<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE PERIOD ENDED MARCH 31, 2000
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 COMMISSION FILE NUMBER 0-21379
CUBIST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3192085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 EMILY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices)
(617) 576-1999
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of May 11, 2000, there were 26,653,970 shares outstanding of
Cubist's common stock, $0.001 per value per share.
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CUBIST PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of March 31, 2000
and December 31, 1999............................................................... 3
Condensed Statements of Operations for the three months ended
March 31, 2000 and 1999.......................................................... 4
Condensed Statements of Cash Flows for the three months ended
March 31, 2000 and 1999............................................................. 5
Notes to the Unaudited Condensed Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................................ 12
SIGNATURE............................................................................... 13
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................................... $ 42,428,639 $ 11,570,960
Short-term investments ............................................. 14,038,773 14,580,515
Accounts receivable
87,431 87,431
Prepaid expenses and other current assets .......................... 1,385,826 339,081
------------- ------------
Total current assets ............................................... 57,940,669 26,577,987
Property and equipment .................................................. 9,367,438 8,437,830
Less: Accumulated depreciation and amortization ................... (5,330,955) (4,990,943)
------------- ------------
Property and equipment, net ........................................ 4,036,483 3,446,887
Long-term investments ................................................... 15,000,604 --
Other assets ............................................................ 934,653 179,287
------------- ------------
Total assets .............................................. $ 77,912,409 $ 30,204,161
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................... $ 1,605,247 $ 1,299,139
Accrued expenses ................................................... 2,487,768 1,303,012
Current portion of long-term debt .................................. 379,796 394,939
Current portion of capital lease obligations ....................... 557,057 535,073
------------- ------------
Total current liabilities ................................. 5,029,868 3,532,163
Long-term debt, net of current portion .................................. 818,546 759,782
Long-term capital lease obligation, net of current portion .............. 594,855 758,821
------------- ------------
Total liabilities ......................................... 6,443,269 5,050,766
------------- ------------
Commitments
Stockholders' Equity:
Common Stock - $.001 par value; authorized: 25,000,000 shares;
23,543,385 and 20,523,358 shares issued and outstanding as of March
31, 2000 and December 31, 1999, respectively ....................... 23,543 20,524
Additional paid-in capital .............................................. 131,818,229 77,767,268
Accumulated deficit ..................................................... (60,372,632) (52,634,397)
------------- ------------
Total stockholders' equity ................................ 71,469,140 25,153,395
------------- ------------
Total liabilities and stockholders' equity ................ $ 77,912,409 $ 30,204,161
============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE UNAUDITED CONDENSED FINANCIAL STATEMENTS.
3
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CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Sponsored research revenues ...................... $ 824,794 $ 604,375
Operating expenses:
Research and development ...................... 8,100,394 4,226,732
General and administrative .................... 1,288,110 979,703
------------ ------------
Total operating expenses .................... 9,388,504 5,206,435
Interest income .................................. 900,509 234,587
Interest expense ................................. (75,034) (70,930)
------------ ------------
Net loss ......................................... $ (7,738,235) ($ 4,438,403)
============ ============
Basic and diluted net loss per common share ...... $ (0.34) $ (0.26)
============ ============
Weighted average number of common shares for basic
and diluted net loss per common share ......... 22,732,372 17,175,161
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE UNAUDITED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows used for operating activities:
Net loss ........................................ $ (7,738,235) $(4,438,403)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................. 340,012 314,183
Common stock issued for technology milestone .. -- 250,000
Changes in assets and liabilities:
Accounts receivable ...................... -- (354,375)
Prepaid expenses and other current assets (1,046,745) (59,525)
Other assets ............................ (755,366) 15,488
Accounts payable and accrued expenses .... 1,490,864 638,264
------------ -----------
Total adjustments ...................... 28,765 804,035
------------ -----------
Net cash used for operating activities ............. (7,709,470) (3,634,368)
Cash flows from (for) investing activities:
Purchase of equipment ........................... (353,499) (85,115)
Leasehold improvements .......................... (576,109) (28,255)
Purchase of short-term investments .............. (7,857,440) (251,438)
Maturities of short-term investments ............ 8,399,182 2,553,974
Purchase of long-term investments ............... (15,000,604) --
------------ -----------
Net cash provided by (used for) investing activities (15,388,470) 2,189,166
------------ -----------
Cash flows for (from) financing activities:
Issuance of stock, net .......................... 54,053,980 3,933,600
Proceeds from notes receivable .................. -- 10,000
Proceeds from debt financing .................... 167,686 --
Repayment of debt ............................... (124,065) (20,192)
Proceeds from capital lease financing ........... -- --
Principal payments of capital lease obligations . (141,982) (165,091)
------------ -----------
Net cash provided by financing activities .......... 53,955,619 3,758,317
------------ -----------
Net increase in cash and cash equivalents .......... 30,857,679 2,313,115
Cash and cash equivalents, beginning of period ..... 11,570,960 6,463,688
============ ===========
Cash and cash equivalents, end of period ........... $ 42,428,639 $ 8,776,803
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest .......... $ 75,034 $ 70,930
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE UNAUDITED CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS
Cubist Pharmaceuticals, Inc. is a specialty 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.
B. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are necessary, in
the opinion of management, for a fair presentation of the results of the interim
periods presented. Interim results are not necessarily indicative of results for
a full year. These unaudited condensed financial statements do not include all
information and footnote disclosures required by generally accepted accounting
principles and therefore should be read in conjunction with Cubist's audited
financial statements and related footnotes for the year ended December 31, 1999
which are included in Cubist's Annual Report on Form 10-K. Such Annual Report on
Form 10-K was filed with the Securities and Exchange Commission on March 10,
2000 and further amended on Form 10-K/A on March 21 and April 3, 2000.
NET LOSS PER COMMON 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. At March 31, 2000 and 1999 options to
purchase 2,491,512 (702,445 shares of which are subject to shareholder approval
at the next annual meeting of shareholders on May 16, 2000), and 1,790,571
shares of common stock, respectively, and warrants for 2,214,841, and 3,119,402
shares of common stock, respectively, were not included in the computation of
diluted net loss per share since their inclusion would be antidilutive.
C. MANUFACTURING AGREEMENT
In January 2000, 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, a copy
of which is filed as an exhibit to this Form 10-Q. 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 February 2000, we reimbursed $750,000 of these costs to DSM. 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. We have accrued $320,000 of these
estimated milestone payments during this quarter. 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.
6
<PAGE>
D. EQUITY FINANCING
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 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 Cidecin(TM)
(daptomycin for injection), its lipopeptide drug discovery program and the
development of its proprietary genomic target validation and assay development
VITA functional genomics technology.
E. SUBSEQUENT EVENT
On April 3, 2000, Cubist completed a secondary public offering and
raised aproximately $82.5 million (less estimated financing costs of $5,037,500)
by issuing 2,500,000 shares of Common Stock at a price of $33.00. In addition,
on May 3, 2000, the underwriters exercised their option to purchase an
additional 375,000 shares of common stock at a price of $33.00 to cover
over-allotments, raising an additional $12.4 million (less estimated financing
costs of $680,625). Cubist intends to use the net proceeds of this offering to
fund its clinical trials and commercialization of Cidecin, its lipopeptide drug
discovery program, the continued development of its proprietary genomic target
validation and assay development VITA(TM) functional genomics and
ChemInformaticS technologies and for general corporate and working capital
purposes.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY
REPORT ON FORM 10-Q MAY CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, BUT NOT LIMITED TO, (i) THE COMPANY'S ABILITY
TO SUCCESSFULLY COMPLETE PRODUCT RESEARCH AND DEVELOPMENT, INCLUDING
PRE-CLINICAL AND CLINICAL STUDIES AND COMMERCIALIZATION, (ii) THE COMPANY'S
ABILITY TO OBTAIN REQUIRED GOVERNMANTAL APPROVALS, (iii) THE COMPANY'S ABILITY
TO ATTRACT AND/OR MAINTAIN MANUFACTURING, SALES, DISTRIBUTION AND MARKETING
PARTNERS,(iv) THE COMPANY'S ABILITY TO DEVELOP AND COMMERCIALIZE ITS PRODUCTS
BEFORE ITS COMPETITORS, AND (v) CERTAIN STATEMENTS IDENTIFIED OR QUALIFIED BY
WORDS SUCH AS "LIKELY", "WILL", "SUGGESTS", "MAY", "WOULD", "COULD", "SHOULD",
"EXPECTS", "ANTICIPATES", "ESTIMATES", "PLANS", "PROJECTS", "BELIEVES", OR
SIMILAR EXPRESSIONS (AND VARIANTS OF SUCH WORDS OR EXPRESSIONS). YOU ARE
CAUTIONED THAT FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN. ACTUAL
PERFORMANCE AND RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THOSE PROJECTED
OR SUGGESTED IN THE FORWARD-LOOKING STATEMENTS DUE TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THE RISKS AND UNCERTAINTIES
DESCRIBED OR DISCUSSED IN THE SECTION "RISK FACTORS" IN CUBIST'S ANNUAL REPORT
ON FORM 10-K/A FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999. THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN REPRESENT CUBIST'S JUDGMENT AS OF THE DATE OF THIS
QUARTERLY REPORT ON FORM 10-Q, AND CUBIST CAUTIONS READERS NOT TO PLACE UNDUE
RELIANCE ON SUCH STATEMENTS.
OVERVIEW
Since 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. 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(TM) 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-Meyers 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 Cidecin(TM) (daptomycin for injection). 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 Cidecin. On February 19, 1999, we
8
<PAGE>
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 Cidecin. The
value of the common stock issued was $250,000 and was recorded as research and
development expense.
In January 2000, 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 February 2000, we reimbursed $750,000 of these costs to DSM. 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. We have accrued $320,000 of these
estimated milestone payments during this quarter. 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
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Total revenues in the three months ended March 31, 2000 were
$825,000 compared to $604,000 in the three months ended March 31, 1999, an
increase of $221,000 or 36.6%. The revenue earned in the three months ended
March 31, 2000 consisted of $506,000 in research support funding from the
Novartis collaboration and $319,000 in funding from SBIR grants. The revenue
earned in the three months ended March 31, 1999 consisted of $354,000 in
research support funding from the Novartis collaboration and $250,000 in
research support funding from the Bristol-Myers Squibb collaboration. The
increase was due to revenues associated with the Novartis collaboration and
funding from SBIR grants offset by research support funding received in 1999
from the Bristol-Myers Squibb collaboration.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended March 31, 2000 were $8,100,000 compared to
$4,227,000 in the three months ended March 31, 1999, an increase of $3,873,000
or 91.6%. The increase was largely due to increased clinical trial and
manufacturing costs related to Cidecin development and the additional personnel
and purchases required by such development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the three months ended March 31, 2000 were $1,288,000 compared to
$980,000 in the three months ended March 31, 1999, an increase of $308,000 or
31.4%. The increase was largely due to increased costs related to personnel and
increased legal and recruiting expenses.
INTEREST INCOME AND EXPENSE. Interest income in the three months ended
March 31, 2000 was $901,000 compared to $235,000 in three months ended March 31,
1999, an increase of $666,000 or 283.4%. The increase in interest income was due
primarily to a higher average cash, cash equivalent and investment balances
during the three months ended March 31, 2000 as compared to the three months
ended March 31, 1999. Interest expense in the three months ended March 31, 2000
was $75,000 as compared to $71,000 during the three months ended March 31, 1999.
NET LOSS. The net loss during the three months ended March 31, 2000 was
$7,738,000 compared to $4,438,000 during the three months ended March 31, 1999,
an increase of $3,300,000 or 74.4%. The increase was primarily due to additional
expenses incurred associated with the development of Cidecin.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Cubist has financed its operations through the sale of
equity securities, equipment financing, sponsored research revenues, license
revenues and interest earned on invested capital. The total cash, cash
equivalent and investments balance at March 31, 2000 was $71,468,000 compared to
$26,151,000 at December 31, 1999.
Since inception through March 31, 2000, we have invested an aggregate
of $9,367,000 (of which $930,000 was invested during the three months then
ended) in property and equipment, primarily in leasehold improvements and
laboratory equipment under capital leases. The obligations under capital leases
at March 31, 2000 were $1,152,000. Minimum annual principal payments due under
capital leases total $686,000 in 2000. Principal payments are scheduled to
decline each year thereafter until expiration in 2002. We made principal
payments under our capital lease obligations of $165,000 in the three months
ended on March 31, 2000. We expect our capital expenditures to be approximately
$1,100,000 for the remainder of 2000 consisting primarily of facility expansion
and laboratory and other equipment purchases.
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 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.
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. In March 2000, we increased the term loan by an additional $2,000,000
to finance leasehold improvements and 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 (8.25% at March 31,
2000). Borrowings under the facility are collateralized by all capital equipment
purchased with the funds under this term loan. At March 31, 2000, borrowings
outstanding totaled $1,198,342.
On April 3, 2000, Cubist completed a secondary public offering and
raised aproximately $82.5 million (less estimated financing costs of $5,037,500)
by issuing 2,500,000 shares of Common Stock at a price of $33.00. In addition,
on May 3, 2000, the underwriters exercised their option to purchase an
additional 375,000 shares of common stock at a price of $33.00 to cover
over-allotments, raising an additional $12.4 million (less estimated financing
costs of $680,625). Cubist intends to use the net proceeds of this offering to
fund its clinical trials and commercialization of Cidecin(TM) (daptomycin for
injection), its lipopeptide drug discovery program, the continued development of
its proprietary genomic target validation and assay development VITA(TM)
functional genomics and ChemInformatics technologies and for general corporate
and working capital purposes.
We believe that the additional funds from the sale of shares in the
recent public 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.
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
10
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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 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.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
ITEM 3. 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.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 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.
On April 3, 2000, Cubist completed a secondary public offering and
raised aproximately $82.5 million (less estimated financing costs of $5,037,500)
by issuing 2,500,000 shares of Common Stock at a price of $33.00. In addition,
on May 3, 2000, the underwriters exercised their option to purchase an
additional 375,000 shares of common stock at a price of $33.00 to cover
over-allotments, raising an additional $12.4 million (less estimated financing
costs of $680,625). Cubist intends to use the net proceeds of this offering to
fund its clinical trials and commercialization of Cidecin(TM) (daptomycin for
injection), its lipopeptide drug discovery program, thE continued development of
its proprietary genomic target validation and assay development VITA(TM)
functionaL genomics and ChemInformatics technologies and for general corporate
and working capital purposes.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Memorandum of Understanding dated January 26, 2000
between Cubist and DSM Fine Chemicals Netherlands B.V.
27 -- Financial Data Schedule
-------------
(b) Reports on Form 8-K
A Report on Form 8-K was filed by Cubist on March 7, 2000,
announcing the presentation of Phase II Daptomycin Data at the
4th Decennial International Conference on Nosocomial and
Healthcare-Associated Infections.
A Report on Form 8-K was filed by Cubist on March 9, 2000,
describing an amendment to Cubist's Rights Agreement.
A Report on Form 8-K was filed by Cubist on March 9, 2000,
announcing the appointment of Scott M. Rocklage, Ph.D.,
President and Chief Executive of the Registrant, to the
position of Chairman of the Board of Directors.
A Report on Form 8-K was filed by Cubist on March 14, 2000,
announcing the filing of a Registration Statement with the
Securities and Exchange Commission in connection with its
proposed public offering of 2,500,000 shares of Common Stock.
12
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CUBIST PHARMACEUTICALS, INC.
May 12, 2000 By: /s/ Thomas A. Shea
---------------------------------------
Thomas A. Shea,
Chief Financial Officer
(AUTHORIZED OFFICER AND PRINCIPAL
FINANCE AND ACCOUNTING OFFICER)
13
<PAGE>
CONFIDENTIAL TREATMENT
Exhibit 10.1
MEMORANDUM OF UNDERSTANDING
between
DSM Fine Chemicals Netherlands B.V.
Noorderpoort 9, 5900 AB Venlo, The Netherlands
(hereinafter referred to as "DSM")
and
Cubist Pharmaceuticals, Inc..
24 Emily Street, Cambridge, MA 02139, USA
(hereinafter referred to as "CUBIST")
CUBIST has a project to introduce a new pharmaceutical, which will consume
DAPTOMYCIN, a lipopeptide antibiotic bulk drug substance.
CUBIST is interested in engaging DSM as a supplier of Daptomycin and DSM is
interested in manufacturing and supplying Daptomycin to CUBIST in accordance
with the principles set forth in this MOU.
This memorandum represents the joint understanding of both companies regarding
the future supply of DAPTOMYCIN.
DSM is the signatory to this Memorandum on behalf of all DSM affiliate companies
which are involved in the development and production of DAPTOMYCIN.
1. INVESTMENTS
DSM agrees to carry out the investments described in Annex 1 to this MOU at its
Capua site which are required to construct a bulk drug facility for the
production of DAPTOMYCIN in accordance with cGMP standards. DSM further agrees
to test and validate this bulk drug facility in accordance with cGMP standards.
<PAGE>
Construction, testing and validation of such facility shall be finalized within
12 months from the execution of this MOU.
2. COST REIMBURSEMENT
CUBIST agrees to reimburse DSM [ ]* which will be incurred by DSM in connection
with the carrying out of the above described investments, testing and validation
up to an aggregate maximum amount of [ ]*. A preliminary cost estimation as well
as the payment schedule are attached to this MOU as Annex 2. The parties agree
that the above limit of [ ]* is based on the investments described in Annex 1.
In the event CUBIST should demand modifications of said investments and/or
additional investments which lead to increased costs to DSM, CUBIST will fully
reimburse DSM also for such part of the costs which exceed the above limit of
[ ]*.
3. CONTRACT
A detailed contract regarding the carrying out of the investments (including
cost reimbursement) and regarding the long-term supply of DAPTOMYCIN
(hereinafter called "definitive Supply Agreement") is targeted to be signed by
both companies before [ ]*. The definitive Manufacturing and Supply Agreement
will cover the years up to and including [ ]*, and will include the terms stated
in this MOU plus standard representation and warranties; standard non-disclosure
and publicity clauses; standard covenants and clauses regarding: enabling
licenses; ownership and retention of intellectual property rights; information
exchange; order, delivery and acceptance procedures; quality control; product
recalls; traceability program; maintenance of cost and production records; risk
allocation (indemnity and insurance); failure to perform, termination;
assignment and independent status. After [ ]*, the definitive Manufacturing and
Supply Agreement will have evergreen conditions for periods of one year with one
year's notice for cancellation.
4. MINIMUM VOLUMES
From [ ]* until [ ]* CUBIST will purchase from DSM an aggregate minimum quantity
of [ ]* kgs of DAPTOMYCIN. Notwithstanding the foregoing sentence the minimum
volumes of DAPTOMYCIN to be purchased by CUBIST from DSM per single calendar
year are
[ ]*
* Confidential treatment requested: Material has been omitted and filed with
the Commission.
<PAGE>
Subject to sufficient lead time (Art. 7) DSM agrees to cover an additional
demand of CUBIST for DAPTOMYCIN up to [ ]* kgs per year.
6. PRICING / DELIVERY TERMS.
During the initial term of the definitive Supply Agreement the price for
DAPTOMYCIN shall be [ ]*-- per kg.
If CUBIST's purchases of DAPTOMYCIN from DSM in [ ]* have cumulatively surpassed
a volume of [ ]* kgs and CUBIST's binding orders for DAPTOMYCIN for [ ]* and
[ ]* exceed an aggregate volume of [ ]* kgs, the parties will negotiate in good
faith a reasonable reduction of the per kg price valid in [ ]*.
Delivery dates will be discussed [ ]* in advance.
7. ROLLING FORECAST
[ ]* in advance of every year, on a quarterly basis, volumes of DAPTOMYCIN will
be fixed for the year to come [ ]*. In addition, CUBIST will provide DSM with a
quarterly rolling forecast of DAPTOMYCIN volumes for the subsequent four
quarters.
8. IMPROVEMENTS: INTELLECTUAL PROPERTY RIGHTS
DSM will implement the CUBIST Process (which will be clearly defined in an Annex
of the definitive Manufacturing and Supply Agreement) and will not research or
significantly alter this process. In the event the parties agree to undertake
any research, development or enhancement of the process they shall enter into a
separate agreement concerning such activity. DAPTOMYCIN-specific process
improvements and technology will remain the property of CUBIST, while general
knowhow relating to fermentation and manufacturing knowhow will remain the
property of DSM.
CUBIST shall be responsible and indemnify DSM against all loss, liability,
damage and expense incurred by DSM and DSM affiliate companies which are
involved in the development and production of DAPTOMYCIN arising out of any
infringement of intellectual property rights of third parties in connection with
the manufacture of DAPTOMYCIN in accordance with the CUBIST Process.
* Confidential treatment requested: Material has been omitted and filed with
the Commission.
<PAGE>
9. CONFIDENTIALITY
Terms and conditions similar to those set forth in the Secrecy Agreement between
CUBIST and DSM dated May 11, 1999 shall be agreed in the definitive
Manufacturing and Supply Agreement mutatis mutandis.
10. AFFILIATES
The parties agree that they may have their rights and obligations performed by
their respective affiliates, however, each party shall not be relieved from its
obligations hereunder and shall remain liable for their performance hereunder.
11. GOVERNING LAW. ARBITRATION
This Memorandum of Understanding is (and the subsequent definitive Manufacturing
and Supply Agreement will be) subject to the laws of the United Kingdom
excluding its conflict of law rules. Disputes that cannot be solved amicably
shall be finally settled by arbitration according to the Arbitration Rules of
the London Court of Intentional Arbitration (LCIA) by one or more arbitrators
appointed in accordance with such Rules. Venue of arbitration shall be London,
U.K. and the language of arbitration shall be English.
12. EFFECTIVE DATE
This Memorandum of Understanding shall become effective upon execution by both
parties and approval of the investment by the Board of DSM and shall remain
valid until the signature of the contemplated definitive Supply Agreement.
DEVELOPMENT PROPOSAL
The parties have agreed upon a program for the technology transfer, design,
validation and production of [ ]* NDA qualification batches in a total value of
[ ]*. This program is subject to a separate agreement between the parties and is
not amended or superseded by this MOU.
* Confidential treatment requested: Material has been omitted and filed with
the Commission.
<PAGE>
In connection with this program the parties have agreed upon the following
milestone payments:
<TABLE>
<CAPTION>
PAYMENT MILESTONE TIMING
<S> <C> <C>
[ ]*
- - if the manufacture of the [ ]* consistency batches and the preparation of
NDA documents (milestone 5) are completed after [ ]* but before [ ]*,
CUBIST shall pay to DSM an amount of [ ]*,--.
- - If the manufacture of the [ ]* consistency batches and the preparation of
NDA documents (milestone 5) are completed before [ ]*, CUBIST shall pay to
DSM an additional amount of [ ]*,--.
- - If the manufacture of the [ ]* consistency batches and the preparation of
NDA documents (milestone 5) are completed after [ ]*, DSM shall pay to
CUBIST an amount of [ ]*.
</TABLE>
Dutch State Mines Fine Chemicals Cubist Pharmaceuticals, Inc.
Netherlands B.V.
/s/ Henk Nuwman /s/ Scott M. Rocklage
- ----------------------------------------- ---------------------------------
H. Nuwman Scott M. Rocklage
Business Unit Director President & CEO
Date: 1/26/00 Date: 1/4/00
* Confidential treatment requested: Material has been omitted and filed with
the Commission.
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
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0
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