- --------------------------------------------------------------------------------

                       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, 2002

                                       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.)

                                65 HAYDEN AVENUE
                         LEXINGTON, MASSACHUSETTS 02421
                    (Address of principal executive offices)

                                 (781) 860-8660
              (Registrant's telephone number, including area code)

                     (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 10, 2002 there were 28,513,108 shares outstanding of Cubist's
common stock, $0.001 per value per share.

- --------------------------------------------------------------------------------



                          CUBIST PHARMACEUTICALS, INC.

                                      INDEX






 ITEM                                                                                                           PAGE
NUMBER                                                                                                          NUMBER
- ------                                                                                                          ------

PART I.           FINANCIAL INFORMATION
                                                                                                             

     Item 1.      Consolidated Unaudited Financial Statements

                      Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001..............        3

                      Consolidated Statements of Operations for the three months ended
                      March 31, 2002 and 2001.............................................................        4

                      Consolidated Statements of Cash Flows for the three months ended March 31,
                      2002 and 2001.......................................................................        5

                      Notes to the Consolidated Unaudited 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



                                       2





                          CUBIST PHARMACEUTICALS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                    UNAUDITED




                                                                                MARCH 31,          DECEMBER 31,
                                                                                   2002                2001
                                                                            -----------------   ----------------
                                                                                              
                                  ASSETS
Current assets:
  Cash and cash equivalents.........................................          $  73,767,096        $ 120,322,157
  Short-term investments............................................             96,788,387           68,514,144
  Accounts receivable ..............................................                250,000              100,000
  Prepaid expenses and other current assets.........................              1,419,195            1,402,334
                                                                            ---------------      ---------------
    Total current assets............................................            172,224,678          190,338,635
Property and equipment, net.........................................             48,392,810           48,056,157
Intangible assets, net..............................................              5,249,993            5,632,659
Restricted cash.....................................................              3,250,000            3,250,000
Long-term investments...............................................             51,241,399           54,298,378
Other assets .......................................................             12,751,730           13,258,366
                                                                            ---------------      ---------------
    Total assets....................................................          $ 293,110,610        $ 314,834,195
                                                                            ===============      ===============

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..................................................          $   3,150,034           $7,336,002
  Accrued clinical trial expenses...................................              5,857,011            6,409,682
  Accrued expenses..................................................              3,840,456            7,156,775
  Accrued interest..................................................              5,252,675            2,143,309
  Deferred revenue..................................................              4,350,000            5,600,000
  Current portion of long-term debt.................................              3,275,930            3,206,760
  Current portion of capital lease obligations .....................                106,604              473,725
                                                                            ---------------      ---------------
    Total current liabilities  .....................................             25,832,710           32,326,253
Deferred revenue....................................................              4,150,079            4,300,080
Long-term debt, net of current portion..............................            209,166,511          208,707,284
                                                                            ---------------      ---------------
    Total liabilities...............................................            239,149,300          245,333,617

Stockholders' equity:

    Preferred stock, non-cumulative; convertible, $.001 par value;
     Authorized 5,000,000 shares; no shares issued and outstanding
     2002 and 2001..................................................                     --                   --
   Common stock, $.001 par value; authorized 50,000,000 shares;
     28,495,451 and 28,298,566 shares issued and outstanding as of
     March 31, 2002 and December 31, 2001, respectively.............                 28,495               28,298
   Additional paid-in capital.......................................            251,456,872          247,508,469
   Accumulated deficit  ............................................           (197,524,057)        (178,036,189)
                                                                            ---------------      ---------------
    Total stockholders' equity......................................             53,961,310           69,500,578
                                                                            ---------------      ---------------

      Total liabilities and stockholders' equity....................          $ 293,110,610        $ 314,834,195
                                                                            ===============      ===============



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


                                       3





                          CUBIST PHARMACEUTICALS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                    UNAUDITED






                                                                       THREE MONTHS ENDED
                                                                           MARCH 31,
                                                                 2002                      2001
                                                         ---------------------     ---------------------

                                                                             
Research and development revenue                          $   1,457,852             $   1,493,365
Related party research and development revenue                  861,876                   886,000
                                                         ---------------------     ---------------------
    Total revenue                                             2,319,728                 2,379,365

Operating expenses:
  Research and development                                   12,773,429                16,413,576
  General and administrative                                  7,574,305                 4,509,746
                                                         ---------------------     ---------------------
    Total operating expenses                                 20,347,734                20,923,322

Interest income                                               1,477,302                 2,378,840
Interest expense                                             (3,255,091)               (1,103,062)
Other income (expense)                                          317,927                  (334,474)
                                                         ---------------------     ---------------------

    Net loss                                               ($19,487,868)             ($17,602,653)
                                                         =====================     =====================

Basic and diluted net loss per common share                      ($0.69)                   ($0.63)
                                                         =====================     =====================

Weighted average number of common shares for basic
and diluted net loss per common share                        28,406,410                27,915,084
                                                         =====================     =====================



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

                                       4





                          CUBIST PHARMACEUTICALS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    UNAUDITED




                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                           ----------------------------------------
                                                                                 2002                  2001
                                                                                 ----                  ----
                                                                                             
Cash flows used for operating activities:
   Net loss......................................................            $(19,487,868)         $(17,602,653)
   Adjustments to reconcile net loss to net cash used in
      operating activities:
    Loss on the sale of equipment................................                   4,109                    --
   Depreciation and amortization.................................               1,385,668             1,225,226
    Amortization of debt issuance costs..........................                 241,212                66,310
    Amortization of deferred compensation........................                 163,788               205,001
    Stock based compensation.....................................                 767,086                    --
    Forgiveness of note receivable related to Common Stock.......                 168,750                    --
    Realized foreign exchange (gain) loss, net...................                 (75,761)              334,474
    Changes in assets and liabilities:
       Accounts receivable.......................................                (149,108)               23,985
       Prepaid expenses and other current assets.................                 (21,938)              893,120
        Other assets.............................................                 265,426            (3,130,759)
       Accounts payable and accrued expenses.....................              (2,941,524)            2,103,912
        Deferred revenue.........................................              (1,400,001)           11,600,000
                                                                           -----------------     ------------------
         Total adjustments.......................................              (1,592,293)           13,321,269
                                                                           -----------------     ------------------
        Net cash used for operating activities...................             (21,080,161)           (4,281,384)
                                                                           -----------------     ------------------

Cash flows from investing activities:
   Purchases of property and equipment...........................              (1,465,367)             (126,273)
    Proceeds from the sale of equipment..........................                   3,800                  --
   Purchases of investments......................................             (47,097,924)           (2,802,392)
    Maturities of investments....................................              21,880,660             4,479,616
                                                                           -----------------     ------------------
       Net cash provided by (used for) investing activities......             (26,678,831)            1,550,951
                                                                           -----------------     ------------------

Cash flows from financing activities:
   Issuance of Common Stock and warrants, net....................               1,028,297               516,855
   Repayments of long term debt .................................                (120,803)             (223,929)
   Proceeds from long-term debt..................................                 685,182                  --
   Principal payments of capital lease obligations...............                (367,107)             (201,985)
                                                                           -----------------     ------------------
       Net cash provided by financing activities.................               1,225,569                90,941
                                                                           -----------------     ------------------

Net decrease in cash and cash equivalents........................             (46,533,423)           (2,639,492)

Effect of changes in foreign exchange rates on cash balances.....                 (21,638)             (101,636)

Cash and cash equivalents, beginning of period...................             120,322,157            46,940,277
                                                                           -----------------     ------------------

Cash and cash equivalents, end of period.........................            $ 73,767,096          $ 44,199,149
                                                                           =================     ==================
Supplemental non-cash investing and financing activities:
Issuance of common stock.........................................            $  2,000,000                  --




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


                                       5





                          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
Lexington, Massachusetts.

B. ACCOUNTING POLICIES

   BASIS OF PRESENTATION

     The accompanying consolidated unaudited financial statements include the
accounts of Cubist and its wholly-owned subsidiaries. All significant
intercompany amounts and transactions have been eliminated. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation are reflected in the interim
periods presented. These unaudited consolidated financial statements do not
include all information and footnote disclosures required by accounting
principles generally accepted in the United States and therefore should be read
in conjunction with Cubist's audited financial statements and related footnotes
for the year ended December 31, 2001 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 29, 2002.

   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, 2002 and 2001 options to purchase
4,199,039 and 3,797,784 shares of common stock, respectively, warrants to
purchase 1,478,359, and 1,578,652 shares of common stock, respectively, and
convertible debt and notes payable convertible into 4,106,450 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. RESEARCH AND DEVELOPMENT AGREEMENTS

     In June 2000, Cubist entered into a services agreement with DSM an
affiliated company of DSM Capua pursuant to which DSM agreed to provide
supervisory and advisory services to Cubist relating to the equipping of the
manufacturing facility at DSM Capua. Cubist also entered into a manufacturing
and supply agreement with DSM Capua pursuant to which DSM Capua 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, or GMP, 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 of approximately $8.2 million to be incurred by DSM Capua in connection
with the scale-up and construction of its manufacturing facility. Through
March 31, 2002, Cubist has reimbursed $4,943,000 of these costs to DSM Capua.
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 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
incurred expenses of $82,000 and $82,000 in the three months ended March 31,
2002 and 2001, respectively. Upon completion of the preparation of DSM
Capua's manufacturing facility and a determination by the FDA that the
manufacturing


                                       6





facility complies with GMP standards, Cubist will purchase minimum annual
quantities of bulk daptomycin drug substance from DSM over a five-year period.

     On February 3, 1999, Cubist entered into a research and license
agreement with Novartis to use Cubist's proprietary VITA functional genomics
technology to validate and develop assays for antiinfective targets and to
identify new compounds for development as antiinfective agents. In exchange
for the license, Novartis funded a research program for a period of three
years. If certain scientific and development milestones are achieved,
Novartis will make milestone payments to Cubist. In addition, Novartis will
be required to pay royalties to Cubist on worldwide sales of any drug
developed and commercialized from any products derived from this
collaboration. Cubist recorded revenue of $862,000 and $813,000 in the three
months ended March 31, 2002 and 2001, respectively, for certain research and
development revenues and milestone payments in accordance with the agreement.
Upon the signing of the research and license agreement, Novartis was issued
797,448 shares of common stock for a total purchase price of $4.0 million in
cash. In February 2002, Cubist announced the extension by one year of the
collaborative research agreement with Novartis. Concurrently, Cubist
announced the achievement of and payment for a third milestone in the
collaboration for the delivery of another validated target and
high-throughput screening assay to be used in antiinfective drug discovery,
for $250,000, which was recognized as revenue in the three months ended March
31, 2002.

D. STOCKHOLDERS' EQUITY

   NOTES RECEIVABLE FROM RELATED PARTIES

     In September 1999, Cubist accepted a promissory note from a Senior Vice
President in consideration for 50,000 shares of restricted common stock
issued to him. The aggregate principal amount of this note at December 31,
2001 is $168,750 and is reflected in stockholders' equity as a reduction to
paid-in-capital. This note had an annual interest rate of 4% and was due on
September 25, 2002. The terms of the note provide for the note to be forgiven
in three equal annual installments of $168,750, commencing September 2000
contingent upon the Senior Vice President's continued employment. As part of
the Senior Vice President's termination of employment on March 15, 2002, the
third installment was forgiven. In addition, unvested stock options were
accelerated, and we recognized an associated expense of $598,000 in the three
months ended March 31, 2002.

E. INTANGIBLE ASSETS

     In June 2001, FASB issued SFAS 141, Business Combinations, and SFAS 142,
Goodwill and Other Intangible Assets, collectively referred to as the
"Standards". SFAS 141 supersedes APB No. 16, Business Combination. The
provisions of SFAS 141 (i) require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001, (ii) provide
specific criteria for the initial recognition and measurement of intangible
assets apart from goodwill, and (iii) require that amortized negative goodwill
be written off immediately as an extraordinary gain instead of being deferred
and amortized. SFAS 141 also requires that upon adoption of SFAS 142, a company
reclassify the carrying amounts of certain intangible assets into or out of
goodwill, based on certain criteria. SFAS 142 supersedes APB 17, Intangible
Assets, and is effective for fiscal years beginning after December 15, 2001.
SFAS 142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. The provisions of SFAS 142 (i) prohibit
the amortization of goodwill and indefinite-lived intangible assets, (ii)
require that goodwill and indefinite-lived intangibles assets be tested annually
for impairment (and in interim periods if certain events occur indicating that
the carrying value of goodwill and/or indefinite-lived intangible assets may be
impaired), (iii) require that reporting units be identified for the purpose of
assessing potential future impairments of goodwill, and (iv) remove the
forty-year limitation on the amortization period of intangible assets that have
finite lives.

     SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.


                                       7




However, a company has six months from the date of adoption to complete the
first step. Cubist has not completed that first step of the impairment test for
all intangible assets during the first quarter of 2002, but will complete it by
June 30, 2002. The second step of the impairment test measures the amount of the
impairment loss (measured as of the beginning of the year of adoption), if any,
and must be completed by the end of the Company's second quarter. Any impairment
loss resulting from the transitional impairment tests will be reflected as the
cumulative effect of a change in accounting principle in the second quarter
2002. We have not yet determined what effect these impairment tests will have on
our earnings and financial position.

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, 2001. 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. We have a limited history of
operations and have experienced significant net losses since inception. We had
an accumulated deficit of $197.5 million through March 31, 2002. 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.

     In June 2000, Cubist entered into a services agreement with 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 GMP
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 of approximately $8.2 million to
be incurred by DSM Capua in connection with the scale-up and construction of
its manufacturing facility. Through March 31, 2002, Cubist has reimbursed
$4,943,000 of these costs to DSM Capua. 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 technical development of the scaled
up manufacturing process to be used in this manufacturing facility are
completed within specified periods of time. Cubist incurred expenses of
$82,000 and $82,000 in the three months ended March 31, 2002 and 2001,
respectively. Upon completion of the preparation of DSM Capua's manufacturing
facility and a determination by the FDA that the

                                       8


manufacturing facility complies with GMP standards, Cubist will purchase minimum
annual quantities of bulk daptomycin drug substance from DSM over a five-year
period.

     On January 7, 2001, we and Gilead Sciences, Inc. signed a licensing
agreement for the exclusive rights to commercialize Cidecin and an oral
formulation of daptomycin in 16 European countries following regulatory
approval. Gilead has paid us an up-front licensing fee of $10.0 million for
Cidecin and $3.0 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. Accordingly, revenue of
$1,400,000 was recognized in the three months ended March 31, 2002 and 2001.

     On April 10, 2001, we achieved the first milestone in our collaboration
with Gilead following the successful completion of Study 9901, our pivotal Phase
III trial examining the safety and efficacy of Cidecin in the treatment of
complicated skin and soft tissue, or cSST, caused by Gram-positive bacteria. On
April 23, 2001, Gilead paid us $1.25 million for meeting the primary endpoint of
the clinical trial. This milestone was recognized as revenue in the three months
ended June 30, 2001.

     While we do not currently maintain cost accounting systems to accurately
track costs on an individual project basis, based on an estimated average
full-time equivalent basis, we estimate that in the three months ended
March 31, 2002, we incurred costs in an approximate aggregate amount of
$766,000 in connection with all of our research collaborations which
generated approximately $862,000 of revenue in the aggregate in the three
months ended March 31, 2002; and based on an estimated average full-time
equivalent basis, we estimate that in the three months ended March 31, 2001,
we incurred costs in an approximate aggregate amount of $671,000 in
connection with all of our research collaborations which generated
approximately $813,000 of revenue in the aggregate in the three months ended
March 31, 2001.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2002 AND 2001

     RESEARCH AND DEVELOPMENT REVENUES. Total research and development revenues
in the three months ended March 31, 2002 were $1,458,000 compared to $1,493,000
in the three months ended March 31, 2001, a decrease of $35,000 or 2.3%. The
revenue earned in the three months ended March 31, 2002 consisted of $1,400,000
in license fee revenue from Gilead and $58,000 in funding from SBIR grants. The
research and development revenues earned in the three months ended March 31,
2001 consisted of $1,400,000 in license fee revenue from Gilead and $93,000 in
funding from SBIR grants.

     RELATED PARTY RESEARCH AND DEVELOPMENT REVENUES. Total related party
research and development revenues in the three months ended March 31, 2002
were $862,000 compared to $886,000 in the three months ended March 31, 2001,
a decrease of $24,000 or 2.7%. The related party research and development
revenues earned in the three months ended March 31, 2002 consisted of
$612,000 in research support funding and $250,000 in milestone payments from
the Novartis collaboration. The related party research and development
revenues earned in the three months ended March 31, 2001 consisted of
$563,000 in research support funding and $250,000 in milestone payments from
the Novartis collaboration and $73,000 in research support funding from the
Xenova collaboration.

     RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended March 31, 2002 were $12,773,000 compared
to $16,414,000 in the three months ended March 31, 2001, a decrease of
$3,641,000 or 22.2%. The decrease was largely due to decreased clinical trial
and clinical material manufacturing costs related to daptomycin development
due to the completion of our Phase III trials for the treatment of cSST
infections and community-acquired pneumonia.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
in the three months ended March 31, 2002 were $7,574,000 compared to
$4,510,000 in the three months ended March 31, 2001, an increase of
$3,064,000 or 67.9%. The increase was largely due to non cash stock based
compensation expense of $767,000 or 25.0%, increased staffing levels and
expanded management of $828,000 or 27.0%, and increased pre-marketing costs
of $1,455,000 or 48.0% associated with our anticipated commercial product
launch.

     INTEREST INCOME AND EXPENSE. Interest income in the three months ended
March 31, 2002 was $1,477,000 compared to $2,379,000 in the three months ended
March 31, 2001, a decrease of $902,000 or 37.9%. The decrease in interest income
was due primarily to significantly lower interest rates during the three months
ended March 31, 2002 as compared to the three months ended March 31, 2001.
Interest expense in the three months ended March 31, 2002 was $3,255,000 as
compared to $1,103,000 during the three months ended March 31, 2001, an increase
of $2,152,000


                                       9





or 195.1%. The increase in interest expense was primarily due to increased
long-term debt related to the 5 1/2% issuance of convertible subordinated notes.

     OTHER INCOME (EXPENSE). Other income in the three months ended March 31,
2002 was $318,000 compared to other expense of $334,000 in the three months
ended March 31, 2001. The increase in other income was due to sublease income of
$242,000 and a decrease of $73,000 in foreign currency translation adjustments
due to the closure and relocation of our Vancouver operations to our corporate
headquarters, which represents a substantial liquidation of our investment in
our Canadian subsidiary.

     NET LOSS. The net loss during the three months ended March 31, 2002 was
$19,488,000 compared to $17,603,000 during the three months ended March 31,
2001, an increase of $1,855,000 or 10.7%. The increase was primarily due to
increased interest expense due to the issuance of convertible subordinated notes
and decreased interest income due to significantly lower interest rates.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have financed our operations through the sale of equity
securities, convertible debt securities, equipment financing, sponsored research
revenues, license revenues and interest earned on invested capital. Our total
cash, cash equivalents and investments balance, excluding restricted cash, at
March 31, 2002 was $221,797,000 compared to $243,135,000 at December 31, 2001.

     Net cash used in operating activities was $21.1 million in the first three
months of 2002 and $4.3 million in the first three months of 2001. Our loss was
$19.5 million for the first three months of 2002 and $17.6 million for the first
three months of 2001. For the quarter ended March 31, 2002, net cash used in
operating activities reflects the net loss adjusted for non cash items totaling
$2.7 million, which consisted primarily of depreciation and amortization expense
of $1.4 million and stock based compensation of $0.8 million as well as a
decrease in accounts payable and accrued expenses and deferred revenue totaling
$4.3 million. For the quarter ended March 31, 2001, net cash used in operating
activities reflects the net loss adjusted for depreciation and amortization of
$1.2 million as well as a decrease in other assets of $3.0 million and an
increase in deferred revenue of $11.6 million due to an upfront licensing fee
payment received from Gilead.

     Net cash used for and provided by investing activities was $26.7 million
and $1.5 million in the first three months of 2002 and 2001, respectively. Net
cash used in investing activities in the first three months of 2002 included
$25.2 million for purchases of investments, net of proceeds from maturities and
$1.5 million for capital expenditures relating to the new corporate
headquarters. During the first three months of 2001 cash was provided by the net
maturity of investments.

     During the three months ended March 31, 2002 and 2001, we received cash
proceeds of approximately $1.0 million and $0.5 million, respectively, from
the issuance of common stock upon the exercise of stock options.

     During March 1999, Cubist entered into a term loan agreement with a bank
under which Cubist is able to borrow up to $1,500,000 to finance fixed asset
purchases. In March 2000, Cubist increased its 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 (4.29% at March
31, 2002). Borrowings under the facility are collateralized by all capital
equipment purchased with the funds from this term loan. In September 2001, we
increased our term loan by an additional $6,500,000 to finance leasehold
improvements and fixed asset purchases for the new corporate headquarters
building. Advances under this facility are to be repaid over a 48-month period,
commencing on March 29, 2002. Interest on the borrowings is at the bank's LIBOR
rate (4.29% at March 31, 2002). Borrowings under the facility are collateralized
by all capital equipment purchased with the funds under this term loan and a
minimum collateral amount of $3,250,000 through March 31, 2002. Thereafter the
minimum collateral amount will at all times be equal to 50% of the aggregate
principal amount of the term loan outstanding. This collateral amount is
reflected as restricted cash. At March 31, 2002, borrowings outstanding totaled
$7,930,507. During the three months ended March 31, 2002, Cubist drew down $0.6
million under this facility.


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     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 the next 15 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

     There have been no material changes in information affecting our market
risk since the end of the fiscal year ended December 31, 2001 as described in
Item 7A of our Form 10-K for the year ended December 31, 2001, filed with the
Securities and Exchange Commission on March 29, 2002, and through March 31,
2002.


                          PART II -- OTHER INFORMATION


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     On April 3, 2000, Cubist completed a follow-on 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, its lipopeptide drug discovery program, the
continued development of its proprietary genomic target validation and assay
development VITA functional genomics and ChemInformatics technologies and for
general corporate and working capital purposes.

     On September 8, 2000, we purchased a new corporate headquarters building in
Lexington, Massachusetts. To finance the purchase, we issued $39.0 million of
senior convertible notes to John Hancock Life Insurance Company. This financing
covered the building purchase price of approximately $34.0 million and included
$5.0 million for facility improvements. The five-year notes carry a coupon rate
of 8 1/2% 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 their principal amount outstanding.

     In October 2000, in connection with the acquisition of TerraGen Discovery,
Inc., we issued an aggregate of 495,584 shares of common stock to acquire the
fully diluted capitalization of TerraGen. The issuance and sale of such shares
of common stock were made in reliance on Section 3(a)(10) of the Securities Act
and Rule 506 of Regulation D promulgated under Section 4(2) of the Securities
Act. The resale of these shares was subsequently registered with the SEC.

     On October 26, 2001, we completed the private placement of $125 million of
5 1/2% convertible subordinated notes (less estimated financing costs of
$4,055,096). The offering was made through initial purchasers to qualified
institutional buyers under Rule 144A of the Securities Act. The notes are
convertible at any time prior to maturity into common stock at a conversion
price of $47.20 per share, subject to adjustment upon certain events. Interest
is payable on each November 1 and May 1, beginning May 1, 2002. In addition, on
December 28, 2001, the initial purchasers exercised their option to purchase
$40.0 million of 5 1/2% convertible subordinateD notes (less estimated financing
costs of $827,320). The offering was made through the same initial purchasers to
qualified institutional buyers under Rule 144A of the Securities Act. The notes
are convertible at any time prior to maturity into common stock at a conversion
price of $47.20 per share, subject to adjustment upon certain events. Interest
is payable on each November 1 and May 1,


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beginning May 1, 2002. The notes mature
on November 1, 2008. The notes are subordinated to our senior indebtedness.

     Proceeds from the Rule 144A offering will be used to advance the clinical
trials and commercialization strategy of Cubist's investigational antibiotic
Cidecin, our oral ceftriaxone pre-clinical program, the oral daptomycin
pre-clinical program, the lipopeptide drug discovery program, the continued
development and use of the natural products, VITA functional genomics and
ChemInformatics technologies, and for working capital and general corporate
purposes.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (B) REPORTS ON FORM 8-K

               A current report on Form 8-K was filed by Cubist with the
        Securities and Exchange Commission on January 17, 2002, with respect to
        the preliminary results from the first of two Phase III trials
        investigating the safety and efficacy of Cidecin for the treatment of
        community-acquired pneumonia.


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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 14, 2002                 By: /S/ THOMAS A SHEA
                                     -----------------------------------
                                     Thomas A. Shea,
                                     Chief Financial Officer
                                    (AUTHORIZED OFFICER AND PRINCIPAL
                                     FINANCE AND ACCOUNTING OFFICER)


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