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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 JUNE 30, 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 August 11, 2000, there were 27,133,152 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 June 30, 2000
and December 31, 1999................................................. 3
Condensed Statements of Operations for the three months
ended June 30, 2000 and 1999 and for the six months ended
June 30, 2000 and 1999................................................ 4
Condensed Statements of Cash Flows for the six months ended
June 30, 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................ 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................................. 12
Item 6. Exhibits and Reports on Form 8-K.......................................... 12
SIGNATURE................................................................. 13
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31,
1999
----------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 84,038,089 $11,570,960
Short-term investments............................................ 4,128,233 14,580,515
Accounts receivable .............................................. -- 87,431
Prepaid expenses and other current assets......................... 1,267,378 339,081
----------------- ----------------
Total current assets.............................................. 89,433,700 26,577,987
Property and equipment ................................................ 10,095,257 8,437,830
Less: Accumulated depreciation and amortization.................. (5,663,906) (4,990,943)
----------------- ----------------
Property and equipment, net ...................................... 4,431,351 3,446,887
Long-term investments.................................................. 66,573,484 --
Other assets .......................................................... 934,653 179,287
----------------- ----------------
Total assets............................................. $161,373,188 $30,204,161
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $930,234 $ 1,299,139
Accrued expenses.................................................. 4,235,529 1,303,012
Current portion of long-term debt................................. 435,688 394,939
Current portion of capital lease obligations ..................... 573,648 535,073
----------------- ----------------
Total current liabilities .............................. 6,175,099 3,532,163
Long-term debt, net of current portion................................. 1,064,735 759,782
Long-term capital lease obligation, net of current portion............. 425,793 758,821
----------------- ----------------
Total liabilities........................................ 7,665,627 5,050,766
----------------- ----------------
Commitments
Stockholders' Equity:
Common Stock - $.001 par value; authorized: 50,000,000 shares;
27,111,292 and 20,523,358 shares issued and outstanding as of June
30, 2000 and December 31, 1999, respectively...................... 27,112 20,524
Additional paid-in capital............................................. 221,476,724 77,767,268
Accumulated deficit .................................................. (67,796,275) (52,634,397)
----------------- ----------------
Total stockholders' equity............................... 153,707,561 25,153,395
----------------- ----------------
Total liabilities and stockholders' equity............... $161,373,188 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------- -----------------------------------
2000 1999 2000 1999
---- ---- ---- ----
----------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Sponsored research revenues $608,954 $862,500 $1,433,747 $1,466,875
Operating expenses:
Research and development............. 8,758,115 4,699,640 16,859,057 8,926,372
General and administrative........... 1,643,956 974,658 2,932,260 1,954,361
----------------- ------------------ ----------------- ----------------
Total operating expenses......... 10,402,071 5,674,298 19,791,317 10,880,733
Interest income............................... 2,441,483 239,609 3,341,992 474,195
Interest expense.............................. (71,266) (89,897) (146,300) (160,827)
----------------- ------------------ ----------------- ----------------
Net loss...................................... ($7,422,900) ($4,662,086) ($15,161,878) ($9,100,490)
================= ================== ================= ================
Basic and diluted net loss per common
share......................................... ($0.28) ($0.27) ($0.62) ($0.52)
================= ================== ================= =================
Weighted average number of common shares for
basic and diluted net loss per common
share.................................... 26,524,193 17,548,337 24,628,282 17,362,780
================= ================== ================= =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED
CONDENSED FINANCIAL STATEMENTS.
4
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CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows used for operating activities:
Net loss...................................................... $(15,161,878) $(9,100,490)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............................... 888,820 632,116
Common stock issued for technology milestone................ -- 250,000
Cashless exercise of warrants.............................. -- 17,496
Changes in assets and liabilities:
Accounts receivable.................................... 87,431 (50,018)
Prepaid expenses and other current assets.............. (928,297) (389,301)
Other assets.......................................... (755,366) 16,437
Accounts payable and accrued expenses.................. 2,563,612 1,028,499
----------------- -----------------
Total adjustments.................................... 1,856,200 1,505,229
----------------- -----------------
Net cash used for operating activities........................... (13,305,678) (7,595,261)
Cash flows from (for) investing activities:
Purchase of equipment......................................... (638,396) (250,658)
Leasehold improvements........................................ (1,019,031) (31,448)
Purchase of short-term investments........................... (7,857,440) (754,638)
Maturities of short-term investments.......................... 18,309,722 6,105,904
Purchase of long-term investments............................. (66,573,484) --
----------------- -----------------
Net cash provided by (used for) investing activities............. (57,778,629) 5,069,160
----------------- -----------------
Cash flows from financing activities:
Issuance of common stock, net................................. 143,500,187 4,059,939
Proceeds from notes receivable................................ -- 10,000
Proceeds from debt financing ................................. 578,690 787,500
Repayment of debt............................................. (232,988) (41,066)
Principal payments of capital lease obligations............... (294,453) (330,258)
----------------- -----------------
Net cash provided by financing activities........................ 143,551,436 4,486,115
----------------- -----------------
Net increase in cash and cash equivalents........................ 72,467,129 1,960,014
Cash and cash equivalents, beginning of period................... 11,570,960 6,463,688
----------------- -----------------
Cash and cash equivalents, end of period......................... $84,038,089 $8,423,702
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest........................ $146,300 $160,827
</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 June 30, 2000 and 1999 options to
purchase 2,585,371 and 1,697,209 shares of common stock, respectively, and
warrants for 1,566,588, and 3,071,345 shares of common stock, respectively, were
not included in the computation of diluted net loss per share since their
inclusion would be antidilutive.
C. VENDOR AGREEMENTS
In April 2000, Cubist entered into a development and supply
agreement with Abbott Laboratories (Abbott) pursuant to which Abbott has
agreed to assist Cubist in the development of daptomycin as a parenteral
formulation and to manufacture and sell exclusively to Cubist, daptomycin as
a parenteral formulation. A copy of the agreement is filed as an exhibit to
this Form 10-Q. Under the terms of this agreement, Cubist has agreed to make
certain milestone payments to Abbott for their development efforts and
assistance in obtaining an approved New Drug Application (NDA) for
daptomycin. Cubist has made payments totaling $325,000 to date. Upon approval
by the FDA for the daptomycin NDA, Cubist will purchase minimum annual
quantities of drug product from Abbott over a five year period beginning in
2001.
In June 2000, Cubist entered into a services agreement with
Gist-brocades Holding A.G. (DSM), an affiliated company of DSM Capua pursuant to
which DSM has agreed to provide supervisory and advisory services to Cubist
relating to the equipping of the manufacturing facility at DSM Capua. Cubist has
also entered into a manufacturing and supply agreement with DSM Capua pursuant
to which DSM Capua has agreed to manufacture and supply to Cubist bulk
daptomycin drug substance for commercial purposes. Copies of both agreements are
filed as an exhibit to this Form 10-Q. Under the terms of the manufacturing and
supply agreement, DSM Capua is required to prepare its manufacturing facility in
Italy to manufacture bulk daptomycin drug substance in accordance with Good
Manufacturing Practices standards. Under the terms of the service agreements,
Cubist will make a series of scheduled payments to DSM over a five year period
beginning in 2000 in order to reimburse DSM for certain costs to be incurred by
DSM Capua in connection with the preparation, testing and validation of its
manufacturing facility. In February 2000, Cubist reimbursed $750,000 of these
costs to DSM Capua. In addition, in consideration for the implementation of the
Cubist technology in the facility by DSM Capua, 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. Cubist
has accrued a portion of these estimated milestone payments during this quarter.
Upon completion of the preparation of DSM Capua'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
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D. FINANCINGS
On January 29, 2000, Cubist completed a private placement financing
with investors and raised approximately $55.0 million (less financing costs of
$3,214,500) 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.
On April 3, 2000, Cubist completed a secondary public offering and
raised approximately $82.5 million (less financing costs of $4,957,275) by
issuing 2,500,000 shares of common stock at $33.00 per share. In addition, on
May 3, 2000, the underwriters exercised their option to purchase an
additional 375,000 shares of common stock at $33.00 per share to cover
over-allotments, raising an additional $12.4 million (less 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), 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.
E. SUBSEQUENT EVENT
On August 8, 2000, Cubist and TerraGen Discovery Inc. jointly announced
the signing of a definitive agreement for Cubist to acquire TerraGen, a
privately held company with operations in Vancouver, Canada and Slough, England.
With the acquisition, Cubist will enhance both its antimicrobial drug discovery
platform and product development engine and will obtain TerraGen's proprietary
technologies and expertise in the area of small molecule drug discovery from
natural products.
Under the terms of the agreement, which both boards of directors have
unanimously approved, Cubist will acquire all of TerraGen's outstanding shares
in a stock-for-stock merger that is intended to be accounted for under a
pooling-of-interest treatment. Upon completion of the transaction, Cubist will
issue approximately $29 million worth of stock, or approximately 608,000 shares,
which is 2.1 % of its post-transaction, outstanding primary share count.
Completion of the acquisition is subject to review under the Hart-Scott-Rodino
Antitrust Improvement Act, to a vote of TerraGen's shareholders and to other
customary closing conditions. Cubist has already received agreements for
affirmative votes from 75% of TerraGen shareholders.
7
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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 GOVERNMENTAL 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
8
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addition, we will be required to pay royalties to Eli Lilly on worldwide sales
of Cidecin(TM). 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 Cidecin(TM). The value of the common stock issued was
$250,000 and was recorded as research and development expense.
In April 2000, Cubist entered into a development and supply
agreement with Abbott Laboratories (Abbott) pursuant to which Abbott has
agreed to assist Cubist in the development of daptomycin as a parenteral
formulation and to manufacture and sell exclusively to Cubist, daptomycin as
a parenteral formulation. A copy of the agreement is filed as an exhibit to
this Form 10-Q. Under the terms of this agreement, Cubist has agreed to make
certain milestone payments to Abbott for their development efforts and
assistance in obtaining an approved New Drug Application (NDA) for
daptomycin. Cubist has made payments totaling $325,000 to date. Upon approval
by the FDA for the daptomycin NDA, Cubist will purchase minimum annual
quantities of drug product from Abbott over a five year period beginning in
2001.
In June 2000, Cubist entered into a services agreement with
Gist-brocades Holding A.G. (DSM), an affiliated company of DSM Capua pursuant to
which DSM has agreed to provide supervisory and advisory services to Cubist
relating to the equipping of the manufacturing facility at DSM Capua. Cubist has
also entered into a manufacturing and supply agreement with DSM Capua pursuant
to which DSM Capua has agreed to manufacture and supply to Cubist bulk
daptomycin drug substance for commercial purposes. Copies of both agreements are
filed as an exhibit to this Form 10-Q. Under the terms of the manufacturing and
supply agreement, DSM Capua is required to prepare its manufacturing facility in
Italy to manufacture bulk daptomycin drug substance in accordance with Good
Manufacturing Practices standards. Under the terms of the service agreements,
Cubist will make a series of scheduled payments to DSM over a five year period
beginning in 2000 in order to reimburse DSM for certain costs to be incurred by
DSM Capua in connection with the preparation, testing and validation of its
manufacturing facility. In February 2000, Cubist reimbursed $750,000 of these
costs to DSM Capua. In addition, in consideration for the implementation of the
Cubist technology in the facility by DSM Capua, 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. Cubist
has accrued a portion of these estimated milestone payments during this quarter.
Upon completion of the preparation of DSM Capua'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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Total revenues in the three months ended June 30, 2000 were
$609,000 compared to $863,000 in the three months ended June 30, 1999, a
decrease of $254,000 or 29.4%. The revenue earned in the three months ended June
30, 2000 consisted of $563,000 in research support funding from the Novartis
collaboration and $46,000 in funding from SBIR grants. The revenue earned in the
three months ended June 30, 1999 consisted of $563,000 in research support
funding from the Novartis collaboration, $250,000 in research support funding
from the Bristol-Myers Squibb collaboration and $50,000 in funding from SBIR
grants. The decrease of revenues was due to the termination of the Bristol-Myers
Squibb collaboration in 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended June 30, 2000 were $8,758,000 compared to
$4,700,000 in the three months ended June 30, 1999, an increase of $4,058,000 or
86.3%. The increase was largely due to increased clinical trial and
manufacturing costs related to Cidecin(TM) development and the additional
personnel and purchases required by such development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the three months ended June 30, 2000 were $1,644,000 compared to
$975,000 in the three months ended June 30, 1999, an increase of $669,000 or
68.6%. The increase was largely due to increased costs related to personnel and
increased recruiting expenses.
INTEREST INCOME AND EXPENSE. Interest income in the three months ended
June 30, 2000 was $2,441,000 compared to $240,000 in three months ended June 30,
1999, an increase of $2,201,000 or 917.1%. The increase in interest income was
due primarily to a higher average cash, cash equivalent and investment balances
during the three months ended June 30, 2000 as compared to the three months
ended June 30, 1999. Interest expense in the three months ended June 30, 2000
was $71,000 as compared to $90,000 during the three months ended June 30, 1999
due to decreased capital lease activity.
9
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NET LOSS. The net loss during the three months ended June 30, 2000 was
$7,423,000 compared to $4,662,000 during the three months ended June 30, 1999,
an increase of $2,761,000 or 59.2%. The increase was primarily due to additional
expenses incurred associated with the development of Cidecin(TM).
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Total revenues in the six months ended June 30, 2000 were
$1,434,000 compared to $1,467,000 in the six months ended June 30, 1999, a
decrease of $33,000 or 2.2%. The revenue recognized in the six months ended June
30, 2000 consisted of $1,125,000 in research support payments from the Novartis
collaboration; and $309,000 in SBIR grants. In the six months ended June 30,
1999, revenues consisted of $500,000 in research support payments from the
Bristol-Myers Squibb collaboration, $917,000 from the Novartis collaborations
and $50,000 in SBIR grants. The decrease of revenues was due to the termination
of the Bristol-Myers Squibb collaboration in 1999 offset by funding from SBIR
grants and revenues associated with the Novartis collaboration.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the six months ended June 30, 2000 were $16,859,000 compared to
$8,926,000 in the six months ended June 30, 1999, an increase of $7,933,000 or
88.9%. The increase was largely due to increased costs related to the
development of Cidecin(TM), and the additional personnel and purchases that are
required by such development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses in the six months ended June 30, 2000 were $2,932,000 compared to
$1,954,000 in the six months ended June 30, 1999, an increase of $978,000 or
50.1%. The increase was primarily due to increased costs related to personnel
and increased recruiting expenses.
INTEREST INCOME AND EXPENSE. Interest income in the six months ended
June 30, 2000 was $3,342,000 compared to $474,000 in the six months ended June
30, 1999, an increase of $2,868,000 or 605.1%. The increase in interest income
was due primarily to a higher average cash, cash equivalent and investment
balances during the six months ended June 30, 2000 as compared to the six months
ended June 30, 1999. Interest expense in the six months ended June 30, 2000 was
$146,000 as compared to $161,000 during the six months ended June 30, 1999 due
to decreased capital lease activity.
NET LOSS. The net loss during the six months ended June 30, 2000 was
$15,162,000 compared to $9,100,000, an increase of $6,062,000 or 66.6%. The
increase was primarily due to the additional expenses incurred to support the
development of Cidecin(TM).
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 June 30, 2000 was $154,740,000 compared to
$26,151,000 at December 31, 1999.
Since inception through June 30, 2000, we have invested an aggregate of
$10,095,000 (of which $728,000 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 June 30,
2000 were $999,000. Minimum annual 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 $294,000 in the six months ended on June 30, 2000.
We expect our capital expenditures to be approximately $372,000 for the
remainder of 2000 consisting primarily of laboratory and other equipment
purchases.
On January 29, 2000, Cubist completed a private placement financing
with investors and raised approximately $55.0 million (less financing costs of
$3,214,500) 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.
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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 (9.23% at June 30, 2000).
Borrowings under the facility are collateralized by all capital equipment
purchased with the funds under this term loan. At June 30, 2000, borrowings
outstanding totaled $1,500,423.
On April 3, 2000, Cubist completed a secondary public offering and
raised approximately $82.5 million (less financing costs of $4,957,275) by
issuing 2,500,000 shares of common stock at $33.00 per share. In addition, on
May 3, 2000, the underwriters exercised their option to purchase an
additional 375,000 shares of common stock at $33.00 per share to cover
over-allotments, raising an additional $12.4 million (less 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), 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, 2002. 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 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 and SAB
101B which is effective no later than the quarter ended December 31, 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
non-compensatory 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.
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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 financing costs of
$3,214,500) 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 approximately $82.5 million (less financing costs of $4,957,275) by
issuing 2,500,000 shares of Common Stock at $33.00 per share. In addition, on
May 3, 2000, the underwriters exercised their option to purchase an
additional 375,000 shares of common stock at $33.00 per share 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Manufacturing and Supply Agreement, entered into as of
June 22, 2000, by and between Cubist and DSM Capua S.p.A.
10.2 Services Agreement, entered into as of June 22, 2000, by
and between Cubist and Gist- brocades Holding A.G.
10.3 Development and Supply Agreement dated April 3, 2000,
by and between Cubist and Abbott Laboratories.
27 -- Financial Data Schedule
-------------
(b) Reports on Form 8-K
A report on Form 8-K was filed by Cubist on April 6, 2000,
press release announcing that its public offering of 2,500,000
shares of Common Stock was priced at $33.00 per share.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CUBIST PHARMACEUTICALS, INC.
August 14, 2000 By: /s/ THOMAS A SHEA
--------------------------------
Thomas A. Shea,
Chief Financial Officer
(AUTHORIZED OFFICER AND PRINCIPAL
FINANCE AND ACCOUNTING OFFICER)
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