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, 1997
OR
- --- Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number 0-21379
CUBIST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3192085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Emily Street
Cambridge, Massachusetts 02139
(Address of principal executive offices)
(617) 576-1999
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of May 1, 1997, there were 9,556,395 shares outstanding of the
Company's common stock, $0.001 per value per share.
CUBIST PHARMACEUTICALS, INC.
INDEX
ITEM PAGE
NUMBER NUMBER
------ ------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of March 31, 1997
and December 31, 1996............................. 3
Condensed Statements of Operations for the three
months ended March 31, 1997 and 1996.............. 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and 1996.............. 5
Notes to the Unaudited Condensed Financial
Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 10
Signature.............................................. 11
2
PART I--FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 3,892,300 $ 19,329,353
Short-term investments......................................... 10,635,801 --
Accounts receivable............................................ 505,267 505,267
Prepaid expenses and other current assets...................... 426,322 286,642
------------- -------------
Total current assets........................................... 15,459,690 20,121,262
Property and equipment......................................... 5,216,912 4,898,538
Less: Accumulated depreciation and amortization................ (1,956,114) (1,741,152)
------------- -------------
Property and equipment, net.................................... 3,260,798 3,157,386
Long-term investments.......................................... 2,565,297 --
Other assets................................................... 183,799 173,799
------------- -------------
Total assets................................................ $ 21,469,584 $ 23,452,447
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $ 533,152 $ 741,409
Accrued expenses............................................... 395,973 484,732
Deferred revenue............................................... 42,300 126,900
Current portion of long-term debt.............................. 193,760 188,062
Current portion of capital lease obligations................... 549,865 559,767
------------- -------------
Total current liabilities................................... 1,715,050 2,100,870
Long-term debt, net of current portion......................... 240,604 291,683
Long-term capital lease obligation, net of current portion..... 804,868 761,284
------------- -------------
Total liabilities........................................... 2,760,522 3,153,837
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Commitments
Stockholders' Equity:
Common Stock--$.001 par value; authorized: 25,000,000 shares,
1997 and 1996; issued: 9,554,759 shares, 1997 and 9,544,373
shares, 1996................................................. 9,555 9,544
Additional paid-in capital..................................... 36,021,423 36,019,608
Accumulated deficit............................................ (17,321,916) (15,730,542)
------------- -------------
Total stockholders' equity.................................. 18,709,062 20,298,610
------------- -------------
Total liabilities and stockholders' equity.................. $ 21,469,584 $ 23,452,447
------------- -------------
------------- -------------
The accompanying notes are an integral part of the unaudited condensed
financial statements.
3
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------- -------------
Sponsored research revenues..................................... $ 834,600 $ 53,667
Operating expenses:
Research and development........................................ 2,011,273 1,523,259
General and administrative...................................... 645,469 376,665
------------- -------------
Total operating expenses..................................... 2,656,742 1,899,924
Interest income................................................. 286,779 25,044
Interest expense................................................ (56,011) (52,014)
------------- -------------
Net loss........................................................ ($ 1,591,374) ($ 1,873,227)
------------- -------------
------------- -------------
Net loss per common share....................................... ($ 0.17) ($ 1.02)
------------- -------------
------------- -------------
Weighted average number of common shares........................ 9,547,771 1,832,534
------------- -------------
------------- -------------
The accompanying notes are an integral part of the unaudited condensed
financial statements.
4
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------- -------------
Cash Flows from operating activities:
Net loss........................................................ $ (1,591,374) $ (1,873,227)
Adjustments to reconcile net loss to net cash provided by/ (used
in) operating activities:
Depreciation and amortization................................... 225,943 152,932
Changes in assets and liabilities:
Accounts receivable............................................. -- 988,000
Prepaid expenses and other current assets.................... (164,043) 11,926
Other assets................................................. (10,000) (5,000)
Accounts payable and accrued expenses........................ (297,015) 99,921
Deferred revenue............................................. (84,600) --
------------- -------------
Total adjustments........................................... (329,715) 1,247,779
------------- -------------
Net cash provided by/(used in) operating activities............. (1,921,089) (625,448)
Cash flows from investing activities:
Purchase of fixed assets........................................ (311,611) (112,532)
Leasehold improvements.......................................... (6,763) --
Purchase of short-term investments.............................. (10,635,801) --
Redemption of short-term investments............................ -- 1,006,569
Purchase of long-term investments............................... (2,540,934) --
------------- -------------
Net cash provided by/(used in) investing activities............. (13,495,109) 894,037
Cash flows from financing activities:
Issuance of stock............................................... (9,156) 2,151
Repayments of debt.............................................. (45,381) (40,274)
Proceeds from capital lease financing........................... 185,665 26,687
Principal payments of capital lease obligations................. (151,983) (114,651)
------------- -------------
Net cash provided by/(used in) financing activities............. (20,855) (126,087)
------------- -------------
Net increase (decrease) in cash and cash equivalents............ (15,437,053) 142,502
Cash and cash equivalents, beginning of period.................. 19,329,353 2,049,555
------------- -------------
Cash and cash equivalents, end of period........................ $ 3,892,300 $ 2,192,057
------------- -------------
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest........................ $ 56,011 $ 52,014
The accompanying notes are an integral part of the unaudited condensed
financial statements.
5
CUBIST PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE A. NATURE OF BUSINESS
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company founded in May 1992 and is engaged in the research,
development and commercialization of novel classes of antiinfective drugs to
treat infectious diseases caused by bacteria and fungi, primarily those
resistant to existing antiinfective drugs. Cubist has established multiple
technology licenses and collaborations, has established a network of advisors
and collaborators and is located in Cambridge, Massachusetts.
NOTE 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 the Company's audited financial statements and related footnotes for the
year ended December 31, 1996 which are included in the Company's Annual
Report on Form 10-K. Such Annual Report on Form 10-K was filed by the Company
with the Securities and Exchange Commission (the "Commission") on March 31,
1997.
NET LOSS PER COMMON SHARE
The net loss per common share is computed based upon the weighted average
number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive, except that, in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued during the twelve-month period
prior to the filing of the initial public offering, even when anti-dilutive,
have been included in the calculation as if they were outstanding for all
periods, using the treasury stock method and the initial public offering
price of $6.00 per share.
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which
will require the disclosure of Basic Earnings per Common Share and Diluted
Basic Earnings per Common Share for all periods presented. Early application
of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company
does not expect this to have a material impact on the earnings per share
computation.
NOTE C. SUBSEQUENT EVENT
COLLABORATIVE AGREEMENT
In May 1997, the company entered into a collaborative research agreement
with Novalon Pharmaceutical Corporation. Under the terms of the agreement,
the Company will purchase a minority equity stake in Novalon for $1,000,000.
In addition, the Company will make research support payments and pay
royalties on sales of products developed using the Novalon technology.
Novalon has also granted Cubist an exclusive six month option to acquire all
the outstanding assets of Novalon in an equity-based transaction.
6
CUBIST PHARMACEUTICALS, INC.
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)
statements about the adequacy of the Company's cash, cash equivalents, other
capital resources, interest income and future revenues due under the
Company's collaborative agreements to fund its operating expenses and capital
requirements as currently planned through mid-1998 and (ii) 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). Investors 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 the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996. The forward-looking
statements contained herein represent the Company's judgment as of the date
of this quarterly report on Form 10-Q, and the Company cautions readers not
to place undue reliance on such statements.
OVERVIEW
Since its incorporation on May 1, 1992 and commencement of operations in
February 1993, Cubist has been engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. The Company has a limited history of operations and has
experienced significant operating losses since inception. The Company expects
to incur significant additional operating losses over the next several years
and expects cumulative losses to increase substantially due to expanded
research and development efforts, pre-clinical and clinical trials and
development of manufacturing, marketing and sales capabilities.
A key element of the Company's strategy is to enhance certain of its drug
discovery and development programs and to fund its capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. To date, the Company has entered into collaborative agreements
based specifically on its aminoacyl-tRNA synthetase program with
Bristol-Myers Squibb, Merck and Pfizer. Under the collaborative agreements,
the Company is entitled to receive research support payments, technology
licensing fees and, if certain drug development milestones are achieved,
milestone payments. In addition, the Company will be entitled to receive
royalties on worldwide sales of any drug developed and commercialized from
these collaborations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUES. Total revenues in the three months ended March 31, 1997 were
$835,000 compared to $54,000 in the three months ended March 31, 1996, an
increase of $781,000 or 1,446.3%. The revenue recognized in the three months
ended March 31, 1997 consisted of research support funding from the
Bristol-Myers Squibb and Merck collaborations. In the three months ended
March 31, 1996, total revenues consisted entirely of SBIR Phase I grant
funding.
7
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenses in the three months ended March 31, 1997 were $2,011,000 compared to
$1,523,000 in the three months ended March 31, 1996, an increase of $488,000
or 32.0%. The increase was largely due to increased costs related to
additional personnel and purchases of laboratory research supplies that are
required by such additional personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
in the three months ended March 31, 1997 were $645,000 compared to $377,000
in the three months ended March 31, 1996, an increase of $268,000 or 71.1%.
The increase was largely due to: increased costs related to expenses for
additional personnel and recruiting; expenses for directors and officers
insurance which did not exist prior to the Company's initial public offering;
and increased legal expenses.
INTEREST INCOME AND EXPENSE. Interest income in the three months ended
March 31, 1997 was $287,000 compared to $25,000 in three months ended, March
31, 1996, an increase of $262,000 or 1,048.0%. The increase in interest
income was due primarily to a higher average cash, cash equivalent and
investment balance during the three months ended March 31, 1997 as compared
to the three months ended March 31, 1996. Interest expense in the three
months ended March 31, 1997 was $56,000 as compared to $52,000 during the
three months ended March 31, 1996.
NET LOSS. The net loss during the three months ended March 31, 1997 was
$1,591,000 compared to $1,873,000 during the three months ended March 31,
1996, a decrease of $282,000 or 15.1%. The decrease was primarily due to the
increased revenues associated with the Bristol-Myers Squibb, and Merck
collaborations, which were offset only in part by additional expenses
incurred to support the advancement of the Company's internal research
programs.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through the sale
of equity securities, equipment financing, sponsored research revenues,
license revenues and interest earned on invested capital. The Company's total
cash, cash equivalent and investments balance at March 31, 1997 was
$17,093,000 compared to $19,329,000 at December 31, 1996. For the three
months ended March 31, 1997, the Company received $835,000 in sponsored
research payments.
Through March 31, 1997, the Company's collaborative partners have
provided the Company with $3.8 million of research support payments and $4.0
million in an equity investment. There can be no assurance that the Company
will receive any additional funding from any of the Company's collaborative
partners.
As of March 31, 1997, the Company had invested an aggregate of $5,217,000
(of which $318,000 was invested during the three months then ended) in
property and equipment, primarily in facility renovations and laboratory
equipment under capital leases. The obligations under capital leases at March
31, 1997 were $1,355,000. Minimum annual principal payments due under capital
leases total $770,000 in 1997. Principal payments decline each year
thereafter until expiration in 2001. The Company made principal payments
under its capital lease obligations of $152,000 in the three months ended on
March 31, 1997. The Company expects its capital expenditures in 1997 to be
approximately $1,000,000 consisting of laboratory and other equipment
purchases.
The Company believes that its existing cash, cash equivalents, other capital
resources, interest income and future revenues which may become due under the
Bristol-Myers Squibb, Merck and Pfizer collaborative agreements, will be
sufficient to fund its operating expenses and capital requirements as currently
planned through mid-1998.
8
EARNINGS PER SHARE
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards 128 (SFAS 128) "Earnings per Share", which
will require the disclosure of Basic Earnings per Common Share and Diluted
Basic Earnings per Common Share for all periods presented. Early application
of SFAS 128 is not allowed, but pro forma disclosure is allowed. The Company
does not expect this to have a material impact on the earnings per share
computation.
9
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1--Acquisition Option Agreement, dated May 5, 1997, by and
among Novalon Pharmaceutical Corporation, certain stockholders
of Novalon Pharmaceutical Corporation, and the Applicant
10.2--Series B Convertible Preferred Stock Purchase Agreement, dated
May 5, 1997, by and between Novalon Pharmaceutical Corporation
and the Applicant
11--Statement of Computation of Earnings Per Share
27--Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1997.
10
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, 1997 By: /s/ Thomas A. Shea
-------------------------------
Thomas A. Shea
Director of Finance
& Administration and Treasurer
(Authorized Officer and Principal
Finance and Accounting Officer)
11