<PAGE>
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
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, Massachusetts 02139
(Address of Principal Executive Offices)
(617) 576-1999
(Registrant's Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former
Fiscal Year, if Changed Since Last Report)
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
--- ---
As of August 12, 1998, there were 10,580,948 shares outstanding of
the Company's common stock, $0.001 per value per share.
- -------------------------------------------------------------------------------
<PAGE>
CUBIST PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Item Page
Number Number
- -------- ------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of June 30, 1998
and December 31, 1997............................................................... 3
Condensed Statements of Operations for the three months ended
June 30, 1998 and 1997 and for the six months
ended June 30, 1998 and 1997........................................................ 4
Condensed Statements of Cash Flows for the six months
ended June 30, 1998 and 1997........................................................ 5
Notes to the Unaudited Condensed Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.............................................. 11
Item 4. Submission of Material to a Vote of Security Holders.................................... 11
Item 5. Other Information....................................................................... 12
Item 6. Exhibits and Reports on Form 8-K........................................................ 12
Signature............................................................................... 13
</TABLE>
-2-
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $3,895,627 $2,837,600
Short-term investments............................................ 4,702,136 6,709,623
Accounts receivable .............................................. -- 53,333
Prepaid expenses and other current assets......................... 187,397 142,635
--------------- ---------------
Total current assets.............................................. 8,785,160 9,743,191
Property and equipment ................................................ 6,761,098 5,893,101
Less: Accumulated depreciation and amortization.................. (3,353,714) (2,712,341)
--------------- ---------------
Property and equipment, net ...................................... 3,407,384 3,180,760
Long-term investments.................................................. 3,932,111 8,569,107
Other assets .......................................................... 141,993 180,294
--------------- ---------------
--------------- ---------------
Total assets............................................. $16,266,648 $21,673,352
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $211,700 $275,260
Accrued expenses.................................................. 713,004 492,304
Current portion of long-term debt................................. 137,755 189,730
Current portion of capital lease obligations ..................... 523,675 548,351
--------------- ---------------
Total current liabilities .............................. 1,586,134 1,505,645
Long-term debt, net of current portion................................. 48,224 100,072
Long-term capital lease obligation, net of current portion............. 1,390,107 1,004,969
--------------- ---------------
Total liabilities........................................ 3,024,465 2,610,686
--------------- ---------------
Commitments
Stockholders' Equity:
Common Stock - $.001 par value;
authorized: 25,000,000 shares; issued: 10,580,948,
1998 and 10,580,555 shares, 1997 ................................. 10,581 10,581
Additional paid-in capital............................................. 42,088,013 42,047,966
Accumulated deficit .................................................. (28,856,411) (22,995,881)
--------------- ---------------
Total stockholders' equity............................... 13,242,183 19,062,666
--------------- ---------------
Total liabilities and stockholders' equity............... $16,266,648 $21,673,352
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
-3-
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------------- -------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sponsored research revenues............ $373,550 $844,000 $887,100 $1,678,600
Operating expenses:
Research and development............ 2,705,375 2,292,887 5,268,893 4,304,160
General and administrative.......... 817,255 933,868 1,675,332 1,579,337
----------------- ----------------- ---------------- -----------------
Total operating expenses.......... 3,522,630 3,226,755 6,944,225 5,883,497
Interest income........................ 195,948 246,978 380,116 533,757
Interest expense....................... (90,508) (63,970) (183,521) (119,981)
----------------- ----------------- ---------------- -----------------
Net loss............................... ($3,043,640) ($2,199,747) ($5,860,530) ($3,791,121)
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
Basic and diluted net loss per common
share.................................. ($.29) ($.23) ($.55) ($.40)
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
Weighted average number of common
shares for basic and diluted net
loss per common share............... 10,580,920 9,561,005 10,580,986 9,553,919
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
-4-
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows for operating activities:
Net loss...................................................... $(5,860,530) $(3,791,121)
Adjustments to reconcile net loss to net cash provided by/(used in)
operating activities:
Depreciation and amortization............................... 676,669 486,469
Changes in assets and liabilities:
Accounts receivable.................................... 53,333 183,500
Prepaid expenses and other current assets.............. (44,762) (678,087)
Other assets.......................................... 38,301 (9,999)
Accounts payable and accrued expenses.................. 157,140 (130,267)
Deferred revenue....................................... -- (84,600)
--------------------- ---------------------
Total adjustments.................................... 880,681 (232,984)
--------------------- ---------------------
Net cash used in operating activities............................ (4,979,849) (4,024,105)
Cash flows from investing activities:
Purchase of fixed assets...................................... (834,355) (783,765)
Leasehold improvements........................................ (33,642) (94,478)
Purchase of short-term investments............................ -- (7,641,449)
Maturities of short-term investments.......................... 2,007,487 --
Purchase of long-term investments............................. -- (3,620,843)
Maturities of long-term investments........................... 4,636,996 --
--------------------- ---------------------
Net cash provided by/(used in) investing activities.............. 5,776,486 (12,140,535)
Cash flows from financing activities:
Issuance of stock............................................. (5,249) (3,082)
Proceeds from notes receivable................................ 10,000 --
Repayments of debt............................................ (103,823) (92,138)
Proceeds from capital lease financing......................... 690,080 701,105
Principal payments of capital lease obligations............... (329,618) (305,487)
--------------------- ---------------------
Net cash provided by financing activities........................ 261,390 300,398
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents............. 1,058,027 (15,864,242)
Cash and cash equivalents,
beginning of period........................................... 2,837,600 19,329,353
--------------------- ---------------------
--------------------- ---------------------
Cash and cash equivalents,
end of period................................................. $3,895,627 $3,465,111
--------------------- ---------------------
--------------------- ---------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest........................ $183,521 $119,981
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
-5-
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note A. Nature of Business
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company founded in May 1992 and is focused on the
discovery, development and commercialization of novel classes of
antiinfective drugs to treat infectious diseases caused by bacteria and
fungal pathogens. Cubist has established multiple technology licenses and
collaborations, as well as a network of advisors and collaborators. The
Company is located in Cambridge, Massachusetts.
Note B. Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements reflect
all adjustments, consisting of normal recurring adjustments, which are
necessary, in the opinion of management, for a fair presentation of the
results of the interim periods presented. Interim results are not necessarily
indicative of results for a full year. These unaudited condensed financial
statements do not include all information and footnote disclosures required
by generally accepted accounting principles and therefore should be read in
conjunction with the Company's audited financial statements and related
footnotes for the year ended December 31, 1997 which are included in the
Company's Annual Report on Form 10-K. Such Annual Report on Form 10-K was
filed by the Company with the Securities and Exchange Commission (the
"Commission") on March 20, 1998.
Net Loss Per Common 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.
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards 128 (SFAS 128) "Earnings per Share", which
requires the disclosure of Basic Earnings per Common Share and Diluted
Earnings per Common Share, both as defined in the standard, for all periods
presented. Adoption of this standard did not have any impact on the earnings
per share computation for any period presented.
Comprehensive Income
Effective January 1, 1998, the Company adopted the Statement of
Financial Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive
Income". This statement requires changes in comprehensive income to be shown
in a financial statement that is displayed with the same prominence as other
financial statements. Adoption of this statement did not have an impact on
the financial statements.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS 133) "Accounting
for Derivative Instruments and Hedging Activities" which is effective for
fiscal years beginning after June 15, 1999. The statement establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 also requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Adoption of this standard is not expected to
have a material impact on the financial position or results of operations of
the Company.
-6-
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Except for the historical information contained herein, this
Quarterly Report on Form 10-Q 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, other income and future revenues due
under the Company's collaborative agreements to fund its operating expenses
and capital requirements as currently planned through mid-1999 (ii)
statements about the amount of capital expenditures that the Company expects
to incur in 1998, (iii) statements about the Company's plans to begin
clinical trials of daptomycin in the fourth quarter of 1998 or first quarter
of 1999, and (iv) 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 the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997. The
forward-looking statements contained herein represent the Company's judgment
as of the date of this quarterly report on Form 10-Q, and the Company
cautions readers not to place undue reliance on such statements.
Overview
Since its incorporation on May 1, 1992 and commencement of
operations in February 1993, Cubist has been focused on the discovery,
development and commercialization of novel antiinfective drugs to treat
infectious diseases caused by bacteria and fungal pathogens. 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. The Company is a party to collaborative agreements based
specifically on its aminoacyl-tRNA synthetase program with Bristol-Myers
Squibb Company ("Bristol-Myers Squibb") and Merck & Co., Inc. ("Merck").
Under these collaborative agreements, the Company is entitled to receive
research support payments 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.
In addition, the Company entered into a license agreement with Eli
Lilly and Company ("Eli Lilly") pursuant to which the Company acquired
exclusive worldwide rights to develop, manufacture and market daptomycin.
Daptomycin is a novel, natural product being developed for the treatment of
Staphylococcus aureus and enterococcus infections. The Company anticipates
that it will begin clinical trials of daptomycin in the fourth quarter of
1998 or the first quarter of 1999. In exchange for such license, the Company
has paid an upfront license fee in cash, and if certain drug development
milestones are achieved, has agreed to pay milestone payments by issuing
shares of Common Stock to Eli Lilly. In addition, the Company will be
required to pay royalties to Eli Lilly on worldwide sales of daptomycin.
-7-
<PAGE>
Results of Operations
Three Months Ended June 30, 1998 and 1997
Revenues. Total revenues in the three months ended June 30, 1998
were $374,000 compared to $844,000 in the three months ended June 30, 1997, a
decrease of $470,000 or 55.7%. The revenue earned in the three months ended
June 30, 1998 consisted of $250,000 in research support funding from the
Bristol-Myers Squibb, and $124,000 in SBIR grants. In the three months ended
June 30, 1997, revenues consisted of research funding from the Bristol-Myers
Squibb, Merck and Pfizer collaborations. The decrease was due to smaller
revenues associated with such stage of the Merck and Pfizer collaborations.
Research and Development Expenses. Total research and development
expenses in the three months ended June 30, 1998 were $2,705,000 compared to
$2,293,000 in the three months ended June 30, 1997, an increase of $412,000
or 18%. The increase was largely due to increased costs related to daptomycin
development, and the additional personnel and purchases that are required by
such development.
General and Administrative Expenses. General and administrative
expenses in the three months ended June 30, 1998 were $817,000 compared to
$934,000 in the three months ended June 30, 1997, a decrease of $117,000 or
12.5%. The decrease was largely due to both decreased legal expenses and
public relation expenses as compared to the expenses which were incurred in
the three months ended June 30, 1997.
Interest Income and Expense. Interest income in the three months
ended June 30, 1998 was $196,000 compared to $247,000 in three months ended
June 30, 1997, a decrease of $51,000 or 20.6%. The decrease in interest
income was due primarily to lower average cash, cash equivalent and
investment balances during the three months ended June 30, 1998 as compared
to the three months ended June 30, 1997. Interest expense in the three months
ended June 30, 1998 was $91,000 as compared to $64,000 during the three
months ended June 30, 1997 due to increased capital lease activity.
Net Loss. The net loss during the three months ended June 30, 1998
was $3,044,000 compared to $2,200,000 during the three months ended June 30,
1997, an increase of $844,000 or 38.4%. The increase was primarily due to the
additional expenses incurred to support the advancement of the Company's
internal research and development programs, as well as reduced revenue from
such stage of research support funding.
Six Months Ended June 30, 1998 and 1997
Revenues. Total revenues in the six months ended June 30, 1998 were
$887,000 compared to $1,679,000 in the six months ended June 30, 1997, a
decrease of $792,000 or 47.2%. The revenue recognized in the six months ended
June 30, 1998 consisted of $607,000 in research support payments from the
Bristol-Myers Squibb and Merck collaborations; and $280,000 in SBIR grants.
In the six months ended June 30, 1997, revenues consisted of research support
payments from Bristol-Myers Squibb, Merck and Pfizer; and milestone payments
from Bristol-Myers Squibb. The decrease was due to smaller revenues
associated with such stage of the Bristol-Myers Squibb collaboration.
Research and Development Expenses. Total research and development
expenses in the six months ended June 30, 1998 were $5,269,000 compared to
$4,304,000 in the six months ended June 30, 1997, an increase of $965,000 or
22.4%. The increase was largely due to increased costs related to daptomycin
development, and the additional personnel and purchases that are required by
such development.
General and Administrative Expenses. General and administrative
expenses in the six months ended June 30, 1998 were $1,675,000 compared to
$1,579,000 in the six months ended June 30, 1997, an increase of $96,000 or
6.1%. The increase was primarily due to increased costs related to additional
personnel hired in connection with the Company's growth, offset by decreased
legal expenses and public relation expenses.
-8-
<PAGE>
Interest Income and Expense. Interest income in the six months ended
June 30, 1998 was $380,000 compared to $534,000 in the six months ended June
30, 1997, a decrease of $154,000 or 28.8%. The decrease in interest income
was due primarily to a lower average cash, cash equivalent and investment
balances during the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997. Interest expense in the six months ended June 30,
1998 was $184,000 as compared to $120,000 during the six months ended June
30, 1997 due to increased capital lease activity.
Net Loss. The net loss during the six months ended June 30, 1998 was
$5,861,000 compared to $3,791,000, an increase of $2,070,000 or 54.6%. The
increase was primarily due to the additional expenses incurred to support the
advancement of the Company's internal research and development programs, as
well as reduced revenue from such stage of research support funding.
Liquidity and Capital Resources
Since inception, the Company has financed its operations through the
sale of equity securities, equipment financing, sponsored research revenues,
license revenues and interest earned on invested capital. The Company's total
cash, cash equivalent and investments balance at June 30, 1998 was
$12,530,000 compared to $18,116,000 at December 31, 1997.
As of June 30, 1998, the Company had invested an aggregate of
$6,761,000 (of which $541,000 was invested during the three months then
ended) in property and equipment, primarily in laboratory equipment under
capital leases. The obligations under capital leases at June 30, 1998 were
$1,914,000. Minimum annual principal payments due under capital leases total
$543,000 in 1998. Principal payments are scheduled to decline each year
thereafter until expiration in 2002. The Company made principal payments
under its capital lease obligations of $330,000 in the six months ended on
June 30, 1998. The Company expects its capital expenditures in 1998 to be
approximately $1,500,000 consisting of laboratory and other equipment
purchases.
The Company believes that its existing capital resources, interest
income and future revenues due under the Bristol-Myers Squibb and Merck
collaborative agreements will be sufficient to fund its operating expenses
and capital requirements, as currently planned, through mid-1999. 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 cash, cash equivalents, other capital resources, interest
income and future revenues due under the Bristol-Myers Squibb and Merck
collaborative agreements will be sufficient to fund its operating expenses
and capital requirements during such period. The Company will need to raise
substantial additional capital to fund its operations. The Company intends to
seek such additional funding through public or private financing or
collaborative or other arrangements with corporate partners.
The Company is currently engaged in an effort to raise up to
$20,000,000 through a private offering of its Common Stock and warrants
exercisable for shares of Common Stock. The proceeds of this private offering
will be used primarily to fund the clinical development of daptomycin. There
can be no assurance that the proposed offering will be consummated.
Earnings Per Share
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards 128 (SFAS 128) "Earnings per Share", which
requires the disclosure of Basic Earnings per Common Share and Diluted
Earnings per Common Share, both as defined in the standard, for all periods
presented. Adoption of this standard did not have any impact on the earnings
per share computation for any period presented.
-9-
<PAGE>
Comprehensive Income
Effective January 1, 1998, the Company adopted the Statement of
Financial Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive
Income". This statement requires changes in comprehensive income to be shown
in a financial statement that is displayed with the same prominence as other
financial statements. Adoption of this statement did not have an impact on
the financial statements.
Investments
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS 133) "Accounting
for Derivative Instruments and Hedging Activities" which is effective for
fiscal years beginning after June 15, 1999. The statement establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 also requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Adoption of this standard is not expected to
have a material impact on the financial position or results of operations of
the Company.
Year 2000 Compliance
The Company has assessed the impact of the year 2000 as it relates
to the Company's computer and operating systems and does not believe there is
a significant risk of material impact from the year 2000 on the Company's
internal systems, business, results of operations or financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
-10-
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company's Registration Statement on Form S-1 (Reg. No. 333-6795)
in connection with the Company's initial public offering of Common Stock was
declared effective by the Securities and Exchange Commission ("the SEC") on
October 25, 1996. On October 25, 1996, the Company also filed another
Registration Statement on Form S-1 (Reg. No. 333-5880) with the SEC pursuant
to Rule 462 (b) promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Such Registration Statements (together the "IPO
Registration Statement") provided for the registration under the Securities
Act of 2,875,000 shares of the Company's Common Stock.
The aggregate initial public offering proceeds for all 2,875,000
shares of Common Stock registered under the Securities Act pursuant to the
IPO Registration Statement was $17,250,000. The net proceeds to the Company
from such issuance and distribution, after deducting the aggregate amount of
expenses (including underwriting discounts and commissions) paid by the
Company in connection therewith, were $15,153,000.
Of such net proceeds, an aggregate of $8,806,000 has been spent
through June 30, 1998 for the following uses and in the following amounts per
use: $324,000 in construction of plant, building and facilities; $1,662,000
for repayment of indebtedness; $6,820,000 for working capital. All amounts
spent by the Company for such uses, other than payment of salaries to
directors and officers of the Company, consisted of direct payments to
persons or entities, none of which was a director or officer of the Company,
holder of 10 percent or more of any class of equity securities of the Company
or other affiliate of the Company. The remaining balance of such net
proceeds, consisting of $6,347,000, are held in cash, cash equivalents, and
investments.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on May 21,
1998.
(b) The Annual Meeting was held to consider and vote upon (i) electing two
Class II directors of the Company to hold office for a three year term and
until their successors have been duly elected and qualified, (ii) ratifying
the adoption and approval by the Board of Directors of an amendment to the
Company's Amended and Restated 1993 Stock Option Plan to provide for an
increase in the number of shares of Common Stock authorized for issuance
under the Plan and (iii) ratifying the adoption and approval by the Board of
Directors of the Company's 1997 Employee Stock Purchase Plan.
(c) The votes cast with respect to each Director are summarized below:
<TABLE>
<CAPTION>
Director name For Withheld Total Votes
- ------------- --- -------- -----------
<S> <C> <C> <C>
Barry Bloom, Ph.D. 8,975,664 62,724 9,038,388
George Conrades 8,974,607 63,781 9,038,388
</TABLE>
The votes cast for ratifying the amendment to the Company's Amended
and Restated 1993 Stock Option Plan are summarized as follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
- --- ------- ------- ----------------
<S> <C> <C> <C>
7,737,832 171,773 15,185 1,113,598
</TABLE>
The votes cast for ratifying the adoption of the Company's 1997
Employee Stock Purchase Plan are summarized as follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
- --- ------- ------- ----------------
<S> <C> <C> <C>
7,796,181 113,010 15,599 1,113,598
</TABLE>
-11-
<PAGE>
Item 5. Other Information
The Company is currently engaged in an effort to raise up
to $20,000,000 through a private offering of its Common Stock and warrants
exercisable for shares of Common Stock. The proceeds of this private offering
will be used primarily to fund the clinical development of daptomycin. There
can be no assurance that the proposed offering will be consummated.
THE SECURITIES PROPOSED TO BE OFFERED AND SOLD BY THE COMPANY IN THE PRIVATE
OFFERING WILL NOT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES ABSENT REGISTRATION OR AN APPLICABLE EXEMPTION FROM
REGISTRATION.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*10.1 -- Amendment No. 1 to Collaborative Research and License
Agreement with Merck, dated as of October 30, 1997
*10.2 -- Amendment No. 2 to Collaborative Research and License
Agreement with Merck, dated as of April 30, 1998
10.3 -- First Amendment to Amended and Restated 1993 Stock Option
Plan
10.4 -- 1997 Employee Stock Purchase Plan
27 -- Financial Data Schedule
-------------
*Confidential Treatment Requested
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1998.
-12-
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
August 12, 1998 By:
--------------------------------------
Thomas A. Shea,
Senior Director of Finance
& Administration and Treasurer
(Authorized Officer and Principal
Finance and Accounting Officer)
-13-
<PAGE>
Exhibit 10.1
CONFIDENTIAL TREATMENT
AMENDMENT NO. 1
TO
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
This Amendment No. 1 (the "AMENDMENT") to Collaborative Research and
License Agreement between Merck & Co., Inc., a New Jersey corporation ("MERCK")
and Cubist Pharmaceuticals, Inc. ("CUBIST") dated as of June 13, 1996 ( the
"AGREEMENT"), is made as of October 30, 1997 (the "AMENDMENT EFFECTIVE DATE").
Capitalized terms not otherwise defined in this AMENDMENT shall have the
meanings ascribed to them in the AGREEMENT.
The AGREEMENT is amended as follows:
1. Additional PROGRAM tRNA SYNTHETASES.
(a) Effective as of the AMENDMENT EFFECTIVE DATE, Section 1.35 of
the AGREEMENT is amended to add the following [ ]* to the
definition of PROGRAM tRNA SYNTHETASES: [ ]*. Such additional
PROGRAM tNRA SYNTHETASES are also referred to in this
AMENDMENT as the "NEW PROGRAM tRNA SYNTHETASES", but shall,
for all purposes of the AGREEMENT, be treated as PRGORAM tRNA
SYNTHETASES.
(b) Section 2.1.1(a) of the AGREEMENT is modified to provide that
no later than [ ]* after the AMENDMENT EFFECTIVE DATE, CUBIST
shall complete production of three additional PRIMARY
SCREENING MODULES relating to the NEW PROGRAM tRNA
SYNTHETASES. Such additional PRIMARY SCREENING MODULES are
also referred to in this AMENDMENT as the "ADDITIONAL
MODULES", but shall, for all purposes of the AGREEMENT, be
treated as PRIMARY SCREENING MODULES.
(c) Sections 2.1.1(b)(i) and (ii) of the AGREEMENT are modified to
provide that upon completion of the production of the NEW
MODULES, CUBIST and MERCK shall employ the NEW MODULES in the
PRIMARY SCREENING PLAN to screen MERCK COMPOUND LIBRARIES as
provided in the AGREEMENT. CUBIST shall have completed the
PRIMARY SCREENING PROGRAM (including the NEW PROGRAM tRNA
SYNTHETASES
*Confidential treatment requested: Material has been
omitted and filed separately with the Commission.
<PAGE>
and the NEW MODULES) to identify HITS as to all MERCK COMPOUND
LIBRARIES by February 1, 1997.
(d) For the purposes of Section 2.1.1(b)(iii) of the AGREEMENT, it
is expressly understood and agreed that the NEW PROGRAM tRNA
SYNTHETASES are in addition to, and not in substitution of,
the PROGRAM SYNTHETASES originally specified under Section
1.35 of the AGREEMENT.
(e) The following language is added to the end of Section 5.5.3 of
the AGREEMENT: [ ]*
2. Additional Research Payments. In consideration of the additional
screening activities contemplated by this AMENDMENT, MERCK agrees to pay to
CUBIST the sum of [ ]*. Such sum is in addition to the amount specified in
Section 3.3 of the AGREEMENT, and shall be paid quarterly in the manner
specified in Section 3.3 of the AGREEMENT.
3. AGREEMENT In Force. Except as specifically modified or amended by
this AMENDMENT, the AGREEMENT, continues in full force and effect. It is
specifically acknowledged that no rights to CUBIST compounds are provided by
this AMENDMENT, nor are any rights to information supplied by MERCK to CUBIST
relating to such CUBIST compounds included in this AMENDMENT.
IN WITNESS WHEREOF, the parties have executed this AMENDMENT as of
the dates set forth below.
CUBIST PHARMACEUTICALS, INC. MERCK & CO., INC.
By: /s/ Mark Carthy By: /s/
---------------------------- --------------------------
Title: Vice President and Chief Title: Executive Vice President
---------------------------- --------------------------
Business Officer Worldwide Basic Res.
---------------------------- --------------------------
Date: Dec 4, 1997 Date: 11 Dec. 1997
---------------------------- --------------------------
*Confidential treatment requested: Material has been
omitted and filed separately with the Commission.
<PAGE>
Exhibit 10.2
AMENDMENT NO. 2
TO
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
This Amendment No. 2 ("AMENDMENT NO. 2") is made this 30th day of
April, 1998, between Merck & Co., Inc., a New Jersey corporation ("MERCK")
and Cubist Pharmaceuticals, Inc., a Delaware corporation ("CUBIST"), and
amends a COLLABORATIVE RESEARCH AND LICENSE AGREEMENT between MERCK and
CUBIST dated as of June 13, 1996 (the "ORIGINAL AGREEMENT"), and AMENDMENT
NO. 1 TO COLLABORATIVE RESEARCH AND LICENSE AGREEMENT between MERCK and
CUBIST dated as of October 30, 1997, ("AMENDMENT NO. 1"). Terms not otherwise
defined in this AMENDMENT NO. 2 shall have the meanings ascribed to them in
the ORIGINAL AGREEMENT and AMENDMENT NO. 1.
WHEREAS, CUBIST possesses, CUBIST COMPOUNDS and desires, at its own
expense, to conduct a screening program for the purpose of determining the
enzyme inhibiting capability of certain of such CUBIST COMPOUNDS against the
PROGRAM tRNA SYNTHETASES (the "CUBIST SCREENING PROGRAM"), for the purpose of
identifying HITS and providing information regarding such HITS and rights to
such CUBIST COMPOUNDS to MERCK under the COLLABORATION on the terms specified
in the ORIGINAL AGREEMENT, as amended by AMENDMENT NO. 1 and this AMENDMENT
NO. 2 (collectively the "AMENDED AGREEMENT").
<PAGE>
WHEREAS, MERCK is willing to accept such information and rights to
such CUBIST COMPOUNDS on the terms specified in this AMENDMENT NO. 2;
NOW THEREFORE, it is agreed as follows:
1. DEFINITIONS
(a) The following defined terms shall have the indicated
meanings:
"CUBIST COMPOUND LIBRARY" or "CUBIST COMPOUNDS" shall mean those
chemical libraries or compounds owned or licensed by, or in the possession or
control of, CUBIST and comprised of natural products, combinatorial libraries
and synthetic sample collections.
"CUBIST DISCLOSURE PROGRAM" is defined in Paragraph 2 of this
AMENDMENT NO. 2.
"CUBIST LEAD COMPOUND" shall mean any CUBIST COMPOUND which is shown
to meet certain of the criteria for inhibitory activity against PROGRAM tRNA
SYNTHESES under the CUBIST SCREENING PROGRAM as such criteria are set forth
in the RESEARCH PLAN and which is disclosed to the RESEARCH COMMITTEE under
the CUBIST DISCLOSURE PROGRAM.
"LEAD CANDIDATE" shall mean any MERCK COMPOUND or CUBIST LEAD
COMPOUND targeted by the RESEARCH COMMITTEE for a LEAD CANDIDATE PRIMARY
SCREENING PROGRAM, a LEAD CANDIDATE
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<PAGE>
SECONDARY SCREENING PROGRAM, a LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAM and/or LEAD CANDIDATE DRUG DEVELOPMENT PROGRAM as a result
of the CUBIST DISCLOSURE PROGRAM. Any LEAD CANDIDATE shall be so designated
in writing by the RESEARCH COMMITTEE.
"LEAD CANDIDATE HIT" shall mean a LEAD CANDIDATE which, in the
course of the LEAD CANDIDATE PRIMARY SCREENING PROGRAM, is shown to meet the
criteria for inhibitory activity against a PROGRAM tRNA SYNTHETASES, as such
criteria is set forth in the RESEARCH PLAN.
"LEAD CANDIDATE PRIMARY SCREENING PROGRAM" shall mean a PRIMARY
SCREENING PROGRAM carried out under Paragraph 3 of this AMENDMENT NO. 2 with
respect to LEAD CANDIDATES .
"LEAD CANDIDATE SECONDARY SCREENING PROGRAM" shall mean a SECONDARY
SCREENING PROGRAM carried out under Paragraph 3 of this AMENDMENT NO. 2 with
respect to LEAD CANDIDATES.
"LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM"
shall mean a MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM carried out under
Paragraph 4 of this AMENDMENT NO. 2 with respect to LEAD CANDIDATES.
-3-
<PAGE>
"LEAD CANDIDATE DRUG DEVELOPMENT PROGRAM" shall mean a DRUG
DEVELOPMENT PROGRAM carried out under Paragraph 4 of this AMENDMENT NO. 2
with respect to LEAD CANDIDATES.
"ORIGINAL AMENDED AGREEMENT" shall mean the ORIGINAL AGREEMENT as
amended by AMENDMENT NO. 1.
"REVISED RESEARCH PLAN" means the Research Plan attached as Exhibit
A.
(b) The definitions contained in the ORIGINAL AMENDED AGREEMENT are
modified as follows:
"COLLABORATION" shall include the LEAD CANDIDATE PRIMARY SCREENING
PROGRAM, the LEAD CANDIDATE SECONDARY SCREENING PROGRAM, the LEAD CANDIDATE
MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM and the LEAD CANDIDATE DRUG
DEVELOPMENT PROGRAM carried out under Paragraph 4 of this AMENDMENT NO 2.
"COMPOUND" shall include any MERCK COMPOUND and any CUBIST LEAD
COMPOUND.
"CUBIST INTELLECTUAL PROPERTY" shall include CUBIST LEAD COMPOUNDS
and all information, research results and other KNOW-HOW
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<PAGE>
disclosed by CUBIST to the RESEARCH COMMITTEE under the CUBIST DISCLOSURE
PROGRAM.
"DRUG DEVELOPMENT PROGRAM" shall include any LEAD CANDIDATE DRUG
DEVELOPMENT PROGRAM conducted under Paragraph 4 of this AMENDMENT NO. 2.
"HIT" shall include any LEAD CANDIDATE HIT.
"MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM" shall include any
LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM conducted under
Paragraph 4 of this AMENDMENT NO. 2.
"MERCK COMPOUND" shall include any MERCK COMPOUND which is
structurally modified under the COLLABORATION as a result of the CUBIST
DISCLOSURE PROGRAM.
"PRIMARY SCREENING PROGRAM" shall include the LEAD CANDIDATE PRIMARY
SCREENING PROGRAM conducted under Paragraph 3 of this AMENDMENT NO. 2 and the
REVISED RESEARCH PLAN.
"RESEARCH PLAN" shall include the REVISED RESEARCH PLAN.
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<PAGE>
"SECONDARY SCREENING PROGRAM" shall include the LEAD CANDIDATE
SECONDARY SCREENING PROGRAM conducted under Paragraph 3 of this AMENDMENT NO.
2 and the REVISED RESEARCH PLAN.
2. CUBIST DISCLOSURE PROGRAM
During the term of the COLLABORATION, CUBIST may inform the RESEARCH
COMMITTEE of CUBIST LEAD COMPOUNDS identified under the CUBIST SCREENING
PROGRAM (the "CUBIST DISCLOSURE PROGRAM). Any such disclosures will be
accompanied by a full presentation of all information generated by CUBIST
under the CUBIST SCREENING PROGRAM regarding such CUBIST LEAD COMPOUNDS with
respect to (i) screening results using the PROGRAM tRNA SYNTHETASES under the
CUBIST SCREENING PROGRAM, (ii) chemical structures of such CUBIST LEAD
COMPOUNDS and (iii) such other information as the RESEARCH COMMITTEE may
request regarding such CUBIST LEAD COMPOUNDS and which is available to
CUBIST. The RESEARCH COMMITTEE may then determine, in its sole discretion, to
designate any such CUBIST LEAD COMPOUND as a LEAD CANDIDATE or to include
INTELLECTUAL PROPERTY received from CUBIST in connection with such CUBIST
LEAD COMPOUND under the CUBIST DISCLOSURE PROGRAM as part of the
COLLABORATION for potential incorporation into or any use in developing a
LEAD CANDIDATE. Any such election by the RESEARCH COMMITTEE shall be made in
writing. The initial CUBIST LEAD COMPOUNDS
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<PAGE>
included in the COLLABORATION as LEAD CANDIDATES and/or with respect to which
INTELLECTUAL PROPERTY learned under the CUBIST DISCLOSURE PROGRAM may be
incorporated into or otherwise used in developing a LEAD CANDIDATE are
identified on Exhibit B to this AMENDMENT NO. 2.
3. LEAD CANDIDATE SCREENING PROGRAMS
The PRIMARY SCREENING PROGRAM and the SECONDARY SCREENING PROGRAM,
in so far as all LEAD CANDIDATES are concerned, shall proceed as follows:
(a) The PRIMARY SCREENING PROGRAM in Section 2.1.1(b)(i) of the
ORIGINAL AMENDED AGREEMENT is modified as follows:
(i) CUBIST shall employ the PRIMARY SCREENING MODULES in a
LEAD CANDIDATE PRIMARY SCREENING PROGRAM to screen the LEAD CANDIDATES
in a manner which, in the sole judgment of the RESEARCH COMMITTEE, is
suitable for such purpose. LEAD CANDIDATES which are MERCK COMPOUNDS
shall be provided to CUBIST in coded form. The LEAD CANDIDATE PRIMARY
SCREENING PROGRAM shall be carried out by CUBIST, at CUBIST's sole cost
and expense.
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<PAGE>
(ii) Sections 2.1.1(b)(ii) and (iii) of the ORIGINAL AMENDED
AGREEMENT, as further amended by this AMENDMENT NO. 2, remain in effect
and shall apply to the LEAD CANDIDATE PRELIMINARY SCREENING PROGRAM.
(iii) Section 2.1.1(a) of the ORIGINAL AMENDED AGREEMENT, as
further amended by this AMENDMENT NO. 2, has been completed and no
further work thereunder shall be required as a part, of this AMENDMENT
NO. 2.
(b) The SECONDARY SCREENING PROGRAM in Section 2.1.1(c)(i) of the
ORIGINAL AMENDED AGREEMENT is modified as follows:
(i) Promptly following the identification of a LEAD CANDIDATE
HIT in the LEAD CANDIDATE PRIMARY SCREENING PROGRAM, CUBIST will begin
a LEAD CANDIDATE SECONDARY SCREENING PROGRAM with respect to each such
LEAD CANDIDATE HIT. Such LEAD CANDIDATE SECONDARY SCREENING PROGRAM
will be completed in a diligent manner and with respect to each LEAD
CANDIDATE HIT, and the results of such LEAD CANDIDATE SECONDARY
SCREENING PROGRAM will be promptly reported to MERCK. The LEAD
CANDIDATE SECONDARY SCREENING shall be carried out by CUBIST at
CUBIST's sole cost and expense.
-8-
<PAGE>
(ii) Section 2.1.1(c)(ii) and (iii) of the ORIGINAL AMENDMENT,
as further amended by this AMENDMENT NO. 2, remain in effect and shall
apply to the LEAD CANDIDATE SECONDARY SCREENING PROGRAM.
4. LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG DISCOVERY
PROGRAM; DRUG DEVELOPMENT PROGRAM
(a) The MEDICINAL CHEMISTRY DRUG DISCOVERY PROGRAM provisions in
Section 2.1.2 of the ORIGINAL AMENDED AGREEMENT are modified, insofar as all
LEAD CANDIDATE HITS are concerned, as follows:
(i) Promptly following receipt of the results of a LEAD
CANDIDATE SECONDARY SCREENING PROGRAM regarding a LEAD CANDIDATE HIT,
the RESEARCH COMMITTEE shall indicate whether it recommends such LEAD
CANDIDATE HIT for further evaluation as an ANTIINFECTIVE AGENT OR
AGENTS in a LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG DISCOVERY
PROGRAM, and shall notify CUBIST and MERCK of such designation (such
notice shall constitute a "MEDICINAL CHEMISTRY NOTICE"). Subject to
Sections 2.1.3(i) and 2.1.3(ii) of the ORIGINAL AMENDED AGREEMENT, as
applicable, CUBIST shall conduct the medicinal chemistry activities
during the course of the LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAM. Subject to Section 2.1.3 of the ORIGINAL AMENDED
AGREEMENT and promptly following its receipt of the MEDICINAL CHEMISTRY
NOTICE, MERCK shall reveal to CUBIST the identity and
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<PAGE>
chemical structure of the LEAD CANDIDATE HIT being developed (to the
extent not previously disclosed to or known by CUBIST), provided
however that MERCK shall not be obligated to make such disclosure if
CUBIST elects, pursuant to Section 2.1.3 of the ORIGINAL AMENDED
AGREEMENT, not to pursue the LEAD CANDIDATE MEDICINAL CHEMISTRY AND
DRUG DISCOVERY PROGRAM. Subject to Section 2.1.3(i) of the ORIGINAL
AMENDED AGREEMENT, CUBIST shall devote such FTEs to the LEAD CANDIDATE
MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM as are specified under
plans and budgets approved in advance by MERCK. MERCK will pay CUBIST
on an "FTE basis" (not to exceed [ ]* per FTE) for that number of FTEs
as have been committed to the LEAD CANDIDATE MEDICINAL CHEMISTRY DRUG
DISCOVERY PROGRAM and as have been approved by MERCK. Subject to
Sections 2.1.3(i) or (ii) of the ORIGINAL AMENDED AGREEMENT, as
applicable, during the LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAM, MERCK will provide such other support as shall
reasonably be required by CUBIST. The goal of the LEAD CANDIDATE
MEDICINAL CHEMISTRY AND DRUG DISCOVERY PROGRAM is the identification of
a compound suitable for a DRUG DEVELOPMENT PROGRAM.
*Confidential treatment requested: Material has been
omitted and filed separately with the Commission.
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<PAGE>
(ii) Section 2.1.3 of the ORIGINAL AMENDED AGREEMENT, as
further amended by this AMENDMENT NO. 2, remains in effect and shall
apply to the LEAD CANDIDATE MEDICINAL CHEMISTRY AND DRUG DISCOVERY
PROGRAM.
(b) The DRUG DEVELOPMENT PROGRAM provisions in Section 2.1.4 of the
ORIGINAL AMENDED AGREEMENT are modified, insofar as all LEAD CANDIDATE HITS
are concerned, to add the following:
CUBIST may be delegated the responsibility to perform preclinical
development work under a DRUG DEVELOPMENT PROGRAM relating to LEAD CANDIDATES
HITS and LICENSED PRODUCTS under a LEAD CANDIDATE DRUG DEVELOPMENT PROGRAM as
shall be determined by MERCK. All such work under LEAD CANDIDATE DRUG
DEVELOPMENT PROGRAM shall be accomplished pursuant to a work plan and budgets
approved in advance by MERCK. MERCK shall pay CUBIST on an "'FTE basis" (not
to exceed [ ]* per FTE) for the number of FTEs as have been committed to the
LEAD CANDIDATE DRUG DEVELOPMENT PROGRAM and as have been approved by MERCK.
CUBIST shall hold at least one meeting each calendar quarter to inform the
RESEARCH COMMITTEE regarding the progress of all work done in connection with
a LEAD CANDIDATE DRUG DEVELOPMENT PROGRAM.
*Confidential treatment requested: Material has been omitted
and filed separately with the Commission.
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<PAGE>
MERCK may, at its discretion, discontinue or relocate any work delegated to
CUBIST in connection with a LEAD COMPOUND DRUG DEVELOPMENT PROGRAM at any
time upon three months prior written notice.
(c) CUBIST shall submit invoices to MERCK at the end of each
calendar quarter (January-March, April-June, July-September, and
October-December) for FTE's expended under the MEDICINAL CHEMISTRY DRUG
DISCOVERY and the DRUG DEVELOPMENT PROGRAM, including the LEAD CANDIDATE
MEDICINAL CHEMISTRY DRUG DISCOVERY PROGRAM and LEAD CANDIDATE DRUG
DEVELOPMENT PROGRAM, which amount shall be prorated on a daily basis for
partial calendar quarters. Invoices shall be payable by MERCK 30 days after
receipt. The conduct and cost and expense of all MEDICINAL CHEMISTRY AND DRUG
DISCOVERY PROGRAMS and all DRUG DEVELOPMENT PROGRAMS, other than the LEAD
CANDIDATE MEDICINAL CHEMISTRY DRUG DISCOVERY PROGRAM and LEAD CANDIDATE DRUG
DEVELOPMENT PROGRAM, shall continue to be as provided in Section 2.1.3 and
2.1.4 of the ORIGINAL AMENDED AGREEMENT.
5. NO ADDITIONAL PAYMENTS
It is agreed by CUBIST and MERCK that no additional payments shall
be due under Sections 3.1, 3.2 or 3.3 of the ORIGINAL AMENDED AGREEMENT
regarding the LEAD CANDIDATE PRIMARY SCREENING PROGRAM or the
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<PAGE>
LEAD to CANDIDATE SECONDARY SCREENING PROGRAM, notwithstanding that
additional assays are to be conducted in connection therewith as provided in
Paragraph 2 of the AMENDMENT NO. 2 and additional INTELLECTUAL PROPERTY
rights may be provided by CUBIST.
6. MILESTONE CREDITS
In consideration of the entering into of this AMENDMENT NO. 2 by
CUBIST and the performance by CUBIST of its obligations hereunder, MERCK
agrees that the credit of BASE MILESTONE PAYMENTS against royalties under
Section 3.5(iii) of the ORIGINAL AMENDED AGREEMENT shall not apply to the
first two LICENSED PRODUCTS approved for marketing in any country. Similarly,
to the extent Section 3.6(ii) or 3.7(ii) of the ORIGINAL AMENDED AGREEMENT
would apply to either of such first two LICENSED PRODUCTS approved for
marketing in any country, the credit of BASE MILESTONE ROYALTY PAYMENTS
against royalties under such Sections 3.6(ii) or 3.7(ii) shall not apply to
such first LICENSED PRODUCTS.
7. TERMINATION OF CUBIST LEAD COMPOUND
In the event that (i) the RESEARCH COMMITTEE shall determine that a
LEAD CANDIDATE shall be discontinued from further research under a LEAD
CANDIDATE PRIMARY SCREENING PROGRAM, LEAD CANDIDATE SECONDARY SCREENING
PROGRAM, LEAD CANDIDATE MEDICINAL
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<PAGE>
CHEMISTRY AND DRUG DISCOVERY PROGRAM, or a LEAD COMPOUND DRUG DEVELOPMENT
PROGRAM, or shall otherwise determine, to cease further research and
development efforts with respect to such LEAD COMPOUND and (ii) MERCK shall
have obtained marketing clearance in the United States for a LICENSED PRODUCT
under this COLLABORATION, then CUBIST may request and MERCK, in its sole
discretion, may extend to CUBIST, the opportunity to enter into good faith
negotiations to provide CUBIST the right to develop such LEAD COMPOUND
outside of the COLLABORATION by itself or with third parties.
8. ORIGINAL AGREEMENT IN EFFECT
Except as specifically modified or amended by this AMENDMENT NO. 2,
the ORIGINAL AMENDED AGREEMENT continues in full force and effect.
IN WITNESS WHEREOF, the parties have executed this AMENDMENT NO. 2
as of the date first written above.
CUBIST PHARMACEUTICALS, INC. MERCK & CO., INC.
By: /s/ Mark Carthy By: /s/
----------------------------- --------------------------
Mark Carthy
Chief Business Officer
Cubist Pharmaceuticals, Inc.
21 - April -1998
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<PAGE>
Exhibit 10.3
CUBIST PHARMACEUTICALS, INC.
FIRST AMENDMENT
TO
1993 AMENDED AND RESTATED STOCK OPTION PLAN
This FIRST AMENDMENT (this "Amendment") to the Amended and Restated
1993 Stock Option Plan (the "Plan") of Cubist Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), is being adopted by resolution of the
Board of Directors at a meeting held on October 30, 1997 (the "Effective
Date"), subject to the approval of the stockholders of the Company within one
year from the Effective Date. Effective from and after the Effective Date,
and subject to obtaining the required stockholder approval, the Plan is
hereby amended as follows:
1. Section 4 of the Plan hereby is amended by replacing the number
"1,500,000" in the fifth (5th) line thereof with the number "2,000,000", said
amendment being for the purpose of increasing the total number of shares of
common stock, $.001 par value per share, that may be subject to options
granted under the Plan from 1,500,000 shares to 2,000,000 shares.
Except to the extent amended hereby, all of the terms, provisions
and conditions set forth in the Plan are hereby ratified and confirmed and
shall remain in full force and effect. The Plan and this Amendment shall be
read and construed together as a single instrument.
<PAGE>
Exhibit 10.4
CUBIST PHARMACEUTICALS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Definitions. As used in this 1997 Employee Stock Purchase Plan of
Cubist Pharmaceuticals, Inc., the following terms shall have the meanings
respectively assigned to them below:
(a) Base Compensation means annual or annualized base compensation,
exclusive of overtime, bonuses, contributions to employee benefit plans, or
other fringe benefits.
(b) Beneficiary means the person designated as the Participating
Employees' beneficiary on the Participating Employee's Membership Agreement
or other form provided by the personnel department of the Company for such
purpose or, if no such beneficiary is named, the person to whom the Option is
transferred by will or under the applicable laws of descent and distribution.
(c) Board means the board of directors of the Company, except that,
if and so long as the board of directors of the Company has delegated
pursuant to Section 4 its authority with respect to the Plan to the
Committee, then all references in this Plan to the Board shall refer to the
Committee acting in such capacity.
(d) Code means the Internal Revenue Code of 1986, as amended.
(e) Committee means the Compensation Committee of the Board.
(f) Company means Cubist Pharmaceuticals, Inc., a Delaware
corporation.
(g) Disability means, with respect to any Participating Employee,
that an independent medical doctor (selected by the Company's health or
disability insurer) certifies that such Participating Employee has for four
(4) months, consecutive or non-consecutive, in any twelve-month period been
disabled in a manner which seriously interferes with the performance of his
or her responsibilities for the Company or applicable Related Corporation.
(h) Eligible Employee means a person who is eligible under the
provisions of Section 7 to receive an Option as of a particular Offering
Commencement Date.
<PAGE>
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(i) Employer means, as to any particular Offering Period, the
Company and any Related Corporation which is designated by the Board as a
corporation whose Eligible Employees are to receive Options as of that
Offering Period's Offering Commencement Date.
(j) Market Value means, as of a particular date, (i) if the Stock is
listed on an exchange, the closing price of the Stock on such date on such
exchange, (ii) if the Stock is quoted through the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market
System or any successor thereto, the closing price of the Stock on such date
and (iii) if the Stock is quoted through NASDAQ (but not on the National
Market System) or otherwise publicly traded, the average of the closing bid
and asked prices of the Stock on such date.
(k) Membership Agreement means an agreement whereby a Participating
Employee authorizes an Employer to withhold payroll deductions from his or
her Base Compensation.
(l) Offering Commencement Date means the first business day of an
Offering Period on which Options are granted to Eligible Employees.
(m) Offering Period means a semi-annual period, running from either
January 1 to the next following June 30 or July 1 to the next following
December 31, during which Options will be offered under the Plan pursuant to
a determination by the Board.
(n) Offering Termination Date means the last business day of an
Offering Period, on which Options must, if ever, be exercised.
(o) Option means an option to purchase shares of Stock granted under
the Plan.
(p) Option Shares means shares of Stock purchasable under an Option.
(q) Participating Employee means an Eligible Employee to whom an
Option is granted.
(r) Plan means this 1997 Employee Stock Purchase Plan of the
Company, as amended from time to time.
(s) Related Corporation means any corporation which is or during the
term of the Plan becomes a parent corporation of the Company, as defined in
Section 424(e) of the Code, or a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
<PAGE>
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(t) Retires means termination of employment with the Company and all
Related Corporations at or after attaining age 65.
(u) Stock means the common stock, par value $0.001 per share, of the
Company.
2. Purpose of the Plan. The Plan is intended to encourage ownership
of Stock by employees of the Company and any Related Corporations and to
provide an additional incentive for the employees to promote the success of
the business of the Company and any Related Corporations. It is intended that
the Plan shall be an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
3. Term of the Plan. The Plan shall become effective on December 1,
1997 (the "Effective Date"), subject to the approval by the stockholders of
the Company on or prior to the first anniversary of the Effective Date. No
Option shall be granted under the Plan after the date immediately preceding
the tenth anniversary of the Effective Date.
4. Administration of the Plan. The Plan shall be administered by the
Board. The Board shall determine semi-annually, on or before either December
15 and June 15, whether to grant options under the Plan with respect to the
Offering Period which would otherwise begin as of January 1 and July 1,
respectively. The Board shall determine which (if any) Related Corporations
shall be Employers as of each Offering Commencement Date. Either such
determination may in the discretion of the Board apply to all subsequent
Offering Periods until modified or revoked by the Board. The Board shall have
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms of Options granted
under the Plan, and to make all other determinations necessary or advisable
for the administration of the Plan. All determinations of the Board under the
Plan shall be final and binding as to all persons having or claiming any
interest in or arising out of the Plan. The Board may delegate all or any
portion of its authority with respect to the Plan to the Committee, and
thereafter, until such delegation is revoked by the Board, all powers under
the Plan delegated to the Committee shall be exercised by the Committee.
5. Termination and Amendment of Plan. The Board may terminate or
amend the Plan at any time; provided, however, that the Board may not,
without approval by the holders of a majority of the outstanding shares of
Stock, increase the maximum number of shares of Stock purchasable under the
Plan or change the description of employees or classes of employees eligible
to receive Options. Without limiting the generality of the foregoing but
subject to the foregoing proviso, the Board may amend the Plan from time to
time to increase
<PAGE>
-4-
or decrease the length of any future Offering Periods (e.g., to a nine month
period) and to make all required conforming changes to the Plan. No
termination of or amendment to the Plan may adversely affect the rights of a
Participating Employee with respect to any Option held by the Participating
Employee as of the date of such termination or amendment without his or her
consent.
6. Shares of Stock Subject to the Plan. No more than an aggregate of
250,000 shares of Stock may be issued or delivered pursuant to the exercise
of Options granted under the Plan, subject to adjustments made in accordance
with Section 9.7. Shares to be delivered upon the exercise of Options may be
either shares of Stock which are authorized but unissued or shares of Stock
held by the Company in its treasury. If an Option expires or terminates for
any reason without having been exercised in full, the unpurchased shares
subject to the Option shall become available for other Options granted under
the Plan. The Company shall, at all times during which Options are
outstanding, reserve and keep available shares of Stock sufficient to satisfy
such Options (or, if less, the maximum number still available for issuance
under the foregoing limit), and shall pay all fees and expenses incurred by
the Company in connection therewith. In the event of any capital change in
the outstanding Stock as contemplated by Section 9.7, the number of shares of
Stock reserved and kept available by the Company shall be appropriately
adjusted.
7. Persons Eligible to Receive Options. Each employee of an Employer
shall be granted an Option on each Offering Commencement Date on which such
employee meets all of the following requirements:
(a) The employee is customarily employed by an Employer for more
than twenty hours per week and for more than five months per calendar year
and, in the case of any Offering Period after the first Offering Period under
the Plan, has been employed by one or more of the Employers for at least one
week prior to the applicable Offering Commencement Date.
(b) The employee will not, after grant of the Option, own Stock
possessing five percent or more of the total combined voting power or value
of all classes of stock of the Company or of any Related Corporation. For
purposes of this paragraph (b), the rules of Section 424(d) of the Code shall
apply in determining the Stock ownership of the employee, and Stock which the
employee may purchase under outstanding options shall be treated as Stock
owned by the employee.
(c) Upon grant of the Option, the employee's rights to purchase
Stock under all employee stock purchase plans (as defined in Section 423(b)
of the Code) of the Company and its Related Corporations will not accrue at a
rate
<PAGE>
-5-
which exceeds $25,000 of fair market value of the Stock (determined as of the
grant date) for each calendar year in which such option is outstanding at any
time. The accrual of rights to purchase Stock shall be determined in
accordance with Section 423(b)(8) of the Code.
8. Offering Commencement Dates. Options shall be granted on the
first business day of each semi-annual period, running from either January 1
to the next following June 30 or July 1 to the next following December 31,
which is designated by the Board as an Offering Period. Following designation
by the Board of the initial Offering Period under the Plan, all succeeding
semi-annual periods described above shall be deemed Offering Periods without
need of further Board action unless and until contrary action shall have been
taken by the Board prior to the beginning of what would otherwise be an
Offering Period.
9. Terms and Conditions of Options.
9.1 General. All Options granted on a particular Offering
Commencement Date shall comply with the terms and conditions set forth in
Sections 9.2 through 9.11. Subject to Sections 7(c) and 9.9, each Option
granted on a particular Offering Commencement Date shall entitle the
Participating Employee to purchase that number of shares equal to the result
of $25,000 (or such lesser amount as is selected by the Board, prior to the
applicable Offering Commencement Date, and applied uniformly during such
Offering Period) divided by the Market Value of one such share on the
Offering Commencement Date and then rounded down, if necessary, to the
nearest whole number.
9.2 Purchase Price. The purchase price of Option Shares shall be 85%
of the lesser of (a) the Market Value of the shares as of the Offering
Commencement Date or (b) the Market Value of the shares as of the Offering
Termination Date.
9.3 Restrictions on Transfer.
(a) Options may not be transferred otherwise than by will or under
the laws of descent and distribution. An Option may not be exercised by
anyone other than the Participating Employee during the lifetime of the
Participating Employee.
(b) The Optionee shall agree in the Membership Agreement to notify
the Company of any transfer of Option Shares within two years of the Offering
Commencement Date for such Option Shares. The Company shall have the right to
place a legend on all stock certificates representing Option Shares
instructing the transfer agent to notify the Company of any transfer of such
Option Shares. The Company shall also have the right to place a legend on all
<PAGE>
-6-
stock certificates representing Option Shares setting forth or referring to
the restriction on transferability of such Option Shares.
9.4 Expiration. Each Option shall expire at the close of business on
the Offering Termination Date or on such earlier date as may result from the
operation of Section 9.6.
9.5 Termination of Employment of Optionee. If a Participating
Employee ceases for any reason (other than death or Retirement) to be
continuously employed by an Employer, whether due to voluntary severance,
involuntary severance, transfer, or disaffiliation of a Related Corporation
with the Company, his or her Option shall immediately expire, and the
Participating Employee's accumulated payroll deductions shall be returned to
the Participating Employee. For purposes of this Section 9.5, a Participating
Employee shall be deemed to be employed throughout any leave of absence for
military service, illness or other bona fide purpose which does not exceed
the longer of ninety days or the period during which the Participating
Employee's reemployment rights are guaranteed by statute (including without
limitation the Veterans Reemployment Rights Act or similar statute relating
to military service) or by contract. If the Participating Employee does not
return to active employment prior to the termination of such period, his or
her employment shall be deemed to have ended on the ninety-first day of such
leave of absence (or such longer period guaranteed by statute or by contract
as provided above).
9.6 Retirement or Death of Optionee. If a Participating Employee
Retires or dies, the Participating Employee or, in the case of death, his or
her Beneficiary shall be entitled to withdraw the Participating Employee's
accumulated payroll deductions, or to purchase shares on the Offering
Termination Date to the extent that the Participating Employee would be so
entitled had he or she continued to be employed by an Employer. The number of
shares purchasable shall be limited by the amount of the Participating
Employee's accumulated payroll deductions as of the date of his or her
Retirement or death. Accumulated payroll deductions shall be applied by the
Company toward the purchase of shares only if the Participating Employee or,
in the case of death, his or her Beneficiary submits to the Employer not
later than the Offering Termination Date a written request that the
deductions be so applied. Accumulated payroll deductions not withdrawn or
applied to the purchase of shares shall be delivered by the Company to the
Participating Employee or Beneficiary within a reasonable time after the
Offering Termination Date.
9.7 Capital Changes Affecting the Stock. In the event that, between
the Offering Commencement Date and the Offering Termination Date with respect
to an Option, a stock dividend is paid or becomes payable in respect of the
Stock or there occurs a split-up or contraction in the number of shares of
<PAGE>
-7-
Stock, the number of shares for which the Option may thereafter be exercised
and the price to be paid for each such share shall be proportionately
adjusted. In the event that, after the Offering Commencement Date, there
occurs a reclassification or change of outstanding shares of Stock or a
consolidation or merger of the Company with or into another corporation or a
sale or conveyance, substantially as a whole, of the property of the Company,
the Participating Employee shall be entitled on the Offering Termination Date
to receive shares of Stock or other securities equivalent in kind and value
to the shares of Stock he or she would have held if he or she had exercised
the Option in full immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and had continued to hold such
shares (together with all other shares and securities thereafter issued in
respect thereof) until the Offering Termination Date. In the event that there
is to occur a recapitalization involving an increase in the par value of the
Stock which would result in a par value exceeding the exercise price under an
outstanding Option, the Company shall notify the Participating Employee of
such proposed recapitalization immediately upon its being recommended by the
Board to the Company's shareholders, after which the Participating Employee
shall have the right to exercise his or her Option prior to such
recapitalization; if the Participating Employee fails to exercise the Option
prior to recapitalization, the exercise price under the Option shall be
appropriately adjusted. In the event that, after the Offering Commencement
Date, there occurs a dissolution or liquidation of the Company, except
pursuant to a transaction to which Section 424(a) of the Code applies, each
Option shall terminate, but the Participating Employee shall have the right
to exercise his or her Option prior to such dissolution or liquidation.
9.8 Payroll Deductions. A Participating Employee may purchase shares
under his or her Option during any particular Offering Period by completing
and returning to the Company's personnel department at least ten days prior
to the beginning of such Offering Period a Membership Agreement indicating a
percentage (which shall be a full integer between one and fifteen) of his or
her Base Compensation which is to be withheld each pay period. Unless the
Board decides otherwise prior to the commencement of an Offering Period, all
Participating Employees shall be permitted, no more often than once per
Offering Period, to change the percentage of Base Compensation withheld
during an Offering Period by submitting an amended Membership Agreement to
the Company's personnel department indicating a different percentage of Base
Compensation to be withheld. Any such amended Membership Agreement shall
become effective at the time determined pursuant to rules adopted by the
Board from time to time. In addition, no more than once per Offering Period,
the Participating Employee may cancel his or her Agreement and withdraw all,
but not less than all, of his or her accumulated payroll deductions by
submitting a written request therefor to the Company's personnel department
no later than the close of business on the last business day of the Offering
Period. The
<PAGE>
-8-
percentage of Base Compensation withheld may also be changed from one
Offering Period to another.
9.9 Exercise of Options. On the Offering Termination Date the
Participating Employee may purchase the number of shares purchasable by his
or her accumulated payroll deductions, or, if less, the maximum number of
shares subject to the Option as provided in Section 9.1, provided that:
(a) If the total number of shares which all Optionees elect to
purchase, together with any shares already purchased under the Plan, exceeds
the total number of shares which may be purchased under the Plan pursuant to
Section 6, the number of shares which each Optionee is permitted to purchase
shall be decreased pro rata based on the Participating Employee's accumulated
payroll deductions in relation to all accumulated payroll deductions
otherwise to be applied to the purchase of shares as of that Offering
Termination Date.
(b) If the number of shares purchasable includes a fraction, such
number shall be adjusted to the next smaller whole number and the purchase
price shall be adjusted accordingly.
Accumulated payroll deductions not withdrawn prior to the Offering
Termination Date shall be automatically applied by the Company toward the
purchase of Option Shares or, to the extent in excess of the aggregate
purchase price of the shares then purchasable by the Participating Employee,
refunded to the Participating Employee, except that where such excess is less
than the purchase price for a single share of Stock on the Offering
Termination Date, such excess shall not be refunded but instead shall be
carried over and applied to the purchase of shares in the first following
Offering Period (subject to the possibility of withdrawal by the
Participating Employee during such Offering Period in accordance with the
terms of the Plan).
9.10 Delivery of Stock. Except as provided below, within a
reasonable time after the Offering Termination Date, the Company shall
deliver or cause to be delivered to the Participating Employee a certificate
or certificates for the number of shares purchased by the Participating
Employee. A stock certificate representing the number of Shares purchased
will be issued in the participant's name only, or if his or her Membership
Agreement so specifies, in the name of the employee and another person of
legal age as joint tenants with rights of survivorship. If any law or
applicable regulation of the Securities and Exchange Commission or other body
having jurisdiction in the premises shall require that the Company or the
Participating Employee take any action in connection with the shares being
purchased under the Option, delivery of the certificate or certificates for
such shares shall be postponed until the necessary action shall have been
completed, which action shall be taken by the Company at its own expense,
without unreasonable delay. The Optionee shall have no rights as a
<PAGE>
-9-
shareholder in respect of shares for which he or she has not received a
certificate.
9.11 Return of Accumulated Payroll Deductions. In the event that the
Participating Employee or the Beneficiary is entitled to the return of
accumulated payroll deductions, whether by reason of voluntary withdrawal,
termination of employment, Retirement, death, or in the event that
accumulated payroll deductions exceed the price of shares purchased, such
amount shall be returned by the Company to the Participating Employee or the
Beneficiary, as the case may be, not later than within a reasonable time
following the Offering Termination Date applicable to the Option Period in
which such deductions were taken. Accumulated payroll deductions held by the
Company shall not bear interest nor shall the Company be obligated to
segregate the same from any of its other assets.
--------------------------------
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<PAGE>
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<NAME> CUBIST PHARMACEUTICALS, INC.
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