<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
- - OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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 November 12, 1999, there were 20,283,152 shares outstanding of
Cubist's common stock, $0.001 par value per share.
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CUBIST PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of September 30, 1999
and December 31, 1998............................................................... 3
Condensed Statements of Operations for the three and nine months ended
September 30, 1999 and 1998......................................................... 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998......................................................... 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.............................. 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................................ 12
SIGNATURE............................................................................... 13
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 9,304,693 $ 6,463,688
Short-term investments .................................. 506,930 8,692,514
Accounts receivable ..................................... -- --
Prepaid expenses and other current assets ............... 942,410 231,409
------------ ------------
Total current assets ............................... 10,754,033 15,387,611
Property and equipment ....................................... 8,266,676 7,727,821
Less: Accumulated depreciation and amortization ............. (4,807,727) (3,908,054)
------------ ------------
Property and equipment, net ............................. 3,458,949 3,819,767
Long-term investments ........................................ 3,899,333 3,855,336
Other assets ................................................. 50,258 74,238
------------ ------------
Total assets ................................... $ 18,162,573 $ 23,136,952
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................ $ 872,110 $ 460,939
Accrued expenses ........................................ 1,913,176 572,562
Current portion of long-term debt ....................... 234,175 83,957
Current portion of capital lease obligations ............ 562,277 625,450
------------ ------------
Total current liabilities ...................... 3,581,738 1,742,908
Long-term debt, net of current portion ....................... 590,820 16,109
Long-term capital lease obligation, net of current portion ... 872,646 1,292,165
------------ ------------
Total liabilities .............................. 5,045,204 3,051,182
------------ ------------
Commitments
Stockholders' Equity:
Common Stock - $.001 par value; authorized: 50,000,000 shares;
Issued and outstanding 1998 16,642,968 shares;
Issued and outstanding 1999 17,723,586 shares ........... 17,724 16,643
Additional paid-in capital ................................... 59,627,069 54,890,014
Accumulated deficit .......................................... (46,527,424) (34,820,887)
------------ ------------
Total stockholders' equity ..................... 13,117,369 20,085,770
------------ ------------
Total liabilities and stockholders' equity ..... $ 18,162,573 $ 23,136,952
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED FINANCIAL
STATEMENTS.
3
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CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sponsored research revenues $3,112,503 $373,550 $4,579,378 $1,260,650
Operating expenses:
Research and development 4,865,447 2,491,517 13,791,819 7,760,410
General and administrative 947,097 960,371 2,901,458 2,635,703
------------ ------------ ------------ ------------
Total operating expenses 5,812,544 3,451,888 16,693,277 10,396,113
Interest income 192,717 194,375 666,912 574,491
Interest expense (98,723) (80,776) (259,550) (264,297)
------------ ------------ ------------ ------------
Net loss ($2,606,047) ($2,964,739) ($11,706,537) ($8,825,269)
============ ============ ============ ============
Basic and diluted net loss per common
share ($0.15) ($0.27) ($0.67) ($0.82)
============ ============ ============ ============
Weighted average number of common shares
for basic and diluted net loss per
common share 17,604,971 11,042,603 17,444,373 10,736,550
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED FINANCIAL
STATEMENTS.
4
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CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows used for operating activities:
Net loss ....................................... $(11,706,537) $ (8,825,269)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................ 942,828 960,378
Common stock issued for technology milestone . 250,000 --
Cashless exercise of warrants ................ 38,330 --
Changes in assets and liabilities:
Accounts receivable ..................... -- 53,333
Prepaid expenses and other current assets (755,016) (46,783)
Other assets ........................... 23,980 39,051
Accounts payable and accrued expenses ... 1,751,785 1,051,866
------------ ------------
Total adjustments ..................... 2,251,907 2,057,845
------------ ------------
Net cash used for operating activities ............ (9,454,630) (6,767,424)
Cash flows from investing activities:
Purchase of equipment .......................... (453,505) (1,336,711)
Leasehold improvements ......................... (85,350) (33,642)
Purchase of short-term investments ............. (754,638) --
Maturities of short-term investments ........... 8,940,222 4,667,775
Maturities of long-term investments ............ -- 6,507,707
------------ ------------
Net cash provided by investing activities ......... 7,646,729 9,805,129
------------ ------------
Cash flows from financing activities:
Issuance of stock .............................. 4,376,669 12,823,001
Proceeds from notes receivable ................. 30,000 10,000
Repayments of debt ............................. (62,571) (158,105)
Proceeds from equipment loan ................... 787,500 913,355
Principal payments of capital lease obligations (482,692) (419,569)
------------ ------------
Net cash provided by financing activities ......... 4,648,906 13,168,682
------------ ------------
Net increase in cash and cash equivalents ......... 2,841,005 16,206,387
Cash and cash equivalents, beginning of period .... 6,463,688 2,837,600
------------ ------------
Cash and cash equivalents, end of period .......... $ 9,304,693 $ 19,043,987
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ....... $ 259,550 $ 264,297
</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
A. NATURE OF BUSINESS
Cubist Pharmaceuticals, Inc. is a specialty biopharmaceutical company
founded in May 1992 and is focused on the research, development and
commercialization of novel antimicrobial drugs to combat serious life
threatening bacterial and fungal infections. Cubist has established multiple
technology licenses and collaborations and has established a network of advisors
and collaborators. Cubist is located in Cambridge, Massachusetts.
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 Cubist's audited
financial statements and related footnotes for the year ended December 31, 1998
which are included in Cubist's Annual Report on Form 10-K. Such Annual Report on
Form 10-K was filed with the Securities and Exchange Commission on March 17,
1999.
NET LOSS PER COMMON SHARE
The net loss per common share is computed based upon the weighted
average number of common shares and 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. At
September 30, 1999, and 1998 Cubist had 2,051,841 and 1,123,900 options
outstanding, respectively. At September 30, 1999, and 1998 Cubist also had
2,931,980 and 3,119,402 warrants outstanding, respectively.
C. LICENSE AGREEMENT
On February 3, 1999, Cubist entered into a research and license
agreement with Novartis Pharma AG to use Cubist's proprietary VITA-TM-
technology to validate and develop assays for antiinfective targets and to
identify new compounds for development as antiinfective agents. In exchange for
the license, Novartis will pay research payments and, if certain scientific and
development milestones are achieved, Novartis will make milestone payments. In
addition, Novartis will be required to pay royalties to Cubist on worldwide
sales of any drug developed and commercialized from any products derived from
this collaboration. Upon the signing of the research and license agreement,
Novartis purchased, and Cubist issued to Novartis, 797,488 shares of Common
Stock for a total purchase price of $4.0 million in cash. The proceeds from the
sale of these shares will be primarily used to fund the clinical development of
daptomycin and development of its VITA-TM- technology.
D. SUBSEQUENT EVENT
On October 21, 1999, Cubist completed a private placement financing
with investors and raised approximately $18.8 million (less estimated financing
costs of $1,176,000) by issuing 2,503,333 shares of Common Stock at $7.50 per
share. Cubist has filed an S-3 registration statement to register the resale of
the 2,503,333 shares of Common Stock issued in this financing. The proceeds of
this private offering will be used primarily to fund its Phase III and Phase II
clinical trials of daptomycin and the development of its proprietary genomic
target validation and assay development VITA-TM- technology.
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 CUBIST'S CASH, CASH EQUIVALENTS, OTHER CAPITAL RESOURCES, INTEREST
INCOME, OTHER INCOME AND FUTURE REVENUES DUE UNDER CUBIST'S COLLABORATIVE
AGREEMENTS TO FUND ITS OPERATING EXPENSES AND CAPITAL REQUIREMENTS AS CURRENTLY
PLANNED THROUGH 2000, (II) STATEMENTS ABOUT THE AMOUNT OF CAPITAL EXPENDITURES
THAT CUBIST EXPECTS TO INCUR IN 1999, AND (III) 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).
YOU 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 CUBIST'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998. THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN REPRESENT CUBIST'S JUDGMENT AS OF THE DATE OF THIS
QUARTERLY REPORT ON FORM 10-Q, AND CUBIST 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 engaged in the research, development and
commercialization of novel antimicrobial drugs to combat serious life
threatening bacterial and fungal infections. Cubist has a limited history of
operations and has experienced significant operating losses since inception.
Cubist 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 testing and clinical
trials and development of manufacturing, marketing and sales capabilities.
A key element of our strategy is to enhance certain of our drug
discovery and development programs and to fund our capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. Cubist is a party to collaborative agreements based specifically on
its aminoacyl-tRNA synthetase program with Bristol-Myers Squibb and Merck. Under
these collaborative agreements, we have received research support payments and,
if certain drug development milestones are achieved, are entitled to milestone
payments. In addition, we will be entitled to receive royalties on worldwide
sales of any drug developed and commercialized from these collaborations.
On February 3, 1999, Cubist entered into a research and license
agreement with Novartis Pharma AG to use Cubist's proprietary VITA-TM-
technology to validate and develop assays for antiinfective targets and to
identify new compounds for development as antiinfective agents. In exchange for
the license, Novartis will pay us research payments and if certain scientific
and development milestones are achieved, Novartis will make milestone payments.
In addition, Novartis will be required to pay royalties to us on worldwide sales
of any drug developed and commercialized from any products derived from this
collaboration. Upon the signing of the research and license agreement, Novartis
purchased, and Cubist issued to Novartis, 797,488 shares of Common Stock for a
total purchase price of $4.0 million in cash. The proceeds from the sale of
these shares will primarily be used to fund the clinical development of
daptomycin and development of our VITA-TM- technology.
On November 7, 1997, Cubist entered into a license agreement with Eli
Lilly and Co., pursuant to which Cubist acquired exclusive worldwide rights to
develop, manufacture and market daptomycin. In exchange for such license, Cubist
paid to Eli Lilly an upfront license fee in cash, and if certain drug
development milestones are achieved, has agreed to pay milestone payments in
cash or by issuing shares of Common Stock to Eli Lilly. In addition, Cubist will
be required to pay royalties to Eli Lilly on worldwide sales of daptomycin. On
February 19, 1999 Cubist issued to Eli Lilly and Co. 56,948 shares of Cubist
Common Stock as a milestone payment pursuant to, and in accordance with, the
terms of the agreements with the Eli Lilly license agreement. The issuance of
shares was incident to the initiation of Phase III clinical testing of
daptomycin. Daptomycin is a novel, natural product being developed for the
treatment of STAPHYLOCOCCUS AUREUS and enterococcus infections in humans. Cubist
began clinical trials of daptomycin in February of 1999.
7
<PAGE>
On October 21, 1999, we completed a private placement financing with
investors and raised approximately $18.8 million (less estimated financing costs
of $1,176,000) by issuing 2,503,333 shares of Common Stock at $7.50 per share.
We have filed an S-3 registration statement to register the resale of the
2,503,333 shares of Common Stock issued in this financing. The proceeds of this
private offering will be used primarily to fund our Phase III and Phase II
clinical trials of daptomycin and the development of our proprietary genomic
target validation and assay development VITA-TM- technology.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. Total revenues in the three months ended September 30, 1999
were $3,113,000 compared to $374,000 in the three months ended September 30,
1998, an increase of $2,739,000 or 732.4%. The revenue earned in the three
months ended September 30, 1999 consisted of $2,500,000 in research support
funding from the Merck collaboration; $563,000 in research support funding from
the Novartis collaboration and $50,000 in funding from SBIR grants. In the three
months ended September 30, 1998, total revenues consisted of research support
funding from the Bristol-Myers Squibb collaboration; and funding from SBIR
grants.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended September 30, 1999 were $4,865,000 compared
to $2,492,000 in the three months ended September 30, 1998, an increase of
$2,373,000 or 95.2%. The increase was largely due to increased consulting and
manufacturing costs related to daptomycin development, and the additional
personnel and purchases required by such development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the three months ended September 30, 1999 were $947,000 compared to
$960,000 in the three months ended September 30, 1998, a decrease of $13,000 or
1.4%.
INTEREST INCOME AND EXPENSE. Interest income in the three months ended
September 30, 1999 was $193,000 compared to $194,000 in three months ended
September 30, 1998, a decrease of $1,000 or .5%. Interest expense in the three
months ended September 30, 1999 was $99,000 as compared to $81,000 during the
three months ended September 30, 1998.
NET LOSS. The net loss during the three months ended September 30, 1999
was $2,606,000 compared to $2,965,000 during the three months ended September
30, 1998, a decrease of $358,000 or 12.1%. The decrease was primarily due to
increased revenues associated with the Merck collaboration.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. Total revenues in the nine months ended September 30, 1999
were $4,579,000 compared to $1,261,000 in the nine months ended September 30,
1998, an increase of $3,318,000 or 263.1%. The revenue recognized in the nine
months ended September 30, 1999 consisted of $2,500,000 in research support
payments from the Merck collaboration; $1,479,000 from the Novartis
collaboration; $500,000 from the Bristol-Myers Squibb collaboration and $100,000
in SBIR grants. In the nine months ended September 30, 1998, revenues consisted
of research support payments from the Bristol-Myers Squibb and Merck
collaborations; and in SBIR grants. The increase was due to revenues associated
with the Novartis research and license agreement and the Merck collaboration.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the nine months ended September 30, 1999 were $13,792,000 compared
to $7,760,000 in the nine months ended September 30, 1998, an increase of
$6,032,000 or 77.7%. The increase was largely due to increased costs related to
daptomycin development, and the additional personnel and purchases that are
required by such development.
8
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the nine months ended September 30, 1999 were $2,901,000 compared to
$2,636,000 in the nine months ended September 30, 1998, an increase of $265,000
or 10.1%. The increase was primarily due to increased costs related to investor
and public relations.
INTEREST INCOME AND EXPENSE. Interest income in the nine months ended
September 30, 1999 was $667,000 compared to $574,000 in the nine months ended
September 30, 1998, an increase of $93,000 or 16.2%. The increase in interest
income was due primarily to a higher average cash, cash equivalent and
investment balances during the nine months ended September 30, 1999 as compared
to the nine months ended September 30, 1998. Interest expense in the nine months
ended September 30, 1999 was $260,000 as compared to $264,000 during the nine
months ended September 30, 1998.
NET LOSS. The net loss during the nine months ended September 30, 1999
was $11,707,000 compared to $8,825,000, an increase of $2,882,000 or 32.7%. The
increase was primarily due to the additional expenses incurred to support the
advancement of Cubist's internal research and development programs as well as
increased revenue from such stage of research support funding.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through the sale of
equity securities, equipment financing, sponsored research revenues, license
revenues and interest earned on invested capital. The total cash, cash
equivalent and investments balance at September 30, 1999 was $13,711,000
compared to $19,012,000 at December 31, 1998.
Since inception through September 30, 1999, Cubist had invested an
aggregate of $8,267,000 (of which $167,000 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 September 30, 1999 were
$1,435,000. Minimum annual principal payments due under capital leases total
$843,000 in 1999. Principal payments are scheduled to decline each year until
expiration in 2002. Cubist made principal payments under its capital lease
obligations of $483,000 in the nine months ended on September 30, 1999. We
expect our capital expenditures in 1999 to be approximately $800,000 consisting
of laboratory and other equipment purchases.
On February 3, 1999, Cubist entered into a research and license
agreement with Novartis Pharma AG to use Cubist's proprietary VITA-TM-
technology to validate and develop assays for antiinfective targets and to
identify new compounds for development as antiinfective agents. In exchange for
the license, Novartis will pay Cubist research payments and if certain
scientific and development milestones are achieved, Novartis will make milestone
payments. In addition, Novartis will be required to pay royalties to Cubist on
worldwide sales of any drug developed and commercialized from any products
derived from this collaboration. Upon the signing of the research and license
agreement, Novartis purchased, and Cubist issued to Novartis, 797,488 shares of
Common Stock for a total purchase price of $4.0 million in cash. The proceeds
from the sale of these shares will be primarily used to fund the clinical
development of daptomycin and development of its VITA-TM- technology.
On October 21, 1999, Cubist completed a private placement financing
with investors and raised approximately $18.8 million (less estimated financing
costs of $1,176,000) by issuing 2,503,333 shares of Common Stock at $7.50 per
share. We have filed an S-3 registration statement to register the resale of the
2,503,333 shares of Common Stock issued in this financing. The proceeds of this
private offering will be used primarily to fund our Phase III and Phase II
clinical trials of daptomycin and the development of our proprietary genomic
target validation and assay development VITA-TM- technology.
The additional funds from the sale of shares in the private
placement, together with existing cash resources and its existing capital
resources, interest income and future revenues due under the Novartis,
Bristol-Myers Squibb and Merck collaborative agreements will be sufficient to
fund its operating expenses and capital requirements as currently planned
through 2000. The actual cash requirements of Cubist may vary materially from
those now planned and will depend on numerous factors. We cannot be sure that
our existing cash, cash equivalents, other capital resources, interest income
and
9
<PAGE>
future revenues due under the Novartis, Bristol-Myers Squibb and Merck
collaborative agreements will be sufficient to fund our operating expenses and
capital requirements during that period. Cubist will need to raise substantial
additional capital to fund its operations from and after January 1, 2001 and
intends to seek such additional funding through public or private financing or
collaborative or other arrangements with corporate partners.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities", which was amended by SFAS No. 137 and is effective for
fiscal years beginning after June 15, 2000. 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 Cubist.
YEAR 2000 READINESS
The "Year 2000" issue generally describes the various problems which
may result from the improper processing of dates and date-sensitive
calculations. Computers and other equipment containing computer-related
components (such as programmable logic controllers and other embedded systems)
using two digits to identify the year in a date may not be able to distinguish
between dates in the 20th century versus the 21st century. Because computer and
microprocessor use is so widespread, the issue has become a societal concern,
the impact of which is not yet known.
Cubist has completed the assessment of its critical computer systems
and embedded systems and believes them to be Year 2000 compliant. Although
Cubist believes its critical systems are Year 2000 compliant, there can be no
assurances that other defects will not be discovered in the future. Cubist
believes that any failure of its non-critical systems to be Year 2000 compliant
will not have a material adverse effect on it.
In addition to Cubist's critical systems, Cubist relies on third party
service providers and suppliers (i.e., payroll services company,
telecommunications companies, banks and utility companies and contract
manufacturers) in the conduct of its business, and it recognizes that there may
be potential exposure to Year 2000-related business disruptions as a result.
Cubist has contacted its significant service providers and contract
manufacturers and has obtained assurances from some that they are addressing
Year 2000 issues in a prudent fashion. Others have not replied in any fashion,
but none have informed Cubist of material Year 2000 issues. Cubist is unable to
control whether the firms and suppliers it does business with currently, and in
the future, will have systems which are Year 2000 compliant. Cubist's operations
could be adversely affected to the extent that firms and suppliers would be
unable to provide services, materials or products.
To the extent that Year 2000 compliance assurances are not given by
its third party service providers and suppliers, Cubist intends to devise
contingency plans to address any potential negative effects in the event of the
unavailability of services, materials or products. If necessary, Cubist may
increase inventory levels of materials and products prior to December 1999 as a
contingency against possible disruption of supply. Nevertheless, a contingency
plan devised by Cubist may not prevent a business interruption caused by one or
more of its third party service providers or suppliers, and the failure of any
such contingency plan to do so may have a material adverse effect on Cubist.
Expenditures to date have not been material and have consisted solely
of the time of certain company personnel. Cubist does not currently expect that
future costs of completing the assessment will be material.
10
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cubist owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
our capital until it is required to fund operations, including research and
development activities. None of these market-risk sensitive instruments are held
for trading purposes. Cubist does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.
Interest Rate Risk - our investment portfolio includes investment grade
debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, Cubist does not believe that it has a
material exposure to interest rate risk.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Cubist's Registration Statement on Form S-1 (Reg. No. 333-6795) in
connection with its initial public offering of Common Stock was declared
effective by the Securities and Exchange Commission on October 25, 1996. On
October 25, 1996, Cubist 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. For ease of reference and
clarity, the two registration statements referred to in this paragraph and
referred to in the following paragraphs collectively as the "IPO Registration
Statement" registered 2,875,000 shares of Cubist's Common Stock under the
Securities Act.
The aggregate initial public offering proceeds for all 2,875,000 shares
of Common Stock registered by the IPO Registration Statement was $17,250,000.
The net proceeds to Cubist from such issuance and distribution, after deducting
the aggregate amount of related expenses (including underwriting discounts and
commissions) paid by Cubist were $15,153,000.
Through September 30, 1999 Cubist spent $10,386,000 of the $15,153,000
net proceeds received for the following uses and in the following amounts per
use: $427,000 in construction of plant, building and facilities; $2,349,000 for
repayment of indebtedness; $7,491,000 for working capital. All amounts spent by
Cubist for such uses, other than payment of salaries to directors and officers
of Cubist, consisted of direct payments to persons or entities, none of which
was a director or officer of Cubist, holder of 10 percent or more of any class
of equity securities of Cubist or other affiliate of Cubist. Cubist holds the
remaining $4,767,000 of the net proceeds in cash, cash equivalents, and
investments.
On October 21, 1999, we completed a private placement financing with by
issuing 2,503,333 shares of Common Stock at $7.50 per share and an aggregated
offering price of $18,744,997.50 (less estimated financing costs of $1,176,000).
We have filed an S-3 registration statement to register the resale of the
2,503,333 shares of Common Stock issued in this financing. An exemption from
registration is claimed pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and Rule 506 promulgated thereunder.
During the three months ended September 30, 1999, Cubist issued 122,310
shares of Common Stock upon the exercise of 135,556 warrants issued in
connection with the private placement financing completed on September 23, 1998.
Such warrants are exercisable at $2.25 per share or pursuant to a standard
cashless net issue provision. Of the 122,310 shares issued, 80,000 shares were
issued for an aggregate purchase price of $180,000 and 42,310 shares were issued
upon cashless net issue exercise pursuant to which the holders of such warrants
surrendered the right to acquire 13,246 additional shares of Common Stock. An
exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Registration Rights Agreement, dated as of October 15,
1999 between the Company and each person listed on Exhibit A
thereto.
27 -- Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by Cubist on July 30, 1999,
describing a shareholder rights plan adopted by Cubist.
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.
November 12, 1999 By: /s/ Thomas A. Shea
-----------------------------------------
Thomas A. Shea,
Chief Financial Officer
(AUTHORIZED OFFICER AND PRINCIPAL
FINANCE AND ACCOUNTING OFFICER)
13
<PAGE>
EXHIBIT 10.1
CUBIST PHARMACEUTICALS, INC.
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made as of
October 15, 1999 by and among (i) Cubist Pharmaceuticals, Inc., a Delaware
corporation (the "COMPANY"), (ii) each person listed on EXHIBIT A attached
hereto (collectively, the "INITIAL INVESTORS" and each individually, an "INITIAL
INVESTOR"), and (iii) each person or entity that subsequently becomes a party to
this Agreement pursuant to, and in accordance with, the provisions of Section 12
hereof (collectively, the "INVESTOR PERMITTED TRANSFEREES" and each individually
an "INVESTOR PERMITTED TRANSFEREE").
WHEREAS, the Company has agreed to issue and sell to the Initial
Investors, and the Initial Investors have agreed to purchase from the Company,
2,503,333 shares (the "PURCHASED SHARES") of the Company's common stock, $0.001
par value per share (the "COMMON STOCK"), all upon the terms and conditions set
forth in that certain Stock Purchase Agreement, dated of even date herewith,
between the Company and the Initial Investors (the "STOCK PURCHASE AGREEMENT");
and
WHEREAS, the terms of the Stock Purchase Agreement provide that it
shall be a condition precedent to the closing of the transactions thereunder,
for the Company and the Initial Investors to execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms shall have the meanings
provided therefor below or elsewhere in this Agreement as described below:
"BOARD" shall mean the board of directors of the Company.
"CLOSING" shall have the meaning ascribed to such term in the Stock
Purchase Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and all of the rules and regulations promulgated thereunder.
"INVESTORS" shall mean, collectively, the Initial Investors and the
Investor Permitted Transferees; PROVIDED, HOWEVER, that the term "INVESTORS"
shall not include any of the Initial Investors or any of the Investor
Permitted Transferees that ceases to own or hold any Purchased Shares.
<PAGE>
-2-
"MAJORITY HOLDERS" shall mean, at the relevant time of reference
thereto, those Investors holding and/or having the right to acquire, as the
case may be, more than fifty percent (50%) of the Registrable Shares held by
all of the Investors.
"QUALIFYING HOLDER" shall have the meaning ascribed thereto in Section
12 hereof.
"REGISTRABLE SHARES" shall mean the Purchased Shares, PROVIDED,
HOWEVER, such term shall not, after the Mandatory Registration Termination Date,
include any of the Purchased Shares that become or have become eligible for
resale pursuant to Rule 144 or pursuant to Regulation S.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act and
any successor or substitute rule, law or provision.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
all of the rules and regulations promulgated thereunder.
2. EFFECTIVENESS; TERMINATION. This Agreement shall become
effective and legally binding only if the Closing occurs. This Agreement
shall terminate and be of no further force or effect, automatically and
without any action being required of any party hereto, upon the termination
of the Stock Purchase Agreement pursuant to Section 8 thereof.
3. MANDATORY REGISTRATION.
(a) Within ten (10) business days after the Closing, the Company will
prepare and file with the SEC a registration statement on Form S-3 for the
purpose of registering under the Securities Act all of the Registrable Shares
for resale by, and for the account of, the Investors as selling stockholders
thereunder (the "REGISTRATION STATEMENT"). The Registration Statement shall
permit the Investors to offer and sell, on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, any or all of the Registrable
Shares. The Company agrees to use reasonable efforts to cause the Registration
Statement to become effective as soon as practicable. The Company shall be
required to keep the Registration Statement effective until such date that is
the earlier of (i) the date when all of the Registrable Shares registered
thereunder shall have been sold or (ii) the second anniversary of the Closing,
subject to extension as set forth below (such date is referred to herein as the
"MANDATORY REGISTRATION TERMINATION DATE"). Thereafter, the Company shall be
entitled to withdraw the Registration Statement and the Investors shall have no
further right to offer or sell any of the Registrable Shares pursuant to the
Registration Statement (or any prospectus relating thereto). In the event the
right of the selling Investors to use the Registration Statement (and the
prospectus relating thereto) is delayed or suspended pursuant to Sections 5(c)
or 11 hereof, the Company shall be required to extend the Mandatory Registration
Termination Date beyond the second anniversary of the Closing by the same number
of days as such delay or Suspension Period (as defined in Section 11 hereof).
<PAGE>
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(b) The offer and sale of the Registrable Shares pursuant to the
Registration Statement shall not be underwritten.
4. "PIGGYBACK" REGISTRATION RIGHTS.
(a) If, at any time after the Mandatory Registration Termination
Date, the Company proposes to register any of its Common Stock under the
Securities Act, whether as a result of a primary or secondary offering of
Common Stock or pursuant to registration rights granted to holders of other
securities of the Company (but excluding in all cases any registrations to be
effected on Forms S-4 or S-8 or other applicable successor Forms), the
Company shall, each such time, give to the Investors holding Registrable
Shares written notice of its intent to do so. Upon the written request of any
such Investor given within 20 days after the giving of any such notice by the
Company, the Company shall use reasonable efforts to cause to be included in
such registration the Registrable Shares of such selling Investor, to the
extent requested to be registered; PROVIDED that (i) the number of
Registrable Shares proposed to be sold by such selling Investor is equal to
at least seventy-five percent (75%) of the total number of Registrable Shares
then held by such participating selling Investor, (ii) such selling Investor
agrees to sell those of its Registrable Shares to be included in such
registration in the same manner and on the same terms and conditions as the
other shares of Common Stock which the Company proposes to register, and
(iii) if the registration is to include shares of Common Stock to be sold for
the account of the Company or any party exercising demand registration rights
pursuant to any other agreement with the Company, the proposed managing
underwriter does not advise the Company that in its opinion the inclusion of
such selling Investor's Registrable Shares (without any reduction in the
number of shares to be sold for the account of the Company or such party
exercising demand registration rights) is likely to affect materially and
adversely the success of the offering or the price that would be received for
any shares of Common Stock offered, in which case the rights of such selling
Investor shall be as provided in Section 4(b) hereof.
(b) If a registration pursuant to Section 4(a) hereof involves an
underwritten offering and the managing underwriter shall advise the Company
in writing that, in its opinion, the number of shares of Common Stock
requested by the Investors to be included in such registration is likely to
affect materially and adversely the success of the offering or the price that
would be received for any shares of Common Stock offered in such offering,
then, notwithstanding anything in Section 4(a) to the contrary, the Company
shall only be required to include in such registration, to the extent of the
number of shares of Common Stock which the Company is so advised can be sold
in such offering, (i) first, the number of shares of Common Stock proposed to
be included in such registration for the account of the Company and/or any
stockholders of the Company (other than the Investors) that have exercised
demand registration rights, in accordance with the priorities, if any, then
existing among the Company and/or such stockholders of the Company with
registration rights (other than the Investors), and (ii) second, the shares
of Common Stock requested to be included in such registration by all other
stockholders of the Company who have piggyback registration rights
(including, without limitation, the Investors), PRO RATA among such other
stockholders (including, without limitation, the
<PAGE>
-4-
Investors) on the basis of the number of shares of Common Stock that each of
them requested to be included in such registration.
(c) In connection with any offering involving an underwriting of
shares, the Company shall not be required under Section 4 hereof or otherwise
to include the Registrable Shares of any Investor therein unless such
Investor accepts and agrees to the terms of the underwriting, which shall be
reasonable and customary, as agreed upon between the Company and the
underwriters selected by the Company.
5. OBLIGATIONS OF THE COMPANY. In connection with the Company's
obligation under Section 3 and 4 hereof to file the Registration Statement with
the SEC and to use its best efforts to cause the Registration Statement to
become effective as soon as practicable, the Company shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all
Registrable Shares covered by the Registration Statement;
(b) Furnish to the selling Investors such number of copies of
a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents
(including, without limitation, prospectus amendments and supplements
as are prepared by the Company in accordance with Section 5(a) above)
as the selling Investors may reasonably request in order to facilitate
the disposition of such selling Investors' Registrable Shares;
(c) Notify the selling Investors, at any time when a
prospectus relating to the Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in or relating to the
Registration Statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not
misleading; and, thereafter, the Company will promptly prepare (and,
when completed, give notice to each selling Investor) a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Shares, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading; PROVIDED that
upon such notification by the Company, the selling Investors will not
offer or sell Registrable Shares until the Company has notified the
selling Investors that it has prepared a supplement or amendment to
such prospectus and delivered copies of such supplement or amendment to
the selling Investors (it being understood and agreed by the Company
that the foregoing proviso shall in no way diminish or otherwise impair
the Company's obligation to promptly prepare a prospectus amendment or
supplement as above provided in this Section 5(c) and deliver copies of
same as above provided in Section 5(b) hereof); and
<PAGE>
-5-
(e) Use commercially reasonable efforts to register and
qualify the Registrable Shares covered by the Registration Statement
under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably appropriate in the opinion of the Company and the
managing underwriters, if any, PROVIDED that the Company shall not be
required in connection therewith or as a condition thereto to qualify
to do business or to file a general consent to service of process in
any such states or jurisdictions, and PROVIDED FURTHER that
(notwithstanding anything in this Agreement to the contrary with
respect to the bearing of expenses) if any jurisdiction in which any of
such Registrable Shares shall be qualified shall require that expenses
incurred in connection with the qualification therein of any such
Registrable Shares be borne by the selling Investors, then the selling
Investors shall, to the extent required by such jurisdiction, pay their
PRO RATA share of such qualification expenses.
6. FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the selling Investors shall furnish to the Company such information
regarding them and the securities held by them as the Company shall
reasonably request and as shall be required in order to effect any
registration by the Company pursuant to this Agreement.
7. EXPENSES OF REGISTRATION. All expenses incurred in
connection with the registration of the Registrable Shares pursuant to this
Agreement (excluding underwriting, brokerage and other selling commissions
and discounts), including without limitation all registration and
qualification and filing fees, printing, and fees and disbursements of
counsel for the Company, shall be borne by the Company.
8. DELAY OF REGISTRATION. The Investors shall not take any
action to restrain, enjoin or otherwise delay any registration as the result
of any controversy which might arise with respect to the interpretation or
implementation of this Agreement.
9. INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each selling Investor, any investment banking firm acting as an
underwriter for the selling Investors, any broker/dealer acting on behalf of any
selling Investors and each officer and director of such selling Investor, such
underwriter, such broker/dealer and each person, if any, who controls such
selling Investor, such underwriter or broker/dealer within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue statement
of any material fact contained in the Registration Statement, in any preliminary
prospectus or final prospectus relating thereto or in any amendments or
supplements to the Registration Statement or any such preliminary prospectus or
final prospectus, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; and will reimburse such
selling Investor, such underwriter, broker/dealer or such officer, director
<PAGE>
-6-
or controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 9(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for
any such loss, damage, liability or action to the extent that it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission made in connection with the Registration Statement, any preliminary
prospectus or final prospectus relating thereto or any amendments or
supplements to the Registration Statement or any such preliminary prospectus
or final prospectus, in reliance upon and in conformity with written
information furnished expressly for use in connection with the Registration
Statement or any such preliminary prospectus or final prospectus by the
selling Investors, any underwriter for them or controlling person with
respect to them.
(b) To the extent permitted by law, each selling Investor will
severally and not jointly indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any investment banking firm acting as underwriter for the Company or the
selling Investors, or any broker/dealer acting on behalf of the Company or any
selling Investors, and all other selling Investors against any losses, claims,
damages or liabilities to which the Company or any such director, officer,
controlling person, underwriter, or broker/dealer or such other selling Investor
may become subject to, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement or any preliminary prospectus or final
prospectus, relating thereto or in any amendments or supplements to the
Registration Statement or any such preliminary prospectus or final prospectus,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent and only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, in any preliminary
prospectus or final prospectus relating thereto or in any amendments or
supplements to the Registration Statement or any such preliminary prospectus or
final prospectus, in reliance upon and in conformity with written information
furnished by the selling Investor expressly for use in connection with the
Registration Statement, or any preliminary prospectus or final prospectus; and
such selling Investor will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter, broker/dealer or other selling Investor in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that the liability of each selling Investor hereunder shall
be limited to the proceeds (net of underwriting discounts and commissions, if
any) received by such selling Investor from the sale of Registrable Shares
covered by the Registration Statement, and PROVIDED, FURTHER, HOWEVER, that the
indemnity agreement contained in this Section 9(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the
<PAGE>
-7-
consent of those selling Investor(s) against which the request for indemnity
is being made (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this Section 9
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 9, notify the indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to participate in and, to the
extent the indemnifying party desires, jointly with any other indemnifying party
similarly noticed, to assume at its expense the defense thereof with counsel
mutually satisfactory to the indemnifying parties with the consent of the
indemnified party which consent will not be unreasonably withheld, conditioned
or delayed. In the event that the indemnifying party assumes any such defense,
the indemnified party may participate in such defense with its own counsel and
at its own expense, PROVIDED, HOWEVER, that the counsel for the indemnifying
party shall act as lead counsel in all matters pertaining to such defense or
settlement of such claim and the indemnifying party shall only pay for such
indemnified party's expenses for the period prior to the date of its
participation on such defense. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to his ability
to defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9, but the omission so to notify the
indemnifying party will not relieve him of any liability which he may have to
any indemnified party otherwise other than under this Section 9.
(d) Notwithstanding anything to the contrary herein, the indemnifying
party shall not be entitled to settle any claim, suit or proceeding unless in
connection with such settlement the indemnified party receives an unconditional
release with respect to the subject matter of such claim, suit or proceeding and
such settlement does not contain any admission of fault by the indemnified
party.
10. REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the Investors the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit the Investors to sell the
Purchased Shares to the public without registration, the Company agrees to
use commercially reasonable efforts: (i) to make and keep public information
available, as those terms are understood and defined in the General
Instructions to Form S-3, or any successor or substitute form, and in Rule
144, (ii) to file with the SEC in a timely manner all reports and other
documents required to be filed by an issuer of securities registered under
the Securities Act or the Exchange Act, (iii) as long as any Investor owns
any Purchased Shares, to furnish in writing upon such Investor's request a
written statement by the Company that it has complied with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act, and
to furnish to such Investor a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested in availing such Investor of any rule
or regulation of the SEC permitting the selling of any such Purchased Shares
without registration and (iv) undertake any additional actions reasonably
necessary to maintain the availability of the Registration Statement or the
use of Rule 144.
<PAGE>
-8-
11. DEFERRAL. Notwithstanding anything in this Agreement to the
contrary, if the Company shall furnish to the selling Investors a certificate
signed by the President or Chief Executive Officer of the Company stating
that the Board of Directors of the Company has made the good faith
determination (i) that continued use by the selling Investors of the
Registration Statement for purposes of effecting offers or sales of
Registrable Shares pursuant thereto would require, under the Securities Act,
premature disclosure in the Registration Statement (or the prospectus
relating thereto) of material, nonpublic information concerning the Company,
its business or prospects or any proposed material transaction involving the
Company, (ii) that such premature disclosure would be materially adverse to
the Company, its business or prospects or any such proposed material
transaction or would make the successful consummation by the Company of any
such material transaction significantly less likely and (iii) that it is
therefore essential to suspend the use by the Investors of such Registration
Statement (and the prospectus relating thereto) for purposes of effecting
offers or sales of Registrable Shares pursuant thereto, then the right of the
selling Investors to use the Registration Statement (and the prospectus
relating thereto) for purposes of effecting offers or sales of Registrable
Shares pursuant thereto shall be suspended for a period (the "Suspension
Period") of not more than 90 days after delivery by the Company of the
certificate referred to above in this Section 11. During the Suspension
Period, none of the Investors shall offer or sell any Registrable Shares
pursuant to or in reliance upon the Registration Statement (or the prospectus
relating thereto).
12. TRANSFER OF REGISTRATION RIGHTS. None of the rights of any
Investor under this Agreement shall be transferred or assigned to any person
unless (i) such person is a Qualifying Holder (as defined below), and (ii)
such person agrees to become a party to, and bound by, all of the terms and
conditions of, this Agreement by duly executing and delivering to the Company
an Instrument of Adherence in the form attached as EXHIBIT B hereto. For
purposes of this Section 12, the term "QUALIFYING HOLDER" shall mean, with
respect to any Investor, (i) any partner thereof, (ii) any corporation,
partnership controlling, controlled by, or under common control with, such
Investor or any partner thereof, or (iii) any other direct transferee from
such Investor of at least 50% of those Registrable Shares held or that may be
acquired by such Investor. None of the rights of any Investor under this
Agreement shall be transferred or assigned to any Person (including, without
limitation, a Qualifying Holder) that acquires Registrable Shares in the
event that and to the extent that such Person is eligible to resell such
Registrable Shares pursuant to Rule 144(k) of the Securities Act or may
otherwise resell such Registrable Shares pursuant to an exemption from the
registration provisions of the Securities Act.
13. ENTIRE AGREEMENT. This Agreement constitutes and contains
the entire agreement and understanding of the parties with respect to the
subject matter hereof, and it also supersedes any and all prior negotiations,
correspondence, agreements or understandings with respect to the subject
matter hereof.
<PAGE>
-9-
14. MISCELLANEOUS.
(a) This Agreement may not be amended, modified or
terminated, and no rights or provisions may be waived, except with the
written consent of the Majority Holders and the Company.
(b) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
and shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, personal representatives, successors or assigns,
PROVIDED that the terms and conditions of Section 12 hereof are satisfied.
This Agreement shall also be binding upon and inure to the benefit of any
transferee of any of the Purchased Shares PROVIDED that the terms and
conditions of Section 12 hereof are satisfied. Notwithstanding anything in
this Agreement to the contrary, if at any time any Investor shall cease to
own any Purchased Shares, all of such Investor's rights under this Agreement
shall immediately terminate.
(c) (i) Any notices, reports or other correspondence
(hereinafter collectively referred to as "CORRESPONDENCE") required or permitted
to be given hereunder shall be sent by courier (overnight or same day) or
telecopy or delivered by hand to the party to whom such correspondence is
required or permitted to be given hereunder. The date of giving any notice shall
be the date of its actual receipt.
(ii) All correspondence to the Company shall
be addressed as follows:
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Attention: Scott M. Rocklage,
President and Chief Executive Officer
Telecopier (617) 576-0232
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: Justin P. Morreale, Esq.
and
Julio E. Vega, Esq.
Telecopier: (617) 951-8736
(iii) All correspondence to any Investor shall be
sent to such Purchaser at the address set forth in EXHIBIT A.
<PAGE>
-10-
(d) Any entity may change the address to which
correspondence to it is to be addressed by notification as provided for
herein.
(e) The parties acknowledge and agree that in the event of
any breach of this Agreement, remedies at law may be inadequate, and each of
the parties hereto shall be entitled to seek specific performance of the
obligations of the other parties hereto and such appropriate injunctive
relief as may be granted by a court of competent jurisdiction.
(f) This Agreement may be executed in a number of
counterparts, any of which together shall for all purposes constitute one
Agreement, binding on all the parties hereto notwithstanding that all such
parties have not signed the same counterpart.
[Remainder of page intentionally left blank. Signature pages follow.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date and year first above written.
CUBIST PHARMACEUTICALS, INC.
By:
----------------------------------
Name: Scott M. Rocklage
Title: President and Chief Executive Officer
[Investor Counterpart Signature Pages Follow.]
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
DVG DEUTSCHE
VERMOGENSBILDUNGSGESELLSCHAFT
By:
---------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
CARDINAL HEALTH PARTNERS, L.P.
By: Cardinal Health Partners
Management LLC
Its General Partner
By:
---------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
CLARION CAPITAL CORPORATION
By:
---------------------------------------
Name:
Title:
CLARION OFFSHORE FUND LTD
By:
---------------------------------------
Name:
Title:
CLARION PARTNERS, L.P.
By:
---------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
MARCUARD COOK & CIE S.A.
By:
---------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
DEUTSCHE GESELLSCHAFT FUR WERTPAPIERSPAREN,
FRANKFURT
By:
---------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
FIDELITY NATIONAL TITLE INSURANCE COMPANY
By:
---------------------------------------
Name:
Title:
<PAGE>
-18-
INVESTOR COUNTERPART SIGNATURE PAGE
WHITNEY PARTNERS, LP
By:
---------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
MERLIN BIOMED L.P.
By:
-------------------------------------
Name:
Title:
MERLIN BIOMED INTERNATIONAL, LTD
By:
------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
B. METZLER SEEL. SOHN & CO KGAA
(A.K.A. METZLER INVESTMENTS)
By:
---------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
NARRAGANSETT I, L.P.
By:____________________________________
Name:
Title:
NARRAGANSETT OFFSHORE, LTD
By:_____________________________________
Name
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
RITCHIE CAPITAL INVESTMENTS,
LTD
By: Ritchie Capital Management LLC,
its Agent
By:_______________________________
Name:
Title:
RAM CAPITAL, LLC
By: Ritchie Capital Management LLC,
its Managing Member
By:______________________________
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
VERITAS SG INVESTMENT TRUST GMBH
By:_____________________________________
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
BANKBOSTON, N.A., TRUSTEE U/I
C.P. KNIGHT, JR. RESIDUARY
TRUST
-------------------------------------
Name:
Title:
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
-------------------------------
Gary Rosenbach
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
----------------------------------
Richard H. Osgood
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
----------------------------------
Stephen J. Massocca
<PAGE>
INVESTOR COUNTERPART SIGNATURE PAGE
----------------------------------
Hans H. Khunl-Brady
<PAGE>
EXHIBIT A
INVESTORS
<TABLE>
<CAPTION>
Number of Shares Total
Purchaser To Be Purchased Purchase Price
- --------- ---------------- --------------
<S> <C> <C>
DVG DEUTSCHE VERMOGENSBILDUNGSGESELLSCHAFT mbH 500,000 US$3,750,000
Feldbergstrasse 22
60323 Frankfurt, Germany
*Endrikat, Fund Manager, is the authorized signatory
for DVG
CARDINAL HEALTH PARTNERS, L.P. 533,333 US$3,999,997.50
221 Nassau Street
Princeton, NJ 08542
*Cardinal Health Partners Management LLC, its
general partner, is the authorized
signatory for Cardinal Health Partners, L.P.
CLARION CAPITAL CORPORATION 25,000 US$187,500
Ohio Savings Plaza
Suite 1120
1801 East Ninth Street
Cleveland, OH 44114
*Morton Cohen, its Chairman, is the authorized
signatory for Clarion Capital Corporation
CLARION OFFSHORE FUND LTD 6,750 US$50,625
Ohio Savings Plaza
Suite 1120
1801 East Ninth Street
Cleveland, OH 44114
*Morton Cohen, Fund Manager, is the authorized
signatory for Clarion Offshore Fund LTD.
CLARION PARTNERS, L.P. 18,250 US$136,875
Ohio Savings Plaza
Suite 1120
1801 East Ninth Street
Cleveland, OH 44114
*Morton Cohen, its general partner, is the authorized
signatory for Clarion Partners L.P.
MARCUARD COOK & CIE S.A. 50,000 US$375,000
7, Rue Des Alpes
Case Postale 1380
Geneva Switzerland 1211
*Jacques Girod, Manager, and Jean Luc Girod,
Asst. Manager, are the authorized signatories
for Marcuard Cook & Cie S.A.
</TABLE>
<PAGE>
EXHIBIT A (CONT.)
<TABLE>
<CAPTION>
Number of Shares Total
Purchaser To Be Purchased Purchase Price
- --------- ---------------- --------------
<S> <C> <C>
DEUTSCHE GESELLSCHAFT FUR WERTPAPIERSPAREN, FRANKFURT 500,000 US$3,750,000
c/o Deutsche Bank, New York
Attn: John Fanelli
1251 Avenue of the Americas, 26th Floor
New York, NY 10020-1104
*Michael Sistenich, Senior Fund Manager,
and Klaus Kaldemorgen, Head of International
Equities, are the authorized signatories
for DWS Investments
FIDELITY NATIONAL TITLE INSURANCE COMPANY 25,000 US$187,500
3916 State Street
Santa Barbara, CA 93105
*Stuart G. Gauld, Vice President, Investments,
is the authorized signatory for Fidelity National
Title Insurance Company of New York
WHITNEY PARTNERS, LP 50,000 US$375,000
17 East Sir Francis Drake Blvd
Suite 100
Larkspur, CA 94939-1727
*Gregory A. Wettersten, its general partner,
is the authorized signatory for Whitney Partners LLP.
MERLIN BIOMED, L.P. 20,000 US$150,000
237 Park Avenue
Suite 801
New York 10017
*Stuart Weisbrod, Chief Investment Officer,
is the authorized signatory for Merlin Biomed.
MERLIN BIOMED INTERNATIONAL, LTD 10,000 US$75,000
237 Park Avenue
Suite 801
New York 10017
*Stuart Weisbrod, Chief Investment Officer,
is the authorized signatory for Merlin Biomed
International, LTD
B. Metzler seel. Sohn & Co KgaA 300,000 US$2,250,000
(a.k.a METZLER INVESTMENTS)
c/o Brown Brothers Harriman & Co.
Attn: Ralph Firnen/Trade Processing
59 Wall Street
New York, NY 10005-2818
*Klaus Hagedorn, Direktor, is the authorized
signatory for B. Metzler seel. Sohn & Co KGaA.
</TABLE>
<PAGE>
EXHIBIT A (CONT.)
<TABLE>
<CAPTION>
Number of Shares Total
Purchaser To Be Purchased Purchase Price
- --------- ---------------- --------------
<S> <C> <C>
NARRAGANSETT I, L.P. 58,500 US$438,750
375 Park Avenue
Suite 1407
New York, NY 10152
*Joseph L. Dowling III, Managing Member,
is the authorized signatory for Narragansett I, LP
NARRAGANSETT OFFSHORE, LTD 16,500 US$123,750
375 Park Avenue
Suite 1407
New York, NY 10152
*Joseph L. Dowling III, Managing Member of
Leo Holdings LLC, Investment Manager for Narragansett
Offshore, Ltd., is the authorized signatory for
Narragansett Offshore, Ltd.
RITCHIE CAPITAL INVESTMENTS, LTD 100,000 US$750,000
210 East State Street
Batavia, IL 60510
*Ritchie Capital Management LLC, its Agent,
is the authorized signatory for
Ritchie Capital Investments, LTD
RAM CAPITAL, LLC 100,000 US$750,000
210 East State Street
Batavia, IL 60510
*Ritchie Capital Management LLC, its Managing Member,
is the authorized signatory for RAM Capital, LLC
VERITAS SG INVESTMENT TRUST GMBH 100,000 US$750,000
Bettinastrasse, 62
Frankfurt, Germany 60325
*Von Ziegesar, CFO/CEO, is the authorized
signatory for Veritas SG Investment Trust GMBH
BANKBOSTON, N.A., TRUSTEE U/I. 5,000 US$37,500
C.P. KNIGHT, JR RESIDUARY TRUST
c/o BankBoston
Mail Stop: T - 0405
1 BankBoston Plaza
Providence, RI 02903
*Linda A Petrucci, First Vice President,
is the authorized signatory for BankBoston, N.A.,
Trustee U/I C.P. Knight, Jr. Residuary Trust
GARY ROSENBACH 25,000 US$187,500
c/o Galleon Capital
135 East 57th Street, 16th Floor
New York, NY 10022
</TABLE>
<PAGE>
EXHIBIT A (CONT.)
<TABLE>
<CAPTION>
Number of Shares Total
Purchaser To Be Purchased Purchase Price
- --------- ---------------- --------------
<S> <C> <C>
RICHARD H. OSGOOD 20,000 US$150,000
4 Maritime Plaza
San Francisco, CA 94111-3416
STEPHEN J. MASSOCCA 20,000 US$150,000
4 Maritime Plaza
San Francisco, CA 94111-3416
HANS KHUNL-BRADY 20,000 US$150,000
Horlgasse 5
1090 Vienna, Austria
---------------- --------------
Total: 2,503,333 18,774,997.50
</TABLE>
<PAGE>
EXHIBIT B
CUBIST PHARMACEUTICALS, INC.
INSTRUMENT OF ADHERENCE
Reference is hereby made to that certain Registration Rights Agreement,
dated as of ______________ ___, 1999, among Cubist Pharmaceuticals, Inc., a
Delaware corporation (the "COMPANY"), the Initial Investors and the Investor
Permitted Transferees, as amended and in effect from time to time (the
"REGISTRATION RIGHTS AGREEMENT"). Capitalized terms used herein without
definition shall have the respective meanings ascribed thereto in the
Registration Rights Agreement.
The undersigned, in order to become the owner or holder of [___________
shares of common stock, par value $0.001 per share (the "COMMON STOCK"), of the
Company], hereby agrees that, from and after the date hereof, the undersigned
has become a party to the Registration Rights Agreement in the capacity of an
Investor Permitted Transferee, and is entitled to all of the benefits under, and
is subject to all of the obligations, restrictions and limitations set forth in,
the Registration Rights Agreement that are applicable to Investor Permitted
Transferees. This Instrument of Adherence shall take effect and shall become a
part of the Registration Rights Agreement immediately upon execution.
Executed under seal as of the date set forth below under the laws of
the Commonwealth of Massachusetts.
Signature:
-------------------------------
Name:
Title:
Accepted:
CUBIST PHARMACEUTICALS, INC.
By:
---------------------------------
Name:
Title:
Date:
-------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000912183
<NAME> CUBIST PHARMACEUTICALS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,304,693
<SECURITIES> 4,406,263
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,754,033
<PP&E> 8,266,676
<DEPRECIATION> (4,807,727)
<TOTAL-ASSETS> 18,162,573
<CURRENT-LIABILITIES> 3,581,738
<BONDS> 0
0
0
<COMMON> 17,724
<OTHER-SE> 13,099,645
<TOTAL-LIABILITY-AND-EQUITY> 18,162,573
<SALES> 0
<TOTAL-REVENUES> 3,112,503
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,812,544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (93,994)
<INCOME-PRETAX> (2,606,047)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,606,047)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
