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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 MARCH 31, 2001

__ 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 15, 2001, there were 27,992,530 shares outstanding of
Cubist's common stock, $0.001 per value per share.

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CUBIST PHARMACEUTICALS, INC.

INDEX

ITEM PAGE
NUMBER NUMBER

PART I Financial Statements

1. Consolidated Unaudited Financial Statements

Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000......................................................... 3

Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2000................................................. 4

Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000....................................................... 5

Notes to the Consolidated Unaudited Financial Statements..................... 6

2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 10

3. Quantitative and Qualitative Disclosures about Market Risk.................... 14

PART II

6. Exhibits and Reports on Form 8-K.............................................. 15

PART I

ITEM 1. Financial Statements

CUBIST PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

MARCH 31, DECEMBER 31,
2001 2000
----------------- ----------------

ASSETS
Current assets:
Cash and cash equivalents................................... $44,199,149 $46,940,277
Short-term investments...................................... 75,872,699 74,607,683
Accounts receivable ........................................ 444,658 363,412
Prepaid expenses and other current assets................... 1,480,166 2,509,766
----------------- ----------------
Total current assets........................................ 121,996,672 124,421,138
Property and equipment, net...................................... 39,281,663 40,142,080
Intangible assets, net........................................... 6,748,250 7,280,062
Long-term investments............................................ 15,292,617 18,234,857
Other assets .................................................... 6,356,162 3,291,713
----------------- ----------------
Total assets....................................... $189,675,364 $193,369,850
================= ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $2,805,709 $4,541,988
Accrued expenses............................................ 11,225,577 7,424,576
Deferred revenue............................................ 5,600,000 --
Current portion of long-term debt........................... 1,682,905 1,692,340
Current portion of capital lease obligations ............... 466,204 615,880
----------------- ----------------
Total current liabilities ........................ 21,780,395 14,274,784
----------------- ----------------
Deferred revenue................................................. 8,500,000 2,500,000
Long-term debt, net of current portion........................... 42,887,327 43,257,329
Long-term capital lease obligation, net of current portion....... 261,704 317,973
----------------- ----------------
Total liabilities.................................. 73,429,426 60,350,086
----------------- ----------------

Commitments and contingencies

Stockholders' equity:

Preferred stock, non-cumulative; convertible, $.001 par value;
authorized 5,000,000 shares; issued and
outstanding 2000 and 2001 no shares......................... -- --
Common stock - $.001 par value; authorized: 50,000,000
shares; 27,949,797 and 27,757,900 shares issued and
outstanding as of March 31, 2001 and
December 31, 2000, respectively............................. 27,950 27,758
Additional paid-in capital.................................... 241,839,178 241,010,543
Accumulated deficit ......................................... (125,784,685) (108,182,032)
Accumulated other comprehensive income........................ 163,495 163,495
----------------- ----------------
Total stockholders' equity......................... 116,245,938 133,019,764
----------------- ----------------

Total liabilities and stockholders' equity...... $189,675,364 $193,369,850
================= ================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
UNAUDITED FINANCIAL STATEMENTS.

CUBIST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED

THREE MONTHS ENDED
MARCH 31,
-------------------------------------------

2001 2000
------------------ --------------------

Revenue $2,379,365 $1,280,703

Operating expenses:
Research and development................. 16,413,576 8,820,012
General and administrative............... 4,509,746 1,788,787
------------------- --------------------
Total operating expenses............. 20,923,322 10,608,799

Interest income................................... 2,378,840 919,396

Interest expense.................................. (1,103,062) (458,535)

Unrealized foreign currency loss.................. (334,474) --
------------------- --------------------

Net loss.......................................... ($17,602,653) ($8,867,235)
=================== ====================

Basic and diluted net loss per common share........ ($0.63) ($0.38)
=================== ====================
Weighted average number of common shares
outstanding for basic and diluted net loss
per common share................................... 27,915,084 23,192,856
=================== ====================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
UNAUDITED FINANCIAL STATEMENTS.

CUBIST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED

THREE MONTHS ENDED
MARCH 31,
----------------------------------------
2001 2000
---- ----

Cash flows used for (from) operating activities:
Net loss...................................................... $(17,602,653) $(8,867,235)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization............................... 1,496,537 760,842
Deemed discount amortization on convertible debentures...... -- 298,723
Unrealized foreign exchange loss, net....................... 334,474
Gain on the sale of investments............................. (52,475) --
Changes in assets and liabilities:
Accounts receivable.................................... 23,985 161,781
Investment tax credits receivable...................... -- 926,699
Prepaid expenses and other current assets.............. 893,120 (1,118,053)
Other assets........................................... (3,130,759) (755,366)
Accounts payable and accrued expenses.................. 2,103,912 1,389,765
Deferred revenue....................................... 11,600,000 --
----------------- -----------------
Total adjustments.................................... 13,268,794 2,004,403
----------------- -----------------
Net cash used for operating activities................ (4,333,859) (6,862,832)
----------------- -----------------

Cash flows for (from) investing activities:
Purchases of property and equipment........................... (126,273) (940,549)
Purchases of investments..................................... (2,802,392) (22,858,044)
Maturities of investments..................................... 4,532,091 8,399,182
----------------- -----------------
Net cash provided by (used for) investing activities... 1,603,426 (15,399,411)
----------------- -----------------

Cash flows for (from) financing activities:
Proceeds from sale of common stock and exercise
of stock options and warrants, net........................... 516,855 54,053,980
Repayments of long term debt.................................. (223,929) (802,635)
Proceeds from long term debt, net ............................ - 2,203,102
Principal payments of capital lease obligations............... (201,985) (193,605)
----------------- -----------------
Net cash provided by financing activities.............. 90,941 55,260,842
----------------- -----------------

Net increase(decrease) in cash and cash equivalents.............. (2,639,492) 32,998,599

Effect of changes in foreign exchange rates on cash balances... (101,636) (33,901)

Cash and cash equivalents, beginning of period................... 46,940,277 12,248,607
----------------- -----------------

Cash and cash equivalents, end of period......................... $ 44,199,149 $ 45,213,305
----------------- -----------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
UNAUDITED FINANCIAL STATEMENTS.

CUBIST PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

A. NATURE OF BUSINESS

Cubist Pharmaceuticals, Inc. is a specialty pharmaceutical company
focused on the research, development and commercialization of novel
antimicrobial drugs to combat serious and life-threatening bacterial and
fungal infections. Cubist has established multiple technology licenses and
collaborations and has established a network of advisors and collaborators.
Cubist is headquartered in Cambridge, Massachusetts.

B. ACCOUNTING POLICIES

BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Cubist and its wholly owned subsidiaries. All significant intercompany
amounts and transactions have been eliminated. 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, 2000 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 April 2, 2001.

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, 2001 and 2000 options
to purchase 3,797,784 and 2,510,661 shares of common stock, respectively,
warrants to purchase 1,578,652, and 2,255,001 shares of common stock,
respectively, and convertible debt and notes payable convertible into 58,282
and 668,969 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. 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 as of March 31, 2001 totaling $450,000 which were
expensed as research and development. If the FDA approves the daptomycin NDA,
Cubist will purchase minimum annual quantities of drug product from Abbott over
a five-year period beginning in 2002.

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. 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 began making a series of
scheduled payments to DSM over a five year period beginning in 2000 in order
to reimburse DSM for certain costs incurred by DSM Capua of approximately
$7.5 million in connection with the preparation, testing and validation of
its manufacturing facility. As of March 31, 2001, Cubist has reimbursed
$1,596,000 of these costs to DSM Capua and accrued an additional $1,930,000.
These costs are being recorded as other assets and will be amortized upon
completion of the facility and commencement of manufacturing daptomycin for
commercial purposes. In addition, in consideration for the implementation of
the Cubist technology in the facility by DSM Capua, Cubist has agreed to make
milestone payments of $1,400,000 to DSM if specific phases of technical
development of the scaled up manufacturing process to be used in this
manufacturing facility are completed within specified periods of time. Cubist
is accruing these estimated milestone payments over the expected duration of
the preparation work and recorded research and development expense of
$320,000 and $82,000 in the three months ended March 31, 2000 and 2001,
respectively. 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.

D. OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive loss consists of foreign currency translation
adjustments and net loss.

Three months ended March 31,
----------------------------
2001 2000
---- ----

Net loss $17,602,653 $8,867,235

Other comprehensive loss:
Foreign currency translation -- 40,018
----------- ----------
Comprehensive loss $17,602,653 $8,907,253
=========== ==========

E. LICENSE AGREEMENT

On January 7, 2001, Cubist and Gilead Sciences, Inc. signed a
licensing agreement for the exclusive rights to commercialize Cubist's
investigational antibacterial drug Cidecin (daptomycin for injection) and an
oral formulation of daptomycin in 16 European countries following regulatory
approval. Gilead has paid Cubist an up-front licensing fee of $10 million for
Cidecin and $3 million for an oral formulation of daptomycin, which were
recorded to deferred revenue and are being recognized over the life of the
development period, of 2 years and 5 years, respectively. Revenue of
$1,400,000 was recognized in the three months ended March 31, 2001. Cubist is
entitled to receive additional cash payments of up to $31 million upon
achievement of certain clinical and regulatory milestones. Gilead will also
pay Cubist a fixed royalty on net sales. Cubist will continue to be
responsible for worldwide clinical development of Cidecin, while Gilead will
be responsible for any regulatory filings in the covered territories.
Gilead's sales force will market the products in Europe.

F. SUBSEQUENT EVENT

On April 10, 2001, Cubist achieved the first milestone in its
collaboration with Gilead Sciences, Inc., following the successful completion
of Study 9901, Cubist's pivotal Phase III trial examining the safety and
efficacy of its investigational antibiotic Cidecin (daptomycin for injection)
in the treatment of complicated skin and soft tissue infection caused by
Gram-positive bacteria. On April 23, 2001, Gilead paid Cubist $1.25 million
for meeting the primary endpoint of the clinical trial.

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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000. 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 had an accumulated deficit of $125.8 million through March 31,
2001. 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, pre-clinical testing and clinical trials and the
development of manufacturing, marketing and sales capabilities.

On October 23, 2000, C&T Acquisition Corporation, a subsidiary of
Cubist, acquired TerraGen Discovery Inc., ("TerraGen") a natural products
discovery company with operations in Vancouver, Canada and Slough, England.
Following the acquisition, the name of TerraGen was changed to Cubist
Pharmaceuticals Inc. TerraGen conducts its Slough, England operations through
a wholly owned subsidiary. With the acquisition, we acquired proprietary
technologies and expertise in the area of small molecule drug discovery from
natural products. Pursuant to the acquisition, we indirectly through C&T
Acquisition Corporation acquired all of the issued and outstanding common and
preferred shares of TerraGen, and assumed all of the outstanding options,
warrants and convertible debentures of TerraGen, by issuing 334,933 shares of
our common stock and causing C&T Acquisition Corporation to issue 178,491
exchangeable shares. The exchangeable shares are exchangeable at any time at
the option of the holder, on a one-for-one basis, subject to certain
adjustments, for shares of our common stock. All exchangeable shares that
remain outstanding will be automatically exchanged for shares of our common
stock on October 23, 2002. The options, warrants and convertible debentures
of TerraGen assumed by us pursuant to the acquisition are exercisable or
convertible for 94,605 shares of our common stock. This acquisition has been
accounted for using the pooling-of-interests method of accounting. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the accompanying Consolidated Financial Statements of Cubist
relating to the three months ended March 31, 2000 have been restated to
include the results and balances of C&T Acquisition Corporation and TerraGen
and its subsidiaries for all periods presented.

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-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 18, 1999, our Canadian subsidiary entered into a
cross-license agreement with Diversa Corporation. Under the terms of the
agreement, we granted a co-exclusive world-wide non-royalty bearing license to
certain patented technology, subject to certain restrictions. The license may
not be sublicensed and Diversa cannot use the macrodroplet screening technology
for the term of the agreement. Under the agreement, Diversa paid an upfront
license fee of $2,500,000 and will pay annual license maintenance fees of
$100,000 beginning in 2000, until the patents expire. We are required to repay
the license fee if we merge or are acquired prior to November 18, 2004 by a
company whose primary business is DNA shuffling.

On December 1, 1999, we entered into a Clinical Services Master
Agreement with Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. pursuant to
which Omnicare has agreed to provide various clinical research services for our
Cidecin clinical trials, including bacteremia; resistant, refractory or
contraindicated; complicated skin and soft tissue; complicated urinary tract;
and community acquired pneumonia. The related costs are being accrued over the
life of the clinical trials.

On January 10, 2000, we entered into a Monitoring Services Agreement
with Clindev (Proprietary) Limited, pursuant to which Clindev has agreed to
provide monitoring services for our Cidecin international complicated skin and
soft tissue trial. Under the terms of this agreement, the specific
responsibilities and obligations to be performed by Clindev include study
management, clinical trial initiation and management and clinical data
management. The related costs are being accrued over the life of the clinical
trial.

On August 1, 2000, we entered into a Contract Research Agreement with
Target Research Associates, Inc. pursuant to which Target has agreed to provide
various clinical research services for our Cidecin Community Acquired Pneumonia
trial. Under the terms of this agreement, the specific responsibilities and
obligations to be performed by Target include study management, clinical trial
initiation and management and clinical data management. The related costs are
being accrued over the life of the clinical trial.

In April 2000, we entered into a development and supply agreement with
Abbott Laboratories pursuant to which Abbott has agreed to assist us in the
development of daptomycin as a parenteral formulation and to manufacture and
sell exclusively to us, daptomycin as a parenteral formulation. Under the terms
of this agreement, we agreed to make certain milestone payments to Abbott for
their development efforts and assistance in obtaining an approved New Drug
Application, or NDA, for daptomycin. We made payments totaling $450,000 as of
March 31, 2001 which were expensed as research and development. If the FDA
approves the daptomycin NDA, we will purchase minimum annual quantities of drug
product from Abbott over a five-year period beginning in 2002.

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. 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 began making 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 of approximately $7.5 million in
connection with the preparation, testing and validation of its manufacturing
facility. As of March 31, 2001, Cubist has reimbursed $1,596,000 of these
costs to DSM Capua and accrued an additional $1,930,000. These costs are
being recorded as other assets and will begin to be amortized upon completion
of the facility and commencement of manufacturing daptomycin for commercial
purposes. In addition, in consideration for the implementation of the Cubist
technology in the facility by DSM Capua, Cubist has agreed to make milestone
payments of $1,400,000 to DSM if specific phases of the preparation of its
manufacturing facility are completed within specified periods of time. Cubist
is accruing these estimated milestone payments over the expected duration of
the preparation work and recorded research and development expense of
$320,000 and $82,000 in the three months ended March 31, 2000 and 2001,
respectively. 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.

On September 8, 2000, we announced the purchase of a new corporate
headquarters building in Lexington, Massachusetts. The new facility is 88,000
square feet, approximately 35,000 of which is constructed as laboratory space.
We believe this should increase our operating efficiencies to better meet our
corporate goals and objectives and plan to relocate to the facilities in the
third quarter of 2001. To finance the purchase, we issued $39 million of
convertible notes to John Hancock Life Insurance Company. This financing covers
the building purchase price of approximately $34 million and includes $5 million
for facility improvements. The five-year notes carry a coupon rate of 8.5% and
can be converted at any time at the option of the holder into our common stock
at $63.8625 per share. We retain the right to redeem these notes after three
years at 103% of its principal amount outstanding.

On January 6, 2001, Cubist and Gilead Sciences, Inc. signed a
licensing agreement for the exclusive rights to commercialize Cubist's
investigational antibacterial drug Cidecin (daptomycin for injection) and an
oral formulation of daptomycin in 16 European countries following regulatory
approval. Gilead has paid Cubist an up-front licensing fee of $10 million for
Cidecin and $3 million for an oral formulation of daptomycin, which were
recorded to deferred revenue and are being recognized over the life of the
development period, of 2 years and 5 years, respectively. Revenue of
$1,400,000 was recognized in the three months ended March 31, 2001. Cubist is
entitled to receive additional cash payments of up to $31 million upon
achievement of certain clinical and regulatory milestones. Gilead will also
pay Cubist a fixed royalty on net sales. Cubist will continue to be
responsible for worldwide clinical development of Cidecin, while Gilead will
be responsible for any regulatory filings in the covered territories.
Gilead's sales force will market the products in Europe.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 AND 2000

REVENUES. Total revenues in the three months ended March 31, 2001 were
$2,380,000 compared to $1,281,000 in the three months ended March 31, 2000, an
increase of $1,099,000 or 85.8%. The revenue earned in the three months ended
March 31, 2001 consisted of $1,400,000 in license fee revenue from Gilead;
$886,000 in research support funding from the Novartis and other collaborations;
and $94,000 in funding from SBIR grants. The revenue earned in the three months
ended March 31, 2000 consisted of $962,000 in research support funding from the
Novartis and other collaborations; and $319,000 in funding from SBIR grants.

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended March 31, 2001 were $16,414,000 compared
to $8,820,000 in the three months ended March 31, 2000, an increase of
$7,594,000 or 61%. The increase was largely due to increased clinical trial
and clinical material 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, 2001 were $4,510,000 compared to
$1,789,000 in the three months ended March 31, 2000, an increase of
$2,721,000 or 152.1.%. The increase was largely due to increased personnel
costs and recruiting expenses and increased costs associated with our
marketing program.

INTEREST INCOME AND EXPENSE. Interest income in the three months ended
March 31, 2001 was $2,379,000 compared to $902,000 in three months ended March
31, 2000, an increase of $1,459,000 or 158.6%. 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, 2001 as compared to the three
months ended March 31, 2000. Interest expense in the three months ended March
31, 2001 was $1,103,000 as compared to $459,000 during the three months ended
March 31, 2000 due to increased long-term debt.

NET LOSS. The net loss during the three months ended March 31, 2001 was
$17,603,000 compared to $8,867,000 during the three months ended March 31, 2000,
an increase of $8,736,000 or 98.5%. The increase was primarily due to additional
expenses incurred associated with the development of Cidecin.

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
equivalents and investments balance at March 31, 2001 was $135,364,000 compared
to $139,783,000 at December 31, 2000.

Since inception through March 31, 2001, we have invested an aggregate
of $47,738,000 (of which $632,000 was invested during the three months then
ended) in property and equipment, primarily in building, leasehold improvements
and laboratory equipment under capital leases. The obligations under capital
leases at March 31, 2001 were $728,000. Minimum annual payments due under
capital leases total $302,000 in 2001. Principal payments are scheduled to
decline each year thereafter until expiration in 2002. We made principal
payments under our capital lease obligations of $202,000 in the three months
ended on March 31, 2001. We expect our capital expenditures to be approximately
$12,400,000 for the remainder of 2001 consisting of leasehold improvements,
laboratory equipment and information technology purchases.

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 March 31,
2001). Borrowings under the facility are collateralized by all capital equipment
purchased with the funds under this term loan. At March 31, 2001, borrowings
outstanding totaled $2,534,715.

On November 16, 1999, our Canadian subsidiary issued $1.6 million
Cdn of convertible debentures and warrants to purchase 16,458 shares of
common stock. The convertible debentures bore interest at a rate of 12% and
were payable on March 31, 2000. On March 31, 2000, the convertible debentures
and related interest were converted to 30,176 shares of common stock.

On January 17, 2000, our Canadian subsidiary issued a note payable
totaling $2,006,667 and warrants to purchase 22,790 shares of common stock. The
note payable bears interest at 14.4% and is repayable over 36 months to January
17, 2003. The warrants were exercised in 2000 resulting in gross proceeds of
$599,000. At March 31, 2001, the note payable balance was $827,552.

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.

On April 3, 2000, we 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).

We believe that our existing cash resources, existing capital
resources, projected 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 the next 12 months.
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.

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 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 -- Marketing, Distribution and Development Agreement
by and between Cubist and Gilead Sciences, Inc.
dated as of January 6, 2001
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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.

May 15, 2001 By: /s/ THOMAS A SHEA
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Thomas A. Shea,
Chief Financial Officer
(AUTHORIZED OFFICER AND PRINCIPAL
FINANCE AND ACCOUNTING OFFICER)