<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 2000
REGISTRATION NO. 333-32186
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CUBIST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-3192085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
------------------------------
24 EMILY STREET
CAMBRIDGE, MA 02139
(617) 576-1999
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
SCOTT M. ROCKLAGE, PH.D.
CHAIRMAN OF THE BOARD OF DIRECTORS
CHIEF EXECUTIVE OFFICER AND PRESIDENT
CUBIST PHARMACEUTICALS, INC.
24 EMILY STREET
CAMBRIDGE, MA 02139
(617) 576-1999
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
JULIO E. VEGA, ESQ. MARK L. JOHNSON, ESQ.
MATTHEW J. CUSHING, ESQ. PAIGE PARISI, ESQ.
BINGHAM DANA LLP HALE AND DORR LLP
150 FEDERAL STREET 60 STATE STREET
BOSTON, MA 02110 BOSTON, MA 02109
(617) 951-8000 (617) 526-6000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (a) one
prospectus to be used in connection with an offering in the United States and
Canada and (b) one prospectus to be used in connection with a concurrent
offering outside of the United States and Canada. The U.S. prospectus and the
international prospectus are identical in all respects except for the front
cover page and the "Underwriting" section. The front cover page and the
"Underwriting" section of the international prospectus are included immediately
before Part II of this registration statement.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 3, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
2,500,000 SHARES
COMMON STOCK
Cubist Pharmaceuticals, Inc. is offering 2,500,000 shares of common stock.
Our common stock is traded on the Nasdaq National Market under the symbol
"CBST". The last reported sale price of the common stock on the Nasdaq National
Market on March 30, 2000 was $37.75 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Cubist.......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS
PACIFIC GROWTH EQUITIES, INC.
CHASE H&Q
ING BARINGS
LAZARD FRERES & CO. LLC
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "CUBIST,"
"WE," "US" AND "OUR" REFER TO CUBIST PHARMACEUTICALS, INC., A DELAWARE
CORPORATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 7
Special Note on Forward-Looking Statements and Industry
Data...................................................... 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Price Range of Common Stock................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 27
Management.................................................. 41
Principal Stockholders...................................... 45
Certain Transactions........................................ 46
Underwriting................................................ 47
Legal Matters............................................... 50
Experts..................................................... 50
Where You Can Find More Information......................... 50
Information We are Incorporating By Reference............... 51
Index to Financial Statements............................... F-1
</TABLE>
------------------------
VITA is our trademark. All other trademarks, servicemarks or trade names
referred to in this prospectus are the property of their respective owners.
<PAGE>
(This page intentionally left blank.)
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND
OUR FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
OUR COMPANY
Cubist Pharmaceuticals, Inc. is a specialty pharmaceutical company focused
on the research, development and commercialization of new antimicrobial drugs to
combat serious and life-threatening bacterial and fungal infections, including
those caused by bacteria and fungi resistant to commercially available drugs. We
are evaluating in Phase II and Phase III clinical trials the safety and efficacy
of daptomycin, our lead product candidate and the first member of a new class of
antimicrobial drug candidates called lipopeptides. Assuming the successful
completion of Phase III clinical trials, we plan to file with the United States
Food and Drug Administration by mid-2001 a New Drug Application containing data
based on the treatment of approximately 1,200 patients with daptomycin.
Our research and drug discovery activities are focused on the identification
of additional drug candidates from the lipopeptide class and from entirely new
classes of antimicrobial drug candidates. We utilize our proprietary Validation
IN VIVO of Targets and Assays for Antiinfectives, or VITA, functional genomics
technology and our proprietary ChemInformatics technology to accelerate the
discovery of new antimicrobial drugs, and we seek to license these technologies
on a non-exclusive basis to pharmaceutical and biotechnology companies.
INFECTIOUS DISEASES
According to a Centers for Disease Control and Prevention, or CDC, report
based on 1992 data, infectious diseases remained the leading cause of death
worldwide. According to industry sources, in 1997 the global systemic antibiotic
market was valued at $23.4 billion and there were at least 15 antimicrobials
with more than $400 million in annual sales worldwide. Emerging infections
contribute substantially to the ongoing burden of infectious disease in the U.S.
According to a 1994 CDC report, infectious diseases account for 25% of all
visits to physicians each year, and antimicrobial agents are the second most
frequently prescribed class of drugs. Over the past several years, there has
been a rise in the incidence of infectious diseases caused by bacteria and fungi
that have developed resistance to existing antimicrobial drugs. Annual direct
medical costs due to U.S. hospital-based infections reached $4.5 billion in
1992, according to the CDC. The increasing prevalence of drug-resistant
bacterial and fungal pathogens has led to significantly higher mortality rates,
prolonged hospitalizations and higher health care costs from infectious disease.
DAPTOMYCIN
Daptomycin, our lead product candidate, is a unique antimicrobial agent that
rapidly kills bacteria. Daptomycin has a broad spectrum of activity and is in
clinical trials for the treatment of bacterial infections, including those
caused by drug-resistant bacteria such as methicillin-resistant staphylococci,
or MRSA, and vancomycin-resistant enterococci, or VRE. The bacteria targeted by
daptomycin cause serious infections including: endocarditis, or infection of the
heart valves; osteomyelitis, or infection of bone or bone marrow; complicated
skin and soft tissue infections; bacteremia, or bloodstream infection;
complicated urinary tract infections; and pneumonias.
On March 5, 2000, we presented the results from two dose-ranging Phase II
open-label clinical trials at the Centers for Disease Control and Prevention
conference on Nocosomial and Healthcare-Associated Infections. The objective of
these Phase II clinical trials was to investigate dose selection in severely ill
patients based on clinical efficacy and safety. The first clinical trial was
focused on patients
3
<PAGE>
diagnosed with bacteremia. The second clinical trial was focused on patients who
had failed or were unable to tolerate other therapies for the treatment of
serious infections. The Phase II clinical trial data combined for both studies
showed that daptomycin administered intravenously once-a-day at 4 mg/kg had a
91% clinical success rate. In addition, daptomycin administered intravenously
once-a-day at 4 mg/kg demonstrated an 86% clinical success rate in the subset of
patients infected with a drug-resistant pathogen or who were intolerant or
refractory to vancomycin. For purposes of these studies, clinical success was
defined to mean that the patient was cured of the infection or that no
additional antimicrobial therapy was required. Daptomycin had a favorable safety
profile similar to standard therapies.
In addition, we began two Phase III clinical trials of daptomycin for
complicated skin and soft tissue infections in February 1999, and we plan to
commence one Phase III clinical trial for complicated urinary tract infections
in the first half of 2000. We are currently evaluating marketing and sales
strategies for the worldwide commercialization of daptomycin. We plan to
participate in the sales and marketing of daptomycin in the United States,
assuming FDA approval.
OUR LIPOPEPTIDE PROGRAM
Our proprietary lipopeptide program is a medicinal chemistry program
designed to take advantage of the safety and clinical efficacy of daptomycin.
Within traditional classes of antimicrobials such as the penicillins, multiple
antimicrobial drugs have been developed. Therefore, we expect there will be
additional clinically useful lipopeptides with the potential for
commercialization. Our lipopeptide program focuses on the synthesis of novel
analogs of daptomycin with enhanced properties and the evaluation of these
analogs to identify new lipopeptide antimicrobial drug candidates. We expect to
select a new drug candidate from the lipopeptide class by the end of 2000.
OUR DRUG DISCOVERY TECHNOLOGIES
To discover novel antimicrobials for clinical development, our discovery
platform integrates the scientific disciplines and technologies required to
identify valid targets, perform rapid screening and apply medicinal chemistry.
The core components of our discovery platform are our proprietary VITA and
ChemInformatics technologies. We are applying our VITA technology to validate
unique targets and to build assays to identify additional novel compounds with a
broad spectrum of activity against infectious pathogens, including MRSA and VRE.
We are applying our ChemInformatics technology to maximize the utility of data
generated from high-throughput screening of specific targets identified and
validated using VITA to generate high quality lead compounds. We also plan to
commercialize our VITA and ChemInformatics technologies by licensing them on a
non-exclusive basis to pharmaceutical and biotechnology companies. In February
1999, we entered into a collaborative research and license agreement with
Novartis Pharma AG in which we granted Novartis a non-exclusive license to our
VITA technology. In August 1999, we expanded our Merck collaboration to include
two novel antibacterial compound classes discovered through the use of our
ChemInformatics technology.
OUR ADDRESS
We are a Delaware corporation organized in May 1992. The mailing address of
our principal executive office is 24 Emily Street, Cambridge, Massachusetts
02139, and our phone number is (617) 576-1999.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Cubist.............................. 2,500,000 shares
Common stock to be outstanding after the offering........... 26,043,385 shares
Use of proceeds............................................. We intend to use the net proceeds of
this offering to fund our clinical
trials and commercialization of
daptomycin, our lipopeptide drug
discovery program, the continued
development of our VITA functional
genomics and ChemInformatics
technologies, working capital and other
general corporate purposes.
Nasdaq National Market symbol............................... CBST
</TABLE>
The number of shares to be outstanding after the offering is based on shares
outstanding as of March 30, 2000 and excludes:
- 2,491,512 shares of common stock issuable upon the exercise of stock
options outstanding under our stock option plan at a weighted average
exercise price of $11.12 per share and 702,445 additional shares of common
stock reserved for issuance under this plan subject to shareholder
approval at the next annual meeting of shareholders on May 16, 2000;
- 2,214,841 shares of common stock issuable upon the exercise of warrants
outstanding at a weighted average exercise price of $3.28 per share; and
- 232,044 shares reserved for future issuance under our employee stock
purchase plan.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes our statements of operations for each of the
years ended December 31, 1995, 1996, 1997, 1998 and 1999 and our balance sheet
as of December 31, 1999. The pro forma column in the balance sheet data reflects
our sale of 2,200,000 shares of common stock at a price of $25.00 per share in a
private placement completed on January 29, 2000 for net proceeds of
$52.0 million. The pro forma as adjusted column in the balance sheet data also
reflects our sale of the 2,500,000 shares offered at an assumed public offering
price of $37.75 and after deducting the estimated underwriting discounts and
commissions and the estimated offering expenses that we will pay and includes
our receipt of the estimated net proceeds. You should read this summary
information in conjunction with our financial statements and related notes
appearing elsewhere in this prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sponsored research revenues................... $ 1,271 $ 4,985 $ 2,733 $ 1,634 $ 5,353
Research and development expense.............. 4,965 6,871 9,341 10,489 19,351
General and administrative expense............ 1,708 1,989 3,292 3,495 4,298
Net loss...................................... (5,396) (3,799) (7,265) (11,825) (17,814)
Basic and diluted net loss per common share... $ (5.47) $ (1.49) $ (0.73) $ (0.97) $ (0.99)
Weighted average number of common shares
outstanding for basic and diluted net loss
per common share............................ 986 2,554 9,995 12,224 18,041
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $26,151 $78,112 $166,796
Working capital............................................. 23,046 75,007 163,691
Total assets................................................ 30,204 82,165 170,849
Long-term liabilities....................................... 1,519 1,519 1,519
Stockholders' equity........................................ 25,153 77,114 165,798
</TABLE>
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS DESCRIBED BELOW, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE YOU MAKE A DECISION TO INVEST IN OUR COMMON STOCK. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, OPERATING RESULTS OR FINANCIAL
CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED. THIS COULD CAUSE THE MARKET
PRICE OF OUR COMMON STOCK TO DECLINE, AND COULD CAUSE YOU TO LOSE ALL OR PART OF
YOUR INVESTMENT.
RISKS RELATING TO OUR BUSINESS
OUR OPERATING RESULTS FOR THE FORESEEABLE FUTURE WILL DEPEND SIGNIFICANTLY ON
OUR ABILITY TO OBTAIN REGULATORY APPROVAL OF, AND TO SUCCESSFULLY COMMERCIALIZE,
DAPTOMYCIN.
Daptomycin is currently our only drug candidate in clinical trials. We will
not receive revenues or royalties from commercial sales of daptomycin or any
other drug in the foreseeable future, if at all.
Our development of daptomycin involves a high degree of risk. Many important
factors will affect our ability to successfully develop and commercialize
daptomycin, including our ability to:
- demonstrate safety and efficacy of daptomycin at each stage of the
clinical trial process;
- meet applicable regulatory standards and receive required regulatory
approvals;
- obtain and maintain necessary patents and licenses;
- produce daptomycin in commercial quantities at reasonable costs;
- obtain reimbursement coverage for daptomycin;
- compete successfully against other products; and
- market daptomycin successfully.
We cannot be sure that we will successfully develop and commercialize
daptomycin or that we will obtain required regulatory approvals for its
commercialization. As a result, we may never generate revenues from daptomycin
sales.
WE HAVE INCURRED SUBSTANTIAL LOSSES IN THE PAST AND EXPECT TO INCUR ADDITIONAL
LOSSES OVER THE NEXT SEVERAL YEARS.
Since we began operations, we have incurred substantial net losses in every
fiscal period. We had net losses of $7.3 million in 1997, $11.8 million in 1998
and $17.8 million in 1999. We had an accumulated deficit of $52.6 million
through December 31, 1999. These losses have resulted principally from costs in
conducting research and development activities, commencing clinical trials and
associated administrative costs.
We expect to incur significant additional operating losses over the next
several years as we expand our research and development efforts, preclinical
testing and clinical trials and we implement manufacturing, marketing and sales
programs. As a result, we cannot predict when we will become profitable, if at
all, and if we do, we may not remain profitable for any substantial period of
time. If we fail to achieve profitability within the time frame expected by
investors, the market price of the common stock may decline.
7
<PAGE>
WE DEPEND ON THIRD PARTIES FOR MANUFACTURING OF DAPTOMYCIN, AND OUR
COMMERCIALIZATION OF DAPTOMYCIN COULD BE STOPPED, DELAYED OR MADE LESS
PROFITABLE IF THOSE THIRD PARTIES FAIL TO PROVIDE US WITH SUFFICIENT QUANTITIES
AT ACCEPTABLE PRICES.
We have no experience in manufacturing. We lack the facilities and personnel
to manufacture products in accordance with the Good Manufacturing Practices
prescribed by the FDA or to produce an adequate supply of compounds to meet
future requirements for clinical trials and commercialization of daptomycin.
Drug manufacturing facilities are subject to an inspection before the FDA will
issue an approval to market a new drug product, and all of the manufacturers
that we intend to use must adhere to the current Good Manufacturing Practice
regulations prescribed by the FDA.
We depend entirely on one company, ACS Dobfar, to manufacture bulk
daptomycin drug substance for our clinical trials, and on two companies, Abbott
Laboratories (Hospital Products Division) and Chesapeake Biological
Laboratories, to manufacture clinical grade vialed formulation of daptomycin. We
have entered into a memorandum of understanding with DSM Fine Chemicals to
manufacture and supply to us bulk daptomycin drug substance for commercial
purposes. We are in negotiations with ACS Dobfar to establish a second source of
manufacture and supply of bulk daptomycin drug substance for commercial
purposes, and in negotiations with Abbott and Chesapeake for the manufacture and
supply of final vialed daptomycin commercial drug product. We may not be able to
enter into definitive agreements with DSM, ACS Dobfar, Abbott or Chesapeake on
acceptable terms for the commercial scale manufacturing of daptomycin. If we are
unable to do so, or if we are required to transfer manufacturing processes to
other third-party manufacturers, we would be required to satisfy various
regulatory requirements and we could experience significant delays in supply. If
we are unable to maintain, develop or contract for manufacturing capabilities on
acceptable terms at any time, our ability to conduct clinical trials and to make
any commercial sales would be adversely affected.
IF WE ARE UNABLE TO DEVELOP SATISFACTORY SALES AND MARKETING CAPABILITIES, WE
MAY NOT SUCCEED IN COMMERCIALIZING DAPTOMYCIN OR ANY OTHER PRODUCT CANDIDATE.
We have no experience in marketing and selling drug products. We have not
entered into any arrangements for the sale and marketing of daptomycin. We may
seek to collaborate with a third party to market our drugs or may seek to market
and sell our drugs by ourselves. If we seek to collaborate with a third party,
we cannot be sure that a collaborative agreement can be reached on terms
acceptable to us. If we seek to market and sell our drugs directly, we will need
to hire additional personnel skilled in marketing and sales. We cannot be sure
that we will be able to acquire, or establish third-party relationships to
provide, any or all of these marketing and sales capabilities.
EVEN IF WE OBTAIN REGULATORY APPROVALS TO COMMERCIALIZE DAPTOMYCIN OR ANY OTHER
DRUG, OUR DRUG PRODUCTS MAY NOT BE ACCEPTED BY PHYSICIANS, PATIENTS, THIRD-PARTY
PAYORS OR THE MEDICAL COMMUNITY IN GENERAL.
We cannot be sure that daptomycin or any other drug successfully developed
by us, independently or with our collaborative partners, will be accepted by the
pharmaceutical market. Daptomycin and any future products we develop will
compete with a number of antimicrobial drugs manufactured and marketed by major
pharmaceutical companies. The degree of market acceptance of any drugs we
develop depends on a number of factors, including:
- our demonstration of the clinical efficacy and safety of our drugs;
- the advantages and disadvantages of our drugs compared to existing
therapies; and
- the reimbursement policies of government and third-party payors.
8
<PAGE>
We cannot be sure that physicians, patients, third-party payors or the
medical community in general will accept and utilize any drugs we develop.
OUR APPROACH TO DRUG DISCOVERY IS UNPROVEN, AND WE MAY NOT SUCCEED IN
IDENTIFYING ANY DRUG CANDIDATES WITH CLINICAL BENEFITS.
Our approach requires the development of multiple novel technologies to
create a successful drug candidate. While we have demonstrated that some
compounds have the ability to inhibit the activity of some molecular targets, we
have not proven that this activity can be utilized clinically as a therapeutic
drug. We cannot be certain that any preliminary potential demonstrated in
primary screening will continue to be encouraging in further screening or drug
discovery studies. We have not tested any drug candidates developed from our
drug discovery program in humans, and we cannot assure you that there will be
clinical benefits associated with any drug candidates we do develop. Our failure
to develop new drug candidates would have a material adverse effect on our
business, operating results and financial condition.
OUR RESEARCH AND DEVELOPMENT PROGRAM FOR DRUG PRODUCTS OTHER THAN DAPTOMYCIN IS
AT AN EARLY STAGE, AND WE CANNOT BE CERTAIN OUR PROGRAM WILL RESULT IN THE
COMMERCIALIZATION OF ANY DRUG.
Except for our development program for daptomycin, our research and
development program is at an early stage. To date, we have not, independently or
with our collaborative partners, optimized any lead drug candidates generated in
our research program. Any drug candidates we develop will require significant
additional research and development efforts prior to commercial sale, including
extensive preclinical and clinical testing and regulatory approval. This may
require increases in spending on internal projects, the acquisition of third
party technologies or products and other types of investments. We cannot be sure
our approach to drug discovery, acting independently or with our collaborative
partners, will be effective or will result in the development of any drug. We
cannot expect that any drug products that do result from our research and
development efforts will be commercially available for many years.
We have limited experience in conducting preclinical testing and clinical
trials. Even if we receive initially positive preclinical or clinical results,
those results will not mean that similar results will be obtained in the later
stages of drug development. All of our potential drug candidates are prone to
the risks of failure inherent in pharmaceutical product development, including
the possibility that none of our drug candidates will be:
- safe, non-toxic and effective;
- approved by regulatory authorities;
- developed into a commercially viable drug;
- manufactured or produced economically;
- successfully marketed; or
- accepted widely by customers.
WE FACE SIGNIFICANT COMPETITION FROM OTHER BIOTECHNOLOGY AND PHARMACEUTICAL
COMPANIES, AND OUR OPERATING RESULTS WILL SUFFER IF WE FAIL TO COMPETE
EFFECTIVELY.
The biotechnology and pharmaceutical industries are intensely competitive.
We have many competitors both in the United States and internationally,
including major multinational pharmaceutical and chemical companies,
biotechnology companies and universities and other research institutions.
Competition for daptomycin, in particular, includes commercially available drugs
such as vancomycin, a generic antimicrobial drug, and drug candidates in
clinical development.
9
<PAGE>
Many of our competitors have greater financial and other resources, such as
larger research and development staffs and more effective marketing and
manufacturing organizations. Our competitors may succeed in developing or
licensing on an exclusive basis technologies and drugs that are more effective
or less costly than any which we are currently developing, which could render
our technology and future drug products obsolete and noncompetitive. It is
possible for our competitors to obtain FDA or other regulatory approvals for
drug candidates before we can. In general, companies that begin commercial sale
of their drugs before their competitors have a significant competitive advantage
in the marketplace, including the ability to obtain patent and FDA marketing
exclusivity rights that would delay our ability to market specific products.
Even if our drug candidates are approved for sale, we may not be able to compete
successfully with competitors' existing products or products under development.
DECISIONS BY OUR COLLABORATIVE PARTNERS COULD IMPAIR OR PROHIBIT OUR DEVELOPMENT
OF NEW PRODUCTS AND OTHERWISE ADVERSELY AFFECT OUR REVENUES.
A key element of our strategy is to enhance our drug discovery and
development programs, and to fund a portion of our capital requirements, by
entering into collaborative agreements with pharmaceutical and biotechnology
companies. Our receipt of revenues, whether in the form of continued research
funding, drug development milestone payments or royalty payments on sales of
drugs, from these collaborative agreements is dependent upon the decisions made
by our collaborative partners. The amount and timing of resources dedicated by
our collaborative partners to their respective collaborations with us is not
under our control.
Some drug candidates discovered by us may be viewed by our collaborative
partners as competitive with their drugs or drug candidates. Accordingly, our
collaborative partners may not elect to proceed with the development of drug
candidates that we believe to be promising. In addition, our collaborative
partners may pursue their existing or alternative technologies in preference to
our drug candidates. As a result:
- the interests and goals of our collaborative partners might not always
coincide with ours;
- some of our collaborative partners might develop independently, or with
others, drugs that could compete with ours; or
- disagreements over proprietary rights might lead to delays in research or
in the development and commercialization of product candidates and might
result in litigation or arbitration, either of which would be
time-consuming and expensive.
If any of our collaborative partners breaches or terminates its agreement
with us or otherwise fails to conduct its collaborative activities in a timely
manner:
- the development or commercialization of any drug candidate or research
program under these collaborative agreements may be delayed;
- we may be required to undertake unforeseen additional responsibilities or
to devote unforeseen additional resources to such development or
commercialization; or
- the development or commercialization could be terminated.
We cannot be sure that we will be able to establish additional collaborative
relationships on terms acceptable to us or to continue our existing
collaborative arrangements.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.
Our success depends to a significant degree upon our ability to obtain
United States and foreign patent protection for our drug candidates and
processes, preserve our trade secrets, and operate without infringing the
proprietary rights of third parties. Legal standards relating to the validity of
10
<PAGE>
patents covering pharmaceutical and biotechnological inventions, and the scope
of claims made under such patents, are still developing. Our patent position is
highly uncertain and involves complex legal and factual questions. We cannot be
certain that the named applicants or inventors of the subject matter covered by
our patent applications or patents, whether directly owned by us or licensed to
us, were the first to invent or the first to file patent applications for such
inventions. Third parties may challenge, infringe upon, circumvent or seek to
invalidate existing or future patents owned by or licensed to us. A court or
other agency with jurisdiction may find our patents unenforceable. Even if we
have valid patents, these patents still may not provide sufficient protection
against competing products or processes.
If our drug candidates or processes are found to infringe upon the patents
of others or are found to impermissibly utilize the intellectual property of
others, our development, manufacture and sale of our infringing drug candidates
could be severely restricted or prohibited. In this case, we may have to obtain
licenses from third parties to continue utilizing the patents or proprietary
rights of others. Obtaining these licenses may be expensive, if we are able to
obtain them at all. If we become involved in litigation involving our
intellectual property rights or the intellectual property rights of others, the
potential costs of such litigation and the potential damages that we could be
required to pay could be substantial.
In addition to patent protection, we rely on trade secrets, proprietary
know-how, and confidentiality provisions in agreements with our collaborative
partners, employees and consultants to protect our intellectual property. We
also rely on invention assignment provisions in agreements with employees and
some consultants. It is possible that these agreements could be breached or that
we might not have adequate remedies for any such breaches. Third parties may
learn of or independently discover our trade secrets, proprietary know-how and
intellectual property, which could have a material adverse effect on our
business, financial condition and results of operations. Moreover, the laws of
foreign countries in which we market our drug products may afford little or no
effective protection of our intellectual property.
IF WE LOSE THE SERVICES OF SCOTT M. ROCKLAGE, PH.D., FRANCIS P. TALLY, M.D., OR
OTHER KEY PERSONNEL, OUR BUSINESS WILL SUFFER.
We believe that our ability to successfully implement our business strategy
is highly dependent on our senior management and scientific team, including
Scott M. Rocklage, Ph.D., our Chairman of the Board of Directors, Chief
Executive Officer and President, and Francis P. Tally, M.D., our Executive Vice
President, Scientific Affairs. Although Dr. Rocklage has entered into an
employment agreement with us, he may terminate his employment at any time upon
thirty days' written notice. No other senior executive officer or key employee
has entered into an employment agreement with us. Losing the services of one or
more of these individuals might hinder our ability to achieve our business
objectives.
WE MUST HIRE AND RETAIN QUALIFIED PERSONNEL IN A COMPETITIVE LABOR MARKET.
Our success in large part depends upon our ability to attract, train,
motivate and retain qualified scientific personnel. Qualified personnel are in
great demand throughout the biotechnology and pharmaceutical industries, and the
competition for these employees therefore is intense. If we fail to attract and
retain qualified personnel for our scientific and technical teams, the rate at
which we can discover, develop and commercialize drugs will be limited. This
could have a material adverse effect on our business, operating results and
financial condition.
WE MAY REQUIRE ADDITIONAL FUNDS.
We may require substantial additional funds in order to:
- finance our drug discovery and development programs;
11
<PAGE>
- fund our operating expenses;
- pursue regulatory approvals;
- license or acquire additional drug candidates or technologies;
- develop manufacturing, marketing and sales capabilities; and
- prosecute and defend our intellectual property rights.
We intend to seek additional funding through public or private financing or
other arrangements with collaborative partners. If we raise additional funds by
issuing equity securities, further dilution to existing stockholders may result.
In addition, as a condition to giving additional funds to us, future investors
may demand, and may be granted, rights superior to those of existing
stockholders. We cannot be sure, however, that additional financing will be
available from any of these sources or, if available, will be available on
acceptable or affordable terms.
If adequate additional funds are not available, we may be required to delay,
reduce the scope of, or eliminate one or more of our research and development
programs. In order to obtain additional funding, we may be required to
relinquish rights to technologies or drug candidates that we would not otherwise
relinquish in order to continue independent operations.
WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS
RELATING TO OUR DRUG PRODUCTS.
The nature of our business exposes us to potential liability risks inherent
in the testing, manufacturing and marketing of pharmaceutical products. Using
our drug candidates in clinical trials may expose us to product liability claims
and possible adverse publicity. These risks will expand with respect to drugs,
if any, that receive regulatory approval for commercial sale. Product liability
insurance is expensive and may not be available in the future. We cannot be sure
that we will be able to maintain or obtain insurance coverage at acceptable
costs or in a sufficient amount, that our insurer will not disclaim coverage as
to a future claim or that a product liability claim would not otherwise
adversely affect our business, operating results or financial condition.
OUR ABILITY TO GENERATE FUTURE REVENUES FROM DRUG PRODUCTS WILL DEPEND ON
REIMBURSEMENT AND DRUG PRICING.
Acceptable levels of reimbursement of costs of developing and manufacturing
of drugs and treatments related to those drugs by government authorities,
private health insurers and other organizations, such as HMOs, will have an
effect on the successful commercialization of, and attracting collaborative
partners to invest in the development of, our drug candidates. We cannot be sure
that reimbursement in the United States or elsewhere will be available for any
drugs we may develop or, if already available, will not be decreased in the
future. Also, we cannot be sure that reimbursement amounts will not reduce the
demand for, or the price of, our drugs. Any reduction in demand would adversely
affect our business. If reimbursement is not available or is available only to
limited levels, we may not be able to obtain collaborative partners to
manufacture and commercialize drugs, and may not be able to obtain a
satisfactory financial return on our own manufacture and commercialization of
any future drugs.
Third-party payors increasingly are challenging prices charged for medical
products and services. Also, the trend toward managed health care in the United
States and the concurrent growth of organizations such as HMOs, as well as
legislative proposals to reform health care or reduce government insurance
programs, may result in lower prices for pharmaceutical products, including any
products that may be offered by us in the future. Cost-cutting measures that
health care providers are instituting, and the effect of any health care reform,
could materially adversely affect our ability to sell any drugs that are
successfully developed by us and approved by regulators. Moreover, we are unable
12
<PAGE>
to predict what additional legislation or regulation, if any, relating to the
health care industry or third-party coverage and reimbursement may be enacted in
the future or what effect such legislation or regulation would have on our
business.
RISKS RELATED TO GOVERNMENTAL APPROVALS
IF WE DO NOT OBTAIN REGULATORY APPROVALS, WE WILL NOT BE ABLE TO MARKET
DAPTOMYCIN OR ANY FUTURE DRUG CANDIDATES.
The FDA and comparable regulatory agencies in foreign countries impose
substantial requirements upon the commercial introduction of drug products to
establish their safety and efficacy. These include lengthy and detailed
preclinical, laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. All of our drug candidates will
require governmental approvals for commercialization, none of which have been
obtained. Preclinical testing and clinical trials and manufacturing of our drug
candidates will be subject to rigorous and extensive regulation by the FDA and
corresponding foreign regulatory authorities. Satisfaction of these requirements
typically takes a significant number of years and can vary substantially based
upon the type, complexity and novelty of the product.
We are currently testing daptomycin in human clinical trials to determine
whether daptomycin is safe and effective and, if so, to what degree. Many drugs
in human clinical trials fail to demonstrate the desired safety and efficacy
characteristics. Drugs in later stages of clinical development may fail to show
the desired safety and efficacy traits despite having progressed through initial
human testing. Our failure to demonstrate the safety and efficacy of daptomycin
could delay or prevent required approvals from regulatory authorities. This
would prevent us from commercializing daptomycin and would substantially impair
our business, operating results and financial condition. We cannot be sure when
we, independently or with our collaborative partners, might submit additional
drug candidates for FDA or other regulatory review. Government regulation also
affects the manufacturing and marketing of pharmaceutical products like ours.
The effects of governmental regulations may be to:
- delay the marketing of our potential drugs for a considerable or
indefinite period of time;
- impose costly procedural requirements upon our activities; and
- furnish a competitive advantage to larger companies or companies more
experienced in regulatory affairs.
Delays in obtaining governmental regulatory approval could adversely affect
our marketing as well as our ability to generate significant revenues from
commercial sales. We cannot be sure that FDA or other regulatory approvals for
any drug candidates developed by us will be granted on a timely basis or at all.
Moreover, if regulatory approval to market a drug candidate is granted, the
approval may impose limitations on the indicated use for which the drug may be
marketed.
WE HAVE LIMITED EXPERIENCE IN CONDUCTING THE PRECLINICAL AND CLINICAL TESTING
NECESSARY FOR US TO OBTAIN REGULATORY APPROVALS OF OUR DRUG CANDIDATES.
Before we receive regulatory approvals for the commercial sale of any of our
potential drugs, our drug candidates will be subject to extensive preclinical
testing and clinical trials to demonstrate their safety and efficacy in humans.
We depend on our collaborative partners to conduct clinical trials for the drug
candidates resulting from the collaborative agreements, and we may become
dependent on other third parties to conduct future clinical trials of our
internally developed drug candidates. We have limited experience in conducting
preclinical testing or clinical trials. Preclinical testing or clinical trials
have been commenced only with respect to daptomycin and not with respect to any
of our other drug
13
<PAGE>
candidates or any drug candidates being developed jointly by us and our
collaborative partners. Furthermore, we cannot be sure that preclinical testing
or clinical trials of any drug candidates will demonstrate the safety and
efficacy of our drug candidates at all or to the extent necessary to obtain
regulatory approvals. Companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials, even after demonstrating
promising results in earlier trials. The failure to demonstrate the safety and
efficacy of a drug candidate under development would delay or prevent regulatory
approval of the drug candidate and could have a material adverse effect on our
business, operating results and financial condition.
IF WE FAIL TO COMPLY WITH EXTENSIVE REGULATIONS AFTER ANY REGULATORY APPROVAL OF
A DRUG PRODUCT OR IF A REGULATORY AUTHORITY WITHDRAWS ITS APPROVAL OF A DRUG
PRODUCT, WE MAY BE FORCED TO SUSPEND THE SALE OF THE PRODUCT.
Even if initial regulatory approvals for our drug candidates are obtained,
our company, our drugs and the manufacturing facilities for our drugs would be
subject to continual review and periodic inspection. Later discovery of
previously unknown problems with a drug, manufacturer or facility may result in
restrictions on the drug, the manufacturer or us, including withdrawal of the
drug from the market. The FDA stringently applies regulatory standards. Failure
to comply can, among other things, result in fines, denial or withdrawal of
regulatory approvals, product recalls or seizures, operating restrictions and
criminal prosecution. In addition, our manufacturing facilities will be subject
to FDA inspections for adherence to Good Manufacturing Practices prior to
marketing clearance and periodically during the manufacturing process. The FDA
may also require post-marketing testing and surveillance to monitor the effects
of an approved product. In addition, if there are any modifications to a drug,
further regulatory approval will be required.
RISKS RELATING TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK
THE MARKET PRICE OF OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME
FLUCTUATIONS FOR REASONS OVER WHICH WE HAVE NO CONTROL.
The stock market has from time to time experienced, and is likely to
continue to experience, extreme price and volume fluctuations. Recently, prices
of securities of pharmaceutical and biotechnology companies have been especially
volatile and have often fluctuated for reasons that are unrelated to the
operating performance of the companies. The market price of shares of our common
stock has fluctuated greatly since our initial public offering and could
continue to fluctuate due to a variety of factors. In the past, companies that
have experienced volatility in the market price of their stock have been the
objects of securities class action litigation. If we were the object of
securities class action litigation, it could result in substantial costs and a
diversion of our management's attention and resources.
OUR CORPORATE DOCUMENTS AND DELAWARE LAW MAKE A TAKEOVER OF OUR COMPANY MORE
DIFFICULT, WHICH MAY LIMIT THE MARKET PRICE OF THE COMMON STOCK.
Our charter and by-laws and Section 203 of the Delaware General Corporation
Law contain provisions that might enable our management to resist a takeover of
our company. Among other things, the board of directors has instituted a
shareholder rights plan, commonly known as a "poison pill," pursuant to which
all stockholders have the right to receive additional shares of our common stock
to prevent some changes in control, including transactions in which stockholders
might otherwise receive a premium for their shares over then-current market
prices. These provisions may discourage, delay or prevent a change in control or
a change in our management. These provisions also could discourage proxy
contests and make it more difficult for you and other stockholders to elect
directors and take other corporate actions. The existence of these provisions
could limit the price that investors are willing to pay for shares of common
stock.
14
<PAGE>
INVESTORS IN THIS OFFERING WILL PAY A MUCH HIGHER PRICE THAN THE BOOK VALUE OF
OUR COMMON STOCK.
The public offering price of the common stock in this offering is $31.18
higher than the tangible pro forma book value of our common stock on a per share
basis after the offering. As a result, investors purchasing common stock in this
offering will incur immediate and substantial dilution. In the past, we issued
options and warrants to acquire common stock at prices significantly below the
public offering price in this offering. To the extent these options and warrants
are exercised, there will be further dilution to investors.
15
<PAGE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus contains and incorporates by reference 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 statements
regarding our drug development and discovery programs, clinical trials, receipt
of regulatory approval, capital needs, collaborative agreements, intellectual
property, expectations and intentions. Forward-looking statements may be
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 those words or
expressions.
Forward-looking statements necessarily involve risks and uncertainties, and
our actual results could differ materially from those anticipated in the
forward-looking statements due to a number of factors, including those set forth
above under "Risk Factors" and elsewhere in this prospectus. The factors set
forth above in the "Risk Factors" section and other cautionary statements made
in this prospectus should be read and understood as being applicable to all
related forward-looking statements wherever they appear in this prospectus. The
forward-looking statements contained in this prospectus represent our judgment
as of the date of this prospectus. We caution readers not to place undue
reliance on such statements. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
Information regarding market and industry statistics contained in this
prospectus is included based on information available to us that we believe is
accurate. It is generally based on academic and other publications that are not
produced for purposes of securities offerings or economic analysis. We have not
independently verified that data and cannot assure you of the accuracy of the
data we have included.
16
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of $88,684,375 from the sale of 2,500,000
shares of our common stock in this offering, or $102,062,031 if the
underwriters' over-allotment option is exercised in full, assuming a public
offering price of $37.75 per share and after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses
payable by us. We intend to use the net proceeds of this offering for general
corporate and working capital purposes. Although we have not yet identified any
specific uses for these proceeds, we currently anticipate using the proceeds for
the following purposes:
- clinical trials and commercialization of daptomycin;
- our lipopeptide drug discovery program;
- the continued development and use of our VITA functional genomics and
ChemInformatics technologies; and
- working capital and general corporate purposes.
Accordingly, we will retain broad discretion as to the allocation of the net
proceeds of this offering. We intend to invest the net proceeds of this offering
in interest-bearing investment grade securities pending the above uses.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. We do not have any agreement or understanding, and we are
not currently in any negotiations with respect to, any of these types of
transactions.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and do
not anticipate paying any dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to operate and expand our business.
Our payment of any future dividends will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, cash needs and growth plans. Our bank term loan
contains a restrictive covenant that prohibits us from paying cash dividends or
making stock redemptions or repurchases without the prior written consent of the
lender bank.
17
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"CBST." The following table sets forth, for the periods indicated, the high and
low sale prices per share of our common stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
Year Ended December 31, 1998:
First Quarter........................................... $ 5.75 $ 4.25
Second Quarter.......................................... $ 5.69 $ 4.50
Third Quarter........................................... $ 4.69 $ 2.03
Fourth Quarter.......................................... $ 3.81 $ 2.00
Year Ended December 31, 1999:
First Quarter........................................... $ 4.87 $ 2.68
Second Quarter.......................................... $ 4.87 $ 2.87
Third Quarter........................................... $11.12 $ 2.93
Fourth Quarter.......................................... $21.50 $ 7.37
Year Ended December 31, 2000:
First Quarter........................................... $71.50 $16.25
</TABLE>
On March 30, 2000, the closing sale price of our common stock on the Nasdaq
National Market was $37.75 per share and we had 289 stockholders of record of
the common stock.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to our sale of 2,200,000 shares of
common stock at a price of $25.00 per share in a private placement
completed on January 29, 2000, for net proceeds of $52.0 million; and
- on a pro forma as adjusted basis to also give effect to the sale of
2,500,000 shares of common stock in this offering at an assumed public
offering price of $37.75 per share and after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses
that we will pay, and includes our receipt of the estimated net proceeds.
This table should be read in conjunction with our financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total long-term liabilities, net of current portion......... $ 1,519 $ 1,519 $ 1,519
-------- -------- --------
Stockholders' equity:
Preferred stock, non-cumulative; convertible, $.001 par
value; authorized 5,000,000 shares; issued and
outstanding, no shares.................................. -- -- --
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding actual 20,523,358 shares,
pro forma 22,723,358 shares, pro forma as adjusted
25,223,358 shares....................................... 21 23 25
Additional paid-in capital................................ 77,766 129,725 218,407
Accumulated deficit....................................... (52,634) (52,634) (52,634)
-------- -------- --------
Total stockholders' equity.............................. 25,153 77,114 165,798
-------- -------- --------
Total capitalization........................................ $ 26,672 $ 78,633 $167,317
======== ======== ========
</TABLE>
19
<PAGE>
DILUTION
As of December 31, 1999, we had a pro forma net tangible book value of
$77.1 million, or $3.39 per share of common stock. Pro forma net tangible book
value per share before the offering is calculated by subtracting total
liabilities from our total tangible assets and dividing this amount by
22,723,358, the pro forma number of shares of common stock outstanding at
December 31, 1999. The pro forma numbers give effect to our sale of 2,200,000
shares of common stock in a private placement completed January 29, 2000, and
our receipt of $52.0 million in net proceeds from that sale. Adjusted pro forma
dilution per share to new investors represents the difference between the amount
per share paid by purchasers of our common stock in this offering and the pro
forma net tangible book value per share of our common stock immediately after
completion of this offering. Without taking into account any other changes in
the pro forma net tangible book value after December 31, 1999, other than the
private placement described above and the sale of shares offered hereby by us at
an assumed public offering price of $37.75 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by us, the adjusted pro forma net tangible book value as of
December 31, 1999, would have been $165.8 million, or $6.57 per share. Based on
the foregoing, there would be an immediate increase in pro forma net tangible
book value to existing stockholders of $3.18 per share and an immediate dilution
of $31.18 per share to new investors purchasing shares of our common stock in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share............................. $37.75
Pro forma net tangible book value per share as of December
31, 1999................................................ $ 3.39
Increase per share attributable to new investors.......... 3.18
------
Adjusted pro forma net tangible book value per share after
this offering............................................. 6.57
------
Adjusted pro forma dilution per share to new investors...... $31.18
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, after giving effect to the shares of common stock purchased from us in the
private placement described above and in this offering, the total consideration
paid to us and the average price per share paid by our stockholders before this
offering and by new investors purchasing shares of common stock in this
offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 22,723,358 90.1% $129,748,792 57.9% $ 5.71
New investors............................. 2,500,000 9.9 94,375,000 42.1 37.75
---------- ----- ------------ -----
Total................................... 25,223,358 100.0% 224,123,792 100.0%
========== ===== ============ =====
</TABLE>
As of December 31, 1999, there were options outstanding to purchase a total
of 1,978,533 shares of common stock at a weighted average exercise price of
$4.45 per share and 574,384 additional shares reserved for future grants and
issuances under our stock option plan and stock purchase plan. Additionally, at
December 31, 1999, there were outstanding warrants to purchase a total of
2,775,868 shares of common stock at a weighted average exercise price of $2.30
per share. To the extent that any of these options or warrants are exercised,
there will be further dilution to new investors.
20
<PAGE>
SELECTED FINANCIAL DATA
The following historical selected financial data should be read in
conjunction with our financial statements and related notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
other financial information appearing elsewhere in this prospectus. The
statement of operations data set forth below for the years ended December 31,
1995 and 1996, and the balance sheet data at December 31, 1995, 1996 and 1997,
are derived from, and qualified by reference to, our financial statements which
have been audited by PricewaterhouseCoopers LLP, independent accountants but are
not included in this prospectus. The statement of operations data set forth
below for the years ended December 31, 1997, 1998 and 1999, and the balance
sheet data at December 31, 1998 and 1999, are derived from, and qualified by
reference to, our financial statements which have been audited by
PricewaterhouseCoopers LLP, together with their report thereon, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sponsored research revenues................... $ 1,271 $ 4,985 $ 2,733 $ 1,634 $ 5,353
------- ------- ------- -------- --------
Operating expenses:
Research and development expenses........... 4,965 6,871 9,341 10,489 19,351
General and administrative expenses......... 1,708 1,990 3,292 3,495 4,298
------- ------- ------- -------- --------
Total operating expenses................ 6,673 8,861 12,633 13,984 23,649
Interest income............................... 239 306 1,039 859 813
Interest expense.............................. (233) (229) (237) (334) (331)
Other income.................................. -- -- 1,833 -- --
------- ------- ------- -------- --------
Net loss.................................... $(5,396) $(3,799) $(7,265) $(11,825) $(17,814)
======= ======= ======= ======== ========
Basic and diluted net loss per common share... $ (5.47) $ (1.49) $ (0.73) $ (0.97) $ (0.99)
Weighted average number of common shares
outstanding for basic and diluted net loss
per common share............................ 986 2,554 9,995 12,224 18,041
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................... $3,056 $19,329 $ 9,547 $15,156 $26,151
Working capital................................. 3,215 18,020 8,238 13,645 23,046
Total assets.................................... 7,048 23,452 21,673 23,137 30,204
Long-term liabilities........................... 1,257 1,053 1,105 1,308 1,519
Stockholders' equity............................ 4,895 20,299 19,063 20,086 25,153
Dividends....................................... -- -- -- -- --
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS MAY
DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE FUTURE RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. ALSO, SEE
"SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA."
OVERVIEW
Since our incorporation on May 1, 1992 and commencement of operations in
February 1993, we have been engaged in the research, development and
commercialization of novel antimicrobial drugs to combat serious and
life-threatening bacterial and fungal infections, including those caused by
bacteria and fungi resistant to commercially available drugs. We have a limited
history of operations and have experienced significant net losses since
inception. At December 31, 1999, we had an accumulated deficit of $52.6 million.
We expect to incur significant additional operating losses over the next several
years and expect cumulative losses to increase due to expanded research and
development efforts, preclinical testing and clinical trials and the development
of manufacturing, marketing and sales capabilities.
In recent years we have enhanced our drug discovery and development programs
and funded a portion of our capital requirements, by entering into collaborative
agreements with pharmaceutical and biotechnology companies. We have entered into
collaborative agreements based specifically on our aminoacyl-tRNA synthetase
program with Merck and Bristol-Myers Squibb, and a collaborative agreement with
Novartis based on our VITA functional genomics technology. Under these
collaborative agreements, we have received sponsored research payments and, if
drug development milestones are achieved, we 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. We have received
all of the sponsored research payments that we were entitled to under our
collaborative agreements with Merck and Bristol-Myers Squibb, although Merck and
Bristol-Myers Squibb are still required to make milestone payments and pay
royalties to us for any drug developed and commercialized from these
collaborations.
On February 3, 1999, we entered into a collaborative research and license
agreement with Novartis Pharma AG to use our VITA functional genomics technology
to validate and develop assays for antimicrobial targets and to identify new
compounds for development as antimicrobial agents. In exchange for the license,
Novartis is making research payments and, if scientific and development
milestones are achieved, Novartis will make milestone payments to us. 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 we issued to Novartis, 797,448 shares of our common stock for a
total purchase price of $4.0 million in cash.
On November 7, 1997, we entered into a license agreement with Eli Lilly and
Company, pursuant to which we acquired exclusive worldwide rights to develop,
manufacture and market daptomycin. In exchange for such license, we paid to Eli
Lilly an upfront license fee in cash, and if drug development milestones are
achieved, have agreed to pay milestone payments in cash or by issuing shares of
our common stock to Eli Lilly. In addition, we will be required to pay royalties
to Eli Lilly on worldwide sales of daptomycin. On February 19, 1999, we issued
to Eli Lilly 56,948 shares of our common stock as a milestone payment which was
due upon commencement of Phase III clinical trials of daptomycin. The value of
the common stock issued was $250,000 and was recorded as research and
development expense.
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<PAGE>
In January 1999, we entered into a memorandum of understanding with DSM Fine
Chemicals B.V. pursuant to which DSM has agreed to manufacture and supply to us
bulk daptomycin drug substance for commercial purposes. Under the terms of the
memorandum of understanding, DSM is required to prepare its manufacturing
facility in Italy to manufacture bulk daptomycin drug substance in accordance
with Good Manufacturing Practices standards, and we will make a series of
scheduled payments to DSM over a five year period beginning in 2000 in order to
reimburse DSM for up to $5.9 million of the costs to be incurred by DSM in
connection with the preparation, testing and validation of its manufacturing
facility. In addition, we have agreed to make milestone payments to DSM if
specific phases of the preparation of its manufacturing facility are completed
within specified periods of time. The maximum amount of milestone payments that
we may be required to make to DSM is $1.6 million. Upon completion of the
preparation of DSM's manufacturing facility and a determination by the FDA that
the manufacturing facility complies with Good Manufacturing Practices standards,
we will purchase minimum annual quantities of bulk daptomycin drug substance
from DSM over a five year period beginning in 2002.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Total revenues in the year ended December 31, 1999, were
$5,353,000 compared to $1,634,000 in the year ended December 31, 1998, an
increase of $3,719,000 or 227.6%. The revenues earned in the year ended
December 31, 1999, consisted of $3,000,000 in research support funding from the
Bristol-Myers Squibb and Merck collaborations; $2,042,000 in research support
funding from the Novartis collaboration; and $311,000 in Small Business
Innovation Research funding. The revenues earned in the year ended December 31,
1998 consisted of $1,107,000 in research support funding from the Bristol-Myers
Squibb and Merck collaborations; and $528,000 in Small Business Innovation
Research funding. The increase in revenues in the year ended December 31, 1999
as compared to the year ended December 31, 1998 was primarily due to the
increase of milestone payments and research support funding from the Merck and
Novartis collaborations during 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
in the year ended December 31, 1999, were $19,351,000 compared to $10,489,000 in
the year ended December 31, 1998, an increase of $8,862,000 or 84.5%. The
increase was largely due to increased clinical and manufacturing costs related
to daptomycin development and the additional personnel and purchases that were
required by such development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in
the year ended December 31, 1999, were $4,298,000 compared to $3,495,000 in the
year ended December 31, 1998, an increase of $803,000 or 23.0%. The increase was
largely due to increased investor and public relations expenses and increased
legal and other professional services expenses.
INTEREST INCOME AND EXPENSE. Interest income in the year ended
December 31, 1999, was $814,000 compared to $859,000 in year ended December 31,
1998, a decrease of $45,000 or 5.3%. The decrease in interest income was due
primarily to lower average cash, cash equivalent and investment balances during
the year ended December 31, 1999 as compared to the year ended December 31,
1998. Interest expense in the year ended December 31, 1999 was $331,000 as
compared to $334,000 during the year ended December 31, 1998, a decrease of
$3,000.
NET LOSS. Our net loss for the year ended December 31, 1999 was $17,814,000
compared to $11,825,000 during the year ended December 31, 1998, an increase of
$5,989,000 or 50.6%. The increase was primarily due to an increase in expenses
incurred associated with the development of daptomycin and increased costs
associated with our marketing and investor relations program.
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<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Total revenues in the year ended December 31, 1998, were
$1,634,000 compared to $2,733,000 in the year ended December 31, 1997, a
decrease of $1,099,000 or 40.2%. The revenues earned in the year ended
December 31, 1998 consisted of $1,107,000 in research support funding from the
Bristol-Myers Squibb and Merck collaborations; and $528,000 in Small Business
Innovation Research funding. The revenues earned in the year ended December 31,
1997, consisted of $2,025,000 in research support funding from the Bristol-Myers
Squibb, Merck and Pfizer collaborations; a $500,000 milestone payment from the
Bristol-Myers Squibb collaboration; and $208,000 in Small Business Innovation
Research funding. The decrease in revenues in the year ended December 31, 1998
as compared to the year ended December 31, 1997 was primarily due to the
decrease of research support funding from Merck during 1998; the decrease of
research support funding due to the termination of the Pfizer collaboration in
1997; and the lack of milestone payments from the Bristol-Myers Squibb
collaboration during 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
in the year ended December 31, 1998, were $10,489,000 compared to $9,341,000 in
the year ended December 31, 1997, an increase of $1,148,000 or 12.3%. The
increase was largely due to increased consulting and manufacturing 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 year ended December 31, 1998 were $3,495,000 compared to $3,292,000 in the
year ended December 31, 1997, an increase of $203,000 or 6.2%. The increase was
largely due to increases in personnel costs, marketing and investor and public
relations expenses, and consulting and license expenses.
INTEREST INCOME AND EXPENSE. Interest income in the year ended
December 31, 1998 was $859,000 compared to $1,039,000 in year ended
December 31, 1997, a decrease of $180,000 or 17.3%. The decrease in interest
income was due primarily to lower average cash, cash and investment balances
during the year ended December 31, 1998, as compared to the year ended
December 31, 1997. Interest expense in the year ended December 31, 1998 was
$334,000 as compared to $237,000 during the year ended December 31, 1997, an
increase of $97,000 or 40.9%, due to additional leasing arrangements during the
year.
OTHER INCOME. Other income in the year ended December 31, 1997, was
$1,833,000 and consisted entirely of gain on the sale of our equity position in
Novalon Pharmaceutical Corp.
NET LOSS. The net loss for the year ended December 31, 1998, was
$11,825,000 compared to $7,265,000 during the year ended December 31, 1997, an
increase of $4,560,000 or 62.8%. The increase was primarily due to the decreased
revenues in 1998, an increase in expenses incurred associated with the
development of daptomycin, and increased costs associated with our marketing and
investor relations program.
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. Our total cash, cash equivalent and
investments balance at December 31, 1999 was $26,151,000 compared to $19,012,000
at December 31, 1998 and $74,789,000 at February 29, 2000.
From inception through December 31, 1999, we have invested an aggregate of
$8,570,000 (of which $842,000 was invested during 1999) in property and
equipment, primarily in facility renovations and laboratory equipment under
capital leases. The obligations under capital leases at December 31, 1999 were
$1,294,000. Minimum annual principal payments due under capital leases total
$686,000 in 2000.
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<PAGE>
Principal payments are scheduled to decline each year thereafter until
expiration in 2002. We made principal payments under our capital lease
obligations of $624,000 in the year ended December 31, 1999. We expect our
capital expenditures in 2000 to be approximately $2,000,000, consisting of
leasehold improvements and laboratory equipment purchases.
On September 23, 1998, we completed a private placement financing with
investors and raised net proceeds of $12.7 million by issuing 6,065,560 shares
of our common stock at $2.25 per share, along with 3,032,783 warrants
exercisable for our common stock at $2.25 per share. We have filed a
registration statement to register the resale of the 9,098,343 shares of our
common stock related to this financing.
During the twelve months ended December 31, 1999, we issued 285,644 shares
of our common stock upon the exercise of 326,668 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 285,644 shares issued, 160,000 shares were issued
for an aggregate purchase price of $360,000 and 125,644 shares were issued upon
cashless net issue exercise pursuant to which the holders of such warrants
surrendered the right to acquire 41,024 additional shares of our common stock.
Upon the signing of the research and license agreement with Novartis in
February 1999, we issued to Novartis, 797,448 shares of our common stock for a
total purchase price of $4.0 million in cash.
During March 1999, we entered into a term loan agreement with a bank under
which we are able to borrow up to $1,500,000 to finance fixed asset purchases.
Advances under this facility are to be repaid over a 36-month period, commencing
on March 31, 2000. Interest on the borrowings is at the bank's LIBOR rate (8.42%
at December 31, 1999). Borrowings under the facility are collateralized by all
capital equipment purchased with the funds under this term loan. At
December 31, 1999, borrowings outstanding totaled $1,139,578. We are currently
negotiating with our lender bank to enter into another term loan agreement under
which we will be able to borrow an additional $2,000,000 on terms similar to our
existing term loan agreement, to finance fixed asset purchases.
On October 21, 1999, we completed a private placement financing with
investors and raised net proceeds of $17.5 million by issuing 2,503,333 shares
of our common stock at $7.50 per share. We have filed a registration statement
to register the resale of the 2,503,333 shares of our common stock issued in
this financing.
On January 29, 2000, we completed a private placement financing with
investors and raised net proceeds of $52.0 million by issuing 2,200,000 shares
of our common stock at $25.00 per share. We have filed a registration statement
to register the resale of the 2,200,000 shares of our common stock issued in
this financing.
We believe that the additional funds from the sale of shares in this
offering, together with our existing cash resources and our existing capital
resources, interest income and future revenues due under our collaborative
agreements, will be sufficient to fund our operating expenses and capital
requirements as currently planned through at least March 31, 2001. Our actual
cash requirements 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 future revenues due under our
collaborative agreements will be sufficient to fund our operating expenses and
capital requirements during that period. In the absence of this offering, we
will need to raise substantial additional capital to fund our operations from
and after January 1, 2001, and intend to seek such additional funding through
public or private financing or collaborative or other arrangements with
corporate partners.
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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 our
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," as subsequently amended by SAB 101A which
is effective no later than June 30, 2000 with retroactive application back to
January 1, 2000. SAB 101 clarifies the SEC's views related to revenue
recognition and disclosure. We will adopt SAB 101 effective in the second
quarter of 2000 and are presently determining the effect it will have on our
financial statements, but management does not believe the effect will be
material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently own financial instruments that are sensitive to market risks as
part of our investment portfolio. Our investment portfolio is used to preserve
our capital until it is required to fund operations, including our research and
development activities. None of these market-risk sensitive instruments are held
for trading purposes. 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 conservative nature of these
instruments, we do not believe that we have a material exposure to interest rate
risk. We do not own derivative financial instruments in our investment
portfolio.
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BUSINESS
CORPORATE OVERVIEW
Cubist Pharmaceuticals, Inc. is a specialty pharmaceutical company focused
on the research, development and commercialization of new antimicrobial drugs to
combat serious and life-threatening bacterial and fungal infections, including
those caused by bacteria and fungi resistant to commercially available drugs. We
are evaluating in Phase II and Phase III clinical trials the safety and efficacy
of daptomycin, our lead product candidate and the first member of a new class of
antimicrobial drug candidates called lipopeptides. Assuming the successful
completion of Phase III clinical trials, we plan to file with the United States
Food and Drug Administration by mid-2001 a New Drug Application containing data
based on the treatment of approximately 1,200 patients with daptomycin.
Our research and drug discovery activities are focused on the identification
of additional drug candidates from the lipopeptide class and from entirely new
classes of antimicrobial drug candidates. We utilize our proprietary Validation
IN VIVO of Targets and Assays for Antiinfectives, or VITA, functional genomics
technology and our proprietary ChemInformatics technology to accelerate the
discovery of new antimicrobial drugs, and we seek to license these technologies
on a non-exclusive basis to pharmaceutical and biotechnology companies.
OVERVIEW OF INFECTIOUS DISEASE AND DRUG RESISTANCE
Infectious diseases are caused by pathogens present in the environment, such
as bacteria and fungi, that enter the body through the skin or mucous membranes
of the lungs, nasal passages or gastrointestinal tract, and overwhelm the body's
immune system. These pathogens then establish themselves in various tissues and
organs throughout the body and cause a number of serious and, in some cases,
lethal infections, including those of the bloodstream, skin and soft tissue,
heart, lung and urinary tract.
According to a Centers for Disease Control and Prevention, or CDC, report
based on 1992 data, infectious diseases remained the leading cause of death
worldwide. According to industry sources, in 1997 the global systemic antibiotic
market was valued at $23.4 billion and there were at least 15 antimicrobials
with more than $400 million in annual sales worldwide. Emerging infections
contribute substantially to the ongoing burden of infectious disease in the U.S.
According to a 1994 CDC report, infectious diseases account for 25% of all
visits to physicians each year, and antimicrobial agents are the second most
frequently prescribed class of drugs. Over the past several years, there has
been a rise in the incidence of infectious diseases caused by bacteria and fungi
that have developed resistance to existing antimicrobial drugs. Annual direct
medical costs due to U.S. hospital-based infections reached $4.5 billion in
1992, according to the CDC. The increasing prevalence of drug-resistant
bacterial and fungal pathogens has led to significantly higher mortality rates,
prolonged hospitalizations, and higher health care costs from infectious
disease.
Antimicrobial drugs have, in many cases, proven highly successful in
controlling the serious morbidity and mortality that accompany these infections.
These drugs work by binding to specific targets in a bacterial or fungal
pathogen, thereby inhibiting a cell function essential to the cell's survival.
During the 1970's and the 1980's, many antimicrobials were developed and
introduced into the market. Most of these antimicrobials were from existing
antimicrobial classes such as semi-synthetic penicillins, cephalosporins,
macrolides, quinolones and carbapenems. Many of these antimicrobials proved to
be effective in treating infectious diseases and pharmaceutical companies
shifted their resources to other areas of drug discovery and development. As a
result, no antimicrobial agents have been introduced from a new chemical class
in over 25 years.
Over the past several years there has been a rise in the incidence of
serious and life-threatening infections caused by Gram-positive bacteria,
particularly in hospital patients. Gram-positive and
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Gram-negative bacteria have fundamentally different cell surface
characteristics. These cell surface characteristics greatly affect the ability
of an antibiotic to penetrate the bacteria and reach its target site. The rising
incidence of serious and life-threatening infections in hospitals is believed to
be caused by the changing nature of the hospital patient population and by the
emergence of bacteria and fungi that are resistant to existing antimicrobial
drugs.
In recent years, the proportion of hospital patients that have compromised
immune systems has risen sharply. This trend is the result of, among other
things, the rising incidence of cancer and the associated use of chemotherapy,
the general aging of the patient population and the increased use of complex
surgical procedures such as organ transplants. Hospital patients with
compromised immune systems are more susceptible to serious and life-threatening
infections.
The rise in the incidence of infectious diseases caused by bacteria and
fungi that have developed resistance to existing antimicrobial drugs is a
natural outcome of the use and overuse of antimicrobial drugs. When bacteria or
fungi are exposed to an antimicrobial drug, the drug kills or inhibits the
growth of the susceptible pathogen. However, any variant in the bacterial
population that has spontaneously undergone a genetic change that confers drug
resistance will have a selective growth advantage, known in evolutionary terms
as natural selection. Thus, the antimicrobial drug does not cause the resistance
but creates an environment in which the resistant pathogen can multiply in the
presence of the drug, increasing the population of the resistant pathogen and
making it the predominant pathogen. These resistant pathogens can then spread
rapidly throughout the community.
Certain pathogens have developed resistance to all currently available
drugs. Examples of such Gram-positive resistant pathogens include:
- METHICILLIN RESISTANT STAPHYLOCOCCUS AUREUS, OR MRSA: STAPHYLOCOCCUS
AUREUS is a common bacterial pathogen that causes serious and
life-threatening infections, and routinely acquires characteristics of
drug resistance, virulence and toxicity. MRSA strains can cause severe
tissue damage to existing wounds, pneumonias, and bacteremia, which have a
high mortality rate.
- VANCOMYCIN RESISTANT ENTEROCOCCI, OR VRE: The emergence of VRE strains in
the 1990's has led to infections for which only very limited commercially
available therapy exists. Hospital-based VRE has continued to rapidly rise
resulting in increased mortality rates.
- GLYCOPEPTIDE INTERMEDIATELY SUSCEPTIBLE STAPHYLOCOCCUS AUREUS, OR GISA:
The first reports of STAPHYLOCOCCUS AUREUS infections with decreased
susceptibility to vancomycin use occurred in 1998. Such bacterial strains
have been found in a wide geographical area throughout Japan and North
America. The medical community expects that fully drug resistant
STAPHYLOCOCCUS AUREUS strains will emerge from GISA as additional
resistance to vancomycin use develops.
SHORTCOMINGS OF CURRENT THERAPIES
Current therapies do not provide adequate treatment for some serious and
life-threatening infections for the following reasons:
- Some existing antimicrobial drugs do not kill the pathogens that cause the
infection but merely inhibit their growth thereby allowing the immune
system to destroy the pathogen. These kinds of growth-inhibiting
antimicrobial drugs are less effective in immunocompromised patients
because their weakened immune systems cannot rid their bodies of the
pathogens.
- Many antimicrobials are effective against some serious and
life-threatening infections but not others. This may be because the
antimicrobial drug is not active against a particular type of pathogen or
because a strain of this pathogen has developed resistance to the
antimicrobial drug. Many of the serious and life-threatening infections
occur in hospital patients whose immune system is compromised. These
infections are complicated and may be caused by more
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than one kind of pathogen. In addition, since these infections are
life-threatening, physicians treating these patients cannot wait for the
test results necessary to identify the exact nature of the pathogen or
pathogens causing the infection.
- Some pathogens have become resistant to all antimicrobials and there are
no available antimicrobial drugs to treat effectively the infections
caused by these drug-resistant pathogens. Vancomycin is the current
treatment of choice for patients that have serious and life-threatening
infections that have failed to respond to all other antimicrobials.
However, it has been widely reported in recent years that several strains
of enterococci have developed resistance to vancomycin. Currently, there
are only very limited commercially available therapeutic alternatives to
treat these strains of VRE.
- Many existing antimicrobial drugs used to treat serious and
life-threatening infections are difficult or inconvenient to administer.
Most of these antimicrobial drugs must be administered multiple times a
day in order to be effective, are not well tolerated by patients or
require lengthy infusion times when administered in a single daily dose.
Moreover, intravenous administration of some of these antimicrobial drugs
does not occur through the veins in the arm but through catheters in the
central venous system. The difficulty or inconvenience of administration
of these drugs make them less attractive choices for home therapy or other
therapy outside the hospital.
- Existing antimicrobial drugs may cause side effects in some patients, such
as severe allergic reaction, lower blood pressure, inflammation and
swelling at the site of injection and headaches. Some of these side
effects may be significant enough to require that therapy be discontinued.
OUR BUSINESS STRATEGY
Our objective is to be the worldwide leader in the discovery and development
of new antimicrobial drugs to combat serious and life-threatening bacterial and
fungal infections, including those caused by drug-resistant pathogens. The
principal elements of our strategy to achieve this objective include the
following:
DEVELOP AND COMMERCIALIZE DAPTOMYCIN. We are developing daptomycin to treat
serious and life-threatening bacterial infections, including those caused by
drug-resistant pathogens. Assuming the successful completion of Phase III human
clinical trials, we intend to file a new drug application with the FDA by
mid-2001. We have the exclusive right to develop, manufacture and market
daptomycin, and are evaluating strategies for its worldwide commercialization.
LICENSE NEW DRUGS AND NEW DRUG CANDIDATES. Our internal expertise allows us
to recognize viable licensing opportunities and to save time and money in
successfully developing antimicrobials by capitalizing on the research initially
conducted and funded by others. We intend to continue to review and acquire
compounds with promising characteristics as antimicrobial drug candidates.
DISCOVER AND DEVELOP NEW ANTIMICROBIAL DRUGS. We focus our research and
drug discovery activities on identifying new classes of antimicrobial drugs and
on developing one or more antimicrobial drugs from each of these new classes. We
believe that antimicrobial drugs from new classes will be effective against
drug-resistant bacterial and fungal pathogens because these pathogens have not
had an opportunity to evolve resistance specific to these drugs. We have a
research and development effort underway focused on a new class of
antimicrobials called lipopeptides. Daptomycin is a member of the lipopeptide
class and, as a result of our work with daptomycin, we have developed expertise
in the chemistry and biology of lipopeptides. Our proprietary lipopeptide
program is focused on identifying new lipopeptide antimicrobial compounds for
the treatment of a broad spectrum of serious and life-threatening bacterial
infections.
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UTILIZE OUR VITA FUNCTIONAL GENOMICS AND CHEMINFORMATICS TECHNOLOGIES TO
ACCELERATE THE DISCOVERY OF ANTIMICROBIAL DRUGS. We utilize our VITA and
ChemInformatics technologies in our internal research programs to identify novel
compounds with a broad spectrum of activity against life-threatening infectious
organisms such as MRSA and VRE. Our VITA and ChemInformatics technologies
accelerate the generation of leads for medicinal chemistry programs resulting in
faster development of antimicrobial drugs and lower costs by efficiently using
resources throughout the drug discovery process.
LICENSE OUR VITA FUNCTIONAL GENOMICS AND CHEMINFORMATICS TECHNOLOGIES TO
PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES. We plan to continue to generate
revenues by licensing on a non-exclusive basis our VITA functional genomics and
ChemInformatics technologies as drug discovery platform technologies.
DAPTOMYCIN
OVERVIEW. Daptomycin is the first member of a new class of antimicrobial
drugs called lipopeptides. Under laboratory conditions, or IN VITRO, daptomycin
rapidly kills all clinically significant Gram-positive bacteria, including the
resistant strains of VRE, MRSA and GISA. The Gram-positive bacteria targeted by
daptomycin cause serious infections, including endocarditis or infection of the
valves of the heart, osteomyelitis or infection of bone or bone marrow,
complicated skin and soft tissue infections, bacteremia, complicated urinary
tract infections and pneumonias. We are evaluating the efficacy and safety of
daptomycin in a clinical program with Phase II and Phase III trials currently
underway. We have exclusive rights to manufacture and market daptomycin, which
we in-licensed from Eli Lilly & Company in November 1997.
DAPTOMYCIN ADVANTAGES. We believe that daptomycin will provide the
following key benefits:
- ACTIVE AGAINST GRAM-POSITIVE BACTERIA. Daptomycin is effective IN VITRO
against all clinically significant Gram-positive bacteria, including VRE,
MRSA and GISA. We believe that daptomycin's broad spectrum of action gives
it a therapeutic advantage in treating serious and life-threatening
infections because daptomycin can be used to treat these infections
regardless of which bacterium is causing the infection.
- RAPIDLY KILLS BACTERIA. Daptomycin rapidly kills all clinically
significant Gram-positive bacteria IN VITRO. We believe this gives
daptomycin a therapeutic advantage in treating serious and
life-threatening infections, particularly in patients that have
compromised immune systems, as compared to antimicrobial drugs whose
mechanism of action is not to kill bacteria but to inhibit their growth
allowing the immune system to destroy the bacteria. Use of one of these
growth-inhibiting antimicrobial drugs to treat serious and
life-threatening infections is riskier because, even if the antimicrobial
drug works, it is possible that the immune system will not be able to
destroy the bacteria causing the infection. This is particularly a concern
in the case of hospital patients with compromised immune systems.
- EFFECTIVE AGAINST DRUG-RESISTANT BACTERIA. Daptomycin is effective IN
VITRO against drug-resistant bacteria, including VRE. Vancomycin is the
current treatment of choice for patients that have serious Gram-positive
infections that have failed to respond to all other antimicrobials.
However, several strains of enterococci have developed resistance to
vancomycin. Currently, there are only very limited therapeutic
alternatives to treat these strains of VRE. We believe that daptomycin
will become the therapy of choice to treat infections caused by
drug-resistant bacteria.
- EASE OF ADMINISTRATION. Daptomycin is a very potent antibiotic and is
effective and well tolerated when administered in a single daily dose.
Daptomycin is administered intravenously in approximately 30 minutes.
Daptomycin will have an advantage over several other antimicrobial drugs
that require administration in multiple doses each day, that take longer
than 30 minutes to
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administer or that are administered through a central venous catheter
located in parts of the body other than the arm.
- SAFETY. In our clinical trials to date, daptomycin had a favorable safety
profile. Specifically, observed side effects in patients treated with
daptomycin included gastrointestinal and musculoskeletal events and were
comparable to those observed in patients treated with standard therapy. In
our clinical trials to date, no patients suffered side effects related to
daptomycin that were significant enough to require that therapy be
discontinued.
DAPTOMYCIN CLINICAL DATA. In the late 1980's Eli Lilly conducted 19 Phase I
safety trials and 2 Phase II efficacy and dosing trials of intravenous
daptomycin for the treatment of skin and soft tissue infections and bacteremia.
A total of 352 patients participated in these trials. The results of these
trials showed that daptomycin had safety and efficacy comparable to standard
therapies.
On the basis of daptomycin's IN VITRO activity against clinically
significant bacteria, its bacteria-killing mode of action and its promising
profile in the Eli Lilly Phase I and Phase II trials, we began further clinical
evaluation of intravenous daptomycin. In December 1998, we filed an
Investigational New Drug Application, or IND, with the FDA and began Phase II
and Phase III trials in February 1999 in order to evaluate the safety and
efficacy of intravenous daptomycin in patients with complicated skin and soft
tissue infections and in patients with bacteremia.
On March 5, 2000, we presented the results from two dose-ranging Phase II
open-label trials at the CDC's conference on Nocosomial and
Healthcare-Associated Infections. The objective of these Phase II trials was to
investigate dose selection based on clinical efficacy and safety. The first
trial was focused on patients diagnosed with bacteremia. The second trial was
focused on patients who had failed or were unable to tolerate other therapies
for the treatment of serious Gram-positive infections, including bacteremia,
complicated skin and soft tissue, complicated urinary tract infection, intra-
abdominal infection and pneumonia. The Phase II trial data combined for both
studies included 56 patients and showed that daptomycin administered once-a-day
at 4 mg/kg had a 91% clinical success rate. In addition, daptomycin administered
once-a-day at 4 mg/kg demonstrated an 86% clinical success rate in the subset of
patients infected with a vancomycin-resistant pathogen or who were refractory or
intolerant to vancomycin. Daptomycin also had a favorable safety profile similar
to standard therapies. Specifically, observed side effects in patients treated
with daptomycin included gastrointestinal and musculoskeletal events and were
comparable to those observed in patients treated with standard therapy.
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DAPTOMYCIN CLINICAL PLAN. The clinical plan for daptomycin is designed to
enroll a sufficient number of patients necessary for the safety and efficacy
analysis to obtain FDA approval. The following table shows our clinical studies
currently underway and planned.
<TABLE>
<CAPTION>
GEOGRAPHIC
INFECTION STATUS TIMING SCOPE
- ------------------------------- ------------------------ ------------------------ --------------
<S> <C> <C> <C>
Bacteremia Phase II Clinical Trial Commenced in 2Q:99 U.S.
Resistant, Refractory Phase II Clinical Trial Commenced in 2Q:99 U.S.
or Contraindicated
Complicated Skin Phase III Clinical Trial Commenced in 2Q:99 U.S.
and Soft Tissue
Complicated Skin Phase III Clinical Trial Expected to Commence in International
and Soft Tissue 1Q:00
Complicated Urinary Tract Phase III Clinical Trial Expected to Commence in Worldwide
1H:00
Endocarditis Phase II/III Clinical Expected to Commence in U.S.
Trial 1H:00
</TABLE>
We are considering additional clinical trials designed to expand the
indications and commercial opportunity for daptomycin to other clinical
applications, including osteomyelitis and pneumonias. As part of our NDA filing
strategy, we are also currently planning several additional Phase I trials,
including studies on patients with impaired kidney function.
OUR LIPOPEPTIDE PROGRAM
Daptomycin is the first member of a new class of antibacterials called
lipopeptides. With traditional classes of antimicrobials, such as the
penicillins, multiple antimicrobial drugs have been developed. Therefore, we
expect there will be additional clinically useful lipopeptides with the
potential for commercialization. We are engaged in a comprehensive lipopeptide
drug discovery and development program based on our expertise on the chemistry
and biology of lipopeptides that we have acquired through our development work
with daptomycin. We have initiated a research program focused on the design,
synthesis and evaluation of new lipopeptides with improved properties over
daptomycin including increased potency, spectrum of activity and enhanced safety
profile. We have filed multiple patent applications on several different series
of novel analogs. We expect to select a novel lipopeptide IND candidate by the
end of 2000.
Our long-term goal is to achieve a greater understanding of the mechanism of
action of lipopeptides and to apply this information to drug discovery.
Currently, we are engaged in a diverse set of activities to identify the
lipopeptide antibacterial molecular targets, and understand the nature of their
interaction with daptomycin.
OUR DRUG DISCOVERY PROGRAMS AND TECHNOLOGIES
Our drug discovery programs are focused on the design, synthesis and
evaluation of new broad-spectrum antimicrobials which act on novel molecular
targets from clinically relevant pathogens. These efforts rely heavily on our
VITA and ChemInformatics technologies. We expect that our drug discovery
programs will yield multiple lead compound series that can enter medicinal
chemistry programs by the end of 2000.
We are developing and implementing novel technologies to accelerate the
process of drug discovery. To discover new antimicrobials for clinical
development, our discovery platform integrates the
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scientific disciplines and technologies required for target validation and assay
development, high-throughput screening and medicinal chemistry.
OUR PROPRIETARY VITA FUNCTIONAL GENOMICS TECHNOLOGY
Our Validation IN VIVO of Targets and Assays for Antiinfectives, or VITA,
technology is a functional genomics tool that quickly generates biological
information useful for identifying the most valuable drug discovery targets from
clinically important pathogens such as STAPHYLOCOCCUS AUREUS. The technology
allows validated targets to be rapidly enabled for high-throughput screening
assays used for the identification of quality lead compounds for medicinal
chemistry programs. VITA is broadly applicable to both validation IN VIVO and
screening IN VITRO of drug discovery targets with diverse functions, including
those targets which the scientific community has not previously been able to
screen.
An antimicrobial drug acts during an infection by binding to a specific
target and inhibiting its function. Target inhibition leads to impaired pathogen
growth or pathogen cell death; consequently the infected subject survives the
infection. The method by which novel targets are validated by the VITA
technology is analogous to how an antibiotic inhibits its target during an
established infection. A target is validated if a causal link is established
between the target and a cellular response important in a disease process.
Utilizing VITA, a target is validated by initially identifying a peptide that
specifically binds to the target and subsequently regulating the production of
the peptide in the pathogen during an established infection in mice. If the
target is essential for pathogen survival, production of the peptide will
inhibit target function and prevent pathogen growth, and the mice will survive.
If the inhibition of the target is not essential for pathogen survival, the
pathogen will continue to thrive and the mice will die from the infection. The
peptide used to specifically inhibit the target can then be used in a
high-throughput screening assay to identify small molecule compounds. We have
filed patent applications in connection with our VITA technology. In
February 1999, we entered into a collaborative research and license agreement
with Novartis in which we granted Novartis a non-exclusive license to the VITA
technology.
OUR PROPRIETARY CHEMINFORMATICS TECHNOLOGY
To enhance our ability to use high-throughput screening, data from
target-based assays, we have designed and implemented a discovery approach
called ChemInformatics. Industry-wide experience has demonstrated that having
high-throughput screening assays and large numbers of compounds to screen does
not consistently yield lead compounds suitable for medicinal chemistry. This
problem is especially acute in antimicrobials where, to be effective, lead
compounds need to be active against multiple pathogen species and to have
properties which permit pathogen cell wall penetration. Our ChemInformatics
approach bridges the gap between high-throughput screening and medicinal
chemistry and serves as the drug discovery engine that fuels our medicinal
chemistry programs. ChemInformatics integrates high-throughput screening,
enzymology, combinatorial chemistry and computational chemistry to generate
three-dimensional models that are predictive for biological activity. Using
these models, many novel series of compounds can be designed to have the proper
chemical properties to be antimicrobial agents. We are currently applying our
ChemInformatics technology to a number of different target-based programs that
utilize high-throughput screening. Our ChemInformatics technology has produced
two classes of novel antimicrobial compounds that have been exclusively licensed
to Merck.
HIGH-THROUGHPUT SCREENING
We utilize automation, robotics and assay technologies to perform
high-throughput screening of compound libraries to identify novel inhibitors.
Thousands of compounds a day may be screened in VITA-generated target-based and
whole cell assays. Inhibitors may be further characterized using our
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secondary screening assays where increasingly stringent selection criteria are
applied to identify lead candidates with the greatest potential for successful
medicinal chemistry programs.
MEDICINAL CHEMISTRY
Medicinal chemistry refers to an iterative process where lead series of
compounds are optimized to yield new drug candidates. We have implemented
systems that allow for the optimization of many series of compounds for any
given target. In each compound series, we place an emphasis on extensively
evaluating the profile of compounds including microbiological and IN VIVO
properties. Our integrated chemistry and biology teams focus on the key
parameters that need improvement for a series to advance to drug development. By
utilizing many chemical series for each target, we increase the chances that
these series will overcome the IN VIVO hurdles to preclinical development. To
accelerate this process, we have put into place high-throughput systems for
preparing, purifying and testing compounds.
OUR COLLABORATIVE AGREEMENTS
We seek to enter into drug discovery and development collaboration
agreements to discover and develop novel antimicrobials. To date, our
collaborations provide that preclinical and clinical development is to be
carried out by our collaboration partners. In addition to providing us with
funding, our collaborations give us access to libraries of diverse compounds and
to the clinical development, manufacturing and commercialization capabilities of
our corporate partners.
NOVARTIS
In February 1999, we entered into a research and license agreement with
Novartis to jointly use our proprietary VITA functional genomics technology to
validate and develop assays for antimicrobial targets and to jointly identify
new compounds for development as antimicrobial agents. Each of our compound
library and Novartis' compound library will be screened against these targets.
In connection with the collaboration, Novartis has made a $4.0 million equity
investment in us and has made research support payments to us. We have granted
to Novartis a non-exclusive license to use our VITA functional genomics
technology to discover and develop drugs and an exclusive license to
commercialize drugs resulting from this collaboration. Pursuant to the
collaboration, Novartis will pay us specified research payments and, if
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 compound or
products discovered or derived from this collaboration.
MERCK
In June 1996, we entered into a collaborative research and license agreement
with Merck pursuant to which Merck agreed to collaborate with us to discover and
develop novel antimicrobial drugs from leads obtained by screening three of our
aminoacyl-tRNA synthetase targets against Merck's compound library. In
connection with the collaboration, Merck has made research support payments and
has paid technology licensing fees to us. In October 1997 we amended the
agreement to include new screening modules to the collaboration. In
August 1999, we amended the agreement to include in the collaboration two
chemical classes of compounds owned by us and designed through the application
of our ChemInformatics technology. We have granted Merck an exclusive worldwide
license to commercialize drugs resulting from this collaboration. If a drug is
successfully developed and commercialized pursuant to this collaboration, we
will be entitled to receive milestone payments from Merck and royalties on the
worldwide sales of such drug.
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BRISTOL-MYERS SQUIBB
In June 1996, we entered into a collaborative research and license agreement
with Bristol-Myers Squibb pursuant to which each of us agreed to collaborate to
discover and develop novel antimicrobial drugs from leads obtained by screening
six of our aminoacyl-tRNA synthetase targets against Bristol-Myers Squibb's
compound library. Bristol-Myers Squibb's exclusive research period ended in
January 2000 and we are expecting to receive a report setting forth their
findings. Following January 7, 2000, Bristol-Myers Squibb's rights to continue
screening and research and development with respect to our targets under the
collaboration agreement continue on a non-exclusive basis. In connection with
the collaboration, Bristol-Myers Squibb has made a $4.0 million equity
investment in us and has made milestone and research support payments to us. We
have granted to Bristol-Myers Squibb an exclusive worldwide license to
commercialize drugs resulting from this collaboration. If a drug is successfully
developed and commercialized pursuant to this collaboration, we will be entitled
to receive milestone payments from Bristol-Myers Squibb and royalties on the
worldwide sales of such drug.
BIOTECHNOLOGY ALLIANCES
To expand our access to novel small molecule libraries and other
technologies for screening and target discovery, we have formed and are
currently engaged in alliances with biotechnology companies including Neurogen
Corporation, Phylos, Cetek Corporation, and Coelacanth Corporation.
PATENTS AND PROPRIETARY TECHNOLOGY
We seek to protect our cloned targets, expressed proteins, assays, organic
synthetic processes, lead compounds, screening technology and other technologies
by, among other things, filing, or causing to be filed on our behalf, patent
applications. We have eleven issued U.S. patents, eighteen pending U.S. patent
applications and six pending international patent applications. We have
licensed, from the Massachusetts Institute of Technology, three U.S. patents
related to research technologies. We have licensed from Eli Lilly a portfolio of
six issued U.S. patents and seventy foreign patents related to the composition,
manufacture, administration and use of daptomycin. In addition, we have filed a
number of patent applications in our name relating to the composition,
manufacture, administration and use of daptomycin and other lipopeptides. We
cannot be sure that patents will be granted with respect to any of our pending
patent applications or with respect to any patent applications filed by us in
the future, nor can we be sure that any of our existing patents or any patents
that may be granted to us in the future will be commercially useful in
protecting our technology.
Our commercial success will depend in part on not infringing patents or
proprietary rights of others. We cannot be sure that we will be able to obtain a
license to any third-party technology we may require to conduct our business or
that if obtainable, such technology can be licensed at reasonable cost. Failure
by us to obtain a license to technology that we may require to utilize our
technologies or commercialize our products may have a material adverse effect on
our business, operating results and financial condition. In some cases,
litigation or other proceedings may be necessary to defend against or assert
claims of infringement, to enforce patents issued to us, to protect our trade
secrets, know-how or other intellectual property rights, or to determine the
scope and validity of the proprietary rights of third parties. Any potential
litigation could result in substantial costs to us and diversion of our
resources and could have a material adverse effect on our business, operating
results and financial condition. We cannot be sure that any of our issued or
licensed patents would ultimately be held valid or that efforts to defend any of
our patents, trade secrets, know-how or other intellectual property rights would
be successful. An adverse outcome in any such litigation or proceeding could
subject us to significant liabilities, require us to cease using the subject
technology or require us to license the subject technology from the third party,
which license may not be available, all of which could have a material adverse
effect on our business, operating results and financial condition.
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Much of the know-how of importance to our technology and many of our
processes are dependent upon the knowledge, experience and skills, which are not
patentable, of key scientific and technical personnel. To protect our rights to
and to maintain the confidentiality of trade secrets and proprietary
information, we require employees, consultants and collaborators to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with us. These agreements prohibit the disclosure of confidential
information to anyone outside our company and require disclosure and assignment
to us of ideas, developments, discoveries and inventions made by employees,
advisors, consultants and collaborators. We cannot be sure, however, that these
agreements will not be breached or that our trade secrets or proprietary
information will not otherwise become known or developed independently by
others.
MANUFACTURING
We currently engage ACS Dobfar of Italy to manufacture bulk clinical grade
daptomycin drug substance. We currently obtain our finished clinical grade
vialed formulation of daptomycin from Abbott Laboratories (Hospital Products
Division) and Chesapeake Biological Laboratories.
In January 1999, we entered into a memorandum of understanding with DSM Fine
Chemicals B.V. pursuant to which DSM has agreed to manufacture and supply to us
bulk daptomycin drug substance for commercial purposes. Under the terms of the
memorandum of understanding, DSM is required to prepare its manufacturing
facility in Italy to manufacture bulk daptomycin drug substance in accordance
with Good Manufacturing Practices standards, and we will make a series of
scheduled payments to DSM over a five year period beginning in 2000 in order to
reimburse DSM for up to $5.9 million of the costs to be incurred by DSM in
connection with the preparation, testing and validation of its manufacturing
facility. In addition, we have agreed to make milestone payments to DSM if
specific phases of the preparation of its manufacturing facility are completed
within specified periods of time. The maximum amount of milestone payments that
we may be required to make to DSM will be $1.6 million. Upon completion of the
preparation of DSM's manufacturing facility and a determination by the FDA that
the manufacturing facility complies with Good Manufacturing Practices standards,
we will purchase minimum annual quantities of bulk daptomycin drug substance
from DSM over a five year period beginning in 2002.
In addition, we are conducting negotiations with ACS Dobfar to establish a
second source of manufacture and supply of bulk daptomycin drug substance for
commercial purposes, and are in negotiations with Abbott and Chesapeake for the
provision of final vialed daptomycin commercial drug product.
We have no experience in clinical or commercial scale manufacture of
daptomycin, or any other drug. We currently rely on ACS Dobfar, Abbott and
Chesapeake for the manufacture of daptomycin for our clinical trials. Commercial
daptomycin and any other drugs we may commercialize, will have to be
manufactured in facilities and by processes which comply with FDA and other
regulations. It may take substantial time to begin producing antimicrobial drugs
in compliance with such regulations. If we are unable to establish and maintain
compliant manufacturing facilities within a planned time frame and costs
parameters, the development and sales of our products and our financial
performance may be adversely affected.
SALES AND MARKETING
We have the exclusive right to develop, manufacture and market daptomycin
and intend to commercialize daptomycin worldwide. We are evaluating various
strategies for the worldwide commercialization of daptomycin. These possible
strategies include entering into the following:
- a global marketing partnership with a single pharmaceutical company;
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- a series of regional marketing partnerships in North America, Europe,
Japan and other parts of the world with different pharmaceutical
companies; and
- a series of regional marketing partnerships in Canada, Europe, Japan and
other parts of the world, while retaining the right to market daptomycin
in the United States either through our own hospital-based sales force or
through contract sales organizations.
Even if we decide to enter into global or regional marketing partnerships, our
strategy is to retain a significant role in the marketing and commercialization
of daptomycin in the United States. We currently have no sales and marketing
capabilities.
OUR COMPETITION
Competition for daptomycin includes existing antimicrobial drugs that treat
serious infections and drug candidates known to be in clinical trials. There is,
however, no commercially available antimicrobial drug that kills the bacteria
that causes serious and life-threatening infections. Examples of competing drugs
and drug candidates include:
- Vancomycin, a generic antibacterial drug used in many cases to treat
drug-resistant pathogens;
- Synercid, a product of Aventis S.A., has obtained regulatory approval for
the treatment of VRE bacteremia through central venous line
administration; and
- Zyvox, a drug candidate of Pharmacia & Upjohn, Inc. being developed to
treat serious infections including VRE.
In the event that daptomycin obtains FDA approval, we will compete with
these and similar drugs and pharmaceutical companies for the sale of daptomycin
on the basis of safety and efficacy, ease of administration and price of the
particular product. In general, the biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological
change. Our competitors in the United States and elsewhere are numerous and
include, among others, major, multinational pharmaceutical and chemical
companies, specialized biotechnology firms and universities and other research
institutions. Many of these competitors employ greater financial and other
resources, including larger research and development staffs and more effective
marketing and manufacturing organizations, than we or our collaborative
partners. Acquisitions of competing companies and potential competitors by large
pharmaceutical companies or others could enhance financial, marketing and other
resources available to such competitors. As a result of academic and government
institutions becoming increasingly aware of the commercial value of their
research findings, such institutions are more likely to enter into exclusive
licensing agreements with commercial enterprises, including our competitors, to
market commercial products. We cannot be sure that our competitors will not
succeed in developing technologies and drugs that are more effective or less
costly than any we are developing or which would render our technology and
future drugs obsolete and noncompetitive.
In addition, some of our competitors have greater experience than us in
conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA
or other regulatory approvals for drug candidates more rapidly than us.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage, including patent and FDA
marketing exclusivity rights that would delay the market products. We cannot be
sure that drugs resulting from our research and development efforts, or from our
joint efforts with our collaborative partners, will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or elsewhere.
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GOVERNMENT REGULATION
OVERVIEW
The development, manufacture and marketing of drugs, including antibiotics,
developed by us or our collaborative partners are subject to regulation by
numerous governmental agencies in the United States, principally the FDA, by
state and local governments, and in some instances by foreign governments.
Pursuant to the Federal Food, Drug, and Cosmetic Act and the regulations
promulgated thereunder, the FDA regulates the preclinical and clinical trials,
safety, effectiveness, manufacture, labeling, storage, record keeping,
distribution, and promotion of drugs. Product development and approval within
the FDA regulatory framework usually takes a significant number of years,
involves the expenditure of substantial capital resources and is uncertain.
FDA PROCESS
Before testing in the United States of any compounds with potential
therapeutic value in human test subjects may begin, stringent government
requirements for preclinical data must be satisfied. Preclinical testing
includes both IN VITRO and IN VIVO laboratory evaluation and characterization of
the safety and efficacy of a drug and its formulation. Preclinical testing
results obtained from studies in several animal species, as well as from IN
VITRO studies, are submitted to the FDA as part of an IND and are reviewed by
the FDA prior to the commencement of human clinical trials. These preclinical
data must provide an adequate basis for evaluating both the safety and the
scientific rationale for the initial studies in human volunteers. Unless the FDA
objects to an IND, the IND becomes effective 30 days following its receipt by
the FDA. Once trials have commenced, the FDA may stop the trials by placing them
on "clinical hold" because of concerns about, for example, the safety of the
product being tested.
Clinical trials involve the administration of the drug to healthy human
volunteers or to patients under the supervision of a qualified investigator,
usually a physician, pursuant to an FDA-reviewed protocol. Human clinical trials
are typically conducted in three sequential phases, although the phases may
overlap with one another. Clinical trials must be conducted under protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Each clinical trial must be conducted under the
auspices of an Institutional Review Board which considers, among other things,
ethical factors, the safety of human subjects, the possible liability of the
institution and the informed consent disclosure which must be made to
participants in the clinical trial.
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with the targeted disease or disorder. The goal
of Phase I clinical trials is typically to test for safety, dose tolerance,
absorption, biodistribution, metabolism, excretion and clinical pharmacology
and, if possible, to gain early evidence regarding efficacy.
Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the efficacy of the drug for specific
targeted indications, to determine dose response and the optimal dose range and
to gather additional information relating to safety and potential adverse
effects.
Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish further clinical safety and efficacy of the
investigational drug in a broader sample of the general patient population at
geographically dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis for product
labeling. The Phase III clinical development program consists of expanded,
large-scale studies of patients with the target disease or disorder, to obtain
definitive statistical evidence of the efficacy and safety of the proposed
product and dosage regimen. All of the
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phases of clinical studies must be conducted in conformance with the FDA's
bioresearch monitoring regulations.
All data obtained from a comprehensive development program including
research and product development, manufacturing, pre clinical and clinical
trials and related information are submitted in an NDA to the FDA and the
corresponding agencies in other countries for review and approval. In addition
to reports of the trials conducted under the IND application, the NDA includes
information pertaining to the preparation of the new drug or antibiotic,
analytical methods, details of the manufacture of finished products and proposed
product packaging and labeling. Although the FDC Act requires the FDA to review
NDAs within 180 days of their filing, in practice longer times may be required.
The FDA also frequently requests that additional information be submitted,
requiring significant additional review time. Any of our proposed products
likely would be subject to demanding and time-consuming NDA approval procedures
in virtually all countries where marketing of the products is intended. These
regulations define not only the form and content of safety and efficacy data
regarding the proposed product but also impose specific requirements regarding
manufacture of the product, quality assurance, packaging, storage, documentation
and recordkeeping, labeling, advertising and marketing procedures.
In some cases, drug approvals may proceed under the accelerated approval or
"fast track" provisions of the Food and Drug Administration Modernization Act.
The accelerated approval provisions largely codified FDA's accelerated approval
regulations. While the statutory provisions expand upon the regulations, FDA
continues to rely on its regulations to implement the statutory provision. The
accelerated approval regulations apply to products used in the treatment of
serious or life-threatening illnesses that appear to provide meaningful
therapeutic benefits over existing treatments. These regulations permit approval
of such products before clinical research is completed based on the product's
effect on a clinical endpoint or surrogate endpoint. When a product is approved
under the accelerated approval regulations, the sponsor may be required to
conduct additional adequate and well-controlled studies to verify that the
effect the surrogate endpoint correlates with improved clinical outcome or to
otherwise verify the clinical benefit. In the event such postmarketing studies
do not verify the drug's anticipated clinical benefit, or if there is other
evidence that the drug product is not shown to be safe and effective, expedited
withdrawal procedures permit the FDA, after a hearing, to remove a product from
the market. Significant uncertainty exists as to the extent to which these
accelerated approval regulations will result in accelerated review and approval.
FDA retains considerable discretion to determine eligibility for accelerated
review and approval.
OTHER REGULATORY PROCESSES
We are also subject to regulation under other federal laws and regulation
under state and local laws, including laws relating to occupational safety,
laboratory practices, the use, handling and disposition of radioactive
materials, environmental protection and hazardous substance control. Although we
believe that our safety procedures for handling and disposing of radioactive
compounds and other hazardous materials used in our research and development
activities comply with the standards prescribed by federal, state and local
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of any such accident, we could be
held liable for any damages that result and any such liability could exceed our
resources.
OUR EMPLOYEES
As of March 3, 2000, we had 75 full-time employees, 60 of whom were engaged
in research and development and 15 of whom were engaged in management,
administration and finance. Doctorates are held by 25 of our employees. Our
employees are not covered by a collective bargaining agreement. We have never
experienced an employment-related work stoppage and we consider our employee
relations to be good.
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OUR FACILITIES
We are headquartered at 24 Emily Street in Cambridge, Massachusetts, where
we lease approximately 24,000 square feet of commercial space pursuant to a term
lease that expires in September 2003, subject to a five year renewal option. We
have leased an additional 11,000 square feet of commercial space at 125 Sidney
Street in Cambridge, Massachusetts, pursuant to a term lease that expires in
December 2003. These facilities are adequate for our current requirements.
LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of March 10, 2000 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Scott M. Rocklage, Ph.D. .............. 45 Chairman of Board of Directors, Chief Executive
Officer and President
Francis P. Tally, M.D. ................ 59 Executive Vice President, Scientific Affairs
Alan D. Watson, Ph.D., M.B.A. ......... 47 Senior Vice President, Corporate Development
Thomas A. Shea, M.B.A. ................ 40 Vice President, Finance & Administration, Chief
Financial Officer and Treasurer
Michael F. DeBruin, M.D. .............. 45 Vice President, Clinical Research
Dennis D. Keith, Ph.D. ................ 56 Vice President, Drug Discovery
Frederick B. Oleson, Jr., D.Sc. ....... 50 Vice President, Drug Development
George H. Shimer, Jr., Ph.D. .......... 47 Vice President, Biology
Thomas J. Slater....................... 44 Vice President, Commercial Development
John K. Clarke......................... 46 Director
Paul R. Schimmel, Ph.D. ............... 59 Director
Barry Bloom, Ph.D. .................... 71 Director
David W. Martin, Jr., M.D. ............ 59 Director
Trudie Resch........................... 39 Director
Walter Maupay.......................... 61 Director
John Zabriske, Ph.D. .................. 60 Director
</TABLE>
DR. ROCKLAGE was elected Chairman of the Board of Directors in March 2000.
Dr. Rocklage has served as our President and Chief Executive Officer and as a
member of the board of directors since July 1994. From 1990 to 1994,
Dr. Rocklage served as President and Chief Executive Officer of Nycomed
Salutar, Inc., a diagnostic imaging company. From 1992 to 1994, he also served
as President and Chief Executive Officer and Chairman of Nycomed
Interventional, Inc., a medical device company. From 1986 to 1990, he served in
various positions at Nycomed Salutar, Inc. and was responsible for designing and
implementing research and development programs that resulted in three drug
products in human clinical trials, including the approved drugs Omniscan and
Teslascan. Dr. Rocklage received his B.S. in Chemistry from the University of
California, Berkeley and his Ph.D. in Chemistry from the Massachusetts Institute
of Technology.
DR. TALLY has served as our Executive Vice President, Scientific Affairs
since January 1997. From March 1995 to January 1997, he served as our Vice
President of Research and Development. From 1986 to February 1995, Dr. Tally
served as Executive Director of Infectious Disease, Molecular Biology and
Natural Products Research at the Lederle Laboratories of American
Cyanamid/American Home Products, where he was responsible for worldwide clinical
studies for piperacillin/tazobactam which was registered for sales in Europe in
1992, approved by the FDA in 1993 and marketed as Zosyn. From 1975 to 1986, he
served as Senior Physician in Infectious Disease at the New England Medical
Center
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and Associate Professor of Medicine at Tufts Medical Center. Dr. Tally received
his A.B. in Biology from Providence College and his M.D. from George Washington
University School of Medicine.
DR. WATSON has served as our Senior Vice President, Corporate Development
since September 1999. From October 1997 to August 1999, he served as Senior Vice
President, Intellectual Property and Licensing at Nycomed Amersham plc., a
diagnostic imaging and life sciences company. From January 1995 to
September 1997, he served as Senior Vice President, Technology Development at
Nycomed ASA. From January 1994 to June 1995, he served as Senior Vice President,
Research and Development at Nycomed Salutar, Inc. where he also served as a
Board Director. Prior to 1994, Dr. Watson served in various senior positions at
Salutar, Inc. From 1983 to 1986 while at DuPont Pharmaceuticals, Dr. Watson
invented the stroke-imaging drug Neurolite. Dr. Watson received his B.Sc. from
the University of U.S.W., Sydney, Australia; his M.B.A. from Northeastern
University; and his Ph.D. in Bioinorganic Chemistry from the Australia National
University.
MR. SHEA has served as our Vice President, Finance and Administration and
Chief Financial Officer since December 1998. He has also served as our Treasurer
and Chief Accounting Officer since June 1996. From December 1997 to
December 1998 he served as our Senior Director of Finance and Administration,
and from 1993 to November 1997, as our Director of Finance and Administration.
From 1987 to 1993, he served as Manager of Accounting/MIS and Budget and
Financial Analyst at ImmuLogic Pharmaceutical Corporation, a biotechnology
company. Mr. Shea received his B.S. in Accounting/Law from Babson College and
his M.B.A. from Suffolk University.
DR. DEBRUIN has served as our Vice President, Clinical Research since
September 1999. From March 1998 to May 1999, he served as Therapeutic Area
Head-Infectious Diseases at Wyeth-Ayerst Research and Genetics Institute. From
March 1993 to February 1998, he served as Director of Clinical Development at
Genetics Institute. From 1988 to 1993, Dr. DeBruin served in various positions
at Pfizer, Inc. Dr. DeBruin was on the faculty at the University of Connecticut
School of Medicine, and was also in private practice treating infectious
diseases from 1988 to 1991. Dr. DeBruin received his B.A. from Cornell
University and his M.D. from New York Medical College.
DR. KEITH has served as our Vice President, Drug Discovery since
October 1997. From 1971 to October 1997, Dr. Keith was with Hoffman-La
Roche Inc. where he served in various positions, including Director of
Antiinfective Chemistry, Senior Director of Medicinal Chemistry and Research
Director of Oncology. Dr. Keith received his B.S. in Chemistry from Bates
College and his Ph.D. in Organic Chemistry from Yale University.
DR. OLESON has served as our Vice President, Drug Development since
November 1997. Prior to joining us, Dr. Oleson was an independent consultant
from June 1997 to November 1997. From January 1997 to June 1997, Dr. Oleson
served as Director of Preclinical Research at AutoImmune, Inc., a biotechnology
company. From 1992 to January 1997, Dr. Oleson served as Director, Toxicology
and Preclinical Pharmacology at Biogen, Inc., a biotechnology company.
Dr. Oleson also held various positions at Bristol-Myers Squibb from 1983 to
1992. Dr. Oleson was a key contributor in the development of the Biogen drug
Avonex and a key consultant in the development of Angiomax for The Medicines
Company. Dr. Oleson received his B.S. in Biochemistry from Princeton University
and a Doctor of Science in Physiology/Radiation Biology from Harvard University
School of Public Health.
DR. SHIMER has served as our Vice President, Biology since January 2000.
Prior to joining us, Dr. Shimer was Senior Director, Pathogen Genomics at Genome
Therapeutics Corp. from February 1995 through January 2000. Dr. Shimer received
his B.S. in Biochemistry from North Carolina State University and his Ph.D. in
Biochemistry from Colorado State University.
MR. SLATER has served as our Vice President, Commercial Development since
May 1999. From July 1998 to April 1999, he served as Senior Vice President of
Business Development for Newport Strategies, a consulting company. From
January 1996 to June 1998, he served as Vice President,
42
<PAGE>
Biomaterials Business for Genzyme Corporation, a biotechnology company. From
1988 to January 1996, Mr. Slater served in various sales and marketing positions
for Genzyme Corporation. Prior to 1988, Mr. Slater served in marketing and sales
positions for pharmaceutical companies Hoffman LaRoche and Upjohn. Mr. Slater
received his B.S. in Biology from Upsala College.
MR. CLARKE is one of our founders and served as Chairman of the Board of
Directors from our incorporation to March 2000. Mr. Clarke has served as one of
our directors since our incorporation. From 1992 to 1994, Mr. Clarke served as
our acting President and Chief Executive Officer. Since 1982, he has been a
general partner of DSV Management in Princeton, New Jersey, the general partner
of DSV Partners IV. He is a founder and director of Alkermes, Inc. and a
director of Plastic Surgeons of America Inc. Mr. Clarke is the Managing General
Partner for Cardinal Health Partners, founded in 1997. Mr. Clarke received his
B.A. in Biology and Economics from Harvard College and his M.B.A. from The
Wharton School of the University of Pennsylvania.
DR. SCHIMMEL is one of our scientific founders and has served as one of our
directors since our incorporation. From 1967 to 1998, Dr. Schimmel served as a
Professor of Biochemistry and Biophysics at the Massachusetts Institute of
Technology and as the John D. and Catherine T. MacArthur Professor of
Biochemistry and Biophysics at the Massachusetts Institute of Technology from
1992 to 1997. He has been a Professor and member of the Skaggs Institute for
Chemical Biology of the Scripps Research Institute since 1997. Dr. Schimmel is
an expert in molecular biology, protein translation and aminoacyl-tRNA
synthetases. He is a member of the National Academy of Sciences and the American
Academy of Arts and Sciences. Dr. Schimmel was a founder and is a director of
Repligen Corporation and Alkermes, Inc., each a biotechnology company.
Dr. Schimmel received his A.B. in Pre-Medicine from Ohio Wesleyan University and
his Ph.D. in Biochemistry from the Massachusetts Institute of Technology.
DR. BLOOM has served as one of our directors since September 1993.
Dr. Bloom has more than 40 years experience in the pharmaceutical industry. From
1952 to 1993, Dr. Bloom served in various positions at Pfizer Inc., including
Executive Vice President of Research & Development. He is a director of Vertex
Pharmaceuticals, Inc. and Neurogen Corp., biotechnology companies; Microbia, a
biotechnology company; Catalytica Pharmaceuticals, Inc., a chemical manufacturer
and supplier, and Incyte Pharmaceuticals, Inc., a genomics company. Dr. Bloom
received his S.B. in Chemistry and his Ph.D. in Organic Chemistry from the
Massachusetts Institute of Technology.
DR. MARTIN has served as one of our directors since October 1997. Since
July 1997, Dr. Martin has served as President, Chief Executive Officer and a
founder of Eos Biotechnology, Inc. Dr. Martin was a Professor of Medicine,
Professor of Biochemistry and an Investigator of the Howard Hughes Medical
Institute at the University of California San Francisco until 1983 when he
became the First Vice President and subsequently Senior Vice President of
Research and Development at Genentech, Inc., a position he held until 1990. He
was Executive Vice President of DuPont Merck Pharmaceutical Company from 1991
through 1993 and then returned to California in 1994 where he was Senior
Vice-President of Chiron Corp., a biotechnology company, and President of Chiron
Therapeutics. In May 1995, he assumed the position of President and Chief
Executive Officer of Lynx Therapeutics, Inc., a biotechnology company, and
served until November 1996. Dr. Martin is also a Director of Varian
Associates, Inc., a medical equipment supplier.
MS. RESCH has served as one of our directors since June 1999. Since
June 1998, Ms. Resch has served as Director at Sofinov Societe Financiere
d'Innovation Inc. From June 1998 to June 1999, she served as Manager at Sofinov.
From June 1997 to December 1997, Ms. Resch was a consultant, principally working
with Sofinov.
MR. MAUPAY has served as one of our directors since June 1999. Since 1988,
Mr. Maupay has served as President of Calgon Vestal Laboratories, a division of
Merck & Co., Inc. until January 1995, when it was sold to Bristol-Myers Squibb.
Since June 1995, Mr. Maupay has also served as Group
43
<PAGE>
Executive of Calgon Vestal Laboratories after the sale to Bristol-Myers Squibb.
From 1984 to 1988 Mr. Maupay served as Vice-President, Healthcare at Calgon
Vestal Laboratories. Mr. Maupay is a director of Life Medical Sciences, Inc., a
medical device company, Kensey Nash Corporation, a medical device company,
Neshaminy Golf Club, Inc. and Warwick Golf Farm. Mr. Maupay received his
Bachelor of Science in Pharmacy from Temple University and his M.B.A. from
Lehigh University.
DR. ZABRISKIE has served as one of our directors since June 1999. Since
July 1997, Dr. Zabriskie has served as Chairman of the Board of NEN Life Science
Products, Inc., a laboratory supply company. From July 1997 to December 1999,
Dr. Zabriskie also served as President and Chief Executive Officer of NEN Life
Science Products, Inc. From November 1995 to January 1997, he was President and
Chief Executive Officer of Pharmacia & Upjohn. From 1994 to November 1995, he
served as President, Chief Executive Officer and Chairman of UpJohn Co.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
common stock as of March 3, 2000 by:
- each person or entity we know who owns beneficially 5% or more of our
common stock;
- each of our directors and our executive officers; and
- all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. In computing the number of shares beneficially owned by
a person and the percentage ownership of that person, shares of common stock
subject to options held by that person that are currently exercisable or
exercisable within 60 days of March 3, 2000 are deemed outstanding. These
shares, however, are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. Except as indicated below and pursuant
to applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares set forth opposite
such stockholder's name. Shares included below under "Right to Acquire"
represent shares subject to outstanding stock options or common stock purchase
warrants. Unless otherwise indicated, the address for each of the following
stockholders is c/o Cubist Pharmaceuticals, Inc., 24 Emily Street, Cambridge,
Massachusetts 02139.
Percentage of beneficial ownership is based on:
- 23,485,940 shares outstanding as of March 3, 2000, and
- 25,985,940 shares outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
NAME AND ADDRESS SHARES ACQUIRE NUMBER OFFERING OFFERING
- ---------------- ----------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Sofinov Societe Financiere D'Innovation Inc............... 1,029,823 1,113,424 2,143,247 8.7% 7.9%
1981 Avenue McGill College
7e etage
Montreal, Quebec H3A 3C7
ENTITIES AFFILIATED WITH
Hambrecht & Quist Capital Management Incorporated......... 1,113,005 333,334 1,446,339 6.1 5.5
50 Rowes Wharf
Boston, MA 02110
Scott M. Rocklage, Ph.D................................... 208,908 220,991 429,899 1.8 1.6
Francis P. Tally, M.D..................................... 102,857 44,296 147,153 * *
Alan D. Watson, Ph.D., M.B.A.............................. 52,000 15,937 67,937 * *
Thomas A. Shea, M.B.A..................................... 7,142 38,424 45,566 * *
Michael F. DeBruin, M.D................................... -- 9,375 9,375 * *
Dennis D. Keith, Ph.D..................................... 22,116 64,999 87,115 * *
Frederick B. Oleson, Jr., D.Sc............................ -- 60,312 60,312 * *
George H. Shimer, Jr., Ph.D............................... -- 4,687 4,687 * *
Thomas J. Slater.......................................... -- 17,500 17,500 * *
John K. Clarke............................................ -- 9,130 9,130 * *
Paul R. Schimmel, Ph.D.................................... 295,713 26,272 321,985 * *
Barry Bloom, Ph.D......................................... 7,142 16,272 23,414 * *
David W. Martin, Jr., M.D................................. -- 5,856 5,856 * *
Trudie Resch.............................................. -- 2,312 2,312 * *
Walter Maupay............................................. 6,000 2,312 8,312 * *
John Zabriskie, Ph.D...................................... 4,000 2,312 6,312 * *
All directors and executive officers as a group (16 705,878 540,987 1,246,865 5.2 4.7
persons)................................................
</TABLE>
- ------------------------------
* Indicates less than 1%
45
<PAGE>
With respect to the foregoing table, you should note that:
- Sofinov Societe Financiere D'Innovation Inc. is a wholly-owned subsidiary
of Caisse De Depot et Placement du Quebec. Because of such relationship,
Caisse is the indirect beneficial owner of the shares attributable to
Sofinov and may be deemed to beneficially own all of the shares owned by
Sofinov. In addition, the shares Sofinov has the right to acquire includes
the shares Ms. Resch has the right to acquire. Ms. Resch is a member of
the board of directors and holds the position of Director at Sofinov.
- The shares attributable to entities affiliated with Hambrecht & Quest
Capital Management Inc. includes shares and warrants held by H&Q
Healthcare Investors and shares and warrants held by H&Q Life Sciences
Investors. Hambrecht & Quist Capital Management Inc. is the Investment
Adviser of H&Q Healthcare Investors and H&Q Life Sciences Investors and
therefore has voting and investment power with respect to the shares owned
by H&Q Healthcare Investors and H&Q Life Sciences Investors. Hambrecht &
Quist Capital Management Inc. may be deemed to beneficially own all of the
shares owned by H&Q Healthcare Investors and H&Q Life Sciences Investors
although Hambrecht & Quist Capital Management Inc. disclaims beneficial
ownership.
- A portion of the shares attributable to Dr. Schimmel are held by the Paul
R. Schimmel Profit-Sharing Plan.
CERTAIN TRANSACTIONS
On September 25, 1999, in consideration for the performance of services by
Alan Watson, our Senior Vice President, Corporate Development, we issued to
Mr. Watson 50,000 restricted shares of common stock, at a purchase price of
$10.125 per share, the fair market value of the common stock as determined by
the board of directors. Mr. Watson purchased the shares by executing a
promissory note in the amount of $506,250 with a 4% annual interest rate. This
note is secured by the 50,000 shares of common stock. The principal and interest
on the promissory note will be forgiven in three equal installments on
September 25, 2000, September 25, 2001, and September 25, 2002.
46
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Pacific Growth Equities, Inc., Chase
Securities Inc., ING Barings LLC and Lazard Freres & Co. LLC, have severally
agreed with us, subject to the terms and conditions of the underwriting
agreement, to purchase from us the numbers of shares of common stock set forth
below opposite their respective names. The underwriters are committed to
purchase and pay for all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Pacific Growth Equities, Inc................................
Chase Securities Inc........................................
ING Barings LLC.............................................
Lazard Freres & Co. LLC.....................................
---------
Total....................................................... 2,500,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No such reduction
shall change the amount of proceeds to be received by us as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the 2,500,000 shares offered by
this prospectus are being sold. We will be obligated, pursuant to the
over-allotment option, to sell shares to the underwriters to the extent the
over-allotment option is exercised. The underwriters may exercise the
over-allotment option only to cover over-allotments made in connection with the
sale of the shares of common stock offered in this offering.
The following table summarizes the compensation we are to paid to the
underwriters:
<TABLE>
<CAPTION>
TOTAL
--------------------------------------
WITHOUT OVER- WITH OVER-
PER ALLOTMENT ALLOTMENT
SHARE OPTION OPTION
-------- ------------- -----------
<S> <C> <C> <C>
Underwriting discounts and commissions.................... $ $ $
</TABLE>
47
<PAGE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $500,000.
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters, the selling stockholders and us against various civil liabilities,
including liabilities under the Securities Act and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
LOCK-UP AGREEMENTS
Each of our executive officers and directors has agreed, during the period
of 90 days after the date of this prospectus, subject to specified exceptions,
not to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock or any
options or warrants to purchase any shares of common stock, or any securities
convertible into or exchangeable for shares of common stock, owned as of the
date of this prospectus or thereafter acquired directly by the officer or
director or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of FleetBoston Robertson Stephens
Inc. However, FleetBoston Robertson Stephens Inc. may, in its sole discretion
and at any time or from time to time, release all or any portion of the
securities subject to the lock-up agreements.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to specified exceptions, consent to the disposition of any shares held
by stockholders subject to lock-up agreements prior to the expiration of the
lock-up period or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than the sale of shares in this offering, the
issuance of common stock upon the exercise of outstanding options or warrants
and the issuance of options under our existing stock option and incentive plans,
provided that those options do not vest prior to the expiration of the lock-up
period.
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under the
Securities Act, some persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of shares of common stock on behalf of the underwriters for the
purpose of fixing or maintaining the price of common stock. A "syndicate
covering transaction" is the bid for or the purchase of the common stock on
behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with this offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
48
<PAGE>
PASSIVE MARKET MAKING
In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M, during the
business day prior to the pricing of the offering, before the commencement of
offers or sales of the common stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
SHARES ACQUIRED BY AFFILIATES OF PACIFIC GROWTH EQUITIES, INC.
Employees and investment funds affiliated with Pacific Growth Equities,
Inc., one of the representatives, acquired an aggregate of 40,000 shares of
common stock in October 1999, at a purchase price of $7.50 per share, for an
aggregate purchase price of $300,000. These purchases were made on the same
terms given to other purchasers in the private placement. Under the rules of the
National Association of Securities Dealers, Inc., these purchases may be deemed
to be underwriting compensation in connection with this offering.
49
<PAGE>
LEGAL MATTERS
Bingham Dana LLP, Boston, Massachusetts, will pass upon the validity of the
common stock offered in this offering. Justin P. Morreale, a partner at Bingham
Dana LLP, is the Secretary of Cubist. One attorney at Bingham Dana LLP owns
800 shares of our common stock. Hale and Dorr LLP, Boston, Massachusetts, will
pass upon legal matters in connection with this offering for the underwriters.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 have been so included in
this prospectus and included and incorporated in the registration statement in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934 and files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy these reports, proxy
statements and other information at the SEC's public reference facilities at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Northwest Atrium
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You can
request copies of these documents by writing to the SEC and paying a fee for the
copying cost. Please call the SEC at 1-800-SEC-0330 for more information about
the operation of the public reference facilities. SEC filings are also available
at the SEC's Web site at http://www.sec.gov. The common stock is listed on the
Nasdaq National Market, and you can read and inspect our filings at the offices
of the National Association of Securities Dealers, Inc. at 1735 K Street,
Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" information that we file
with them. Incorporation by reference allows us to disclose important
information to you by referring you to those other documents. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We filed a Registration Statement on Form S-3 under
the Securities Act of 1933 with the SEC with respect to the common stock being
offered pursuant to this prospectus. This prospectus omits certain information
contained in the Registration Statement on Form S-3, as permitted by the SEC.
You should refer to the Registration Statement on Form S-3, including the
exhibits, for further information about us and the common stock being offered
pursuant to this prospectus. Statements in this prospectus regarding the
provisions of certain documents filed with, or incorporated by reference in, the
Registration Statement are not necessarily complete and each statement is
qualified in all respects by that reference. Copies of all or any part of the
Registration Statement, including the documents incorporated by reference or the
exhibits, may be obtained upon payment of the prescribed rates at the offices of
the SEC listed above.
Upon request, we will provide without charge to each person to whom a copy
of this prospectus has been delivered a copy of any information that was
incorporated by reference in the prospectus (other than exhibits to documents,
unless the exhibits are specifically incorporated by reference into the
prospectus). We will also provide upon request, without charge to each person to
whom a copy of this prospectus has been delivered, a copy of all documents filed
by us from time to time with the SEC pursuant to the Exchange Act of 1934.
Requests for copies should be directed to Thomas A. Shea, Vice President and
Chief Financial Officer, Cubist Pharmaceuticals, Inc., 24 Emily Street,
Cambridge, Massachusetts 02139. Telephone requests may be directed to Mr. Shea
at (617) 576-4155.
50
<PAGE>
INFORMATION WE ARE INCORPORATING BY REFERENCE
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
- our Annual Report on Form 10-K/A for the year ended December 31, 1999;
- our current reports on Form 8-K filed on January 27, 2000, March 7, 2000
and March 9, 2000;
- the description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on September 17, 1996, including
any amendments or reports filed for the purpose of updating that
description; and
- the description of the preferred stock purchase rights for our Series A
Junior Participating Preferred Stock contained in our registration
statement on Form 8-A filed with the SEC on August 2, 1999, including any
amendments or reports filed for the purpose of updating that description.
You may request a copy of these filings at no cost (other than exhibits
unless those exhibits are specifically incorporated by reference herein) by
writing, telephoning or e-mailing us at the following address:
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Attn: Thomas A. Shea
(617) 576-1999
e-mail: [email protected]
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information incorporated by reference or provided in
this prospectus. No one else is authorized to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
document.
51
<PAGE>
CUBIST PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-5
Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1998
and 1999.................................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cubist Pharmaceuticals, Inc.:
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of Cubist Pharmaceuticals, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 2000
F-2
<PAGE>
CUBIST PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,463,688 $11,570,960
Short-term investments.................................... 8,692,514 14,580,515
Accounts receivable....................................... -- 87,431
Prepaid expenses and other current assets................. 231,409 339,081
----------- -----------
Total current assets.................................... 15,387,611 26,577,987
Property and equipment...................................... 7,727,821 8,437,830
Less: Accumulated depreciation and amortization............. (3,908,054) (4,990,943)
----------- -----------
Property and equipment, net............................... 3,819,767 3,446,887
Long-term investments....................................... 3,855,336 --
Other assets................................................ 74,238 179,287
----------- -----------
Total assets............................................ $23,136,952 $30,204,161
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 460,939 $ 1,299,139
Accrued expenses.......................................... 572,562 1,303,012
Current portion of long-term debt......................... 83,957 394,939
Current portion of capital lease obligations.............. 625,450 535,073
----------- -----------
Total current liabilities............................... 1,742,908 3,532,163
Long-term debt, net of current portion...................... 16,109 759,782
Long-term capital lease obligation, net of current
portion................................................... 1,292,165 758,821
----------- -----------
Total liabilities....................................... 3,051,182 5,050,766
----------- -----------
Commitments (Notes F, J, K & N)
Stockholders' equity:
Preferred stock, non-cumulative; convertible, $.001 par
value; authorized 5,000,000 shares 1998 and 1999; issued
and outstanding 1998 and 1999 no shares................. -- --
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding 1998 16,642,968 shares;
issued and outstanding 1999 20,523,358 shares........... 16,643 20,524
Additional paid-in capital................................ 54,890,014 77,767,268
Accumulated deficit....................................... (34,820,887) (52,634,397)
----------- -----------
Total stockholders' equity.............................. 20,085,770 25,153,395
----------- -----------
Total liabilities and stockholders' equity............ $23,136,952 $30,204,161
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Sponsored research revenues.......................... $ 2,733,083 $ 1,634,199 $ 5,353,379
Operating expenses:
Research and development........................... 9,340,928 10,489,258 19,351,332
General and administrative......................... 3,292,241 3,495,264 4,297,723
----------- ------------ ------------
Total operating expenses......................... 12,633,169 13,984,522 23,649,055
Interest income...................................... 1,038,532 858,919 813,507
Interest expense..................................... (237,119) (333,602) (331,341)
Other income......................................... 1,833,334 -- --
----------- ------------ ------------
Net loss........................................... $(7,265,339) $(11,825,006) $(17,813,510)
=========== ============ ============
Basic and diluted net loss per common share.......... $ (0.73) $ (0.97) $ (0.99)
=========== ============ ============
Weighted average number of common shares outstanding
for basic and diluted net loss per common share.... 9,994,718 12,224,404 18,040,815
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows for (from) operating activities:
Net loss.................................................. $(7,265,339) $(11,825,006) $(17,813,510)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of equity interest......................... (1,833,334) -- --
Amortization of equity interest......................... 833,334 -- --
Depreciation and amortization........................... 1,057,887 1,243,596 1,359,998
Gain on the sale of equipment........................... -- -- (15,150)
Common stock issued for technology milestone............ -- -- 250,000
Cashless exercise of warrants related to lease
agreements............................................ -- -- 38,330
Changes in assets and liabilities:
Accounts receivable................................... 451,934 53,333 (87,431)
Prepaid expenses and other current assets............. 144,007 (88,774) (107,672)
Other assets.......................................... (6,495) 106,056 (105,049)
Accounts payable and accrued expenses................. (458,577) 265,937 1,568,650
Deferred revenue...................................... (126,900) -- --
----------- ------------ ------------
Total adjustments................................... 61,856 1,580,148 2,901,676
----------- ------------ ------------
Net cash used for operating activities...................... (7,203,483) (10,244,858) (14,911,834)
----------- ------------ ------------
Cash flows for (from) investing activities:
Purchase of equipment..................................... (899,810) (1,795,285) (756,558)
Proceeds from the sale of equipment....................... -- -- 15,150
Leasehold improvements.................................... (94,753) (39,435) (85,350)
Purchase of equity interest............................... (1,000,000) -- --
Proceeds from sale of equity interest..................... 2,000,000 -- --
Purchases of short-term investments....................... (22,686,443) (8,692,514) (15,192,711)
Maturities of short-term investments...................... 15,976,820 6,709,623 9,304,710
Purchases of long-term investments........................ (8,569,107) (3,855,336) --
Maturities of long-term investments....................... -- 8,569,107 3,855,336
----------- ------------ ------------
Net cash provided by (used for) investing activities........ (15,273,293) 896,160 (2,859,423)
----------- ------------ ------------
Cash flows for (from) financing activities:
Issuance of stock, net.................................... 5,942,697 12,770,227 22,345,909
Proceeds from notes receivable............................ -- 30,000 101,686
Repayments of long-term debt.............................. (189,943) (189,736) (84,923)
Proceeds from term loan................................... 927,686 941,255 1,139,578
Principal payments of capital lease obligations........... (695,417) (576,960) (623,721)
----------- ------------ ------------
Net cash provided by financing activities................... 5,985,023 12,974,786 22,878,529
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents........ (16,491,753) 3,626,088 5,107,272
Cash and cash equivalents at beginning of year.............. 19,329,353 2,837,600 6,463,688
----------- ------------ ------------
Cash and cash equivalents at end of year.................... $ 2,837,600 $ 6,463,688 $ 11,570,960
=========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest.................... $ 237,119 $ 333,602 $ 331,341
Supplemental non-cash financing activities:
Cancellation of promissory note in connection
with resignation of officer (Note H).................... -- $ 37,776 --
Issuance of restricted common stock in exchange for a
promissory note......................................... $ 80,000 -- $ 506,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CUBIST PHARMACEUTICALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
$ ADDITIONAL PAID-IN CAPITAL
---------------------------------------- $ $
# OF SHARES $ ISSUANCE OF NOTES DEFERRED ACCUMULATED STOCKHOLDERS'
COMMON COMMON SHARES RECEIVABLE COMPENSATION DEFICIT EQUITY
----------- -------- ----------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... 9,544,373 $ 9,544 $36,253,818 $(154,459) $ (79,751) $(15,730,542) $20,298,610
Exercise of stock options...... 57,981 58 119,320 119,378
Repurchase of common stock..... (1,390) (1) (519) (520)
Issuance of common stock, net
of offering costs............ 979,591 980 5,902,859 (80,000) 5,823,839
Amortization of deferred
compensation................. 20,000 43,924 63,924
Forgiveness of promissory
notes........................ 22,774 22,774
Net loss....................... (7,265,339) (7,265,339)
---------- ------- ----------- --------- --------- ------------ -----------
Balance at December 31, 1997... 10,580,555 10,581 42,275,478 (191,685) (35,827) (22,995,881) 19,062,666
---------- ------- ----------- --------- --------- ------------ -----------
Exercise of stock options...... 2,576 3 4,140 4,143
Shares issued in connection
with employee stock purchase
plan......................... 6,341 6 20,553 20,559
Repurchase of common stock..... (2,064) (2) (786) (788)
Issuance of common stock, net
of offering costs............ 6,065,560 6,065 12,774,811 12,780,876
Amortization of deferred
compensation................. 2,255 22,223 (11,158) 13,320
Repayment of promissory
notes........................ 30,000 30,000
Cancellation of promissory note
in connection with
resignation of officer....... (10,000) (10) (37,766) 37,776 --
Net loss....................... (11,825,006) (11,825,006)
---------- ------- ----------- --------- --------- ------------ -----------
Balance at December 31, 1998... 16,642,968 16,643 55,038,685 (101,686) (46,985) (34,820,887) 20,085,770
---------- ------- ----------- --------- --------- ------------ -----------
Exercise of stock options and
warrants..................... 432,626 433 810,983 811,416
Shares issued in connection
with employee stock purchase
plan and 401(k) plan......... 40,035 40 144,644 144,684
Issuance of common stock, net
of offering costs............ 3,407,729 3,408 22,180,981 (506,250) 21,678,139
Issuance of warrants for
services..................... 77,107 (77,107) --
Deferred compensation related
to grant of stock options.... 707,797 (703,125) 4,672
Amortization of deferred
compensation................. 140,538 140,538
Repayment of promissory
notes........................ 101,686 101,686
Net loss....................... (17,813,510) (17,813,510)
---------- ------- ----------- --------- --------- ------------ -----------
Balance at December 31, 1999... 20,523,358 $20,524 $78,960,197 $(506,250) $(686,679) $(52,634,397) $25,153,395
========== ======= =========== ========= ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Cubist Pharmaceuticals, Inc. is a specialty pharmaceutical company founded
in May 1992 and is focused on the research, development and commercialization of
novel antimicrobial drugs to combat serious and life-threatening bacterial and
fungal infections, including those caused by bacteria and fungi resistant to
commercially available drugs. Cubist has established multiple technology
licenses and collaborations and has established a network of advisors and
collaborators. Cubist is located in Cambridge, Massachusetts and operates in one
business segment.
Cubist is subject to risks common to companies in the industry including,
but not limited to, uncertainty of product development and commercialization,
lack of marketing and sales history, dependence on key personnel, market
acceptance of products, product liability, protection of proprietary technology,
ability to raise additional financing, and compliance with FDA and other
governmental regulations.
Cubist has a limited history of operations and has experienced significant
net losses since inception. At December 31, 1999, Cubist has an accumulated
deficit of $52.6 million. Cubist expects to incur significant additional net
losses over the next several years and expects cumulative losses to increase due
to expanded research and development efforts, preclinical testing and clinical
trials and the development of manufacturing, marketing and sales capabilities.
As a result, Cubist's business plan indicates that additional financing will be
required to support its planned expenditures. Cubist believes that the funds
currently available and future revenues due under its collaborative agreements
(Note E) will be sufficient to fund operations through at least the next twelve
months.
B. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements are stated on an accrual basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term interest-bearing instruments with
original maturities of three months or less. These investments are carried at
cost which approximates market value.
Cubist invests its cash and cash equivalents primarily in deposits, U.S.
Government treasuries and money market funds with financial institutions. Cubist
has not recorded any losses to date on its invested cash and cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments, with an original maturity of more than three months
and less than one year when purchased, consisted of certificates of deposit and
investment-grade commercial paper at
F-7
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. ACCOUNTING POLICIES (CONTINUED)
December 31, 1998 and 1999. Short-term investments, all of which are held to
maturity, are stated at amortized cost plus accrued interest, which approximates
market value.
LONG-TERM INVESTMENTS
Long-term investments, with a maturity of more than twelve months when
purchased, consisted of investment-grade corporate debt at December 31, 1998.
Long-term investments, all of which are held to maturity, are stated at
amortized cost plus accrued interest, which approximates market value. Cubist
does not hold any long-term investments at December 31, 1999.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets,
generally three years for computer equipment and five years for laboratory
equipment and furniture and fixtures. Leasehold improvements are stated at cost
and are amortized over the lesser of the life of the lease or their estimated
useful lives. Maintenance and repairs are charged to expense as incurred, while
major betterments are capitalized. When assets are retired or otherwise disposed
of, the assets and related allowances for depreciation and amortization are
eliminated from the accounts and any resulting gain or loss is reflected in
income.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Cubist has entered into various collaborative agreements with pharmaceutical
and biotechnology companies. Revenue derived from such collaborative agreements
is recognized in accordance with the terms of the contracts. Certain agreements
also provide for payments to Cubist upon the achievement of certain milestones
as well as royalties on the net sales of products developed resulting from the
collaboration, as defined in the respective agreements. Any revenue related to
milestones and royalties is recognized as earned.
Revenue from Small Business Innovation Research ("SBIR") government grants
to conduct research and development is recognized as eligible costs are incurred
up to the funding limit. Eligible grant-related costs which have been incurred
in advance of cash receipts are recorded as receivables.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred.
INCOME TAXES
Cubist accounts for income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted rates in effect for the year in which those temporary differences
are expected to be recovered or settle. A deferred tax asset is established for
the expected future benefit of net operating loss and credit carryforwards. A
valuation reserve against net deferred tax assets is required if, based upon
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
F-8
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of Cubist's financial instruments, which include cash
equivalents, investments, accounts receivable, accounts payable, accrued
expenses, capital lease obligations and long-term debt, approximate their fair
values.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted net loss per share does not differ
from basic net loss per share since potential common shares from stock options
and warrants are antidilutive for all periods presented and are therefore
excluded from the calculation. During the years ended December 31, 1997, 1998
and 1999, options to purchase 802,468, 1,519,094, and 1,978,533 shares of common
stock, respectively, and warrants for 86,619, 3,119,402, and 2,775,868 shares of
common stock, respectively, were not included in the computation of diluted net
loss per share since their inclusion would be antidilutive.
COMPREHENSIVE INCOME
Comprehensive loss is equal to net loss for the years ended December 31,
1997, 1998 and 1999.
DERIVATIVE INSTRUMENTS
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.
NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") as subsequently amended by SAB 101A which is effective no later than
June 30, 2000 with retroactive application back to January 1, 2000. SAB 101
clarifies the Securities and Exchange Commission's views related to revenue
recognition and disclosure. Cubist will adopt SAB 101 in the second quarter of
2000 and is presently determining the effect it will have on Cubist's financial
statements, although management does not believe the effect will be material.
F-9
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. PROPERTY AND EQUIPMENT
At December 31, property and equipment consisted of:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Leasehold improvements...................................... $2,623,924 $2,709,274
Laboratory equipment........................................ 4,047,291 4,591,383
Furniture and fixtures...................................... 319,245 342,451
Computer equipment.......................................... 737,361 794,722
---------- ----------
7,727,821 8,437,830
---------- ----------
Less accumulated depreciation and amortization.............. (3,908,054) (4,990,943)
---------- ----------
Property and equipment, net................................. $3,819,767 $3,446,887
========== ==========
</TABLE>
Depreciation and amortization expense was $971,189, $1,195,713, and
$1,214,788 in 1997, 1998 and 1999, respectively.
D. ACCRUED EXPENSES
At December 31, accrued expenses consisted of:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Payroll and benefits........................................ $337,475 $ 342,792
Professional services....................................... 77,720 127,655
Annual report............................................... 50,000 100,008
Drug development............................................ 86,820 525,128
Miscellaneous............................................... 20,547 207,429
-------- ----------
Total accrued expenses...................................... $572,562 $1,303,012
======== ==========
</TABLE>
E. COLLABORATIVE RESEARCH AGREEMENTS
On December 15, 1995, Cubist entered into a collaborative research agreement
with Pfizer Inc. Under the terms of the agreement, Pfizer paid Cubist a
technology licensing fee upon execution and research support payments. In
addition, Pfizer reimbursed Cubist for expenses related to the screening of
Pfizer compounds against Cubist's targets and made certain milestone payments.
These reimbursement payments were recognized as revenue as the work was
completed. Cubist recorded sponsored research revenues of $150,000 in 1997, in
accordance with the agreement. On June 20, 1997, Cubist's collaborative
agreement with Pfizer expired pursuant to its own terms. Prior to such
expiration, Cubist had received all of the research support payments and
technology licensing fees that Cubist was entitled to receive under that
collaborative agreement.
In June 1996, Cubist entered into a collaborative research agreement with
Bristol-Myers Squibb Company ("Bristol-Myers Squibb"). Under the terms of the
agreement, Bristol-Myers Squibb purchased from Cubist $4,000,000 of Cubist's
preferred stock upon execution of the agreement, and has agreed to make payments
to Cubist upon the achievement of certain milestones. In addition, Bristol-Myers
Squibb reimbursed Cubist a fixed amount for research and development expenses
relating to the production of certain targets and also for expenses relating to
the screening of Bristol-Myers Squibb
F-10
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
compounds against Cubist's targets over three years. These reimbursements were
paid at the beginning of each calendar quarter in accordance with the agreement.
Cubist recorded sponsored research revenues of $500,000 in milestone payments in
1997 and $1,000,000, $1,000,000 and $500,000 in 1997, 1998 and 1999,
respectively, for certain research and development revenues in accordance with
the agreement. Bristol-Myers Squibb's exclusive research period ended in January
2000. Following January 7, 2000, Bristol-Myers Squibb's rights to continue
screening and research and development with respect to Cubist's targets under
the collaboration agreement continue on a non-exclusive basis.
In June 1996, Cubist entered into a collaborative research agreement with
Merck & Co., Inc. ("Merck"). Under the terms of the agreement, Merck paid Cubist
a technology licensing fee upon execution and will pay certain milestone
payments if earned. In addition, Merck has reimbursed Cubist for research and
development expenses relating to the production of certain targets; for expenses
relating to the screening of Merck compounds against Cubist's targets; and for
expenses relating to compound optimization. These payments are recognized as
revenue as the work is completed. Cubist recorded sponsored research revenues of
$875,233, $106,667 and $2,500,000 in 1997, 1998 and 1999, respectively, for
certain research and development revenues and milestone payments, in accordance
with the agreement.
In May 1997, Cubist acquired 333,333 shares of Series B Convertible
Preferred Stock of Novalon Pharmaceutical Corporation ("Novalon"), together with
an option to purchase all of the capital stock of Novalon. The aggregate
purchase price for such shares and such option was $1.0 million. Cubist
allocated all of the $1.0 million aggregate purchase price to the option based
on management's estimates of the relative fair values of the option and the
shares of Series B Convertible Preferred Stock acquired. The value of the option
was amortized over the option period resulting in an $833,333 research and
development expense in 1997. On September 29, 1997, Cubist agreed to terminate
its option to acquire Novalon and sold its existing equity position back to
Novalon for $2.0 million resulting in a gain of $1,833,333 included in other
income. Cubist will pay Novalon a percent of revenues received by Cubist that
relates to the use of the technology.
On February 3, 1999, Cubist entered into a research and license agreement
with Novartis Pharma AG to use Cubist's proprietary VITA functional genomics
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 fund a research program for a period of three years
unless terminated earlier by Novartis. Cubist recorded $2,041,875 of sponsored
research revenues in 1999 related to this agreement. Further, 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, 797,448 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 functional genomics
technology.
F. LICENSE AGREEMENT
On November 7, 1997, Cubist entered into a license agreement with Eli Lilly
and Company ("Eli Lilly") pursuant to which Cubist acquired exclusive worldwide
rights to develop, manufacture and market daptomycin. In exchange for such
license, Cubist has paid an upfront license fee in cash and, if
F-11
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F. LICENSE AGREEMENT (CONTINUED)
certain drug development milestones are achieved, has agreed to pay milestone
payments 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 56,948 shares of Cubist common
stock as a milestone payment pursuant to, and in accordance with, the terms of
the agreement. The value of the common stock was $250,000 and was recorded as
research and development expense.
G. FINANCINGS
On October 21, 1999, Cubist completed a private placement financing with
investors and raised approximately $18.8 million (less financing costs of
$1,328,892) by issuing 2,503,333 shares of common stock at $7.50 per share.
Cubist has filed a 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 are being used primarily to fund its clinical trials of
daptomycin and the development of its proprietary genomic target validation and
assay development VITA functional genomics technology.
On September 23, 1998, Cubist completed a private placement financing with
investors and raised approximately $13.6 million (less financing costs of
approximately $901,000) by issuing 6,065,560 shares of common stock at $2.25 per
share, along with 3,032,783 warrants exercisable for common stock at $2.25 per
share. The warrants are exercisable at any time until September 23, 2003. The
value of the warrants and common stock in excess of par value have been
reflected in additional paid-in-capital. Cubist has filed a registration
statement to register 9,098,343 shares of common stock related to this
financing. The proceeds of this private offering were used primarily to fund its
clinical trials of daptomycin and the development of its proprietary genomic
target validation and assay development VITA functional genomics technology.
On July 18, 1997, Cubist completed a private equity financing in which
Cubist raised $6.0 million before offering expenses of $96,161 by issuing
979,591 common shares at $6.125 per share. These shares were subsequently
registered with the Securities and Exchange Commission.
H. STOCKHOLDERS' EQUITY
WARRANTS
Total warrants outstanding at December 31, 1999 were 2,775,868 (2,706,115
warrants relate to the September 23, 1998 financing described in footnote G).
In February 1999, Cubist issued to Bridge Technology Group a warrant
exercisable for 25,000 shares common stock at $4.31 per share. The value of the
warrants using the Black-Scholes option-pricing model is $77,107. The value is
being amortized to general and administrative expense over a one-year period,
and the warrants are due to expire February 2004.
NOTES RECEIVABLE FROM RELATED PARTIES
Cubist has accepted a promissory note from the Chief Executive Officer in
consideration for the preferred stock issued to him. In 1997, the term of this
note was extended to fall due in equal quarterly installments of $10,000
commencing on March 31, 1998. On October 14, 1999 the principal amount of this
note was paid in full.
F-12
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
H. STOCKHOLDERS' EQUITY (CONTINUED)
Cubist has accepted a promissory note from a Senior Vice President in
consideration for 50,000 shares of restricted common stock issued to him. The
aggregate principal amount of this note at December 31, 1999 is $506,250 and is
reflected in stockholders' equity as a reduction to paid-in-capital. This note
has an annual interest rate of 4% and falls due on September 25, 2002. The note
will be forgiven in three equal annual installments, contingent upon the Senior
Vice President's continued employment, until September 2002.
I. STOCK OPTIONS
Cubist has a stock option plan under which options to purchase 3,000,000
shares of its common stock may be granted to employees, directors, officers or
consultants. The options are generally granted at fair market value on the date
of the grant as determined by the Board of Directors, vest ratably over a
four-year period and expire ten years from the date of grant. At December 31,
1999 there were 342,340 shares available for future grant.
During 1994 and 1995, Cubist allowed employees and consultants to exercise
their full grants to take advantage of certain favorable tax benefits. Cubist
reserved the right to repurchase any unearned shares at the original purchase
price if the employee or consultant does not fulfill the vesting requirement.
1,390 and 2,064 shares of previously exercised options were repurchased in 1997
and 1998, respectively, because vesting schedules were not fulfilled. The
remaining shares are fully vested at December 31, 1999.
Cubist adopted the disclosure provisions of SFAS 123, Accounting for Stock
Based Compensation, in 1996 and has applied APB Opinion 25 and related
Interpretations in accounting for its plans. Had compensation costs for Cubist's
stock-based compensation plan been determined based on the fair value at the
grant dates as calculated in accordance with SFAS 123, Cubist's net loss and
loss per share for the years ended December 31, 1997, 1998 and 1999 would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------- -------------------------------- --------------------------------
BASIC AND DILUTED BASIC AND DILUTED BASIC AND DILUTED
NET LOSS LOSS PER SHARE NET LOSS LOSS PER SHARE NET LOSS LOSS PER SHARE
----------- ----------------- ------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
As Reported.......... $(7,265,339) $(0.73) $(11,825,006) $(0.97) $(17,813,510) $(0.99)
Pro forma............ $(7,859,006) $(0.79) $(13,019,532) $(1.07) $(20,206,710) $(1.12)
</TABLE>
The fair value of each stock option was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of four (4) years, expected volatility of 87%, a
dividend yield of 0% and a risk-free interest rate of 6.36% in 1997; and an
expected life of four (4) years, expected volatility of 97%, a dividend yield of
0% and a risk-free interest rate of 4.7% in 1998; an expected life of seven
(7) years, expected volatility of 74%, a dividend yield of 0% and a risk-free
interest rate of 5.3% in 1999. The effects of applying SFAS 123 in this pro
forma disclosure are not indicative of future amounts. Additional awards in
future years are anticipated.
F-13
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
I. STOCK OPTIONS (CONTINUED)
A summary of the status of Cubist's stock option plan as of December 31,
1997, 1998 and 1999, and changes during each of the years then ended, is
presented below:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- --------------------- ---------------------
WAEP* WAEP* WAEP*
NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1...................... 500,760 $1.93 802,468 $4.69 1,519,094 $3.44
Granted................................... 438,614 7.06 999,845 3.58 874,582 5.73
Exercised................................. (56,591) 2.06 (2,576) 1.61 (140,420) 2.94
Canceled.................................. (80,315) 2.29 (280,643) 7.17 (274,723) 3.67
------- ----- --------- ----- --------- -----
Balance at December 31.................... 802,468 $4.69 1,519,094 $3.44 1,978,533 $4.45
======= ===== ========= ===== ========= =====
Options exercisable at December 31........ 191,911 $2.73 366,039 $3.07 642,698 $3.57
Weighted average grant-date fair value of
options granted during the year:
Exercise price equals grant date stock
fair value............................ $5.41 $2.42 $3.72
Exercise price less than grant date
stock fair value...................... -- -- $7.94
</TABLE>
- ------------------------
* Weighted-average exercise price
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$.007--$1.96............... 248,355 5.5 years $ 1.60 224,429 $1.56
$2.25--$5.00............... 1,054,337 9.0 years 3.24 197,618 3.06
$5.25--$7.00............... 419,659 7.9 years 5.69 201,911 5.73
$8.00- $11.625............. 256,182 9.6 years 10.20 18,740 9.74
--------- --------- ------ ------- -----
1,978,533 8.4 years $ 4.45 642,698 $3.57
========= ========= ====== ======= =====
</TABLE>
J. LEASE COMMITMENTS
Cubist leases its facilities under operating lease agreements which extend
through 2003. Certain of these leases contain renewal options for an additional
five-year period and provisions that adjust the base payment based upon changes
in the consumer price index and require Cubist to pay operating costs, including
property taxes, insurance and maintenance. Cubist provided a security deposit of
$100,000 upon execution of the lease. The security deposit bears interest in a
segregated account, and was partially refunded ($79,000 plus interest) on the
fifth anniversary, and is fully refundable plus interest within thirty days
after the expiration of the lease, provided no event of default has occurred. In
1995, Cubist entered into an agreement with the landlord under which the
landlord provided financing of $345,500 to Cubist for expansion of the facility,
which is payable in equal monthly
F-14
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
J. LEASE COMMITMENTS (CONTINUED)
installments of $7,685 over five years with an annual interest rate of 12%
through February 2000. No additional security deposit was required. At
December 31, 1999, the outstanding principal balance was $15,143.
Cubist leases certain equipment under long-term capital leases. The cost of
this equipment included in fixed assets was $4,588,978, with associated
accumulated depreciation of $3,282,471, at December 31, 1999. Cubist intends to
purchase all of the leased equipment at a price to be negotiated at lease end.
Future lease payments for non-cancelable leases for the respective years ended
December 31 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
2000...................................................... $ 552,912 $ 685,846
2001...................................................... 559,123 564,210
2002...................................................... 559,123 330,090
2003...................................................... 498,545 --
2004 and thereafter....................................... -- --
---------- ----------
Total minimum lease payments................................ $2,169,703 $1,580,146
========== ----------
Less amount representing interest payments.................. (286,252)
----------
Present value of minimum lease payments..................... 1,293,894
Less current portion........................................ (535,073)
----------
Long-term obligation........................................ $ 758,821
==========
</TABLE>
Lease payments under operating leases were $246,498, $312,228 and $401,968
in 1997, 1998 and 1999, respectively.
K. TERM LOAN
During March 1999, Cubist entered into a term loan agreement with a bank
under which Cubist is able to borrow up to $1,500,000 to finance fixed asset
purchases. Advances under this facility are to be repaid over a 36-month period,
commencing on March 31, 2000. Interest on the borrowings is at the bank's LIBOR
rate (8.42% at December 31, 1999). Borrowings under the facility are
collateralized by all capital equipment purchased with the funds under this term
loan. At December 31, 1999, borrowings outstanding totaled $1,139,578.
F-15
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
K. TERM LOAN (CONTINUED)
At December 31, 1999, payments of principal and interest on existing debt
were due as follows:
<TABLE>
<S> <C>
Fiscal year ending December 31,
2000........................................................ $ 571,699
2001........................................................ 571,699
2002........................................................ 571,699
----------
Total payments.............................................. 1,715,097
Less amounts representing interest.......................... (575,519)
----------
Total debt.................................................. $1,139,578
Less current portion........................................ (379,796)
----------
$ 759,782
==========
</TABLE>
L. EMPLOYEE BENEFITS
Cubist maintains a 401(k) savings plan in which substantially all of its
permanent employees are eligible to participate. Participants may contribute up
to 15% of their annual compensation to the plan, subject to certain limitations.
Prior to January 1, 1998, Cubist contributed a matching amount of up to 1.5% of
a participant's total compensation or $500 annually, whichever is less.
Effective January 1, 1998, participants were granted a matching option in cash
or Cubist common stock. Cubist will match in common stock up to 4.5% of a
participant's total compensation or 75% of a participant's total contribution
annually, whichever is less. Matches distributed in common stock have immediate
vesting. Cubist contributed $20,165, $6,160 and $5,853 during 1997, 1998 and
1999, respectively. Additionally, in 1999, Cubist issued 28,420 shares of common
stock pursuant to this plan. No shares were issued prior to 1999.
Cubist instituted an employee stock purchase plan in 1998, in which
substantially all of its permanent employees are eligible to participate.
Participants may contribute up to 15% of their annual compensation to the plan,
subject to certain limitations. The plan allows participants to purchase Cubist
common stock, after a pre-determined six-month period, through payroll
deductions at a price 15% less than the lower of the closing price for the
beginning or ending date of the purchase period. The plan allows for the
issuance of 250,000 shares of common stock to eligible employees. During 1998
and 1999, Cubist issued 6,341 and 11,615 shares of common stock, respectively,
pursuant to this plan.
M. INCOME TAXES
Based on Cubist's current financial status, realization of Cubist's deferred
tax assets does not meet the "more likely than not" criteria under SFAS No. 109
and, accordingly, a valuation allowance for the
F-16
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
M. INCOME TAXES (CONTINUED)
entire deferred tax asset amount has been recorded. The components of the net
deferred tax asset and the related valuation allowance are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net operating loss carryforwards.................... $ 5,780,000 $ 10,715,000 $ 17,681,000
Research and development credits.................... 2,690,000 2,350,000 2,010,000
Research and experimentation credits................ 1,575,000 1,938,000 2,786,000
Other, net.......................................... 377,000 609,000 660,000
------------ ------------ ------------
Total deferred tax assets........................... $ 10,422,000 $ 15,612,000 $ 23,137,000
Valuation allowance................................. $(10,422,000) $(15,612,000) $(23,137,000)
------------ ------------ ------------
Net deferred tax assets............................. $ -- $ -- $ --
============ ============ ============
</TABLE>
Cubist's federal statutory and effective tax rates were 34% and 0%,
respectively, for 1997, 1998 and 1999. The effective tax rate was 0% due to a
net operating loss and the non-recognition of any deferred tax assets.
At December 31, 1999, Cubist has federal net operating loss carryforwards of
approximately $45.4 million, which begins to expire in 2007, and a state net
operating loss carryforwards of $37.5 million, which begins to expire in 2000.
Cubist also has federal and state credit carryforwards of $1,765,000 and
$1,546,000, respectively, begin to expire in 2008.
Ownership changes resulting from the issuance of capital stock may limit the
amount of net operating loss and tax credit carryforwards that can be utilized
annually to offset future taxable income. The amount of the annual limitation is
determined based on Cubist's value immediately prior to the ownership change.
Subsequent significant changes in ownership could further affect the limitation
in future years.
N. SUBSEQUENT EVENTS
In January 1999, Cubist entered into a memorandum of understanding with DSM
Fine Chemicals B.V. pursuant to which DSM has agreed to manufacture and supply
to Cubist bulk daptomycin drug substance for commercial purposes. Under the
terms of the memorandum of understanding, DSM is required to prepare its
manufacturing facility in Italy to manufacture bulk daptomycin drug substance in
accordance with Good Manufacturing Practices standards, and Cubist will make a
series of scheduled payments to DSM over a five-year period beginning in 2000 in
order to reimburse DSM for up to $5.9 million of the costs to be incurred by DSM
in connection with the preparation, testing and validation of its manufacturing
facility. In addition, Cubist has agreed to make milestone payments to DSM if
specific phases of the preparation of its manufacturing facility are completed
within specified periods of time. The maximum amount of milestone payments that
Cubist may be required to make to DSM is $1.6 million. Upon completion of the
preparation of DSM's manufacturing facility and a determination by the FDA that
the manufacturing facility complies with Good Manufacturing Practices standards,
Cubist will purchase minimum annual quantities of bulk daptomycin drug substance
from DSM over a five-year period beginning in 2002.
On January 29, 2000, Cubist completed a private placement financing with
investors and raised approximately $55.0 million (less estimated financing costs
of $3,039,000) by issuing 2,200,000 shares of
F-17
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
N. SUBSEQUENT EVENTS (CONTINUED)
common stock at $25.00 per share. Cubist filed a registration statement to
register the resale of the 2,200,000 shares of common stock issued in this
financing. Cubist plans to use the proceeds of the private placement to fund its
clinical trials of daptomycin, its lipopeptide drug discovery program and the
development of its proprietary genomic target validation and assay development
VITA functional genomics technology.
F-18
<PAGE>
[LOGO]
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 3, 2000
[LOGO]
2,500,000 SHARES
COMMON STOCK
Cubist Pharmaceuticals, Inc. is offering 2,500,000 shares of common stock.
Our common stock is traded on the Nasdaq National Market under the symbol
"CBST". The last reported sale price of the common stock on the Nasdaq National
Market on March 30, 2000 was $37.75 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Cubist.......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
PACIFIC GROWTH EQUITIES, INC.
CHASE H&Q
ING BARINGS
LAZARD CAPITAL MARKETS
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens International Limited, Pacific Growth Equities,
Inc., Chase Securities Inc., ING Barings Limited as agent for ING Bank N.V. and
Lazard Capital Markets, have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the numbers of
shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
U.S. UNDERWRITERS
- ------------------------------------------------------------
FleetBoston Robertson Stephens Inc..........................
Pacific Growth Equities, Inc................................
Chase Securities Inc........................................
ING Barings LLC.............................................
Lazard Freres & Co. LLC.....................................
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS
- --------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited........
Pacific Growth Equities, Inc................................
Chase Securities Inc........................................
ING Barings Limited as agent for ING Bank N.V. .............
Lazard Capital Markets......................................
---------
Total....................................................... 2,500,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
47
<PAGE>
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the 2,500,000 shares offered by
this prospectus are being sold. We will be obligated, pursuant to the
over-allotment option, to sell shares to the underwriters to the extent the
over-allotment option is exercised. The underwriters may exercise the
over-allotment option only to cover over-allotments made in connection with the
sale of the shares of common stock offered in this offering.
The following table summarizes the compensation we are to paid to the
underwriters:
<TABLE>
<CAPTION>
TOTAL
--------------------------------------
WITHOUT OVER- WITH OVER-
PER ALLOTMENT ALLOTMENT
SHARE OPTION OPTION
-------- ------------- -----------
<S> <C> <C> <C>
Underwriting discounts and commissions.................... $ $ $
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $500,000.
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters, the selling stockholders and us against various civil liabilities,
including liabilities under the Securities Act and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
LOCK-UP AGREEMENTS
Each of our executive officers and directors has agreed, during the period
of 90 days after the date of this prospectus, subject to specified exceptions,
not to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock or any
options or warrants to purchase any shares of common stock, or any securities
convertible into or exchangeable for shares of common stock, owned as of the
date of this prospectus or thereafter acquired directly by the officer or
director or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of FleetBoston Robertson Stephens
Inc. However, FleetBoston Robertson Stephens Inc. may, in its sole discretion
and at any time or from time to time, release all or any portion of the
securities subject to the lock-up agreements.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to specified exceptions, consent to the disposition of any shares held
by stockholders subject to lock-up agreements prior to the expiration of the
lock-up period or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than the sale of shares in this offering, the
issuance of common stock upon the exercise of outstanding options or warrants
and the issuance of options under our existing stock option and incentive plans,
provided that those options do not vest prior to the expiration of the lock-up
period.
48
<PAGE>
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under the
Securities Act, some persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A 'stabilizing bid' is a bid for or
the purchase of shares of common stock on behalf of the underwriters for the
purpose of fixing or maintaining the price of common stock. A 'syndicate
covering transaction' is the bid for or the purchase of the common stock on
behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A 'penalty bid' is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with this offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
PASSIVE MARKET MAKING
In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M, during the
business day prior to the pricing of the offering, before the commencement of
offers or sales of the common stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price not in excess of
the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
SHARES ACQUIRED BY AFFILIATES OF PACIFIC GROWTH EQUITIES, INC.
Employees and investment funds affiliated with Pacific Growth Equities,
Inc., one of the representatives, acquired an aggregate of 40,000 shares of
common stock in October 1999, at a purchase price of $7.50 per share, for an
aggregate purchase price of approximately $300,000. These purchases were made on
the same terms given to the other purchasers in the private placement. Under the
rules of the National Association of Securities Dealers, Inc., these purchases
of common stock may be deemed to be underwriting compensation in connection with
this offering.
49
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee and the listing fee are estimated):
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 38,425
NASD Fees................................................... $ 15,055
Nasdaq Listing Fees......................................... $ 17,500
Printing and Engraving expenses............................. $150,000
Legal Fees and Expenses..................................... $175,000
Blue Sky Fees and Expenses (including legal fees)........... $ 7,500
Transfer Agent and Registrar's Fees......................... $ 10,000
Accountants' Fees and Expenses.............................. $ 40,000
Miscellaneous Costs......................................... $ 46,520
--------
Total....................................................... $500,000
========
</TABLE>
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by Cubist.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein. The Restated
Certificate of Incorporation and the Amended and Restated By-Laws of Cubist
provide for advancement of expenses and indemnification of officers and
directors of Cubist and certain other persons against liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions to the fullest extent permissible under Delaware law.
The above discussion of Cubist's Restated Certificate of Incorporation and
the Amended and Restated By-Laws and Section 145 of the Delaware General
Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Restated Certificate of Incorporation, Amended and Restated
By-Laws and statute.
Cubist will agree to indemnity the underwriters and their controlling
persons, and the underwriters will agree to indemnify Cubist and its controlling
persons, including directors and executive officers of the Registrant, against
certain liabilities, including liabilities under the Securities Act. Reference
is made to the form of the Underwriting Agreement that will be filed as part of
the Exhibits hereto.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Specimen certificate for shares of Common Stock
(incorporated by reference to Exhibit 3.4 to Cubist's
Registration Statement on Form S-1 Registration
No. 333-6795).
4.2 Rights Agreement dated as of July 21, 1999 between Cubist
and BankBoston, N.A. as Rights Agent (incorporated herein by
reference to Exhibit 99.1 to Cubist's Report on Form 8-K
filed on July 30, 1999 File no. 000-21379).
</TABLE>
II-1
<PAGE>
ITEM 16. EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
4.3 First Amendment, dated as of March 3, 2000, to the Rights
Agreement, dated as of July 21, 1999 between the Company and
Fleet National Bank f/k/a BankBoston, N.A., as Rights Agent
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form 8-A/A filed on
March 9, 2000) (File No. 000-21379)
4.4 Form of Amended Rights Certificate (incorporated herein by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form 8-A/A filed on March 9, 2000) (File No.
000-21379)
5 Opinion of Bingham Dana LLP
23.1 Consent of Bingham Dana LLP (included in Exhibit 5)
23.2 Consent of PricewaterhouseCoopers LLP
*24.1 Power of Attorney (included in signature page to
Registration Statement)
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers, and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by a director, officer, or
controlling person of ours in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
We hereby undertake that, for purposes of determining any liability under
the Securities Act, each filing of our annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
We hereby undertake that:
(1) For the purposes of determining any liability under the Securities
Act the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant, Cubist Pharmaceuticals, Inc., certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-3
and has duly caused this Pre-Effective Amendment No. 1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on this 3rd day of April, 2000.
<TABLE>
<S> <C> <C>
CUBIST PHARMACEUTICALS, INC.
BY: /S/ THOMAS A. SHEA
-------------------------------------------
Thomas A. Shea
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of
------------------------------------------- Directors, Chief Executive April 3, 2000
Scott M. Rocklage Officer and President
/s/ THOMAS A. SHEA
------------------------------------------- Vice President and Chief April 3, 2000
Thomas A. Shea Financial Officer
*
------------------------------------------- Director April 3, 2000
John K. Clarke
*
------------------------------------------- Director April 3, 2000
Barry M. Bloom
*
------------------------------------------- Director April 3, 2000
Trudie Resch
*
------------------------------------------- Director April 3, 2000
Walter Maupay
*
------------------------------------------- Director April 3, 2000
David Martin
*
------------------------------------------- Director April 3, 2000
Paul R. Schimmel
*
------------------------------------------- Director April 3, 2000
John Zabriskie
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ THOMAS A. SHEA
--------------------------------------
Thomas A. Shea
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
4.1 Specimen certificate for shares of Common Stock
(incorporated by reference to Exhibit 3.4 to Cubist's
Registration Statement on Form S-1 Registration
No. 333-6795).
4.2 Rights Agreement dated as of July 21, 1999 between Cubist
and BankBoston, N.A. as Rights Agent (incorporated by
reference to Exhibit 99.1 to Cubist's Report on Form 8-K
filed on July 30, 1999 File no. 000-21379).
4.3 First Amendment, dated as of March 3, 2000, to the Rights
Agreement, dated as of July 21, 1999 between the Company and
Fleet National Bank f/k/a BankBoston, N.A., as Rights Agent
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form 8-A/A filed on
March 9, 2000) (File No. 000-21379)
4.4 Form of Amended Rights Certificate (incorporated herein by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form 8-A/A filed on March 9, 2000) (File No.
000-21379)
5 Opinion of Bingham Dana LLP
23.1 Consent of Bingham Dana LLP (included in Exhibit 5)
23.2 Consent of PricewaterhouseCoopers LLP
*24.1 Power of Attorney (included in signature page to
Registration Statement)
</TABLE>
- ------------------------
* Previously filed
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Exhibit 1.1
UNDERWRITING AGREEMENT
April __, 2000
FLEETBOSTON ROBERTSON STEPHENS INC.
PACIFIC GROWTH EQUITIES, INC.
CHASE SECURITIES INC.
ING BARINGS LLC
LAZARD FRERES & CO. LLC
As Representatives of the several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
INTRODUCTORY. Cubist Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
SCHEDULE A (the "Underwriters") an aggregate of 2,500,000 shares (the "Firm
Shares") of its Common Stock, par value $.001 per share (the "Common Shares").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional 375,000 Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares." FleetBoston Robertson
Stephens Inc. ("Robertson Stephens"), Pacific Growth Equities, Inc., Chase
Securities Inc., ING Barings LLC and Lazard Freres & Co. LLC have agreed to act
as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-32186), which contains a form of prospectus, subject to completion, to be
used in connection with the public offering and sale of the Shares. Each such
prospectus, subject to completion, used in connection with such public offering
is called a "preliminary prospectus." Such registration statement, as amended,
including the financial statements and exhibits thereto, in the form in which it
was declared effective by the Commission under the Securities Act of 1933 and
the rules and regulations promulgated thereunder (collectively, the "Securities
Act"), including all documents incorporated or deemed to be incorporated by
reference therein and any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or 434 under the Securities Act or to the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (collectively, the "Exchange Act"), is called the "Registration
Statement." Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement," and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Shares, is called the "Prospectus." All
references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus,
<PAGE>
the Prospectus, or any amendments or supplements to any of the foregoing shall
include any copy thereof filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR"). All references in this
Agreement to financial statements and schedules and other information that is
"contained," "included" or "stated" in the Registration Statement or the
Prospectus (and all other references of like import) shall be deemed to mean and
include all such financial statements and other information that is or is deemed
to be incorporated by reference in the Registration Statement or the Prospectus,
as the case may be; and all references in this Agreement to amendments or
supplements to the Registration Statement or the Prospectus shall be deemed to
mean and include the filing of any document under the Exchange Act that is or is
deemed to be incorporated by reference in the Registration Statement or the
Prospectus, as the case may be.
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect, and no proceedings for such purpose have been instituted
or are pending or, to the knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective, complied and will comply in all material respects with the Securities
Act and did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading. Each preliminary prospectus, as amended
or supplemented, as of its date, and the Prospectus, as amended or supplemented,
as of its date and at all subsequent times through the thirtieth day of the date
hereof, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement that have not been described or filed as required.
(b) EXCHANGE ACT COMPLIANCE. The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or hereafter
are filed with the
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Commission, complied and will comply in all material respects with the
requirements of the Exchange Act, and, when read together with the other
information in the Prospectus, at the time the Registration Statement and any
amendments thereto become effective and at the First Closing Date and the Second
Closing Date, as the case may be, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(c) EXCHANGE ACT REPORTS FILED. The Company has filed all reports
required to be filed pursuant to the Securities Act and the Exchange Act.
(d) CONDITIONS FOR USE OF FORM S-3. The Company has satisfied the
conditions for the use of Form S-3, as set forth in the general instructions
thereto, with respect to the Registration Statement.
(e) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the Representatives five complete conformed copies of the
Registration Statement (including each consent and certificate of experts filed
as a part thereof), and conformed copies of the Registration Statement (without
exhibits) and copies of preliminary prospectuses and the Prospectus, as amended
or supplemented, in such quantities and at such places as the Representatives
have reasonably requested for each of the Underwriters.
(f) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(g) UNDERWRITING AGREEMENT. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(h) AUTHORIZATION OF THE SHARES. The Shares have been duly authorized
by the Company for issuance and sale pursuant to this Agreement and, when issued
and delivered by the Company pursuant to this Agreement, will be validly issued,
fully paid and nonassessable.
(i) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(j) NO MATERIAL ADVERSE CHANGE. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that reasonably might be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company (any such
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<PAGE>
change or effect, where the context so requires, is called a "Material Adverse
Change" or a "Material Adverse Effect"); (ii) the Company has not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of capital stock or repurchase or redemption by the Company of any
class of capital stock.
(k) INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent certified public accountants as required by the
Securities Act and the Exchange Act.
(l) PREPARATION OF THE FINANCIAL STATEMENTS. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly in all material respects the financial position
of the Company as of and at the dates indicated and the results of its
operations and cash flows for the periods specified. Such financial statements
have been prepared in conformity with generally accepted accounting principles
as applied in the United States applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. No other financial statements and no supporting schedules are required
to be included in the Registration Statement. The financial data set forth in
the Prospectus under the captions "Summary--Summary Financial Data," "Selected
Financial Data" and "Capitalization" fairly present in all material respects the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(m) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles as applied in the United States and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(n) SUBSIDIARIES OF THE COMPANY. The Company has no subsidiaries.
(o) INCORPORATION AND GOOD STANDING OF THE COMPANY. The Company has
been duly organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware with full corporate power and authority
to own its properties and conduct its business as described in the Prospectus.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction that requires such
qualification.
(p) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization," other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus. The Common Shares, including the Shares, conform in all material
respects to
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<PAGE>
the description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal and
state securities laws. None of the outstanding Common Shares were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company other
than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(q) STOCK EXCHANGE LISTING. The Shares are registered pursuant to
Section 12(b) or 12(g) of the Exchange Act and are listed on the Nasdaq National
Market, and the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Shares under the Exchange
Act or delisting the Common Shares from the Nasdaq National Market, nor has the
Company received any notification that the Commission or the National
Association of Securities Dealers, Inc. (the "NASD") is contemplating
terminating such registration or listing.
(r) NO CONSENTS, APPROVALS OR AUTHORIZATIONS REQUIRED. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated herein and in the Prospectus, (ii)
by the NASD and (iii) by the federal and provincial laws of Canada.
(s) NON-CONTRAVENTION OF EXISTING INSTRUMENTS AGREEMENTS. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant to, (i) the
charter or by-laws of the Company, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the Company is
a party or bound or to which its property is subject or (iii) any statute, law,
rule, regulation, judgment, order or decree applicable to the Company of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any of its properties.
(t) NO DEFAULTS OR VIOLATIONS. The Company is not in violation or
default of (i) any provision of its charter or by-laws, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument to
which it is a party or bound or to which its property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or any of its properties, except
any such violation or default that would not, singly or in the aggregate, result
in a Material Adverse Change.
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(u) NO ACTIONS, SUITS OR PROCEEDINGS. No action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or its property is pending or, to the knowledge of the
Company, threatened that reasonably might be expected to (i) have a Material
Adverse Effect on the performance of this Agreement or the consummation of any
of the transactions contemplated hereby or (ii) result in a Material Adverse
Effect.
(v) ALL NECESSARY PERMITS, ETC. The Company possesses such valid and
current certificates, authorizations or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies as are necessary to conduct its
business. The Company has not received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such certificate,
authorization or permit that, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(w) TITLE TO PROPERTIES. The Company has good and marketable title to
all the properties and assets reflected as owned in the financial statements
referred to in Section 1(l) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company. The real
property, improvements, equipment and personal property held under lease by the
Company are held under valid and enforceable leases, with such exceptions as are
not material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by the
Company.
(x) TAX LAW COMPLIANCE. The Company has filed all necessary federal,
state and foreign income and franchise tax returns or has properly requested
extensions thereof and has paid all taxes required to be paid by it and, if due
and payable, any related or similar assessment, fine or penalty levied against
it except as may be being contested in good faith and by appropriate
proceedings. The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(l) above in respect of
all federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company has not been finally determined. The
Company is not aware of any tax deficiency that has been or might be asserted or
threatened against the Company that could result in a Material Adverse Change.
(y) INTELLECTUAL PROPERTY RIGHTS. The Company owns or possesses
adequate rights to use all patents, patent rights or licenses, inventions,
collaborative research agreements, trade secrets, know-how, trademarks, service
marks, trade names and copyrights that are necessary to conduct its businesses
as described in the Registration Statement and Prospectus. The Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights. The Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others by
the Company with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights that,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a Material Adverse Change. The Company does not in the
conduct of its business as now or
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proposed to be conducted as described in the Prospectus infringe or conflict
with any right or patent of any third party, or any discovery, invention,
product or process that is the subject of a patent application filed by any
third party, known to the Company, which infringement or conflict is reasonably
likely to result in a Material Adverse Change.
(z) Y2K. There are no Y2K issues related to the Company that (i) are of
a character required to be described or referred to in the Registration
Statement or the Prospectus by the Securities Act or by the Exchange Act that
have not been accurately described in the Registration Statement or the
Prospectus or (ii) reasonably might be expected to result in any Material
Adverse Change or might materially affect its properties, assets or rights.
(aa) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale of the Shares.
(bb) COMPANY NOT AN "INVESTMENT COMPANY." The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(cc) INSURANCE. The Company is insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for its business, including policies covering real and personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and earthquakes, general liability and directors' and officers'
liability. The Company has no reason to believe that it will not be able (i) to
renew its existing insurance coverage as and when such policies expire or (ii)
to obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. The Company has not been denied any
insurance coverage that it has sought or for which it has applied.
(dd) LABOR MATTERS. To the knowledge of the Company, no labor
disturbance by the employees of the Company exists or is imminent. The Company
is not aware of any existing or imminent labor disturbance by the employees of
any of its principal suppliers or manufacturers that reasonably might be
expected to result in a Material Adverse Change.
(ee) NO PRICE STABILIZATION OR MANIPULATION. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
reasonably might be expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the Shares.
(ff) LOCK-UP AGREEMENTS. Each officer and director of the Company and
each beneficial owner of ten or more percent of the outstanding issued share
capital of the Company has signed an agreement substantially in the form
attached hereto as EXHIBIT A (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the Lock-up Agreements. The Company hereby represents and
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warrants that it will not release any of its officers, directors or other
stockholders from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of Robertson Stephens
(gg) RELATED PARTY TRANSACTIONS. There are no business relationships or
related-party transactions involving the Company or any other person required to
be described in the Prospectus that have not been described as required.
(hh) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company
nor, to the knowledge of the Company, any employee or agent of the Company, has
made any contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of a character
required to be disclosed in the Prospectus.
(ii) ERISA COMPLIANCE. The Company and any "employee benefit plan" (as
defined under the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company or its "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company, any member of any group of
organizations described in Sections 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company or any of its ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company or any of its ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA) that reasonably might be
expected to result in a Material Adverse Change. Neither the Company nor any of
its ERISA Affiliates has incurred or reasonably expects to incur any material
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Section 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained by the
Company or any of its ERISA Affiliates that is intended to be qualified under
Section 401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, that would cause the loss of such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) THE FIRM SHARES. The Company agrees to issue and sell to the
several Underwriters the Firm Shares subject to and upon the terms and
conditions herein set forth. On the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the conditions
herein set forth, the Underwriters agree, severally and not jointly, to purchase
from the Company the respective number of Firm Shares set forth opposite their
names on SCHEDULE A. The purchase price per Firm Share to be paid by the several
Underwriters to the Company shall be $___ per share.
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(b) THE FIRST CLOSING DATE. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 9 A.M. Boston time, at the offices of Bingham Dana LLP (or at
such other place as may be agreed upon between the Representatives and the
Company), (i) on the fourth full business day following the day that this
Agreement is executed and delivered or (ii) at such other time and date not
later that seven full business days following the first day that Shares are
traded as the Representatives and the Company may determine (or at such time and
date to which payment and delivery shall have been postponed pursuant to Section
8 hereof), such time and date of payment and delivery being herein called the
"Closing Date;" PROVIDED, HOWEVER, that if the Company has not made available to
the Representatives copies of the Prospectus within the time provided in
Sections 2(g) and 3(e) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later that two full business days
following delivery of copies of the Prospectus to the Representatives.
(c) THE OPTION SHARES; THE SECOND CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 375,000 Option Shares from the Company at the
purchase price per share to be paid by the Underwriters for the Firm Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Shares.
The option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on SCHEDULE A opposite the name of such Underwriter bears to the total number of
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) PUBLIC OFFERING OF THE SHARES. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed as the Representatives, in their sole
judgment, have determined is advisable and practicable.
(e) PAYMENT FOR THE SHARES. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer of immediately available funds to the order of the Company. It is
understood that the Representatives have been authorized, for their own account
and the accounts of the several Underwriters, to accept delivery of and receipt
for, and make payment of the purchase price for, the Firm Shares and any Option
Shares the Underwriters have agreed to purchase. Robertson Stephens,
individually and not as a Representative, may (but shall not be obligated to)
make payment for any Shares to be purchased by any Underwriter whose funds shall
not have been received by the Representatives by the First Closing Date or the
Second Closing Date, as the case may be,
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for the account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
(f) DELIVERY OF THE SHARES. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters and the Company.
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12 noon,
Boston time, on the second business day following the date the Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) REGISTRATION STATEMENT MATTERS. The Company will (i) use its best
efforts to cause the Registration Statement to become effective or, if the
procedure in Rule 430A of the Securities Act is followed, to prepare and timely
file with the Commission under Rule 424(b) under the Securities Act a Prospectus
in a form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A of the Securities Act and (ii) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the Representatives shall have reasonably objected in writing or
that is not in compliance with the Securities Act. If the Company elects to rely
on Rule 462(b) under the Securities Act, the Company shall file a Rule 462(b)
Registration Statement with the Commission in compliance with Rule 462(b) under
the Securities Act prior to the time confirmations are sent or given, as
specified by Rule 462(b)(2) under the Securities Act, and shall pay the
applicable fees in accordance with Rule 111 under the Securities Act.
(b) SECURITIES ACT COMPLIANCE. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
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(c) BLUE SKY COMPLIANCE. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, PROVIDED the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS. The Company will comply with the Securities Act and the Exchange
Act so as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, any
event shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of the Representatives or counsel for the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission, and furnish at its
own expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto, including any documents
incorporated or deemed incorporated by reference therein, as the Representatives
may request.
(f) INSURANCE. The Company shall (i) have or obtain directors' and
officers' liability insurance in the minimum amount of $10,000,000 that shall
apply to the offering of the Shares contemplated hereby and (ii) cause Robertson
Stephens to be added to such policy so that up to $500,000 of its expenses
pursuant to Section 7(a) shall be paid directly by such insurer.
(g) NOTICE OF SUBSEQUENT EVENTS. If at any time during the ninety-day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release
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or other public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(h) USE OF PROCEEDS. The Company shall apply the net proceeds from the
sale of the Shares in the manner described under the caption "Use of Proceeds"
in the Prospectus.
(i) TRANSFER AGENT. The Company shall maintain, at its expense, a
registrar and transfer agent for the Common Shares.
(j) EARNINGS STATEMENT. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending June 30, 2001 that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period, the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under
the Exchange Act.
(l) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. The Company
will not, without the prior written consent of Robertson Stephens, for a period
of 90 days following the date of the Prospectus, offer, sell or contract to
sell, or otherwise dispose of or enter into any transaction that is designed to,
or could be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; PROVIDED,
HOWEVER, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan or stock purchase plan of the Company in
effect at the date of the Prospectus and described in the Prospectus and the
Company shall enter stop transfer instructions with its transfer agent and
registrar against the transfer of any such Common Shares and (ii) the Company
may issue Common Shares issuable upon the exercise of options and warrants
outstanding at the date of the Prospectus and described in the Prospectus.
(m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of five
years hereafter, the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent
certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
(n) EXCHANGE ACT COMPLIANCE. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
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SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM THE NASD. The Registration Statement shall have become effective
prior to the execution of this Agreement; no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that purpose
shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
counsel for the Underwriters; and the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements of the
offering of the Shares.
(b) CORPORATE PROCEEDINGS. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to counsel for
the Underwriters, and such counsel shall have been furnished with such papers
and information as they may reasonably have requested to enable them to pass
upon the matters referred to in this Section.
(c) NO MATERIAL ADVERSE CHANGE. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company from that set forth in the Registration
Statement or the Prospectus that, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus.
(d) OPINION OF COUNSEL FOR THE COMPANY. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Bingham Dana LLP, counsel for the Company substantially in the form of
EXHIBIT B attached hereto, dated the First Closing Date, or the Second Closing
Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters. Counsel rendering the opinion
contained in EXHIBIT B may rely as to questions of law not involving the laws of
the United States, the Commonwealth of Massachusetts and the General Corporation
Law of the State of Delaware upon opinions of local counsel, and as to questions
of fact upon representations or certificates of officers of the Company, and of
government officials, in which case their opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives, and to counsel for the Underwriters.
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(e) OPINIONS OF PATENT COUNSEL FOR THE COMPANY. You shall have received
on the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of each of Fish & Neave, Hamilton, Brook, Smith & Reynolds, P.C., Wolf,
Greenfield & Sacks, P.C., patent counsel for the Company, each substantially in
the form of EXHIBIT C attached hereto.
(f) OPINION OF REGULATORY COUNSEL FOR THE COMPANY. You shall have
received on the First Closing Date, or the Second Closing Date, as the case may
be, an opinion of Hogan & Hartson L.L.P. to the effect that the statements in
the Prospectus under the captions "Risk Factors-If we do not obtain regulatory
approvals, we will not be able to market daptomycin or any future drug
candidates," "Risk Factors-If we fail to comply with extensive regulations after
any regulatory approval of a drug product or if a regulatory authority withdraws
its approval of a drug product, we may be forced to suspend the sale of the
product" and "Business-Government Regulation," insofar as such statements
purport to summarize applicable provisions of the Federal Food, Drug, and
Cosmetic Act, as amended, and the regulations promulgated thereunder, are
accurate summaries in all material respects of the provisions purported to be
summarized in such sections of the Prospectus.
(g) OPINION OF COUNSEL FOR THE UNDERWRITERS. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Hale and Dorr LLP, substantially in the form of EXHIBIT D hereto. The
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(h) ACCOUNTANTS' COMFORT LETTER. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
PricewaterhouseCoopers LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Securities Act and based upon the procedures described
in such letter delivered to you concurrently with the execution of this
Agreement (herein called the "Original Letter"), but carried out to a date not
more than four business days prior to the First Closing Date or the Second
Closing Date, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the First Closing Date or the Second Closing Date, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter that are necessary to reflect any changes in the
facts described in the Original Letter since the date of the Original Letter, or
to reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or the
Prospectus that, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. The Original
Letter from PricewaterhouseCoopers LLP shall be addressed to the Underwriters in
form and substance satisfactory to the Underwriters, shall represent that they
are independent certified public accountants with respect to the Company within
the meaning of the Securities Act, shall set forth their opinion with respect to
their examination of the balance sheets of the Company as of December 31, 1998
and 1999 and related statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1997, 1998 and 1999, and shall address
other matters agreed upon by PricewaterhouseCoopers LLP and you.
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(i) OFFICERS' CERTIFICATE. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chairman of the Board, Chief Executive Officer and
President and the Vice President and Chief Financial Officer of the Company, to
the effect that, and you shall be reasonably satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on
and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all
the conditions on its part to be performed or
satisfied at or prior to the First Closing Date or
the Second Closing Date, as the case may be.
(ii) To the knowledge of such officer, no stop order
suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that
purpose have been instituted or are pending or
threatened under the Securities Act.
(iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of
such certificate, (A) the Registration Statement and
the Prospectus, and any amendments or supplements
thereto, contained all material information required
to be included therein by the Securities Act and in
all material respects conformed to the requirements
of the Securities Act and (B) the Registration
Statement and the Prospectus, and any amendments or
supplements thereto, did not and do not include any
untrue statement of a material fact or omit to state
a material fact required to be stated therein or
necessary to make the statements therein not
misleading. Since the effective date of the
Registration Statement, there has occurred no event
required to be set forth in an amended or
supplemented Prospectus that has not been so set
forth.
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement
and the Prospectus, there has not been (a) any
Material Adverse Change, (b) any transaction that is
material to the Company, except transactions entered
into in the ordinary course of business, (c) any
material obligation, direct or contingent, incurred
by the Company, except obligations incurred in the
ordinary course of business, (d) any material change
in the capital stock or outstanding indebtedness of
the Company, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of
the Company, or (f) any loss or damage (whether or
not insured) to the property of the Company that has
been sustained or will have been sustained has a
Material Adverse Effect.
(j) LOCK-UP AGREEMENTS FROM CERTAIN STOCKHOLDERS OF THE COMPANY. The
Company shall have obtained and delivered the Lock-up Agreements to you.
(k) STOCK EXCHANGE LISTING. The Shares shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
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(l) COMPLIANCE WITH PROSPECTUS DELIVERY REQUIREMENTS. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(m) ADDITIONAL DOCUMENTS. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred by or on behalf of the Company in connection with the
performance of its obligations hereunder and in connection with the transactions
contemplated hereby, including (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Stock,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Shares to the Underwriters, (iv) all fees and expenses
of the Company's counsel, independent certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, consents and certificates
of experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, reasonable
attorneys' fees and expenses incurred by the Company or the Underwriters in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey," an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares (PROVIDED, HOWEVER, that the reasonable legal fees and expenses of
counsel for the Underwriters that the Company shall be required to pay for
pursuant to this clause (vii) and the foregoing clause (vi) shall not exceed
$10,000 in the aggregate), (viii) the fees and expenses associated with listing
the Shares on the Nasdaq National Market, (ix) all costs and expenses incident
to the travel and accommodation of the Company's employees on the "road show,"
and (x) all other fees, costs and expenses referred to in Item 14 of Part II of
the Registration Statement. Except as provided in this
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Section 5 or Section 6 or 7 hereof, the Underwriters shall pay their own
expenses, including the fees and disbursements of their counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 4, 7 or 9, or if the
sale to the Underwriters of the Shares on the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Shares,
including fees and disbursements of counsel, printing expenses, travel and
accommodation expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or 434 under the Securities
Act, or the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (iii) in whole or in
part upon any inaccuracy in the representations and warranties of the Company
contained herein, (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under law; or (v) any untrue statement or
alleged untrue statement of any material fact contained in any audio or visual
materials provided by the Company or based upon written information furnished by
or on behalf of the Company, including slides, videos, films and tape
recordings, used in connection with the marketing of the Shares, including
statements communicated to securities analysts employed by the Underwriters,
PROVIDED that the Company authorizes in writing the use of any such audio or
visual materials or of such written information or of such statements in
connection with the marketing of the Shares, or (vi) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby, and
that is included as part of or referred to in any loss, claim, damage, liability
or action arising out of or based upon any matter covered by clause (i), (ii),
(iii), (iv) or (v) above, PROVIDED that the Company shall not be liable under
this clause (vi) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
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action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling person
for any and all expenses (including the fees and disbursements of counsel chosen
by Robertson Stephens) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; PROVIDED, HOWEVER, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and PROVIDED, FURTHER, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY AND ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is 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, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
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(c) INFORMATION PROVIDED BY THE UNDERWRITERS. The Company and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act, hereby acknowledge that the only information that the
Underwriters have furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) are the statements set forth in the table in the first
paragraph, the second paragraph and the paragraph entitled "Stabilization" under
the caption "Underwriting" in the Prospectus; and the Underwriters confirm that
such statements are correct.
(d) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability that
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (Robertson Stephens in the case of Section 7(b) and Section
8), representing the indemnified parties who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.
(e) SETTLEMENTS. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the
19
<PAGE>
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) CONTRIBUTION. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by such party on the one hand and the Underwriters on
the other from the offering of the Shares. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of such party on the one hand and
the Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 7(f) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to above in this Section 7(f). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 7(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
20
<PAGE>
(g) TIMING OF ANY PAYMENTS OF INDEMNIFICATION. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than 45 days of
invoice to the indemnifying party.
(h) SURVIVAL. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) ACKNOWLEDGEMENTS OF PARTIES. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Common Shares that such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the numbers of Firm Shares set
forth opposite their respective names on SCHEDULE A bear to the aggregate number
of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares that such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party
(other than each defaulting Underwriter) to any other party except that the
provisions of Section 5, and Section 7 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
21
<PAGE>
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. This Agreement may be
terminated by the Representatives by notice given to the Company if (a) at any
time after the execution and delivery of this Agreement and prior to the First
Closing Date (i) trading or quotation in any of the Company's securities shall
have been suspended or limited by the Commission or by the Nasdaq Stock Market,
or trading in securities generally on either the Nasdaq Stock Market or the New
York Stock Exchange shall have been suspended or limited, or minimum or maximum
prices shall have been generally established on any of such stock exchanges by
the Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Shares in the manner and on the terms contemplated in
the Prospectus or to enforce contracts for the sale of securities; (iv) in the
judgment of the Representatives there shall have occurred any Material Adverse
Change; or (v) the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity of such character as in the judgment of
the Representatives may interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured or (b) in the case of any of the events specified in the preceding
clauses (i) through (v), such event singly or together with any other event,
makes it, in your judgment, impracticable or inadvisable to market the Shares in
the manner and on the terms contemplated in the Prospectus. Any termination
pursuant to this Section 9 shall be without liability on the part of (x) the
Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 5 and 6 hereof, (y) any Underwriter to the Company or any person
controlling the Company or (z) any party hereto to any other party except that
the provisions of Section 7 shall at all times be effective and shall survive
such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or any person controlling the Company, of its officers
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, as the case may be, and will
survive delivery of and payment for the Shares sold hereunder and any
termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
22
<PAGE>
If to the Representatives: FleetBoston Robertson Stephens Inc.
555 California Street
San Francisco, California 94104
Facsimile: 415 676 2696
Attention: General Counsel
If to the Company: Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, Massachusetts 02139
Facsimile: 617.576.0232
Attention: Scott M. Rocklage, President
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Shares
as such from any of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed in such state.
(b) CONSENT TO JURISDICTION. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America or the courts of the Commonwealth of Massachusetts, in
each case located in the City of Boston (collectively, the "Specified Courts"),
and each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive any
objection to the laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum. Each party
not located in the United States
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<PAGE>
irrevocably appoints CT Corporation System, which currently maintains a Boston
office at Boston, Massachusetts, as its agent to receive service of process or
other legal summons for purposes of any such suit, action or proceeding that may
be instituted in any state or federal court in the City of Boston.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
counterparts, each one of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
may not be amended or modified unless in writing by all of the parties hereto,
and no condition herein (express or implied) may be waived unless waived in
writing by each party whom the condition is meant to benefit. The Table of
Contents and the Section headings herein are for the convenience of the parties
only and shall not affect the construction or interpretation of this Agreement.
The word "including" as used herein shall not be construed so as to exclude any
other thing not referred to or described.
[The remainder of this page has been intentionally left blank.]
24
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
CUBIST PHARMACEUTICALS, INC.
By:
--------------------------------------
Chairman of the Board, Chief Executive
Officer and President
The foregoing Underwriting Agreement
is hereby confirmed and accepted by the
Representatives as of the date first above written.
FLEETBOSTON ROBERTSON STEPHENS INC. AND
FLEETBOSTON ROBERTSON STEPHENS INTERNATIONAL LIMITED
PACIFIC GROWTH EQUITIES, INC.
CHASE SECURITIES INC.
ING BARINGS LLC
LAZARD FRERES & CO. LLC
On their behalf and on behalf of each of the several underwriters named in
SCHEDULE A hereto.
By FLEETBOSTON ROBERTSON STEPHENS INC.
By:
-------------------------------
Mitch Whiteford
25
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common Shares
Underwriters To Be Purchased
- ------------ ---------------
<S> <C>
FleetBoston Robertson Stephens Inc. and
FleetBoston Robertson Stephens International Limited....
Pacific Growth Equities, Inc..............................
Chase Securities Inc......................................
ING Barings LLC...........................................
Lazard Freres & Co. LLC and Lazard Capital Markets........
Total............................................ 2,500,000
=========
</TABLE>
S-A:.2
<PAGE>
EXHIBIT A
LOCK-UP AGREEMENT
FLEETBOSTON ROBERTSON STEPHENS INC.
PACIFIC GROWTH EQUITIES, INC.
CHASE SECURITIES INC.
ING BARINGS LLC
LAZARD FRERES & CO. LLC
As Representatives of the several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Shares acquired on the open market, (iv) with respect to sales or purchases of
Common Stock acquired on the open market or (v) with the prior written consent
of FleetBoston Robertson Stephens Inc., for a period commencing on the date
hereof and continuing to a date 180 days after the date of the final prospectus
for the Offering (the "Lock-up Period"). The foregoing restriction has been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction that is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any
A-1:.2
<PAGE>
right (including, without limitation, any put or call option) with respect to
any Securities or with respect to any security (other than a broad-based market
basket or index) that included, relates to or derives any significant part of
its value from Securities. The undersigned also agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent and registrar
against the transfer of shares of Common Stock or Securities held by the
undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
Dated:
---------------------------
------------------------------------
Printed Name of Holder
By:
--------------------------------
Signature
------------------------------------
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an entity)
A-2:.2
<PAGE>
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus.
(3) The Company is duly qualified to do business as a foreign
corporation and is in good standing in the Commonwealth of Massachusetts.
(4) The authorized capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" as of December 31, 1999. The
issued shares of capital stock of the Company outstanding immediately prior to
the issuance of the Shares have been duly and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, were not issued in
violation of or subject to any preemptive right arising under the certificate of
incorporation or Delaware General Corporation Law, co-sale right, right of first
refusal or other similar right, other than as were duly waived.
(5) The Firm Shares or the Option Shares, as the case may be, have been
duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and to such counsel's knowledge will not have been issued in
violation of or subject to any preemptive right, co-sale right, right of first
refusal or other similar right.
(6) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver the Firm Shares or the Option
Shares, as the case may be, to the Underwriters.
(7) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and, assuming due authorization, execution and delivery by you, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnification or contribution hereunder may be
limited by applicable law or public policy and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, marshaling or other laws, rules of law, or regulations affecting the
enforcement generally of creditors' rights and remedies (including such as may
deny giving effect to waivers of debtors' rights).
(8) The Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Securities Act.
B-1:.2
<PAGE>
(9) The Registration Statement and the Prospectus, and each amendment
or supplement thereto (other than the financial statements and financial data
derived therefrom as to which such counsel need express no opinion), as of the
effective date of the Registration Statement, complied as to form in all
material respects with the requirements of the Securities Act.
(10) The form of certificate evidencing the Common Shares and filed as
an exhibit to the Registration Statement complies with Delaware law.
(11) The description in the Registration Statement and the Prospectus
of the charter and by-laws of the Company and of statutes are accurate in all
material respects and fairly present the information required to be presented by
the Securities Act.
(12) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
by-laws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any material bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any Federal or Massachusetts court,
government or governmental agency or body having jurisdiction over the Company,
or over any of its properties or operations.
(13) No consent, approval, authorization or order of or qualification
with any Federal or Massachusetts court, government or governmental agency or
body having jurisdiction over the Company, or over any of its properties or
operations, is necessary in connection with the consummation by the Company of
the transactions herein contemplated, except such as (i) have been obtained
under the Securities Act, (ii) may be required under state or other securities
or Blue Sky laws in connection with the purchase and the distribution of the
Shares by the Underwriters, and (iii) may be required by the NASD.
(14) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character required to
be disclosed in the Registration Statement or the Prospectus by the Securities
Act, other than those described therein.
(15) The Company is not and, after giving effect to the offering and
the sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(16) Each document filed pursuant to the Exchange Act (other than the
financial statements included therein, as to which no opinion need be rendered)
and incorporated or
B-2:.2
<PAGE>
deemed to be incorporated by reference in the Prospectus complied when so filed
as to form in all material respects with the Exchange Act.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, counsel for the Underwriters and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel that leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements and other financial and statistical
information derived therefrom, as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the First Closing Date or the Second Closing Date, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
B-3:.2
<PAGE>
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINIONS OF
PATENT COUNSEL FOR THE COMPANY
(1) The statements in the Registration Statement and the Prospectus
under the captions "Risk Factors--Our success depends on our ability to protect
our proprietary rights" and "Business--Patents and Proprietary Technology,"
insofar as such statements constitute a summary of matters of law, are accurate
in all material respects.
(2) To such counsel's knowledge, except for proceedings of the Patent
and Trademark Office (which, to such counsel's knowledge, do not include any
interference proceedings), (a) there are no legal or governmental proceedings
pending relating to patent rights, trade secrets, trademarks, service marks or
other proprietary information or materials of the Company and (b) no such
proceedings are threatened or contemplated by governmental authorities or
others.
(3) To such counsel's knowledge, there are no material contracts or
other material documents relating to the Company's patents, patent applications,
trade secrets, trademarks, trademark applications, service marks or other
proprietary information or materials, other than those filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus, that are not filed or described therein as required.
(4) To such counsel's knowledge, (a) the Company has not received any
notice of infringement or of conflict with rights or claims of others with
respect to any patents, trade secrets, trademarks, service marks, or other
proprietary information or materials of others that would result in any Material
Adverse Effect and (b) there are no infringements by others of the Company's
patents, trade secrets, trademarks, service marks, or other proprietary
information or materials that in such counsel's judgement could affect
materially the use thereof by the Company, and no claim or claims in any patent
application owned or licensed to the Company would be infringed by the
activities of others if such claim or claims were issued. Except as described in
the Prospectus, such counsel is not aware of any patent applications of others
that, if issued in the form available to us, would be validly issued and
infringed by the activities of the Company, as described in the Prospectus, to
have a material adverse affect on the Company. Such counsel is not aware of any
valid patents of others that are infringed by specific products or processes
referred to in the Prospectus in such a manner as to materially and adversely
affect the Company.
(5) Such counsel has no knowledge of any facts that would preclude the
Company from having valid license rights or clear title to the patents
identified in such opinion. Such counsel has no knowledge that the Company lacks
or will be unable to obtain any rights or licenses to use all patents and other
material intangible property and assets necessary to conduct the business now
conducted or proposed to be conducted by the Company as described in the
Prospectus, except as described in the Prospectus. Such counsel is unaware of
any facts that form a basis for a finding of unenforceability or invalidity of
any of the Company's patents or other material intangible property and assets.
C-1:.2
<PAGE>
(6) Such counsel is not aware of any material fact with respect to the
patent applications of the Company identified in such opinion that would (a)
preclude the issuance of patents with respect to such applications or (b) lead
such counsel to conclude that such patents, when issued, would not be valid and
enforceable in accordance with applicable regulations.
C-2:.2
<PAGE>
EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(1) The Firm Shares or the Option Shares, as the case may be, have been
duly authorized and, upon issuance and delivery and payment therefor in
accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable.
(2) The Registration Statement complied as to form in all material
respects with the requirements of the Securities Act. The Registration Statement
has become effective under the Securities Act and, to such counsel's knowledge,
no stop order proceedings with respect thereto have been instituted or
threatened or are pending under the Securities Act.
(3) This Agreement has been duly authorized, executed and delivered by
the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives pursuant to Sections 4(d) and (e) of this
Agreement, each dated the date of such opinion, and furnished to the
Underwriters in accordance with the provisions of this Agreement. Each of such
opinions appears on its face to be appropriately responsive to the requirements
of this Agreement.
In addition, such counsel shall state that they participated in
conferences with officials and other representatives of the Company, the
Representatives, counsel for the Company and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed,
and although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel that leads them to believe that, at
the time the Registration Statement became effective and at all times subsequent
thereto up to and on the First Closing Date or Second Closing Date, as the case
may be, the Registration Statement and any amendment or supplement thereto
(other than the financial statements and other financial and statistical
information derived therefrom, as to that such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the First Closing Date or the Second Closing Date, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
D-1:.2
<PAGE>
Exhibit 5
BINGHAM DANA LLP
150 Federal Street
Boston, MA 02110
March 31, 2000
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, Massachusetts 02139
Re: Registration Statement on Form S-3 Under the Securities Act
of 1933, as amended
Ladies and Gentlemen:
We have acted as counsel to Cubist Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 2,875,000 shares (the
"Shares") of the Company's Common Stock, $0.001 par value per share, to be
offered by the Company, pursuant to a Registration Statement on Form S-3 (Reg.
No. 333-32186) initially filed by the Company with the Securities and Exchange
Commission on March 10, 2000 (the "Registration Statement").
As such counsel, we have reviewed the corporate proceedings taken by
the Company with respect to the authorization of the issuance of the Shares. We
have also examined and relied upon originals or copies, certified or otherwise
authenticated to our satisfaction, of such corporate records, documents,
agreements or other instruments of the Company. As to all matters of fact
(including factual conclusions and characterizations and descriptions of
purpose, intention or other state of mind) we have entirely relied upon
certificates of officers of the Company, and have assumed, without independent
inquiry, the accuracy of those certificates.
We have assumed the genuineness of all signatures, the conformity to
the originals of all documents reviewed by us as copies, the authenticity and
completeness of all original documents reviewed by us in original or copy form
and the legal competence of each individual executing a document. We have also
assumed that the registration requirements of the Act and all applicable
requirements of state laws regulating the sale of securities will have been duly
satisfied. We have also assumed that the Company has received the specified
purchase price for the Shares.
This opinion is limited solely to the Delaware General Corporation Law,
as applied by courts located in Delaware, the applicable provisions of the
Delaware Constitution and the reported judicial decisions interpreting those
laws.
<PAGE>
-2-
Subject to the foregoing, it is our opinion that the Shares have been
duly authorized and when issued and paid for in accordance with the terms of the
underwriting agreement described in the Registration Statement, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Bingham Dana LLP
Bingham Dana LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion and incorporation by reference in this
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-3 (File
No. 333-32186) to register 2,875,000 shares of common stock of our report dated
February 4, 2000 relating to the financial statements of Cubist Pharmaceuticals,
Inc. (the "Company"), which appears in such Registration Statement and in the
Company's 1999 Annual Report on Form 10-K/A. We also consent to the references
to us under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 2000
