INTEREST INCOME AND EXPENSE. Interest income in the year ended December
31, 1996 was $306,000 compared to $239,000 in the year ended December 31,
1995, a increase of $67,000 or 28%. The increase in interest income was due
to an increase in the average cash, cash equivalent and investment balance
during the year ended December 31, 1996 as compared to the year ended
December 31, 1995. Interest expense was $229,000 in the year ended December
31, 1996 as compared to $233,000 during the year ended December 31, 1995.
NET LOSS. The net loss during the year ended December 31, 1996 was
$3,799,000 compared to $5,396,000 during the year ended December 31, 1995, a
decrease of $1,597,000 or 29.6%. The decrease was primarily due to the
increased revenues associated with the Bristol-Myers Squibb, Merck and Pfizer
collaborations, which were offset only in part by additional expenses
incurred to support the advancement of the Company's internal research
programs.
Years ended December 31, 1995 and 1994
REVENUES. Total revenues in 1995 were $1,271,000. 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 $4,965,000 in 1995 compared to $3,309,000 in 1994, an increase
of $1,656,000 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 $1,709,000 in 1995 compared to $1,449,000 in 1994, an increase of
$260,000 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 $239,000 in 1995
compared to $113,000 in 1994, an increase of $126,000 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 $233,000
in 1995 compared to $168,000 in 1994, an increase of $65,000 or 38.7%. This
increase was due to additional capital lease obligations entered into during
1995.
NET LOSS. The net loss was $5,396,000 during 1995 and $4,813,000 during
1994, an increase of $583,000 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.
LIQUIDITY AND CAPITAL RESOURCES
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<PAGE>
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 December 31, 1996 was
$19,329,000 compared to $3,056,000 at December 31, 1995. For the year ended
December 31, 1996, the Company raised $15,200,000 in an initial public
offering, $4,000,000 in private equity financings, and received $2,116,000 in
sponsored research payments, $1,500,000 in technology license fees,
$1,000,000 in milestone payments and $369,000 in SBIR grants.
Net cash used in operations in the year ended December 31, 1996 was
$1,772,000 compared to $6,514,000 in the year ended December 31, 1995. The
cash used in operations was primarily to fund research and development and
for general and administrative expenses.
In October 1996, the Company sold 2,500,000 shares of its common stock at
$6.00 per share in connection with the Company's initial public offering of
common stock (the "IPO"). In addition, in November 1996, the underwriters of
the shares offered by the Company in the IPO exercised their over-allotment
option and the Company sold an additional 375,000 shares of its common stock
at a price of $6.00 per share. The total number of shares of common stock
sold by the Company in connection with the IPO was 2,875,000 shares and the
total net proceeds received by the Company in connection with the sale of all
of such shares were $15,200,000.
The Company has entered into collaborative agreements based specifically
on its aminoacyl-tRNA synthetase program with Bristol-Myers Squibb, Merck and
Pfizer. Under the collaborative agreements, the Company is entitled to
receive research support payments, technology licensing fees and, if certain
drug development milestones are achieved, milestone payments. In addition,
the Company will be entitled to receive royalties on worldwide sales of any
drug developed and commercialized from these collaborations. Through December
31, 1996, the Company's collaborative partners have provided the Company with
$2.6 million of research support payments, $2.0 million in technology
licensing fees, $1.0 million in milestones and $4.0 million in an equity
investment. There can be no assurance that the Company will receive any
additional funding from any of the Company's collaborative partners.
From inception through December 31, 1996, the Company had invested an
aggregate of $4,899,000 (of which $1,064,000 was invested during the fiscal
year ended December 31, 1996) in property and equipment, primarily in
facility renovations and laboratory equipment under capital leases. The
obligations under capital leases at December 31, 1996 were $1,321,000.
Minimum annual principal payments due under capital leases total $703,000 in
1997. Principal payments decline each year thereafter until expiration in
2000. The Company made principal payments under its capital lease obligations
of $469,000 in the year ended on December 31, 1996.
The Company believes that its existing cash, cash equivalents, other
capital resources, interest income and future revenues due under the
Bristol-Myers Squibb, Merck and Pfizer collaborative agreements, will be
sufficient to fund its operating expenses and capital requirements as
currently planned through mid-1998. However, the Company's actual cash
requirements may vary materially from those now planned and will depend on
numerous factors. There can be no assurance that the Company's existing
capital resources, interest income and revenues from the Collaborative
Agreements
25
<PAGE>
will be sufficient to fund the Company's operating expenses and capital
requirements during such period.
The Company will need to raise substantial additional capital to fund its
operations after mid-1998. The Company intends to seek such additional
funding through public or private financing or collaborative or other
arrangements with corporate partners. See "Risk Factors--Additional Financing
Requirements; Uncertainty of Available Funding."
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CUBIST PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Accountants................................................................................ 30
Balance Sheets as of December 31, 1996 and 1995.................................................................. 31
Statements of Operations for the years ended December 31, 1996, 1995 and 1994.................................... 32
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................................... 33
Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994............... 34
Notes to Financial Statements.................................................................................... 37
</TABLE>
27
<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, 1996 and 1995, and the related
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of
its operations and cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Boston, Massachusetts Coopers & Lybrand L.L.P.
February 12, 1997
28
<PAGE>
CUBIST PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 19,329,353 $ 2,049,555
Short-term investments............................................... -- 1,006,569
Accounts receivable.................................................. 505,267 988,000
Prepaid expenses and other current assets............................ 286,642 66,996
-------------- -------------
Total current assets................................................. 20,121,262 4,111,120
Property and equipment................................................. 4,898,538 3,834,953
Less: Accumulated depreciation and amortization...................... (1,741,152) (1,056,802)
-------------- -------------
Property and equipment, net.......................................... 3,157,386 2,778,151
Other assets........................................................... 173,799 158,571
-------------- -------------
Total assets....................................................... $ 23,452,447 $ 7,047,842
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................................... $ 741,409 $ 124,856
Accrued expenses..................................................... 484,732 189,663
Deferred revenue..................................................... 126,900 --
Current portion of long-term debt.................................... 188,062 168,565
Current portion of capital lease obligations......................... 559,767 413,223
-------------- -------------
Total current liabilities.......................................... 2,100,870 896,307
Long-term debt, net of current portion................................. 291,683 479,745
Long-term capital lease obligation, net of current portion............. 761,284 777,017
-------------- -------------
Total liabilities................................................. $ 3,153,837 $ 2,153,069
-------------- -------------
Commitments (Note I)
Stockholders' Equity:
Preferred Stock non-cumulative; convertible, $.001
par value; authorized 5,000,000 shares, 1996, and
43,000,000 shares, 1995; issued 1996 no shares;
issued 1995 34,751,183 shares........................................ -- 34,751
Common Stock, $.001 par value; authorized
25,000,000 shares, 1996, and 52,000,000 shares, 1995;
issued 1996 9,544,373 shares; issued 1995 1,016,662 shares.......... 9,544 1,017
Additional paid-in capital............................................. 36,019,608 16,790,878
Accumulated deficit.................................................... (15,730,542) (11,931,873)
-------------- -------------
Total stockholders' equity......................................... 20,298,610 4,894,773
-------------- -------------
Total liabilities and stockholders' equity......................... $ 23,452,447 $ 7,047,842
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Sponsored research revenues.................. $ 4,985,052 $ 1,271,333 $ --
Operating expenses:
Research and development................... 6,871,149 4,964,876 3,309,161
General and administrative................. 1,989,284 1,708,513 1,448,928
------------- ------------- -------------
Total operating expenses................. 8,860,433 6,673,389 4,758,089
Interest income.............................. 306,017 239,030 113,338
Interest expense............................. (229,305) (232,980) (168,284)
------------- ------------- -------------
Net loss................................... $ (3,798,669) $ (5,396,006) $ (4,813,035)
------------- ------------- -------------
------------- ------------- -------------
Net loss per common share.................... $ (1.39) $ (3.99) $ (4.82)
------------- ------------- -------------
Weighted average number of common shares..... 2,737,121 1,352,499 998,766
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------------- -------------- -------------
Cash flows from operating activities:
Net loss.............................................. $(3,798,669) $(5,396,006) $(4,813,035)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 740,408 570,556 355,977
Changes in assets and liabilities:
Accounts receivable.............................. 482,733 (988,000) --
Prepaid expenses and other current assets........ (219,646) 15,713 (12,688)
Other assets..................................... (15,228) (8,390) (5,001)
Accounts payable and accrued expenses............ 911,622 (708,104) 716,018
Deferred revenue................................. 126,900 -- --
------------ ------------ ------------
Total adjustments............................. 2,026,789 (1,118,225) 1,054,306
------------ ------------ ------------
Net cash used in operating activities................... (1,771,880) (6,514,231) (3,758,729)
Cash flows from investing activities:
Purchase of equipment................................. (640,329) -- (150,726)
Leasehold improvements................................ (423,256) (99,325) (688,329)
Purchase of short-term investments.................... -- (3,942,610) --
Redemption of short-term investments.................. 1,006,569 2,936,041 2,612,158
Redemption of long-term investments................... -- -- 511,934
------------ ------------ ------------
Net cash provided by/(used in) investing activities..... (57,016) (1,105,894) 2,285,037
Cash flows from financing activities:
Issuance of stock..................................... 19,146,448 8,467,928 148,314
Proceeds from venture capital bridge loan............. -- -- 1,000,000
Proceeds from long-term debt.......................... -- 345,500 --
Repayments of long-term debt.......................... (168,565) (141,130) (86,080)
Proceeds from capital lease financing................. 599,593 94,671 --
Principal payments of capital lease obligations....... (468,782) (318,272) (212,428)
------------ ------------ ------------
Net cash provided by financing activities............... 19,108,694 8,448,697 849,806
Net increase (decrease) in cash and cash equivalents.... 17,279,798 828,572 (623,886)
Cash and cash equivalents at beginning of year.......... 2,049,555 1,220,983 1,844,869
------------ ------------ ------------
Cash and cash equivalents at end of year................ $ 19,329,353 $ 2,049,555 $ 1,220,983
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest................ $ 229,305 $ 232,980 $ 168,284
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
# OF # OF # OF # OF
SHARES SHARES SHARES SHARES # OF SHARES $ $
PREFERRED A PREFERRED B PREFERRED C PREFERRED D COMMON PREFERRED COMMON
------------- ----------- ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
--------- ---------- ------- ------- ----
--------- ---------- ------- ------- ----
</TABLE>
<TABLE>
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL
------------------------------------------- $ $
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
----------- ------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
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.
32
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
# OF # OF # OF # OF
SHARES SHARES SHARES 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 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
--------- ---------- ---------- ---------- ------- ------
--------- ---------- ---------- ---------- ------- ------
</TABLE>
<TABLE>
<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................... 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
----------- ---------- -------- ------------ ----------
----------- ---------- -------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
# OF # OF # OF # OF
SHARES SHARES SHARES SHARES # OF SHARES $ $
PREFERRED A PREFERRED B PREFERRED C PREFERRED D COMMON PREFERRED COMMON
------------- ----------- ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Series D Preferred Stock par
$.001 at 1.42 share......... 2,816,902 2,817
Conversion of Preferred Stock
to Common Stock par $.001... (5,000,000) (14,733,370) (15,017,813) (2,816,902) 5,366,849 (37,568) 5,367
Exercise of Stock Options..... 58,244 58
Repurchase of Common
Stock....................... (36,634) (37)
Initial Public Offering, net
of expenses................. 3,139,252 3,139
Forgiveness of Promissory
Notes.......................
Issuance of Common Stock
Options and Warrants........
Amortization of Deferred
Compensation.................
Net Loss......................
---------- --------- --------- --------- --------- -------- ------
12/31/96 Balance -- -- -- -- 9,544,373 -- 9,544
-------- ------- ------
-------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
$
ADDITIONAL PAID-IN CAPITAL $ $
-------------------------------------------
ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
----------- ------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Series D Preferred Stock par
$.001 at 1.42 share......... 3,941,727 3,944,544
Conversion of Preferred Stock
to Common Stock par $.001... 32,201 0
Exercise of Stock Options..... 35,232 35,290
Repurchase of Common
Stock....................... (12,273) (12,310)
Initial Public Offering, net
of expenses................. 15,151,343 15,151,482
Forgiveness of Promissory
Notes....................... 24,442 24,442
Issuance of Common Stock
Options and Warrants........ 101,378 (101,378) 0
Amortization of Deferred
Compensation................ 56,058 56,058
Net Loss...................... (3,798,669) (3,798,669)
----------- --------- -------- ------------ -----------
12/31/96 Balance.............. $36,253,818 $(154,459) $(79,751) $(15,730,542) $20,298,610
----------- --------- -------- ------------ -----------
----------- ---------- -------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
B. INITIAL PUBLIC OFFERING
On October 25, 1996, Cubist Pharmaceuticals, Inc. completed its initial
public offering raising $13,062,000, net of expenses. On that date, the holders
of the Company's outstanding Preferred Stock converted all of their shares of
Preferred Stock into Common Stock.
On November 5, 1996, the Company's underwriters exercised their option to
purchase additional shares raising an additional $2,092,000, net of expenses.
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.
C. ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are stated on an accrual basis.
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the current year presentation.
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,
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, development by its competitors of new
technological innovations, dependence on key personnel, protection of
proprietary technology, and compliance with FDA government regulations.
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.
35
<PAGE>
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 $479,745, which relates to the balance of
long-term debt. Maintenance and repairs are charged to expense as incurred,
while major betterment's 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.
Earnings Per Share
The 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 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 initial public offering
price of $6.00 per share.
D. PROPERTY AND EQUIPMENT
At December 31, property and equipment consisted of:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Leasehold improvements........................... $ 2,489,736 $ 2,066,480
Laboratory equipment............................. 1,799,587 1,319,606
Furniture and fixtures........................... 251,427 226,891
Computer equipment............................... 357,788 221,976
------------ ------------
4,898,538 3,834,953
Less accumulated depreciation and amortization... (1,741,152) (1,056,802)
------------ ------------
Property and equipment, net...................... $ 3,157,386 $ 2,778,151
------------ ------------
------------ ------------
</TABLE>
E. ACCRUED EXPENSES
At December 31, accrued expenses consisted of:
<TABLE>
<CAPTION>
1996 1995
---------- ------------
<S> <C> <C>
Payroll and benefits............................. $ 125,087 $ 57,723
Vacation......................................... 60,019 40,255
Construction..................................... 46,250 --
Legal, audit and patent.......................... 68,275 80,185
Database......................................... 42,200 --
Annual report.................................... 60,000 --
Utilities........................................ 76,339 11,500
Miscellaneous.................................... 6,562 --
---------- ------------
Total accrued expenses........................... $ 484,732 $ 189,663
---------- ------------
---------- ------------
</TABLE>
F. COLLABORATIVE RESEARCH AGREEMENTS
On December 15, 1995, the Company entered into a collaborative research
agreement with Pfizer. Under the terms of the agreement, Pfizer paid the Company
a technology licensing fee upon execution and research support
36
<PAGE>
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. The Company included in sponsored research
revenues $587,000 and $988,000 in 1996 and 1995, respectively, 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 Common Stock.
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.
During 1996, the Company included in sponsored research revenues $1,516,668 for
certain research and development revenues in accordance with the agreement.
In June 1996, the Company entered into a collaborative research agreement
with Merck & Co., Inc. ("Merck"). Under the terms of the agreement, Merck paid
the Company a technology licensing fee upon execution and will pay 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. During 1996, the
Company included in sponsored research revenues $1,500,000 for the technology
licensing fee and $1,012,300 for certain research and development revenues in
accordance with the agreement.
G. STOCKHOLDERS' EQUITY
Common Stock
As of December 31, 1996, 998,745 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, 1996, 179,896 shares remain
subject to repurchase.
Warrants
During 1996, the Company granted warrants to purchase 33,333 shares of
Series C Convertible Preferred Stock at a purchase price of $0.90 per share.
These warrants converted to Common Stock warrants at the Initial Public
Offering and expire on October 25, 2001.
On October 23, 1996, the Company amended the warrants issued to Drs. Rebek
and Schimmel in May 1995 to extend the expiration date of such warrants from the
effective date of the Company's initial public offering to May 15, 2005, and to
provide that the warrants will vest in four equal annual installments commencing
upon the first anniversary of their grant date. As a result of this amendment,
the Company recorded deferred compensation in the amount of $62,000 to be
amortized to the income statement over the remaining vesting period from October
1996 to May 1999.
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,
1996 is $154,459 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, 1997 and November 28, 1997. During 1996,
37
<PAGE>
$24,442 of principal and accrued interest under the promissory notes was
forgiven and it is expected that additional amounts will be forgiven in 1997.
H. STOCK OPTIONS
The Company has a stock option plan, which is described below. In October
1995, the FASB issued SFAS 123, Accounting for Stock-Based Compensation. SFAS
123 is effective for periods beginning after December 15, 1995. SFAS 123
requires that companies either recognize compensation expense for grants of
stock, stock options, and other equity instruments based on fair value, or
provide pro forma disclosure of net income and earnings per share in the notes
to the financial statements. The Company adopted the disclosure provisions of
SFAS 123 in 1996 and has applied APB Opinion 25 and related Interpretations in
accounting for its plans. Had compensation costs for the Company's stock-based
compensation plan been determined based on the fair value at the grant dates as
calculated in accordance with SFAS 123, the Company's net loss and loss per
share for the years ended December 31, 1996 and 1995 would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
NET LOSS LOSS PER SHARE NET LOSS LOSS PER SHARE
------------ --------------- ------------- ---------------
<S> <C> <C> <C> <C>
As Reported.... $(3,798,669) $(1.39) $(5,396,006) $(3.99)
Pro forma...... $(4,053,670) $(1.48) $(5,408,006) $(4.00)
</TABLE>
The fair value of each stock option was estimated on the date of grant
using Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of four (4) years, expected volatility of 86%,
a dividend yield of 0% and a risk-free interest rate of 6.09%.
The Company has a stock option plan under which options to purchase
1,500,000 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 non-qualified stock
options to purchase 126,993 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.
38
<PAGE>
A summary of the status of the Company's stock option plan as of December
31, 1996, 1995, 1994, and changes during each of the years then ended, is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ------------------------ ----------- ---------
WAEP* WAEP* WAEP*
NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE
--------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1................. 159,057 $ .40 42,214 $ .24 124,571 $ .17
Granted.............................. 414,103 2.52 121,442 .42 227,335 .35
Exercised............................ 21,610 .61 785 .35 302,451 .30
Canceled............................. 50,790 .97 3,814 .35 7,241 .35
--------- ----- --------- --- ----------- ---------
Balance at December 31............... 500,760 $ 1.93 159,057 $ .40 42,214 $ .24
Options exercisable at December 31... 86,560 $ 1.19 25,617 $ .26 32,303 $ .24
Weighted average grant-date fair value
of options granted during the year.. $2.52 $.42 $.35
- ------------------------
* Weighted-Average Exercise Price
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------------------
RANGE OF
EXERCISE REMAINING CONTRACTUAL WEIGHTED-AVERAGE EXERCISE
PRICES NUMBER OUTSTANDING LIFE PRICE
- -------------- ------------------- --------------------- -------------------------
<C> <C> <S> <C>
$.007--$1.96... 440,067 9.0 years $ 1.18
$5.95--$7.00... 60,693 9.7 years 6.45
------- -------- -----
.............. 500,760 9.1 years $ 1.82
------- -------- -----
------- -------- -----
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
RANGE OF -----------------------------------------------
EXERCISE WEIGHTED-AVERAGE EXERCISE
PRICES NUMBER EXERCISABLE PRICE
- -------------- ------------------- -------------------------
<S> <C> <C>
$.007--$1.96.. 83,023 $ .96
$5.95--$7.00.. 3,537 6.47
------ -----
.............. 86,560 $ 1.19
------ -----
------ -----
</TABLE>
36,634 and 8,232 shares of previously exercised options were repurchased in
1996 and 1995, respectively, because vesting schedules were not fulfilled.
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 $12,087 over five years through October 1998. At December 31,
1996, the outstanding principal balance was $237,771. 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 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 in equal monthly installments of $7,685
over five years with an annual interest rate of 12% through February 2000. No
additional security deposit was required. At December 31, 1996, the
outstanding principal balance was $241,974.
The Company leases certain equipment under long-term capital leases. The
cost of this equipment included in fixed assets was $2,320,201 at the end of
1996 and $1,720,940 at the end of 1995, with associated accumulated
depreciation of $1,042,297 at December 31, 1996 and $627,366 at December 31,
1995. The Company has an option to purchase all of the leased
39
<PAGE>
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>
1997............................ $ 171,365 $ 702,878
1998............................ 171,365 403,790
1999............................ 192,364 283,670
2000............................ 207,679 126,970
2001 and thereafter............. 579,771 --
-------------- -------------
Total minimum lease
payments..................... $1,322,544 $ 1,517,308
-------------- ---------------
Less amount representing
interest payments.............. (196,257)
---------------
Present value of minimum lease
payments....................... 1,321,051
Less current portion............ (559,767)
----------------
Long-term obligation............ $ 761,284
----------------
----------------
</TABLE>
Lease payments under operating leases were $248,784 in fiscal year 1996,
$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 $16,025, $14,072, and $9,524
during 1996, 1995, and 1994, respectively.
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.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Net operating loss carryforwards $ 4,376,000 $ 4,671,000
Capitalized research and development 1,700,000 --
Research and experimentation credits 765,000 325,000
Other, net 306,000 --
------------ -----------
Total Deferred Tax Assets $ 7,147,000 $ 4,996,000
----------- -----------
Valuation reserve $ (7,147,000) $ (4,996,000)
------------ -----------
------------ -----------
</TABLE>
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 as a result of the
change in ownership due the initial public offering. 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.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and compliance with Section 16(a) of
the Securities Exchange Act may be found in the sections captioned "Proposal No.
1--Election of Directors", "Executive Compensation" and "Section 16(a)
Beneficial Ownership Reporting Compliance" appearing in the definitive Proxy
Statement to be delivered to Stockholders in connection with the Annual Meeting
of Stockholders to be held on May 19, 1997. Such information is incorporated
herein by reference. Information with respect to Executive Officers may be found
under the section captioned "Executive Officers of the Registrant" in Part I of
this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required with respect to this item may be found in the
sections captioned "Executive Compensation" appearing in the definitive Proxy
Statement to be delivered to Stockholders in connection with the Annual Meeting
of Stockholders to be held on May 19, 1997. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required with respect to this item may be found in the
section captioned "Principal Stockholders" and "Proposal No. 1--Election of
Directors" appearing in the definitive Proxy Statement to be delivered to
Stockholders in connection with the Annual Meeting of Stockholders to be held on
May 19, 1997. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Information required with respect to this item may be found in the
section captioned "Certain Transactions" appearing in the definitive Proxy
Statement to be delivered to Stockholders in connection with the Annual Meeting
of Stockholders to be held on May 19, 1997. Such information is incorporated
herein by reference.
PART IV
41
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as part of Form 10-K
1. Financial Statements.
The following financial statements and supplementary data are included in
Part II Item 8 filed as part of this report:
- Balance Sheets as of December 31, 1995 and 1996
- Statements of Operations for the years ended December 31, 1994, 1995 and
1996
- Statements of Stockholders' Equity for the years ended December 31,
1994, 1995 and 1996
- Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996
- Notes to Financial Statements
- Report of Independent Auditors
2. Financial Statement Schedule.
None.
Schedules not listed above have been omitted because they are not
applicable, not required or the information required is shown in the financial
statements or the notes thereto.
3. List of Exhibits.
EXHIBITS
- -----------
*3.3 Restated Certificate of Incorporation of the Registrant.
*3.4 Amended and Restated By-Laws of the Registrant, as amended to
date.
*4.1 Specimen certificate for shares of Common Stock.
*10.1 Patent License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated March 10, 1994.
*10.2 License Agreement between the Registrant and the Board of
Trustees of 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.
42
<PAGE>
*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 Stimpson Family Trust
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 Nondisclosure Agreement.
*10.16 Master Lease Agreement between the Registrant and Comdisco,
Inc., dated as of August 30, 1993, as amended 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 Series C Convertible Preferred Stock Purchase Options issued to
Dr. Paul Schimmel and Dr. Julius Rebek in May 1995, as amended
by certain Letter Agreements, dated October 23, 1995, between
the Registrant and each of Dr. Schimmel and Dr. Rebek.
*10.20 Amended and Restated Stockholders Rights Agreement by and among
the Registrant and the parties signatory thereto.
10.21 Secured Promissory Note, dated as of July 21, 1994, by Scott M.
Rocklage to the Registrant.
10.22 Amendment to Promissory Note, dated as of July 21, 1996, by and
between the Registrant and Scott M. Rocklage.
10.23 Promissory Note, dated as of October 18, 1995, by and between
the Registrant and Scott M. Rocklage.
+10.24 Compound Library Screening Agreement between the Registrant and
Genzyme Corporation, dated February 24, 1997.
+10.25 Library Sample Evaluation Agreement between the Registrant and
Pharmacopeia, Inc., dated as of September 11, 1996.
11.1 Computation of Income Per Share.
23.2 Consent of Coopers & Lybrand L.L.P.
- ------------------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-6795).
+ Confidential Treatment requested as to certain portions.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CUBIST PHARMACEUTICALS, INC.
/s/ SCOTT M. ROCKLAGE
----------------------------------
SCOTT M. ROCKLAGE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on its behalf of
the registration and in the capacities on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------- ------------
President, Chief Executive
/s/ SCOTT M. ROCKLAGE and Director
- ------------------------------ (Principal Executive
Scott M. Rocklage Officer)
/s/ THOMAS A. SHEA Treasurer (Principal
- ------------------------------ Financial and Accounting
Thomas A. Shea Officer)
/s/ JOHN K.CLARKE Chairman of the Board of
- ------------------------------ Directors
John K.clarke
/s/ BARRY BLOOM Director
- ------------------------------
Barry Bloom
/s/ GEORGE CONRADES Director
- ------------------------------
George Conrades
/s/ ELLEN M.FEENEY Director
- ------------------------------
Ellen M.feeney
/s/ TERRANCE G. MCGUIRE Director
- ------------------------------
Terrance G. Mcguire
/s/ JULIUS REBEK, JR. Director
- ------------------------------
Julius Rebek, Jr.
/s/ PAUL R. SCHIMMEL Director
- ------------------------------
Paul R. Schimmel
-44-
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
$131,685 Boston, Massachusetts
July , 1994
FOR VALUE RECEIVED, the undersigned, Scott M. Rocklage (the "Maker"),
by this Secured Promissory Note (this "Note"), absolutely and
unconditionally promises to pay to the order of CUBIST PHARMACEUTICALS,
INC., a Delaware corporation (the "Payee"), the aggregate principal amount
of One Hundred Thirty-One Thousand Six Hundred Eighty-Five Dollars
($131,685) on July , 1996 (the "Maturity Date"), and to pay interest
on the principal amount outstanding from time to time hereunder, from the
date hereof through and including the date on which such principal amount
is paid in full, at a rate of percent ( %) per annum simple
interest. Interest hereunder shall be due and payable on the first
anniversary hereof and on the Maturity Date or any accelerated maturity
hereof.
The Maker shall have the right to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without
premium or prepayment penalty, provided that there is paid with each such
principal prepayment all accrued and unpaid interest to the date of
prepayment (calculated on the basis of a 365-day year for the actual number
of days for which the same is due).
All payments of interest and principal hereunder shall be made at the
principal residence or business address of the holder hereof. All payments
hereunder shall be applied first to any unpaid accrued interest, second to
payment of all, if any, other amounts except principal due under or in
respect of this Note, and third to repayment of principal.
This Note is made and delivered by the Maker to the Payee pursuant to
that certain Subscription Agreement, dated as of July , 1994, among
the Payee and the Maker, and is secured pursuant to the provisions of a
certain Stock Pledge Agreement, dated of even date herewith, between the
Maker and the Payee.
Anything implied herein to the contrary notwithstanding, in the event
that (1) the Maker shall fail to pay when due all or any portion of the
principal of or interest on this Note, (2) the Maker shall make an
assignment of the whole or a substantial part of his assets for the benefit
of creditors, or (3) there shall be commenced by or against the Maker any
proceeding under any bankruptcy, insolvency, readjustment of debt or
similar law of any jurisdiction, (each event referred to in clauses (1)
through (3) above being hereinafter referred to herein as an "Event of
Default") then without notice to or demand upon the Maker the entire unpaid
principal of this Note, and all interest accrued thereon, shall (if not
already due and payable) immediately become and be due and payable to the
order of the holder hereof.
<PAGE>
The Maker hereby, to the fullest extent permitted by applicable law:
(a) waives presentment, demand, notice, protest, and all other demands and
notices in connection with delivery, acceptance, performance, default,
acceleration or enforcement of or under this Note; (b) assents to any
extension or postponement of the time of payment or any other indulgence,
and to any substitution, exchange or release of collateral; and (c) agrees
to pay to the holder, on demand, all costs and expenses of collection,
including, without limitation, reasonable attorneys' fees and legal
expenses, incurred by the holder in enforcing this Note, whether or not
litigation is commenced.
No failure by the holder to exercise, or delay by the holder in
exercising, any right or remedy hereunder shall operate as a waiver
thereof, or of any other right or remedy, and no single or partial exercise
of any right or remedy shall preclude any other or further exercise thereof
or of any other right or remedy. Acceptance by the holder of any payment
after the maturity of this Note has been accelerated shall not constitute a
waiver of such acceleration.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the law of The Commonwealth of
Massachusetts.
--------------------
2
<PAGE>
AMENDMENT TO PROMISSORY NOTE
This Amendment to Promissory Note (this "Amendment") is entered into as
of this 21st day of July, 1996 by and between Cubist Pharmaceuticals, Inc.,
a Delaware Corporation, (the "Payee") and Scott M. Rocklage (the "Maker").
This Amendment is attached to and made a part of that certain Secured
Promissory Note, dated as of July 21, 1994 (the "Promissory Note"), in the
principal amount of One Hundred Thirty-One Thousand Six Hundred Eighty-Five
Dollars ($131,685.00) made payable by the Maker to the Payee.
WHEREAS, the Maker and the Payee wish to amend the Promissory Note.
NOW, THEREFORE, for the sum of ten and 00/100 Dollars ($10.00) and
other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, Maker and Payee hereby amend the Promissory Note
as follows:
The date "July 21, 1996" appearing in the fifth line of the first
paragraph immediately prior to the words "(the "Maturity Date")" is hereby
deleted and replaced with the date "July 21, 1997".
EXCEPT AS SPECIFICALLY AMENDED BY THIS AMENDMENT, THE PROMISSORY NOTE
REMAINS UNMODIFIED AND IN FULL FORCE AND EFFECT ACCORDING TO ITS TERMS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as a
sealed instrument as of the date first above written.
MAKER:
WITNESS: ----------------------- ----------------------------
Scott M. Rocklage
PAYEE:
Cubist Pharmaceuticals, Inc.
WITNESS:------------------------ By: -------------------------
Name: -----------------------
Title:-----------------------
2
<PAGE>
PROMISSORY NOTE
$4,989.06 Boston, Massachusetts
October 18, 1995
FOR VALUE RECEIVED, the undersigned, Scott M. Rocklage (the "Maker"),
by this Promissory Note (this "Note"), absolutely and unconditionally
promises to pay to the order of CUBIST PHARMACEUTICALS, INC., a Delaware
corporation (the "Payee"), the aggregate principal amount of Four Thousand
Nine Hundred Eighty Nine Dollars and Six Cents ($5,989.06) on November 28,
1997 (the "Maturity Date"), and to pay interest on the principal amount
outstanding from time to time hereunder, from the date hereof through and
including the date on which such principal amount is paid in full, at a
rate of four percent (4%) per annum simple interest. Interest hereunder
shall be due and payable on the first anniversary hereof, the second
anniversary hereof and on the Maturity Date or any accelerated maturity
hereof.
The Maker shall have the right to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without
premium or prepayment penalty, provided that there is paid with each such
principal prepayment all accrued and unpaid interest to the date of
prepayment (calculated on the basis of a 365-day year for the actual number
of days for which the same is due).
All payments of interest and principal hereunder shall be made at the
principal residence or business address of the holder hereof. All payments
hereunder shall be applied first to any unpaid accrued interest, second to
payment of all, if any, other amounts except principal due under or in
respect of this Note, and third to repayment of principal.
This Note is made and delivered by the Maker to the Payee pursuant to
that certain letter agreement, dated October 18, 1995, between the Payee
and the Maker.
Anything implied herein to the contrary notwithstanding, in the event
that (1) the Maker shall fail to pay when due all or any portion of the
principal of or interest on this Note, (2) the Maker shall make an
assignment of the whole or a substantial part of his assets for the benefit
of creditors, or (3) there shall be commenced by or against the Maker any
proceeding under any bankruptcy, insolvency, readjustment of debt or
similar law of any jurisdiction, (each event referred to in clauses (1)
through (3) above being hereinafter referred to herein as an "Event of
Default") then without notice to or demand upon the Maker the entire unpaid
principal of this Note, and all interest accrued thereon, shall (if not
already due and payable) immediately become and be due and payable to the
order of the holder hereof.
<PAGE>
The Maker hereby, to the fullest extent permitted by applicable law:
(a) waives presentment, demand, notice, protest and all other demands and
notices in connection with deliver, acceptance, performance, default,
acceleration or enforcement of or under this Note; (b) assents to any
extension or postponement of the item of payment or any other indulgence,
and to any substitution, exchange or release of collateral; and (c) agrees
to pay to the holder, on demand, all costs and expenses of collection,
including, without limitation, reasonable attorneys' fee and legal
expenses, incurred by the holder in enforcing this Note, whether or not
litigation is commenced.
No failure by the holder to exercise, or delay by the holder in
exercising, any right or remedy hereunder shall operate as a waiver
thereof, or of any other right or remedy, and no single or partial exercise
of any right or remedy shall preclude any other or further exercise thereof
or of any other right or remedy. Acceptance by the holder of any payment
after the maturity of this Note has been accelerated shall not constitute a
waiver of such acceleration.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the law of the Commonwealth of
Massachusetts.
- ---------------------------
Scott M. Rocklage
2
<PAGE>
Confidential Treatment
COMPOUND LIBRARY SCREENING AGREEMENT
This Agreement, effective as of the date last written below, is between
Genzyme Corporation ("Genzyme") and Cubist Pharmaceuticals, Inc. ("Cubist").
1. Information Exchange.
(a) Within thirty (30) days after receiving an executed original of
this Agreement, each party shall provide the other with such information as
the Receiving Party (as defined in Paragraph 6) may reasonably request for
the purpose of evaluating the therapeutic potential of any products that
may arise from a collaboration between the parties. Such information shall
include ****************************************************************
***********************************************************************
*************************************************************************
*************************************************************************
************************************************. Genzyme shall confirm to
Cubist that each biological target disclosed by Cubist is not the subject
of any research program currently conducted by Genzyme internally or with
any third party collaborator.
(b) The Receiving Party shall determine in its sole discretion whether
to proceed with the screening activities described in Paragraph 2 and shall
notify the other party of such determination. If either party determines
not to proceed with such screening activities, this Agreement shall
terminate upon receipt of notice to the other party of such determination.
If both parties elect to proceed with the screening activities, Genzyme
will provide Cubist with Compounds as described in Paragraph 2 within
thirty (30) days after receipt of Cubist's notice to proceed.
2. Screening of Compound Libraries and Deconvolution Services.
(a) Subject to the provisions of Paragraph 1, Genzyme will make
available to Cubist all compounds within Genzyme's libraries as of the
effective date this Agreement ("Compounds"). Compounds added to Genzyme's
libraries after such date will be made available to Cubist on a semiannual
basis during the term of this Agreement. Compounds will be
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
<PAGE>
delivered in quantities of **************************************
************************ (a "Mixture"). Genzyme grants Cubist a
non-exclusive, worldwide right to use the Compounds to screen against
biological targets identified by Cubist to evaluate the biological activity
of the Compounds. Such right may not be sublicensed and does not include
the right to sell or otherwise transfer the Compounds to third parties.
Cubist will use commercially reasonable efforts to screen all Compounds
provided by Genzyme against each of the targets identified by Cubist
pursuant to Paragraph 1 (a).
(b) Subject to a Mixture satisfying criteria agreed upon by Cubist and
Genzyme for biological activity (e.g., potency and dose-responsiveness)
against a target screened by Cubist, Genzyme will provide the following
services: **************************************************************
************************************************************************
************************************************************************
************************************************************************
******************************************************.
3. Availability of License.
(a) Cubist shall notify Genzyme of all Active Compounds identified by
Cubist. "Active Compound" shall mean a Compound that has exhibited
biological activity against a target warranting, in Cubist's reasonable
business judgment, further development.
(b) If any Active Compound previously has been committed to a third
party or to an internal Genzyme program, Cubist shall have no rights in or
to such Active Compound. In all other cases, Genzyme shall disclose to
Cubist the chemical composition and structure of the Active Compound and
Cubist shall have a right of first negotiation to obtain a license (the
"Negotiation Right"), in accordance with the procedures set forth in
Paragraph 3(c).
(c) Cubist may exercise the Negotiation Right upon written notice to
Genzyme which is received by Genzyme at any time during the term of this
Agreement, whereupon the parties will engage in good faith negotiations to
establish the terms and conditions of a mutually acceptable research
collaboration agreement. Such research collaboration agreement will
provide, among other matters, for the following: (i) establishments of
committees to manage the collaboration; (ii) licenses under intellectual
property rights of each party to conduct medicinal chemistry and
preclinical development of the Active Compound; (ii)
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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responsibilities of the parties for specific preclinical development
activities; (iv) commercialization strategy for the Active Compound following
preclinical development; and (v) sharing of commercialization revenues after
recovery by each party of its preclinical development costs.
(d) If the parties are unable to negotiate and execute a mutually acceptable
collaboration agreement within ************* after the date upon which Cubist
exercised the Negotiation Right, Genzyme shall have the right to license the
Active Compound to any third party, subject to non-disclosure restrictions set
forth in Paragraph 6.
4. Use and Transfer Restrictions. Cubist acknowledges and agrees that the
Compounds (including without limitation all Active Compounds) are proprietary to
and owned by Genzyme and or may be covered by claims of U.S. and international
patents or parent applications of Genzyme. Cubist agrees to use the Compounds
only for the purposes set forth in this Agreement. Cubist agrees (i) not
transfer such Compounds to any third party without the prior written consent of
Genzyme, (ii) to permit access to the Compounds only to its employees and
consultants requiring such access, (iii) to inform such employees and
consultants of the proprietary nature of the Compounds, and (iv) to take
reasonable precautions, at least as stringent as those observed by Cubist to
protect its own proprietary material, to ensure that such employees and
consultants observe the obligations of Cubist pursuant to this Paragraph. Upon
the expiration or termination of this Agreement, Cubist shall, at the
instruction of Genzyme, either destroy or return any unused Compounds.
5. Compliance with Law. Cubist agrees to comply with all federal, state and
local laws and regulations applicable to the use, storage, disposal, and
transfer of all the Compounds, including without limitation the Toxic Substances
Control Act (15 USC 2601 et. seq.) and implementing regulations (in particular,
40 CFR 720.36 [Research and Development Exemption]), the Food, Drug, and
Cosmetic Act (21 USC 301 et. seq.) and implementing regulations, and all Export
Administration Regulations of the Department of Commerce. Cubist assumes sole
responsibility for any violation of such laws or regulations by Cubist or any of
its affiliates.
6. Confidential Information.
(a) As used in this Agreement, the term "Confidential Information" means any
technical or business information furnished by one party ("Disclosing Party") to
the other party ("Receiving Party") in connection with this Agreement and
specifically designated as confidential
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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including, without limitation, any information disclosed by the parties
pursuant to Paragraphs 1, 2 and 3 of this Agreement. Such Confidential
Information may also include, without limitation, trade secrets, know-how,
inventions, formulations, compositions, technical data or specifications,
testing methods, business or financial information, research and
development activities, product and marketing plans, customer and supplier
information. Confidential Information that is disclosed in writing shall be
marked with the legend "confidential". Confidential Information that is
disclosed orally or visually shall be documented in a written notice
prepared by the Disclosing Party and delivered to the Receiving Party
within thirty (30) days of the date of disclosure. Such notice shall
summarize the Confidential Information disclosed to the Receiving Party and
reference the time and place of disclosure.
(b) The Receiving Party shall and shall cause its employees engaged in the
research to: (i) maintain all Confidential Information in strict confidence,
except that the Receiving Party may disclose or permit the disclosure of any
Confidential Information to its directors, officers, employees, consultants, and
advisors who are obligated to maintain the confidential nature of such
Confidential Information and who need to know such Confidential Information for
the purposes set forth in this Agreement; (ii) use all Confidential Information
solely for purposes set forth in this Agreement; and (iii) reproduce the
Confidential Information only to the extent necessary to effect the purpose set
forth in this Agreement, with all such reproductions being considered
Confidential Information.
(c) The obligations of the Receiving Party under Paragraph 6(b) shall
not apply to the extent that the Receiving Party can demonstrate by written
documentation that certain Confidential Information: (i) was in the public
domain prior to the time of its disclosure under this Agreement; (ii)
entered the public domain after the time of its disclosure under this
Agreement through means other than an unauthorized disclosure resulting
from any act or omission by the Receiving Party; (iii) was independently
developed or discovered by the Receiving party prior to the time of its
disclosure under this Agreement; (iv) is or was disclosed to the Receiving
Party at any time, whether prior to or after the time of its disclosure
under this Agreement, by a third party having no fiduciary relationship
with the Disclosing Party and having no obligations of confidentiality with
respect to such Confidential Information; or (v) is required to be
disclosed to comply with applicable laws or regulations, or with a court or
administrative order, provided that the Disclosing Party receives prior
written notice of such disclosure and
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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that the Receiving party takes all reasonable and lawful actions to obtain
confidential treatment for such disclosure and, if possible, to minimize
the extent of such disclosure.
(d) The Receiving Party agrees that the Disclosing Party (or any third party
entrusting its own confidential information to the Disclosing Party) is and
shall remain the exclusive owner of the Confidential Information disclosed by
the Disclosing Party and all patent, copyright, trademark, trade secret, and
other intellectual property rights in, or arising from such Confidential
Information. No option, license, or conveyance of such rights to the Receiving
Party is granted or implied under this Agreement. If any such rights are to be
granted to the Receiving Party, such grant shall be expressly set forth in a
separate written instrument.
(e) Upon the termination by either party of this Agreement, the Receiving
Party shall return to the Disclosing Party all originals, copies, and summaries
of documents, materials, and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party. The obligations
set forth in this Agreement shall remain in effect for a period of five (5)
years after such termination by either party.
(f) The Receiving Party agrees that any breach of its obligations under this
Paragraph 6 will cause irreparable harm to the Disclosing Party; therefore, the
Disclosing Party shall have, in addition to any remedies available at law, the
right to obtain requitable relief to enforce this Agreement.
7. No Warranties. Any Compounds delivered pursuant to this Agreement
are understood to be experimental in nature and may have hazardous
Properties. GENZYME MAKES NO REPRESENTATIONS, AND EXTENDS NO WARRANTIES OF
ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE COMPOUNDS, THERE
ARE NO EXPRESS OR IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR THAT THE USE OF THE COMPOUNDS WILL NOT INFRINGE ANY
PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY.
8. Indemnification. Cubist assumes all liability for, and agrees to
indemnify, defend, and hold harmless Genzyme and its directors, officers,
representatives, employees, and agents against, all losses, expenses (including
without limitation any reasonable legal expenses), claims, demands, damages,
judgments, suits, or other actions arising form
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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the use, storage, or disposal of the Compounds by Cubist and its affiliates
and sublicenses, or form any breach of its obligations under Paragraph 5 of
this Agreement. Genzyme assumes all liability for, and agrees to indemnify,
defend, and hold harmless Cubist and its directors, officers,
representatives, employees, and agents against, all losses, expenses
(including without limitation any reasonable legal expenses), claims,
demands, damages, judgements, suits, or other actions arising from the use,
storage, or disposal of the Compounds by Genzyme and its affiliates.
9. Termination. Subject to early termination pursuant to Paragraph
1(b), this Agreement shall commence on the date last written below and
continue for a period of *************************************************
**************************************************************************
*************************************************************************
******************************************. Sections 3 (paragraph (d) only),
4, 5, 6, 7 and 8, shall survive termination of this Agreement.
10. Miscellaneous. This Agreement shall not be assigned or otherwise
transferred by either party without the prior written consent of the other
party to this Agreement. This Agreement shall be governed by the laws of
the Commonwealth of Massachusetts. This Agreement constitutes the entire
understanding of the parties and supersedes all prior agreements, written
or oral, with respect to the subject matter hereof. Any notice required or
permitted under this Agreement shall be in writing delivered personally or
by facsimile (and promptly confirmed by personal delivery or courier) or
courier, postage prepaid (where applicable), addressed to the other party
at its address indicated below, or to such other address as the addressee
shall have last furnished in writing to the addressor and shall be
effective upon receipt by the addressee. Each party shall obtain prior
written permission from the other before using the name, symbol and/or
marks of the other in any form of publicity.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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ACCEPTED AND AGREED:
GENYZME CORPORATION CUBIST PHARMACEUTICALS, INC.
By: /s/ James R. Rasmussen By:/s/ Scott M. Rocklage
Name: James R. Rasmussen Name: Scott M. Rocklage
Title: Senior VP, Research Title: President and CEO
Date: February 24, 1997 Date: February 24, 1997
Address: Address:
Genzyme Corporation Cubist Pharmaceuticals, Inc.
One Kendall Square 24 Emily Street
Cambridge, Massachusetts 02319 Cambridge, Massachusetts 02139
Tel: (617) 252-7500 Tel: (617) 576-1999
Fax: (617) 252-7600 Fax: (617) 576-0232
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Confidential Treatment
LIBRARY SAMPLE EVALUATION AGREEMENT
This Library Sample Evaluation Agreement (the "Agreement"), effective
as of September 11, 1996 (the "Effective Date"), is made by and between
Pharmacopeia, Inc., a Delaware corporation having a principal place of
business at 101 College Road East, Princeton, New Jersey 08540
("Pharmacopeia"), and Cubist Pharmaceuticals, Inc., a Delaware corporation
having a principal place of business at 24 Emily Street, Cambridge,
Massachusetts 02139 ("Cubist").
BACKGROUND
A. Pharmacopeia has developed novel proprietary methods for the
generation of encoded compound libraries. Pharmacopeia believes that its
proprietary technology, by rapidly producing diverse and targeted compound
libraries, will accelerate the drug discovery process and increase
productivity of drug discovery programs.
B. Cubist wishes to obtain from Pharmacopeia samples of combinatorial
libraries to be screened by Cubist against certain agreed targets, and
Pharmacopeia is willing to provide such samples to Cubist for such purpose,
on the terms and conditions set forth herein.
NOW THEREFORE, it is agreed by and between the parties as follows:
1. DEFINITIONS
1.1 "Columbia License" means that certain License Agreement effective
as of July 16, 1993, as amended and restated as of October 6, 1995, entered
by and between Pharmacopeia, Inc., the Trustees of Columbia University in
the City of New York and the Cold Spring Harbor Laboratory.
1.2 "Confidential Information" means (i) any proprietary or
confidential information or material in tangible form disclosed hereunder
that is marked as "Confidential" at the time it is delivered to the
receiving party, or (ii) proprietary or confidential information disclosed
orally hereunder which is identified as confidential or proprietary when
disclosed and such disclosure of confidential information is confirmed in
writing within thirty (30) days by the disclosing party.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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1.3 "Library Compound" means any compound contained in a Library
Sample.
1.4 "Library Sample" means a sample of compounds selected from a
Pharmacopeia compound library and transferred to Cubist pursuant to this
Agreement.
1.5 "Licensed Patents" means any patent applications that claim any
compound in the library from which the Library Sample is derived; any
substitutions, divisions, continuations, and continuations-in-part of the
preceding patent applications; any foreign counterparts of the preceding
applications; and any patents issuing on the preceding applications,
including registrations, revalidations, reissues, reexaminations,
extensions or other governmental actions which extend claims or durations
of such patents; in each case, which is owned or controlled, in whole or
part, by license, assignment or otherwise by Pharmacopeia during the term
of this Agreement, and subject to any limitations and prohibitions of such
license or sublicense. It is understood that the Licensed Patents shall not
include any intellectual property owned or licensed by Pharmacopeia
relating to creation or use of combinatorial libraries, tag and/or marker
compound engineering and encoding, and/or high throughput screening assays
(hereinafter the "Excluded Technology").
1.6 "Screening Period" means the ************* period following the
date of shipment by Pharmacopeia of each Library Sample to Cubist or such
longer period as may be established under Section 2.3.2 below.
1.7 "Target" means any molecular target set for on Exhibit B hereto,
and any other molecular targets agreed in writing by Cubist and
Pharmacopeia.
2. LIBRARY SAMPLE
2.1 LIBRARY SAMPLE. Subject to the terms and conditions of this
Agreement, Pharmacopeia shall provide four copies of the Library Sample to
Cubist for screening by Cubist against the Targets as set forth in more
detail on Exhibit A. The Library Sample shall be available delivery to
Cubist as soon as practicable following Cubist's payment of the Library
Sample Access Fee pursuant to Section 5.1.
2.2 LIMITED USE. The Library Sample shall be used by Cubist
*************************************************************************
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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****************************************************************************
*************************************************************************
**************************************************************************
***********************.
2.3 SCREENING BY CUBIST.
2.3.1 Target Exclusivity. To provide Cubist a period of
exclusivity for screening of the Library Sample against the Targets,
Pharmacopeia agrees that until the termination of the Screening Period, as
such period may be extended, Pharmacopeia shall not knowingly deliver to
any third party any compound from the Library Sample for screening against
any of the Targets; provided, Pharmacopeia may itself screen or provide to
third parties compounds from such Library Sample, or the library from which
it was derived, for screening against any molecular target which is not a
Target hereunder at such time.
2.3.2 Extentions of Screening Period. Cubist may request that
Pharmacopeia extend the Screening Period for an additional period (after the
initial ************************** Screening Period) by notifying
Pharmacopeia no later than thirty (30) days prior to the date on which such
Screening Period will expire. It is understood and agreed that if
Pharmacopeia, in its sole discretion, does not so extend the Screening
Period, Cubist shall have no further rights to screen the Library Sample. The
length of any such additional period will be as agreed by the parties.
2.4 REARRAYS. After joint review of the screening data and upon
mutual agreement, Pharmacopeia shall rearray (at one compound per well)
those wells identified by the parties as containing compounds with activity
against any of the Targets.
2.5 ADDITIONAL LIBRARY SAMPLE. If Cubist screens the initial Library
Sample but does not identify any Library Compound with respect to which it
wishes to negotiate with Pharmacopeia for a further agreement pursuant to
Section 4.1, Cubist may request up to four copies of a further Library
Sample with notice to Pharmacopeia during the Screening Period.
Pharmacopeia then shall provide to Cubist a further Library Sample drawn
from a different Pharmacopeia library, and Cubist may screen such further
Library Sample, subject to the terms and conditions herein. Pursuant to
this Section 2.5, Cubist may receive
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Library Samples from ************** additional Pharmacopeia compound
libraries. Upon shipment of such further Library Sample, Cubist's right to
negotiate a further agreement with respect to any Library Compound in a
previous Library Sample shall terminate.
2.6 ADDITIONAL TARGETS. At any time during the Screening Period,
Cubist may provide Pharmacopeia notice that Cubist wishes to drop a Target
from this Agreement and designate an additional target as a Target for all
purposes of this Agreement. Within fifteen (15) days of receipt of such
notice, Pharmacopeia shall, at its sole discretion, accept or deny the
designation of each such proposed target as a Target by notice to Cubist.
Upon Pharmacopeia's notice of such acceptance, if any, Cubist's right to
negotiate a further agreement with respect to such dropped Target shall
terminate.
2.7 OWNERSHIP OF LIBRARY SAMPLES. Pharmacopeia, shall retain all
right, title and interest in and to the Library Sample and Library
Compounds, and all Pharmacopeia intellectual property rights related
thereto.
3. LICENSE
3.1 SCREENING LICENSE. Subject to the terms and conditions of this
Agreement, Pharmacopeia grants to Cubist a non-exclusive, non-transferable
license, under the applicable Licensed Patents solely to screen the Library
Sample to identify Library Compounds with activity against one or more of
the Targets.
3.2 COLUMBIA SUBLICENSE. Subject to the terms and conditions of this
Agreement and Columbia License, if necessary, Pharmacopeia will grant to
Cubist a non-exclusive, non-transferable sublicense under the Columbia
License solely to screen the Library Sample to identify Library Compounds
with activity against one or more of the Targets.
3.3 RETAINED RIGHTS. No right or license in or to intellectual
property rights of Pharmacopeia relating to the Library Sample or Library
Compounds (or otherwise) is granted nor implied hereunder, except for the
sole purpose of conducting the screening. Pharmacopeia retains rights not
expressly granted to Cubist in Section 3.1 above, including without
limitation, the right make, have made and use Library Compounds in the
Library Sample for its own research purposes. It is understood and agreed
that the license granted to Cubist in Section 3.1 above does not include
the right to create, make or have made combinatorial libraries,
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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tags, markers or other encoding compositions, or use methods or processes
relating to the preceding.
4. FURTHER AGREEMENTS
4.1 NEGOTIATION OF FURTHER AGREEMENT. If Cubist determines that one
or more Library Compounds have biological activity with respect to a Target
and wishes to negotiate with Pharmacopeia a further agreement relating to
such Library Compounds, Cubist may notify Pharmacopeia thereof during the
Screening Period. In such event, the parties shall negotiate in good faith
the terms of a further agreement for a period of *************************
from Pharmacopeia's receipt of such notice, or such longer period as the
parties may agree (the "Negotiation Period"). The nature of such further
agreement may be a license, collaboration or any other form as may be
agreed by the parties. If the parties fail to enter into a further written
agreement with respect to a particular Library Compounded during the
Negotiation Period, Cubist shall acquire no right to such Library Compound.
4.2 NO DECODES. Until the parties reach definitive agreement pursuant
to Section 4.1, or unless otherwise agreed in writing by the parties,
Pharmacopeia shall not knowingly decode any Library Compound identified by
Cubist to Pharmacopeia as having activity with respect to any Target.
4.3 SCREENING BY PHARMACOPEIA. If Cubist notifies Pharmacopeia as
provided in Section 4.1, but the parties fail to enter into a further
agreement, following the first anniversary of the end of the Screening
Period, Pharmacopeia may screen and allow others to screen the Library
Sample and the library from which it was derived against any Target;
provided, Pharmacopeia may disclose to third parties that the Library
Sample has been screen against such a Target, but shall not disclose to
third parties that Cubist screened the Library Sample or the results of
such screening.
4.4 NO NOTICE OF LIBRARY COMPOUND ACTIVITY. If Cubist fails to
provide Pharmacopeia notice pursuant to Section 4.1 that it wishes to
negotiate a further agreement with respect to any Library Compound in a
particular Library Sample during the Screening Period, following the end of
such Screening Period Pharmacopeia may screen and allow third parties to
screen, such Library Sample and the library from which it was derived for
activity against any Target, without further obligation to
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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Cubist, and may commercialize any Library Compound therein itself or with
third parties.
4.5 THIRD PARTY RIGHTS. It is understood that Pharmacopeia is in the
business of providing combinatorial libraries to third parties, and that
Pharmacopeia may grant such third parties rights to acquire licenses for
compounds in or derived from compounds in such libraries prior to the execution
of any further agreement between the parties hereto. Accordingly, any rights
granted to Cubist in a further agreement between the parties hereto shall be
limited to the extent that (i) a third party (either alone or jointly with
Pharmacopeia) has filed a patent application with respect to such a compound
prior to the filing by Cubist (either alone or jointly with Pharmacopeia) of a
patent application with respect to such a compound, (ii) Pharmacopeia has
previously granted a third party a license or other rights with respect to such
a compound, or (iii) as shown by contemporaneous documentation, Pharmacopeia has
previously decided to develop a particular compound on its own behalf. It is
further understood that compounds provided to third parties in the course of
Pharmacopeia's other business activities may result in third party patent
applications and patents, including patent applications and patents owned by
such third parties, or owned jointly by Pharmacopeia and such third parties,
which could affect the rights Cubist may wish to acquire from Pharmacopeia with
respect to any Library Compound.
5. PAYMENTS
5.1 LIBRARY SAMPLE ACCESS FEE. Within thirty (30) days of the
Effective Date, Cubist shall pay to Pharmacopeia a fee of ******************.
5.2 PAYMENT METHOD. All payments due under this Agreement shall be
made to an account designated by Pharmacopeia. All payments hereunder shall
be made in U.S. dollars. Any payments that are not paid on the date such
payments area due under this Agreement shall bear interest to the extent
permitted by applicable law at the prime rate as reported by the Chase
Manhattan Bank, New York, New York, on the date such payment is due, plus
an additional two percent (2%), calculated on the number of days such
payment is delinquent.
5.3 TAX MATTERS. Any sales taxes, use taxes, transfer taxes or
similar governmental charges required to be paid in connection with the
transfer of the Library Sample shall be the sole responsibility of Cubist.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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In the event that Pharmacopeia is required to pay any such amounts, Cubist
shall promptly remit payment to Pharmacopeia of such amounts.
6. CONFIDENTIALITY
6.1 CONFIDENTIAL INFORMATION. Except as expressly provided herein,
the parties agree that, for the term of this Agreement and for five (5)
years thereafter, the receiving party shall not disclose and except as
expressly provided in this Article 6, shall not use for any purpose other
than the performance of this Agreement, any Confidential Information
furnished to it by the disclosing party hereto pursuant to this Agreement
except to the extent that it can be established by the receiving party by
competent proof that such information:
(a) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of the
public domain the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or
omission of the receiving party breach of this Agreement;
(d) was independently developed by the receiving party as demonstrated
by documented evidenced prepared contemporaneously with such independent
development; or
(e) was subsequently lawfully disclosed to the receiving party by a
person other than a party.
6.2 PERMITTED USE AND DISCLOSURES. Each party hereto may use or
disclose Confidential Information disclosed to it by the other party to the
extent such use or disclosure is reasonably necessary and permitted in the
exercise of the rights granted hereunder, prosecuting or defending
litigation, or complying with applicable governmental regulations or court
orders or otherwise submitting information to tax or other governmental
authorities, provided that if a party is required make any such disclosure
of another party's Confidential Information, other than pursuant to a
confidentiality agreement, it will give reasonable advance notice to the
other party of such disclosure and, save to the extent inappropriate in the
case of patent applications, will use its reasonable efforts to secure
confidential treatment of such Confidential Information in consultation
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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with the other prior to its disclosure (whether through protective orders
or otherwise) and disclose only the minimum necessary to comply with such
requirements.
6.3 NONDISCLOSURE OF TERMS. Each of the parties hereto agrees not to
disclose to any third party the terms of this Agreements without the prior
written consent of the other party hereto, except to such party's
attorneys, advisors, investors and other on a need to know basis under
circumstances that reasonably ensure the confidentiality thereof, or to the
extent required by law.
7. INDEMNIFICATION
7.1 CUBIST. Cubist agrees to indemnify, defend and hold Pharmacopeia
and its directors, officers, employees and agents (the "Pharmacopeia
Indemnitees") harmless from and against any losses, costs, claims, damages,
liabilities or expense (including reasonable attorneys' and professional
fees and court and other expenses of litigation) arising out of or in
connection with third party claims relating to the use of the Library
Sample under this Agreement, except to the extent due to the negligence or
intentional misconduct of Pharmacopeia.
7.2 PHARMACOPEIA. Pharmacopeia agrees to indemnify, defend and hold
Cubist and its Affiliates and their respective directors, officers,
employees and agents (the "Cubist Indemnitees") harmless from and against
any losses, costs, claims, damages, liabilities or expense (including
reasonable attorneys' fees and court and other expenses of litigation)
arising out of or in connection with third party claims relating to the
preparation and delivery of the Library Sample, except to the extent due to
the negligence or intentional misconduct of Cubist.
8. TERM AND TERMINATION
8.1 TERM. The term of this Agreement shall begin as of the Effective
Date and, unless terminated earlier as provided in this Article 8, continue
in full force and effect until*********************************************
***************************************************************************
*******************************.
8.2 TERMINATION FOR CAUSE. Either party may terminate this Agreement
in the event the other party shall have materially breached or defaulted in
the performance of any of its obligations hereunder, and such
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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default shall have continued for ************* after written notice thereof
was provided to the breaching party by the nonbreaching party. Any
termination shall become effective at the end of such ***********************
period unless the breaching party (or any other party on its behalf) has
cured any such breach or default prior to the expiration of the
*************** period or has commenced the cure within such **********
period and thereafter uses its best efforts to complete the cure as soon as
practicable; provided, in the case of a failure to pay any amount due
hereunder, such default may be the basis of a termination ************
following the date that notice of such default was provided to the breaching
party.
8.3 TERMINATION UPON BANKRUPTCY OR INSOLVENCY. If voluntary or
involuntary proceedings by or against a party are instituted in bankruptcy
under any insolvency law, or a receiver or custodian is appointed for such
party, or proceedings are instituted by or against such party for corporate
reorganization or the dissolution of such party, which proceedings, if
involuntary, shall not have been dismissed within sixty (60) days
thereafter, the other party may immediately terminate this Agreement
effective upon notice of such termination.
8.4 TERMINATION BY CUBIST. Cubist shall have the right to terminate
this Agreement on sixty (60) days prior written notice to Pharmacopeia.
8.5 EFFECT OF BREACH OR TERMINATION.
8.5.1 Accrued Obligations. Termination of this Agreement for any
reason shall not release any party hereto from any liability which, at the
time of such termination, has already accrued to the other party or which
is attributable to a period prior to such termination nor preclude either
party from pursuing all rights and remedies it may have hereunder or at law
or in equity with respect to any breach of this Agreement.
8.5.2 Return of Materials. Upon any termination of this Agreement,
Cubist and Pharmacopeia shall promptly return to the other party all
Confidential Information of the other (except for one (1) copy which may be
retained solely for archival purposes), and Cubist shall return to
Pharmacopeia or destroy any remaining Library Compounds.
8.5.3. Survival. Sections 2.7. 4.2, 4.3, 5.3, 8.5 and 8.6, and
Articles 6, 7 and 9 of this Agreement shall survive the expiration or
termination of this Agreement for any reason.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
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9. MISCELLANEOUS
9.1 GOVERNING LAW. This Agreement and any dispute arising from the
performance breach hereof shall be governed by and construed and enforced
in accordance with, the laws of state of New Jersey without reference to
conflicts of laws principles.
9.2 NO IMPLIED LICENSES. Only the licenses granted pursuant to the
express terms of the Agreement shall be of any legal force or effect. No
license rights shall be created by implication, estoppel or otherwise.
9.3 WAIVER. It is agreed that no waiver by any party hereto of any
breach or default of any of the covenants or agreements herein set forth
shall be deemed a waiver as to any subsequent and/or similar breach or
default.
9.4 ASSIGNMENT. This Agreement shall not be assignable by either
party to any third party hereto without the written consent of the other
party, except either party may assign this Agreement, without such consent,
to an entity that acquires all or substantially all of the business or
assets of such party to which this Agreement pertains, whether by merger,
reorganization, acquisition, sale, or otherwise. This Agreement shall be
binding upon and accrue to the benefit of the parties hereto and their
successors and any permitted assigns.
9.5 INDEPENDENT CONTRACTORS. The relationship of the parties hereto
is that of independent contractors. The parties hereto are not deemed to be
agents, partners or joint venturers of the others for any purpose as a
result of this Agreement or the transactions contemplated thereby.
9.6 DISCLAIMER OF WARRANTIES. THE LIBRARY SAMPLE PROVIDED HEREUNDER
IS PROVIDED AS-IS. PHARMACOPEIA MAKES NO REPRESENTATIONS AND EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
LICENSED PATENTS, LIBRARY SAMPLE, THE LIBRARY COMPOUNDS, OR ANY
CONFIDENTIAL INFORMATION DISCLOSED PURSUANT TO ARTICLE 6, INCLUDING, BUT
NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, VALIDITY OF THE LICENSED PATENTS, OR NONFRINGEMENT BY THE
PRECEDING OF ANY INTELLECTUAL PROPERTY RIGHTS OR THIRD PARTIES.
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
-10-
<PAGE>
9.7 NOTICES. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or by registered or
certified mail, return receipt requested, postage prepaid, in each case to
the respective address specified below, or such other address as may be
specified in writing to the other parties hereto and shall be deemed to
have been given upon receipt:
Pharmacopeia: Pharmacopeia, Inc.
101 College Road East
Princeton, New Jersey 08540
Attn: Chief Executive Officer
Cubist: Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, Massachusetts 02139
Attn: Chief Executive Officer
9.8 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision.
9.9 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL ANY PARTY TO THIS
AGREEMENT HAVE ANY LIABILITY TO THE OTHER FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING UNDER THIS AGREEMENT UNDER ANY
THEORY OF LIABILITY.
9.10 COMPLETE AGREEMENT. This Agreement with its Exhibits,
constitutes the entire agreement between the parties with respect to the
subject matter hereof, and all prior agreements respecting the subject
matter hereof, either written or oral, express or implied, shall be
abrogated, canceled, and are null and void and of no effect. No amendment
or change hereof or addition hereto shall be effective or binding on either
of the parties hereto unless reduced to writing and executed by the
respective duly authorized representatives of Pharmacopeia and Cubist.
9.11 DISPUTE RESOLUTION. Any dispute under this Agreement which is
not settled by mutual consent shall be finally settled by binding
arbitration, conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association by one (1) arbitrator appointed in
accordance with said rules. The arbitration shall be held in New York, New
York. The costs of the arbitration, including
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
-11-
<PAGE>
administrative and arbitrators' fees, shall be shared equally by the
parties, and each party shall bear its own costs and attorneys' and
witness' fees. The decision of the arbitrator shall be written, final and
non-appealable and may be enforced in any court of competent jurisdiction.
9.12 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and all of which together
shall be deemed to be one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized representatives and delivered as of the
Effective Date.
CUBIST PHARMACEUTICALS, INC. PHARMACOPEIA, INC.
By: /s/ Neal Farber By: /s/ Joseph A. Mollica
-------------------- --------------------------
Name: Neal Farber, Ph.D. Name: Joseph A. Mollica, Ph.D.
Title: UP Corporate Development Title: Chairman and Chief
Executive Officer
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
-12-
<PAGE>
EXHIBIT A
************************************************************************
**************************************************************************
**************************************************************************
**************************************************************************
*************************************************************************
***********************************
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
-13-
<PAGE>
EXHIBIT B
*********************************************************************
************************************************************************
************************************************************************
************************************************************************
************************************************************************
*************************************************************************
* Confidential treatment requested: material has been omitted and filed
separately with the Commission.
-14-
<PAGE>
EXHIBIT 11.1
CUBIST PHARMACEUTICALS, INC.
Computation of Net Income Per Share
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
------------------------------------------------
1996 1995 1994
------------- -------------- -------------
<S> <C> <C> <C>
Beginning Balance January 1........................ 1,016,662 910,027 546,862
Issuance of Common Stock........................... 1,537,337 76,228 85,661
Issuance of Cheap Stock............................ 183,122 366,244 366,244
Weighted Average Shares at December 31............. 2,737,121 1,352,499 998,766
Net Loss........................................... ($3,798,670) ($5,396,006) ($4,813,035)
Net Loss per Share................................. ($1.39) ($3.99) ($4.82)
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000912183
<NAME> CUBIST PHARMACEUTICALS INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 19,329
<SECURITIES> 0
<RECEIVABLES> 505
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,121
<PP&E> 4,899
<DEPRECIATION> (1,741)
<TOTAL-ASSETS> 23,452
<CURRENT-LIABILITIES> 2,101
<BONDS> 1,053
0
0
<COMMON> 10
<OTHER-SE> 20,289
<TOTAL-LIABILITY-AND-EQUITY> 23,452
<SALES> 0
<TOTAL-REVENUES> 4,985
<CGS> 0
<TOTAL-COSTS> 8,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> (3,799)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,799)
<EPS-PRIMARY> (1.39)
<EPS-DILUTED> (1.39)
</TABLE>
