10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
OR
o	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
(State or Other Jurisdiction of
Incorporation or Organization) 22-3192085
(I.R.S. Employer Identification No.)

65 Hayden Avenue, Lexington, MA 02421
(Address of Principal Executive Offices and Zip Code)

(781) 860-8660
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 Par Value	Nasdaq Global Select MarketSM
Series A Junior Participating Preferred Stock Purchase Rights	Nasdaq Global Select MarketSM

         Securities registered pursuant to Section 12(g) of the Act:

None
(Title of Each Class)

(Name of Each Exchange on Which Registered)

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o     No ý

         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 ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of June 30, 2008 (without admitting that any person whose shares are not included in the calculation is an affiliate) was $887.4 million computed by reference to $17.86, the closing price of our common stock, as reported on the NASDAQ Global Select Market^SM on June 30, 2008. The number of outstanding shares of common stock of Cubist on February 20, 2009, was 57,546,619.

DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 4, 2009
ARE INCORPORATED BY REFERENCE INTO PART III.

Cubist Pharmaceuticals, Inc.

Annual Report on Form 10-K

Table of Contents

Item		Page
PART I
1.	Business	6
1A.	Risk Factors	35
1B.	Unresolved Staff Comments	61
2.	Properties	61
3.	Legal Proceedings	61
4.	Submission of Matters to a Vote of Security Holders	61
	PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	62
6.	Selected Financial Data	64
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	66
7A.	Quantitative and Qualitative Disclosures About Market Risk	88
8.	Financial Statements and Supplementary Data	90
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	130
9A.	Controls and Procedures	130
9B.	Other Information	130
PART III
10.	Directors, Executive Officers and Corporate Governance	131
11.	Executive Compensation	131
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	131
13.	Certain Relationships and Related Transactions, and Director Independence	131
14.	Principal Accountant Fees and Services	131
PART IV
15.	Exhibits and Financial Statement Schedule	132
	Signatures	138

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FORWARD-LOOKING STATEMENTS

        This document contains and incorporates by reference forward-looking statements, including the statements described below. In some cases, these statements can be identified by the use of forward-looking terminology such as "may," "will," "could," "should," "would," "expect," "anticipate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward-looking information. You are cautioned that forward-looking statements are based on current expectations and 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 the risks and uncertainties described or discussed in the section entitled "Risk Factors" in this Annual Report. The forward-looking statements contained and incorporated herein represent our judgment as of the date of this Annual Report, and we caution readers not to place undue reliance on such statements. The information contained in this Annual Report is provided by us as of the date of this Annual Report, and, except as required by law, we do not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

        Forward-looking statements in this Annual Report include, without limitation, statements regarding:

•

our expectations regarding our financial performance, including revenues, expenses, gross margins and capital expenditures;

•

our expectations regarding the commercialization of CUBICIN® (daptomycin for injection);

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our expectations regarding the strength of our intellectual property portfolio protecting CUBICIN and our plans to file a patent infringement lawsuit in connection with the February 9, 2009, notification to us by Teva Parenteral Medicines, Inc., or Teva, that Teva has submitted an Abbreviated New Drug Application, or ANDA, to the U.S. Food and Drug Administration, or FDA, seeking approval to market a generic version of CUBICIN before the expiration of the patents covering CUBICIN;

•

our expectations regarding payments to be received by us under our exclusive agreement with AstraZeneca Pharmaceuticals, LP, or AstraZeneca, for the promotion of MERREM® I.V. (meropenem for injection);

•

our ability to secure the manufacture and supply of sufficient amounts of CUBICIN and our drug candidates to meet our development and commercialization needs;

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our expectations regarding our drug candidates, including the development, regulatory review and commercial potential of such drug candidates and the costs and expenses related thereto;

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the continuation of our collaborations and our other significant agreements and our ability to establish and maintain successful manufacturing, supply, sales and marketing, distribution and development collaborations and other arrangements;

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our expected efforts to evaluate product candidates and build our pipeline;

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the liquidity and credit risk of securities, particularly auction rate securities, that we hold as investments;

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the impact of new accounting pronouncements;

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our future capital requirements and our ability to finance our operations;

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our expectations regarding our personnel needs;

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•

our expectations regarding the payment of dividends; and

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our business strategy and our expectations regarding general business conditions and growth in the biopharmaceutical industry.

        Many factors could affect our actual financial results and could cause these actual results to differ materially from those in these forward-looking statements. These factors include the following:

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the level of acceptance of CUBICIN by physicians, patients, third-party payors and the medical community;

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any changes in the current or anticipated market demand or medical need for CUBICIN, including as a result of the economic downturn in the U.S. and around the world;

•

any unexpected adverse events related to CUBICIN, particularly as CUBICIN is used in the treatment of a growing number of patients around the world;

•

the effectiveness of our sales force and our sales force's ability to access targeted physicians;

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an adverse result in the litigation that we intend to file against Teva to defend and/or assert our patents in connection with Teva's February 2009 notification to us that it has submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN and the expense and management distraction associated with the litigation;

•

whether or not other third parties may seek to market generic versions of our products by filing ANDAs with the FDA and the results of any litigation that we file to defend and/or assert our patents against such third parties;

•

competition in the markets in which we and our partners market CUBICIN, including marketing approvals for new products that will be competitive with CUBICIN;

•

similar factors with respect to MERREM I.V. in the U.S. as those described above with respect to CUBICIN;

•

the effect that the results of ongoing or future clinical trials of CUBICIN may have on its acceptance in the medical community;

•

the impact of the results of ongoing or future trials for drug candidates that we are currently developing or may develop in the future;

•

the impact of the results of ongoing or future trials for drug candidates that we are currently developing that are being or will be conducted by our collaborators and others for indications that we do not have rights to but are, nonetheless, in human populations and indications that are of relevance to our developmental activities;

•

whether we will receive, and the potential timing of, regulatory approvals or clearances to market CUBICIN in countries where it is not yet approved;

•

the ability of our third party manufacturers, including our single source provider of CUBICIN active pharmaceutical ingredient, or API, to manufacture sufficient quantities of CUBICIN in accordance with Good Manufacturing Practices and other requirements of the regulatory approvals for CUBICIN and to do so at an acceptable cost;

•

our ability to discover, acquire or in-license drug candidates;

•

our ability to develop and achieve commercial success, and secure sufficient quantities of supply for such development and commercialization, for our existing and future drug candidates, particularly as we are managing multiple programs and opportunities and continue to seek to maximize the commercial success of CUBICIN and MERREM I.V.;

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•

our ability to integrate successfully the operations of any business that we may acquire and the potential impact of any future acquisition on our financial results;

•

whether the FDA accepts proposed clinical trial protocols in a timely manner for additional studies of CUBICIN or any other drug candidate we seek to initiate or continue testing in clinical trials;

•

our ability to conduct successful clinical trials in a timely manner;

•

legislative and policy changes in the U.S. and other jurisdictions where our products are sold that may affect the ease of getting a new product or a new indication approved;

•

changes in government reimbursement for our or our competitors' products;

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our dependence upon collaborations and alliances, particularly our ability to work effectively with our partners and our partners' ability to meet their obligations and perform effectively under our agreements;

•

our ability to finance our operations;

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potential costs resulting from product liability or other third party claims;

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our ability to protect our proprietary technologies; and

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a variety of risks common to our industry, including ongoing regulatory review, public and investment community perception of the industry, statutory or regulatory changes including with respect to federal and state taxation, and our ability to attract and retain talented employees.

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PART I

ITEM 1.    BUSINESS

        Cubist Pharmaceuticals, Inc., which we refer to as "we", "Cubist" or the "Company," was incorporated as a Delaware corporation in 1992. We completed our initial public offering in 1996 and our shares are listed on the NASDAQ Global Select Market, where our symbol is CBST. Our principal offices are located at 65 Hayden Avenue, Lexington, Massachusetts. Our telephone number is 781-860-8660, and our website address is www.cubist.com.

Corporate Overview and Business Strategy

        We are a biopharmaceutical company focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Such products are used primarily in hospitals but also may be used in acute care settings including home-infusion and hospital outpatient clinics.

        We have been profitable for ten consecutive quarters as of December 31, 2008. Our net income for the twelve months ended December 31, 2008, was $169.8 million, or $3.00 and $2.56 per basic and diluted share, respectively, as compared to our net income for the twelve months ended December 31, 2007, which was $48.1 million, or $0.87 and $0.83 per basic and diluted share, respectively. Our net income for the full year 2008 was significantly impacted by a tax benefit related to a reversal of our valuation allowance for a significant portion of our deferred tax assets which resulted in a benefit to income tax expense of approximately $127.8 million, and an other-than-temporary impairment charge of $49.2 million related to our investment in auction rate securities. As of December 31, 2008, we had a total of $417.9 million in cash, cash equivalents and long-term investments, as compared to $398.2 million in cash, cash equivalents and long-term investments as of December 31, 2007.

        We derive substantially all of our revenues from CUBICIN® (daptomycin for injection), an intravenous, or I.V., antibiotic, which we developed and launched in the U.S. in November 2003. Our net revenues from worldwide product sales of CUBICIN for the twelve months ended December 31, 2008, were $422.1 million, as compared to $290.4 million in the twelve months ended December 31, 2007. CUBICIN is currently the only marketed once-daily, bactericidal, I.V. antibiotic with activity against methicillin-resistant Staphylococcus aureus, or S. aureus, also known as MRSA. CUBICIN is approved in the U.S. for the treatment of complicated skin and skin structure infections, or cSSSI, caused by S. aureus, and certain other Gram-positive bacteria and for S. aureus bloodstream infections (bacteremia), including right-sided infective endocarditis, or RIE, caused by methicillin-susceptible and methicillin-resistant isolates. On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva Parenteral Medicines, Inc., or Teva, notifying us that it has submitted an Abbreviated New Drug Application, or ANDA, to the U.S. Food and Drug Administration, or FDA, seeking approval to market a generic version of CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967 and 6,852,689, which expire on September 24, 2019, and U.S. Patent No. RE39,071, which expires on June 15, 2016. Each of these patents are listed in the FDA's list of "Approved Drug Products with Therapeutic Equivalence Evaluations," also known as the Orange Book. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date we were notified of the filing. We

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are confident in our intellectual property portfolio protecting CUBICIN, including the patents listed in the Orange Book.

        Since its U.S. launch, CUBICIN also has received similar regulatory approvals in many markets outside the U.S., including the European Union, or EU. We currently commercialize CUBICIN on our own in the U.S. and have established marketing agreements with other companies for commercialization of CUBICIN in all countries outside the U.S. Other markets where CUBICIN has an approved label for cSSSI caused by certain Gram-positive bacteria and for S. aureus blood stream infections include Argentina, Canada, India, Israel, Korea and Taiwan.

        In July 2008, we entered into an exclusive agreement with AstraZeneca Pharmaceuticals, LP, an indirect wholly-owned subsidiary of AstraZeneca PLC, or AstraZeneca, to promote and provide other support in the U.S. for MERREM® I.V. (meropenem for injection), an established broad spectrum (carbapenem class) I.V. antibiotic. Under the agreement, we promote and support MERREM I.V. using our existing U.S. acute care sales and medical affairs organizations. AstraZeneca provides marketing and commercial support for MERREM I.V. The agreement establishes a baseline annual payment by AstraZeneca to us of $20.0 million (which was prorated for 2008), to be adjusted up or down based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount. For 2008, sales of MERREM I.V. exceeded the annual baseline sales amount in the U.S. We recognize revenues related to this agreement as service revenues in our Consolidated Statement of Operations. Our service revenues from MERREM I.V. for the twelve months ended December 31, 2008, were $9.4 million. This amount does not include the additional payment we expect to receive for MERREM I.V. sales exceeding the 2008 baseline sales amount. This additional payment represents our percentage of the gross profit on MERREM I.V. sales exceeding the annual baseline sales amount. We currently expect additional revenues for 2008 sales to be approximately $4.5 million, which will be recorded in our consolidated financial statements as service revenues in the quarter ending March 31, 2009, during which time we expect to receive the payment.

        We have focused our product pipeline building efforts on opportunities that leverage our acute-care discovery, development, regulatory, and commercialization expertise. In April 2008, we entered into a license and collaboration agreement with Dyax Corp., or Dyax, pursuant to which we obtained an exclusive license for the development and commercialization in North America and Europe of the I.V. formulation of ecallantide for the prevention of blood loss during surgery. As a potent plasma kallikrein inhibitor, ecallantide has the potential to be an important therapy in reducing blood loss and inflammation in multiple surgical indications. We are studying ecallantide initially as a potential treatment for the prevention of blood loss during on-pump cardiothoracic surgery, or CTS, which includes coronary artery bypass graft, or CABG, and heart valve and replacement procedures. We recently began a Phase 2 dose-ranging trial, which we have named CONSERV™ 1, assessing three different doses of ecallantide, in CTS patients at relatively low risk of bleeding. We also expect soon to begin a second Phase 2 trial, CONSERV 2, using the highest of these three doses in CTS patients undergoing procedures associated with a higher risk of bleeding.

        In December 2008, we submitted an Investigational New Drug Application, or IND, with the FDA for each of the following two drug candidates: CB-182,804, in development as I.V. antibiotic therapy for multi-drug-resistant Gram-negative infections; and CB-183,315, in development as oral antibiotic therapy for Clostridium difficile associated diarrhea, or CDAD. An IND is the filing stage preparatory to clinical trials. In late January, we were notified by the FDA that we could proceed to clinical trials for both candidates. In February 2009, we began dosing humans in Phase 1 clinical trials of CB-183,315 and CB-182,804. In addition, among our programs in preclinical evaluation is CB-183,872, a compound that we are studying as a potential therapy for the treatment of infections caused by the hepatitis C virus, or HCV. We expect to decide by mid-year 2009 if we will progress this program to IND filing.

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        In addition to these pipeline programs, in January 2009, we entered into a collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam, for the development and commercialization of Alnylam's RNA interference, or RNAi, therapeutics as potential therapy for the treatment of respiratory syncytial virus, or RSV, infection, an area of high unmet medical need. The RSV-specific RNAi therapeutic program on which we are collaborating with Alnylam includes ALN-RSV01, which is currently in Phase 2 clinical development for the treatment of RSV infection in adult lung transplant patients, as well as several other potent and specific second generation RNAi-based RSV inhibitors in pre-clinical studies.

Products and Pipeline Programs

        The following table summarizes important information about our products and pipeline programs. More detailed descriptions of each of our products and pipeline programs follows the table.

Products, Compound or Program	Commercial Indication(s)/or Therapeutic Area of Study	Marketing Alliances or Development Collaborations	U.S. Status	Ex-U.S. Status
CUBICIN	In the U.S., approved for cSSSI caused by certain Gram-positive bacteria including MRSA; and complicated bloodstream infections caused by S. aureus (MRSA and MSSA).	U.S.—none. Outside U.S.—Multiple development and marketing partners, including Novartis, AstraZeneca AB, Banyu (a subsidiary of Merck), and Sepracor.	In market: Approved by FDA and launched in 2003; expanded label approved in 2006.	Approved in 57 countries outside the U.S for one or more indications; launches ongoing.
MERREM I.V	In the U.S., approved for cSSSI and intra-abdominal infections caused by certain susceptible Gram-positive and Gram-negative bacteria; bacterial meningitis in pediatric patients >3 months of age.	U.S.—we promote MERREM I.V. for AstraZeneca in U.S. hospitals.	In market: Launched in 1996; we began promoting MERREM I.V. in July 2008.	AstraZeneca commercializes MERREM I.V. outside the U.S.; we have no involvement in MERREM I.V. outside the U.S.
Ecallantide	Licensed by Cubist in the field of prevention of blood loss during surgery; initial indication being sought is on-pump CTS.	In-licensed from Dyax in North America and EU; Dyax has worldwide rights to ecallantide for non-surgical indications and for surgical indications outside of North America/EU.	In the clinic: Two Phase 2 studies in CTS in progress.	N/A

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Products, Compound or Program	Commercial Indication(s)/or Therapeutic Area of Study	Marketing Alliances or Development Collaborations	U.S. Status	Ex-U.S. Status
ALN-RSV program	Cubist/Alnylam developing for RSV.	Worldwide (except for Asia) collaboration with Alnylam; North America— 50:50 collaboration; Outside North America— exclusive license. Alnylam's partner, Kyowa Hakko Kirin Co., Ltd., has the rights to this program in Asia.	In the clinic and advancing preclinical candidates: ALN-RSV01 now in Phase 2 for adult lung transplant patients; multiple 2nd generation preclinical RNAi RSV compounds.	N/A
CB-182,804	Being developed for various infections caused by multi-drug-resistant Gram-negative bacteria.	None	In the clinic: IND accepted; Phase 1 study began in February 2009.	N/A
CB-183,315	Being developed for CDAD.	None	In the clinic: IND accepted; Phase 1 study began in February 2009.	N/A
CB-183,872	Being studied for infections caused by HCV.	None	Preclinical	N/A

Our Flagship Product: CUBICIN

        CUBICIN has been on the market in the U.S. since November 2003 and, as of December 31, 2008, has been used in the treatment of an estimated 640,000 patients in the U.S. We believe that CUBICIN provides important advantages over existing antibiotic therapies in its approved indications, including:

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its rapid bactericidal properties demonstrated in vitro;

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its mechanism of action;

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once-daily dosing regimen; and

•

established safety profile.

        CUBICIN's spectrum of activity includes strains of Gram-positive pathogens that are both susceptible and resistant to other antibiotic therapies. In May 2006, CUBICIN received the first approval by the FDA for the treatment of S. aureus bloodstream infections in more than 20 years. The FDA based its approval on results from our prospective, randomized, and controlled registration trial of CUBICIN for the treatment of S. aureus bacteremia and endocarditis, which is the only such trial ever undertaken.

Antibiotic Agents for Serious Infections

        Antibacterial therapies work by inhibiting specific critical processes in a bacterial pathogen. Such therapies can be either static—inhibiting growth of the pathogen—or bactericidal—causing the death of

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the pathogen. Many antibiotics in use today were developed and introduced into the market from the 1950s to the 1980s. Most of these were developed from existing classes of drugs such as semi-synthetic penicillins, cephalosporins, macrolides, quinolones and carbapenems. Only two new antibiotics from new chemical classes have been introduced to the market in the past 35 years—Zyvox®, a static agent which is known generically as linezolid and is from the oxazolidinones chemical class, and our lipopeptide product, CUBICIN, a bactericidal agent known generically as daptomycin.

        The increasing prevalence of drug-resistant bacterial pathogens has led to increased mortality rates, prolonged hospitalizations, and increased healthcare costs. The resistant organisms have emerged from both the Gram-positive and Gram-negative classes of bacteria. Gram-positive bacteria are differentiated from Gram-negative bacteria by the differences in the structure of the bacterial envelope. Gram-positive bacteria possess a single cellular membrane and a thick cell wall component, whereas Gram-negative bacteria possess a double cellular membrane with a thin cell wall component. These cellular structures greatly affect the ability of an antibiotic to penetrate the bacterium and reach its target site.

        Examples of drug-resistant Gram-positive bacterial pathogens include:

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MRSA (methicillin-resistantStaphylococcus aureus): S. aureus, often referred to simply as "staph," are bacteria commonly carried on the skin or in the nose of healthy people. In some cases, S. aureus can cause an infection, and these bacteria are among the most common causes of skin infections in the U.S. These infections can be minor (such as pimples or boils) which can be treated in many cases without antibiotics (by draining an abscess for example). However, S. aureus bacteria can also cause more serious infections (such as post-surgical wound infections, pneumonia, and infections of the bloodstream and of the bone and joints). Over the past 50 years, treatment of these infections has become more difficult due to the prevalence of MRSA, that is, S. aureus that have become resistant to various antibiotics, including commonly used penicillin-related antibiotics. As reported by the U.S. Centers for Disease Control and Prevention, or the CDC, and others, more than 60% of S. aureus isolates in the U.S. have been found to be methicillin-resistant.

The practical definition of resistance for a pathogen is when the minimum inhibitory concentration, or MIC value, exceeds a pre-specified limit for that specific antibiotic. Vancomycin has been the standard of care for patients who have serious MRSA infections. However, several strains of staphylococci, such as GISA (glycopeptides intermediate Staphylococcus aureus, vancomycin MIC = 4 - 8 µg/ml), and VRSA (vancomycin-resistant Staphylococcus aureus, vancomycin MIC >/= 16 µg/ml), have developed reduced susceptibility or resistance to vancomycin. In recognition of the issues with vancomycin susceptibility, the FDA, in May 2008, approved lower susceptibility criteria (MIC </=2 mcg/mL as susceptible) for vancomycin against S. aureus. In addition, recent published reports document a poor clinical success rate for vancomycin therapy against some S. aureus isolates with a vancomycin MIC of 1.0 to 2.0 µg/ml.

While infections caused by MRSA previously had been associated mostly with hospital and long-term care settings, the incidence of community-acquired MRSA, or CA-MRSA, infections has been increasing rapidly. Of great concern to the infectious disease community and public health authorities, such as the CDC, is the fact that CA-MRSA infections show up in otherwise healthy individuals—not fitting the traditional profile for an "at risk" patient such as a frequent user of the healthcare system who is more likely to be exposed to MRSA infections. As a result, individuals contracting an MRSA infection outside of the healthcare system can be misdiagnosed and receive inappropriate initial therapy. Such patients can get more seriously ill and require hospitalization. The infectious disease community is also concerned because CA-MRSA strains have been more virulent than the strains traditionally found in hospitals. These CA-MRSA

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strains have the ability to defeat the host's immune system, thereby resulting in an infection becoming more severe more quickly.

•

GISA or VISA (glycopeptide- or vancomycin-intermediately susceptibleS. aureus): The first reports of S. aureus infections with decreased susceptibility to vancomycin occurred in 1998. Such bacterial strains have been found in wide geographic areas throughout Japan and North America and recently have emerged in Europe. However, the incidence of these strains remains rare.

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Heteroresistance: Heteroresistance refers to the situation in which a small sub-population of bacteria survives at concentrations of antibiotic that effectively kill the majority of the population (or stop them from growing). Specialized testing techniques are required to detect heteroresistance to vancomycin, which appears to be becoming more common in S. aureus. The clinical impact of heteroresistance is unknown.

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VRSA (vancomycin-resistant S. aureus): During 2002, the first isolates of fully vancomycin-resistant S. aureus were discovered in the U.S. Unexpectedly, rather than evolving from a VISA strain, these VRSA emerged from MRSA strains that had acquired the vancomycin-resistance gene from vancomycin-resistant Enterococci, or VRE.

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VRE (vancomycin-resistant Enterococci): The emergence of VRE strains in the 1990s has led to infections for which only limited commercially available therapy exists.

Susceptibility of S.aureus to CUBICIN

        The most recently published surveillance data continue to show that CUBICIN is a potent agent against isolates of S. aureus that are both susceptible and resistant to other antibiotics. In a study entitled "Evaluation of the in vitro activity of daptomycin against 19615 clinical isolates of Gram-positive cocci collected in North American hospitals (2002 - 2005)" published in the April 2007 edition of the Diagnostic Microbiology and Infectious Diseases, or DMID, daptomycin demonstrated excellent in vitro activity against a wide range of Gram-positive pathogens and resistance to vancomycin or methicillin did not compromise the activity of daptomycin against any tested species.

        Case reports of S. aureus isolates that exceed the approved susceptibility range for daptomycin (those with a reported daptomycin MIC of greater than 1 µg/mL) have been published in the literature or presented at scientific meetings. In each of these cases, clinical failure was associated with an elevated daptomycin MIC. A majority of these reports describe patients with deep-seated infections or the presence of intravascular/prosthetic material. These patients often have numerous co-morbidities, usually compounded by an undrained focus of infection or hardware that was not removed.

        Surveillance monitoring to assess the potency of CUBICIN is ongoing. 2008 surveillance data, presented in poster form at an infectious disease conference in October 2008, but not yet published, has findings consistent with the data from the 2007 DMID study.

Clinical Development of CUBICIN

        We continue to undertake research which can add to the medical knowledge about CUBICIN. In particular, we are studying higher dosing of CUBICIN for serious infections requiring treatment of longer duration. We also conduct post-marketing research agreed to with the FDA, such as the study of CUBICIN in renal-compromised patients and in children. Studies currently underway include:

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The study of CUBICIN at 6 mg/kg and at 8 mg/kg for 6 weeks versus standard of care therapy (either vancomycin or teicoplanin) in the treatment of prosthetic joint infections, or PJI. We currently expect enrollment in the study to continue through 2009 and to make data available from this study in 2010;

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•

The study of CUBICIN at 10 mg/kg for 28 days versus standard of care therapy (either vancomycin or teicoplanin) in the treatment of MRSA bacteremia;

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A cSSSI safety and efficacy study in renal-compromised patients for which a protocol was submitted to the FDA in December 2008;

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A cSSSI safety and efficacy study in 7 to 17 year olds and a pharmacokinetics study in 2 to 6 year olds; and

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The study of CUBICIN at 6 mg/kg, with and without gentamicin, for the treatment of infective endocarditis.

CUBICIN in the U.S. Market

        We recorded $414.7 million, $285.1 million and $189.5 million in U.S. net product sales of CUBICIN in 2008, 2007 and 2006, respectively. We market CUBICIN to more than 2,000 U.S. institutions (hospitals and outpatient acute care settings), that account for approximately 83% of the total market opportunity for I.V. antibiotics to treat serious Gram-positive infections in the U.S. As of December 31, 2008, CUBICIN had approximately a 10% share of this market. Our sales and marketing efforts are led by our in-house marketing team and our acute care sales force, which included approximately 164 clinical business manager positions, or CBMs, as of February 1, 2009. Our U.S. acute care sales organization also includes small numbers of regional business directors, or RBDs, who manage our CBMs, senior sales directors, who manage the RBDs, and regional access managers, whose primary objective is to sell CUBICIN in the U.S. to outpatient acute care settings, such as home infusion and dialysis markets. On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva notifying us that it has submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689 and RE39,071. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date we were notified of the filing.

        We sell CUBICIN in the U.S. in accordance with a drop-ship program under which orders are processed through wholesalers but shipments are sent directly to our end users. This provides us with greater visibility into end-user ordering and reordering trends. We outsource many of our supply chain activities, including: (i) manufacturing and supplying CUBICIN API; (ii) converting CUBICIN API into its finished, vialed and packaged formulation; (iii) managing warehousing and distribution of CUBICIN to our customers; and (iv) performing the order processing, order fulfillment, shipping, collection and invoicing services related to our U.S. CUBICIN product sales.

Competition in the U.S.

        The competition in the market for therapeutic products that address serious Gram-positive bacterial infections is significant. In particular, vancomycin has been a widely used and well known antibiotic for over 40 years and is sold in a relatively inexpensive generic form. Vancomycin is marketed generically by Abbott Laboratories, Shionogi & Co., Ltd. and others. CUBICIN also faces competition in the U.S. from commercially available drugs such as Zyvox®, marketed by Pfizer, Inc., or Pfizer, Synercid®, marketed by King Pharmaceuticals, Inc., and Tygacil®, marketed by Wyeth, which has agreed to be acquired by Pfizer, as announced in January 2009.

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        In November 2008, an FDA Antiinfective Drug Advisory Committee, or AIDAC, meeting was held to discuss pending New Drug Applications, or NDAs, for three antibiotics: telavancin, filed by Theravance, Inc., or Theravance; oritavancin, filed by Targanta Therapeutics Corporation, or Targanta, which was acquired by The Medicines Company in late February 2009; and iclaprim, filed by Arpida Ltd., or Arpida. The NDAs for each of these agents sought approval for the treatment of cSSSI. The AIDAC voted in favor of approval of telavancin subject to certain recommendations regarding certain safety issues. In late January 2009, Theravance submitted an NDA for telavancin as a potential therapy for hospital-acquired pneumonia, or HAP, based on the positive results of the telavancin HAP Phase 3 trial announced in December 2007. In late February 2009, Theravance announced that it had received a Complete Response letter from the FDA outlining requirements for approval of telavancin for the treatment of cSSSI. The Complete Response letter requires a Risk Evaluation and Mitigation Strategy and a boxed warning related to the risk of teratogenicity (the ability to cause birth defects). The Complete Response letter also requested data on patients with certain renal risk factors from the cSSSI and HAP studies, revisions to the draft label, and a customary safety update. No additional clinical trials are required. The AIDAC, in November 2008, also voted against approval of oritavancin and iclaprim based on the data submitted in their respective NDAs. In December 2008, the FDA issued a complete response letter to Targanta's NDA indicating that an additional Phase 3 trial would be required to gain U.S. approval for oritavancin. In January 2009, the FDA issued a complete response letter to Arpida's iclaprim NDA, indicating that it did not demonstrate the efficacy of iclaprim for treatment of cSSSI within an acceptable non-inferiority margin. The FDA also is reviewing ceftobiprole, a broad spectrum agent with MRSA activity (NDA submitted in May 2007 by a division of Johnson & Johnson which licensed worldwide rights to ceftobiprole from Basilea Pharmaceutica, Ltd., or Basilea). In September 2008, Johnson & Johnson announced that its Complete Response (to the Approvable Letter received by Johnson & Johnson in March 2008) was accepted in September 2008 as a Class 2 Complete Response. In late February 2009, Basilea announced that as a result of FDA inspections at investigator sites and of Johnson & Johnson, the FDA suggested that Johnson & Johnson have additional clinical site audits performed. Basilea also announced that additional audits are anticipated to occur in the first half of 2009 with a Complete Response submission foreseen in the second half of this year, and that it has filed claims in arbitration against Johnson & Johnson and affiliated companies related to delays in approval of ceftobiprole. Telavancin and ceftobiprole may be approved and marketed in the near future and could compete with CUBICIN. Oritavancin and iclaprim, as well as other antibiotics in clinical development, could compete with CUBICIN, if approved by the appropriate regulatory agencies, in future years.

        Teva notified us on February 9, 2009, that it has submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN before the expiration of the patents covering CUBICIN. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. If Teva's ANDA is ultimately approved by the FDA and Teva launches a generic version of CUBICIN, which could occur after the district court proceeding if the district court rules in favor of Teva or before the completion of the district court proceeding if the 30-month statutory stay (as shortened or lengthened by the court) has expired and Teva decides to launch prior to the district court decision, then we would face competition in the U.S. from a generic version of CUBICIN.

Our International Marketing Partners for CUBICIN

        CUBICIN is being introduced and commercialized in markets outside the U.S. through alliances we have entered into with other companies. Novartis AG, or Novartis, through a subsidiary, is responsible for regulatory filings, sales, marketing and distribution costs in Europe, Australia,

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New Zealand, India, and certain Central American, South American and Middle Eastern countries; AstraZeneca AB is responsible for the development and commercialization of CUBICIN in China as well as more than one hundred additional countries; and Merck & Co., Inc., or Merck, through its wholly owned subsidiary, Banyu Pharmaceutical Co., Ltd., is responsible for the development and commercialization of CUBICIN in Japan. Other international partners for CUBICIN include Medison Pharma, Ltd., for Israel, Sepracor, Inc., successor-in-interest to Oryx Pharmaceuticals, Inc., for Canada, TTY BioPharm for Taiwan, and Kuhnil Pharma Co., Ltd. for Korea. As of December 31, 2008, CUBICIN had received regulatory approval in 58 countries and was being marketed in 25 countries, including the U.S. In 2008, our total international revenue for CUBICIN, primarily based on sales by Novartis in the EU, was $7.4 million. To date, EU sales have grown more slowly than U.S. sales due primarily to lower overall MRSA rates in the hospital and community, an additional glycopeptide competitor (teicoplanin), which is not approved in the U.S., the evolving commercialization strategy and mix of resources that Novartis has been using to commercialize CUBICIN, as well as other factors.

        Each partner is responsible for seeking regulatory approvals to market CUBICIN in its territory. We are responsible for manufacturing and supplying CUBICIN to our partners in exchange for a transfer price and, in the case of Novartis, a possible additional royalty. Unless terminated earlier, in accordance with its terms, our license agreement with Novartis' subsidiary expires on the later of: (a) expiration of the last-to-expire of the CUBICIN patents owned by Cubist or jointly-owned by Cubist and Novartis' subsidiary; (b) the date on which there no longer exists a claim of a pending CUBICIN patent application owned by Cubist or jointly-owned by Cubist and Novartis' subsidiary; and (c) the earlier of: (i) generic daptomycin sales reaching 30% of the total market share for all daptomycin sales in Novartis's territory, and (ii) June 30, 2020.

MERREM I.V.

        We promote and provide other support for MERREM I.V. in the U.S. under our July 2008 Commercial Services Agreement with AstraZeneca. MERREM I.V. is an established I.V. broad spectrum carbapenem antibiotic for the treatment of serious, hospital-acquired infections. MERREM I.V. was launched in 1996 by AstraZeneca and is approved in the U.S. for cSSSI and intra-abdominal infections caused by certain susceptible Gram-positive and Gram-negative bacteria. MERREM I.V. also is indicated for the treatment of bacterial meningitis in children (3 months of age or older) caused by certain susceptible bacteria. According to our calculations, the market for carbapenem therapy has grown by 5.5% in treatment days for the 12 months ended June 2008. As reported by AstraZeneca, there has been steady revenue growth for MERREM I.V, in the U.S. over the last two years. AstraZeneca has reported that it generated annual worldwide revenues of $897.0 million, $773.0 million and $604.0 million from MERREM I.V. in 2008, 2007 and 2006, respectively.

        We are obligated under the agreement to provide certain levels of support with respect to MERREM I.V., including requirements related to sales calls to physicians, specified priority of presentation of MERREM I.V. relative to other products, and a minimum number of sales representatives and clinical science directors. The agreement includes a baseline annual payment to us to be adjusted up or down based on actual sales. We recognize revenues related to this agreement over each annual period of performance based on the estimated minimum annual payment amount that we can receive under the agreement. The amount of revenue recognized is assessed at the end of each quarterly period to reflect actual performance against the annual baseline sales amount. In 2008, we recognized service revenues from AstraZeneca of $9.4 million based on the achievement of agreed upon target revenue requirements for sales since the inception of our agreement. We also earn a percentage of the gross profit on sales exceeding the annual baseline sales amount. The payment for any such sales over the baseline amount will be recognized in the quarter in which AstraZeneca provides us with its annual sales report. Because sales of MERREM I.V. in 2008 exceeded the annual

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baseline sales amount in the U.S., we expect to receive additional revenues for 2008 sales of approximately $4.5 million, which will be recorded in our financial statements as service revenues in the quarter ending March 31, 2009, during which time we expect to receive the payment.

        The composition of matter patent for MERREM I.V. in the U.S. extends through June 2010. However, the term of the agreement extends through December 31, 2012, unless earlier terminated. Annual sales targets may be adjusted if certain events occur during the term of the agreement that could impact sales of MERREM I.V. The agreement includes standard termination provisions for material breaches by, and bankruptcy, insolvency or changes in control of, the other party. The agreement may also be terminated by AstraZeneca if sales fall below certain agreed-upon thresholds, by us if AstraZeneca conducts certain activities competitive with MERREM I.V. in the U.S., or by either party: (i) without cause effective no earlier than January 1, 2010, (ii) in the event that we cease to promote CUBICIN, (iii) if AstraZeneca withdraws MERREM I.V. from the market or decides or is required to restrict approved indications for MERREM I.V., (iv) in the case of certain price controls on MERREM I.V. imposed by governmental entities, or (v) in the event of certain failures of supply of MERREM I.V. by AstraZeneca. The agreement also terminates automatically upon a termination or reduction to non-exclusive of AstraZeneca's right to market MERREM I.V. in the U.S. pursuant to an agreement between AstraZeneca's affiliate, AstraZeneca UK Limited, and Sumitomo Pharmaceuticals Co., Limited. The agreement also includes certain restrictions on our rights to market, promote, sell and engage in certain other activities with respect to competing products during the term of the agreement and for three months thereafter.

        MERREM I.V. faces competition in the U.S. from commercially available drugs such as Primaxin® I.V., marketed by Merck, as well as Doribax™, marketed by Ortho-McNeil, a Johnson & Johnson company. Primaxin I.V. was initially approved by the FDA in 1986 and is a widely used and well known antibiotic. In December 2008, a bulletin on the website of the American Society of Health System Pharmacists referenced a shortage of Primaxin I.V. that was being addressed by Merck. Doribax was approved by the FDA in October 2007 for two indications (complicated intraabdominal infections and complicated urinary tract infections, including pyelonephritis). Ortho-McNeil is pursuing additional indications for Doribax. In August 2008, the FDA issued a Complete Response letter to Ortho-McNeil outlining the actions necessary to address outstanding issues with the supplemental NDA for use of Doribax in patients with nosocomial pneumonia, including ventilator-associated pneumonia.

Our Product Pipeline

        We are building a pipeline of acute care therapies through licensing and collaboration agreements as well as by progressing compounds into clinical development that we have developed internally.

Ecallantide:

        In April 2008, we entered into a license and collaboration agreement with Dyax, pursuant to which we obtained an exclusive license for the development and commercialization of the I.V. form of Dyax's ecallantide compound for the prevention of blood loss during surgery in North America and Europe. We are studying ecallantide initially in CTS, which includes CABG and heart valve and replacement procedures. We recently began a Phase 2 dose-ranging placebo-controlled trial assessing three different doses of ecallantide in CTS patients undergoing primary on-pump CABG at relatively low risk of bleeding, and expect soon to begin a Phase 2 dose-ranging active-control trial assessing a high dose of ecallantide in CTS patients undergoing procedures associated with a higher risk of bleeding. The prevention of blood loss during CTS is an area of significant unmet medical need, particularly since aprotinin (previously marketed as Trasylol® by Bayer Healthcare Pharmaceuticals) was withdrawn from the U.S. market in November 2007. In October 2008, we announced positive top-line results from the ecallantide on-pump CTS Phase 2 clinical trial known as Kalahari™ 1, which was terminated in June 2008, after the enrollment of 69 patients, so that we could focus resources on the design and initiation of the Phase 2 dose-ranging clinical trials. Top-line data from Kalahari 1 showed that for patients treated with ecallantide, transfusion volume decreased by 25% and 65% at the trial's low and high doses, respectively (assessed at the 12 hour time point), and that the drug was well tolerated.

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        Pursuant to the terms of our agreement with Dyax, we paid Dyax a $15.0 million upfront payment in April 2008 and an additional $2.5 million payment on December 31, 2008, both of which are included in research and development expense for the twelve months ended December 31, 2008. We are responsible for all further development costs associated with ecallantide in the licensed indications for our territory. If certain clinical, regulatory and sales milestones are met, we could become obligated to pay Dyax up to an additional $214.0 million in milestone payments. We also would be obligated to pay Dyax tiered royalties based on any future sales of ecallantide by us. The agreement provides an option for Dyax to retain certain U.S. co-promotion rights. Dyax retains exclusive rights to ecallantide in all other indications, including for its hereditary angioedema program. Except under certain circumstances, Dyax will supply us with ecallantide for our development and commercialization efforts. The agreement may be terminated by us without cause on prior notice to Dyax, and by either party in the event of a breach of specified provisions of the agreement by the other party.

ALN-RSV Program:

        In January 2009, we entered into a collaboration agreement with Alnylam for the development and commercialization of RNAi therapeutics as potential therapy for the treatment of RSV infection, an area of high unmet medical need. The RSV-specific RNAi therapeutic program includes ALN-RSV01, which is currently in Phase 2 clinical development for the treatment of RSV infection in adult lung transplant patients, as well as several other potent and specific second generation RNAi-based RSV inhibitors in pre-clinical studies. RNAi is a natural process of gene silencing that occurs in organisms ranging from plants to mammals. RNAi therapeutics target the cause of diseases by potently silencing specific messenger ribonucleic acids, or mRNAs, thereby preventing disease-causing proteins from being made. RSV is a highly contagious virus that causes infections in both the upper and lower respiratory tract. RSV infects nearly every child at least once by the age of two years and is a major cause of hospitalization due to respiratory infection in children and people with compromised immune systems, and others. RSV infection typically results in cold-like symptoms but can lead to more serious respiratory illnesses such as croup, pneumonia, bronchiolitis, and in extreme cases, death. RSV infection in the pediatric and adult populations accounts for more than 300,000 hospitalizations per year in the U.S. In addition, RSV infection in infants has been linked to the development of childhood asthma. As a result, there is a significant need for novel therapeutics for patients who become infected with RSV.

        Our agreement with Alnylam is structured as a 50/50 co-development and profit share arrangement in North America, and a milestone- and royalty-bearing license arrangement in the rest of the world outside of Asia, where ALN-RSV is partnered with Kyowa Hakko Kirin Co., Ltd. The development of licensed products in North America will be governed by a joint steering committee comprised of an equal number of representatives from each party. We have the sole right to commercialize licensed products in North America with costs associated with such activities and any resulting profits or losses to be split equally between us and Alnylam. For the rest of the world, excluding Asia, we have sole responsibility for any required additional development of licensed products, at our cost, and the sole right to commercialize such products. Upon signing the agreement, we made a $20.0 million upfront payment to Alnylam. We also have an obligation to make milestone payments to Alnylam if certain specified development and sales events are achieved in the rest of the world, excluding Asia. These development and sales milestones payments could total up to $82.5 million. In addition, if licensed products are successfully developed in the rest of the world, excluding Asia, we will be required to pay Alnylam double digit royalties on net sales of such products in such territory, if any, subject to offsets under certain circumstances. Upon achievement of certain development milestones, Alnylam will have the right to convert the North American co-development and profit sharing arrangement into a royalty-bearing license with development and sales milestones payments to be paid by us to Alnylam which could total up to an aggregate of $130.0 million if certain specified development and sales events are achieved in North America and depending upon the timing of the conversion by Alnylam and the

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regulatory status of a collaboration product at the time of conversion. If Alnylam makes the conversion to a royalty-bearing license with respect to North America, then North America becomes part of the existing royalty territory (i.e. the rest of the world, excluding Asia). Unless terminated earlier in accordance with the agreement, the agreement expires on a country-by-country and licensed product-by-licensed product basis: (a) with respect to the royalty territory, upon the latest to occur of: (i) the expiration of the last-to-expire Alnylam patent covering a licensed product, (ii) the expiration of the Regulatory-Based Exclusivity Period (as defined in the agreement), and (iii) ten years from first commercial sale in such country of such licensed product by us or our affiliates or sublicensees; and (b) with respect to North America, if Alnylam has not converted North America into the royalty territory, upon the termination of the agreement by us upon specified prior written notice.

        Alnylam estimates that its fundamental RNAi patents covered under the agreement will expire both in and outside of the U.S. generally between 2016 and 2025. Allowed claims covering ALN-RSV01 in the U.S. would expire in 2026. These patent rights are subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. In addition, more patent filings relating to the collaboration may be made in the future. We have the right to terminate the agreement at any time on three months prior written notice prior to acceptance for filing of the first application for regulatory approval of a licensed product or on nine months prior written notice after acceptance for filing of the first application for regulatory approval. Either party may terminate the agreement in the event the other party fails to cure a material breach or upon patent-related challenges by the other party. During the term of the agreement, neither party nor its affiliates may develop, manufacture or commercialize anywhere in the world, outside of Asia, a therapeutic or prophylactic product that specifically targets RSV, except for licensed products developed, manufactured or commercialized pursuant to the agreement.

Our Recently-filed IND candidates:

        In December 2008, we submitted two INDs to the FDA to indicate our intention to begin clinical trials for CB-182,804 and for CB-183,315. In late January 2009, we were notified by the FDA that we could proceed with clinical trials for both compounds. In February 2009, we began Phase 1 studies of CB-182,804 and CB-183,315.

        CB-182,804 is in development for the treatment of multi-drug-resistant, or MDR, Gram-negative infections. CB-182,804 is a novel, proprietary, I.V. administered Gram-negative antibiotic that has demonstrated in vitro efficacy and rapid bactericidal activity against the key MDR Gram-negative pathogens, including P. aeruginosa, E. coli, K. pnuemoniae, and A. baumannii. In animal models, CB-182,804 was shown to be effective against lung, kidney, bloodstream and thigh infections against all MDR Gram-negative strains tested.

        Examples of resistant Gram-negative pathogens are:

•

Pan-resistant Pseudomonas aeruginosa: P. aeruginosa is a major cause of opportunistic infections among immunocompromised patients. Multi-drug resistance is increasingly observed in clinical isolates reflecting both their innate resistance (limited permeability of the P. aeruginosa outer membrane) along with acquisition of resistance mechanisms. It is now commonplace for a burn patient to develop an infection with a pan-resistant organism—resistant to B-lactams, fluoroquinolones, tetracycline, chloramphenicol, macrolides, trimethoprim/sulfa, and aminoglycosides.

•

ESBL positive Gram-negatives:  Extended-spectrum B-lactamases (ESBLs) are plasmid-mediated bacterial enzymes that result from genetic mutations of native B-lactamases such that they confer resistance to a broader group of antibiotics including third-generation cephalosporins. Since the first ESBL positive strain was recognized approximately 20 years ago, these

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ESBL-producing pathogens have spread and are now found in every part of the world. Clinical failures have been associated with use of the third generation cephalosporins—most frequently ceftazidime. Proper detection of ESBLs and appropriate treatment strategies are needed to overcome such rising resistance.

        CB-183,315 is in development as therapy for CDAD. The recent increase in severity of CDAD, due to newer strains that produce higher levels of toxins, has exposed shortcomings in the standard of care therapy, including reduced susceptibility and recurrence rates of greater than 20% for standard of care therapy. CB-183,315 is a potent, oral, cidal lipopeptide with rapid in vitro bactericidal activity against C. difficile, an opportunistic anaerobic Gram-positive bacterium that causes CDAD.

•

Clostridium difficile: C. difficile is an opportunistic anaerobic Gram-positive bacterium causing the most commonly diagnosed form of hospital-acquired, or nosocomial, diarrhea—CDAD. Recent years have witnessed the emergence of a hypervirulent strain of C. difficile that produces much higher levels of toxins. This strain also demonstrates high level resistance to fluoroquinolones which may have contributed to its spread throughout the U.S., Canada, the United Kingdom, the Netherlands and Belgium. Physicians have noted an increase in incidence and mortality rates as well as increases in numbers of patients requiring emergency colectomy (removal of all or part of the colon) or admission to intensive care units.

Preclinical programs:

        Our preclinical development pipeline includes CB-183,872, a compound in development for the treatment of infections caused by HCV. We plan to decide whether we will proceed with an IND filing for this compound in the first half of 2009.

Our Research and Development Expenditures

        Our research and development expenditures, which include research related to CUBICIN, were $126.7 million, $85.2 million and $57.4 million in 2008, 2007 and 2006, respectively. Based on our ongoing investments in CUBICIN, and the progression of our product pipeline programs, we expect that our expenditures in research and development will increase again in 2009.

Our Significant Customers

        Revenues from Cardinal Health, Inc. accounted for approximately 28%, 32% and 33% of all revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Revenues from Amerisource Bergen Drug Corporation accounted for approximately 28%, 30% and 32% of all revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Revenues from McKesson Corporation accounted for approximately 20%, 20% and 21% of all revenues for the years ended December 31, 2008, 2007 and 2006, respectively.

Our Intellectual Property Portfolio

        We seek to protect our novel compounds, cloned targets, expressed proteins, assays, organic synthetic processes, screening technology and other technologies by, among other things, filing, or causing to be filed on our behalf, patent applications. Except as specifically noted below, the patent rights described below may be subject to potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. In addition, more patent filings relating to the product and product candidates described below may be made in the future.

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        To date, Cubist and its subsidiaries own or co-own 26 issued U.S. patents, 28 pending U.S. patent applications, 42 issued foreign patents and approximately 178 pending foreign patent applications. Not included in these totals are the patents and patent applications which Cubist has exclusively licensed.

CUBICIN:

        We have acquired and exclusively licensed technology from Eli Lilly and Company, or Eli Lilly, related to the composition, manufacture, and use of daptomycin, the active ingredient in CUBICIN. To date, under our license agreement with Eli Lilly, we have made payments to Eli Lilly of $1.15 million for milestones, which were paid in Cubist common stock, and approximately $91.1 million for royalties on sales of CUBICIN, which were paid in cash. Unless terminated earlier in accordance with its terms, our license agreement with Eli Lilly expires on the later of: (a) the expiration of the last-to-expire of the patents assigned or licensed under the agreement; or (b) the end of the tenth year from the date of first sale of CUBICIN in any of the U.S., Canada, Japan, the United Kingdom, Germany, France, Italy, Spain, Switzerland, Netherlands or Belgium in which know-how royalties are due under the agreement.

        The primary composition of matter patent covering daptomycin in the U.S. has expired; however, currently there are five issued U.S. patents owned by Cubist that cover the drug product, manufacture, and/or administration or use of daptomycin. These patents and their expiration dates are as follows:

Patent No.	Expiration Date
6,852,689	September 2019
6,696,412	November 2020
6,468,967	September 2019
RE39,071	June 2016
4,885,243	August 2010

        On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva notifying us that it has submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689 and RE39,071. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date we were notified of the filing.

        In addition, we have also filed a number of patent applications in our name relating to the composition, manufacture, administration and/or use of daptomycin and/or other lipopeptides. The patent term extension in the U.S. for CUBICIN was applied to U.S. Patent no. 4,885,243.

Ecallantide for CTS:

        We have exclusively licensed from Dyax rights to ecallantide (a biologic). The composition of matter patent in the U.S. is U.S. Patent no. 7,276,480.

ALN-RSV compounds:

        We have exclusively licensed from Alnylam rights to RSV01 and backup compounds Alnylam has developed or will develop under the collaboration between our companies. Alnylam estimates that its fundamental RNAi patents covered under the agreement will expire both in and outside of the U.S.

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generally between 2016 and 2025. Allowed claims covering ALN-RSV01 in the U.S. would expire in 2026.

CB-182,804 for infections caused by Gram-negative bacteria:

        We have exclusively licensed from a third party technology related to the composition of matter of CB-182,804 and its manufacture and use and have utilized the third party to perform certain of the research activities for CB-182,804. The composition of matter provisional patent application, which we have exclusively licensed, is pending and, if a patent is issued in the U.S. it would expire no earlier than December 2029.

CB-183,315 for infections caused by Clostridium difficile bacteria:

        We own the rights related to the composition of matter of CB-183,315 and its manufacture and use. The composition of matter provisional patent application is pending and, if a patent is issued in the U.S., it would expire no earlier than December 2029.

CB-183,872 for infections caused by the Hepatitis C virus:

        We own the rights related to the composition of matter of CB-183,872 (a biologic) and its manufacture and use through our acquisition of Illumigen Biosciences, Inc. The composition of matter patent application, which we own, is pending and, if a patent is issued in the U.S. we expect it would expire no earlier than May 2026.

Manufacturing and Supply Agreements

CUBICIN:

        We outsource many of our supply chain activities, including: (i) manufacturing CUBICIN API; (ii) converting CUBICIN API into its finished, vialed and packaged formulation; (iii) managing warehousing and distribution of CUBICIN to our customers; and (iv) performing the order processing, order fulfillment, shipping, collection and invoicing services related to our CUBICIN product sales in the U.S.

        In September 2001, we entered into a manufacturing and supply agreement with ACS Dobfar SpA, or ACS, pursuant to which ACS manufactures and supplies us API for CUBICIN, on an exclusive basis, for commercial purposes. ACS is the sole provider of our commercial supply of CUBICIN API. Pursuant to our agreement with ACS, ACS currently stores some CUBICIN API at its facilities in Italy. We are also required to purchase at least one thousand kilograms of CUBICIN API in each calendar year until the expiration of the agreement on December 31, 2015, unless the agreement is terminated earlier in accordance with its terms. ACS also manufactures API for our clinical trials of CUBICIN. We expect that ACS's substantial fermentation and purification plant capacity can meet all of our anticipated needs for CUBICIN API for at least the next several years.

        In April 2000, we entered into an agreement with Hospira, Inc., or Hospira, formerly the core global hospital products business of Abbott Laboratories. Under this agreement, Hospira currently converts API into our finished, vialed formulation of CUBICIN. Under the original agreement with Hospira, Hospira had certain development obligations to assist us in obtaining an approved NDA covering CUBICIN. Hospira has no further development obligations under the agreement and we have paid Hospira approximately $0.6 million in milestone payments as full payment for its performance of these obligations. Under an amendment to this agreement, which we entered into with Hospira in June 2008, Hospira has additional development obligations relating to: (a) the validation of a second facility where Hospira will be able to provide fill/finish services for CUBICIN; (b) the validation of a new vial size for the supply by Hospira of CUBICIN vials; and (c) our ability to have Hospira provide us with

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packaging and labeling services for CUBICIN. We are paying Hospira to perform these development obligations, but there are no milestone payments associated with the services.

        In September 2003, we entered into a packaging services agreement with Catalent Pharma Solutions, LLC, or Catalent, the successor-in-interest to Cardinal Health PTS, LLC, or Cardinal Health, pursuant to which Catalent packages and labels the finished CUBICIN product that is produced by Hospira. We also have an additional services agreement with Oso Biopharmaceuticals Manufacturing, LLC, or Oso, successor-in-interest to an agreement that we originally entered into in August 2004 with Cardinal Health, to provide fill/finish as well as packaging services for the finished CUBICIN product at Oso's Albuquerque, New Mexico, facility.

        In June 2003, we entered into a services agreement with Integrated Commercialization Solutions, Inc., or ICS, under which ICS exclusively manages our CUBICIN warehousing and inventory program and distributes finished product to our customers. ICS also provides us with order processing, order fulfillment, shipping, collection and invoicing services in support of the direct ship model we have employed since the launch of CUBICIN in the U.S. Our agreement with ICS was amended and restated in July 2006, but the services provided have remained substantially the same.

        In September 2001, Cubist entered into a services agreement with PPD Development, LLC, or PPD, pursuant to which PPD originally provided various clinical, laboratory, GMP and other research and testing services. In December 2006, we received approval from the FDA to begin release testing of CUBICIN at our Lexington, Massachusetts, facility. We now perform the testing for the U.S. market that was previously performed at PPD.

Pipeline Programs:

Ecallantide:    Under our agreement with Dyax, Dyax, except under certain circumstances, is responsible for supplying drug substance for the development and commercialization of ecallantide. For our Phase 2 clinical trials, drug product also will be provided by Dyax. We use "drug substance" to refer to the active ingredient of a product and "drug product" to refer to the final, finished form of the product, ready for packaging and labeling. Dyax currently utilizes third party suppliers to supply such drug substance and product. Following our Phase 2 clinical trials, we will be responsible for turning ecallantide drug substance into drug product.

ALN-RSV01:    Under our agreement with Alnylam, Alnylam is responsible for providing drug substance and drug product during development and commercialization of ALN-RSV01.

CB-182,804 and CB-183,315:    We are responsible for providing or acquiring adequate supplies of drug substance and drug product for the development of these pipeline candidates. We are currently using third party suppliers to supply us with drug substance and drug product for these product candidates.

Government Regulation

Overview

        Our current and contemplated activities and the products and processes that will result from such activities are subject to substantial government regulation.

U.S.—FDA Process

        Pre-Clinical Testing:    Before testing of any compounds with potential therapeutic value in human subjects may begin in the U.S., stringent government requirements for pre-clinical data must be satisfied. Pre-clinical testing includes both in vitro (in an artificial environment outside of a living

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organism) and in vivo (within a living organism) laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation.

        Investigational New Drug application (IND):    Pre-clinical testing results obtained from studies in several animal species, as well as from in vitro studies, are submitted to the FDA as part of an IND application, and are reviewed by the FDA prior to the commencement of human clinical trials. These pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial clinical studies in human volunteers. Unless the FDA objects to an IND, the IND becomes effective 30 days following its receipt by the FDA. Once trials have commenced, the FDA may stop the trials by placing them on "clinical hold" because of concerns about, for example, the safety of the product being tested.

        Clinical Trials:    Clinical trials involve the administration of the drug to healthy human volunteers or to patients under the supervision of a qualified investigator pursuant to an FDA-reviewed protocol. Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another. Clinical trials must be conducted under protocols that detail the objectives of the study, the parameters to be used to monitor safety, and the efficacy criteria, if any, to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Each clinical trial must be conducted under the auspices of an Institutional Review Board, or IRB, at the institution that is conducting the trial that considers, among other things, ethical factors, the safety of human subjects, the possible liability of the institution and the informed consent disclosure, which must be made to participants in the clinical trial.

        Phase 1 Clinical Trials:    Phase 1 clinical trials represent the initial administration of the investigational drug to a small group of healthy human subjects or, more rarely, to a group of select patients with the targeted disease or disorder. The goal of Phase 1 clinical trials is typically to test for safety, dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical pharmacology and, if possible, to gain early evidence regarding efficacy.

        Phase 2 Clinical Trials:    Phase 2 clinical trials involve a small sample of the actual intended patient population and seek to assess the efficacy of the drug for specific targeted indications, to determine dose response and the optimal dose range and to gather additional information relating to safety and potential adverse effects.

        Phase 3 Clinical Trials:    Once an investigational drug is found to have some efficacy and an acceptable safety profile in the targeted patient population, Phase 3 clinical trials are initiated to establish further clinical safety and efficacy of the investigational drug in a broader sample of the general patient population at geographically dispersed study sites in order to determine the overall risk-benefit ratio of the drug and to provide an adequate basis for product labeling. The Phase 3 clinical development program consists of expanded, large-scale studies of patients with the target disease or disorder to obtain definitive statistical evidence of the efficacy and safety of the proposed product and dosing regimen.

        All of the phases of clinical studies must be conducted in conformance with the FDA's bioresearch monitoring regulations and Good Clinical Practices, which are ethical and scientific quality standards for conducting, recording, and reporting clinical trials to assure that the rights, safety, and well-being of trial participants are protected.

        New Drug Application:    All data obtained from a comprehensive development program including research and product development, manufacturing, pre-clinical and clinical trials and related information are submitted in an NDA to the FDA and in similar regulatory filings with the corresponding agencies in other countries for review and approval. In certain circumstances, this information is submitted in a Biologics License Application, or BLA. In addition to reports of the trials

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conducted under the IND, the NDA includes information pertaining to the preparation of the new drug, analytical methods, details of the manufacture of finished products and proposed product packaging and labeling. The submission of an application is no guarantee that the FDA will find the application complete and accept it for filing. The FDA may refuse to file the application and request additional information rather than accept the application for filing, in which case, the application must be resubmitted with the supplemental information. Once an application is accepted for filing, the Federal Food, Drug, and Cosmetic Act requires the FDA to review the application within 180 days of its filing, although in practice, longer times may be required. The review process is often significantly extended by FDA requests for additional information or clarification. In fact, FDA performance goals generally provide for action on an application within 10 months, but even that deadline gets extended in certain circumstances. In some cases, the FDA may decide to expedite the review of new drugs that are intended to treat serious or life threatening conditions and demonstrate the potential to address unmet medical needs. We were granted such a Priority Review after the CUBICIN NDA was submitted in 2002; and in 2005 after submission of the supplemental new drug application, or sNDA, for the expansion of the CUBICIN label.

        As part of its review, the FDA may refer the application to an advisory committee for evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Under legislation enacted in 2007, the FDA may determine that a risk evaluation and mitigation strategy, or REMS, is necessary to ensure that the benefits of a new product outweigh its risks. If required, a REMS may include various elements, such as publication of a medication guide, patient package insert, a communication plan to educate healthcare providers of the drug's risks, limitations on who may prescribe or dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug.

        In reviewing a BLA or NDA, the FDA may grant marketing approval, request additional information or deny the application if it determines the application does not provide an adequate basis for approval, or request additional information. On occasion, the FDA may require larger or additional clinical trials, leading to unanticipated delay or expense. Even if such additional information and data are submitted, the FDA may ultimately decide that the BLA or NDA does not satisfy the criteria for approval. Data from clinical trials may be subject to different interpretation, and the FDA may interpret data differently than Cubist. The receipt of regulatory approval often takes a number of years, involving the expenditure of substantial resources and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. Given the number of recent high profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, restricted distribution and use, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials, or restrictions on direct-to-consumer advertising.

        Phase 4 Clinical Trials:    Phase 4 clinical trials are studies that are conducted after a product has been approved. These trials can be conducted for a number of purposes, including to collect long-term safety information or to collect additional data about a specific population. As part of a product approval, the FDA may require that certain Phase 4 studies be conducted post-approval, and in these cases these Phase 4 studies are called post-marketing commitments.

        Adverse Event Reporting:    The FDA requires reporting of certain information on side effects and adverse events reported during clinical studies and after marketing approval. Non-compliance with FDA safety reporting requirements may result in FDA regulatory action that may include civil action or criminal penalties. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can result in additional limitations being placed on the product's use and, potentially, withdrawal or suspension of the product from the market.

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        Hatch-Waxman Act:    Under the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, Congress created an abbreviated FDA review process for generic versions of pioneer (brand name) drug products like CUBICIN. The law also provides incentives by awarding, in certain circumstances, non-patent marketing exclusivities to pioneer drug manufacturers. Newly approved drug products and changes to the conditions of use of approved products may benefit from periods of non-patent marketing exclusivity in addition to any patent protection the drug product may have. The Hatch-Waxman Act provides five years of "new chemical entity," or NCE, marketing exclusivity to the first applicant to gain approval of an NDA for a product that contains an active ingredient not found in any other approved product. The FDA granted CUBICIN five years of NCE exclusivity, which expired on September 12, 2008. The FDA is prohibited from accepting any ANDA for a generic drug for five years from the date of approval of the NCE, or four years in the case of an ANDA containing a patent challenge (see below). The FDA is similarly prohibited from accepting any NDA where the applicant does not own or have a legal right of reference to all of the data required for approval, otherwise known as a 505(b)(2) application. The five-year exclusivity protects the entire new chemical entity franchise, including all products containing the active ingredient for any use and in any strength or dosage form. This exclusivity will not prevent the submission or approval of a full NDA, as opposed to an ANDA or 505(b)(2) application, for any drug, including, for example, a drug with the same active ingredient, dosage form, route of administration, strength and conditions of use.

        The Hatch-Waxman Act also provides three years of exclusivity for applications containing the results of new clinical investigations (other than bioavailability studies) essential to the FDA's approval of new uses of approved products, such as new indications, dosage forms, strengths, or conditions of use. The FDA granted CUBICIN three years of exclusivity, which expires on May 25, 2009, for the additional indication of S. aureus, bloodstream infections (bacteremia). However, this exclusivity only protects against the approval of ANDAs and 505(b)(2) applications for the protected use and will not prohibit the FDA from accepting or approving ANDAs or 505(b)(2) applications for other products containing the same active ingredient.

        The Hatch-Waxman Act requires NDA applicants and NDA holders to provide certain information about patents related to the drug for listing in the Orange Book. ANDA and 505(b)(2) applicants must then certify regarding each of the patents listed with the FDA for the reference product. A certification that a listed patent is invalid or will not be infringed by the marketing of the applicant's product is called a "Paragraph IV certification." If the ANDA or 505(b)(2) applicant provides such a notification of patent invalidity or noninfringement, then the FDA may accept the ANDA or 505(b)(2) application four years after approval of the NDA.

        If a Paragraph IV certification is filed and the ANDA or 505(b)(2) application has been accepted as a reviewable filing by the FDA, the ANDA or 505(b)(2) applicant must then within 30 days provide notice to the NDA holder and patent owner stating that the application has been submitted and providing the factual and legal basis for the applicant's opinion that the patent is invalid or not infringed. The NDA holder or patent owner may file suit against the ANDA or 505(b)(2) applicant for patent infringement. If this is done within 45 days of receiving notice of the Paragraph IV certification, a one-time 30-month stay of the FDA's ability to approve the ANDA or 505(b)(2) application is triggered. The 30-month stay begins at the end of the NDA holder's data exclusivity period, or, if data exclusivity has expired, on the date that the patent holder is notified. The FDA may approve the proposed product before the expiration of the 30-month stay if a court finds the patent invalid or not infringed, or if the court shortens the period because the parties have failed to cooperate in expediting the litigation.

        On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva notifying us that it has submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for

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injection prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689 and RE39,071. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. As described above, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date we were notified of the filing.

        Pediatric Exclusivity:    Section 505(a) of the Federal Food, Drug, and Cosmetics Act provides for six months of exclusivity based on the submission of pediatric data subsequent to a written request from the FDA. This period of exclusivity is added to whatever statutory or regulatory periods of exclusivity cover a drug (e.g., NCE exclusivity or patents). This is not a patent term extension, rather, it extends the period during which the FDA cannot approve an ANDA or 505(b)(2) application.

European Union—EMEA Process

        In the EU, medicinal products must be authorized either through the decentralized procedure by the competent authorities of the EU Member States, or through the centralized procedure by the European Commission following an opinion by the European Medicines Agency, or EMEA. In many EU countries, pricing negotiations also must take place between the Marketing Authorization Holder and the competent national authorities before the product is sold in their market.

Other International Markets—Drug approval process

        In some international markets (e.g., China, Japan), additional clinical trials may be required prior to the filing or approval of marketing applications within the country.

Good manufacturing practices

        The FDA, the EMEA, the competent authorities of the EU Member States and other regulatory agencies regulate and inspect equipment, facilities, and processes used in the manufacturing of pharmaceutical and biologic products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location, or process, additional regulatory review and approval may be required. We also must adhere to current Good Manufacturing Practices, or cGMP, and product-specific regulations enforced by the FDA, the EMEA and the competent authorities of EU Member States following product approval. The FDA, the EMEA, the competent authorities of the EU Member States and other regulatory agencies also conduct regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our equipment, facilities, or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal, or administrative sanctions and/or remedies against us, including the suspension of our manufacturing operations or the withdrawal of our product from the market.

Sales, Marketing and Product Pricing

        In the U.S., the federal government regularly considers reforming health care coverage and costs. For example, reforms to Medicare have reduced the reimbursement rates for many of our products. Effective January 1, 2005, Medicare pays physicians and suppliers that furnish CUBICIN under a payment methodology using average sales price, or ASP, information. Manufacturers, including us, are required to provide ASP information to the Centers for Medicare and Medicaid Services on a quarterly basis. The manufacturer-submitted information is used to compute Medicare payment rates, which are

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set at ASP plus six percent, updated quarterly. There is a mechanism for comparison of such payment rates to widely available market prices, which could cause further decreases in Medicare payment rates, although this mechanism has yet to be utilized. Effective January 1, 2006, Medicare began to use the same ASP plus six percent payment methodology to determine Medicare rates paid for most drugs and biologics furnished by hospital outpatient departments. For calendar year 2008, the reimbursement rate in the hospital outpatient setting was ASP plus five percent and for 2009, it is ASP plus four percent. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the statute provides for civil monetary penalties of up to $10,000 for each misrepresentation and for each day in which the misrepresentation was applied. Another payment reform is the addition of an expanded prescription drug benefit for all Medicare beneficiaries known as Medicare Part D. This is a voluntary benefit that is being implemented through private plans under contractual arrangements with the federal government. Like pharmaceutical coverage through private health insurance, Part D plans establish formularies that govern the drugs and biologicals that will be offered and the out-of-pocket obligations for such products. In addition, plans are expected to negotiate discounts from drug manufacturers and pass on some of those savings to Medicare beneficiaries.

        Another action that may affect reimbursement related to our products involves a statutory requirement, and its implementing regulations, that Medicare may not make a higher payment for inpatient services that are caused by hospital acquired medical conditions arising after a patient is admitted to the hospital. Medicare pays for inpatient hospital services under a prospective payment system in which cases are grouped into Medicare Severity Diagnosis Related Groups, or MS-DRGs, and the amount of the single Medicare payment depends upon the applicable MS-DRG. The MS-DRG can vary based on the condition of the patient. Under the statute, effective October 1, 2008, if a case would be assigned to a higher paying MS-DRG because of a specified condition that arose after admission to the hospital, so-called hospital acquired conditions, or HACs, the Medicare payment would remain at the lower paying MS-DRG that would have applied in the absence of such condition. The Centers for Medicare and Medicaid Services, or CMS, is responsible for specifying the HACs to which this lower payment policy would apply. In July 2008, CMS issued a final rule which failed to establish MRSA as a HAC but stated that MRSA is addressed by the rule in situations where MRSA triggers another condition that is itself a HAC. Other conditions may be added as HACs in the future, including MRSA. As a result of this policy, in certain circumstances, hospitals may receive less reimbursement for Medicare patients who obtain a HAC and may be treated with CUBICIN.

        We also participate in the Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, and under multiple subsequent amendments of that law. Sections 6001, 6002, and 6003 of the Deficit Reduction Act of 2005, or DRA, made significant changes to the Medicaid prescription drug provisions of the Social Security Act. These changes include, but are not limited to, revising the definition of average manufacturer price, or AMP, establishing an obligation to report AMP on a monthly basis, in addition to a quarterly basis, establishing a new formula for calculating federal upper limits, or FULs, requiring rebates for certain physician-administered drugs, and clarifying rebate liability for authorized generic drugs. Under the Medicaid rebate program, we pay a rebate for each unit of product reimbursed by Medicaid. The amount of the rebate for each product is set by law as the larger of 15.1% of AMP or the difference between AMP and the best price available from us to any commercial or non-governmental customer. The rebate amount must be adjusted upward where the AMP for a product's first full quarter of sales, when adjusted for increases in the CPI-U, or Consumer Price Index—Urban, exceeds the AMP for the current quarter with the upward adjustment equal to the excess amount. The rebate amount is required to be recomputed each quarter based on our report of current AMP and best price for each of our products to the Centers for Medicare and Medicaid Services. The terms of our participation in the program imposes a requirement for us to report revisions to AMP or best price within a period not to exceed 12 quarters from the quarter in which the data was originally due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision. In

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addition, if we were found to have knowingly submitted false information to the government, the statute provides for civil monetary penalties in the amount not to exceed $100,000 per item of false information in addition to other penalties available to the government.

        The availability of federal funds to pay for CUBICIN under the Medicaid and Medicare Part B programs requires that we extend discounts under the 340B/PHS drug pricing program. The 340B/PHS drug pricing program extends discounts to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare beneficiaries.

        We also make our products available for purchase by authorized users of the Federal Supply Schedule, or FSS, of the General Services Administration pursuant to our FSS contract with the Department of Veterans Affairs. Under the Veterans Health Care Act of 1992, or the VHC Act, we are required to offer deeply discounted FSS contract pricing to four federal agencies—the Department of Veterans Affairs, the Department of Defense, the Coast Guard and the Public Health Service (including the Indian Health Service)—for federal funding to be made available for reimbursement of any of our products under the Medicaid program and for our products to be eligible to be purchased by those four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the "Federal Ceiling Price," which is, at a minimum, 24% off the Non-Federal Average Manufacturer Price, or "Non-FAMP", for the prior fiscal year. In addition, if we are found to have knowingly submitted false information to the government, the VHC provides for civil monetary penalties of not to exceed $100,000 per false item of information in addition to other penalties available to the government.

        There is no legislation at the EU level governing the pricing and reimbursement of medicinal products in the European Union. As a result, the competent authorities of each of the 27 EU Member States have adopted individual strategies regulating the pricing and reimbursement of medicinal products in their territory. These strategies often vary widely in nature, scope and application. However, a major element that they have in common is an increased move towards reduction in the reimbursement price of medicinal products and reduction in the number and type of products selected for reimbursement.

        Future legislation or regulatory actions implementing recent or future legislation may have a significant effect on our business. Our ability to successfully commercialize CUBICIN and any other products may depend in part on the extent to which reimbursement for the costs of our products and related treatments will be available in the U.S. and worldwide from government health administration authorities, private health insurers and other organizations. Substantial uncertainty exists as to the reimbursement status of newly approved health care products by third party payors.

        The FDA regulates all advertising and promotion activities for products under its jurisdiction both prior to and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Physicians may prescribe legally available drugs for uses that are not described in the drug's labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties, and often reflect a physician's belief that the off-label use is the best treatment for the patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA regulations do impose stringent restrictions on manufacturers' communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, and the full range of civil and criminal penalties available to the FDA.

        We are also subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. Due to the breadth of

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the statutory provisions and the absence of guidance in the form of regulations and very few court decisions addressing industry practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs (including Medicare and Medicaid). If the government were to allege or convict us of violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Further, there are an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state authorities.

Other Regulatory Processes

        We are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including the laws relating to the oversight activities of the Securities and Exchange Commission, or SEC, and the regulations of the NASDAQ Stock Market, on which our shares are traded. We are also subject to regulation under other federal laws and regulation under state and local laws, including laws relating to occupational safety, laboratory practices, environmental regulations, and hazardous substance control.

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Our Employees

        As of February 1, 2009, we had approximately 554 full-time employees. We consider our employee relations to be good.

Our Executive Officers and Directors
Michael W. Bonney	50	President, Chief Executive Officer and Director
Robert J. Perez, MBA	44	Executive Vice President, Chief Operating Officer
Lindon M. Fellows	57	Senior Vice President, Technical Operations
Steven C. Gilman, Ph.D.	56	Senior Vice President, Discovery and Non-clinical Development and Chief Scientific Officer
Tamara L. Joseph, J.D.	46	Senior Vice President, General Counsel and Secretary
David W.J. McGirr, MBA	54	Senior Vice President and Chief Financial Officer
Gregory Stea	51	Senior Vice President, Commercial Operations
Santosh Vetticaden, Ph.D., M.D.	49	Senior Vice President, Clinical Development and Chief Medical Officer
Kenneth M. Bate, MBA(1)	58	Lead Director
Mark H. Corrigan, M.D.(1)(4)	51	Director
Sylvie Grégoire, Pharm. D.(3)	47	Director
Nancy J. Hutson, Ph.D.(3)(4)	59	Director
David W. Martin, Jr., M.D.(4)	68	Director
Walter R. Maupay, Jr., MBA(2)(3)*	70	Director
Martin Rosenberg, Ph.D.(4)*	63	Director
J. Matthew Singleton, MBA, CPA(1)*	56	Director
Martin H. Soeters(2)	54	Director
Michael B. Wood, M.D.(2)*	65	Director

(1)

Member of Audit Committee

(2)

Member of Compensation Committee

(3)

Member of Corporate Governance and Nominating Committee

(4)

Member of Scientific Affairs Committee

*

Chair of Committee

Mr. Bonney has served as our President and Chief Executive Officer and as a member of the Board of Directors since June 2003. From January 2002 to June 2003, he served as our President and Chief Operating Officer. From 1995 to 2001, he held various positions of increasing responsibility at Biogen, Inc., a biopharmaceutical company, including Vice President, Sales and Marketing from 1999 to 2001. While at Biogen, Mr. Bonney built the commercial infrastructure for the launch of Avonex. Prior to that, Mr. Bonney held various positions of increasing responsibility in sales, marketing and strategic planning at Zeneca Pharmaceuticals, ending his eleven-year career there serving as National Business Director. Mr. Bonney received a B.A. in Economics from Bates College. Mr. Bonney is a director of NPS Pharmaceuticals, Inc., a biopharmaceutical company, and serves on the Boards of Trustees of the Beth Israel Deaconess Medical Center and Bates College. Mr. Bonney is also a member of the Biotechnology Industry Organization, or BIO, Health Section Governing Body.

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Mr. Perez has served as our Executive Vice President and Chief Operating Officer since August 2007. Prior to this, he was our Senior Vice President, Commercial Operations since July 2004. From August 2003 to July 2004, he served as our Senior Vice President, Sales and Marketing. Prior to joining Cubist, he served as Vice President of Biogen, Inc.'s CNS Business Unit where he was responsible for leading the U.S. neurology franchise. From 1995 to 2001, he served as a Regional Director, Director of Sales, and Avonex® Commercial Executive at Biogen. From 1987 to 1995, Mr. Perez held various sales and marketing positions at Zeneca Pharmaceuticals, ultimately serving as Regional Business Director, responsible for sales, marketing and national accounts for the Western Regional Business Unit. Mr. Perez is a director of AMAG Pharmaceuticals, Inc., a biopharmaceuticals company. Mr. Perez received a B.S. from California State University, Los Angeles and an M.B.A. from The Anderson School at UCLA.

Mr. Fellows has served as our Senior Vice President, Technical Operations since August 2005. From July 2004 until August 2005, Mr. Fellows was Vice President, Corporate Quality Assurance of Millennium Pharmaceuticals, Inc., a biopharmaceutical company, where he was responsible for ensuring product quality and compliance to both U.S. and international requirements. From July 1995 until July 2004, Mr. Fellows held various positions of increasing responsibility at DSM Life Sciences Products, including Managing Director, Director of Quality Compliance, and Vice President of Quality Assurance and Regulatory Affairs with responsibility for anti-infectives, fine chemicals, and food sciences. Mr. Fellows holds a B.S. in Microbiology from Colorado State University.

Dr. Gilman has served as our Senior Vice President, Discovery & Nonclinical Development and Chief Scientific Officer, since February 2008. From April 2007 until February 2008, Dr. Gilman served as Chairman of the Board of Directors and CEO of ActivBiotics, a biopharmaceutical company. From 2004 to April 2007, he served as President, CEO, and a member of the board of directors of ActivBiotics. Previously Dr. Gilman worked at Millennium Pharmaceuticals, Inc., where he held a number of senior leadership roles including Vice President and General Manager, Inflammation, responsible for all aspects of the Inflammation business from early gene discovery to product commercialization. Prior to Millennium, he was Group Director at Pfizer Global Research and Development, where he was responsible for drug discovery of novel antibacterial agents as well as several other therapeutic areas. Dr. Gilman has also held scientific, business, and academic appointments at Wyeth, Cytogen Corporation, Temple Medical School, and Connecticut College. He currently serves on the boards of directors of Nextcea, Inc., a private drug discovery company, and the Massachusetts Society for Medical Research. Dr. Gilman received his Ph.D. and M.S. degrees in microbiology from Pennsylvania State University, his post-doctoral training at Scripps Clinic and Research Foundation, and received a B.A. in microbiology from Miami University of Ohio.

Ms. Joseph has served as our Senior Vice President, General Counsel and Secretary since May 2008. Ms. Joseph was Executive Vice President, General Counsel and Company Secretary, Mayne Pharma Ltd., from July 2006 until joining Cubist. Ms. Joseph was Vice President, General Counsel and Company Secretary, at Transkaryotic Therapies, Inc. Previously, Ms. Joseph worked at Biogen Idec from 1998 to 2005, based in Paris, France, where she established and then had overall responsibility for the international legal and public affairs functions of Biogen's international operations, serving as Vice President, International, Legal, from March 2002 until she left Biogen Idec in 2005. From 1990 to 1998, Ms. Joseph was an Associate at the law offices of Morrison & Foerster in New York, Los Angeles and Brussels, where she handled litigation, intellectual property, and commercial law matters. Prior to joining Morrison & Foerster, from 1988 to 1990, she was an Associate at Fried, Frank, Harris, Shriver & Jacobson in New York. From 2005 to 2007, Ms. Joseph was a Non-Executive Board Member of LTK Farma S.A.S. Ms. Joseph received a B.A. from Duke University, a J.D. from the University of Michigan Law School, and LLM degrees from the College of Europe and from the University of Paris. She is admitted to practice law in New York, California, England, and Wales.

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Mr. McGirr has served as our Senior Vice President and Chief Financial Officer since November 2002. He also served as our Treasurer from November 2002 until January 2003. From 1999 to 2002, Mr. McGirr was the President and Chief Operating Officer of hippo inc, an internet technology, venture-financed company. Mr. McGirr served as a member of hippo's Board of Directors from 1999 to 2003. From 1996 to 1999, he was the President of GAB Robins North America, Inc., a risk management company, serving also as Chief Executive Officer from 1997 to 1999. Mr. McGirr was a private equity investor from 1995 to 1996. From 1978 to 1995, Mr. McGirr served in various positions within the S.G. Warburg Group, ultimately as Chief Financial Officer, Chief Administrative Officer and Managing Director of S.G. Warburg & Co., Inc., a position held from 1992 to 1995. Mr. McGirr received a B.Sc. in Civil Engineering from the University of Glasgow and received an M.B.A. from The Wharton School at the University of Pennsylvania.

Mr. Stea has served as our Senior Vice President, Commercial Operations since February 2009. Prior to this, he served as our Vice President, Sales and Marketing, since September 2007. Previously, Mr. Stea served as Vice President, Sales, from July 2005 to August 2007. From August 2002 to June 2005, he served as our Executive Director, Sales. Prior to joining Cubist, Mr. Stea ran his own business from January 1997 to December 2001. Mr. Stea was employed by Amgen Inc. from May 1988 to December 1996 and was the first person in Amgen's sales organization and a key contributor in building the commercial infrastructure through the launch of Amgen's two flagship products Epogen® and Neupogen® and subsequently became Vice President of Sales in January 1994. Mr. Stea began his pharmaceutical career at Glaxo Pharmaceuticals from 1982 to 1988, where he helped launch several products, including two parenteral cephalosporin antibiotics. Mr. Stea received his B.B.A. from Temple University.

Dr. Vetticaden has served as our Senior Vice President, Clinical Development and Chief Medical Officer since December 2008. Dr. Vetticaden served as a consultant from August 2008 until joining Cubist. From February 2007 to August 2008, he was Senior Vice President and Chief Medical Officer at Maxygen, Inc. Previously, from April 2003 to February 2007, Dr. Vetticaden was Vice President, Clinical Research, at Scios, Inc., a subsidiary of Johnson & Johnson, and was responsible for all development for Phases I through IV trials. From 2000 to 2003, he was Senior Director, Global Project Team Leader, Cardiovascular, at Aventis Pharmaceuticals (now Sanofi-Aventis). From 1997 to 2000, Dr. Vetticaden was Director, Clinical Research, in the Whitehall-Robins Healthcare Division of American Home Products. From 1991 to 1997, Dr. Vetticaden pursued a medical degree and served his residency in internal medicine at the Baylor College of Medicine. Earlier in his career he worked at Biopharmaceutics Research Enterprises/International Drug Registration, Inc. Dr. Vetticaden received a B.Pharm. (Honors) from Banaras Hindu University in Banaras, India, an M.D. degree from the University of Maryland and a Ph.D. in pharmacokinetics and pharmacodynamics from Virginia Commonwealth University.

Mr. Bate has served as one of our directors since June 2003 and became our lead director in June 2006. Since January 2007, Mr. Bate has been President and Chief Executive Officer and a director of Nitromed, Inc., a pharmaceutical company. From March 2006 until January 2007, Mr. Bate was Chief Operating Officer and Chief Financial Officer of Nitromed. From January 2005 to March 2006, he was employed at JSB Partners, a firm which Mr. Bate co-founded that provides banking and advisory services to biopharmaceutical companies. From 2002 to January 2005, Mr. Bate was head of commercial operations and Chief Financial Officer at Millennium Pharmaceuticals, Inc. In 1999, Mr. Bate co-founded JSB Partners, an investment banking and transaction advisory firm serving the biopharmaceutical industry. He was a partner at JSB Partners through 2002. From 1997 to 1999, Mr. Bate served as Senior Managing Director and Chief Executive Officer of MPM Capital, LP, a venture capital company. He was also an advisor to BB Bioventures, a venture capital fund. Mr. Bate's life sciences industry experience also includes six years at Biogen, Inc. from 1993 to 1996 as the company's Vice President of sales and marketing, and as Chief Financial Officer from 1990 to 1993.

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Mr. Bate is a director of AVEO Pharmaceuticals, Inc., a biopharmaceutical company. Mr. Bate received his B.A. degree in Chemistry from Williams College, and an MBA from The Wharton School of the University of Pennsylvania.

Dr. Corrigan has served as one of our directors since June 2008. Dr. Corrigan is Executive Vice President, Research and Development at Sepracor, Inc. and has served in this position since he joined Sepracor in April 2003. Prior to joining Sepracor, Dr. Corrigan was Group Vice President of Global Clinical Research and Experimental Medicine at Pharmacia Corp., a pharmaceutical company, from 1998 to 2003, with responsibility for clinical research, biostatistical/data management and global procurement for compounds in Phases I-IIIB. Prior to joining the pharmaceutical industry with the Upjohn Company (which became Pharmacia) in 1993, Dr. Corrigan spent five years in academic research at the University of North Carolina Medical School, focusing in psychoneuroendocrinology. During his tenure, he was a principal investigator for several novel antipsychotics and continues to maintain an appointment as Adjunct Clinical Professor of Psychiatry. Dr. Corrigan also serves on the board of NeuroMed Technologies, Inc. He has more than 20 years of experience in treating psychiatric and central nervous system disorders and is board certified in psychiatry and neurology. He earned his undergraduate and medical degrees from the University of Virginia and subsequently received specialty training in psychiatry at Cornell and Maine Medical Center. Dr. Corrigan is a Distinguished Fellow of the American Psychiatric Association (APA).

Dr. Grégoire has served as one of our directors since June 2006. Since 2007, Dr. Grégoire has served as President, Human Genetic Therapies division of Shire Pharmaceuticals Group plc, a pharmaceuticals company. From August 2005 to June 2008, she served as a director of IDM-Pharma, a biopharmaceuticals company, including serving as Executive Chairwoman from August 2006 to October 2007. From 2004 to 2005, Dr. Grégoire served as President and Chief Executive Officer of GlycoFi, Inc., a biotherapeutics company. From 2003 to 2004, Dr. Grégoire was a consultant to the biopharmaceuticals industry. From 2001 through 2003, Dr. Grégoire served as Executive Vice President, Technical Operations, of Biogen, Inc. and its successor Biogen Idec Inc., and from 1995 to 2001, she held various roles of increasing responsibility with Biogen. Prior to Biogen, Dr. Grégoire held clinical research and regulatory roles with Merck & Co., a pharmaceuticals company. She received her Pharm.D. degree from the State University of New York at Buffalo and her pharmacy graduate degree (Bachalaureat en Pharmacie) from the Université Laval, Quebec City.

Dr. Hutson has served as one of our directors since June 2008. She retired from Pfizer, Inc. in 2006 after spending 25 years in various research and leadership positions, most recently serving as Senior Vice President, Pfizer Global Research and Development and Director of Pfizer's pharmaceutical R&D site, known as Groton/New London Laboratories. Dr. Hutson's career at Pfizer was marked by progressively demanding jobs, first in the research laboratories, then in strategic staff roles and as global leader of Exploratory Development, she led the Groton/New London Laboratory, which was the largest R&D site of any pharmaceutical company. She led 4,500 colleagues (primarily scientists) and managed a budget in excess of $1 billion. While at Pfizer, Dr. Hutson was an active member of numerous committees, serving as Chair of the Groton New London Laboratories Leadership Team and the Exploratory Development Strategy Team, and as a member of the Worldwide Development Operations Group, Senior Leadership Team and the Pharmaceuticals Steering Committee, among others. She was also a sponsor of the Network of Executive Women where she served as a mentor for senior women at Pfizer Global Research and Development. Dr. Hutson has authored or co-authored more than 45 academic research papers and abstracts. She received her B.A. in General Biology from Illinois Wesleyan University and her Ph.D. in Physiology and Biochemistry from Vanderbilt University. She completed a post-doctoral fellowship at the Diabetes and Endocrinology Center at Vanderbilt and a postdoctoral fellowship in the Department of Clinical Biochemistry at the University of Oxford.

Dr. Martin has served as one of our directors since October 1997 and as our lead director from October 2004 until June 2006. Since 2004, he has been the Founder, Chairman, and Chief Executive

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Officer of AvidBiotics Corporation, a biotechnology company. In 2003, he was Chairman and Chief Executive Officer of GangaGen, Inc., a biotechnology company. From July 1997 until April 2003, Dr. Martin served as President, Chief Executive Officer and a founder of Eos Biotechnology, Inc., a biotechnology company. From 1995 to 1996, Dr. Martin was President and Chief Executive Officer of Lynx Therapeutics, Inc., a biotechnology company. During 1994 and through May 1995, Dr. Martin served as Senior Vice President of Chiron Corporation, a biopharmaceutical company. From 1991 to 1994, Dr. Martin served as Executive Vice President of DuPont Merck Pharmaceutical Company. From 1983 to 1990, Dr. Martin was Vice President and then Senior Vice President of Research and Development at Genentech, Inc., a biopharmaceutical company. Prior to 1983, Dr. Martin was a Professor of Medicine, Professor of Biochemistry and an Investigator of the Howard Hughes Medical Institute at the University of California, San Francisco. Dr. Martin is also Lead Director of Varian Medical Systems, Inc., a medical equipment and software supplier. Dr. Martin attended M.I.T. and received an M.D. from Duke University.

Mr. Maupay has served as one of our directors since June 1999. Since June 1995, when he retired from Calgon Vestal Laboratories, a division of Bristol-Myers Squibb Corporation, Mr. Maupay has served as a director at a number of public and private companies. Mr. Maupay is currently a director of SyntheMed, Inc., a biomaterials company, and is director and non-executive chair of Kensey Nash Corporation, a medical device company. From January 1995 to June 1995, Mr. Maupay served as Group Executive of Calgon Vestal Laboratories. From 1988 to 1995, Mr. Maupay served as President of Calgon Vestal Laboratories, at that time, a subsidiary of Merck and Company. From 1984 to 1988, Mr. Maupay served as Vice President, Healthcare at Calgon Vestal Laboratories. Mr. Maupay received his B.S. in Pharmacy from Temple University and an MBA from Lehigh University.

Dr. Rosenberg has served as one of our directors since March 2005. Since 2003, Dr. Rosenberg has been the Chief Scientific Officer of Promega Corporation, a biotechnology company. From 2001 to 2003, Dr. Rosenberg served as Vice President, Research and Development of Promega Corporation. From 2000 until 2001, Dr. Rosenberg was Senior Vice President, Anti-Infectives, Drug Discovery at GlaxoSmithKline, a pharmaceutical company. From 1996 until 2000, Dr. Rosenberg was Senior Vice President, Anti-Infectives at SmithKline Beecham Corporation, a predecessor company to GlaxoSmithKline. Prior to 2000, Dr. Rosenberg held a variety of roles of increasing responsibility with SmithKline Beecham Corporation. Before joining SmithKline Beecham, Dr. Rosenberg spent 10 years at the National Institutes of Health and was a Section Chief at the National Cancer Institute. Dr. Rosenberg is a director of Promega Corporation, the Medical College of Wisconsin Research Foundation, and Scarab Genomics, a biotechnology company. He also serves as a member of the Advisory Council for the National Institutes of Allergy & Infectious Diseases at the National Institute of Health. He participates on a variety of academic and industry Scientific Advisory Boards and holds an adjunct Professorship at the University of Wisconsin, Department of Bacteriology, Madison, WI. Dr. Rosenberg is an Editor of Microbial Biotechnology, a Senior Editor of the Journal of Bacteriology and a member of several other journal Editorial Boards. Dr. Rosenberg received a B.A. degree from the University of Rochester and a Ph.D. from Purdue University.

Mr. Singleton has served as one of our directors since June 2003. From 2000 to the present, he has served as Executive Vice President and Chief Financial Officer of CitationShares, LLC, a majority-owned subsidiary of Cessna Aircraft Company and Textron Inc. From 1994 to 1997, Mr. Singleton served as a Managing Director, Executive Vice President and Chief Administrative Officer of CIBC World Markets, an investment banking firm. Previous to that, he served in a variety of roles from 1974 until 1994 at Arthur Andersen & Co., a public accounting firm, ending his tenure there as Partner-In-Charge of the Metro New York Audit and Business Advisory Practice. During 1980 and 1981, he served as a Practice Fellow at the Financial Accounting Standards Board. Mr. Singleton served as a director of Salomon Asset Reinvestment Company from 1998 to 2006. He received an A.B. in

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Economics from Princeton University and an M.B.A. from New York University. Mr. Singleton is a Certified Public Accountant.

Mr. Soeters has served as one of our directors since September 2006. Since 2008, Mr. Soeters has served as President of Novo Nordisk Europe A/S, a healthcare company located in Europe, and since 2007, as Senior Vice President of Novo Nordisk Europe A/S. Novo Nordisk A/S is a healthcare company with headquarters in Copenhagen, Denmark. From 2000 to 2007, Mr. Soeters served as President and Senior Vice President of Novo Nordisk, Inc. in Princeton, NJ. From 1998 to 2000, he served as Senior Vice President International Marketing at Novo Nordisk Denmark, and from 1994 to 1998, he served as Managing Director of Novo Nordisk France. From 1992 to 1995, Mr. Soeters was Managing Director at Novo Nordisk Belgium, and in 1991, he was International Marketing Director at Novo Nordisk Denmark. Prior to that time, he held various sales and marketing positions at Novo Nordisk in the Netherlands between 1980 and 1991. During 2007 and 2008, Mr. Soeters was a director of Pharmacopeia, Inc., a biopharmaceutical company. He is also a member of the Board of Overseers of the Joslin Diabetes Center. He was a Trustee of the HealthCare Institute of New Jersey, and from 2005 to 2007, a member of the Biotechnology Industry Organization Board of Directors. From 2004-2006, he served on the Board of Directors of the Pharmaceutical Research and Manufacturers of America (PhRMA) in Washington, D.C. Mr. Soeters studied meteorology, as well as sales, product and marketing management in the Netherlands, and he also attended the Stanford Executive Program.

Dr. Wood has served as one of our directors since March 2005. Dr. Wood is currently an Orthopedic Surgeon and retired President-emeritus of the Mayo Foundation and Professor of Orthopedic Surgery, Mayo Clinic School of Medicine. He was previously Chief Executive Officer of the Mayo Foundation from 1999 until 2003. Prior to 1999, Dr. Wood held a variety of roles within the Mayo Clinic. Dr. Wood is a director of Steris Corporation, a medical sterilization company, and Assistive Technology Group, Inc., a rehabilitation and durable medical equipment company. Dr. Wood is also a director of SingHealth, an integrated health system in Singapore and. Dr. Wood received a B.A. degree from Franklin and Marshall College, an M.D., C.M. degree from McGill University and an M.S. degree from the University of Minnesota.

WHERE YOU CAN FIND MORE INFORMATION

        We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, under which we file periodic reports, proxy and information statements and other information with the SEC. Copies of the reports, proxy statements and other information may be examined without charge at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or on the Internet at http://www.sec.gov. Copies of all or a portion of such materials can be obtained from the Public Reference Room of the SEC upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room.

        Financial and other information about Cubist is available on our website (http://www.cubist.com). We make available on our website, free of charge, copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Copies are available in print to any of our shareholders upon request in writing to "Investor Relations, Cubist Pharmaceuticals, Inc., 65 Hayden Ave., Lexington, MA 02421."

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ITEM 1A.    RISK FACTORS

Investing in our company involves a high degree of risk. You should consider carefully the risks described below, together with the other information in and incorporated by reference into this Annual Report. If any of the following risks actually occur, our business, operating results or financial condition could be materially adversely affected. This could cause the market price of our common stock to decline, and could cause you to lose all or part of your investment.

Risks Related to Our Business

We depend heavily on the success of CUBICIN, which may not continue to be widely accepted in the U.S. by physicians, patients, third-party payors, or the medical community in general or may not become as widely accepted in other countries around the world where CUBICIN is being commercialized or may be commercialized in the future.

        We have invested a significant portion of our time and financial resources in the development and commercialization of CUBICIN. For the foreseeable future, our ability to generate revenues will depend primarily on the commercial success of CUBICIN in the U.S., which depends upon its continued acceptance by the medical community and the future market demand and medical need for CUBICIN. CUBICIN was approved by the FDA in September 2003 for the treatment of complicated skin and skin structure infections, or cSSSI, and launched in the U.S. in November 2003. In May 2006, the FDA approved CUBICIN for the additional indication of S. aureus bloodstream infections (bacteremia), including those with right-sided infective endocarditis, caused by methicillin-susceptible and methicillin-resistant isolates.

        We cannot be sure that CUBICIN will continue to be accepted by purchasers in the pharmaceutical market for the treatment of cSSSI and S. aureus bacteremia in the U.S. Further, CUBICIN currently competes in the U.S. with a number of existing anti-infective drugs manufactured and marketed by major pharmaceutical companies and potentially will compete against two new anti-infective drugs, telavancin and ceftobiprole, whose approval may occur in the near future, and others that are being reviewed by the FDA or under development, including late stage development, at other companies.

        As of December 31, 2008, CUBICIN had been approved in a total of 58 countries, including the U.S. Today CUBICIN is being marketed in 25 of these countries, with an additional 10 new market launches anticipated in 2009, the majority of these being Novartis territories. In the EU, CUBICIN is approved for the indications of cSSTI, RIE due to S. aureus, and S. aureus bacteremia when associated with RIE or with cSSTI. To date, EU sales have grown more slowly than U.S. sales due primarily to lower overall MRSA rates in the hospital and community, an additional glycopeptide competitor (teicoplanin), which is not approved in the U.S., the evolving commercialization strategy and mix of resources that Novartis has been using to commercialize CUBICIN, as well as other factors. We cannot guarantee that our international CUBICIN partners will be successful in launching or marketing CUBICIN in their markets. Moreover, we only receive a portion of the revenues from sales of CUBICIN by our international partners.

        The degree of continued market acceptance of CUBICIN, and our ability to grow revenues from the sale of CUBICIN, depends on a number of additional factors, including those set forth below and the other CUBICIN-related risk factors described in this "Risk Factors" section:

•

the continued safety and efficacy of CUBICIN, both actual and perceived;

•

the ability of target organisms to develop resistance to CUBICIN;

•

risks of any unanticipated adverse reactions to CUBICIN in patients;

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•

the advantages and disadvantages of CUBICIN, both actual and perceived, compared to alternative therapies with respect to cost, availability of reimbursement, convenience, safety, efficacy and other factors;

•

the reimbursement policies of government and third-party payors;

•

our ability to educate the medical community about the safety and efficacy of CUBICIN in compliance with FDA, other federal and state government rules and regulations, and other promotional rules and standards;

•

the level of access that our sales force has to physicians who are likely to prescribe CUBICIN;

•

effects of the economic downturn in the U.S. and around the world, which could lower demand for CUBICIN due to, for example, hospitals', insurers' and third party payors' attempts to minimize costs by encouraging the purchase of lower-cost alternative therapies, including generic products like vancomycin, patients electing lower cost alternative therapies due to increased out-of-pocket costs, patients choosing to have fewer elective surgeries and other procedures, and lower overall admissions to hospitals;

•

our ability to continue to successfully sell CUBICIN and MERREM I.V. in the U.S. using the same sales force; and

•

our international partners' efforts and their success in achieving marketing approval for and selling CUBICIN in their respective territories, particularly Novartis in the EU.

        Because our primary source of revenues is CUBICIN, any impediment to the success of CUBICIN would have a significant effect on our business and financial results.

We may not be able to obtain, maintain or protect certain proprietary rights necessary for the development and commercialization of CUBICIN or our internally-developed drug candidates and research technologies. In addition, third parties from which we license proprietary rights or obtain other types of rights to develop and/or commercialize marketed products, drug candidates or research technologies may not be able to obtain, maintain or protect such proprietary rights.

        Our commercial success will depend in part on obtaining and maintaining U.S. and foreign patent protection for CUBICIN, our drug candidates, and our research technologies and successfully enforcing and defending these patents against third party challenges. We consider that, in the aggregate, our unpatented proprietary technology, patent applications, patents and licenses under patents owned by third parties are of material importance to our operations. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. The actual protection afforded by a patent can vary from country to country and may depend upon the type of patent, the scope of its coverage and the availability of legal remedies in the country. Legal standards relating to the validity and scope of patents covering pharmaceutical and biotechnological inventions are continually developing, both in the U.S. and in other important markets outside the U.S. Our patent position and the patent positions of our licensors are highly uncertain and involve complex legal and factual questions, and we cannot predict the scope and breadth of patent claims that may be afforded to our patents or to other companies' patents. We cannot assure you that the patents that we or our collaborators, licensors or other third parties with which we have similar arrangements, which we refer to collectively as our licensors or collaborators, obtain or the unpatented proprietary technology we or our licensors hold will afford us commercial protection.

        The primary composition of matter patent covering CUBICIN in the U.S. has expired. We own or have licensed rights to a limited number of patents directed toward methods of administration and methods of manufacture of CUBICIN. We cannot be sure that patents will be granted to us or to our licensors with respect to any of our or their pending patent applications for CUBICIN, our other drug

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candidates, or our research technologies or with respect to any patent applications filed by us in the future. We also cannot be sure that any of our existing or our licensors' patents or any patents that may be granted to us or our licensors in the future will be commercially useful in protecting CUBICIN, our other drug candidates or our other technology. Of particular concern for a company like ours, that is primarily dependent upon CUBICIN to generate revenues and profits, is that third parties may seek to market generic versions of CUBICIN by filing an Abbreviated New Drug Application, or ANDA, with the FDA in which they claim that patents protecting CUBICIN owned or licensed by us and listed with the FDA in what is called "the Orange Book" are invalid, unenforceable and/or not infringed. This type of ANDA is referred to as a Paragraph IV filing. On February 9, 2009, we received a Paragraph IV certification notice letter from Teva notifying us that it has submitted an ANDA to the FDA for approval to market a generic version of CUBICIN before the expiration of the patents covering CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689 and RE39,071. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date we were notified of the filing. A court or other agency with jurisdiction may find the patents that are the subject of the notice letter invalid, not infringed and/or unenforceable. Until the litigation commences, and during the period in which such litigation is pending, the uncertainty of its outcome may cause our stock price to decline. In addition, an adverse result in the litigation, whether appealable or not, will likely cause our stock price to decline. Any final unappealable adverse result in the litigation will likely have a material adverse effect on our results of operations and financial condition and cause our stock price to decline.

        The degree of future protection for our proprietary rights is uncertain. We cannot be certain that the named applicants or inventors of the subject matter covered by our patent applications or patents, whether directly owned by us or licensed to us, were the first to invent or the first to file patent applications for such inventions. Third parties may challenge, infringe, circumvent or seek to invalidate existing or future patents owned by or licensed to us. Even if we have valid and enforceable patents, these patents still may not provide sufficient protection against competing products or processes.

        If our collaborators or our consultants develop inventions or processes independently that may be applicable to our products under development, disputes may arise about ownership of proprietary rights to those inventions and/or processes. Such inventions and/or processes will not necessarily become our property but may remain the property of those persons or their employers. Protracted and costly litigation could be necessary to enforce and determine the scope of our proprietary rights. Moreover, the laws of foreign countries in which we market our drug products may afford little or no effective protection to our intellectual property, thereby easing our competitors' ability to compete with us in such countries.

        We have and may in the future engage in collaborations, sponsored research agreements, and other arrangements with academic researchers and institutions that have received and may receive funding from U.S. government agencies. As a result of these arrangements, the U.S. government or certain third parties may have rights in certain inventions developed during the course of the performance of such collaborations and agreements as required by law or by such agreements.

        We also rely on trade secrets and other unpatented proprietary information in our manufacturing and product development activities. To the extent that we maintain a competitive advantage by relying on trade secrets and unpatented proprietary information, such competitive advantage may be compromised if others independently develop the same or similar technology, resulting in an adverse

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effect on our business, financial condition and results of operations. We seek to protect trade secrets and proprietary information in part through confidentiality provisions and invention assignment provisions in agreements with our collaborators, employees and consultants. It is possible that these agreements could be breached and we might not have adequate remedies for any such breaches.

        Our trademarks, CUBICIN and Cubist, in the aggregate are considered to be material to our business. These trademarks are covered by registrations or pending applications for registration in the USPTO and in other countries. Trademark protection continues in some countries for as long as the mark is used and, in other countries, for as long as it is registered. Registrations generally are for fixed, but renewable, terms. We cannot assure you that the trademark protection that we have pursued or will pursue in the future will afford us commercial protection.

        Beyond the specific concerns addressed above, intellectual property laws and regulations are constantly changing, and vary among different jurisdictions around the world, in ways that may affect our ability to protect or enforce our rights.

We are completely dependent on third parties to manufacture CUBICIN and MERREM I.V. As a result, our commercialization of CUBICIN could be stopped, delayed, or made less profitable if those third parties fail to provide us with sufficient quantities of CUBICIN or fail to do so at acceptable prices, and our revenues from the promotion of MERREM I.V. could be stopped, delayed or impeded if AstraZeneca fails to supply to the market sufficient quantities of MERREM I.V.

        We do not have the capability to manufacture our own CUBICIN active pharmaceutical ingredient, or API. We have entered into a manufacturing and supply agreement with ACS Dobfar SpA, or ACS, to manufacture and supply us with CUBICIN API for commercial purposes. ACS is our sole provider of our commercial supply of CUBICIN API. Pursuant to our agreement with ACS, ACS currently stores some CUBICIN API at its facilities in Italy. In order to offset the risk of a single-source API supplier, we currently hold a safety stock of API in addition to what is stored at ACS. Any disaster at the facilities where we hold this safety stock, such as a fire or loss of power, that causes a loss of this safety stock, would heighten the risk that we face from having only one supplier of API.

        In addition, we do not have the capability to manufacture or supply our own CUBICIN finished drug product. We have entered into manufacturing and supply agreements with both Hospira Worldwide, Inc., or Hospira, and Oso Biopharmaceuticals Manufacturing, LLC (successor-in-interest to Catalent Pharma Solutions, LLC, who was successor-in-interest to Cardinal Health PTS, LLC), or Oso, to manufacture and supply to us finished drug product.

        If Hospira, Oso, or, in particular, ACS, experiences any significant difficulties in its respective manufacturing processes for CUBICIN API or finished drug product, including any difficulties with their raw materials, or if they have significant problems with their businesses, whether as a result of the current credit and financial crisis or otherwise, we could experience significant interruptions in the supply of CUBICIN. Our inability to coordinate the efforts of our third party manufacturing partners, or the lack of capacity available at our third party manufacturing partners, could impair our ability to supply CUBICIN at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk or finished product supplier, we could experience significant interruptions in the supply of CUBICIN if we decided to transfer the manufacture of CUBICIN to one or more other suppliers in an effort to deal with these or other difficulties with our current suppliers.

        Because the ACS manufacturing facilities are located in Italy, we must ship CUBICIN API to the U.S. for finishing, packaging and labeling. Each shipment of our API is of significant value, and while in transit, it could be lost or damaged. Moreover, at any time after shipment to the U.S., our API could be lost or damaged as it is stored at our warehouser, Integrated Commercialization Solutions, Inc., or ICS, and moves through our finished product manufacturers. We have taken risk

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mitigation steps and have purchased insurance to protect against such loss or damage. However, depending on when in this process the API is lost or damaged, we may have limited recourse for recovery against our finished product manufacturers or insurers and could experience significant interruptions with the supply of CUBICIN. As a result, our financial performance could be impacted by any such loss or damage to our API. We are also subject to financial risk from volatile fuel costs due to shipping CUBICIN API to the U.S., as well as shipping of finished product within the U.S. and to our international distribution partners for packaging, labeling and distribution.

        We may also experience interruption or significant delay in the supply of CUBICIN API due to natural disasters, acts of war or terrorism, shipping embargoes, labor unrest or political instability. Upon any such event in Italy, the supply of CUBICIN API stored at ACS could be impacted.

        While we have reduced the cost of producing CUBICIN in recent years, we cannot guarantee that we will be able to continue to reduce the costs of commercial scale manufacturing of CUBICIN over time. In order to continue to reduce costs, we may need to develop and implement process improvements, at which we may or may not be successful. In addition, in order to implement any such process improvements that we are successful in developing, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that such approvals will be granted or granted in a timely fashion. We cannot guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to further reduce our costs over time.

        Under our agreement with AstraZeneca with respect to the promotion of MERREM I.V., AstraZeneca is responsible for all activities related to the manufacture and supply of MERREM I.V. We do not have the capability to manufacture and supply MERREM I.V. nor do we have the contractual right to do so should AstraZeneca fail to supply adequate quantities of MERREM I.V. to meet demand in the U.S. Any interruption in supply of MERREM I.V. would likely cause us to fail to generate the revenues that we expect from our promotion of MERREM I.V.

We face significant competition from other biotechnology and pharmaceutical companies and may face additional competition in the future, particularly with respect to CUBICIN, including from Teva, who is seeking to market a generic version of CUBICIN, and our operating results will suffer if we fail to compete effectively.

        The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the U.S. and internationally, including major multinational pharmaceutical and chemical companies, biotechnology companies and universities and other research institutions. Many of our competitors have greater financial and other resources, such as larger research and development staffs and more experienced marketing and manufacturing organizations. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis technologies and drug products that are more effective or less costly than CUBICIN or any drug candidate that we may have or develop, which could render our technology obsolete and noncompetitive. If price competition inhibits the continued acceptance of CUBICIN, if physicians prefer other existing drug products over CUBICIN, or if physicians switch to new drug products or choose to reserve CUBICIN for use in limited circumstances, our financial condition and results of operations would be negatively impacted. In addition, CUBICIN may face competition from drug candidates currently in clinical development and drug candidates that could receive regulatory approval before CUBICIN in countries where CUBICIN is not yet approved.

        The competition in the market for therapeutic products that address serious Gram-positive bacterial infections is intense. CUBICIN faces competition in the U.S. from commercially available drugs such as vancomycin, marketed generically by Abbott Laboratories, Shionogi & Co., Ltd. and others, Zyvox®, marketed by Pfizer, Synercid®, marketed by King Pharmaceuticals, Inc., and Tygacil®,

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marketed by Wyeth. In January, 2009, Pfizer and Wyeth announced that Pfizer has agreed to acquire Wyeth. In particular, vancomycin has been a widely used and well known antibiotic for over 40 years and is sold in a relatively inexpensive generic form.

        In November 2008, an FDA Anti-infective Drug Advisory Committee, or AIDAC, meeting was held to discuss pending NDAs for three antibiotics: telavancin, filed by Theravance, Inc., or Theravance; oritavancin, filed by Targanta Therapeutics Corporation, or Targanta, which in late February 2009, became a wholly-owned subsidiary of The Medicines Company; and iclaprim, filed by Arpida Ltd., or Arpida. The NDAs for each of these agents sought approval for the treatment of cSSSI. The AIDAC voted in favor of approval of telavancin and made recommendations regarding certain safety issues. In late January 2009, Theravance submitted an NDA for telavancin as a potential therapy for hospital-acquired pneumonia, or HAP, based on the positive results of the telavancin HAP Phase 3 trial announced in December 2007. In late February 2009, Theravance announced that it had received a Complete Response letter from the FDA outlining requirements for approval of telavancin for the treatment of cSSSI. The Complete Response letter requires a Risk Evaluation and Mitigation Strategy and a boxed warning related to the risk of teratogenicity (the ability to cause birth defects), as well as requesting data on patients with certain renal risk factors from the cSSSI and HAP studies, revisions to the draft label, and a customary safety update. No additional clinical trials are required. The AIDAC, in November 2008, also voted against approval of oritavancin and iclaprim based on the data submitted in their respective NDAs, and the FDA recently issued complete response letters on the NDAs for these drugs, indicating that they were not approvable at this time for treatment of cSSSI. The FDA also is reviewing an NDA for ceftobiprole, a broad spectrum agent with MRSA activity, which was submitted in May 2007 by a division of Johnson & Johnson, which has an exclusive worldwide license to ceftobiprole from Basilea Pharmaceutica Ltd. or Basilea. Johnson & Johnson announced that its Complete Response (to the Approvable Letter received by Johnson & Johnson in March 2008) was accepted in September 2008 as a Class 2 Complete Response. In late February, Basilea announced that the as a result of FDA inspections at investigator sites and of the sponsor, the FDA suggested that Johnson & Johnson have additional clinical site audits performed. These additional audits are anticipated to occur in the first half of 2009 with a Complete Response submission foreseen in the second half of this year. Basilea also announced that it has filed claims in arbitration against Johnson & Johnson and affiliated companies related to delays in approval of ceftobiprole. Telavancin and ceftobiprole may be approved and marketed in the near future and could compete with CUBICIN. Oritavancin and iclaprim, as well as other antibiotics in clinical development, could compete with CUBICIN, if approved by the appropriate regulatory agencies, in future years.

        Teva notified us on February 9, 2009, that it has submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN before the expiration of the patents covering CUBICIN. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. If Teva's ANDA is ultimately approved by the FDA and Teva launches a generic version of CUBICIN, which could occur after the district court proceeding if the district court rules in favor of Teva or before the completion of the district court proceeding if the 30-month statutory stay (as shortened or lengthened by the court) has expired and Teva decides to launch prior to the district court decision, then we would face competition in the U.S. from a generic version of CUBICIN. This would likely impact our ability to sell CUBICIN at a significantly higher price than the generic version of CUBICIN and negatively impact our market share, and would therefore likely have a significant adverse impact on our financial condition and results of operations.

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        MERREM faces competition in the U.S. from commercially available drugs such as Primaxin® I.V., marketed by Merck as well as Doribax®, marketed by Ortho-McNeil, a Johnson & Johnson company. In particular, Primaxin I.V. has been a widely used and well known antibiotic for over 20 years (approved in 1986). Doribax was recently approved by the FDA in October 2007 for two indications (complicated intra-abdominal infections and complicated urinary tract infections, including pyelonephritis). Ortho-McNeil is pursuing additional indications for Doribax. In August 2008, the FDA issued a complete response letter outlining the actions necessary to address outstanding issues with the supplemental NDA for use of Doribax in patients with nosocomial pneumonia, including ventilator-associated pneumonia.

        Any inability on our part to compete with existing drug products or subsequently introduced drug products would have a material adverse impact on our operating results.

If we are unable to maintain satisfactory sales and marketing capabilities, we may not continue to succeed in commercializing CUBICIN or succeed in our promotion activities with respect to MERREM I.V.

        We cannot guarantee that we will continue to be successful in commercializing CUBICIN or will be successful in promoting MERREM I.V. or that the promotion of MERREM I.V. will not detract from our commercialization efforts for CUBICIN. In connection with our launch of CUBICIN in November 2003, we developed our own sales and marketing capabilities in the U.S., and we continue to develop those capabilities. We only began promoting MERREM I.V. in July 2008, so our sales force has limited experience selling two drug products simultaneously. There is also a risk that members of our sales force may terminate their employment with us to pursue opportunities at other biotechnology and pharmaceutical companies that they believe may provide greater financial or professional opportunities.

        In addition, our partner in Europe, Novartis, has significant pharmaceutical sales experience but limited experience marketing and selling CUBICIN. Novartis began its launch of CUBICIN in nine EU countries in 2006, with seven more added in 2007 and 2008. To date, EU sales have grown more slowly that U.S. sales due primarily to lower overall MRSA rates in the hospital and community, an additional glycopeptide competitor (teicoplanin), which is not approved in the U.S. , the evolving commercialization strategy and mix of resources that Novartis has been using to commercialize CUBICIN, as well as other factors. Other than in the EU, our international partners have launched CUBICIN only in Israel, Canada, Macau, Singapore, Malaysia, the Philippines and Argentina. Except for Israel, these launches have all taken place in the last year. We cannot guarantee that our partners will be successful in launching or marketing CUBICIN in their markets.

Our business may suffer if we fail to manage our growth and increased breadth of our activities effectively.

        We have expanded the scope of our business significantly over the last year. Since January 1, 2008, we have added MERREM I.V. as a product that we promote while we continue to sell CUBICIN, in-licensed two clinical stage drug candidates and filed INDs for two internally developed drug candidates. We also have grown our employee base substantially, particularly in research and development and sales. Prior to 2008, we never promoted more than one product at one time, nor had we ever had more than two drug candidates in clinical development. We plan to continue to add products and drug candidates through internal development and in-licensing over the next several years and to continue the development of our existing drug candidates that demonstrate the requisite efficacy and safety to advance in clinical trials. To manage the existing and planned future growth and the increasing breadth and complexity of our activities, we will need to continue to build our organization and make significant additional investments in personnel, information management systems and resources. Our ability to develop and grow the commercialization of our products, achieve our research and development objectives, and satisfy our commitments under our collaboration agreements depends on our ability to respond effectively to these demands and expand our internal organization to accommodate additional anticipated growth. If we are unable to effectively manage and progress all of these activities, our ability to maximize the value of one or more of our products or drug candidates could suffer, which could materially adversely affect our business.

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If pre-clinical or clinical trials for our drug candidates are unsuccessful or delayed, we will be unable to meet our anticipated development and commercialization timelines, which could harm our business.

        Before we receive regulatory approvals for the commercial sale of any of our drug candidates, our drug candidates are subject to extensive pre-clinical testing and clinical trials to demonstrate their safety and efficacy in humans. Conducting pre-clinical testing and clinical trials is a lengthy, time-consuming and expensive process that usually takes many years. Furthermore, we cannot be sure that pre-clinical testing or clinical trials of any drug candidates will demonstrate the quality, safety and efficacy of our drug candidates at all or to the extent necessary to obtain marketing approvals. Companies in the biotechnology and pharmaceutical industries, including companies with greater experience in pre-clinical testing and clinical trials than we have, have suffered significant setbacks in advanced clinical trials, even after demonstrating promising results in earlier phase trials.

        Some of the drug candidates that we are developing are in the pre-clinical stage. In order for a drug candidate to move from this stage to human clinical trials, the FDA must approve an IND. The FDA will approve the IND if it is established that a potential drug candidate will not expose humans to unreasonable risks and that the compound has pharmacological activity that justifies commercial development. It takes significant time and expense to generate the data to support an IND filing. In many cases, companies spend the time and resources only to discover that the data are not sufficient to support a filing or gain IND approval. This has happened to us in the past, and likely will happen again in the future. In fact, most compounds that are discovered never make it into human clinical trials.

        Four of our drug candidates are currently in the clinical stage, and we continue to conduct clinical trials of CUBICIN. Once a drug candidate enters human clinical trials, the trials must be carried out under protocols that are acceptable to regulatory authorities and to the independent committees responsible for the ethical review of clinical studies (e.g. IRBs and Ethical Committees, or ECs) at the centers at which the studies are conducted. There may be delays in preparing protocols or receiving approval for them that may delay either or both of the start and finish of the clinical trials. Feedback from regulatory authorities or results from earlier stage clinical studies might require modifications or delays in later stage clinical trials or could cause a termination or suspension of drug development. These types of delays or suspensions can result in increased development costs and delays in marketing approvals. Our ability to secure clinical trial insurance could also cause delays.

        In order to initiate clinical trials in pediatric patients, sponsor companies must demonstrate that the drug candidate is not only safe, but has the potential for efficacy. This makes it more difficult to initiate clinical trials in pediatric patients and could delay clinical development programs that are targeted at pediatric patients, such as those that we may seek to conduct in our development of ALN-RSV01. In addition, following entry into force in the EU of new legislation governing medicinal products for pediatric use, manufacturers are required to include data on the use of the medicine with their marketing authorization applications for new medicines and line-extensions for existing patent-protected medicines. This data is generated from an agreed pediatric investigation plan. The nature of our drug candidates may make preparation of the required pediatric investigational plan and generation of the related data difficult. This, in turn, may delay the submission of our marketing authorization application for the medicinal product.

        Furthermore, there are a number of additional factors that may cause delays in our clinical trials. The rate of completion of our clinical trials is dependent in part on the rate of patient enrollment. There may be limited availability of patients who meet the criteria for certain clinical trials. Delays in planned patient enrollment can result in increased development costs and delays in marketing

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approvals. In addition, our clinical trials may be delayed or prematurely terminated by one or more of the following factors:

•

our inability to manufacture, or obtain from a third party manufacturer, sufficient quantities of acceptable materials for use in clinical trials;

•

the impact of the results of other clinical trials on the drug candidates that we are developing, including by other parties who have rights to develop drug candidates being developed by us in other indications or other jurisdictions, such as clinical trials of ecallantide that may be conducted by Dyax or its other licensors or clinical trials of ALN-RSV01 that may be conducted by Alnylam's partner in Asia, Kyowa Hakko Kirin Co., Ltd.;

•

the delay or failure in reaching agreement on contract terms with prospective study sites;

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the delay or failure in obtaining IRB review and approval of the clinical trial protocol;

•

our inability to reach agreement on trial design and priorities with collaborators with which we are co-developing a drug candidate, such as ALN-RSV01, which we are co-developing with Alnylam in North America;

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the failure of third-party clinical research organizations that we have engaged to manage the trials to perform their oversight of the trials or meet expected deadlines;

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the failure of our clinical investigational sites and related facilities and records to be in compliance with the FDA's Good Clinical Practices, or EU legislation governing good clinical practice, including the failure to pass FDA, EMEA, or EU Member State inspections of clinical trials;

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inability to enroll study patients;

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unforeseen safety issues;

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lack of demonstrated efficacy in the clinical trials;

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our inability to reach agreement with the FDA, the competent national authorities of EU Member States or ECs on a trial design that we are able to execute;

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the FDA, the competent national authorities of EU Member States or ECs placing a trial on "clinical hold" or temporarily or permanently stopping a trial for a variety of reasons, principally for safety concerns;

•

difficulty in adequately following up with patients after treatment; or

•

changes in laws, regulation, or regulatory policy.

        If clinical trials for our drug candidates are unsuccessful, delayed or cancelled, particularly either of our Phase 2 clinical trials of ecallantide as a potential treatment for the prevention of blood loss during cardiothoracic surgery, we will be unable to meet our anticipated development and commercialization timelines, which could harm our business and cause our stock price to decline.

If we are unable to discover, in-license, or acquire drug candidates, we will not be able to implement our current business strategy.

        We have made significant investments in research and development over the years since we were founded and have recently increased our research and development workforce. However, except for the drug candidates for which we recently submitted INDs, none of our internally developed product candidates have reached the clinical development stage. We cannot assure you that we will reach this stage for any additional internally developed drug candidates or that there will be clinical benefits associated with CB-182,804, CB-183,315 or any other drug candidates that we do develop. While we

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are researching other drug candidates for potential clinical development, most drug candidates never make it to the clinical development stage. Even those that do make it into clinical development have only a small chance of gaining regulatory approval and becoming a commercial product.

        CUBICIN and our other drug candidates that have progressed to Phase 2 clinical trials were the result of in-licensing patents and technologies from third parties. These in-licensing activities represent a significant expense and would generally require us to make upfront payments, pay development and commercialization milestone payments and royalties to other parties on product sales, as do our in-licensing agreements for CUBICIN, ecallantide and, with respect to the non-North American territory, ALN-RSV01. In addition, we may structure our in-licensing arrangements as cost and profit sharing arrangements, in which case we would share development and commercialization costs with a third party. For example, under our collaboration with Alnylam, we equally share the costs and profits of developing and commercializing ALN-RSV01 in North America with Alnylam. We intend to continue to source drug candidates through acquisition or in-licensing. However, there can be no assurance that we will be able to acquire or in-license additional desirable drug candidates on acceptable terms, or at all. In fact, we have faced and will continue to face significant competition for the acquisition or in-licensing of any promising drug candidates from a variety of other companies with interest in the anti-infective and acute care marketplace, many of which have significantly more experience than we have in pharmaceutical development and sales and significantly more financial resources than we have. In particular, in recent years, very large pharmaceutical companies with significant resources, such as Novartis and Pfizer, have focused their attention on opportunities in the anti-infective marketplace. Because of the rising intensity of the level of competition for such products, the cost of acquiring or in-licensing such candidates has grown dramatically in recent years, and candidates are often priced and sold at levels that we cannot afford or that we believe are not justified by market potential. Such competition and higher prices are most pronounced for late-stage candidates and already-marketed products, which have the lowest risk and would have the most immediate impact on our business. If we needed additional capital to fund our acquisition or in-licensing of such a candidate, we would need to seek financing by borrowing funds or through the capital markets. Given the current distress in the financial and credit markets, it may be difficult for us to acquire the capital that we would need.

        If we are unable to discover or acquire promising candidates, we will not be able to implement our business strategy. Even if we succeed in discovering or acquiring drug candidates, there can be no assurance that we will be successful in developing them to gain approval for use in humans. Failure to develop new drug candidates successfully could have a material adverse effect on our long term business, operating results and financial condition.

We, and/or our partners, will need to obtain regulatory approvals for CUBICIN in international jurisdictions in which CUBICIN has not yet received approvals, our existing drug candidates and any other drug candidates in order to commercialize them as products, and our ability to generate revenues from the commercialization and sale of products resulting from our development efforts is contingent upon obtaining and maintaining these approvals.

        The FDA and comparable regulatory agencies in foreign countries impose substantial requirements for the development, production and commercial introduction of drug products. These include lengthy and detailed pre-clinical, laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Any drug candidate will require governmental approvals prior to commercialization. To date, we have not obtained government approval in the U.S. for any drug product other than CUBICIN for the indications of cSSSI and S. aureus bacteremia, including those with right-sided infective endocarditis. Our collaborator, Novartis, has received approval for marketing CUBICIN in the EU for the indications of cSSTI, RIE due to S. aureus, and S. aureus bacteremia when associated with RIE or with cSSTI. Novartis and our other collaborators, including AstraZeneca

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AB or its affiliates, Sepracor, Inc., successor-in-interest to Oryx Pharmaceuticals Inc., Kuhnil Pharmaceutical Corp., TTY Biopharm Co. Ltd., and Medison Pharma, Ltd., have received approval for marketing CUBICIN in 25 countries outside of the EU for the same, or very similar, indications for which we have approval in the U.S. Our international collaborators have submitted or plan on submitting applications for approvals to market CUBICIN in other territories, however, we cannot be sure that any regulatory authority will approve these or any future submissions on a timely basis or at all. Pre-clinical testing, clinical trials and manufacturing of our drug candidates will be subject to rigorous and extensive regulation by the FDA and corresponding foreign regulatory authorities. In addition, regulation is not static and regulatory authorities, including the FDA, evolve in their staff, interpretations and practices and may impose more stringent requirements than currently in effect, which may adversely affect our planned drug development and/or our sales and marketing efforts. Satisfaction of the requirements of the FDA and of foreign regulators typically takes a significant number of years and can vary substantially based upon the type, complexity and novelty of the drug candidate. The approval procedure and the time required to obtain approval also varies among countries. Regulatory agencies may have varying interpretations of the same data, and approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions.

        No product can receive FDA approval unless human clinical trials show both safety and efficacy for each target indication in accordance with FDA standards. The large majority of drug candidates that begin human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Failure to demonstrate the safety and efficacy of any drug candidates for each target indication in clinical trials would prevent us from obtaining required approvals from regulatory authorities, which would prevent us from commercializing those drug candidates. The results of our clinical testing of a drug candidate may cause us to suspend, terminate or redesign our clinical testing program for that drug candidate. We cannot be sure when we, independently or with our collaborators, might be in a position to submit additional drug candidates for regulatory review. Negative or inconclusive results from the clinical trials or adverse medical events during the trials could lead to requirements that trials be repeated or extended, or that a program be terminated, even if other studies or trials relating to the program are successful. In addition, data obtained from clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory approval and could even affect the commercial success of a product that is already on the market based on earlier trials, such as CUBICIN. In addition, we cannot be sure that regulatory approval will be granted for drug candidates that we submit for regulatory review. Moreover, if regulatory approval to market a drug product is granted, the approval may impose limitations on the indicated use for which the drug product may be marketed as well as additional post-approval requirements.

        Our ability to generate revenues from the commercialization and sale of additional drug products will be limited by any failure to obtain these approvals.

        Even if our drug products are approved for marketing and commercialization, we will need to comply with post-approval clinical study commitments in order to maintain the approval of such products. For example, in connection with our U.S. marketing approvals for CUBICIN, we have made certain Phase 4 clinical study commitments to the FDA, including for studies of renal-compromised patients, pediatric patients, and those with RIE. We worked with the FDA to design these studies and have completed one study of CUBICIN in renal-compromised patients. In late 2008, we submitted a proposal for a follow-on study in these renal-compromised patients to the FDA and await feedback from the FDA before proceeding further. We initiated studies of CUBICIN in pediatric patients and those with RIE in 2008. Our business could be seriously harmed if we do not complete these studies and the FDA, as a result, requires us to change the marketing label for CUBICIN.

        In addition, adverse medical events that occur during clinical trials or during commercial marketing of CUBICIN could result in claims against us and the temporary or permanent withdrawal of CUBICIN from commercial marketing, which could seriously harm our business and cause our stock

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price to decline. In particular, our planned pediatric trial exposes us to more uncertain and potentially greater risk because of the age of the patients.

The FDA may change its approval requirements or policies for antibiotics, or apply interpretations to its requirements or policies, in a manner that could delay or prevent commercialization of any new antibiotic product candidates or any additional indications for CUBICIN that we may seek in the U.S.

        Regulatory requirements for the approval of antibiotics in the U.S. may change in a manner that requires us to conduct additional large-scale clinical trials, which may delay or prevent commercialization of any new antibiotic product candidates or any additional indications for CUBICIN that we may seek. Historically, the FDA has not required placebo-controlled clinical trials for approval of antibiotics but instead has relied on non-inferiority studies. In a non-inferiority study, a drug candidate is compared with an approved antibiotic treatment, and it must be shown that the product candidate is not less effective than the approved treatment by a defined margin.

        In 2006, the FDA refused to accept approval studies of successfully completed non-inferiority studies as the basis for approval for certain types of antibiotics. In October 2007, the FDA issued draft guidance on the use of non-inferiority studies to support approval of antibiotics. Under this draft guidance, the FDA recommends that for some antibiotic indications, sponsor companies carefully consider study designs other than non-inferiority, such as placebo-controlled trials demonstrating the superiority of a drug candidate to placebo. Conducting placebo-controlled trials for antibiotics can be time-consuming, expensive, and difficult to complete. IRBs may not grant approval for placebo-controlled trials because of ethical concerns about denying some participating patients access to any antibiotic therapy during the course of the trial. Even if IRB and EC approval is obtained, it may be difficult to enroll patients in placebo-controlled trials because certain patients would not receive antibiotic therapy. The draft guidance does not articulate clear standards or policies for demonstrating the safety and efficacy of antibiotics generally and reserves until a later date the FDA's guidance on the use of non-inferiority studies in all therapeutic areas. The lack of clear guidance from the FDA creates uncertainties about the standards for the approval of antibiotics in the U.S. These factors could delay for several years or ultimately prevent commercialization of any new antibiotic product candidates that we may seek to develop, such as CB-182,804 and CB-183,315, or any additional indications for CUBICIN in the U.S. for which the FDA requires placebo-controlled trials. Even if we complete these trials, we may not be able to obtain adequate evidence of safety or efficacy to support approval. In November 2008, an AIDAC meeting considered non-inferiority margins for new antibiotics for cSSSIs. The AIDAC concluded that non-inferiority trials are acceptable for cSSSI indications and that a 10% non-inferiority margin may be acceptable if major abscess types of cSSSI infections are excluded and the antibiotic provides safety, cost, or antimicrobial benefits. The AIDAC discussed but did not reach consensus about whether the non-inferiority margin should be justified by the type of cSSSI infection or applied to cSSSI as a group. The position of the AIDAC may or may not be applied by FDA in its review of applications of regulatory filings.

        Moreover, recent events, including complications arising from FDA-approved drugs, have raised questions about the safety of marketed drugs and may result in new legislation by the U.S. Congress and increased caution by the FDA and comparable foreign regulatory authorities in reviewing new drugs based on safety, efficacy or other regulatory approvals. In particular, non-inferiority studies have come under scrutiny from Congress, in part because of a congressional investigation as to the safety of Ketek®, an antibiotic approved by the FDA on the basis of non-inferiority studies. Certain key members of Congress have asked the U.S. Government Accountability Office (GAO), an independent, nonpartisan arm of Congress, to investigate the FDA's reliance on non-inferiority studies as a basis for approval. Congress may draft, introduce, and pass legislation that could significantly change the process for approval of antibiotics by the FDA.

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        The increased scrutiny by Congress and regulatory authorities may significantly delay or prevent regulatory approval, as well as impose more stringent product labeling and post-marketing testing requirements on pharmaceutical products generally and particularly with respect to antibiotics, one of the key areas of focus. Any delay in obtaining, or an inability to obtain, applicable regulatory approvals could prevent us from successfully commercializing any new antibiotic product candidates such as CB-182,804 and CB-183,315, receiving any additional indications for CUBICIN, generating revenues, and sustaining profitability.

If we are unable to generate the revenues we expect from MERREM I.V. or from any of our other drug candidates, our ability to create long-term shareholder value may be limited.

        Because of the long development time of drug candidates, none of the drug candidates that we are currently developing would generate revenues for many years. Unless and until we are able to successfully commercialize additional drug products, we will continue to rely primarily on CUBICIN and, to a lesser extent, on MERREM I.V. for our revenues. In the case of MERREM I.V., our agreement with AstraZeneca contains several provisions pursuant to which our rights to promote MERREM I.V. in the U.S. could terminate prior to the December 31, 2012, expiration date in the agreement. If the agreement terminates prior to its expiration date, we will not be able to realize the fully expected value from the promotion of MERREM I.V. If we are unable to realize the full expected value from the promotion of MERREM I.V., bring any of our current or future drug candidates to market, or acquire or obtain other rights to any additional marketed drug products, our ability to create long-term shareholder value may be limited.

We have collaborative and other similar types of relationships that expose us to a number of risks.

        We have entered into, and anticipate continuing to enter into, collaborative and other similar types of arrangements, which we refer to as collaborations, with multiple third parties to discover, test, develop, manufacture and market drug candidates and drug products. For example, we have agreements with the following companies to develop and commercialize CUBICIN outside the U.S.: a Novartis subsidiary, which is responsible for seeking regulatory approvals and commercializing CUBICIN in Europe, Australia, New Zealand, India and certain Central American, South American and Middle Eastern countries; AstraZeneca AB, which is responsible for seeking regulatory approvals and commercializing CUBICIN in China and other countries in Asia, Africa and the Middle East; a Merck subsidiary, which is responsible for the development and commercialization of CUBICIN in Japan; and other partners for the commercialization of CUBICIN in Israel, Taiwan, Canada and South Korea. In April 2008, we entered into an exclusive license and collaboration agreement with Dyax for the development and commercialization in North America and Europe of the intravenous formulation of ecallantide for the prevention of blood loss during surgery. Under this collaboration, our license includes the rights to develop and commercialize ecallantide within a specified field with Dyax retaining rights to develop ecallantide itself or with other partners outside of our field. In July 2008, we entered into an exclusive agreement with AstraZeneca to promote and provide other support for MERREM I.V. in the U.S. Under the agreement, AstraZeneca will continue to provide marketing and commercial support for MERREM I.V. and is responsible for manufacturing and supplying MERREM I.V. In January 2009, we entered into an exclusive license and collaboration agreement with Alnylam. Under the agreement, we will co-develop with Alnylam therapeutic products for the treatment of RSV in North America and equally share the costs and profits of such products with Alnylam and have a license to solely develop and commercialize such products in the rest of the world, excluding Asia.

        In addition to the types of collaborations described above, we collaborate with a variety of other companies on the development of drug product candidates which involve the licensing of some or all of the rights of a company's drug product candidate and for the manufacturing, clinical trials, clinical and preclinical testing, and research activities. Collaborations such as these are necessary for us to research,

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develop, and commercialize drug candidates. We cannot be sure that we will be able to establish any additional collaborative relationships on terms acceptable to us or that we will be able to work successfully with our existing collaborators or their successors.

        Reliance on collaborations poses a number of risks including the following:

•

the focus, direction, amount and timing of resources dedicated by our CUBICIN collaborators to their respective collaborations with us is not under our control, which may result in less successful commercialization of CUBICIN in our partners' territories than if we had control over the CUBICIN franchise in these territories;

•

our CUBICIN collaborators may not perform their obligations, including appropriate and timely reporting on adverse events in their territories, as expected;

•

AstraZeneca may not provide the level of support that it is required to provide under our agreement with respect to MERREM I.V. or may not support our promotion of MERREM I.V. to the degree that we would like, leading us to receive lower than expected revenues from this collaboration;

•

the failure of AstraZeneca to manufacture and supply adequate quantities of MERREM I.V. in the U.S. would likely cause us to receive lower then expected revenues from this collaboration;

•

we may be dependent upon other collaborators to manufacture and supply drug product to us, as we are with AstraZeneca for MERREM I.V., Dyax for ecallantide and Alnylam for ALN-RSV01, in order to develop or commercialize the drug product that is the subject of the collaboration, and our collaborators may encounter unexpected issues or delays in manufacturing and/or supplying such drug product;

•

some drug candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own drug candidates or drug products, which may lead them to reduce their effort on the drug candidates or drug products on which we are collaborating with them;

•

the protection of proprietary rights, including patent rights, for the technology underlying the drug products we license may be under the control of our collaborators and therefore our ability to control the patent protection of the drug product may be limited;

•

in situations, such as with ecallantide, where our collaborator retains rights to develop and commercialize the product, or with ALN-RSV01, where we and our collaborator share decision making power with respect to development of the product, we and our collaborator may not agree on decisions that could affect the development, regulatory approval, manufacture or commercial viability of the product;

•

in situations, such as with ALN-RSV01, where we and our collaborator are sharing the costs of development, our collaborators may not have the funds to contribute to their share of the costs of the collaboration;

•

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or the preferred course of development or commercialization strategy, might cause delays or termination of the research, development or commercialization of drug candidates or products that we are marketing, such as MERREM I.V., lead to additional responsibilities with respect to drug candidates or marketed products, or result in litigation or arbitration, any of which would be time-consuming and expensive or could cause disruptions in the collaborative nature of these relationships which could impede the success of our endeavors; and

•

some of our collaborators might develop independently, or with others, drug products that compete with ours.

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        Collaborations with third parties are a critical part of our business strategy, and any inability on our part to establish such arrangements on terms favorable to us or working successfully with our collaborators or third parties with whom we have similar arrangements will have an adverse effect on our operations and financial performance.

A variety of risks associated with our international business relationships could materially adversely affect our business.

        We have manufacturing, collaborative and clinical trial relationships outside the U.S., and CUBICIN is marketed internationally through collaborations. Consequently, we are, and will continue to be, subject to additional risks related to operating in foreign countries. Associated risks of conducting operations in foreign countries include:

•

differing regulatory requirements for drug approvals in foreign countries;

•

unexpected CUBICIN adverse events that occur in foreign markets that we have not experienced in the U.S.;

•

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

•

the potential for so-called parallel importing;

•

unexpected changes in tariffs, trade barriers and regulatory requirements;

•

economic weakness, including inflation, or political instability in particular foreign economies and markets;

•

compliance with tax, employment, immigration and labor laws for employees employed, living or traveling abroad;

•

foreign taxes, including withholding of payroll taxes;

•

workforce uncertainty in countries where labor unrest is more common than in the U.S.;

•

violations of laws by our licensees and distributors, including violations of the U.S. Foreign Corrupt Practices Act;

•

production shortages resulting from events affecting raw material supply or manufacturing capabilities abroad;

•

business interruptions resulting from geo-political actions, including war and terrorism, and natural disasters in other countries;

•

relatively lower pricing for our products in one country that could affect pricing of our products, or the perception thereof, in other countries; and

•

different intellectual property laws and regulations that may make it more difficult for us to secure, protect and enforce the protection of our intellectual property, including the CUBICIN patents that we hold and are seeking in many countries outside the U.S.

        These and other risks associated with our international operations may materially adversely affect our ability to maintain profitability.

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We depend on third parties in the conduct of our clinical trials for CUBICIN and our drug candidates and expect to do so with respect to other drug candidates, and any failure of those parties to fulfill their obligations could adversely affect our development and commercialization plans.

        We depend on independent clinical investigators, contract research organizations, or CROs, and other third party service providers in the conduct of our clinical trials for CUBICIN and our drug candidates. We rely heavily on these parties for successful execution of our clinical trials but do not control many aspects of their activities. For example, the investigators are not our employees. However, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or our stated protocols. The failure of these third parties to carry out their obligations could delay or prevent the further development, approval and commercialization of CUBICIN, our existing drug candidates and other future drug candidates.

We have undertaken and may in the future undertake strategic acquisitions, and we may not realize the benefits of such acquisitions.

        We acquired Illumigen Biosciences, Inc., or Illumigen, in December 2007, which was only the second business acquisition we have made since our inception. Although we have limited experience in acquiring businesses, we may acquire additional businesses that we believe will complement or augment our existing business. Acquisitions involve a number of risks, including: diversion of management's attention from current operations; disruption of our ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company's internal controls and procedures. The individual or combined effect of these risks could have a material adverse effect on our business. Also, in paying for an acquisition we may deplete our cash resources or dilute our shareholder base by issuing additional shares. If the credit and financial markets continue to be distressed, we may not be able to replenish our cash resources on favorable terms or at all or we may have to issue additional shares on unfavorable terms which would exacerbate the dilution to our shareholders. Furthermore, there is the risk that our valuation assumptions and our models for an acquired product or business may turn out to be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby cause us to have overvalued an acquisition target, or that the accounting effect of the acquisition under new accounting rules will not be what we had anticipated. There also is the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated. Because our acquisition of Illumigen occurred recently, many of these risks still exist with respect to this transaction.

        If we acquire businesses with promising drug candidates or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to move one or more drug candidates through pre-clinical and/or clinical development to regulatory approval and commercialization. We cannot assure you that, following an acquisition, we will achieve revenues that justify the acquisition or that the acquisition will result in increased earnings, or reduced losses, for the combined company in any future period. Moreover, we may need to raise additional funds through public or private debt or equity financings to acquire any businesses, which would result in dilution for stockholders or the incurrence of indebtedness, and we may not be able to raise such funds on favorable or desirable terms or at all, especially if the credit and financial markets continue to be distressed. We may not be able to operate acquired businesses profitably or otherwise implement our growth strategy successfully.

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The investment of our cash is subject to risks which could result in losses.

        We invest our cash in a variety of financial instruments; principally securities issued by the U.S. government and its agencies, investment grade corporate bonds and notes, auction rate securities and money market instruments. These investments are subject to credit, liquidity, market and interest rate risk. These risks have been heightened in today's tightened and fluctuating credit and financial markets. Such risks, including any additional write downs of our auction rate securities or the failure or severe financial distress of the financial institutions that hold our cash, cash equivalents and investments, may result in a loss of liquidity, additional impairment to our investments, realization of substantial future losses, or a complete loss of the investments in the long-term, which may have a material adverse effect on our business, results of operations, liquidity and financial condition. For example, in the fourth quarter of 2008, we recorded an other-than-temporary impairment charge of $49.2 million of the $58.1 million in auction rate securities that we hold due to the significant deterioration in the credit and financial markets. We will continue to monitor the credit and financial markets, and if there is continued deterioration, the fair value of our auction rate securities could decline further resulting in additional other-than-temporary impairment charges. Any recovery of the fair market value would not be recognized in our financial statements until the gain is realized upon sale of the auction rate securities.

We have incurred substantial losses in the past and may incur additional losses.

        Since we began operations, we incurred substantial net losses in every fiscal period until the third quarter of 2006. We generated net income of $169.8 million and $48.1 million for the years ended December 31, 2008 and 2007, respectively. At December 31, 2008, we had an accumulated deficit of $266.2 million.

        We may incur future operating losses related to the development of our other drug candidates or investments in other product opportunities. As a result, we cannot make specific predictions about our continued profitability. If we fail to maintain profitability, the market price of our common stock may decline.

We may require additional funds and we do not know if additional funds would be available to us at all, or on terms that we find acceptable, particularly given the distress in the financial and credit markets.

        We believe that our existing cash, cash equivalents and the anticipated cash flow from revenues will be sufficient to fund our operating expenses, debt obligations and capital requirements under our current business plan for the foreseeable future. However, we cannot guarantee that certain economic and strategic factors will not require us to seek additional funds. We expect capital outlays and operating expenditures to increase over the next several years as we continue our commercialization of CUBICIN, promote MERREM I.V., develop our existing and any newly-acquired drug candidates, actively seek to acquire companies with marketed products or product candidates, acquire or in-license additional products or product candidates, expand our research and development activities and infrastructure, and enforce our intellectual property rights. We may need to spend more money than currently expected because of unforeseen circumstances or circumstances beyond our control. Other than our $90.0 million credit facility with RBS Citizens Bank, we have no other committed sources of capital and do not know whether additional financing will be available when and if needed, or, if available, that the terms will be favorable to our shareholders or us, particularly if the credit and financial markets continue to be distressed.

        We may seek additional funding through public or private financing or other arrangements with collaborators. If we raise additional funds by issuing equity securities, further dilution to existing stockholders may result. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. We cannot be

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certain, however, that additional financing will be available from any of these sources or, if available, will be on acceptable or affordable terms, particularly if the credit and financial markets continue to be distressed.

        Our annual debt service obligations on our 2.25% convertible subordinated notes that we issued in June 2006, or 2.25% Notes, are approximately $6.8 million per year in interest payments. We may add additional lease lines to finance capital expenditures and may obtain additional long-term debt and lines of credit. If we issue other debt securities in the future, our debt service obligations will increase further. If we are unable to generate sufficient cash to meet these obligations and need to use existing cash or liquidate investments in order to fund our debt service obligations or to repay our debt, we may be forced to delay or terminate clinical trials or curtail operations. We may also be forced to obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights or potential markets or grant licenses on terms that are not favorable to us. If we fail to obtain additional capital, if needed, we will not be able to execute our current business plan successfully.

If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

        Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends in large part upon our ability to attract and retain highly qualified managerial, scientific, medical and sales personnel. Historically, we have been highly dependent on our management, scientific and medical personnel. In recent years, our sales personnel have become increasingly important to the success of our business. In order to induce valuable employees to remain at Cubist, we have provided stock options that vest over time. In the future, we expect to continue to use stock options, restricted stock units or other equity incentives to attract and retain employees. The value to employees of these equity-based incentives, particularly stock options, is significantly affected by movements in our stock price that we have limited control over and may at any time be insufficient to counteract more lucrative offers from other companies. We have also provided retention letters to our executive officers. Despite our efforts to retain valuable employees, members of our management, scientific, medical and sales teams have in the past and may in the future terminate their employment with us. Other biotechnology and pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates or our existing employees than what we have to offer. If we are unable to grow our business according to our business plan, including by developing or acquiring additional drug products, we may become a less attractive place to work for our existing employees and for high quality candidates. The loss of the services of any of our executive officers or other key employees could potentially harm our business or financial results if we are unable to effectively compensate for these losses, and if we are unable to continue to attract and retain high quality personnel, the rate and success at which we can discover, develop and commercialize drug candidates will be limited.

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Risks Related to Our Industry

Patent litigation or other intellectual property proceedings relating to our products or processes could result in liability for damage or stop our development and commercialization efforts.

        The pharmaceutical industry has been characterized by significant litigation and interference and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights. The types of situations in which we may become parties to such litigation or proceedings include:

•

We or our collaborators may initiate litigation or other proceedings against third parties to enforce our patent rights;

•

We or our collaborators may initiate litigation or other proceedings against third parties to seek to invalidate the patents held by such third parties or to obtain a judgment that our products or processes do not infringe such third parties' patents;

•

If our competitors file patent applications that claim technology also claimed by us, we or our collaborators may participate in interference or opposition proceedings to determine the priority of invention;

•

If third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings;

•

If third parties initiate litigation claiming that our brand names infringe their trademarks, we and our collaborators will need to defend against such proceedings; and

•

If third parties file ANDAs with the FDA seeking to market generic versions of our products prior to expiration of relevant patents owned or licensed by us, we may need to defend our patents, including by filing lawsuits alleging patent infringement.

        An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva notifying us that it has submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN before the expiration of the patents covering CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689 and RE39,071. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date we were notified of the filing. A court or other agency with jurisdiction may find the patents that are the subject of the notice letter invalid, not infringed and/or unenforceable. Until the litigation commences and during the period in which such litigation is pending, the uncertainty of its outcome may cause our stock price to decline. In addition, an adverse result in the litigation, whether appealable or not, will likely cause our stock price to decline. Any final unappealable adverse result in the litigation will likely have a material adverse effect on our results of operations and financial condition and cause our stock price to decline.

        The cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. We expect to incur significant costs in connection with our ANDA litigation with Teva.

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Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Revenues generated by products we currently market or that we successfully develop and for which we obtain regulatory approval depend on reimbursement from third-party payors such that if reimbursement for our products is reduced or is insufficient, there could be a negative impact on the utilization of the products that we market.

        Acceptable levels of reimbursement for costs of developing and manufacturing drug products and treatments related to those drug products by government authorities, private health insurers, and other organizations, such as HMOs, can have an effect on the successful commercialization of, and attracting collaborative partners to invest in the development of, our drug products and drug candidates. In both the U.S. and in foreign jurisdictions, legislative and regulatory actions can affect health care systems and reimbursement for products that we market.

        For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and its implementing regulations, altered the manner in which Medicare sets payment levels for many prescription drugs, including CUBICIN. Under this legislation, beginning in 2005, Medicare reimbursement for CUBICIN was based on average sales price, or ASP, rather than average wholesale price in both the physician office and hospital outpatient settings. This resulted in lower payment rates for CUBICIN. Moreover, under this payment methodology the payment rate for CUBICIN is set on a quarterly basis based upon the ASP for previous quarters, and significant downward fluctuations in such reimbursement rate could negatively affect sales of CUBICIN. In addition, further changes to this methodology are possible.

        Another action that may affect reimbursement related to our products involves a statutory requirement, and its implementing regulations, that Medicare may not make a higher payment for inpatient services that are caused by hospital acquired medical conditions arising after a patient is admitted to the hospital. Medicare pays for inpatient hospital services under a prospective payment system in which cases are grouped into Medicare Severity Diagnosis Related Groups, or MS-DRGs, and the amount of the single Medicare payment depends upon the applicable MS-DRG. The MS-DRG can vary based on the condition of the patient. Under the statute, effective October 1, 2008, if a case would be assigned to a higher paying MS-DRG because of a specified condition that arose after admission to the hospital, so-called hospital acquired conditions, or HACs, the Medicare payment would remain at the lower paying MS-DRG that would have applied in the absence of such condition. The Centers for Medicare and Medicaid Services, or CMS, is responsible for specifying the HACs to which this lower payment policy would apply. In July 2008, CMS issued a final rule which failed to establish MRSA as a HAC but stated that MRSA is addressed by the rule in situations where MRSA triggers another condition that is itself a HAC. Other conditions may be added as HACs in the future, including MRSA. As a result of this policy, in certain circumstances, hospitals may receive less reimbursement for Medicare patients that obtain a HAC which may be treated with CUBICIN.

        There have been a number of other legislative and regulatory actions affecting health care systems. The current uncertainty and the potential for adoption of additional changes could affect the timing and amount of our product revenue, our ability to raise capital, obtain additional collaborators and market our products. Medicare payments for CUBICIN can influence pricing in the non-Medicare market as third party payors may base their reimbursement on the Medicare rate. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our drug products. Any reduction in demand would adversely affect our business. If reimbursement is not available or is

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available only at limited levels, we may not be able to obtain a satisfactory financial return on our commercialization of CUBICIN or any future drug products.

        We also participate in the Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, and under multiple subsequent amendments of that law. Sections 6001, 6002, and 6003 of the Deficit Reduction Act of 2005, or DRA, made significant changes to the Medicaid prescription drug provisions of the Social Security Act. These changes include, but are not limited to, revising the definition of average manufacturer price, or AMP, establishing an obligation to report AMP on a monthly basis, in addition to a quarterly basis, establishing a new formula for calculating federal upper limits, or FULs, requiring rebates for certain physician-administered drugs, and clarifying rebate liability for authorized generic drugs. Under the Medicaid rebate program, we pay a rebate for each unit of product reimbursed by Medicaid. The amount of the rebate for each product is set by law as the larger of 15.1% of AMP or the difference between AMP and the best price available from us to any commercial or non-governmental customer. The rebate amount must be adjusted upward where the AMP for a product's first full quarter of sales, when adjusted for increases in the CPI-U, or Consumer Price Index—Urban, exceeds the AMP for the current quarter with the upward adjustment equal to the excess amount. The rebate amount is required to be recomputed each quarter based on our report of current AMP and best price for each of our products to the Centers for Medicare and Medicaid Services. The terms of our participation in the program imposes a requirement for us to report revisions to AMP or best price within a period not to exceed 12 quarters from the quarter in which the data was originally due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision. In addition, if we were found to have knowingly submitted false information to the government, the statute provides for civil monetary penalties in the amount not to exceed $100,000 per item of false information in addition to other penalties available to the government.

        The availability of federal funds to pay for CUBICIN under the Medicaid and Medicare Part B programs requires that we extend discounts under the 340B/PHS drug pricing program. The 340B/PHS drug pricing program extends discounts to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare beneficiaries.

        We also make our products available for purchase by authorized users of the Federal Supply Schedule, or FSS, of the General Services Administration pursuant to our FSS contract with the Department of Veterans Affairs. Under the Veterans Health Care Act of 1992, or the VHC Act, we are required to offer deeply discounted FSS contract pricing to four federal agencies—the Department of Veterans Affairs, the Department of Defense, the Coast Guard and the Public Health Service (including the Indian Health Service)—for federal funding to be made available for reimbursement of any of our products under the Medicaid program and for our products to be eligible to be purchased by those four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the "Federal Ceiling Price," which is, at a minimum, 24% off the Non-Federal Average Manufacturer Price, or "Non-FAMP", for the prior fiscal year. In addition, if we are found to have knowingly submitted false information to the government, the VHC provides for civil monetary penalties of not to exceed $100,000 per false item of information in addition to other penalties available to the government.

        Future legislation or regulatory actions implementing recent or future legislation may have a significant effect on our business. Our ability to successfully commercialize CUBICIN and any other products may depend in part on the extent to which reimbursement for the costs of our products and related treatments will be available in the U.S. and worldwide from government health administration authorities, private health insurers and other organizations. Substantial uncertainty exists as to the reimbursement status of newly approved health care products by third party payors.

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        Third-party payors are increasingly challenging prices charged for medical products and services. Also, the trend toward managed health care in the U.S. and the concurrent growth of organizations such as HMOs, as well as possible legislative changes to reform health care or reduce government insurance programs, may result in lower prices for pharmaceutical products, including any products that may be offered by us in the future. Cost-cutting measures that health care providers are instituting, and the effect of any health care reform, could materially adversely affect our ability to sell any drug products that are successfully developed by us and approved by regulators. Moreover, we are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business. Outside the U.S., certain countries set prices in connection with the regulatory process. We cannot be sure that such prices will be acceptable to us or our collaborators. Such prices may negatively impact our sales revenue in those countries.

Our industry is highly regulated and our products are subject to ongoing regulatory review.

        Our company, our drug products, the manufacturing facilities for our drug products and our promotion and marketing materials are subject to continual review and periodic inspection by the FDA and other regulatory agencies for compliance with pre-approval and post-approval regulatory requirements, including good manufacturing practices, or GMP, regulations, adverse event reporting, advertising and product promotion regulations, and other requirements. In addition, if there are any modifications to a drug product that we are developing or commercializing, further regulatory approval will be required.

        Other state and federal laws and regulations may also affect our ability to manufacture, market and ship our product and may be difficult or costly for us to comply with. These include state or federal legislation that in the future could require us or the third parties that we utilize to manufacture and supply our marketed products and product candidates to maintain an electronic pedigree or other similar tracking requirements on our marketed products or product candidates. If any changes to our product or the manufacturing process are required, we may have to seek approval from the FDA or other regulatory agencies in order to comply with the new laws.

        Failure to comply with manufacturing and other post-approval state or federal law, regulations of the FDA and other regulatory agencies can, among other things, result in fines, increased compliance expense, denial or withdrawal of regulatory approvals, product recalls or seizures, forced discontinuance of or changes to important promotion and marketing campaigns, operating restrictions and criminal prosecution. Later discovery of previously unknown problems with a drug product, manufacturer or facility may result in restrictions on the drug product, us or our manufacturing facilities, including withdrawal of the drug product from the market. The cost of compliance with pre- and post-approval regulation may have a negative effect on our operating results and financial condition.

Competitors may develop drug products that make our drug products obsolete, less cost effective or otherwise less attractive to use.

        Researchers are continually learning more about diseases, which may lead to new technologies for treatment. Even if we are successful in developing effective drug products, new drug products introduced after we commence marketing of any drug product may be safer, more effective, less expensive or easier to administer than our drug products.

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The way that we account for our operational and business activities is based on estimates and assumptions that may differ from actual results, and new accounting pronouncements or guidance may require us to change the way in which we account for our operational or business activities.

        Our financial statements have been prepared in accordance with accounting principles generally accepted in the U.S., or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, our management evaluates its critical estimates and judgments, including, among others, those related to revenue recognition, investments, inventory, research and development expenses, purchase accounting, asset impairment, stock-based compensation, and income taxes. Those critical estimates and assumptions are based on our historical experience, our observance of trends in the industry, and various other factors that are believed to be reasonable under the circumstances and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If actual results differ from these estimates under different assumptions or conditions, there could be a material adverse impact on our financial results and the performance of our stock.

        The Financial Accounting Standards Board, or the FASB, the SEC and other bodies that have jurisdiction over the form and content of our accounts, our financial statements and other public disclosure are constantly discussing and interpreting proposals and existing pronouncements designed to ensure that companies best display relevant and transparent information relating to their respective businesses. The pronouncements and interpretations of pronouncements by the FASB, the SEC and other bodies may have the effect of requiring us to make changes in our accounting policies, including how we account for revenues and/or expenses, which could have a material adverse impact on our financial results.

We may incur liabilities to tax authorities in excess of amounts that have been accrued

        The preparation of our financial statements requires estimates of the amount of tax that will become payable in each of the jurisdictions in which we operate. Accordingly, we determine our estimated liability for federal, state and local taxes in the U.S. and in many overseas jurisdictions. Our previous tax filings may be challenged by any of these taxing authorities and, in the event that we are not able to defend our position, we may incur unanticipated liabilities and such amounts could be significant. The jurisdictions in which we are subject to taxation may enact or change laws that would adversely impact the rate at which we are taxed in future periods. Such actions could result in an additional income tax provision.

Our corporate compliance program cannot ensure that we are in compliance with all applicable "fraud and abuse" laws and regulations and other applicable laws and regulations in the jurisdictions in which we sell CUBICIN and promote MERREM I.V., and a failure by us or AstraZeneca to comply with such regulations or prevail in litigation related to noncompliance could harm our business.

        Our general operations, and the research, development, manufacture, sale and marketing of our products, are subject to extensive and complex laws and regulation, including but not limited to, health care "fraud and abuse" laws, such as the federal false claims act, the federal anti-kickback statute, and other state and federal laws and regulations. While we have developed and implemented a corporate compliance program designed to ensure that we are in compliance with all applicable U.S. laws and regulations, we cannot guarantee that this program will protect us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. AstraZeneca has retained certain rights related to the

57

commercialization of MERREM I.V., including pricing, distribution and contracting, and maintains a U.S. compliance program that is entirely independent of our compliance program. Any governmental or other actions brought against AstraZeneca with respect to the commercialization of MERREM I.V. could have a significant impact on our ability to successfully promote MERREM I.V. and could cause us to become subject to a similar action as the one brought against AstraZeneca.

We could incur substantial costs resulting from product liability claims relating to our pharmaceutical products.

        The nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of pharmaceutical and biotechnology products. Our products and the clinical trials utilizing our products and drug candidates may expose us to product liability claims and possible adverse publicity. Product liability insurance is expensive, is subject to deductibles and coverage limitations, and may not be available in the future. While we currently maintain product liability insurance coverage, we cannot be sure that such coverage will be adequate to cover any incident or all incidents. In addition, we cannot be sure that we will be able to obtain or maintain insurance coverage at acceptable costs or in a sufficient amount, that our insurer will not disclaim coverage as to a future claim or that a product liability claim would not otherwise adversely affect our business, operating results or financial condition. The cost of any products liability litigation or other proceeding, even if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation of products liability litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Products liability litigation and other related proceedings may also absorb significant management time.

Our use of hazardous materials, chemicals, microorganisms and radioactive compounds exposes us to potential liabilities.

        Our research and development efforts involve the controlled use of hazardous materials, chemicals, viruses, bacteria and various radioactive compounds. We are subject to numerous environmental and safety laws and regulations and to periodic inspections for possible violations of these laws and regulations. Any such violation and the cost of compliance with any resulting order or fine could adversely affect our operations. We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or a determination of non-compliance, we could be held liable for significant damages or fines.

If we are unable to adequately protect our confidential, electronically stored, transmitted and communicated information, it could significantly harm our business.

        In our business, we electronically store large amounts of scientific, technical, employee, customer and other data. The amount of confidential, digital information that we store and that we transmit and communicate to third parties continues to grow as technology continues to evolve. If we have inadequate security to protect this information from a breach and/or if such a breach should occur, crucial confidential information about our research, development, employees, customers and future prospects could be unintentionally disclosed. In addition, our information could be improperly disclosed if we are unable to restrict what third parties with whom we share such information may do with the information, or how long they may access it. If our competitors were able to acquire our confidential information, our business and future prospects could be harmed.

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Risks Related to Ownership of Our Common Stock

Our stock price may be volatile, and the value of our stock could decline.

        The trading price of our common stock has been, and is likely to continue to be volatile. Our stock price could be subject to downward fluctuations in response to a variety of factors, including the following:

•

the investment community's view of the revenue, financial and business projections we provide to the public, and whether we succeed or fail in meeting or exceeding these projections;

•

actual or anticipated variations in our quarterly operating results;

•

an adverse result in the litigation that we intend to file against Teva to defend and/or assert our patents in connection with Teva's February 2009 notification to us that it has submitted an ANDA to the FDA for approval to market a generic version of CUBICIN before the expiration of the patents covering CUBICIN;

•

additional third parties filing ANDAs with the FDA and the results of any litigation that we file to defend and/or assert our patents against such third parties;

•

failure of third party reporters of sales data to accurately report our sales figures;

•

adverse results or delays in our clinical trials;

•

our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;

•

our inability to obtain adequate product supply for clinical trials or for commercial supply of any drug candidate or approved drug product or inability to do so at acceptable prices;

•

difficulties or disputes in our collaborations, termination of a collaboration by us or our collaborator, or our inability to establish additional collaborations;

•

new legislation, laws or regulatory decisions that are adverse to us and/or our products;

•

safety concerns related to the use of CUBICIN or MERREM I.V.;

•

introduction of new products or services offered by us or our competitors;

•

the announcements of acquisitions, strategic partnerships, collaborations, joint ventures or capital commitments by us or our competitors;

•

expectations in the financial markets that we may or may not be the target of potential acquirors;

•

our failure to develop or acquire additional drug candidates and commercialize additional drug products;

•

our failure to satisfy our obligations under our existing debt or loan agreements;

•

our issuance of additional debt or equity securities;

•

litigation, including stockholder or patent litigation;

•

the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

•

volatility in the markets unrelated to our business; and

•

other events or factors, many of which are beyond our control.

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        In addition, the stock market in general, and the NASDAQ Global Select Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against companies. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would harm our business.

If our officers, directors and certain stockholders choose to act together, they would be able to influence our management and operations, acting in their best interests and not necessarily those of other stockholders.

        Our directors, executive officers and greater than 5% stockholders and their affiliates beneficially own a significant percentage of our issued and outstanding common stock. Accordingly, they collectively would have the ability to influence the election of all of our directors and to influence the outcome of some corporate actions requiring stockholder approval. They may exercise this ability in a manner that advances their best interests and not necessarily those of other stockholders.

Several aspects of our corporate governance may discourage a third party from attempting to acquire us.

        Several factors might discourage a takeover attempt that could be viewed as beneficial to stockholders who wish to receive a premium for their shares from a potential bidder. For example:

•

we are subject to Section 203 of the Delaware General Corporation Law, which provides that we may not enter into a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the manner prescribed in Section 203;

•

our stockholder rights plan is designed to cause substantial dilution to a person who attempts to acquire us on terms not approved by our board of directors;

•

our board of directors has the authority to issue, without a vote or action of stockholders, up to 5,000,000 shares of preferred stock and to fix the price, rights, preferences and privileges of those shares, each of which could be superior to the rights of holders of common stock;

•

our directors are elected to staggered terms, which prevents the entire board from being replaced in any single year; and

•

advance notice is required for nomination of candidates for election as a director.

Our business could be negatively affected as a result of the actions of activist shareholders.

        Proxy contests have been waged against many companies in the biopharmaceutical industry over the last few years. If faced with a proxy contest, we may not be able to successfully respond to the contest, which would be disruptive to our business. Even if we are successful, our business could be adversely affected by a proxy contest because:

•

responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees;

•

perceived uncertainties as to our future direction may result in the loss of potential acquisitions, collaborations or in-licensing opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and

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•

if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders.

        These actions could cause our stock price to experience periods of volatility.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        Our headquarters are located at 65 Hayden Avenue in Lexington, Massachusetts, where we own approximately 88,000 square feet of commercial and laboratory space and twelve acres of land.

        Our operating leases consist of approximately 173,000 square feet of office and data center space at 45 and 55 Hayden Avenue in Lexington, Massachusetts, pursuant to a term lease that expires in September 2012, for approximately 20,000 square feet and April 2016, for approximately 153,000 square feet, as well as 15,000 square feet of commercial space at 148 Sidney Street in Cambridge, Massachusetts, pursuant to a term lease that expires in December 2010. We have subleased the space located at 148 Sidney Street through October 2010.

ITEM 3.    LEGAL PROCEEDINGS

        None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the last quarter of the fiscal year ended December 31, 2008.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        The information required to be disclosed by Item 201(d) of Regulation S-K, "Securities Authorized for Issuance Under Equity Compensation Plans," is included under Item 12 of Part III of this Annual Report on Form 10-K.

Market Information

        Our common stock is traded on the NASDAQ Global Select Market^SM under the symbol CBST. The following table shows the high and low sales price for our common stock as reported by the NASDAQ Global Select Market^SM for each quarter in the years ended December 31, 2008 and 2007.

	Common Stock Price
	2008				2007
	High		Low		High		Low
First Quarter	$	22.10	$	16.54	$	22.68	$	16.97
Second Quarter	$	21.33	$	17.05	$	23.80	$	19.52
Third Quarter	$	24.00	$	17.70	$	25.72	$	19.16
Fourth Quarter	$	28.74	$	16.25	$	24.75	$	19.68

Holders

        As of February 20, 2009, we had 175 stockholders of record. This figure does not reflect persons or entities that hold their stock in nominee or "street" name through various brokerage firms.

Dividends

        We have never declared or paid cash dividends on our capital stock and do not anticipate paying any dividends in the foreseeable future. We intend to retain future earnings, if any, to operate and expand the business. Payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, cash needs and growth plans.

Recent Sales of Unregistered Securities

        None.

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Corporate Performance Graph

The following Performance Graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

        The following graph compares the performance of our common stock to the NASDAQ Stock Market (U.S.) and to the NASDAQ Pharmaceutical Index from December 31, 2003, through December 31, 2008. The comparison assumes $100 was invested on December 31, 2003, in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The points on the graph are as of December 31 of the year indicated.

	2003		2004		2005		2006		2007		2008
Cubist		100		97		174		148		168		198
Nasdaq Stock Market (U.S.)		100		109		111		122		132		64
Nasdaq Pharmaceutical Index		100		107		117		115		121		112

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ITEM 6.    SELECTED FINANCIAL DATA

        The selected financial data presented below for the years ended December 31, 2008, 2007, 2006, 2005, and 2004 are derived from our audited consolidated financial statements.

		Year Ended December 31,
		2008			2007			2006			2005			2004
		(in thousands, except share and per share data)
Statement of Operations Data:
U.S. product revenues, net		$	414,681		$	285,059		$	189,512		$	113,434		$	58,559
International product revenues			7,400			5,347			808			80			—
Service revenues			9,451			—			—			—			—
Other revenues			2,109			4,214			4,428			7,131			9,512
	Total revenues, net		433,641			294,620			194,748			120,645			68,071
Costs and expenses:
	Cost of product revenues		90,381			68,860			48,803			32,739			20,249
	Research and development		126,670	(1)		85,175	(4)		57,405			51,673			57,182
	Sales and marketing		84,997			67,662			56,879			42,331			35,019
	General and administrative		40,704			31,485			26,745			19,335			20,234
	Total costs and expenses		342,752			253,182			189,832			146,078			132,684
Interest income			10,066			18,036			10,589			3,292			1,767
Interest expense			(9,342	)		(9,427	)		(15,893	)		(9,836	)		(13,607	)
Other income (expense)			(45,710	)(2)		(20	)		12			125			(59	)
Income (loss) before income taxes			45,903			50,027			(376	)		(31,852	)		(76,512	)
(Benefit) provision for income taxes			(123,916	)(3)		1,880			—			—			—
	Net income (loss)	$	169,819		$	48,147		$	(376	)	$	(31,852	)	$	(76,512	)
Basic net income (loss) per common share		$	3.00		$	0.87		$	(0.01	)	$	(0.60	)	$	(1.86	)
Diluted net income (loss) per common share		$	2.56		$	0.83		$	(0.01	)	$	(0.60	)	$	(1.86	)
Shares used in calculating:
Basic net income (loss) per common share			56,645,962			55,591,775			54,490,376			53,053,307			41,228,275
Diluted net income (loss) per common share			67,955,061			68,822,996			54,490,376			53,053,307			41,228,275

(1)

In 2008, we recorded $17.5 million in upfront and milestone payments relating to our collaboration agreement with Dyax.

(2)

In 2008, we recorded an other-than-temporary impairment charge of $49.2 million on our investment in auction rate securities.

(3)

In 2008, we recorded a benefit to income tax expense of $127.8 million related to the reversal of the valuation allowance on our deferred tax assets.

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(4)

In 2007, we recorded an in-process research and development, or IPR&D, charge of $14.4 million related to our acquisition of Illumigen.

	Year Ended December 31,
	2008		2007		2006		2005		2004
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and investments	$	417,945	$	398,184	$	309,169	$	101,748	$	128,417
Working capital		451,529		342,496		303,482		99,004		93,703
Total assets		716,592		534,515		439,035		218,065		215,908
Total debt		300,000		350,000		350,000		165,000		165,000
Long-term obligations, excluding long-term deferred revenue		303,696		352,698		351,760		165,000		165,078
Stockholders' equity		311,972		98,702		40,590		16,599		20,846
Dividends		—		—		—		—		—

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this Annual Report. See also "Forward-Looking Statements."

Introduction

        This Management's Discussion and Analysis, or MD&A, is provided in addition to the accompanying consolidated financial statements and footnotes to assist the reader in understanding our results of operations, financial condition and cash flows. We have organized the MD&A as follows:

•

Overview: This section provides a summary of our business, our performance during the year ended December 31, 2008, our strategic initiatives and certain key risks that could cause our actual results to differ materially from the results that we expect.

•

Results of Operations: This section provides a review of our results of operations for the years ended December 31, 2008, 2007 and 2006.

•

Liquidity and Capital Resources: This section provides a summary of our financial condition, including our sources and uses of cash, capital resources, commitments and liquidity.

•

Critical Accounting Policies and Estimates: This section describes our critical accounting policies and the significant judgments and estimates that we have made in preparing our consolidated financial statements.

Overview

        We are a biopharmaceutical company headquartered in Lexington, Massachusetts, focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Such products are used primarily in hospitals but also may be used in acute care settings including home-infusion and hospital outpatient clinics.

        We have been profitable for ten consecutive quarters and had a total of $417.9 million in cash and cash equivalents and long-term investments as of December 31, 2008, as compared to $398.2 million in cash and cash equivalents and long-term investments as of December 31, 2007. Our net income for the twelve months ended December 31, 2008, was $169.8 million, or $3.00 and $2.56 per basic and diluted share, respectively. Our net income for the twelve months ended December 31, 2007, was $48.1 million, or $0.87 and $0.83 per basic and diluted share, respectively. Our net income for the full year 2008 was significantly impacted by a tax benefit related to a reversal of our valuation allowance for a significant portion of our deferred tax assets, which resulted in a benefit to income tax expense of approximately $127.8 million, and an other-than-temporary impairment charge of $49.2 million related to our investment in auction rate securities. Since our inception, we incurred net losses in every fiscal period until the third quarter of 2006. As of December 31, 2008, we had an accumulated deficit of $266.2 million.

        CUBICIN.    We derive substantially all of our revenues from CUBICIN, which we developed and launched in the U.S. in November 2003 and currently commercialize on our own in the U.S. CUBICIN is currently the only marketed once-daily, bactericidal, intravenous, or I.V., antibiotic with activity against methicillin-resistant S. aureus, or MRSA. CUBICIN is approved in the U.S. for the treatment of complicated skin and skin structure infections, or cSSSI, caused by Staphylococcus aureus, or S. aureus,

66

and certain other Gram-positive bacteria, and for S. aureus bloodstream infections (bacteremia), including those with right-sided infective endocarditis, or RIE, caused by methicillin-susceptible and methicillin-resistant isolates. In the European Union, or EU, CUBICIN is approved for the treatment of complicated skin and soft tissue infections, or cSSTI, where the presence of susceptible Gram-positive bacteria is confirmed or suspected and for RIE due to S. aureus bacteremia and S. aureus bacteremia associated with RIE or cSSTI.

        Our net product revenues from worldwide product sales of CUBICIN for the twelve months ended December 31, 2008, were $422.1 million, as compared to $290.4 million for the twelve months ended December 31, 2007. We expect both net product sales of CUBICIN in the U.S. and our revenues from CUBICIN sales outside the U.S. to continue to increase due primarily to increased vial sales, market penetration into a large and growing market, and price increases. Future sales of CUBICIN are, to a large extent, dependent upon our ability to compete successfully with the products of current and future competitors, our ability to secure sufficient quantities of CUBICIN to meet demand and our ability to obtain, maintain and protect U.S. and foreign patent protection for CUBICIN. On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva Parenteral Medicines, Inc., or Teva, notifying us that it has submitted an Abbreviated New Drug Application, or ANDA, to the U.S. Food and Drug Administration, or FDA, for approval to market a generic version of CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967 and 6,852,689, which expire on September 24, 2019, and U.S. Patent No. RE39,071, which expires on June 15, 2016. Each of these patents are listed in the FDA's list of "Approved Drug Products with Therapeutic Equivalence Evaluations," also known as the Orange Book. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. We plan to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if we initiate such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date we were notified of the filing. We are confident in our intellectual property portfolio protecting CUBICIN, including the patents listed in the Orange Book. It is possible that additional third parties may seek to market generic versions of CUBICIN in the U.S. by filing an ANDA.

        MERREM I.V.    In July 2008, we entered into an exclusive agreement with AstraZeneca Pharmaceuticals, LP, or AstraZeneca, to promote and provide other support in the U.S. for MERREM I.V., an established broad spectrum (carbapenem class) I.V. antibiotic. Under the agreement, we will promote and support MERREM I.V. using our existing U.S. acute care sales and medical affairs organizations. AstraZeneca will continue to provide marketing and commercial support for MERREM I.V. We recognize revenues from this agreement as service revenues. The agreement establishes a baseline annual payment by AstraZeneca to us of $20.0 million (which was prorated for 2008), to be adjusted up or down based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount. We recognize revenues related to this agreement over each annual period of performance based on the estimated minimum annual payment amount that we can receive under the agreement. We assess the amount of revenue we recognize at the end of each quarterly period to reflect our actual performance against the annual baseline sales amount. In 2008, our sales of MERREM I.V. in the U.S. exceeded the annual baseline sales amount. Our service revenues from MERREM I.V. for the twelve months ended December 31, 2008, were $9.4 million, which represents the annual payment earned by us in 2008. We are also entitled to earn a percentage of the gross profit on sales exceeding the annual baseline sales amount. We will recognize the payment for any such sales over the baseline amount in the quarter in which AstraZeneca provides us with its annual sales report. The service revenues that we have recorded in 2008 do not reflect the percentage

67

of gross profit that we expect to receive for sales exceeding 2008 target revenues. We expect to recognize an additional $4.5 million in service revenues from AstraZeneca, which represents our percentage of the gross profit on the sales exceeding the annual baseline sales amount for 2008. We will record this additional revenue in our financial statements as service revenue in the quarter ending on March 31, 2009, during which time we expect to receive the annual sales report and payment from AstraZeneca.

        Product Pipeline.    We are building a pipeline of acute care therapies through licensing and collaboration agreements as well as by progressing compounds that we have developed into clinical development.

        In April 2008, we entered into a license and collaboration agreement with Dyax Corp., or Dyax, pursuant to which we obtained an exclusive license for the development and commercialization of the I.V. formulation of Dyax's ecallantide compound for the prevention of blood loss during surgery in North America and Europe. We initially are studying ecallantide as a potential treatment for the prevention of blood loss during on-pump cardiothoracic surgery, or CTS, which includes coronary artery bypass graft, or CABG, and heart valve and replacement procedures. We recently have begun a Phase 2 dose-ranging trial, assessing three different doses of ecallantide in CTS patients at relatively low risk of bleeding, as well as a Phase 2 trial using the highest of these three doses in CTS patients at higher risk of bleeding. In October 2008, we announced positive top-line results from the ecallantide on-pump CTS Phase 2 clinical trial known as Kalahari™ 1. We terminated the Kalahari 1 trial in June 2008 prior to its completion in order to focus our resources on the design and initiation of a dose-ranging Phase 2 clinical trial now underway. We recently began this Phase 2 dose-ranging trial, which we have named CONSERV™ 1, assessing three different doses of ecallantide, in CTS patients at relatively low risk of bleeding. We also expect soon to begin a Phase 2 trial, CONSERV 2, assessing a high dose in CTS patients undergoing procedures associated with a higher risk of bleeding.

        In January 2009, we entered into a collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam, for the development and commercialization of Alnylam's RNA interference, or RNAi, inhibitors as potential therapy for the treatment of respiratory syncytial virus, or RSV, infection, an area of high unmet medical need. The RSV-specific RNAi therapeutic program includes ALN-RSV01, which is currently in Phase 2 clinical development for the treatment of RSV infection in adult lung transplant patients, as well as several other potent and specific second generation RNAi-based RSV inhibitors in pre-clinical studies.

        In December 2008, we submitted an Investigational New Drug Application, or IND, with the FDA for each of the following two drug candidates: CB-182,804, in development as I.V. antibiotic therapy for multi-drug-resistant, or MDR, Gram-negative infections; and CB-183,315, in development as oral antibiotic therapy for Clostridium difficile associated diarrhea, or CDAD. An IND is the filing stage preparatory to clinical trials. In late January, we were notified by the FDA that we could proceed to clinical trials for both candidates. In February 2009, we began dosing humans in Phase 1 clinical trials with CB-183,315 and CB-182,804. In addition, among our programs in preclinical evaluation is CB-183,872, a compound that we are studying as a potential therapy for the treatment of infections caused by the hepatitis C virus, or HCV. We expect to decide by mid-year 2009 if we will progress this program to IND filing.

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Results of Operations

Years Ended December 31, 2008 and 2007

Revenues

        The following table sets forth revenues for the years ended December 31, 2008 and 2007:

	December 31,
	2008		2007		% Change
	(in millions)
U.S. product revenues, net	$	414.7	$	285.1		45	%
International product revenues		7.4		5.3		38	%
Service revenues		9.4		—		N/A
Other revenues		2.1		4.2		(50	)%
Total revenues, net	$	433.6	$	294.6		47	%

Product Revenues, net

        Cubist's net revenues from sales of CUBICIN, which consists of U.S. product revenues, net, and international product revenues, were $422.1 million in 2008 and $290.4 million in 2007, an increase of $131.7 million or 45%. The increase in net product revenues is primarily due to an increase in U.S. product revenues, net, which increased $129.6 million, or 45%. The increase in U.S. product revenues, net, is due to an increase in U.S. gross product revenues, partially offset by an increase in allowances and reserves against product revenues. Gross U.S. revenues from sales of CUBICIN totaled $451.6 million and $306.8 million for the years ended December 31, 2008 and 2007, respectively. The increase in gross U.S. revenues was primarily due to increased vial sales of CUBICIN in the U.S., which resulted in higher gross revenues of $97.0 million, as well as an 8.0% and a 7.0% price increases for CUBICIN in January and October 2008, respectively, which resulted in $47.7 million of additional gross U.S. revenues. Gross U.S. product revenues are offset by $29.5 million and $16.4 million, for the years ended December 31, 2008 and 2007, respectively, of allowances for sales returns, Medicaid rebates, chargebacks, discounts and wholesaler management fees, an increase of $13.1 million or 79%. The increase in allowances against gross product revenue was primarily driven by increases in chargebacks and pricing discounts due to increased U.S. sales of CUBICIN, as well as the price increases described above. International product revenues of $7.4 million and $5.3 million for the years ended December 31, 2008 and 2007, respectively, consisted primarily of CUBICIN product sales to, and royalty payments based on CUBICIN net sales from, Novartis.

        We generally do not allow wholesalers to stock CUBICIN. We have a drop-ship program in place through which orders are processed through wholesalers, but shipments are sent directly to our end-users. This results in sales trends closely tracking actual hospital and out-patient administration location purchases of our product. We pay certain wholesalers various fees for data supply and administration services. Net product revenue is reduced by any such fees.

Service Revenues

        Service revenues for the year ended December 31, 2008, were $9.4 million versus zero for the year ended December 31, 2007. Service revenues relate to our exclusive agreement with AstraZeneca to promote and provide other support in the U.S. for MERREM I.V. We began promoting MERREM I.V. in the third quarter of 2008. Our agreement with AstraZeneca establishes a baseline annual payment to us of $20.0 million (which was prorated for 2008), to be adjusted up or down based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount. We assess the amount of revenue that we recognize at the end of each quarterly period to

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reflect our actual performance against the annual baseline sales amount. In 2008, our sales of MERREM I.V. in the U.S. exceeded the annual baseline sales amount. We also earn a percentage of the gross profit earned by AstraZeneca on sales exceeding the annual baseline sales amount. The payment for any such sales over the baseline amount will be recorded in the quarter in which AstraZeneca provides us with its annual sales report. The service revenues that we have recorded in 2008 do not reflect the percentage of gross profit that we expect to receive for sales exceeding 2008 target revenues. We currently expect these additional service revenues for 2008 sales to be approximately $4.5 million, which will be recorded in our financial statements for the quarter ending on March 31, 2009, the time period in which we expect to receive the annual report and payment from AstraZeneca.

Other Revenues

        Other revenues for the year ended December 31, 2008, were $2.1 million as compared to $4.2 million for the year ended December 31, 2007. The decrease of $2.1 million, or 50%, is the result of a $3.0 million payment received and recognized as incremental license fees within other revenues for the year ended December 31, 2007, as a result of regulatory approvals for an expanded CUBICIN label in the EU under our license agreement with Novartis' subsidiary. This decrease is offset by (i) $0.5 million relating to a full year of amortization in 2008 of license fees and other revenues received from AstraZeneca AB, Merck & Co., or Merck, and TTY BioPharm, or TTY, three of our international distribution partners for CUBICIN, versus a partial year of amortization of such fees in 2007; and (ii) the amortization of milestone payments received during the year ended December 31, 2008, of $0.4 million relating to achieving certain development milestones in 2008.

Costs and Expenses

        The following table sets forth costs and expenses for the years ended December 31, 2008 and 2007:

	December 31,
	2008		2007		% Change
	(in millions)
Cost of product revenues	$	90.4	$	68.9		31	%
Research and development		126.7		85.2		49	%
Sales and marketing		85.0		67.7		26	%
General and administrative		40.7		31.5		29	%
Total costs and expenses	$	342.8	$	253.3		35	%

Cost of Product Revenues

        Cost of product revenues were $90.4 million and $68.9 million in the years ended December 31, 2008 and 2007, respectively. Included in our cost of product revenues are royalties owed on net sales of CUBICIN under our license agreement with Eli Lilly, costs to procure, manufacture and distribute CUBICIN, and the amortization expense related to certain intangible assets. To the extent that we incur incremental costs related to service revenues, these amounts would also be included in the cost of product revenues. Our gross margin for the year ended December 31, 2008, was 79% as compared to 76% for the year ended December 31, 2007. The increase in our gross margin is primarily due to an 8.0% and a 7.0% CUBICIN price increase in the U.S. in January and October 2008, respectively, which positively impacted gross margin by approximately 2.3%. This increase was partially offset by $20.8 million in additional royalties owed to Eli Lilly on net sales of CUBICIN due to higher CUBICIN sales, which negatively impacted our gross margin by approximately 0.7%.

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        We expect our gross margin in 2009 to be similar to our gross margin in 2008. As our production volumes increase, there is the potential for our gross margin to increase as we work to develop manufacturing process improvements. However, as our sales volume increases, the royalties we owe to Eli Lilly on net sales of CUBICIN will also increase. Whether we can increase our gross margin and the extent to which we can do so are uncertain.

Research and Development Expense

        Total research and development expense in the year ended December 31, 2008, was $126.7 million as compared to $85.2 million in the year ended December 31, 2007, an increase of $41.5 million or 49%. The increase in research and development expenses was due primarily to (i) an increase of $11.7 million in clinical and non-clinical studies due to the higher number of studies underway; (ii) an increase of $8.8 million in the cost of material to advance our programs currently under development and to test and improve our current manufacturing processes; (iii) an increase of $7.8 million in laboratory supplies and services also due to the increased number of studies underway; (iv) an increase of $6.5 million in payroll, benefits, travel and other employee related expenses due to an increase in headcount; (v) an increase of $2.3 million in facilities expense related to additional laboratory space; (vi) an increase of $1.5 million in license and collaboration expenses primarily due to $17.5 million of upfront and milestone payments related to the Dyax license and collaboration agreement which we entered into in April 2008, compared to the year ended December 31, 2007, which included $14.4 million of in-process research and development expense, or IPR&D, related to the Illumigen Biosciences, Inc. acquisition in December 2007; (vii) a one-time charge of $1.8 million in expense related to the write-off of property that was demolished at our main building at 65 Hayden Avenue in Lexington, Massachusetts, to support the build-out of the new laboratory space; and (viii) an increase of $0.7 million in depreciation expense.

        We expect research and development expenses to continue to increase in 2009 primarily due to increases in expenditures related to: (i) Phase 2 and Phase 4 clinical trials for CUBICIN; (ii) clinical testing of ecallantide, ALN-RSV01, our Gram-negative and CDAD programs; (iii) pre-clinical testing of the other compounds included in our collaboration with Alnylam and our HCV preclinical compound; (iv) regulatory matters; and (v) medical affairs activities.

Sales and Marketing Expense

        Sales and marketing expense in the year ended December 31, 2008, was $85.0 million as compared to $67.7 million in the year ended December 31, 2007, an increase of $17.3 million or 26%. The increase in sales and marketing expense is primarily related to (i) an increase of $15.5 million in payroll (including incentive compensation), benefits, travel, and other employee related expenses, due to the hiring of additional field sales personnel in the first quarter of 2008; and (ii) an increase of $0.6 million in professional services expense. We expect our sales and marketing expense in 2009 to be similar to our sales and marketing expense in 2008.

General and Administrative Expense

        General and administrative expense in the year ended December 31, 2008, was $40.7 million as compared to $31.5 million in the year ended December 31, 2007, an increase of $9.2 million or 29%. This increase is primarily due to (i) an increase of $5.9 million in payroll, benefits, travel and other employee related expenses due to an increase in headcount; (ii) an increase of $1.4 million in rent expense due to the leasing of additional space at 45 and 55 Hayden Avenue in Lexington, Massachusetts; (iii) an increase of $1.9 million in professional services due to an increase in consulting and legal expenses; (iv) an increase of $1.0 million in depreciation and amortization expense; and (v) a one-time charge of $0.5 million in facilities expense due to the write-off of property being demolished at 65 Hayden Avenue in Lexington, Massachusetts, to support the build-out of new laboratory space.

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        We expect general and administrative expense in 2009 to increase primarily due to (i) the legal costs associated with reviewing the Paragraph IV Certification Notice Letter that we received from Teva in February 2009, and the patent infringement litigation that we intend to file against Teva, and (ii) an increase in salaries and benefits due to the addition of headcount both in 2008 and 2009.

Other Income (Expense), net

        The following table sets forth other income (expense), net for the years ended December 31, 2008 and 2007:

	December 31,
	2008			2007			% Change
	(in millions)
Interest income	$	10.1		$	18.0			(44	)%
Interest expense		(9.3	)		(9.4	)		(1	)%
Other income (expense)		(45.7	)		—			N/A
Total other income (expense), net	$	(44.9	)	$	8.6			(624	)%

Interest Income and Expense

        Interest income in the year ended December 31, 2008, was $10.1 million as compared to $18.0 million in the year ended December 31, 2007, a decrease of $7.9 million or 44%. The decrease in interest income is due primarily to a decrease of $10.0 million related to lower rates of return on our investments caused by unsettled capital market conditions, offset by a $2.1 million increase related to a higher average cash and cash equivalents balance in 2008 than in 2007. Interest expense in the year ended December 31, 2008, was $9.3 million as compared to $9.4 million, a decrease of $0.1 million or 1%. The decrease in interest expense is due to a lower debt balance in the year ended December 31, 2008, as a result of the repurchase of $50.0 million of our convertible subordinated notes due June 2013, or the 2.25% Notes, in February 2008, offset by the write-off of approximately $1.2 million of debt issuance costs related to the repurchase of the 2.25% Notes. We expect that annual interest expense in 2009 will increase by approximately $12.8 million, which will be a non-cash charge, as a result of our adoption of Financial Accounting Standards Board, or FASB, Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)".

        Other income (expense) for the year ended December 31, 2008, was a loss of $45.7 million, and primarily consists of the write-off of $49.2 million of our investment in auction rate securities that we determined to be other-than-temporarily impaired. More information can be found in the "Liquidity and Capital Resources" section below. This loss was offset by a $3.3 million gross gain resulting from the difference between the purchase price and face value of the $50.0 million of our 2.25% Notes that we repurchased in February 2008.

Provision for Income Taxes

        Our effective tax rates for the years ended December 31, 2008 and 2007, were -269.9% and 3.7%, respectively. The effective tax rate for the years ended December 31, 2008 and 2007, relates to federal alternative minimum tax expense and state tax expense and for 2008 is offset by the tax benefit relating to the reversal of the valuation allowance for a significant portion of our deferred tax assets. Cubist and its subsidiaries file income tax returns with the U.S. federal government and with multiple state and local jurisdictions in the U.S. Prior to the fourth quarter 2008, all of our deferred tax assets had a full valuation allowance recorded against them. Based on our historical tax position and operational results, the realization of these deferred tax assets did not meet the "more likely than not" standard

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under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," or SFAS 109. In the fourth quarter of 2008, upon reviewing factors such as consistent profitability, our ability to utilize net operating loss carryforwards and forecasts of future profitability, we determined that there was sufficient positive evidence that it was "more likely than not" that we would be able to realize a significant portion of our deferred tax assets. As a result, we determined that a full valuation allowance on these assets was no longer required. We recorded a tax benefit of $127.8 million during the year ended December 31, 2008, as a result of the reversal of a significant portion of the valuation allowance, which resulted in a net income tax benefit of $123.9 million as compared to a provision of $1.9 million for the year ended December 31, 2007. Beginning in 2009, we expect to record a provision equal to our statutory federal tax rate, adjusted for permanent differences such as research and development credits, state taxes and other related items. We expect our tax rate to be approximately 39% for the year ended December 31, 2009, which is comprised of the federal statutory income tax rate of 35% and a state income tax rate of 4%, net of federal benefit, before giving effect to income tax credits, if any, and other adjustments.

Years Ended December 31, 2007 and 2006

Revenues

        The following table sets forth revenues for the years ended December 31, 2007 and 2006:

	December 31,
	2007		2006		% Change
	(in millions)
U.S. product revenues, net	$	285.1	$	189.5		50	%
International product revenues		5.3		0.8		562	%
Other revenues		4.2		4.4		(5	)%
Total revenues, net	$	294.6	$	194.7		51	%

Product Revenues, net

        Net sales of CUBICIN were $290.4 million in 2007 and $190.3 million in 2006. Gross sales of CUBICIN totaled $306.8 million and $199.8 million for the years ended December 31, 2007 and 2006, respectively, and are offset by $16.4 million and $9.5 million of allowances for sales returns, Medicaid and customer rebates, chargebacks, prompt-pay discounts and wholesaler management fees, respectively. The increase in product revenues was primarily due to increased U.S. customer volume, as well as a 6.2% price increase in January 2007. International revenues of $5.3 million and $0.8 million for the years ended December 31, 2007 and 2006, respectively, consisted primarily of product sales to Novartis.

Other Revenues

        Other revenues for the year ended December 31, 2007, were $4.2 million as compared to $4.4 million for the year ended December 31, 2006, a decrease of $0.2 million or 5%. Included in other revenues for the year ended December 31, 2007, is revenue related to payments totaling $3.0 million under our license agreement with Novartis' subsidiary. The payments were received as a result of regulatory approvals for an expanded CUBICIN label in the EU. Also included in other revenues for the year ended December 31, 2007, is the amortization of license fees received from AstraZeneca, Merck and TTY. Included in other revenues for the year ended December 31, 2006, is revenue related to payments totaling $4.0 million under our license agreement with Novartis. The payments were received as a result of regulatory and pricing approvals for CUBICIN in Europe. Also included in other revenues for the year ended December 31, 2006, is $0.3 million of Small Business Innovation Research, or SBIR, grant revenue.

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Costs and Expenses

        The following table sets forth costs and expenses for the years ended December 31, 2007 and 2006:

	December 31,
	2007		2006		% Change
	(in millions)
Cost of product revenues	$	68.9	$	48.8		41	%
Research and development		85.2		57.4		48	%
Sales and marketing		67.7		56.9		19	%
General and administrative		31.5		26.7		18	%
Total costs and expenses	$	253.3	$	189.8		33	%

Cost of Product Revenues

        Cost of product revenues were $68.9 million and $48.8 million in the years ended December 31, 2007 and 2006, respectively. Our gross margin for the year ended December 31, 2007, was 76% as compared to 74% for the year ended December 31, 2006. The increase in our gross margin is primarily due to reduced overall pricing from our manufacturing vendors as well as higher volume resulting in lower cost per unit sold. Included in our cost of product revenues are royalties owed to Eli Lilly on net sales of CUBICIN under our license agreement with Eli Lilly. In March of 2005, we issued to Eli Lilly $20.0 million of our common stock in exchange for a 2% reduction in the royalties payable to Eli Lilly. In 2003, we issued to Eli Lilly $8.0 million of our common stock in exchange for a 1% reduction in the royalties payable to Eli Lilly. We also issued 38,922 shares of our common stock valued at $0.5 million in 2003 as a milestone payment to Eli Lilly. These amounts have been capitalized on our balance sheet as intangible assets and are amortized to cost of product revenues over the remaining life of our license agreement with Eli Lilly. Amortization included in cost of product revenues related to these items was $2.5 million for the years ended December 31, 2007 and 2006.

Research and Development Expense

        Total research and development expense in the year ended December 31, 2007, was $85.2 million as compared to $57.4 million in the year ended December 31, 2006, an increase of $27.8 million or 48%. The increase in research and development expenses was due primarily to (i) an in-process research and development charge of $14.4 million related to the acquisition of Illumigen in December 2007 and other related expense of $0.7 million; (ii) an increase of $4.5 million in payroll, benefits, travel and other employee related expenses; (iii) an increase of $4.2 million in clinical and non-clinical study costs; (iv) an increase of $2.3 million in collaboration expense; (v) an increase of $0.7 million in professional services expense; (vi) an increase of $0.6 million in research grant expense; (vii) an increase of $0.4 million in information technology expense; and (viii) an increase of $0.4 million in laboratory supplies and equipment expense.

Sales and Marketing Expense

        Sales and marketing expense in the year ended December 31, 2007, was $67.7 million as compared to $56.9 million in the year ended December 31, 2006, an increase of $10.8 million or 19%. The increase in sales and marketing expense is primarily due to (i) an increase of $5.3 million in payroll, benefits, travel and other employee related expenses; (ii) an increase of $4.7 million in marketing, promotional programs and trade show expense; and (iii) an increase of $0.5 million in information technology expense.

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General and Administrative Expense

        General and administrative expense in the year ended December 31, 2007, was $31.5 million as compared to $26.7 million in the year ended December 31, 2006, an increase of $4.7 million or 18%. This increase is primarily due to an increase of $1.9 million in payroll, benefits and other employee related expenses and an increase of $3.0 million in professional services.

Other Income (Expense), net

        The following table sets forth other income (expense), net for the years ended December 31, 2007 and 2006:

	December 31,
	2007			2006			% Change
	(in millions)
Interest income	$	18.0		$	10.6			70	%
Interest expense		(9.4	)		(15.9	)		(41	)%
Other income		—			—			(267	)%
Total other income (expense), net	$	8.6		$	(5.3	)		(262	)%

Interest Income and Expense

        Interest income in the year ended December 31, 2007, was $18.0 million as compared to $10.6 million in the year ended December 31, 2006, an increase of $7.4 million or 70%. The increase in interest income is due primarily to a higher average cash balance during 2007 as compared to 2006 as well as higher rates of return on our investments. The higher average cash balance is due to increased cash from operations as well as the net proceeds of $339.1 million resulting from the closing of our $350.0 million aggregate principal amount of the 2.25% Notes, offset by the repayment of the principal and outstanding interest of our $165.0 million aggregate principal amount of our 5.5% convertible subordinated notes, or 5.5% Notes, plus a prepayment penalty.

        Interest expense in the year ended December 31, 2007, was $9.4 million as compared to $15.9 million in the year ended December 31, 2006, a decrease $6.5 million or 41%. The decrease in interest expense is primarily due to the early repayment of our $165.0 million aggregate principal amount of our 5.5% Notes. We used a portion of the proceeds from our 2.25% Notes to repay the principal and outstanding interest of the $165.0 million aggregate principal amount of 5.5% Notes. This early prepayment in 2006 resulted in one time charges to interest expense of the prepayment penalty of $3.9 million as well as the write-off of the remaining unamortized balance of related debt issuance costs of $1.8 million.

Provision for Income Taxes

        Our effective tax rates for the years ended December 31, 2007 and 2006, were 3.7% and 0%, respectively. The effective tax rate for the year ended December 31, 2007, relates to federal alternative minimum tax expense and state tax expense. The effective tax rate for the year ended December 31, 2006, reflects that fact that we had net losses in 2006. Cubist and its subsidiaries file income tax returns with the U.S. federal government and with multiple state and local jurisdictions in the U.S. As of December 31, 2007, all of our deferred tax assets have a full valuation allowance recorded against them.

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Liquidity and Capital Resources

        Currently, we require cash to fund our working capital needs, to purchase capital assets, and to pay our debt service, including principal and interest. We fund our cash requirements through the following methods:

•

sales of CUBICIN in the U.S.;

•

payments from AstraZeneca for our promotion of MERREM I.V. in the U.S;

•

payments from our strategic collaborators and international CUBICIN partners, including payments related to product sales, license fees, royalty and milestone payments and sponsored research funding;

•

equity and debt financings; and

•

interest earned on invested capital.

        We incurred net losses from our inception through the third quarter of 2006. As of December 31, 2008, we had an accumulated deficit of $266.2 million. We expect to incur significant expenses in the future for the continued development and commercialization of CUBICIN, the development of our other drug candidates, as well as investments in other product opportunities and to enforce our intellectual property rights. Our total cash, cash equivalents and long-term investments at December 31, 2008, was $417.9 million as compared to $398.2 million at December 31, 2007. Based on our current business plan, we believe that our available cash, cash equivalents and projected cash flows from revenues will be sufficient to fund our operating expenses, debt obligation and capital requirements for the foreseeable future. Certain economic or strategic factors may require that we seek to raise additional cash by selling debt or equity securities. However, such funds may not be available when needed or we may not be able to obtain funding on favorable terms, or at all, particularly if the credit and financial markets continue to be distressed.

Operating Activities

        Net cash provided by operating activities was $122.2 million in 2008, compared to $100.8 million in 2007, an increase of $21.4 million. The $21.4 million increase in net cash provided by operating activities is related to a $30.7 million increase in net income, net of adjustments for non-cash items, offset by a $9.3 million decrease in net cash provided by working capital, which primarily consists of:

(i)

An increase of $3.9 million related to the increase in accounts payable and accrued expenses, primarily as a result of the timing of royalties paid to Eli Lilly on sales of CUBICIN;



(ii)

A decrease of $6.1 million related to the increase in accounts receivable resulting from increased sales of CUBICIN;



(iii)

A decrease of $4.3 million related to an increase in prepaid and other current assets primarily as a result of amounts receivable under our agreement with AstraZeneca; and



(iv)

A decrease of $2.5 million related to changes in deferred revenue primarily resulting from the receipt of $2.8 million in payments from Merck and AstraZeneca AB relating to the achievement of certain development milestones in 2008, compared to the receipt of a $6.0 million upfront payment from Merck in 2007.

Investing Activities

        Net cash used in investing activities in 2008 was $35.5 million, compared to $226.2 million provided by investing activities in 2007 and $227.8 million used in investing activities in 2006. Cash used in investing activities in 2008 consisted of the payment of $10.2 million of closing cash consideration to

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former shareholders of Illumigen, compared to $4.3 million spent in 2007 for the acquisition, as well as cash outflows for purchases of property and equipment. Purchases of property and equipment during the year ended December 31, 2008, were $25.3 million and include $14.0 million of assets related to the construction of approximately 30,000 square feet of additional laboratory space at our main building at 65 Hayden Avenue in Lexington, Massachusetts, as well as approximately $4.5 million of assets related to building out additional leased space at the 45 and 55 Hayden Avenue building in Lexington, Massachusetts. The remaining property and equipment additions during 2008 consisted of expenses related to lab equipment and computer software. Cash provided by investing activities in 2007 consisted of a net cash inflow of $235.6 million related to maturities and purchases of securities, as well as cash outflows from purchases of property and equipment of $5.1 million, and $4.3 million for the acquisition of Illumigen, net of cash acquired. Cash used in investing activities in 2006 includes a net cash outflow of $220.4 million related to purchases and maturities of securities, as well as cash outflows for purchases of property and equipment of $7.4 million. Net cash used in investing activities may fluctuate significantly from period to period due to the timing of our capital expenditures and other investments. We anticipate that our capital expenditures for 2009 will total approximately $15.8 million, primarily driven by additional purchases of laboratory equipment.

Financing Activities

        Net cash of $32.4 million was used in financing activities in the year ended December 31, 2008, as compared to $11.8 million and $184.0 million provided by financing activities in the years ended December 31, 2007 and 2006. Cash used in financing activities in 2008 primarily consisted of $46.8 million of cash used to repurchase $50.0 million of our 2.25% Notes, offset by $14.4 million of cash received from employees' exercise of stock options and purchases of common stock through our employee stock purchase plan. Cash provided by financing activities in 2007 primarily consisted of $12.1 million of cash received from employees' exercise of stock options and purchases of common stock through our employee stock purchase plan. Cash provided by financing activities in 2006 primarily consisted of net proceeds of $339.1 million from our public offering of our 2.25% Notes as well as $10.0 million from employees' exercise of stock options and purchases of common stock through our employee stock purchase plan. These proceeds were offset by the early repayment of our $165.0 million aggregate principal amount of 5.5% Notes with an original maturity date of November 2008.

Long-term Investments

        At December 31, 2008 and 2007, we held auction rate securities with an original par value of $58.1 million, all of which mature in 2017. These auction rate securities, which consist of private placement, synthetic collateralized debt obligations, are classified as available-for-sale and carried at fair market value. Due to repeated failed auctions since August 2007, we no longer consider these securities to be liquid and have therefore classified them as long-term investments for the years ended December 31, 2008 and 2007. A severe decline in and continued deterioration of the financial markets have impacted the fair value of our auction rate securities. As of December 31, 2008, we estimate the fair value of the auction rate securities to be $8.9 million.

        During the fourth quarter of 2008, we recorded an other-than-temporary impairment charge of $49.2 million on these securities based on our assessment that it is unlikely that the fair value of the auction rate securities will fully recover in the foreseeable future. In making the determination that the decline in fair value was other-than-temporary, we considered various factors, including but not limited to: the severity of the decline in fair value, the duration of the failed auctions, the continued instability in the financial markets, the negative outlook for this type of security, the lack of a trading market for the auction rate securities, further deterioration in the auction rate securities' credit ratings and the increased probability of default. In addition, we cannot foresee any liquidity in the auction rate securities marketplace that would allow us to liquidate our auction rate securities position in the near

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future. The estimated fair value of the auction rate securities could change significantly based on future financial market conditions. We will continue to monitor the securities and the financial markets, and if there is continued deterioration, the fair value of these securities could decline further resulting in additional other-than-temporary impairment charges. Any recovery of the fair market value would not be recognized in our financial statements until the gain is realized upon sale of the auction rate securities.

        The $49.2 million other-than-temporary impairment charge does not have a material impact on our liquidity or our financial flexibility and stability. Based on our ability to access our cash, our bank line of credit, our expected operating cash flows, and other sources of cash, we do not anticipate the lack of liquidity on these investments will affect our ability to execute our current business plan.

Credit Facility

        In December 2008, we entered into a $90.0 million revolving credit facility with RBS Citizens, National Association, or RBS Citizens, for general corporate purposes. Under the revolving credit facility, we may request to borrow at any time a minimum of $1.0 million. The facility will be secured by the pledge of a certificate of deposit issued by RBS Citizens and/or an RBS Citizens money market account equal to an aggregate of 102% of the outstanding principal amount of the loans, so long as such loans are outstanding. Interest on the borrowings can be calculated, at our option, based on LIBOR plus a margin or the Prime Rate. Any borrowings under the facility are due on demand or upon termination of the revolving credit agreement. There were no outstanding borrowings under the credit facility as of December 31, 2008.

Repurchases of Common Stock or Convertible Subordinated Notes Outstanding

        From time to time, our Board of Directors may consider authorizing us to repurchase shares of our common stock or our outstanding convertible subordinated notes in privately negotiated transactions, or publicly announced programs. If and when our Board of Directors should determine to authorize any such action, it would be on terms and under market conditions the Board of Directors determines are in the best interest of our company. Any such repurchases could deplete some of our cash resources.

Business Agreements

        We have committed to make potential future milestone payments to third parties as part of our various business agreements, including license, collaboration and commercialization agreements. Payments under these agreements typically become due and payable only upon achievement of certain development, regulatory, or commercial milestones. Additional information regarding these business agreements can be found in Note C. in the accompanying Notes to Consolidated Financial Statements.

Contractual Obligations

        Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities, such as royalties on future sales above the contractual minimums or known accrued royalty balance, for which we cannot reasonably predict future payment. Reserves for unrecognized tax benefits of $5.6 million have also been excluded from the table below due to the inability to predict the timing of tax audit resolutions. The following summarizes our

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significant contractual obligations at December 31, 2008, and the effects such obligations are expected to have on our liquidity and cash flows in future periods.

		Payments due by period
		1 year or less		2 - 3 Years		4 - 5 Years		More than 5 Years		Total
		(in millions)
Subordinated convertible notes		$	—	$	—	$	300.0	$	—	$	300.0
Interest on subordinated convertible notes			6.8		13.5		10.1		—		30.4
Operating leases, net of sublease income			4.9		10.5		10.3		12.2		37.9
Inventory purchase obligations			31.6		40.9		45.4		15.5		133.4
Royalty payments due			34.9		—		—		—		34.9
Upfront payment due to Alnylam			20.0		—		—		—		20.0
Capital purchase obligations			2.3		—		—		—		2.3
Other purchase obligations			31.2		7.6		—		—		38.8
	Total contractual cash obligations	$	131.7	$	72.5	$	365.8	$	27.7	$	597.7

        The subordinated convertible notes consist of a remaining $300.0 million aggregate principal amount of our 2.25% Notes, due in June 2013. These notes require semi-annual interest payments through maturity. In February 2008, we repurchased $50.0 million of the original principal amount of the 2.25% Notes. More information can be found in Note K. in the accompanying Notes to Consolidated Financial Statements.

        Our operating leases consist of approximately 173,000 square feet of office and data center space at 45 and 55 Hayden Avenue in Lexington, Massachusetts, pursuant to a term lease that expires in September 2012, for approximately 20,000 square feet and April 2016, for approximately 153,000 square feet as well as 15,000 square feet of commercial space at 148 Sidney Street in Cambridge, Massachusetts, pursuant to a term lease that expires in December 2010. We have subleased the space located at 148 Sidney Street through October 2010.

        The inventory purchase obligations listed above represent minimum volumes that we are required to purchase from our contract manufacturers. The royalty payments listed above represent amounts expected to be owed to Eli Lilly on sales of CUBICIN product. The upfront payment to Alnylam represents the payment due upon signing our collaboration agreement with Alnylam for the development and commercialization of Alnylam's RNAi therapeutics as potential therapy for the treatment of RSV infection. This payment was made in January 2009, and will be included in research and development expense for the three months ending March 31, 2009. The capital purchase obligations listed above represent capital purchase commitments related to construction at our main building in 65 Hayden Avenue in Lexington, Massachusetts. The other purchase obligations listed above primarily represent expected future payments for clinical trial expenses, as well as payments pursuant to collaboration agreements.

Critical Accounting Policies and Estimates

        We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. We are required to make certain estimates, judgments and assumptions that affect certain reported amounts and disclosures; actual amounts may differ.

        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

•

Revenue recognition;

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•

Inventories;

•

Accrued clinical research costs;

•

Investments;

•

Long-lived assets;

•

Income taxes; and

•

Stock-based compensation.

I. Revenue recognition

        We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition", and Emerging Issues Task Force, or EITF, Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables," or EITF 00-21. Our principal sources of revenue are sales of CUBICIN in the U.S., revenues derived from sales of CUBICIN by our international distribution partners, license fees and milestone payments that are derived from collaboration, license and distribution agreements with other pharmaceutical and biopharmaceutical companies, and service revenues derived from our promotion and support of MERREM I.V. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, collectibility of the resulting receivable is reasonably assured and Cubist has no further performance obligations.

U.S. Product Revenues, net

        All revenues from product sales are recorded net of applicable provisions for returns, chargebacks, discounts, wholesaler management fees and rebates in the same period the related sales are recorded. We generally do not allow wholesalers to stock CUBICIN. Instead, we maintain a drop-ship program under which orders are processed through wholesalers, but shipments are sent directly to our end-users, who are generally hospitals and acute care settings. This results in sales trends closely tracking actual hospital and acute care settings purchases of our product, and also prevents unusual purchasing patterns since it closely tracks end-user demand.

        We maintain a return policy that allows our customers to return product within a specified period prior to and subsequent to the expiration date. Our estimate of the provision for returns is analyzed quarterly and is based upon many factors, including industry data of product return rates, historical experience of actual returns, analysis of the level of inventory in the distribution channel, if any, and reorder rates of end-users. If the history of our product returns changes, the reserve will be adjusted. If we discontinue the drop ship program and allow wholesalers to stock CUBICIN, our net product sales may be impacted by the timing of wholesaler inventory stocking and activity and provisions for returns which will be based on estimated product in the distribution channel that may not sell through to end-users.

        We analyze our estimates and assumptions for chargebacks and Medicaid rebate reserves quarterly. Our Medicaid and chargeback reserves have two components: (i) an estimate of outstanding claims for known end-user rebate eligible sales that have occurred, but for which related claim submissions have not been received; and (ii) an estimate of chargebacks and Medicaid rebates based on an analysis of customer sales mix data to determine which sales may flow through to a rebate or chargeback eligible customer. Because the second component is calculated based on the amount of inventory in the distribution channel, if any, our assessment of distribution channel inventory levels impacts our estimated reserve requirements. We accrue for the expected liability at the time we record the sale, however, the time lag between sale and payment of rebate can be lengthy. Due to the time lag, in any particular period our rebate adjustments may incorporate revisions of accruals for several periods.

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        Reserves for Medicaid rebate programs are included in accrued liabilities and were $1.4 million and $0.6 million at December 31, 2008 and 2007, respectively. Reserves for returns, discounts, chargebacks and wholesaler management fees are offset against accounts receivable and were $4.9 million and $3.9 million at December 31, 2008 and 2007, respectively. In the years ended December 31, 2008, 2007 and 2006, provisions for sales returns, chargebacks, rebates, wholesaler management fees and discounts that were offset against product revenues totaled $29.5 million, $16.4 million and $9.5 million, respectively.

        We believe that the reserves we have established are reasonable and appropriate based upon current facts and circumstances. Applying different judgments to the same facts and circumstances would result in the estimated amounts for sales returns, chargebacks and Medicaid rebate reserves to vary. However, due to the drop-ship model in which we currently operate, the low level of actual product returns and chargebacks and Medicaid rebate claims experienced to date, we do not expect that the differences would be material.

International Product Revenues

        Under agreements with international distribution partners, we sell our product to international distribution partners based upon a transfer price arrangement. The transfer price is generally established annually. Once our distribution partner sells the product to a third party, we may be owed an additional payment or royalty based on a percentage of the net selling price to the third party, less the initial transfer price previously paid on such product. Under no circumstances would the subsequent adjustment result in a refund to the distribution partner of the initial transfer price.

Service Revenues

        We promote and provide other support for MERREM I.V. in the U.S. under our Commercial Services Agreement with AstraZeneca. The agreement includes a baseline annual payment to us to be adjusted up or down based on actual sales. We recognize revenues related to this agreement over each annual period of performance based on the estimated minimum annual payment amount that we can receive under the agreement. The amount of revenue recognized is assessed at the end of each quarterly period to reflect actual performance against the annual baseline sales amount. We also earn a percentage of the gross profit on sales exceeding the annual baseline sales amount. The payment for any such sales will be recognized upon our receipt of an annual report from AstraZeneca, which is expected to be received annually one quarter in arrears.

Other Revenues

        Other revenues include revenue related to upfront license payments and milestone payments received through our license, collaboration and commercialization agreements. We analyze our multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting in accordance with EITF 00-21.

License Revenues

        Non-refundable license fees are recognized depending on the provisions of each agreement. We recognize non-refundable up-front license payments as revenue upon receipt if the license has standalone value and the fair value of the undelivered items can be determined. If the license is considered to have standalone value but the fair value on any of the undelivered items cannot be determined, the license payments are recognized as revenue over the period of performance for such undelivered items or services. License fees with ongoing involvement or performance obligations are recorded as deferred revenue once received and are generally recognized ratably over the period of such performance obligation only after both the license period has commenced and the technology has

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been delivered. Our assessment of our obligations and related performance periods requires significant management judgment. If an agreement contains product development services, the relevant time period for the product development phase is based on management estimates and could vary depending on the outcome of clinical trials and the regulatory approval process. Such changes could materially impact the revenue recognized, and, as a result, management reviews the estimates related to the relevant time period of product development quarterly.

Milestones

        Revenues from milestone payments related to arrangements under which we have continuing performance obligations are recognized as revenue upon achievement of the milestone only if all of the following conditions are met: the milestone payments are non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved in achieving the milestone; and the amount of the milestone is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations. Contingent payments under license agreements that do not involve substantial effort on our part are not considered substantive milestones. Such payments are recognized as revenue when the contingency is met only if there are no remaining performance obligations or any remaining performance obligations are priced at fair value. Otherwise, the contingent payment is recognized as we complete our performance obligations under the arrangement.

II. Inventories

        Inventories are stated at the lower of cost or market with cost determined under the first-in, first-out, or FIFO, basis. Included in the cost of inventories are employee stock-based compensation costs capitalized under SFAS No. 123(R), "Share-Based Payment," or SFAS 123(R). On a quarterly basis, we analyze our inventory levels, and write-down inventory that is expected to expire prior to being sold, inventory that has a cost basis in excess of its expected net realizable value, inventory in excess of expected sales requirements, or inventory that fails to meet commercial sale specifications through a charge to cost of product revenues. Expired inventory is disposed of and the related costs are written off to cost of product revenues. Charges for inventory write-downs are not reversed if it is later determined that the product is saleable. Therefore, any such inventory would be sold at significantly higher margin. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

III. Accrued clinical research costs

        We utilize external entities such as CROs, independent clinical investigators, and other third-party service providers to assist us with the execution of our clinical studies. We record costs for clinical study activities based upon the estimated amount of services provided but not yet invoiced for each study, and include these costs in accrued liabilities in our Consolidated Balance Sheets and within research and development expense in our Consolidated Statements of Operations. Contracts and studies vary significantly in length, and are generally composed of a fixed management fee, variable indirect reimbursable costs that have a dollar limit cap, and amounts owed on a per patient enrollment basis. We monitor the activity levels and patient enrollment levels of the studies to the extent possible through communication with the service providers, detailed invoice and task completion review, analysis of actual expenses against budget, pre-approval of any changes in scope, and review of contractual terms. These estimates may or may not match the actual services performed by the service providers as determined by actual patient enrollment levels and other variable activity costs. Clinical trial expenses totaled $13.8 million, $5.6 million and $2.6 million for the years ended December 31, 2008, 2007 and

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2006, respectively. The level of clinical study expense may vary from period to period based on the number of studies that are in process, the duration of the study, the required level of patient enrollment, and the number of sites involved in the study. Clinical trials that bear the greatest risk of change in estimates are typically those with a significant number of sites, require a large number of patients, have complex patient screening requirements and that span multiple years. If we receive incomplete or inaccurate information from our third-party service providers, we may under or over estimate activity levels associated with various studies at a given point in time. In this event, we could record adjustments to prior period accruals that increase or reverse research and development expenses in future periods when the actual activity level becomes known. On January 1, 2008, we adopted EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," or EITF 07-3, using a prospective method. Pursuant to EITF 07-3, we defer and capitalize nonrefundable advance payments made by us for research and development activities, including clinical research activities, until the related goods are delivered or the related services are performed. The adoption of EITF 07-3 did not have a material effect on our consolidated financial statements upon the adoption.

IV. Investments

        Our investments consist of auction rate securities, which are private placement, synthetic collateralized debt obligations that mature in 2017. The auction rate securities have long-term nominal maturities of approximately nine years for which the interest rates are reset at intervals of less than 35 days. These investments are accounted for and reviewed for impairment in accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and related guidance issued by the FASB and the SEC. Accordingly, our investments are classified as available-for-sale and are carried at fair market value. The appropriateness of all investment classifications is reviewed at each financial reporting date.

        As of December 31, 2008 and 2007, we held auction rate securities with an original cost of $58.1 million. These securities are classified as long-term investments as we no longer consider them liquid given the repeated failed auctions occurring since August 2007. A severe decline in and continued deterioration of the financial markets have significantly impacted the fair market value of our investment in auction rate securities. We estimate the fair value of the auction rate securities to be $8.9 million and $43.4 million as of December 31, 2008 and 2007, respectively.

        In accordance with SFAS No. 157, "Fair Value Measurements," or SFAS 157, we have classified our financial assets and liabilities as Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves for similar assets or liabilities. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability. The fair value of the auction rate securities was determined using Level 3 inputs, and was based on a third party valuation model, market bids received from the issuer of the securities, combined with management's assessment of the factors that market participants would use to value these securities.

        Due to the fact that there is no active market for auction rate securities, we utilized other sources of information in order to develop our fair value estimates. Given the complex structure of the auction rate securities, we engaged Houlihan Smith & Company Inc., or Houlihan Smith, to assist us with our valuation. We used both the third party valuation model from Houlihan Smith and market bids received from Deutsche Bank AG, or DB, the issuer and sole market maker for all five of our auction rate securities. We weighted these sources equally when developing the final fair value, given our conclusion that both data points have equal relevance in estimating fair value.

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        The first data point used, Houlihan Smith's valuation model and their resulting fair value assessment, incorporates the structure of each auction rate security, the 125 entity reference pool of credit default swap, or CDS, spreads per security, the collateral underlying the securities, the cash flow characteristics of the securities and the current trading environment of such securities. This third party valuation considers various components of risk, including market-based bond and CDS pricing and corresponding assessment of default risk and recovery expectations. The valuation process results in an assessment of the fair value an investor would expect to pay for a similar risk profiled portfolio. We validated the underlying assumptions used in the model, including but not limited to bond default rates, bond recovery rates, credit ratings, cash flow streams, and discount rates. The model incorporates market data and CDS prices as of December 31, 2008. The Houlihan Smith valuation model includes the following ranges for key assumptions as of December 31, 2008: CDS spreads of 50 to 5057 basis points and recovery rates on the auction rate securities between 20% and 30%.

        The second data point used to calculate fair value are actual market bids from DB. Although we receive indicative bids from DB, and we have no knowledge of any of the auction rate securities being traded at these prices, we have considered these bids as a relevant data point given DB's role as the sole market maker for these securities.

        Our investment in auction rate securities are the only assets measured using Level 3 inputs as of December 31, 2008, and represents approximately 3.0% of the total financial assets measured at fair value in accordance with SFAS 157.

        During the fourth quarter of 2008, we recorded an other-than-temporary impairment charge of $49.2 million on these securities based on our assessment that it is unlikely that the fair value of the auction rate securities will fully recover in the foreseeable future. In addition, we cannot foresee any liquidity in the auction rate securities marketplace that would allow us to liquidate our auction rate securities position in the near future. The other-than-temporary impairment charge of $49.2 million was recorded as other income (expense) from continuing operations for the year ended December 31, 2008, and includes the reclassification of an unrealized loss of $14.7 million relating to these securities included in accumulated other comprehensive loss on our Consolidated Balance Sheet as of December 31, 2007. This loss was reclassified to other income (expense) in the fourth quarter of 2008 upon the determination that the loss was other-than-temporary. In making the determination that the decline in fair value was other-than-temporary, we considered various factors, including but not limited to: the severity of the decline in fair value, the duration of the failed auctions, the continued instability in the financial markets, the negative outlook for this type of security, the lack of a trading market for the auction rate securities, further deterioration in the auction rate securities' credit ratings and the increased probability of default.

        The estimated fair value of the auction rate securities could change significantly based on future financial market conditions. Consistent with our investment policy guidelines, all five of the auction rate securities we hold had AAA credit ratings at the time of purchase. During the fourth quarter of 2008, all five auction rate securities we hold were downgraded by Standard & Poor's and one security experienced an additional downgrade in February 2009, with the lowest rating now at BBB. Additionally, during the fourth quarter of 2008, Fitch Ratings downgraded three of the securities with the lowest of the five ratings now at BB, below investment grade. The underlying risk components of the auction rate securities are pools of CDSs, collateral notes and exposure to the security issuer. There is no underlying exposure to any mortgage-backed securities. The credit ratings on the underlying reference entities range from AAA to D. The riskiness of each underlying component of the auction rate securities was assessed and factored into the fair value of the securities. The credit and capital markets deteriorated significantly during 2008 and the future outlook is uncertain. We will continue to monitor the securities and the financial markets, and if there is continued deterioration, the fair value of these securities could decline further resulting in additional other-than-temporary impairment charges. Any recovery of the fair market value would not be recognized in our financial statements

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until the gain is realized upon sale of the securities. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts.

V. Long-lived assets

        Our long-lived assets include property and equipment and other intangible assets.

        In the ordinary course of our business, we incur substantial costs to purchase and construct property, plant and equipment. The treatment of costs to purchase or construct these assets depends on the nature of the costs and the stage of construction. We generally depreciate plant and equipment using the straight-line method over the asset's estimated economic life, which ranges from 3 years to 40 years. Determining the economic lives of plant and equipment requires us to make significant judgments that can materially impact our operating results. Property and equipment primarily consists of our corporate headquarters building located at 65 Hayden Avenue in Lexington, Massachusetts.

        As of December 31, 2008, there were approximately $19.7 million of net other intangible assets on our consolidated balance sheet, which consisted of patents, intellectual property, acquired technology rights, manufacturing rights, and other intangibles. We amortize our intangible assets using the straight-line method over their estimated economic lives, which range from four years to 17 years. Determining the economic lives of intangible assets requires us to make significant judgment and estimates, and can materially impact our operating results.

        Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Judgments regarding the existence of impairment indicators are based on historical and projected future operating results, changes in the manner of use of the acquired assets, overall business strategy, and market and economic trends. Future events could cause management to conclude that impairment indicators exist and that certain long-lived assets are impaired.

VI. Income Taxes

        We record deferred tax assets and liabilities based on the net tax effects of tax credits, operating loss carryforwards, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We then assess the likelihood that deferred tax assets will be recovered from future taxable income and, to the extent that we determine that recovery is not likely, a valuation allowance is established. The valuation allowance is based on estimates of taxable income by jurisdiction in which we operate and the period over which deferred tax assets will be recoverable. Prior to the fourth quarter of the year ended December 31, 2008, all of our deferred tax assets had a full valuation allowance recorded against them. Until that time, we determined that based on our historical tax position and operational results, realization of our deferred tax assets did not meet the "more likely than not" standard under SFAS 109. In the fourth quarter of 2008, upon reviewing factors such as achieving consistent profitability, our ability to utilize net operating loss carryforwards and forecasts of future profitability, we determined that there was sufficient positive evidence that it was "more likely than not" that we would be able to realize a significant portion of our deferred tax assets. As a result, we determined that a full valuation allowance on these assets was no longer required and we reversed a significant portion of the valuation allowance, which resulted in a tax benefit of $127.8 million during the year ended December 31, 2008.

VII. Stock-Based Compensation

        Effective January 1, 2006, our accounting policy related to stock option accounting changed upon our adoption of SFAS 123(R). SFAS 123(R) requires us to expense the fair value of employee stock

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options and other forms of stock-based compensation. Under the fair value recognition provisions of SFAS 123(R), stock-based compensation cost is estimated at the grant date based on the value of the award and is recognized as expense ratably over the requisite service period of the award (generally the vesting period of the equity award). Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating the expected life of the stock-based award, the expected stock price volatility over the expected life of the stock-based award and forfeiture rates.

        The fair value of each stock-based award is expensed under the accelerated method for option grants prior to the first quarter of 2006 and under the straight-line method for option grants commencing in the first quarter of 2006. In order to determine the fair value of stock-based awards on the date of grant, we use the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock price volatility, estimated option life, risk-free interest rate and dividend yield. The risk-free interest rate is a less subjective assumption as it is based on factual data derived from public sources. We use a dividend yield of zero as we have never paid cash dividends and have no intention to pay cash dividends in the foreseeable future. The expected stock price volatility and option life assumptions require a greater level of judgment, which makes them critical accounting estimates. Estimating forfeitures also requires significant judgment.

        Our expected stock-price volatility assumption is based on both current and historical volatilities of our stock, which are obtained from public data sources. The expected life represents the weighted average period of time that stock-based awards are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns. We determine the expected life assumption based on the exercise behavior and post-vesting behavior that has been exhibited historically, adjusted for specific factors that may influence future exercise patterns. We estimate forfeitures based on our historical experience of stock-based pre-vesting cancellations. We believe that our estimates are based on outcomes that are reasonably likely to occur. To the extent actual forfeitures differ from our estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. During the years ended December 31, 2008, 2007 and 2006, we incurred compensation cost under SFAS 123(R) of $11.8 million, $10.5 million and $10.6 million, respectively.

Recent Accounting Pronouncements

        Effective January 1, 2008, we implemented SFAS 157 for our financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In accordance with the provisions of FASB Staff Position No. 157-2, "Effective Date of FASB Statement No. 157," or FSP FAS 157-2, we deferred the implementation of SFAS 157 as it relates to our non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. We do not expect that the adoption of FSP FAS 157-2 will have a material impact on our results of operations or financial condition.

        In November 2008, the FASB issued EITF Issue No. 08-7, "Accounting for Defensive Intangible Assets," or EITF 08-7. EITF 08-7 seeks to clarify how to account for defensive intangible assets, or those intangible assets acquired in a business combination that an entity does not intend to actively use but does intend to prevent others from using, subsequent to initial measurement. EITF 08-7 is effective for all intangible assets acquired during the first fiscal year beginning on or after December 15, 2008. Early adoption is not permitted. The impact of the adoption of EITF 08-7 will be dependent upon the type and structure of any acquisition that we may make in the future.

        In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities," or FSP EITF 03-6-1. FSP EITF 03-6-1 addresses whether instruments granted in share-based payment

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transactions are participating securities prior to vesting and, therefore need to be included in the earnings allocation in computing earnings per share, or EPS, under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, "Earnings per Share," or SFAS 128. FSP EITF 03-6-1 applies to the calculation of EPS under SFAS 128 for share-based payment awards with rights to dividends or dividend equivalents. FSP EITF 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and must be included in the computation of EPS pursuant to the two class method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented must be adjusted retrospectively (including interim financial statements, summaries of earnings and selected financial data) to conform with the provisions of FSP EITF 03-6-1. Early adoption is not permitted. We do not expect that the adoption of EITF 03-6-1 will have a material impact on our results of operations or financial condition.

        In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," or SFAS 162. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with GAAP. SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." We do not expect that the adoption of SFAS 162 will have a material impact on our results of operations or financial condition.

        In May 2008, the FASB issued FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)," or FSP APB 14-1. FSP APB 14-1 requires the issuers of certain convertible debt instruments that may be settled in cash upon conversion to separately account for the liability (debt) and equity (conversion option) components in a manner that reflects the issuer's non-convertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP ABP 14-1 is effective for Cubist beginning January 1, 2009. Prior periods will be restated as if the new rule had been in effect in prior periods. Early adoption is not permitted. While our cash payments for interest will not be affected, based on current debt outstanding, the adoption of FSP APB 14-1 will increase our reported interest expense in a manner that reflects interest rates of similar non-convertible debt. We expect that annual interest expense will increase by approximately $12.8 million, which will be a non-cash charge, for the year ending December 31, 2009, as a result of adoption. FSP APB 14-1 requires retrospective application. As a result, interest expense for the years ended December 31, 2008 and 2007, will be restated in future filings to include additional, non-cash interest expense of $11.7 million and $12.5 million, respectively.

        In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, "Determination of Useful Life of Intangible Assets," or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. FSP FAS 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), "Business Combinations," and GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. FSP FAS 142-3 must be applied prospectively to intangible assets acquired after the effective date. We do not expect that the adoption of FSP FAS 142-3 will have a material impact on our results of operations or financial condition.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations," or SFAS 141(R), which is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. SFAS 141(R) establishes principles and requirements for how an acquirer

87

recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired in the business combination. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) will be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. We expect SFAS 141(R) will have an impact on our accounting for future business combinations once adopted, but the effect is dependent upon the type and structure of any acquisition that we may make in the future.

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," or SFAS 160. SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests, and classified as a component of equity. SFAS 160 also requires that entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS 160 must be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. We do not expect that the adoption of SFAS 160 will have a material impact on our results of operations or financial condition.

        In November 2007, the EITF reached a consensus on EITF Issue No. 07-1, "Accounting for Collaborative Arrangements," or EITF 07-1. EITF 07-1 defines collaborative agreements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. EITF 07-1 must be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. We do not expect that the adoption of EITF 07-1 will have a material impact on our results of operations or financial condition.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We invest our cash in a variety of financial instruments, which may include money market instruments, securities issued by the U.S. government and its agencies, investment grade corporate bonds and notes and auction rate securities. These investments are denominated in U.S. dollars. All of our interest-bearing securities are subject to interest rate risk, and could decline in value if interest rates fluctuate. In addition, we have experienced liquidity issues related to our investments in auction rate securities. We currently own securities that are sensitive to market risks as part of our investment portfolio. The primary objective in managing our cash is to preserve capital and provide adequate liquidity to fund operations. None of these market-risk sensitive securities are held for trading purposes.

        We currently hold auction rate securities with an original par value of $58.1 million, consisting of private placement, synthetic collateralized debt obligations. We classified the auction rate securities, which mature in 2017, as long-term investments for the years ended December 31, 2008 and 2007, as we no longer consider them liquid given repeated failed auctions since August 2007. We classify these securities as available-for-sale and carry them at fair market value. A severe decline in, and continued deterioration of the financial markets have impacted the fair value of our auction rate securities. We estimate the fair value of the auction rate securities to be $8.9 million as of December 31, 2008.

        During the fourth quarter of 2008, we recorded an other-than-temporary impairment charge of $49.2 million on the auction rate securities based on our assessment that it is unlikely that the fair market value of the auction rate securities will fully recover in the foreseeable future. In addition, we

88

cannot foresee any liquidity in the auction rate securities marketplace that would allow us to liquidate our auction rate securities position in the near future. The other-than-temporary impairment charge of $49.2 million was recorded as other income (expense) in our Consolidated Statement of Operations and does not have a material impact on our financial flexibility or stability.

        The potential change in fair value for our auction rate securities has been assessed on a hypothetical 100 basis point adverse movement across all maturities. We estimate that such hypothetical adverse 100 basis point movement would result in no additional loss in fair value due to the fact that our investment return is based on a floating LIBOR rate. In addition to interest risk, we are subject to liquidity and credit risk as it relates to these investments.

        Our fixed rate 2.25% Notes are carried at cost on our Consolidated Balance Sheet. As of December 31, 2008, the fair market value of the 2.25% Notes was estimated by us to be $280.5 million. We determined the estimated fair value of the 2.25% Notes by using quoted market rates. If interest rates were to increase by 100 basis points, the fair value of our long-term debt would decrease approximately $3.8 million.

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ITEM 8.    FINANCIAL STATEMENTS

Cubist Pharmaceuticals, Inc.
Index to Consolidated Financial Statements and Schedule

Report of Independent Registered Public Accounting Firm		91
Consolidated Balance Sheets as of December 31, 2008 and 2007		92
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006		93
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006		94
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2008, 2007 and 2006		95
Notes to Consolidated Financial Statements		96
Financial Statement Schedule:
	Schedule II Valuation and Qualifying Accounts for the years ended December 31, 2008, 2007 and 2006	133

90

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Cubist Pharmaceuticals, Inc.:

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Cubist Pharmaceuticals, Inc. and its subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        As discussed in Note E to the consolidated financial statements, in 2008 the Company changed the manner in which it measures fair value in accordance with Statement of Financial Accounting Standards No. 157, "Fair Value Measurements".

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
February 27, 2009

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CUBIST PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

			December 31,
			2008			2007
			(in thousands, except share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	409,023		$	354,785
	Accounts receivable, net			43,162			29,075
	Inventory			21,958			18,733
	Current deferred tax assets, net			46,410			—
	Prepaid expenses and other current assets			12,456			6,686
		Total current assets		533,009			409,279
Property and equipment, net				66,819			50,150
Intangible assets, net				19,720			22,698
Long-term investments				8,922			43,399
Deferred tax assets, net				81,382			—
Other assets				6,740			8,989
		Total assets	$	716,592		$	534,515
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	11,575		$	6,564
	Accrued liabilities			68,009			58,735
	Short-term deferred revenue			1,896			1,484
		Total current liabilities		81,480			66,783
Long-term deferred revenue, net of current portion				19,444			16,332
Other long-term liabilities				3,696			2,698
Long-term debt				300,000			350,000
		Total liabilities		404,620			435,813
Commitments and contingencies (Notes C, D, J, K, and M)
Stockholders' equity:
	Preferred stock, non-cumulative; convertible, $.001 par value; authorized 5,000,000 shares; no shares issued and outstanding			—			—
	Common stock, $.001 par value; authorized 150,000,000 shares; 57,430,200 and 56,142,105 shares issued and outstanding as of December 31, 2008 and 2007, respectively			57			56
Additional paid-in capital				578,140			549,391
Accumulated other comprehensive loss				—			(14,701	)
Accumulated deficit				(266,225	)		(436,044	)
		Total stockholders' equity		311,972			98,702
Total liabilities and stockholders' equity			$	716,592		$	534,515

The accompanying notes are an integral part of the consolidated financial statements.

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CUBIST PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

				For the Years Ended December 31,
				2008			2007			2006
				(in thousands except share and per share amounts)
Revenues:
	U.S. product revenues, net			$	414,681		$	285,059		$	189,512
	International product revenues				7,400			5,347			808
	Service revenues				9,451			—			—
	Other revenues				2,109			4,214			4,428
		Total revenues, net			433,641			294,620			194,748
Costs and expenses:
	Cost of product revenues				90,381			68,860			48,803
	Research and development				126,670			85,175			57,405
	Sales and marketing				84,997			67,662			56,879
	General and administrative				40,704			31,485			26,745
		Total costs and expenses			342,752			253,182			189,832
Operating income					90,889			41,438			4,916
Other income (expense):
	Interest income				10,066			18,036			10,589
	Interest expense				(9,342	)		(9,427	)		(15,893	)
	Other income (expense)				(45,710	)		(20	)		12
			Total other income (expense), net		(44,986	)		8,589			(5,292	)
Income (loss) before income taxes					45,903			50,027			(376	)
(Benefit) provision for income taxes					(123,916	)		1,880			—
Net income (loss)				$	169,819		$	48,147		$	(376	)
Basic net income (loss) per common share				$	3.00		$	0.87		$	(0.01	)
Diluted net income (loss) per common share				$	2.56		$	0.83		$	(0.01	)
Shares used in calculating:
	Basic net income (loss) per common share				56,645,962			55,591,775			54,490,376
	Diluted net income (loss) per common share				67,955,061			68,822,996			54,490,376

The accompanying notes are an integral part of the consolidated financial statements.

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CUBIST PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				For the Years Ended December 31,
				2008			2007			2006
				(in thousands)
Cash flows from operating activities:
	Net income (loss)			$	169,819		$	48,147		$	(376	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of assets and liabilities acquired:
	Loss on write-off of property				2,323			—			—
	Gain on debt repurchase, net of debt issuance costs write-off				(1,979	)		—			—
	Depreciation and amortization				9,362			9,669			9,194
	Amortization of debt issuance costs (excluding write-off relating to debt repurchase)				1,349			1,551			3,123
	Amortization of premium or discount on investments				—			(558	)		(144	)
	Impairment of long-term investments				49,178			—			—
	Deferred income tax benefit				(127,792	)		—			—
	Stock-based compensation				11,831			10,605			11,105
	Charge for company 401(k) common stock match				2,589			2,109			1,825
	Other non-cash				—			(24	)		11
	Acquired IPR&D				—			14,433			—
	Changes in assets and liabilities, net of assets and liabilities acquired:
		Accounts receivable			(14,087	)		(8,005	)		(6,369	)
		Inventory			(3,217	)		(2,774	)		(1,447	)
		Prepaid expenses and other current assets			(5,770	)		(1,468	)		434
		Other assets			(276	)		(271	)		273
		Accounts payable and accrued liabilities			24,340			20,401			718
		Deferred revenue			3,524			6,016			10,550
		Other long-term liabilities			998			938			1,760
			Total adjustments		(47,627	)		52,622			31,033
			Net cash provided by operating activities		122,192			100,769			30,657
Cash flows from investing activities:
	Acquisition of Illumigen, net of cash acquired				(10,191	)		(4,350	)		—
	Purchases of property and equipment				(25,336	)		(5,133	)		(7,391	)
	Purchases of investments				—			(3,407,532	)		(1,714,151	)
	Maturities of investments				—			3,643,180			1,493,704
			Net cash (used in) provided by investing activities		(35,527	)		226,165			(227,838	)
Cash flows from financing activities:
	Issuance of common stock, net				14,424			12,073			10,010
	Repurchase of convertible subordinated debt				(46,845	)		—			—
	Proceeds from sale of convertible subordinated debt				—			—			350,000
	Costs associated with sale of convertible subordinated debt				—			—			(10,925	)
	Repayments of long-term debt and capital lease obligations				—			(245	)		(165,078	)
			Net cash (used in) provided by financing activities		(32,421	)		11,828			184,007
Net increase (decrease) in cash and cash equivalents					54,244			338,762			(13,174	)
Effect of changes in foreign exchange rates on cash balances					(6	)		44			4
Cash and cash equivalents at beginning of year					354,785			15,979			29,149
Cash and cash equivalents at end of year				$	409,023		$	354,785		$	15,979
Cash paid during the year for:
	Interest			$	6,921		$	7,875		$	8,672
	Cash paid for income taxes			$	3,467		$	1,413		$	—
Supplemental disclosures of cash flow information:
	Non-cash investing and financing activities:
		Acquisition obligation payable to former Illumigen shareholders		$	—		$	10,191		$	—
		Capital lease obligations incurred		$	—		$	—		$	245

The accompanying notes are an integral part of the consolidated financial statements.

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CUBIST PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

			Number of Common Shares		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
			(in thousands, except share data)
Balance at December 31, 2005				53,883,581	$	54	$	500,360	$	—		$	(483,815	)	$	16,599
Comprehensive loss:
	Net loss			—		—		—		—			(376	)		(376	)
		Total comprehensive loss		—		—		—		—			—			(376	)
Exercise of stock options				892,790		1		8,871		—			—			8,872
Shares issued in connection with employee stock purchase plan and 401(k) plan				207,062		—		3,968		—			—			3,968
Stock-based compensation to employees and consultants				17,625		—		11,527		—			—			11,527
Balance at December 31, 2006				55,001,058		55		524,726		—			(484,191	)		40,590
Comprehensive income (loss):
	Net income			—		—		—		—			48,147			48,147
	Unrealized loss on investments			—		—		—		(14,701	)		—			(14,701	)
		Total comprehensive income		—		—		—		—			—			33,446
Exercise of stock options				965,538		1		10,945		—			—			10,946
Shares issued in connection with employee stock purchase plan and 401(k) plan				172,509		—		3,108		—			—			3,108
Stock-based compensation to employees and consultants				3,000		—		10,612		—			—			10,612
Balance at December 31, 2007				56,142,105		56		549,391		(14,701	)		(436,044	)		98,702
Comprehensive income:
	Net income			—		—		—		—			169,819			169,819
	Reclassification adjustment for losses included in net income			—		—		—		14,701			—			14,701
		Total comprehensive income		—		—		—		—			—			184,520
Exercise of stock options				1,081,221		1		13,213		—			—			13,214
Shares issued in connection with employee stock purchase plan and 401(k) plan				203,134		—		3,696		—			—			3,696
Stock-based compensation to employees				3,740		—		11,840		—			—			11,840
Balance at December 31, 2008				57,430,200	$	57	$	578,140	$	—		$	(266,225	)	$	311,972

The accompanying notes are an integral part of the consolidated financial statements.

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CUBIST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. NATURE OF BUSINESS

        Cubist Pharmaceuticals, Inc. ("Cubist" or "the Company") is a biopharmaceutical company headquartered in Lexington, Massachusetts, focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Prior to July 2008, Cubist had marketed only its own product, CUBICIN® (daptomycin for injection), which was launched in the U.S. in November 2003. CUBICIN is currently the only marketed once-daily, bactericidal, intravenous, or I.V., antibiotic with proven activity against methicillin-resistant S. aureus, or MRSA. CUBICIN is approved in the U.S. for the treatment of complicated skin and skin structure infections, or cSSSI, caused by Staphylococcus aureus, or S. aureus, and certain other Gram-positive bacteria, and for S. aureus bloodstream infections (bacteremia), including those with right-sided infective endocarditis, or RIE, caused by methicillin-susceptible and methicillin-resistant isolates. In the European Union, or EU, CUBICIN is approved for the treatment of complicated skin and soft tissue infections, or cSSTI, where the presence of susceptible Gram-positive bacteria is confirmed or suspected and for RIE due to S. aureus bacteremia and S. aureus bacteremia associated with RIE or cSSTI.

        In July 2008, Cubist entered into an exclusive agreement with AstraZeneca Pharmaceuticals, LP, an indirect wholly-owned subsidiary of AstraZeneca PLC, or AstraZeneca, to promote and provide other support in the U.S. for MERREM I.V.® (meropenem for injection), an established broad spectrum (carbapenem class) I.V. antibiotic. Under the agreement, Cubist promotes and supports MERREM I.V. using its existing U.S. acute care sales and medical affairs organizations. AstraZeneca provides marketing and commercial support for MERREM I.V.

        Cubist has focused its product pipeline building efforts on opportunities that leverage its acute-care discovery, development, regulatory, and commercialization expertise. In April 2008, Cubist entered into a license and collaboration agreement with Dyax Corp., or Dyax, pursuant to which it obtained an exclusive license for the development and commercialization in North America and Europe of the I.V. formulation of Dyax's ecallantide compound, a recombinant small protein, for the prevention of blood loss during on-pump surgery. In December 2008, the Company submitted two Investigational New Drug Applications, or INDs, with the U.S. Food and Drug Administration, or FDA, for each of the following drug candidates: CB-182,804, in development as I.V. antibiotic therapy for multi-drug-resistant, or MDR, Gram-negative infections; and CB-183,315, in development as oral antibiotic therapy for Clostridium difficile associated diarrhea, or CDAD. An IND is the filing stage preparatory to clinical trials. Phase 1 clinical trials for each of these drug candidates commenced in February 2009.

        Cubist is subject to risks common to companies in the pharmaceutical industry including, but not limited to, risks related to the development by Cubist or its competitors of new technological innovations, the ability to market products or services, the Company's dependence on key personnel, the market acceptance of CUBICIN, the Company's dependence on key suppliers, protection of the Company's proprietary technology, the Company's ability to obtain additional financing, and the Company's compliance with governmental and other regulations. On February 9, 2009, the Company received a Paragraph IV Certification Notice Letter from Teva Parenteral Medicines, Inc., or Teva, notifying the Company that it has submitted an Abbreviated New Drug Application, or ANDA, to the FDA seeking approval to market a generic version of CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689 and RE39,071. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. The Company plans to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if the Company initiates

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CUBIST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A. NATURE OF BUSINESS (Continued)

such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date the Company was notified of the filing.

B. ACCOUNTING POLICIES

Basis of Presentation and Consolidation

        The accompanying consolidated financial statements include the accounts of Cubist and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions are employed in estimates used in determining values of inventories, investments, long-lived assets, accrued clinical research costs, income taxes, stock-based compensation, product rebate and return accruals, as well as in estimates used in applying the revenue recognition policy. Actual results could differ from estimated results.

Reclassifications

        Certain reclassifications have been made to prior year amounts to conform with current year presentation.

Fair Value of Financial Instruments

        The carrying amounts of Cubist's cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value due to the short-term maturities of these instruments. Long-term investments include auction rate securities which are classified as available-for-sale and are recorded at fair value. Unrealized losses on investments are included within accumulated other comprehensive loss unless the impairment is determined to be other-than-temporary. Long-term investments had a fair value of $8.9 million and $43.4 million as of December 31, 2008 and 2007, respectively, with an original cost of $58.1 million. During the fourth quarter of 2008, Cubist recorded an other-than-temporary impairment charge of $49.2 million on these investments. More information can be found in Note E., "Investments". The fair market value of long-term debt at December 31, 2008, amounted to $280.5 million, and consisted of fixed-rate debt due in 2013. The estimated fair value of long-term debt was determined using quoted market rates.

        In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates

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B. ACCOUNTING POLICIES (Continued)

of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange.

Cash and Cash Equivalents

        Cash and cash equivalents consist of short-term, interest-bearing instruments with initial maturities of three months or less at the date of purchase. These instruments are carried at cost, which approximates market value.

Investments

        Investments consist of auction rate securities, which are private placement, synthetic collateralized debt obligations that mature in 2017. Investments are accounted for and reviewed for impairment in accordance with Statement of Financial Accounting, or SFAS, No. 115, "Accounting for Certain Investments in Debt and Equity Securities," or SFAS 115. Investments are considered available-for-sale as of December 31, 2008 and 2007, and are carried at fair market value. Unrealized gains and losses are included in accumulated other comprehensive income (loss) as a separate component of stockholders' equity, unless determined to be other-than-temporary. Realized gains and losses, dividends and interest income, including amortization of any premium or discount arising at purchase, and declines in value judged to be other-than-temporary are included in other income (expense). Given the repeated failure of auctions for the auction rate securities, these investments are no longer considered liquid and have been classified as long-term investments as of December 31, 2008 and 2007. During the fourth quarter of 2008, the Company recorded an other-than-temporary impairment charge of $49.2 million on the original cost of $58.1 million based on its assessment that it is unlikely that the fair value of the auction rate securities will fully recover in the foreseeable future. More information can be found in Note E., "Investments".

Concentration of Risk

        Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, investments and accounts receivable. Cash, cash equivalents and investments may consist of certificates of deposit, commercial paper, corporate bonds, U.S. Government securities, government agency securities, money market funds and auction rate securities. The Company's cash, cash equivalents and investments are held primarily with three financial institutions in the U.S.

        Cubist's trade receivables in 2008 and 2007 primarily represent amounts due to the Company from wholesalers, including Cardinal Health, Inc., Amerisource Bergen Drug Corporation and McKesson Corporation, and its international collaborators for CUBICIN. Cubist performs ongoing credit evaluations of its customers and generally does not require collateral. For the year ended December 31, 2008, Cubist has not had significant write-offs of accounts receivable and its days sales outstanding has remained consistent with December 31, 2007.

        Amounts due from Cardinal Health, Inc. represented approximately 24% and 28% of the Company's accounts receivable balances at December 31, 2008 and 2007, respectively. Amounts due from Amerisource Bergen Drug Corporation represented approximately 27% and 32% of the Company's accounts receivable balances at December 31, 2008 and 2007, respectively. Amounts due

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from McKesson Corporation represented approximately 22% and 20% of the Company's accounts receivable balances at December 31, 2008 and 2007, respectively.

        Revenues from Cardinal Health, Inc. accounted for approximately 28%, 32% and 33% of total revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Revenues from Amerisource Bergen Drug Corporation accounted for approximately 28%, 30% and 32% of total revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Revenues from McKesson Corporation accounted for approximately 20%, 20% and 21% of total revenues for the years ended December 31, 2008, 2007 and 2006, respectively.

Inventory

        Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a FIFO basis. The Company analyzes its inventory levels quarterly, and writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, inventory in excess of expected sales requirements or inventory that fails to meet commercial sale specifications to cost of product revenues. Expired inventory is disposed of and the related costs are written off to cost of product revenues.

        Inventories consisted of the following at December 31:

	2008		2007
	(in thousands)
Raw materials	$	10,377	$	9,432
Work in process		5,970		2,858
Finished goods		5,611		6,443
	$	21,958	$	18,733

Property and Equipment

        Property and equipment, including leasehold improvements, are recorded at cost and are depreciated when placed into service using the straight-line method, based on their estimated useful lives as follows:

Asset Description	Estimated Useful Life (Years)
Building		40
Laboratory build-outs		20
Fermentation equipment		15
Lab equipment		5
Furniture and fixtures		5
Computer hardware and software		3

        Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term. Costs for capital assets not yet placed into service have been capitalized as construction in progress and will be depreciated in accordance with the above guidelines once placed into service.

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Costs for repairs and maintenance are expensed as incurred, while major betterments are capitalized. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in operating costs and expenses.

Intangible Assets

        Cubist's intangible assets consist of acquired intellectual property, processes, patents and technology rights. These assets are amortized on a straight-line basis over their estimated useful life of four to 17 years. The fair value of patents obtained through an acquisition transaction are capitalized and amortized over the lesser of the patent's remaining legal life or its useful life. Costs to obtain, maintain and defend the Company's patents are expensed as incurred.

Impairment of Long-Lived Assets

        In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," Cubist reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset.

Revenue Recognition

        Cubist recognizes revenue in accordance with Securities and Exchange Commission, or SEC, Staff Accounting Bulletin No. 104, "Revenue Recognition," and Emerging Issues Task Force, or EITF, Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables," or EITF 00-21. Principal sources of revenue are sales of CUBICIN in the U.S., revenues derived from sales of CUBICIN by Cubist's international distribution partners, license fees and milestone payments that are derived from collaboration, license and commercialization agreements with other biopharmaceutical companies, and service revenues derived from Cubist's agreement with AstraZeneca for the promotion and support of MERREM I.V. in the U.S. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, collectibility of the resulting receivable is reasonably assured and the Company has no further performance obligations.

U.S. Product Revenues, net

        All revenues from product sales are recorded net of applicable provisions for returns, chargebacks, rebates, wholesaler management fees and discounts in the same period the related sales are recorded.

        Certain product sales qualify for rebates or discounts from standard list pricing due to government sponsored programs or other contractual agreements. Reserves for Medicaid rebate programs are included in accrued liabilities and were $1.4 million and $0.6 million at December 31, 2008 and 2007, respectively. The Company allows customers to return product within a specified period prior to and subsequent to the expiration date. Reserves for product returns are based upon many factors, including industry data of product return rates, historical experience of actual returns, analysis of the level of

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inventory in the distribution channel, if any, and reorder rates of end-users. Reserves for returns, discounts, chargebacks and wholesaler management fees are offset against accounts receivable and were $4.9 million and $3.9 million at December 31, 2008 and 2007, respectively. In the years ended December 31, 2008, 2007 and 2006, provisions for sales returns, chargebacks, rebates, wholesaler management fees and discounts that were offset against product revenues totaled $29.5 million, $16.4 million and $9.5 million, respectively. The increase in the amount of reserves against accounts receivable, as well as provisions that were offset against product revenues, is primarily due to an increase in revenues from Cubist's sales of CUBICIN.

International Product Revenues

        Under agreements with international distribution partners, Cubist sells its product to international distribution partners based upon a transfer price arrangement. The transfer price is generally established annually. Once Cubist's distribution partner sells the product to a third party, Cubist may be owed an additional payment or royalty based on a percentage of the net selling price to the third party, less the initial transfer price previously paid on such product. Under no circumstances would the subsequent adjustment result in a refund to the distribution partner of the initial transfer price.

Service Revenues

        Cubist promotes and provides other support for MERREM I.V. in the U.S. under the Company's Commercial Services Agreement with AstraZeneca. AstraZeneca will continue to provide marketing and commercial support for MERREM I.V. The Company recognizes the revenues from this agreement as service revenues. The agreement establishes a baseline annual payment to Cubist of $20.0 million to be adjusted up or down based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount. Cubist recognizes revenues related to this agreement over each annual period of performance based on the estimated minimum annual payment amount that it can receive under the agreement. The amount of revenue recognized is assessed at the end of each quarterly period to reflect actual performance against the annual baseline sales amount. Cubist also earns a percentage of the gross profit earned by AstraZeneca on annual sales exceeding the annual baseline sales amount. The payment for any such sales over the baseline amount will be recognized upon Cubist's receipt of an annual report from AstraZeneca, which is expected to be received annually one quarter in arrears.

Other Revenues

        Other revenue includes revenue related to upfront license payments, license fees and milestone payments received through Cubist's license, collaboration and commercialization agreements. The Company analyzes its multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting in accordance with EITF 00-21.

License Revenues

        Non-refundable license fees are recognized depending on the provisions of each agreement. The Company recognizes non-refundable up-front license payments as revenue upon receipt if the license has standalone value and the fair value of the undelivered items can be determined. If the license is

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considered to have standalone value but the fair value of any of the undelivered items cannot be determined, the license payments are recognized as revenue over the period of performance for such undelivered items or services. License fees with ongoing involvement or performance obligations are recorded as deferred revenue once received and are generally recognized ratably over the period of such performance obligation only after both the license period has commenced and the technology has been delivered. The Company's assessment of its obligations and related performance periods requires significant management judgment. If an agreement contains product development services, the relevant time period for the product development phase is based on management estimates and could vary depending on the outcome of clinical trials and the regulatory approval process. Such changes could materially impact the revenue recognized and as a result, management reviews the estimates related to the relevant time period of product development quarterly.

Milestones

        Revenue from milestone payments related to arrangements under which the Company has continuing performance obligations are recognized as revenue upon achievement of the milestone only if all of the following conditions are met: the milestone payments are non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved in achieving the milestone; and the amount of the milestone is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as the Company completes its performance obligations. Contingent payments under license agreements that do not involve substantial effort on the part of the Company are not considered substantive milestones. Such payments are recognized as revenue when the contingency is met only if there are no remaining performance obligations or any remaining performance obligations are priced at fair value. Otherwise, the contingent payment is recognized as revenue over the term of the arrangement as the Company completes its performance obligations under the arrangement.

Research and Development

        All research and development costs, including upfront fees and milestones paid to collaborators, are expensed as incurred if no planned alternative future use exists for the technology. When the Company is reimbursed by a collaborative partner for work it performs, it typically records the costs incurred as research and development expenses and the related reimbursement as other revenues in its Consolidated Statement of Operations. On January 1, 2008, the Company adopted EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," or EITF 07-3, using a prospective method. The adoption of EITF 07-3 did not have a material effect on the Company's consolidated financial statements upon the adoption. Pursuant to EITF 07-3, the Company defers and capitalizes nonrefundable advance payments made by the Company for research and development activities until the related goods are delivered or the related services are performed. Research and development expenses consist of internal labor, clinical and non-clinical studies, materials and supplies, facilities, depreciation, third party costs for contracted services, manufacturing process improvement and testing costs, and other research and development related costs.

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Advertising Costs

        Advertising costs are expensed as incurred and are included in sales and marketing expense within the Consolidated Statements of Operations. Advertising costs, which include promotional expenses and costs related to trade shows, were approximately $9.1 million, $9.6 million and $6.0 million at December 31, 2008, 2007 and 2006, respectively.

Stock-Based Compensation

        The Company records stock-based compensation expense in accordance with SFAS No. 123(R), "Share-Based Payment," or SFAS 123(R). SFAS 123(R) requires companies to expense the fair value of employee stock options and other forms of stock-based employee compensation over the employees' service periods or the derived service period for awards with market conditions. Compensation expense is measured at the fair value of the award at the grant date, including estimated forfeitures, and is adjusted to reflect actual forfeitures and the outcomes of certain conditions. The fair value of each stock-based award is expensed under the accelerated method for option grants prior to the first quarter of 2006 and under the straight-line method for option grants commencing in the first quarter of 2006. Please refer to Note I. for additional information.

Income Taxes

        Cubist accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which those temporary differences are expected to be recovered or settled. A deferred tax asset is established for the expected future benefit of net operating loss and credit carryforwards. A valuation reserve against net deferred tax assets is required if, based upon available evidence, it is "more likely than not" that some or all of the deferred tax assets will not be realized.

        Prior to the fourth quarter of 2008, all of the Company's deferred tax assets had a full valuation allowance recorded against them. Until this time, the Company determined that based on its historical tax position and operational results, realization of the Company's deferred tax assets did not meet the "more likely than not" standard under SFAS No. 109, "Accounting for Income Taxes," or SFAS 109. In the fourth quarter of 2008, upon reviewing factors such as prior consistent profitability, Cubist's ability to utilize net operating loss carryforwards and forecasts of future profitability, the Company determined that there was sufficient positive evidence that it was "more likely than not" that it would be able to realize a significant portion of its deferred tax assets. As a result, the Company determined that a full valuation allowance on these assets was no longer required. Cubist recorded a tax benefit of $127.8 million during the year ended December 31, 2008, as a result of the reversal of a significant portion of the valuation allowance. Please refer to Note M. for additional information.

Foreign Currency Translation

        The functional currency of Cubist's U.K. subsidiary is the U.S. dollar. Accordingly, the remeasurement method is used to convert the foreign currency balances from the local currency into the U.S. dollar.

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Comprehensive Income (Loss)

        For the year ended December 31, 2008, total comprehensive income is comprised of net income and the reclassification of unrealized losses on available-for-sale securities classified as temporary during the year ended December 31, 2007. These securities consist of auction rate securities that were determined to be other-than-temporarily impaired as of December 31, 2008. As a result, unrealized losses previously classified as temporary and included in accumulated other comprehensive loss on the Consolidated Balance Sheet as of December 31, 2007, have been reclassified to other income (expense) in the Consolidated Statement of Operations for the year ended December 31, 2008. For the year ended December 31, 2007, comprehensive income is comprised of net income for the year and temporary, unrealized losses recognized on available-for-sale securities. For the year ended December 31, 2006, total comprehensive loss is comprised of only net loss, as there was no other comprehensive income (loss) during the respective year.

Basic and Diluted Net Income (Loss) Per Common Share

        Basic net income (loss) per common share has been computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share has been computed by dividing diluted net income (loss) by the diluted number of shares outstanding during the period. Except where the result would be antidilutive to income from continuing operations, diluted net income (loss) per share has been computed assuming the conversion of convertible obligations and the elimination of the related interest expense and the exercise of stock options, as well as their related income tax effects.

        The following table sets forth the computation of basic and diluted net income (loss) per common share (amounts in thousands, except share and per share amounts):

			December 31,
			2008			2007		2006
Net income (loss) basic			$	169,819		$	48,147	$	(376	)
Effect of dilutive securities:
	Interest on 2.25% convertible subordinated notes (the "2.25% Notes"), net of tax			4,227			7,586		—
	Debt issuance costs (excluding write-off relating to debt repurchase), net of tax			843			1,494		—
	Net gain on debt repurchase, net of tax			(1,227	)		—		—
Net income (loss) diluted			$	173,662		$	57,227	$	(376	)
Shares used in calculating basic net income (loss) per common share				56,645,962			55,591,775		54,490,376
Effect of dilutive securities:
		Options to purchase shares of common stock		1,390,963			1,856,886		—
		Notes payable convertible into shares of common stock		9,918,136			11,374,335		—
Shares used in calculating diluted net income (loss) per common share				67,955,061			68,822,996		54,490,376
		Net income (loss) per share, basic	$	3.00		$	0.87	$	(0.01	)
		Net income (loss) per share, diluted	$	2.56		$	0.83	$	(0.01	)

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B. ACCOUNTING POLICIES (Continued)

        The calculation of diluted net income per common share has been adjusted to reflect the repurchase of $50.0 million of the 2.25% Notes in February 2008. More information can be found in Note K., "Debt".

        Potential common shares excluded from the calculation of diluted net income (loss) per share as their inclusion would have been antidilutive, were:

	2008		2007		2006
Options to purchase shares of common stock		2,870,239		3,183,803		7,271,450
Notes payable convertible into shares of common stock		—		—		11,374,335

Recent Accounting Pronouncements

        Effective January 1, 2008, Cubist implemented SFAS No. 157, "Fair Value Measurements," or SFAS 157, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In accordance with the provisions of the Financial Accounting Standards Board, or the FASB, Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157," or FSP FAS 157-2, Cubist deferred the implementation of SFAS 157 as it relates to its non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. The Company does not expect that the adoption of FSP FAS 157-2 will have a material impact on its results of operations or financial condition.

        In November 2008, the FASB issued EITF Issue No. 08-7, "Accounting for Defensive Intangible Assets," or EITF 08-7. EITF 08-7 seeks to clarify how to account for defensive intangible assets, or those intangible assets acquired in a business combination that an entity does not intend to actively use but does intend to prevent others from using, subsequent to initial measurement. EITF 08-7 is effective for all intangible assets acquired during the first fiscal year beginning on or after December 15, 2008. Early adoption is not permitted. The impact of the adoption of EITF 08-7 will be dependent upon the type and structure of any acquisition that Cubist may make in the future.

        In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities," or FSP EITF 03-6-1. FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore need to be included in the earnings allocation in computing earnings per share, or EPS, under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, "Earnings per Share," or SFAS 128. FSP EITF 03-6-1 applies to the calculation of EPS under SFAS 128 for share-based payment awards with rights to dividends or dividend equivalents. FSP EITF 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two class method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented must be adjusted retrospectively (including interim financial statements, summaries of earnings and selected financial data) to conform with the provisions of FSP EITF 03-6-1. Early adoption is not

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permitted. The Company does not expect EITF 03-6-1 to have a material impact on its results of operations and financial condition.

        In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," or SFAS 162. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with GAAP. SFAS 162 is effective 60 days following the SEC's approval of the PCAOB amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The Company does not expect that the adoption of SFAS 162 will have a material impact on its results of operations or financial condition.

        In May 2008, the FASB issued FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)," or FSP APB 14-1. FSP APB 14-1 requires the issuers of certain convertible debt instruments that may be settled in cash upon conversion to separately account for the liability (debt) and equity (conversion option) components in a manner that reflects the issuer's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP ABP 14-1 is effective for Cubist beginning January 1, 2009. Prior periods will be restated as if the new rule had been in effect in prior periods. Early adoption is not permitted. While Cubist's cash payments for interest will not be affected, based on current debt outstanding, the adoption of FSP APB 14-1 will increase the Company's reported interest expense in a manner that reflects interest rates of similar non-convertible debt. The Company expects that annual interest expense will increase by approximately $12.8 million for the year ending December 31, 2009, as a result of adoption. FSP APB 14-1 requires retrospective application. As a result, interest expense for the years ended December 31, 2008 and 2007, will be restated in future filings to include additional, non-cash interest expense of $11.7 million and $12.5 million, respectively.

        In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, "Determination of Useful Life of Intangible Assets," or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. FSP FAS 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), "Business Combinations," and GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. FSP FAS 142-3 must be applied prospectively to intangible assets acquired after the effective date. The Company does not expect that the adoption of FSP FAS 142-3 will have a material impact on its results of operations or financial condition.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations," or SFAS 141(R), which is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired in the business combination. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) will be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The Company expects SFAS 141(R) will have an impact on its accounting for future business combinations once

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adopted, but the effect is dependent upon the type and structure of any acquisitions that it may make in the future.

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," or SFAS 160. SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 160 also requires that entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is not permitted. SFAS 160 must be applied prospectively as of the beginning of the fiscal year in which SFAS 160 is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The Company does not expect that the adoption of SFAS 160 will have a material impact on its results of operations or financial condition.

        In November 2007, the EITF reached a consensus on EITF Issue No. 07-1, "Accounting for Collaborative Arrangements," or EITF 07-1. EITF 07-1 defines collaborative agreements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. EITF 07-1 must be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. The Company does not expect that the adoption of EITF 07-1 will have a material impact on its results of operations or financial condition.

C. BUSINESS AGREEMENTS

Licensing and Collaboration Agreements

        In December 2008, Cubist entered into a collaboration agreement with Forma Therapeutics, Inc., or Forma, to provide funding for the research and development of novel compounds using Forma's proprietary technology. Cubist will have the exclusive rights to further research, develop, and commercialize products using compounds resulting from the collaboration for the treatment of human disease. Under the terms of the agreement, Cubist paid Forma a $1.0 million technology fee in December 2008, which is included in research and development expense for the year ended December 31, 2008. Cubist will also provide Forma with research funding payments totaling $3.0 million annually for 2009 and 2010 with an option to provide additional funding for 2011. Upon the achievement of future events stipulated in the agreement, Cubist may incur compound fees of up to $2.0 million and may be required to make milestone payments of up to $13.4 million per program for up to four programs progressed by Cubist. Pursuant to the agreement, in January 2009, Cubist purchased a $2.0 million convertible note with an interest rate of 5% per year. The note is convertible to a minority equity investment in Forma on or before December 21, 2009.

        In April 2008, Cubist entered into a license and collaboration agreement with Dyax pursuant to which Cubist obtained an exclusive license for the development and commercialization in North America and Europe of the I.V. formulation of Dyax's ecallantide compound for the prevention of blood loss during surgery. Pursuant to the terms of the agreement, Cubist paid Dyax a $15.0 million upfront payment, as well as an additional $2.5 million payment on December 31, 2008, both of which are included in research and development expense for the year ended December 31, 2008. Cubist may

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C. BUSINESS AGREEMENTS (Continued)

become obligated to pay Dyax up to an additional $214.0 million in clinical, regulatory and sales-based milestone payments. The Company also is obligated to pay Dyax tiered royalties based on any future sales of ecallantide by Cubist. The agreement provides an option for Dyax to retain certain U.S. co-promotion rights. Cubist will be responsible for all further development costs associated with ecallantide in the licensed indications for the Cubist territory. Dyax retains exclusive rights to ecallantide in all other indications, including for its hereditary angioedema program, as well as for the manufacturing of ecallantide. Except under certain circumstances, Dyax will supply Cubist with ecallantide for Cubist's development and commercialization. The agreement may be terminated by Cubist without cause on prior notice to Dyax and by either party in the event of a breach of specified provisions of the agreement by the other party. In October 2008, Cubist announced positive top-line results from the ecallantide on-pump cardio thoracic surgery Phase 2 clinical trial known as Kalahari™ 1, which was terminated in June 2008. Cubist recently began a Phase 2 dose-ranging trial, assessing three different doses of ecallantide, in on-pump cardiothoracic surgery, or CTS, patients at relatively low risk of bleeding.

        In November 1997, Cubist entered into a license agreement with Eli Lilly & Co., or Eli Lilly, that was amended and restated in October 2000, and pursuant to which Cubist acquired exclusive worldwide rights to develop, manufacture and market daptomycin, the active ingredient in CUBICIN. In exchange for such license, Cubist paid an upfront license fee in cash and, if certain drug development milestones were achieved, agreed to pay milestone payments by issuing shares of common stock to Eli Lilly. In addition, Cubist is required to pay royalties to Eli Lilly on worldwide sales of CUBICIN. In July 2003, Cubist entered into an amendment to the restated license agreement with Eli Lilly and issued to Eli Lilly 723,619 shares of common stock valued at $8.0 million in consideration for a 1% reduction in the royalty rates payable to Eli Lilly. The $8.0 million was recorded as an intangible asset within the Consolidated Balance Sheet and is being amortized over approximately 13 years, which was the estimated remaining life of the license agreement with Eli Lilly on the date of the transaction. In September 2003, Cubist issued 38,922 shares of common stock valued at $0.5 million as a milestone payment to Eli Lilly upon Cubist receiving FDA approval for the commercial sale of CUBICIN. The $0.5 million was recorded as an intangible asset within the Consolidated Balance Sheet and is being amortized over approximately 13 years, which was the remaining life of the license agreement with Eli Lilly on the date of the transaction. In March 2005, Cubist entered into a second amendment to the license agreement with Eli Lilly and issued to Eli Lilly 1,876,173 shares of common stock valued at $20.0 million in consideration for an additional 2% reduction in the royalty rates payable to Eli Lilly. The $20.0 million was recorded as an intangible asset within the Consolidated Balance Sheet and is being amortized over approximately 11 years, which was the remaining life of the license agreement with Eli Lilly on the date of the transaction. The amortization of these intangible assets is included in the cost of product revenues. To date, in addition to the milestone payments made in stock, Cubist has made payments to Eli Lilly of approximately $91.1 million for royalties on sales of CUBICIN, which were paid in cash. Unless terminated earlier in accordance with its terms, Cubist's license agreement with Eli Lilly expires on the later of: (a) the expiration of the last-to-expire of the patents assigned or licensed under the agreement; or (b) the end of the tenth year from the date of first sale of CUBICIN in any of the U.S., Canada, Japan, the United Kingdom, Germany, France, Italy, Spain, Switzerland, Netherlands or Belgium in which know-how royalties are due under the agreement.

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C. BUSINESS AGREEMENTS (Continued)

Commercialization Agreements

        In July 2008, Cubist entered into an exclusive agreement with AstraZeneca to promote and provide other support in the U.S. for MERREM I.V. (meropenem for injection), an established broad spectrum (carbapenem class) I.V. antibiotic. Under the agreement, Cubist will promote and provide other support for MERREM I.V. using its existing U.S. acute care sales and medical affairs organizations. AstraZeneca will continue to provide marketing and commercial support for MERREM I.V. The agreement establishes an annual baseline payment by AstraZeneca to Cubist of $20.0 million, which was prorated for 2008, to be adjusted up or down based on actual sales of MERREM I.V. Cubist recognizes revenues related to its services agreement as service revenues over each annual period of performance based on the estimated minimum annual payment amount that it can receive under the agreement. The amount of revenue recognized is assessed at the end of each quarterly period to reflect actual performance against the annual baseline sales amount. Cubist also earns a percentage of the gross profit on sales exceeding the annual baseline sales amount. The payment for any such sales over the baseline amount will be recognized in the quarter in which AstraZeneca provides Cubist with its annual sales report. The annual sales targets may be adjusted if certain events occur during the term of the agreement that could impact sales of MERREM I.V. The Company is obligated under the agreement to provide certain levels of support with respect to MERREM I.V., including requirements related to sales calls to physicians, specified priority of presentation of MERREM I.V. relative to other products, and a minimum number of sales representatives and clinical science directors. The term of the agreement extends through December 31, 2012, unless earlier terminated. The agreement includes standard termination provisions for material breaches by, and bankruptcy, insolvency or changes in control of, the other party. The agreement may also be terminated by AstraZeneca if sales fall below certain agreed-upon thresholds, by Cubist if AstraZeneca conducts certain activities competitive with MERREM I.V. in the U.S., or by either party: (i) without cause effective no earlier than January 1, 2010, (ii) in the event that the Company ceases to promote CUBICIN, (iii) if AstraZeneca withdraws MERREM I.V. from the market or decides or is required to restrict approved indications for MERREM I.V., (iv) in the case of certain price controls on MERREM I.V. imposed by governmental entities, or (v) in the event of certain failures of supply of MERREM I.V. by AstraZeneca. The agreement also would terminate automatically upon a termination or reduction to non-exclusive of AstraZeneca's right to market MERREM I.V. in the U.S. pursuant to an agreement between AstraZeneca's affiliate, AstraZeneca UK Limited, and Sumitomo Pharmaceuticals Co., Limited. The agreement also includes certain restrictions on the Company from marketing, promoting, selling and engaging in certain other activities with respect to competing products during the term of the agreement and for three months thereafter.

        In March 2007, Cubist entered into a license agreement with Merck & Co., Inc., or Merck, for the development and commercialization of CUBICIN in Japan. Merck will develop and commercialize CUBICIN through its wholly owned subsidiary, Banyu Pharmaceutical Co., Ltd. In exchange for the development and commercialization rights in Japan, Merck paid Cubist an upfront fee of $6.0 million. This $6.0 million was recorded as deferred revenue and is recognized over the estimated performance period of approximately 14 years. Cubist would receive up to $38.5 million in additional payments if Merck reaches certain regulatory and sales milestones. In addition, Merck will purchase finished but unlabeled vials of CUBICIN from Cubist in exchange for a transfer price.

        In December 2006, Cubist entered into a license agreement with AstraZeneca AB, for the development and commercialization of CUBICIN in China and certain other countries in Asia

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C. BUSINESS AGREEMENTS (Continued)

(excluding Japan), the Middle East and Africa not yet covered by previously existing CUBICIN international partnering agreements. In exchange for development and commercialization rights, AstraZeneca paid Cubist an up-front fee of $10.3 million. This $10.3 million was recorded as deferred revenue and is recognized over the estimated performance period of approximately 12 years. Additionally, Cubist would receive payments of up to $22.5 million upon AstraZeneca reaching regulatory and sales milestones. AstraZeneca will pay Cubist a transfer price for their purchases of finished but unlabeled vials of CUBICIN.

        In October 2003, Cubist signed a License Agreement and a Manufacturing and Supply Agreement with Chiron Healthcare Ireland Ltd., or Chiron for the development and commercialization of CUBICIN in Western and Eastern Europe, Australia, New Zealand, India and certain Central American, South American and Middle Eastern countries. After the acquisition of Chiron by Novartis AG, or Novartis, in 2006, the License Agreement and Manufacturing and Supply Agreement were assigned to a subsidiary of Novartis. Chiron paid Cubist an up-front licensing fee of $8.0 million, which was recorded as deferred revenue and was amortized to revenue over the estimated development period under the agreement of two years, which ended in September 2005. Per the License Agreement, Cubist would receive from Novartis' subsidiary additional cash payments of up to $25.0 million if certain sales milestones are achieved. Under the Manufacturing and Supply Agreement, Novartis' subsidiary pays Cubist a transfer price for CUBICIN, and under the License Agreement, Novartis' subsidiary pays Cubist royalty payments based on Novartis's sales of CUBICIN.

D. ACQUISITION OF ILLUMIGEN BIOSCIENCES, INC.

        In October 2007, Cubist and Illumigen Biosciences, Inc., or Illumigen, entered into an agreement under which Cubist purchased an exclusive option to acquire Illumigen. In December 2007, Cubist exercised its option and acquired Illumigen pursuant to a definitive agreement and plan of merger. Pursuant to the merger agreement, on the closing date Cubist made a cash payment to the shareholders of Illumigen equal to $9.0 million plus the net of Illumigen's cash and liability balances as of the closing date. As a result, Illumigen became a wholly-owned subsidiary of Cubist. The results of operations of Illumigen have been included in the Company's financial statements since the acquisition date. The acquisition was accounted for under the purchase method of accounting.

        Cubist evaluated whether the Illumigen acquisition meets the criteria of a business as outlined in EITF Issue No. 98-3, "Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business," or EITF 98-3, and has concluded that the entity did not qualify as a business under EITF 98-3. Accordingly, the Company accounted for this transaction as an acquisition of assets. The costs associated with the acquisition were $16.4 million and include the closing cash consideration of $10.2 million paid to Illumigen shareholders in the first quarter of 2008, the option agreement payment of $4.7 million made in October 2007, transaction costs of $0.8 million and $0.7 million of costs paid by Cubist during the option period related to an IND enabling study of IB657 and Illumigen's operating costs. The total consideration was allocated to net tangible assets acquired of $1.3 million, consisting primarily of cash, in-process research and development, or IPR&D, of $14.4 million and research expense of $0.7 million. The IPR&D represents the value assigned to the IB657 compound acquired from Illumigen, which is now referred to by Cubist as CB-183,872. At the date of the acquisition, CB-183,872 had not yet reached technological feasibility and the research and development in progress had no alternative future uses. Accordingly, the full value of the IPR&D of

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D. ACQUISITION OF ILLUMIGEN BIOSCIENCES, INC. (Continued)

$14.4 million is included in research and development expense for the year ended December 31, 2007. This charge was not deductible for tax purposes.

        Cubist may become obligated to make payments to Illumigen's former shareholders during the development of CB-183,872 as a therapy for hepatitis C virus, or HCV, infections of up to $75.5 million if certain development and regulatory milestones are achieved. If Cubist develops Illumigen products for the treatment of viruses other than HCV, development and regulatory milestone payments by Cubist to Illumigen's former shareholders of up to $117.0 million could apply. Assuming that HCV or other Illumigen antiviral products are commercialized, additional milestone payments by Cubist to Illumigen's former shareholders of up to $140.0 million, as well as tiered royalty payments, could apply.

E. INVESTMENTS

        Included in long-term investments at December 31, 2008 and 2007, are $58.1 million in original cost of auction rate securities, consisting of private placement, synthetic collateralized debt obligations. While the underlying securities of auction rate securities may have contractual maturities of approximately nine years, the interest rates on such securities reset at intervals of less than 35 days. Given the repeated failed auctions experienced since August 2007, the auction rate securities, all of which mature in 2017, are classified as long-term investments for the years ended December 31, 2008 and 2007, as they are no longer considered liquid. These securities are classified as available-for-sale and are carried at fair market value. A severe decline in, and continued deterioration of the financial markets have impacted the fair value of the auction rate securities that the Company holds. As of December 31, 2008, the Company estimated the fair value of the auction rate securities to be $8.9 million, as discussed further in the "Fair Value Measurements" section below.

        During the fourth quarter of 2008, Cubist recorded an other-than-temporary impairment charge of $49.2 million on these securities based on its assessment that it is unlikely that the fair value of the auction rate securities will recover in the foreseeable future. In making this determination, the Company considered various factors, including but not limited to: the severity of the decline in value, the duration of the failed auctions, the continued declining trend in the security values, the negative outlook for this type of security, its inability to sell these securities, further deterioration in the auction rate securities credit ratings and the increased probability of default. In addition, the Company cannot foresee any liquidity in the auction rate securities marketplace that would allow it to liquidate its auction rate securities position in the near future. Consistent with the Company's investment policy guidelines, all five of the auction rate securities it holds had AAA credit ratings at the time of purchase. During the fourth quarter of 2008, all five auction rate securities the Company holds were downgraded by Standard & Poor's and one security experienced an additional downgrade in February 2009, with the lowest rating now at BBB. Fitch Ratings also downgraded three of the securities during the fourth quarter of 2008 with the lowest of the five ratings now at BB, below investment grade. The underlying risk components of the auction rate securities are pools of credit default swaps, collateral notes and exposure to the security issuer. There is no underlying exposure to any mortgage-backed securities. The credit ratings on the underlying reference entities range from AAA to D. The riskiness of each underlying component of the auction rate securities was assessed and factored into the fair value of the securities.

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E. INVESTMENTS (Continued)

        The estimated fair value of the auction rate securities could change significantly based on future financial market conditions. The other-than-temporary impairment charge of $49.2 million was recorded as other income (expense) from continuing operations.

        The cost basis, gross unrealized losses, other-than-temporary impairment loss and fair value for these securities as of December 31, 2008 and 2007 are as follows (in thousands):

		December 31, 2008
		Cost Basis		Gross Unrealized Loss		Other-Than- Temporary Impairment Loss			Fair Value
Auction rate securities		$	58,100	$	—	$	(49,178	)	$	8,922
	Total	$	58,100	$	—	$	(49,178	)	$	8,922

		December 31, 2007
		Cost Basis		Gross Unrealized Loss			Other-Than- Temporary Impairment Loss		Fair Value
Auction rate securities		$	58,100	$	(14,701	)	$	—	$	43,399
	Total	$	58,100	$	(14,701	)	$	—	$	43,399

Fair Value Measurements

        Cubist adopted the provisions of SFAS 157 and SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities Including an Amendment of the FASB Statement No. 115," or SFAS 159, with respect to its financial assets and financial liabilities on January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. In accordance with the FASB Staff Position No. FAS 157-2, "Effective Date of the FASB Statement No. 157," or FSP FAS 157-2, Cubist has deferred the adoption of SFAS 157 for its nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more recurring basis, until January 1, 2009. SFAS 157 was considered in the Company's valuation of its securities, including its auction rate securities, as discussed below. In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active", or FSP FAS 157-3. FSP FAS 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Company did not elect to adopt the fair value option for eligible financial instruments under SFAS 159.

        As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157's valuation techniques are based on observable and unobservable inputs. Observable inputs

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E. INVESTMENTS (Continued)

reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. SFAS 157 classifies these inputs into the following hierarchy:

Level 1 Inputs—Quoted prices for identical instruments in active markets.

Level 2 Inputs—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs—Instruments with primarily unobservable value drivers.

        The fair values of the Company's financial assets carried at fair value as of December 31, 2008, are classified in the table below in one of the three categories described above:

	Fair Value Measurements Using
							Assets at Fair Value
	Level 1		Level 2		Level 3
	(in thousands)
Assets
Money market funds (included in cash and cash equivalents)	$	334,522	$	—	$	—	$	334,522
Auction rate securities		—		—		8,922		8,922
Total assets	$	334,522	$	—	$	8,922	$	343,444

        The fair value of the auction rate securities is based on a third party valuation model and market bids received from the issuer of the securities.

        Due to the fact that there is no active market for auction rate securities, the Company utilized other sources of information in order to develop its fair value estimates. Given the complex structure of the auction rate securities, the Company engaged Houlihan Smith & Company Inc., or Houlihan Smith, to assist it with its valuation. The Company used both the third party valuation model from Houlihan Smith and market bids received from Deutsche Bank AG, or DB, the issuer and sole market maker for these securities. The Company weighted these sources equally when developing the final fair value given the Company's conclusion that both data points have equal relevance in estimating fair value.

        The first data point used, Houlihan Smith's valuation model and their resulting fair value assessment, incorporates the structure of each auction rate security, the 125 entity reference pool of credit default swap, or CDS, spreads per security, the collateral underlying the securities, the cash flow characteristics of the securities and the current trading environment of such securities. This third party valuation considers various components of risk, including market-based bond and CDS pricing and corresponding assessment of default risk and recovery expectations. The valuation process results in an assessment of the fair value an investor would expect to pay for a similar risk profiled portfolio. Cubist validated the underlying assumptions used in the model, including but not limited to bond default rates, bond recovery rates, credit ratings, cash flow streams, and discount rates. The model incorporates market data and CDS prices as of December 31, 2008. The Houlihan Smith valuation model includes the following ranges for key assumptions as of December 31, 2008: CDS spreads of 50 to 5057 basis points and recovery rates on the auction rate securities between 20% and 30%.

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E. INVESTMENTS (Continued)

        The second data point used to calculate fair value are actual market bids from DB. Although the Company receives indicative bids from DB, and it has no knowledge of any of the auction rate securities being traded at these prices, it has considered these bids as a relevant data point given DB's role as the sole market maker for these securities.

        The credit and capital markets deteriorated significantly during 2008 and the future outlook is uncertain. The Company will continue to monitor the securities and the financial markets, and if there is continued deterioration the fair value of these securities could decline further resulting in additional other-than-temporary impairment charges. Any recovery of the fair market value would not be recognized in the Company's financial statements until the gain is realized upon sale of the securities.

        The table below provides a reconciliation of all assets measured at fair value on a recurring basis for which the Company used Level 3 or significant unobservable inputs for the year ended December 31, 2008 (in thousands):

Balance at December 31, 2006	$	58,100
Unrealized loss included in other comprehensive income		(14,701	)
Balance at December 31, 2007	$	43,399
Unrealized loss previously included in other comprehensive income		14,701
Losses included in other income (expense)		(49,178	)
Balance at December 31, 2008	$	8,922

        As of December 31, 2008, the Company estimated the fair value of the auction rate securities to be $8.9 million. During the fourth quarter of 2008, Cubist recorded an other-than-temporary impairment charge of $49.2 million on these securities based on its assessment that it is unlikely that the fair value of the auction rate securities will recover in the foreseeable future. The other-than-temporary impairment charge of $49.2 million was recorded as other income (expense) from continuing operations. As of December 31, 2007, the Company had included an unrealized loss of $14.7 million in accumulated other comprehensive loss on its Consolidated Balance Sheet relating to these securities. This unrealized loss was reclassified to the Consolidated Statement of Operations and an additional charge of $34.5 million was recognized, for a total impairment charge of $49.2 million, included within other income (expense) in the fourth quarter of 2008 upon the determination that the loss was other-than-temporary.

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F. PROPERTY AND EQUIPMENT

        Property and equipment consisted of the following at:

	December 31,
	2008			2007
	(in thousands)
Building	$	54,019		$	43,385
Leasehold improvements		14,443			10,042
Laboratory equipment		17,741			15,251
Furniture and fixtures		1,873			1,500
Computer equipment		15,143			11,060
Construction in progress		1,590			1,194
		104,809			82,432
Less accumulated depreciation and amortization		(37,990	)		(32,282	)
Property and equipment, net	$	66,819		$	50,150

        Property and equipment additions during the year ended December 31, 2008, primarily related to the construction of approximately 30,000 square feet of additional laboratory space at the Company's research and development facility at 65 Hayden Avenue in Lexington, Massachusetts, as well as costs related to building out additional leased space at the 45 and 55 Hayden Avenue building in Lexington, Massachusetts. All of such construction was substantially complete as of December 31, 2008. Additionally, during the year ended December 31, 2008, Cubist wrote-off $2.3 million of property demolished at 65 Hayden Avenue in Lexington, Massachusetts, consisting primarily of office space and other furniture and fixtures, in order to accommodate the construction of additional laboratory space.

        Depreciation and amortization expense was $6.4 million, $4.6 million and $4.1 million in 2008, 2007 and 2006, respectively.

G. INTANGIBLE ASSETS

        Intangible assets consisted of the following at:

		December 31,
		2008			2007
		(in thousands)
Patents		$	2,627		$	2,673
Manufacturing rights			2,500			2,500
Acquired technology rights			28,500			28,500
Intellectual property and processes and other intangibles			5,388			5,388
			39,015			39,061
Less:	accumulated amortization—patents		(2,184	)		(2,128	)
	accumulated amortization—manufacturing rights		(1,667	)		(1,250	)
	accumulated amortization—acquired technology rights		(10,068	)		(7,610	)
	accumulated amortization—intellectual property		(5,376	)		(5,375	)
Intangible assets, net		$	19,720		$	22,698

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G. INTANGIBLE ASSETS (Continued)

        In March 2005, Cubist issued to Eli Lilly $20.0 million of its common stock in exchange for a 2% reduction in the royalty rates payable to Eli Lilly on Cubist's sales of CUBICIN. The $20.0 million was capitalized as acquired technology rights and is being amortized over approximately eleven years, which was the remaining life of the CUBICIN license agreement with Eli Lilly on the date of the transaction. In 2003, Cubist issued to Eli Lilly $8.0 million of its common stock in exchange for a 1% reduction in the royalty rates payable to Eli Lilly. The Company also issued 38,922 shares of its common stock valued at $0.5 million in 2003 as a milestone payment to Eli Lilly. This $8.5 million is also included within the acquired technology rights and is being amortized over approximately thirteen years, which was the remaining life of the license agreement with Eli Lilly on the dates of each of the transactions. The amortization expense of these intangible assets is included within cost of product revenues.

        In November 2005, Cubist selected ACS Dobfar SpA, or ACS, as the single source supplier of active pharmaceutical ingredient, or API, for CUBICIN. Cubist terminated its manufacturing and supply agreement with DSM Capua SpA, or DSM, for API effective May 2006. The useful life of the DSM manufacturing rights was adjusted to coincide with the termination date of May 2006. As Cubist received no future benefit from the DSM manufacturing rights, their gross asset value and related allowance for amortization expense were eliminated from the manufacturing rights accounts in 2006 with no resulting gain or loss. The remaining balance of these assets was allocated to inventory and was expensed to cost of product revenues as the related inventory lots were sold. The amounts allocated to inventory were fully expensed in 2007. The manufacturing rights associated with the ACS agreement are being amortized to inventory over a term of six years and expensed to cost of product revenues as the related inventory lots are sold.

        Amortization expense was $3.0 million, $5.1 million and $4.9 million in 2008, 2007 and 2006, respectively. The amortization expense for 2007 and 2006 includes amounts relating to the DSM manufacturing rights. The estimated aggregate amortization of intangible assets as of December 31, 2008, for each of the five succeeding years is as follows:

	(in thousands)
2009	$	2,937
2010		2,937
2011		2,521
2012		2,521
2013		2,521
2014 and thereafter		6,283
	$	19,720

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H. ACCRUED LIABILITIES

        Accrued liabilities consisted of the following at:

		December 31,
		2008		2007
		(in thousands)
Accrued payroll		$	1,192	$	1,115
Accrued incentive compensation			6,854		4,424
Accrued bonus			9,026		5,645
Accrued benefit costs			2,631		2,056
Accrued clinical trials			1,525		193
Accrued interest			281		350
Accrued Illumigen acquisition costs			—		10,191
Accrued manufacturing costs			2,380		2,672
Accrued royalty			34,855		23,729
Other accrued costs			9,265		8,360
	Total	$	68,009	$	58,735

        Accrued clinical trial expenses are comprised of amounts owed to third party contract research organizations, or CROs, for research and development work performed on behalf of Cubist. At the end of each quarterly period, the Company evaluates the accrued clinical trial expense balance based upon information received from each CRO, and ensures that the balance is appropriately stated based upon work performed to date. The accrued clinical trial expense balance of $1.5 million and $0.2 million at December 31, 2008 and 2007, respectively, represents the Company's best estimate of amounts owed for clinical trial services performed through those periods based on all information available. Such estimates are subject to change as additional information becomes available. Accrued manufacturing costs are comprised of amounts owed to third parties relating to the manufacturing of CUBICIN, including the procurement of API and the conversion of API into the finished, vialed formulation of CUBICIN. Accrued royalty costs are comprised of royalties owed on net sales of CUBICIN under Cubist's license agreement with Eli Lilly. Included in other accrued costs for the years ended December 31, 2008 and 2007, is $0.8 million and $0.4 million, respectively, of accrued income taxes payable.

I. EMPLOYEE STOCK BENEFIT PLANS

Summary of Stock Option Plans

        Cubist has several stock-based compensation plans. Under the Cubist Amended and Restated 1993 Stock Option Plan, options to purchase 5,837,946 shares of common stock were available for grant to employees, directors, officers or consultants. The options were generally granted at fair market value on the grant date, vested ratably over a four-year period and expired ten years from the grant date. There are no shares available for future grant under this plan as it expired in accordance with its terms in 2003.

        Under the Cubist Amended and Restated 2000 Equity Incentive Stock Option Plan, or the 2000 Equity Incentive Plan, 13,535,764 shares of common stock may be issued to employees, officers or consultants in the form of stock options, restricted stock awards, restricted stock units and stock grants. Options under this plan are granted with exercise prices no less than the fair market value on the grant date, vest ratably over a four-year period and expire ten years from the grant date. At December 31, 2008, there were 4,745,551 shares available for future grant under this plan.

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I. EMPLOYEE STOCK BENEFIT PLANS (Continued)

        Under the Cubist Amended and Restated 2002 Directors' Equity Incentive Plan, 975,000 shares of common stock may be issued to members of the Company's Board of Directors in the form of stock options, restricted stock awards and stock grants. Options under this plan are granted with exercise prices no less than the fair market value on the grant date, vest ratably over either a one-year or a three-year period and expire ten years from the grant date. At December 31, 2008, there were 353,750 shares available for future grant under this plan.

        Cubist does not currently hold any treasury shares. Upon stock option exercise, the Company issues new shares and delivers them to the participant. In line with its current business plan, Cubist does not intend to repurchase shares in the foreseeable future.

Summary of Employee Stock Purchase Plan

        Eligible employees may participate in an employee stock purchase plan sponsored by the Company. Under this program, participants purchase Cubist common stock at pre-determined six-month intervals at 85% of the lower of the fair market value at the beginning or end of the period. Shares are purchased through payroll deductions of up to 15% of each participating employee's annual compensation, subject to certain limitations. The current plan allows for the issuance of 750,000 shares of common stock to eligible employees. At December 31, 2008, there were 267,292 shares available for future sale to employees under this plan.

Summary of SFAS 123(R) Expense

        The effect of recording stock-based compensation in the Consolidated Statement of Operations for the years ended December 31, 2008, 2007 and 2006, was as follows:

	December 31,
	2008		2007		2006
	(in thousands except per share amounts)
Stock-based compensation expense by type of award:
Employee stock options	$	11,418	$	10,215	$	10,214
Employee stock purchase plan		413		324		409
Total stock-based compensation	$	11,831	$	10,539	$	10,623
Effect on earnings per share:
Basic	$	0.21	$	0.19	$	0.19
Diluted	$	0.17	$	0.15	$	0.19

        During each of the years ended December 31, 2008, 2007 and 2006, the Company capitalized $0.3 million of employee stock-based compensation costs to inventory. The carrying value of inventory in the Consolidated Balance Sheets for the years ended December 31, 2008 and 2007, includes employee stock-based compensation costs of $0.2 million.

Valuation Assumptions

        The fair value of each stock-based award was estimated on the grant date using the Black-Scholes option-pricing model and expensed under the accelerated method for option grants prior to the first

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I. EMPLOYEE STOCK BENEFIT PLANS (Continued)

quarter of 2006 and under the straight-line method for option grants commencing in the first quarter of 2006. The following weighted-average assumptions were used:

	2008			2007			2006
Stock option plans:
Expected stock price volatility		43	%		47	%		52	%
Risk free interest rate		2.8	%		4.6	%		4.7	%
Expected annual dividend yield per share		0	%		0	%		0	%
Expected life of options		4.3 years			4.3 years			4.3 years
Stock purchase plan:
Expected stock price volatility		30	%		30	%		30	%
Risk free interest rate		3.3	%		4.8	%		4.8	%
Expected annual dividend yield per share		0	%		0	%		0	%
Expected life of options		6 months			6 months			6 months

        Cubist's expected stock price volatility assumption is based on both current and historical volatilities of the Company's stock price, which are obtained from public data sources. The expected stock price volatility is determined based on the instrument's expected term. Since the employee stock purchase plan has a shorter term than the stock option plans, volatility for this plan is estimated over a shorter period. The risk-free interest rate is a less subjective assumption as it is based on factual data derived from public sources. Cubist uses a dividend yield of zero as it has never paid cash dividends and has no intention of paying cash dividends in the foreseeable future. The expected life assumption represents the weighted average period of time that stock-based awards are expected to be outstanding giving consideration to vesting schedules, historical exercise patterns and post-vesting cancellations for terminated employees that have been exhibited historically, adjusted for specific factors that may influence future exercise patterns. The Company estimates forfeitures of stock-based awards based on its historical experience of stock-based pre-vesting cancellations for terminated employees. The Company believes that its estimates are based on outcomes that are reasonably likely to occur. To the extent actual forfeitures differ from its estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.

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I. EMPLOYEE STOCK BENEFIT PLANS (Continued)

General Option Information

        A summary of the status of Cubist's stock options, as of December 31, 2008, and changes during the year then ended, is presented below:

	2008
	Number			Weighted Average Exercise Price
Balance at January 1		7,636,411		$	18.05
Granted		1,964,208		$	18.76
Exercised		(1,081,221	)	$	12.22
Canceled		(559,916	)	$	24.40
Balance at December 31		7,959,482		$	18.57
Options vested and exercisable as of December 31,		4,730,677		$	17.84

        The total intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006, was $11.8 million, $10.5 million and $11.6 million, respectively. The aggregate intrinsic value of options outstanding as of December 31, 2008, was $50.3 million. These options have a weighted average remaining contractual life of 7.0 years.

        As of December 31, 2008, there was $20.3 million of total unrecognized compensation cost related to nonvested options granted under the Company's stock-based compensation plans. That cost is expected to be recognized over the weighted-average period of 1.3 years. The aggregate intrinsic value of options fully vested and exercisable as of December 31, 2008, was $35.7 million. These options have a weighted average remaining contractual life of 5.9 years. The fair value of shares vested during 2008 was approximately $14.1 million.

        The weighted average grant-date fair value of options granted during the years ended December 31, 2008, 2007 and 2006, was $7.34, $9.15 and $10.40, respectively. The weighted-average grant-date fair value of options vested as of December 31, 2008, 2007 and 2006, was $10.69, $11.32 and $11.61, respectively.

J. COMMITMENTS AND CONTINGENCIES

Leases

        Cubist leases various facilities and equipment under leases that expire at varying dates through 2016. Certain of these leases contain renewal options and provisions that adjust the rent payment based upon changes in the consumer price index and require Cubist to pay operating costs, including property taxes, insurance and maintenance.

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J. COMMITMENTS AND CONTINGENCIES (Continued)

        At December 31, 2008, future minimum lease payments under all non-cancelable leases, net of sublease income, are as follows (in thousands):

	Operating
2009	$	4,947
2010		5,231
2011		5,278
2012		5,290
2013		4,991
Thereafter		12,177
Total minimum lease payments	$	37,914

        Rental expense for operating leases was $5.5 million, $4.1 million and $3.6 million in the years ended December 31, 2008, 2007 and 2006, respectively. Sublease income, which is recorded as a reduction of rent expense, was $2.0 million, $2.6 million and $2.5 million in the years ended December 31, 2008, 2007 and 2006, respectively.

Foreign currency

        Cubist operates internationally, which gives rise to a risk that earnings and cash flows may be negatively impacted by fluctuations in interest and foreign exchange rates. During 2008, 2007 and 2006, Cubist entered into limited foreign currency transactions between the U.S. dollar, the European Euro and the British pound.

Guarantees and Indemnification Obligations

        The Company has vacated some of its leased facilities or sublet them to third parties. When the Company sublets a facility to a third party, it remains the primary obligor under the master lease agreement with the owner of the facility. As a result, if a third party defaults on their payments related to the sublet facility, the Company would be obligated to make lease or other payments under the master lease agreement. The Company believes that the financial risk of default by sublessors is individually and in the aggregate not material to the Company's financial position or results of operations.

Other

        Cubist has minimum volume purchase commitments with third party contract manufacturers with scheduled payments over the next five years that total $133.4 million at December 31, 2008.

K. DEBT

        Cubist's outstanding debt at December 31, 2008, consists of $300.0 million aggregate principal amount of the 2.25% Notes. Cubist's outstanding debt at December 31, 2007 and 2006, consisted of $350.0 million aggregate principal amount of the 2.25% Notes.

        In June 2006, Cubist completed the public offering of $350.0 million aggregate principal amount of the 2.25% Notes. The 2.25% Notes are convertible at any time prior to maturity into common stock at

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K. DEBT (Continued)

an initial conversion rate of 32.4981 shares of common stock per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which equates to approximately $30.77 per share of common stock. Cubist may deliver cash or a combination of cash and common stock in lieu of shares of common stock. Interest is payable on each June 15 and December 15, beginning December 15, 2006. The 2.25% Notes mature on June 15, 2013. Cubist retains the right to redeem all or a portion of the 2.25% Notes at 100% of the principal amount plus accrued and unpaid interest commencing in June 2011 if the closing price of Cubist's common stock exceeds the conversion price for a period of time as defined in the 2.25% Notes agreement. The deferred financing costs associated with the sale of the 2.25% Notes were $10.9 million. These costs are amortized to interest expense ratably over the life of the 2.25% Notes.

        In February 2008, Cubist repurchased, in privately negotiated transactions, $50.0 million in original principal amount of the 2.25% Notes at an average price of approximately $93.69 per $100 of debt. Following these repurchases, $300.0 million principal amount of the 2.25% Notes remain outstanding. These repurchases reduced Cubist's fully-diluted shares of common stock outstanding by approximately 1,624,905 shares. Cubist repurchased the 2.25% Notes at prices below face value plus accrued interest and transaction fees of $0.1 million, resulting in a cash outflow of $46.8 million. The repurchase resulted in a net gain of $2.0 million. The gain is comprised of the $3.3 million difference between the purchase price of the notes and their face value, recorded to other income (expense), offset by the write-off of debt issuance costs of $1.2 million, recorded as a non-cash charge to interest expense, and transaction expenses of $0.1 million recorded to general and administrative expense. The transactions were funded out of the Company's working capital.

        In 2001, Cubist completed the private placement of $165.0 million aggregate principal amount of 5.5% convertible subordinated notes, or the 5.5% Notes. The offering was made through initial purchasers to qualified institutional buyers under Rule 144A of the Securities Act. The 5.5% Notes were 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 was payable on each November 1 and May 1, beginning May 1, 2002. The 5.5% Notes had a maturity date of November 1, 2008. Cubist retained the right to redeem the 5.5% Notes prior to November 2004 if Cubist's common stock closing price exceeded the conversion price for a period of time as defined in the 5.5% Notes agreement. The deferred financing costs associated with the sale of the 5.5% Notes were $5.3 million. In June 2006, Cubist repaid the outstanding principal and accrued interest on the 5.5% Notes, plus a prepayment penalty of $3.9 million that was recorded to interest expense. The remaining unamortized balance of the debt issuance costs, totaling $1.8 million, associated with the 5.5% Notes was written off to interest expense at the time of the repayment.

        In December 2008, Cubist entered into a $90.0 million revolving credit facility with RBS Citizens, National Association, or RBS Citizens, for general corporate purposes. The facility will be secured by the pledge of a certificate of deposit issued by RBS Citizens and/or an RBS Citizens money market account equal to an aggregate of 102% of the outstanding principal amount of the loans, so long as such loans are outstanding. Interest expense on the borrowings can be based, at Cubist's option, on LIBOR plus a margin or the Prime rate. Any borrowings under the facility are due on demand or upon termination of the revolving credit agreement. There were no outstanding borrowings under the credit facility as of December 31, 2008.

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K. DEBT (Continued)

        At December 31, 2008, future payments of principal and interest on existing debt are due as follows:

Fiscal year ending December 31,	Principal		Interest		Total
	(in thousands)
2009	$	—	$	6,750	$	6,750
2010		—		6,750		6,750
2011		—		6,750		6,750
2012		—		6,750		6,750
2013		300,000		3,375		303,375
Total payments	$	300,000	$	30,375	$	330,375
Less current portion		—
Total long term debt	$	300,000

L. EMPLOYEE BENEFITS

401(k) Savings Plan

        Cubist maintains a 401(k) savings plan in which substantially all of its permanent employees in the U.S. are eligible to participate. Participants may contribute up to 100% of their annual compensation to the plan, subject to certain limitations. Cubist matches each employee's contribution in Cubist common stock up to 4% of a participant's total compensation. Common stock matches immediately vest. Cubist issued 127,687, 97,206 and 127,504 shares of common stock in 2008, 2007 and 2006, respectively, pursuant to this plan. During the years ended December 31, 2008, 2007 and 2006, the Company recorded $2.6 million, $2.1 million and $1.8 million in expense associated with its 401(k) company match.

M. INCOME TAXES

Effective Tax Rate

        For each of the years ended December 31, 2008, 2007 and 2006, Cubist's federal statutory tax rate was 35%, 35% and 34%, respectively. The effective tax rate for the years ended December 31, 2008, 2007 and 2006 was -269.9%, 3.7% and 0%, respectively. The effective tax rate for the years ended December 31, 2008 and 2007 relates to federal alternative minimum tax expense and state tax expense, and in 2008, is offset by the tax benefit relating to the reversal of the valuation allowance on the Company's deferred tax assets. The Company and its subsidiaries file income tax returns with the U.S. federal government and with multiple state and local jurisdictions in the U.S.

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M. INCOME TAXES (Continued)

        The effective rate differs from the statutory rate of 35% and 34% due to the following:

	2008			2007			2006
Federal		35	%		35.0	%		34.0	%
State		6.6	%		6.4	%		(49.8	)%
Federal and state credits		(7.9	)%		(3.3	)%		600.9	%
Valuation allowance		(306.5	)%		(47.2	)%		(345.2	)%
In-process research & development		0.0	%		10.6	%		0.0	%
Other		2.9	%		2.2	%		(239.9	)%
Effective tax rate		(269.9	)%		3.7	%		0.0	%

        Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, changes in circumstances surrounding the need for a valuation allowance, size of the Company's income or loss, or one time activities occurring during the period.

Income Tax Expense (Benefit)

        The components of federal income tax expense (benefit) consist of the following for the years ended December 31,

		2008			2007		2006
		(in thousands)
Current income tax expense
	Federal	$	1,856		$	1,422	$	—
	State		2,020			458		—
Total current income tax expense		$	3,876		$	1,880	$	—
Deferred income tax expense (benefit)
	Federal	$	(117,706	)	$	—	$	—
	State		(10,086	)		—		—
Total deferred income tax benefit		$	(127,792	)	$	—	$	—
Total current and deferred income tax (benefit) expense		$	(123,916	)	$	1,880	$	—

Deferred Taxes and Valuation Allowance

        Prior to the fourth quarter of 2008, all of the Company's deferred tax assets had a full valuation allowance recorded against them. Until then, based on management's review of the Company's historical tax position and operational results, realization of Cubist's deferred tax assets did not meet the "more likely than not" criteria under SFAS 109. During the year ended December 31, 2008, management continued to monitor the available information in determining whether there is sufficient positive evidence to consider releasing the valuation allowance on the deferred tax assets. In the fourth quarter of 2008, upon reviewing factors such as prior consistent profitability, Cubist's ability to utilize net operating loss carryforwards and forecasts of future profitability, the Company determined that there was sufficient positive evidence that it was "more likely than not" that it would be able to realize

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M. INCOME TAXES (Continued)

a significant portion of its deferred tax assets. As a result, the Company determined that a full valuation allowance on these assets was no longer required. Cubist recognized deferred tax assets of $127.8 million during the year ended December 31, 2008, as a result of the reversal of a significant portion of the valuation allowance. The components of the net deferred tax assets and the related valuation allowance are as follows:

	December 31,
	2008			2007
	(in thousands)
Deferred income tax assets:
Net operating loss carryforwards	$	63,928		$	107,229
Research and development costs		17,168			23,949
Tax credit carryforwards		20,758			15,256
Unrealized loss on investments		19,063			—
Deferred revenues		6,295			4,297
FAS 123(R) stock-based compensation		9,518			6,929
Amortization of milestone payments		5,691			(904	)
Deferred rent		1,574			1,121
Depreciation		1,448			902
Other		2,084			1,652
Total deferred tax assets		147,527			160,431
Valuation allowance		(19,735	)		(160,431	)
Net deferred tax assets	$	127,792		$	—

        At December 31, 2008, the Company had net operating loss and general business tax credit carryforwards for federal income tax purposes of approximately $175.6 million and $12.7 million, respectively, which begin to expire in 2023 and 2016, respectively. In addition, for state income tax purposes, the Company had net operating loss and general business tax credit carryforwards of approximately $40.0 million and $7.0 million, respectively, which begin to expire in 2009 and 2011, respectively.

        The Company has excluded the benefits from the exercise of stock options in the amount of $15.0 million and $15.6 million from the deferred tax asset balance at December 31, 2008 and 2007, respectively. These amounts will result in an addition to additional paid-in capital when these benefits reduce income taxes payable. In measuring the excess tax benefits associated with stock-based compensation, the Company determines the tax effect required to be accounted for under SFAS 123(R) using a "with-and-without" approach.

        In assessing the realizability of its deferred tax assets, the Company has considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, the Company is allowed to take into account its recent history of earnings, projected future taxable income, and tax planning strategies. Based upon the level of its recent history of taxable income and projections of future taxable income over the periods in which the deferred tax assets are

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M. INCOME TAXES (Continued)

utilizable, the Company believes that it is more likely than not that it will realize the benefits of a significant portion of its deferred tax assets.

        During the year ended December 31, 2008, after considering all available positive and negative evidence, the Company concluded that its projections supported taxable income for the foreseeable future. Therefore, the Company reversed $160.4 million of its deferred tax asset valuation allowance, of which $32.6 million related to the utilization of deferred tax assets for income generated during 2008, and $127.8 million related to the release of the remaining valuation allowance, which resulted in a benefit to income tax expense in the fourth quarter of 2008. The Company recorded a valuation allowance of $19.7 million, primarily related to the unrealized loss on the write down of auction rate securities, which resulted in a net valuation allowance adjustment of $140.7 million. In the event that actual results differ from the Company's estimates in future periods, the Company may need to establish an additional valuation allowance that could materially impact its financial position and results of operations.

        The Company acquired Illumigen in December 2007. Illumigen had approximately $17.7 million of gross net operating loss carryforwards available, resulting in a net deferred tax asset of $6.2 million for which the Company recorded a deferred tax asset valuation allowance. During 2008, the Company concluded an analysis under Section 382 of the Internal Revenue Code, "Limitation on Net Operating Loss Carryforwards and Certain Built in Losses Following Ownership Change," to determine if past changes in the ownership of Illumigen would limit or otherwise restrict the Company's ability to utilize these net operating loss carryforwards. As a result of the analysis, the Company concluded that a portion of the acquired net operating losses may be limited due to ownership changes and an expiration of a portion of those losses in the amount of $2.3 million.

        Ownership changes resulting from the issuance of capital stock may limit the amount of Cubist net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income. The amount of the annual limitation is determined based on the Company's value immediately prior to the ownership change. During 2008, the Company also concluded an analysis under Section 382 of the Internal Revenue Code, "Limitation on Net Operating Loss Carryforwards and Certain Built in Losses Following Ownership Change". The Company has analyzed its historical changes in ownership and does not believe there are any limitations on its ability to utilize its net operating loss carryforwards. Subsequent significant changes in ownership could affect the limitation in future years.

FIN 48—Uncertain Tax Positions

        Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109," or FIN 48, which clarifies the accounting for uncertainty in an enterprise's financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of each tax position taken or to be taken in a tax return. The Company's only adjustment upon adoption of FIN 48 related to a $2.0 million adjustment to research and development tax credit carryforwards. The adjustment to the research and development tax credit carryforwards did not impact retained earnings or the statement of operations because there had been a full valuation recorded against the research and development tax credit deferred tax asset.

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M. INCOME TAXES (Continued)

        A reconciliation of the Company's changes in uncertain tax positions for the years ended December 31, 2008 and 2007, is as follows (in thousands):

	December 31,
	2008		2007
Uncertain tax positions at the beginning of the year	$	2,000	$	2,000
Additions based on tax positions related to the current year		437		—
Additions for tax positions of prior years		3,123		—
Balance at the end of the year	$	5,560	$	2,000

        As of December 31, 2008, the total amount of unrecognized tax benefits was $5.6 million, all of which represents the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate in future periods. The Company does not anticipate any significant changes in its tax positions during the next twelve months.

        Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as provision for income taxes in the accompanying Consolidated Statement of Operations. At December 31, 2008 and 2007, the Company did not have any interest or penalties accrued related to uncertain tax positions.

        In many cases, the Company's uncertain tax positions remain subject to examination by the relevant tax authorities. Since the Company is in a net operating loss carryforward position, the Company is generally subject to federal, state, and local income tax examinations by tax authorities for all years for which a net operating loss carryforward is available.

N. BUSINESS SEGMENTS

        Cubist operates in one business segment, the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. The Company's entire business is managed by a single management team, which reports to the Chief Executive Officer. Substantially all of the Company's revenues are currently generated within the U.S.

O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

        The following table contains quarterly financial information for fiscal years 2008 and 2007. Cubist believes that the following information reflects all normal recurring adjustments necessary for a fair

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O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)

presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
	(in thousands, except per share data)
2008
Total revenues, net	$	88,285	$	101,766		$	112,435	$	131,155
Product revenues, net	$	87,862	$	101,369		$	110,625	$	122,225
Cost of product revenues	$	20,000	$	22,050		$	23,523	$	24,808
Net income	$	17,226	$	1,632	(1)	$	27,926	$	123,035	(2)
Basic net income per share	$	0.31	$	0.03	(1)	$	0.49	$	2.15	(2)
Diluted net income per share	$	0.26	$	0.03	(1)	$	0.44	$	1.82	(2)
2007
Total revenues, net	$	59,479	$	69,764		$	79,796	$	85,581
Product revenues, net	$	59,435	$	69,525		$	76,326	$	85,120
Cost of product revenues	$	16,738	$	15,834		$	17,153	$	19,135
Net income	$	5,601	$	14,490		$	20,023	$	8,033	(3)
Basic net income per share	$	0.10	$	0.26		$	0.36	$	0.14	(3)
Diluted net income per share	$	0.10	$	0.24		$	0.32	$	0.14	(3)

(1)

In the second quarter of 2008, Cubist recorded $17.5 million of research and development expense for upfront and milestone payments made pursuant to its license and collaboration agreement with Dyax (See Note C.).

(2)

In the fourth quarter of 2008, Cubist recorded a tax benefit of $127.8 million related to the reversal of the valuation allowance on its deferred tax assets (See Note M.) and an other-than-temporary impairment loss of $49.2 million on its investment in auction rate securities (See Note E.).

(3)

In the fourth quarter of 2007, Cubist recorded an IPR&D charge of $14.4 million related to the acquisition of Illumigen (See Note D.).

P. SUBSEQUENT EVENTS

Paragraph IV Certification Notice Letter

        On February 9, 2009, the Company received a Paragraph IV Certification Notice Letter from Teva notifying it that Teva had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN. Teva's notice letter advised the Company that Teva is seeking FDA approval to market daptomycin for injection prior to the expiration of U.S. Patent Nos. 6,468,967, 6,852,689 and RE39,071. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. The Company plans to file a patent infringement lawsuit against Teva in response to the ANDA filing. By statute, if the Company initiates such a lawsuit against Teva within 45 days of receiving the notice letter, then the FDA would be automatically precluded from approving Teva's ANDA for 30 months (or such shorter or longer period as ordered by the court because either party failed to expedite the lawsuit), or until a district court decision finding the patents invalid or not

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

P. SUBSEQUENT EVENTS (Continued)

infringed, whichever occurs earlier. Once the lawsuit is filed, the 30-month stay period will begin as of February 9, 2009, the date the Company was notified of the filing.

Alnylam Collaboration Agreement

        In January 2009, Cubist entered into a collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam, for the development and commercialization of Alnylam's RNA interference, or RNAi, therapeutics as potential therapy for the treatment of respiratory syncytial virus, or RSV, infection, an area of high unmet medical need. The RSV-specific RNAi therapeutic program includes ALN-RSV01, which is currently in Phase 2 clinical development for the treatment of RSV infection in adult lung transplant patients, as well as several other potent and specific second generation RNAi-based RSV inhibitors in pre-clinical studies. The agreement with Alnylam is structured as a 50/50 co-development and profit share arrangement in North America, and a milestone- and royalty-bearing license arrangement in the rest of the world outside of Asia, where ALN-RSV is partnered with Kyowa Hakko Kirin Co., Ltd. The development of licensed products in North America will be governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist will have the sole right to commercialize licensed products in North America with costs associated with such activities and any resulting profits or losses to be split equally between Cubist and Alnylam. For the rest of the world, excluding Asia, Cubist will have sole responsibility for any required additional development of licensed products, at the Company's cost, and the sole right to commercialize such products.

        Upon signing the agreement, Cubist made a $20.0 million upfront payment to Alnylam. This payment will be included in research and development expense for the three months ending March 31, 2009. Cubist also has an obligation to make milestone payments to Alnylam if certain specified development and sales events are achieved in the rest of the world, excluding Asia. These development and sales milestones payments could total up to $82.5 million. In addition, if licensed products are successfully developed in the rest of the world, excluding Asia, Cubist will be required to pay Alnylam double digit royalties on net sales of such products in such territory, if any, subject to offsets under certain circumstances. Upon achievement of certain development milestones, Alnylam will have the right to convert the North American co-development and profit sharing arrangement into a royalty-bearing license with development and sales milestones payments to be paid by Cubist to Alnylam which could total up to an aggregate of $130.0 million if certain specified development and sales events are achieved in North America and depending upon the timing of the conversion by Alnylam and the regulatory status of a collaboration product at the time of conversion. If Alnylam makes the conversion to a royalty-bearing license with respect to North America, then North America becomes part of the existing royalty territory (i.e. the rest of the world, excluding Asia). Unless terminated earlier in accordance with the agreement, the agreement expires on a country-by-country and licensed-product-by-licensed-product basis: (a) with respect to the royalty territory, upon the latest to occur of: (i) the expiration of the last-to-expire Alnylam patent covering a licensed product, (ii) the expiration of the "regulatory-based exclusivity period" (as defined in the agreement), and (iii) ten years from first commercial sale in such country of such licensed product by Cubist or its affiliates or sublicensees; and (b) with respect to North America, if Alnylam has not converted North America into the royalty territory, upon the termination of the agreement by Cubist upon specified prior written notice.

129

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

        Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report.

Management's Report on Internal Control Over Financial Reporting

        Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

        PricewaterhouseCoopers LLP, our independent registered public accounting firm, which audited our financial statements for the fiscal year ended December 31, 2008, has issued an attestation report on our internal control over financial reporting, as stated in its report which is included herein.

        There have not been any changes in the Company's internal control over financial reporting during the quarter ended December 31, 2008, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        Certain information with respect to our executive officers and directors may be found under the section captioned "Our Executive Officers and Directors" in Part I of this Annual Report on Form 10-K. Other information required by Item 10 of Form 10-K may be found in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on June 4, 2009. Such information is incorporated herein by reference.

        Our Board of Directors adopted a Code of Conduct and Ethics applicable to the Board of Directors, our Chief Executive Officer, Chief Financial Officer, other officers of Cubist and all other employees of Cubist. The Code of Conduct and Ethics is available on our web site, www.cubist.com and in our filings with the SEC.

ITEM 11.    EXECUTIVE COMPENSATION

        The information required with respect to this item may be found in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on June 4, 2009. Such information is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

        The information required with respect to this item may be found in the definitive Proxy Statement to be delivered to Stockholders in connection with the Annual Meeting of Stockholders to be held on June 4, 2009. Such information is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        The information required with respect to this item may be found in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on June 4, 2009. Such information is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required with respect to this item may be found in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on June 4, 2009. Such information is incorporated herein by reference.

131

PART I.V.

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)

Documents Filed As Part Of Form 10-K:

1.     Financial Statements

        The following financial statements and supplementary data are included in Part II Item 8 filed as part of this report:

•

Report of Independent Registered Public Accounting Firm

•

Consolidated Balance Sheets as of December 31, 2008 and 2007

•

Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006

•

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006

•

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2008, 2007 and 2006

•

Notes to Consolidated Financial Statements

2.     Financial Statement Schedule

        The following financial statement schedule is filed as part of this Annual Report on Form 10-K. Schedules not listed below have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

132

SCHEDULE II

Cubist Pharmaceuticals, Inc.
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2008, 2007 and 2006

Description	Balance at Beginning of Year		Additions		Deductions			Balance at End of Year
	(in thousands)
Sales Returns & Allowances, Chargebacks, Prompt Pay Discounts, Wholesaler Fees and Rebates(1)
Year Ended December 31, 2008	$	4,484		22,694		(20,846	)	$	6,332
Year Ended December 31, 2007	$	3,418		14,055		(12,989	)	$	4,484
Year Ended December 31, 2006	$	1,554		9,140		(7,276	)	$	3,418

(1)

Additions to sales returns and allowances, chargebacks, prompt pay discounts, wholesaler fees and rebates are recorded as a reduction of revenue.

133

3.     List of Exhibits

†2.1	Agreement and Plan of Merger, entered into as of December 24, 2007, by and between Cubist, Edison Merger Corp., Illumigen Biosciences, Inc., and IB Securityholders, LLC (Exhibit 10.37, Cubist's Annual Report on Form 10-K filed on February 29, 2008, File No. 000-21379)
3.1	Amended and Restated Certificate of Incorporation (Exhibit 3.1, Quarterly Report on Form 10-Q filed on August 6, 2004, File No. 000-21379)
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation (Exhibit 3.1, Quarterly Report on Form 10-Q filed on August 3, 2007, File No. 000-21379)
3.3	Amended and Restated By-Laws of Cubist, as amended to date (Exhibit 3.1, Current Report on Form 8-K filed on December 26, 2007, File No. 000-21379)
4.1	Specimen certificate for shares of Common Stock (Exhibit 4.1, Annual Report on Form 10-K filed on March 1, 2006, File No. 000-21379)
4.2	Rights Agreement, dated as of July 21, 1999, between Cubist and BankBoston, N.A., as Rights Agent (Exhibit 4.1, Current Report on Form 8-K filed on August 5, 2005, File No. 000-21379)
4.3	First Amendment, dated as of March 3, 2000, to the Rights Agreement between Cubist and Fleet National Bank (f/k/a BankBoston, N.A.), as Rights Agent, dated as of July 21, 1999 (Exhibit 4.2, Current Report on Form 8-K filed on August, 5, 2005, File No. 000-21379)
4.4	Amendment, dated as of March 20, 2002, to the Rights Agreement between Cubist and EquiServe Trust Company, N.A. (f/k/a Fleet National Bank f/k/a BankBoston, N.A.), as Rights Agent, dated as of July 21, 1999 (Exhibit 4.3, Current Report on Form 8-K filed on August 5, 2005, File No. 000-21379)
4.5	Third Amendment, dated as of August 2, 2005, to the Rights Agreement between Cubist and EquiServe Trust Company, N.A. (f/k/a Fleet National Bank f/k/a BankBoston, N.A.), as Rights Agent, dated as of July 21, 1999 (Exhibit 4.4, Current Report on Form 8-K filed on August 5, 2005, File No. 000-21379)
4.6	Indenture, dated as of June 6, 2006, between Cubist and The Bank of New York Trust Company, N.A., as trustee (Exhibit 4.1, Current Report on Form 8-K filed on June 9, 2006, File No. 000-21379)
4.7	Note, dated June 6, 2006 (Exhibit 4.7, Annual Report on Form 10-K filed on March 1, 2007, File No. 000-21379)
**10.1	Amended and Restated 1993 Stock Option Plan (Exhibit 10.6, Pre-effective Amendment No. 1 to Form S-1 Registration Statement filed on July 31, 1996, File No. 333-6795)
**10.2	First Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.3, Quarterly Report on Form 10-Q filed on August 12, 1998, File No. 000-21379)
**10.3	Second Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.41, Annual Report on Form 10-K filed on March 10, 2000, File No. 000-21379)
**10.4	Third Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.42, Annual Report on Form 10-K filed on March 10, 2000, File No. 000-21379)
†10.5	Development and Supply Agreement, dated April 3, 2000, by and between Cubist and Abbott Laboratories (currently known as Hospira Worldwide, Inc., or Hospira) (Exhibit 10.2, Quarterly Report on Form 10-Q filed on August 9, 2006, File No. 000-21379)

134

†10.6	Assignment and License Agreement, dated October 6, 2000, by and between Eli Lilly & Company, or Eli Lilly, and Cubist
**10.7	Fourth Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.73, Annual Report on Form 10-K filed on April 2, 2001, File No. 000-21379)
**10.8	Fifth Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.74, Annual Report on Form 10-K filed on April 2, 2001, File No. 000-21379)
**10.9	Sixth Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.75, Annual Report on Form 10-K filed on April 2, 2001, File No. 000-21379)
†10.10	Manufacturing and Supply Agreement, entered into as of September 30, 2001, by and between ACS Dobfar S.p.A., or ACS, and Cubist (Exhibit 10.63, Annual Report on Form 10-K filed on March 29, 2002, File No. 000-21379)
**10.11	Seventh Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.62, Annual Report on Form 10-K filed on March 29, 2002, File No. 000-21379)
10.12	First Amendment, dated as of May 8, 2002, to the Manufacturing and Supply Agreement by and between ACS and Cubist, entered into as of September 30, 2001
†10.13	Amendment No. 2, dated as of February 12, 2003, to the Manufacturing and Supply Agreement by and between ACS and Cubist, entered into as of September 30, 2001 (Exhibit 10.67, Annual Report on Form 10-K filed on March 28, 2003, File No. 000-21379)
10.14	Form of Employee Confidentiality Agreement (Exhibit 10.69, Annual Report on Form 10-K filed on March 28, 2003, File No. 000-21379)
10.15	Amendment No. 1, dated July 1, 2003, to the Assignment and License Agreement between Cubist and Eli Lilly, dated October 6, 2000 (Exhibit 10.2, Quarterly Report on Form 10-Q filed on August 14, 2003, File No. 000-21379)
†10.16	License Agreement, dated as of October 2, 2003, by and between Cubist, Chiron Healthcare Ireland Ltd. (predecessor-in-interest to Chiron Blood Testing (Bermuda) Ltd., or Chiron, a subsidiary of Novartis AG), and Chiron Corporation (currently known as Novartis Vaccines & Diagnostics, Inc., or Novartis Vaccines, a subsidiary of Novartis AG)
10.17	Lease, dated January 2004, between the California State Teachers' Retirement System, or CALSTERS, and Cubist regarding 45-55 Hayden Avenue (Exhibit 10.1, Quarterly Report on Form 10-Q filed on May 7, 2004, File No. 000-21379)
†10.18	Amendment #1, dated April 1, 2004, to the License Agreement by and between Cubist, Chiron, and Novartis Vaccines, dated October 2, 2003 (Exhibit 10.2, Quarterly Report on Form 10-Q filed on August 6, 2004, File No. 000-21379)
†10.19	Processing Services Agreement, entered into as of August 11, 2004, by and between Cardinal Health PTS, LLC (predecessor-in-interest to Oso Biopharmaceuticals Manufacturing, LLC, or Oso) and Cubist (Exhibit 10.3, Quarterly Report on Form 10-Q filed on November 4, 2005, File No. 000-21379)
10.20	Amendment No. 2, dated March 31, 2005, to the Assignment and License Agreement between Cubist and Eli Lilly, dated October 6, 2000 (Exhibit 10.1, Quarterly Report on Form 10-Q filed on May 5, 2005, File No. 000-21379)
10.21	First Amendment, dated May 1, 2005, to the Processing Services Agreement by and between Oso and Cubist, entered into as of August 11, 2004

135

10.22	First Amendment, dated September 29, 2005, to Lease by and between Cubist and The Realty Associates Fund VI, L.P., or RA, successor-in-interest to CALSTERS, dated January 2004 (Exhibit 10.7, Quarterly Report on Form 10-Q filed on November 4, 2005, File No. 000-21379)
†10.23	Amendment No. 3, dated as of October 20, 2005, to the Manufacturing and Supply Agreement by and between ACS and Cubist, entered into as of September 30, 2001 (Exhibit 10.2, Quarterly Report on Form 10-Q filed on November 4, 2005, File No. 000-21379)
10.24	Second Amendment, entered into as of November 18, 2005, to Lease by and between RA and Cubist, dated January 2004 (Exhibit 10.25, Annual Report on Form 10-K filed on February 29, 2008, File No. 000-21379)
†10.25	First Amendment, dated as of June 1, 2006, to Development and Supply Agreement by and between Cubist and Hospira, dated April 3, 2000 (Exhibit 10.1, Quarterly Report on Form 10-Q filed on August 9, 2006, File No. 000-21379)
†10.26	Amendment No. 4, dated as of September 22, 2006, to the Manufacturing and Supply Agreement by and between ACS and Cubist, entered into as of September 30, 2001
10.27	Amendment #2, dated January 1, 2007, to the License Agreement by and between Cubist, Chiron, and Novartis Vaccines, dated October 2, 2003
†10.28	Amendment No. 2, dated April 18, 2007, to the Processing Services Agreement by and between Oso and Cubist, entered into as of August 11, 2004 (Exhibit 10.3, Quarterly Report on Form 10-Q filed on August 3, 2007, File No. 000-21379)
**10.29	Amended and Restated 1997 Employee Stock Purchase Plan (Appendix B, Definitive Proxy Statement on Form DEF-14A filed on April 26, 2007, File No. 000-21379)
10.30	Third Amendment, entered into as of June 28, 2007, to Lease by and between RA and Cubist, dated January 2004 (Exhibit 10.4, Quarterly Report on Form 10-Q filed on August 3, 2007, File No. 000-21379)
**10.31	Retention Letter, dated October 9, 2007, by and between Cubist and Michael J. Bonney (Exhibit 10.1, Quarterly Report on Form 10-Q filed on November 2, 2007, File No. 000-21379)
**10.32	Form of Retention Letter by and between Cubist and Steven C. Gilman, Lindon M. Fellows, David W.J. McGirr, and Robert J. Perez
10.33	Fourth Amendment, entered into as of October 25, 2007, to Lease by and between RA and Cubist, dated January 2004 (Exhibit 10.34, Annual Report on Form 10-K filed on February 29, 2008, File No. 000-21379)
10.34	Fifth Amendment, entered into as of December 18, 2007, to Lease by and between RA and Cubist, dated January 2004 (Exhibit 10.36, Annual Report on Form 10-K filed on February 29, 2008, File No. 000-21379)
†10.35	License and Collaboration Agreement, dated April 23, 2008, by and between Dyax Corp. and Cubist (Exhibit 10.1, Quarterly Report on Form 10-Q filed on August 4, 2008, File No. 000-21379)
**10.36	Separation Agreement and Release, dated May 7, 2008, by and between Cubist and Christopher D. T. Guiffre (Exhibit 10.4, Quarterly Report on Form 10-Q filed on May 12, 2008, File No. 000-21379)
**10.37	Amended and Restated 2000 Equity Incentive Plan (Exhibit 10.1, Quarterly Report on Form 10-Q filed on May 12, 2008, File No. 000-21379)

136

**10.38	Amended and Restated 2002 Directors' Equity Incentive Plan (Exhibit 10.2, Quarterly Report on Form 10-Q filed on May 12, 2008, File No. 000-21379)
†10.39	Second Amendment, dated June 26, 2008, to Development and Supply Agreement by and between Cubist and Hospira, dated April 3, 2000 (Exhibit 10.2, Quarterly Report on Form 10-Q filed on August 4, 2008, File No. 000-21379)
†10.40	Commercial Services Agreement, entered into as of July 1, 2008, by and between AstraZeneca Pharmaceuticals LP and Cubist (Exhibit 10.1, Quarterly Report on Form 10-Q filed on November 10, 2008, File No. 000-21379)
10.41	Sixth Amendment, entered into as of July 31, 2008, to Lease by and between RA and Cubist, dated January 2004
**10.42	Offer Letter, dated November 12, 2008, by and between Cubist and Santosh J. Vetticaden
10.43	Seventh Amendment, entered into as of November 18, 2008, to Lease by and between RA and Cubist, dated January 2004
10.44	Eighth Amendment, entered into as of November 18, 2008, to Lease by and between RA and Cubist, dated January 2004
10.45	Ninth Amendment, entered into as of December 19, 2008, to Lease by and between RA and Cubist, dated January 2004
10.46	Loan and Security Agreement, dated December 29, 2008 (Exhibit 10.1, Current Report on Form 8-K filed on December 31, 2008, File No. 000-21379)
10.47	Revolving Credit Note, dated December 29, 2008 (Exhibit 10.2, Current Report on Form 8-K filed on December 31, 2008, File No. 000-21379)
**10.48	Short Term Incentive Plan Terms and Conditions (Exhibit 10.1, Current Report on Form 8-K filed on February 18, 2009, File No. 000-21379)
**10.49	Form of Restricted Stock Unit Agreement for awards under Cubist's Amended and Restated 2000 Equity Incentive Plan
**10.50	Director Compensation Summary Sheet
14.1	Code of Conduct and Ethics
21.1	Subsidiaries of Cubist
23.1	Consent of PricewaterhouseCoopers LLP
23.2	Consent of Houlihan Smith & Company Inc.
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1305, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 U.S.C. Section 1305, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Any of the above-listed Exhibits containing parenthetical information are incorporated by reference from the Company's filing indicated next to the title of such exhibit. All other above listed exhibits are filed herewith.

†

Confidential Treatment granted.

*

Confidential Treatment requested.

**

Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report.

137

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.

CUBIST PHARMACEUTICALS, INC.
By:	/s/ MICHAEL W. BONNEY Michael W. Bonney President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ MICHAEL W. BONNEY Michael W. Bonney	President, Chief Executive Officer and Director (Principal Executive Officer)	February 27, 2009
/s/ DAVID W.J. MCGIRR David W.J. McGirr	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 27, 2009
/s/ KENNETH M. BATE Kenneth M. Bate	Director	February 27, 2009
/s/ MARK H. CORRIGAN Mark H. Corrigan	Director	February 27, 2009
/s/ SYLVIE GRÉGOIRE Sylvie Grégoire	Director	February 27, 2009
/s/ NANCY J. HUTSON Nancy J. Hutson	Director	February 27, 2009
/s/ DAVID W. MARTIN, JR. David W. Martin, Jr.	Director	February 27, 2009

138

Signature	Title	Date
/s/ WALTER R. MAUPAY, JR. Walter R. Maupay, Jr.	Director	February 27, 2009
/s/ MARTIN ROSENBERG Martin Rosenberg	Director	February 27, 2009
/s/ J. MATTHEW SINGLETON J. Matthew Singleton	Director	February 27, 2009
/s/ MARTIN H. SOETERS Martin H. Soeters	Director	February 27, 2009
/s/ MICHAEL B. WOOD Michael B. Wood	Director	February 27, 2009

139

EX-10.6

EXHIBIT 10.6

CONFIDENTIAL TREATMENT

ASSIGNMENT AND LICENSE AGREEMENT

This Agreement is made this 6th day of October, 2000 (the “Effective Date”), by and between ELI LILLY & COMPANY having its principal place of business at Lilly Corporate Center, Indianapolis, Indiana 46285 and its Affiliates (collectively, “ELI LILLY”) and Cubist Pharmaceuticals Incorporated, a Delaware corporation having its principal place of business at 24 Emily Street, Cambridge, MA 02139 and its Affiliates (collectively “CUBIST”) as follows:

RECITALS

WHEREAS, CUBIST and ELI LILLY have entered into a License Agreement for Daptomycin on November 7, 1997 granting CUBIST limited rights under Lilly patents to make, use and sell only Daptomycin for use in the Field of infectious disease excluding induced colitis;

WHEREAS, CUBIST and ELI LILLY now desire to terminate such November 7, 1997, License Agreement in order that they may enter into this Assignment and License Agreement whereby CUBIST will obtain expanded rights under the ELI LILLY patents;

WHEREBY, CUBIST will obtain an exclusive license under ELI LILLY Know-How and Patents) to make, use and sell Daptomycin for use in the Field of infectious disease no longer excluding induced colitis; and

WHEREBY, CUBIST will obtain an assignment to other ELI LILLY Assigned Patents giving CUBIST complete ownership, control and all rights to the subject matter claimed therein for all compounds and all uses;

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties intending to be bound, agree as follows:

*Confidential treatment requested: Material has been omitted and filed with the Commission

ARTICLE 1

DEFINITIONS

As used throughout this Agreement, the following terms shall have the meanings indicated in this Article.

1.00 “Affiliate” means any corporation or other entity which directly or indirectly controls, is controlled by or is under common control with a party to this Agreement. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than fifty percent (50%) of the outstanding voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to manage, direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint fifty percent (50%) or more of the members of the governing body of the corporation or other entity. Any such other relationship as in fact results in actual control over the management, business and affairs of a corporation or other entity shall also be deemed to constitute control.

1.01 “Assigned Patents” shall mean those patents and patent applications listed in Exhibit 3 which have been assigned to CUBIST by ELI LILLY.

1.02 “Average Market Price” shall mean the average closing price for CUBIST common stock for twenty consecutive trading days, the last day of which is immediately prior to five days prior to the event that triggered such payment of CUBIST common stock to ELI LILLY.

1.03 “Compound” means [ ]* or a pharmaceutically acceptable salt thereof or a pharmaceutically acceptable formulation thereof which is in Lilly’s possession on November 7, 1997.

1.04 “Confidential Information” means any information and data received by a party from the other party, as well as the terms of this Agreement. Notwithstanding the foregoing, Confidential Information shall not include any part of such Confidential Information that: (i) is or becomes part of the public domain other than by unauthorized acts of the party obligated not to disclose such Confidential Information; (u) can be shown by written documents to have been disclosed to the receiving party by a third party, provided such Confidential Information was not obtained by such third party directly or indirectly from the disclosing party with an obligation for such third party to maintain the confidentiality of such information; (iii) prior to disclosure under this Agreement, was already in the possession of the receiving party and such possession can be evidenced by written documents, provided such Confidential Information was not obtained directly or indirectly from the disclosing party with an obligation to maintain the confidentiality of such information; (iv) can be shown by written documents to have been independently developed by the receiving party without breach of any of the provisions of this Agreement and such independent development can be evidenced by written documents; or (v) is disclosed by the receiving party pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by law, provided, however, that the receiving party notifies the disclosing party immediately upon receipt thereof, giving such disclosing party sufficient advance notice to permit it to seek a protective order or other similar order with respect to such Confidential Information and provided, further, that the receiving party furnishes only that portion of the Confidential Information which it is advised by counsel is legally required whether or not a protective order or other similar order is obtained by the disclosing party.

1.05 “ELI LILLY Program” shall mean a research, development and/or marketing project that ELT LILLY, its Affiliates, and/or a third party, pursuant to an Agreement with ELI LILLY, have been committing non-trivial financial and/or human resources to advance.

*Confidential treatment requested: Material has been omitted and filed with the Commission

1.06 “Field” shall mean the treatment of infectious diseases.

1.07 “Know-How” means all information and data reasonably useful for the development, process development, regulatory approval, manufacture, use, formulation or sale of Compound in the Field which (i) is in the possession of ELI LILLY as of the November 7, 1997 or is created by ELI LILLY after the November 7, 1997, (u) ELI LILLY can provide using reasonable efforts and (iii) ELI LILLY is free to provide without obligation to any third party. Such Know-How may include information that is secret, whether or not patentable, relating to materials, methods, processes, procedures, protocols, techniques, formulae and data reasonably useful for the development, regulatory approval, manufacture or use of Compound in the Field.

1.08 “Major Market Country” shall mean the United States, Canada, Japan, the United Kingdom, Germany, France, Italy, Spain, Switzerland, Netherlands and Belgium.

1.09 “Net Sales” means the amounts received by CUBIST and/or its sublicensees on sales or other transfers for commercial use of Compound, and products incorporating Compound, to independent third parties in bona fide arms length transactions, less the following deductions actually allowed and taken by such independent third parties and not otherwise recovered by or reimbursed by CUBIST or its sublicensees:

(a) trade, cash and quantity discounts, including, without limitation, chargebacks and rebates;

(b) taxes, duties and other governmental charges set forth separately in the amount invoiced;

(c) freight, insurance and other transportation expenses to the extent added to the sales prices and set forth separately as such in the total amount invoiced; and

(d) credits or allowances on account of refunds, returns, rejections, or price adjustments.

If CUBIST or its sublicensees sell or transfer Compound, or any products incorporating Compound for commercial use, other than (i) reasonable quantities of promotional samples or (u) to an independent third party in a bona fide arm’s length transaction, Net Sales shall be determined based upon the resale or other retransfer to an independent third party in an arm’s length transaction by the entity to whom such Compound, or product, was sold or transferred by Cubist or its sublicensee. If there is no such resale or retransfer, Net Sales shall be determined based on the average Net Sales price as determined in the immediately preceding royalty accounting period as set forth in Section 4.02.

In the event Compound is sold as a component of a combination of functional elements, Net Sales for purposes of determining royalty payments on such combination shall be calculated by multiplying the Net Sales price of such combination by the fraction A over A+B, in which “A” is the gross selling price of the Compound portion of the combination when sold separately during the accounting period in which the sale was made, and “B” is the gross selling price of the non-Compound portion of the combination sold separately during the accounting period. In the event no separate sale of either such above-designated Compound or such above-designated non-Compound portion of the combination is

*Confidential treatment requested: Material has been omitted and filed with the Commission

made during the accounting period in which the sale of the combination was made. Net Sales shall be calculated by multiplying the Net Sales price of the combination by the fraction C over C+D, in which “C” is the standard fully allocated cost of the Compound portion of such combination, and “D” is the standard fully allocated cost of the other component(s). For purposes of the foregoing sentence, “fully allocated cost” shall mean all direct and indirect labor and overhead, materials and supplies, fringe benefits, taxes and charges and direct and indirect general and administration charges incurred by CUBIST or its sublicensees, and accounted for according to CUBIST’s or its sublicensees’ standard accounting practices consistent with generally accepted accounting principles.

1.10 “Patent(s)” means any of ELI LILLY’s patents, pending patent applications, and future patent applications, including, but not limited to, those set forth on Exhibit 2 attached hereto, which claim Compound, formulations of Compound, processes for preparing Compound or use of Compound in the Field, any United States or foreign counterpart patents and applications, and any continuing, divisional, reissue, re-examination and substitute patents and applications based, in whole or in part, on any of the foregoing patents and patent applications, together with all continuations, continuations-in-part, divisions, patents of addition, reissues, renewals, extensions, supplementary protection certificates and complementary protection certificates of any of the foregoing which are owned by ELI LILLY and under which ELI LILLY has rights to grant a sub-licenses.

1.11 “Phase II Clinical Trial” shall mean clinical studies conducted in accordance with Good Clinical Practices (“GCPs”) in a small number of healthy volunteers to establish efficacy and obtain a preliminary indication of the dosage of Compound.

1.12 “Phase BI Clinical Trial” shall mean large scale clinical studies in patients conducted in accordance with GCPs primarily to establish safety and efficacy of Compound.

1.13 “Valid Claim” shall mean a claim of an issued and unexpired Assigned Patent and/or Patent which has not been withdrawn, canceled, revoked, disclaimed, or held invalid, unenforceable or unpatentable by a final and unappealed (within the time allowed for appeals) or unappealable judgment or decision of a court or other governmental agency of competent jurisdiction

ARTICLE 2

LICENSE GRANT

2.00 As of the Effective Date, ELI LILLY shall assign, transfer, convey and deliver to CUBIST all rights to Assigned Patents in a separate assignments) for each of such Assigned Patents. ELI LILLY shall further file copies of such assignments) in the United States Patent and Trademark Office. Such assignments shall be treated by both parties as sales for United States federal income tax purposes.

2.01 ELI LILLY grants to CUBIST the following worldwide, exclusive

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licenses subject to the conditions set forth herein below in Section 2.02:

(a) Under the Patents, to develop, manufacture, formulate, have manufactured, import, use, distribute for sale, market and sell Compound in the Field; and

(b) To use the Know-How for the development, manufacture, formulation, use, distribution for sale, marketing, and sale of Compound consistent with the terms of this Agreement.

2.02 (i) Subject to Section 2.02(u) below, CUBIST shall have the right to grant sublicenses under the Patents and Know-How, for use in the Field; provided that the terms and conditions of such sub-licenses are consistent with and no less restrictive than the terms and conditions of this Agreement, and any such disclosure or transfer of Compound shall be limited to use solely in the Field.

(ii) In the event that, during the term of this Agreement, CUBIST actively seeks to grant a sub-license to a third party for the development of the Compound in the Field, which sublicense includes, but is not necessarily limited to, the right to develop and/or commercialize an oral or intravenous formulation of the Compound, CUBIST agrees to inform ELI LILLY of such determination by written notice, which notice shall include (a) a description in reasonable detail of the subject matter of the proposed sub-license and (b) the terms on which CUBIST would be willing to grant ELI LILLY such rights (the “Sublicense Notice”). ELI LILLY shall thereupon have a period of [ ]* days (the “Notice Period”) to either accept CUBIST’s terms in writing or to make a written counter-proposal. If ELI LILLY accepts CUBIST’s proposal or makes a counter-proposal, the parties will, for a period of up to [ ]* days from receipt by ELI LILLY of the Sublicense Notice (the “Negotiation Period”), seek in good faith to enter into a definitive agreement for such rights. If ELI LILLY does not by the expiration of the Notice Period either accept CUBIST’S proposal or make a counter-proposal, or if the parties negotiate in good faith and fail to reach agreement by the expiration of the Negotiation Period, CUBIST shall be free to enter into a sub-license for such rights with a third party, provided that such sub-license is granted on no better terms to the sub-licensee, taken as a whole, than the terms for such rights, if any, which ELI LILLY last offered to CUBIST during the Negotiation Period.

2.03 CUBIST shall notify ELI LILLY within [ ]* days of the identity of each sublicensee together with a summary of the principal terms of any sub-license, and shall take all reasonable steps in the event of a breach of any sub-license by the sub-licensee to enforce the same.

2.04 CUBIST acknowledges that ELI LILLY has disclosed certain Know-How to CUBIST prior to the execution of this Agreement and CUBIST shall treat such Know-How in accordance with the terms of this Agreement. During the term of this Agreement, ELI LILLY shall disclose to CUBIST such other Know-How as is directly related to CUBIST’S activities under the license granted in Article 2.01 and which ELI LILLY can provide to CUBIST using reasonable efforts.

2.05 Promptly after the Effective Date, ELI LILLY may provide CUBIST with reasonable access to consult with pertinent ELI LILLY employees that have had prior experience working with Compound in the Field at ELI LILLY to enhance the preclinical or clinical development and manufacturing of the Compound, provided that such consultation shall occur at a mutually agreeable time and place and that ELI LILLY will only provide such access to current employees

*Confidential treatment requested: Material has been omitted and filed with the Commission

which are reasonably able to provide CUBIST with ELI LILLY Know-How relating to the scaleup, manufacture, or formulation of Compound for use in the Field. CUBIST shall be responsible for all reasonable expenses its own personnel and ELI LILLY personnel incur in association with any such consultations. Upon CUBIST’s request, ELI LILLY shall provide CUBIST and its sublicensees with all Know-How, information and data owned by ELI LILLY which ELI LILLY can provide using reasonable efforts to the extent such Know-How, information and data is reasonably required to further CUBIST’s or its sub-licensees’ ability to develop, scale-up, obtain regulatory approval for, manufacture, distribute, use, formulate or sell Compound for use in the Field. CUBIST agrees to treat all Know-How disclosed to it as Confidential Information of ELI LILLY.

2.06 ELI LILLY shall deliver to CUBIST, ELI LILLY’s available inventory of Compound. ELI LILLY shall not be required to perform any manufacturing of Compound for CUBIST.

ARTICLE 3

DILIGENCE AND REGULATORY

3.00 CUBIST shall use commercially reasonable efforts to develop and test the Compound in the Field, to perform all pre-clinical, clinical and other studies of such Compound necessary to obtain regulatory approval for the manufacture, use and sale of Compound, and to market and sell Compound in the Field in all countries in which it is commercially reasonable to market such Compound. CUBIST shall fully fund these efforts, as well as any other work that is required for CUBIST to develop and market Compound in the Field.

CUBIST has prepared and provided to ELI LILLY a preliminary development plan as of November 7, 1997, which contained CUBIST’s estimate, based upon data currently available to CUBIST concerning the subject matter of this Agreement, of the probable course of Compound development hereunder. CUBIST will provide ELI LILLY with bi-annual status reports regarding the development progress of the Compound; however, any material events or changes in the Compound development plan will be reported to ELI LILLY as soon as reasonably possible after such event occurs.

3.01 CUBIST represents that it intends to conduct clinical testing of Compounds to the extent that such testing is supported by safety and efficacy data required by the applicable regulatory agency.

3.02 ELI LILLY hereby grants CUBIST the right of reference to the Investigational New Drug Application filed with the United States Food and Drug Administration (“FDA”) relating to the Compound, and ELI LILLY agrees to provide to CUBIST copies of all related contact reports, minutes and other regulatory correspondence filed with or communicated to the FDA. ELI LILLY shall transfer all reasonably transferable information used in regulatory filings, laboratory data, clinical data, toxicology data, and scale-up, manufacturing and formulation information relating to Compound to CUBIST in a commercially reasonable time frame.

3.03 CUBIST shall comply with all applicable laws and regulations regarding the care and use of experimental animals, in a country where the development is carried out. All animals used to evaluate Compound shall be provided humane care and treatment in accordance with the most acceptable veterinary practices.

*Confidential treatment requested: Material has been omitted and filed with the Commission

ARTICLE 4

PAYMENTS

4.00      CUBIST will pay to ELI LILLY the following payments:

(a) [ ]* as a license fee, to be paid upon the earlier of (i) completion of CUBIST or CUBIST’S sub-licensee’s first Phase II Clinical Trial in a Major Market Country or (u) upon the initiation of CUBIST or CUBIST’s sub-licensees of patient dosing in the first Phase III Clinical Trial in a Major Market Country; said license fee to be paid in CUBIST common stock based on the Average Market Price for such CUBIST common stock;

(b) [ ]* as a license fee, to be paid upon the date of CUBIST’S or CUBIST’S sub-licensee’s first regulatory submission in a Major Market Country for a license to market Compound, said license fee to be paid in CUBIST common stock, based on the Average Market Price for such CUBIST Common Stock; and

(c) [ ]* as a license fee, to be paid upon the date of CUBIST’s or CUBIST’S sub-licensee’s first regulatory approval in a Major Market Country for their application to market Compound, said license fee to be paid in CUBIST common stock, based on the Average Market Price for such CUBIST Common Stock.

4.01 During the first [ ]* months after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* on the first [ ]* of aggregate annual Net Sales of Compounds and [ ]* on aggregate Net Sales between [ ]* and [ ]* on aggregate annual Net Sales in excess of [ ]* in all countries (“Protected Countries”) for so long as (a) the manufacture, use or sale of Compound is covered by a Valid Claim, or (b) there is no significant generic competition which causes a reduction of Net Sales of Compound by [ ]* percent or more in any twelve month period.

4.02 After the expiration of the first [ ]* months after first commercial sale in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* on the first [ ]* of aggregate annual Net Sales of Compound and 13.5% on aggregate annual Net Sales between [ ]* and [ ]* in aggregate annual Net Sales in excess of [ ]* in all countries (“Protected Countries”) for so long as (a) the manufacture, use or sale of a Compound is covered by a Valid Claim, or (b) there is no significant generic competition which causes a reduction of Net Sales of Compound by [ ]* percent or more in any twelve month period.

4.03 For a period often [ ]* years following first commercial sale in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* of aggregate annual Net Sales in all countries that are not Protected Countries, but where the manufacture, use, sale or transfer of Compound utilizes Know-How provided to CUBIST by ELI LILLY. [ ]* of Net Sales in countries that are not Protected Countries shall be included in aggregate annual Net Sales of Compound calculated pursuant to Section 4.02 for purposes of determining the appropriate royalty percentage in Section 4.02.

*Confidential treatment requested: Material has been omitted and filed with the Commission

4.04 In the event that CUBIST can demonstrate that external factors beyond its control (such as government-imposed price controls) have materially reduced CUBIST’S profitability on sales of Compound in any Country, ELI LILLY agrees to consider in good faith an equitable reduction in the royalty rate applicable to such country under Section 4.02 or 4.03, as applicable.

4.05 The first payment under Articles 4.01, 4.02 and 4.03 shall be due within [ ]* days after December 31 or June 30, whichever such date occurs first after the first commercial sale or transfer of Compound. Thereafter, payments under Articles 4.01, 4.02 or 4.03 shall be made within [ ]* days of each of December 31 and June 30 of each year. Payments shall be accompanied by a report showing all facts necessary to the calculation of amounts due.

4.06 All royalty payments to ELI LILLY shall be in United States dollars. Royalty payments based on Net Sales in currencies other than United States dollars shall be converted to US dollars according to the average official rate of exchange for that currency as published in the Wall Street Journal on the first and last days of the six-month period in which that royalty accrued (or, if not published on that day, the first and last publication days for the Wall Street Journal during that six month period). If such exchange rate is not published in the Wall Street Journal, then the rate shall be determined using average conversion rates that are accepted in the industry on the first and last days of the six month period in which the royalty accrued. All payments that are not to be made in CUBIST common stock, as specified herein, shall be paid in United States dollars.

4.07 If by law, regulation, or fiscal policy of a particular country, conversion into United States dollars or transfer of funds of a convertible currency to the United States is restricted or forbidden, CUBIST shall give ELI LILLY prompt written notice and shall pay the royalty due under this Article 4 through such means or methods as are lawful in such country as ELI LILLY may reasonably designate. Failing the designation by ELI LILLY of such lawful means or methods within [ ]* days after such written notice is given to ELI LILLY, CUBIST shall deposit such royalty payment in local currency to the credit of ELI LILLY in a recognized banking institution designated by ELI LILLY, or if none is designated by ELI LILLY within the [ ]* day period described above, in a recognized banking institution selected by CUBIST and identified in a written notice to ELI LILLY by CUBIST, and such deposit shall fulfill all obligations of CUBIST with respect to such royalties.

4.08 CUBIST and its sub-licensees, if any, shall maintain complete and accurate books and records with respect to sale and use of Compound and all other information necessary to permit calculation and verification of amounts due under this Article 4 and Article 5 and Article 6, set forth below. Upon reasonable prior written notice to CUBIST, ELI LILLY may cause an independent agent to audit the books and records of CUBIST and its sub- licensees, if any, pertaining to the payment to ELI LILLY hereunder, for the sole propose of confirming the amounts due, and the accuracy of the payments and reports; provided that no such audit shall be permitted for periods exceeding thirty six (36) months prior to the date CUBIST receives such written notice. Any such audit shall be performed at ELI LILLY’S expense during normal business hours and shall, if so required by CUBIST, be performed by a firm of independent public accountants reasonably acceptable to CUBIST. The independent agent shall report only such information as would properly be included in such a report. In the event of an underpayment, CUBIST shall promptly remit to ELI LILLY all amounts due. CUBIST shall require any sub-licensee to agree to comply with all of the

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terms of this paragraph, including but not limited to making such report, maintaining such records, and permitting such audit.

If such audit reveals that CUBIST has underpaid ELI LILLY by greater than [ ]* then CUBIST shall reimburse ELI LILLY for the reasonable cost of the audit.

4.09 Any late payments due to ELI LILLY shall be subject to interest charges which rate shall be established at [ ]* on the date that such payment was first due to ELI LILLY.

ARTICLE 5

MINIMUM ROYALTIES

5.00 Sixty (60) days after December 31 or June 30, whichever date occurs first, following the first twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY the greater of the balance of payments due for such twelve (12) month period under Articles 4.01 and 4.02 of this Agreement or the balance of [ ]* less royalties already paid for such twelve (12) month period pursuant to Articles 4.01 and 4.02, as a minimum royalty.

5.01 Sixty (60) days after December 31 or June 30, whichever date occurs first, following the second twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay to ELI LILLY the greater of the balance of payments due for such twelve (12) month period Articles 4.01 and 4.02 of this Agreement or the balance of [ ]*, less royalties already paid for such twelve (12) month period the preceding calendar year pursuant to Articles 4.01 and 4.02; as a minimum royalty.

5.02 Sixty (60) days after December 31 or June 30, whichever date occurs first, following the third twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY the greater of the balance of payments due for such twelve (12) month period under Articles 4.01 and 4.02 of this Agreement or the balance of [ ]* less royalties already paid for such twelve (12) month period the preceding calendar year pursuant to Articles 4.01 and 4.02, as a minimum royalty.

5.03 CUBIST shall deduct any withholding taxes from the payments agreed upon under this Agreement and pay them to the proper tax authorities as required by applicable law. CUBIST shall maintain official receipts of any withholding taxes and forward these receipts to ELI LILLY. The parties will exercise their best efforts to ensure that any withholding taxes imposed are reduced as far as legally possible under the provisions of any treaties applicable to any payment made hereunder.

ARTICLE 6

INDEMNIFICATION, INSURANCE AND LIMITATION OF DAMAGES

6.00 CUBIST shall indemnify ELI LILLY and its directors, officers, employees and agents, as set forth in Article 6.02, with respect to (a) any third party claim or action against ELI LILLY based on CUBIST’S or CUBIST’S sublicensee’s developing, making, distributing, selling, marketing, using or otherwise transferring Compound and (b) breach of any representation or warranty contained in Article 7 by CUBIST, provided, however that CUBIST shall have no

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duty to indemnify ELI LILLY to the extent that any such claim or action is subject to ELI LILLY’s duty of indemnification set forth in Article 6.01.

6.01 ELI LILLY shall indemnify CUBIST, as set forth in Article 6.02, with respect to (a) any third party claim or action against CUBIST based on (i) activities of ELI LILLY, its employees, or its agents with respect to Compound prior to the Effective Date, (u) the negligence or willful misconduct of ELI LILLY, its employees and agents, and (b) breach of any representation or warranty contained in Article 7 by ELI LILLY, provided, however, that ELI LILLY shall have no duty to indemnify CUBIST to the extent that any such claim or action is subject to CUBIST’S duty of indemnification set forth in Article 6.00.

6.02 With respect to the claims and actions referenced in Articles 6.00 and 6.01 above, the indemnifying party shall defend any such claim or action against the indemnified party and shall pay all damages, judgments, costs, expenses (including attorneys’ fees, but only to the extent that the indemnifying party fails to promptly assume the defense of such claims and actions) and liability awarded against the indemnified party, or settlements entered into, with respect to such claim or action, provided that the indemnified party (a) provides prompt written notice to the indemnifying party of any such claim or action; (b) allows the indemnifying party to assume the defense and settlement thereof, with counsel of its choice; and (c) provides reasonable assistance to the indemnifying party in connection with the defense and settlement thereof.

6.03 Prior to administration of Compound to any human, CUBIST shall provide to ELI LILLY an endorsement verifying customary levels of insurance for damages, judgments, costs, expenses (including attorneys’ fees) and liability with respect to any third party claim or action based on CUBIST’s or CUBIST’S sublicensee’s manufacture, distribution, use, marketing or sale of Compound, naming Eli Lilly and Company, its directors, officers and employees as additional insureds on the policy, and shall have copies of such insurance policies delivered to ELI LILLY as soon as reasonably practical. In addition, evidence of insurance in the form of such endorsement shall be furnished to ELI LILLY at the inception of each subsequent phase of human clinical trials, as well as upon granting of NDA and PLA, but in no event less than annually upon the insurance policy renewal date. Such insurance shall remain in effect at customary levels throughout the term of this Agreement. ELI LILLY shall be informed thirty (30) days prior to any cancellation of or material decrease in the amount of coverage of such insurance by CUBIST or any other action that CUBIST reasonably should believe will result in decrease or cancellation of such insurance, or immediately upon receipt by CUBIST of a notice of cancellation of such insurance, on the effective date of which cancellation or decrease, clinical use of Compound must immediately cease, subject to CUBIST obtaining adequate replacement insurance. The foregoing shall not be interpreted to limit the scope or amount of CUBIST’S indemnification obligation under Article 6.00.

Notwithstanding the foregoing, CUBIST shall be entitled to adopt an insurance program containing self insurance elements, to the extent that CUBIST is able to demonstrate to the reasonable satisfaction of ELI LILLY that such a program is not unusual in the industry for companies similarly situated (including financial condition to support such a program) or with respect to products with a risk profile similar to products licensed hereunder.

*Confidential treatment requested: Material has been omitted and filed with the Commission 

6.04 Other than as set forth elsewhere in this Agreement, in no event shall either party be liable for any special, consequential, indirect, or incidental damages, however caused and on any theory of liability, arising out of this Agreement. These limitations shall apply notwithstanding any failure of essential purpose of any limited remedy.

ARTICLE 7

REPRESENTATIONS, WARRANTIES AND DISCLAIMER

7.00 Each party represents and warrants to the other party that (a) it has the right to enter into this Agreement; (b) this Agreement has been duly authorized by all necessary action of such party; and (c) the execution of this Agreement by the party will not conflict with or breach any other agreement to which it is a party or by which it is bound.

7.01 ELI LILLY represents that (a) there is no agreement known to ELI LILLY to which it is a party and by which it is bound that would conflict with or be breached by ELI LILLY granting the license in Article 2, (b) except as previously disclosed in writing to CUBIST, no other person or entity has claimed, or to ELI LILLY’s knowledge has, any rights to or interest in the Patents and the Know- How in the Field to be licensed hereunder, and that to its knowledge, the manufacture, use, distribution, marketing or sale of the Compounds) can be performed without infringing the patent rights of any third party, and (c) as of the Effective Date ELI LILLY is conducting no development program relating to analogs or derivatives of the Compound, provided that ELI LILLY shall be free to commence and conduct any such program at any time hereafter.

7.02 ELI LILLY makes no representation or warranty that Compound made, used, or sold under the licenses granted herein is or will be free of claims of infringement of the patent rights of any third party (although it represents and warrants that it has no knowledge of (i) such infringement not heretofore disclosed to CUBIST and (u) any payment obligations that CUBIST will have to third parties in connection with CUBIST’s development, manufacturing, marketing or sale of Compound) and makes no warranty or representation that any of the Patents to be licensed hereunder are valid or enforceable.

7.03 EXCEPT AS SET FORTH IN ARTICLES 7.00 AND 7.01 ABOVE, ELI LILLY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILTTY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT.

7.04 CUBIST acknowledges that the Compounds) are highly experimental in nature and it is fully aware that Compounds) may prove to be ineffective and/or unsafe when used in humans.

7.05 CUBIST warrants that all CUBIST common stock to be paid to ELI LILLY pursuant to this Agreement shall be properly issued and all legal requirements associated with such issuance to ELI LILLY shall be fulfilled.

The number of shares of CUBIST common stock payable to ELI LILLY shall be determined by dividing the payment amount by the Average Market Price to determine the number of shares.

*Confidential treatment requested: Material has been omitted and filed with the Commission

For illustration purposes only, upon completion of CUBIST’s first Phase II Clinical Trial, CUBIST shall pay ELI LILLY [ ]* in CUBIST common stock. The number of shares to be transferred to ELI LILLY shall be determined by dividing [ ]* by the Average Market Price.

ARTICLE 8

PATENTS AND KNOW-HOW

8.00 In the event either of the parties shall learn of the infringement, or a challenge to the validity, enforceability, or title of any Patent (including any action for a declaratory judgment) right licensed hereunder, or an action for unauthorized use or misappropriation of Know-How licensed hereunder, such party shall promptly notify the other party thereof in writing and shall provide the other party with any evidence in its possession of such infringement, challenge or action.

8.01 (a) During the term of this Agreement, ELI LILLY shall have the sole right, but no obligation, to bring or defend any suit or action relative to the patenting or patent enforcement directly relating to Patent(s), including the right to recover for past infringement, or the unauthorized use or misappropriation of Know-How in the Field. If ELI LILLY finds it necessary or desirable to join CUBIST in such suit or action, CUBIST shall execute all papers and perform such other acts as may reasonably be required, at ELI LILLY’s expense, to join CUBIST in such suit or action. CUBIST may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that ELI LILLY shall continue to control the prosecution or defense of such suit. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action, whether by judgment or settlement, after deducting ELI LILLY’s reasonable expenses (including attorneys’ fees), and payment to CUBIST of damages in respect of CUBIST’S lost profits for which ELI LILLY recovers payment and CUBIST’s reasonable expenses (including attorneys’ fees) incurred in connection with an action or suit in which ELI LILLY requested that CUBIST be joined or in which CUBIST voluntarily joined, shall be paid to or retained by ELI LILLY.

(b) In the event ELI LILLY fails to take action with respect to such Patents) infringement, or challenge to validity, enforceability or title, or action for unauthorized use or misappropriation of Know-How in the Field which materially affect intellectual property rights of ELI LILLY that relate to an active ELI LILLY program, within a reasonable period, no less than three (3) months, following receipt by ELI LILLY of reliable evidence of infringement, CUBIST shall have the right, but no obligation, to bring, or defend any such suit or action. ELI LILLY may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that CUBIST shall continue to control the prosecution or defense of such suit. If CUBIST finds it necessary to join ELI LILLY in such suit or action, ELI LILLY shall execute all papers and perform such other acts as may be reasonably required at CUBIST’s expense. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action or suit, whether by judgment or settlement, after deducting CUBIST’S reasonable expenses (including attorneys’ fees) and, after payment to ELI LILLY of damages in respect of ELI LILLY’s lost royalties for which CUBIST recovers payment and after payment to ELI LILLY of its reasonable expenses (including reasonable attorneys’ fees) incurred in connection with an action or suit in which CUBIST requested that ELI LILLY be joined or which ELI LILLY voluntarily joined, shall be paid to or retained entirely by CUBIST.

*Confidential treatment requested: Material has been omitted and filed with the Commission

(iii) Notwithstanding anything to the contrary in this Section 8.01, should ELI LILLY receive a certification pursuant to the Drug Price Competition and Patent Restoration Act of 1984 (Public Law 98-417) as amended; or its equivalent in a country other than the United States of America with respect to a Patent, then (i) ELI LILLY shall immediately provide CUBIST and its sublicensee with a copy of such certification and identify the date on which ELI LILLY received such certification (the “Certification Date”), and (u) ELI LILLY shall have twenty (20) days from the Certification Date to provide CUBIST and its sublicensee with written notice whether ELI LILLY will bring suit within a forty five (45) day period (or any other mandatory time period) from the Certification Date. Should such twenty (20) day period pass without ELI LILLY bringing suit, then CUBIST or its sublicensee shall be free to immediately bring suit for patent infringement in its name and, at its sole option, in the name of ELI LILLY. Accordingly, ELI LILLY hereby agrees to become party to the suit, at CUBIST’s request. If CUBIST or its sublicensee initiates suit pursuant to this section, it will promptly notify ELI LILLY.

8.02 If CUBIST determines in good faith in consultation with ELI LILLY that the manufacture, use or sale of Compound in the Field would infringe the intellectual property rights of a third party unaffiliated with either CUBIST or ELI LILLY, and it therefore becomes necessary to pay a royalty, license fee or other compensation to that party to avoid a claim of infringement, then CUBIST and ELI LILLY shall each bear one-half of that royalty, license fee or other compensation obligation provided that ELI LILLY’s share of such obligation shall be deducted from CUBIST’s royalty payments due to ELI LILLY, and further provided that CUBIST’S payment, pursuant to this Agreement, to ELI LILLY in any one (1) year would never be reduced by more than [ ]*. If, as a result of the preceding sentence, CUBIST bears more than [ ]* of the royalty, license fee or other compensation due to a third party under this Section 8.04, the amount of the excess may be carried forward and used by CUBIST as a credit against royalties due ELI LILLY in subsequent royalty periods, provided that in no event shall CUBIST’s royalty payments to ELI LILLY be reduced by more than [ ]*.

8.03 Each patty agrees to cooperate with the other in legal action taken to enforce, defend or maintain a Patent licensed hereunder or concerning Know-How licensed hereunder, including litigation proceedings.

8.04 ELI LILLY shall take all steps necessary to maintain the Patents in the Field, including without limitation the preparation, filing and prosecution of new patent applications, through an attorney of their choice.

(a) If CUBIST reasonably believes that ELI LILLY is failing to maintain one or more of its Patents in the Field, CUBIST shall provide ELI LILLY sixty (60) days written notice of its intent to assume maintenance of such Patents itself. If ELI LILLY fails to resume maintenance of the Patents in the Field that CUBIST reasonably believes that ELI LILLY is failing to maintain or to provide reasonable evidence demonstrating that ELI LILLY is maintaining these Patents in the Field at the expiration of such sixty (60) day period, CUBIST may, through an attorney of their choice, take all necessary actions to maintain the Patents, and shall be entitled to deduct [ ]* of the costs and expenses incurred from any of CUBIST’s payments pursuant to Article 4.04. In such event, ELI LILLY shall complete all acts and execute and deliver all instruments and other documents and render CUBIST assistance as is necessary or desirable for CUBIST to assume the filing, prosecution and maintenance of such

*Confidential treatment requested: Material has been omitted and filed with the Commission

Patents in the Field that ELI LILLY has not resumed maintenance of or demonstrated that it is maintaining.

(b) ELI LILLY shall keep CUBIST currently advised as to the status of all patents and patent applications which relate to Patents and to supply CUBIST promptly with copies of all patents, patent applications, substantive patent office actions, substantive responses received or filed in connection with such applications. CUBIST may itself or through its attorney offer comments and suggestions with respect to the matters that are the subject of this Article 8.06, and ELI LILLY agrees to consider carefully such comments and suggestions; however, nothing herein shall obligate ELI LILLY to follow such comments or suggestions.

(c) ELI LILLY shall notify CUBIST of their intention to abandon a patent or patent application which relates to Patents (either a total series of Patents or patent applications or on a country by country basis). At CUBIST’s option, CUBIST may maintain such patent or patent application relating to Patent that ELI LILLY plans to abandon (either a total series of Patents or patent applications or on a country by country basis) at CUBIST’s sole expense, and CUBIST shall receive title to such patent or patent application and such patent shall no longer then be considered a Patent for purposes of this Agreement.

8.05 (a) CUBIST shall take all steps necessary to maintain its Assigned Patents.

(b) CUBIST shall keep ELI LILLY currently advised as to the status of all Assigned Patents.

ARTICLE 9

ASSIGNMENT

9.00 Neither party may assign or delegate any of its rights or duties under this Agreement without the prior written consent of the other, except that either party may assign this Agreement to a person or party that has purchased or succeeded to all or substantially all of the business and assets of the assignor to which the Agreement relates, and that has assumed in writing or by operation of law such party’s obligations under this Agreement, provided that CUBIST shall be permitted to sub-license its rights hereunder as provided under Section 2.01 above. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors and assigns insofar as this Agreement is assignable. The assignor of this Agreement shall guarantee the performance of the obligation of this Agreement by such successor or assigns. Nothing herein is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

*Confidential treatment requested: Material has been omitted and filed with the Commission

ARTICLE 10

TERM AND TERMINATION

10.00 The term of this Agreement shall be for the period commencing as of the Effective Date and ending on the later of (a) the expiration of the last of the Assigned Patents or Patents to expire or (b) the end of the tenth year from the date of first sale in the first Major Market Country where Know-How royalties are due, unless and until earlier terminated as provided in this Article. Upon the expiration of this Agreement, CUBIST shall retain a fully paid-up, royalty free license under the Know-How for purposes consistent with this Agreement and limited to use in the Field.

10.01 If both CUBIST and any sub-licensees substantially cease all development activities pursuant to the then-current development plan for a period of [ ]*, then ELI LILLY shall have an exclusive right to acquire back all rights relating to Compound pursuant to this Agreement. The terms under which ELI LILLY shall acquire back such rights shall be the subject of a separate agreement to be negotiated in good faith by the parties.

10.02 If either party defaults in the performance of its material obligations hereunder, including but not limited to CUBIST’s failure to use commercially reasonable efforts to develop Compound (provided, however, that this shall not be construed as a guarantee that any Compound will be successfully developed), and if any such default is not corrected within sixty (60) days after it shall have been called to the attention of the defaulting party, in writing, by the other party, then the other party, at its option, may, in addition to any other remedies it may have, thereupon terminate this Agreement by giving written notice of termination to the defaulting party.

10.03 This Agreement may be terminated by either party, on notice, (i) upon the institution by the other party of insolvency, receivership or bankruptcy proceedings, (u) upon the institution of such proceedings against the other party, which are not dismissed or otherwise resolved in such party’s favor within sixty (60) days thereafter, and (iii) upon the other party’s dissolution or ceasing to do business in the normal course.

10.04 CUBIST may terminate this Agreement at any time, upon thirty (30) days prior written notice to ELI LILLY and upon a reasonable determination by CUBIST that continued development of the Compound hereunder is not commercially reasonable. In such event, CUBIST shall refrain from the manufacture, marketing or sale of a Compound for a period of at least [ ]*.

10.05 Termination of this Agreement for any reason shall not result in any obligation by ELI LILLY to repay any payments made to it by CUBIST prior to such termination.

10.06 Upon termination of this Agreement for any reason, the sub-licenses shall be automatically assigned to ELI LILLY, and ELI LILLY shall be bound by the terms of such sublicenses provided that the sub-licensees continue to perform in accordance with their respective sub-license agreements. Notwithstanding the foregoing, ELI LILLY’s obligations to any such sub-licensee shall not be interpreted to extend beyond any obligations to CUBIST hereunder with respect to the subject matter of the sub-license.

10.07 (a) Upon termination of this Agreement for any reason, except for termination caused by material breach by ELI LILLY, all licenses granted to CUBIST pursuant to Section 2.01 shall terminate, CUBIST furthermore shall,

*Confidential treatment requested: Material has been omitted and filed with the Commission

except subject to Section 10.01 where applicable, transfer to ELI LILLY all regulatory filings and regulatory correspondence, patent filings and patent office correspondence, any and all other clinical and non-clinical data, records and tabulations related to the Compound; and shall execute any and all documents of such patent offices and/or patent receiving offices, and/or regulatory agencies, including the US FDA, so as to allow ELI LILLY to make immediate use of such data, records, patent applications and/or patents and regulatory filings. ELI LILLY shall not be obligated to treat such information received pursuant to this Section 10.06 as Confidential Information and may use such information, data and know-how for any purpose at ELI LILLY’s discretion.

(b) If CUBIST terminates this Agreement due to ELI LILLY’s material breach, CUBIST’S licenses pursuant to Article 2 shall continue for so long as CUBIST continues to fulfill their payment obligations pursuant to Articles 4 and 5.

10.08 Termination of this Agreement for any reason shall not terminate the provisions set forth in Article 6 with respect to actions arising with respect to periods prior to termination, as well as Articles 7, 10, 13, 15, and 17 hereof. The obligations of those Articles shall continue in full force and effect following any such termination.

10.09 Upon termination of this Agreement for any reason, neither party shall be relieved of obligations with respect to periods prior thereto, including any obligation to make payments, including but not limited to obligations pursuant to Articles 4, 5, 6 or 10, or reports regarding sale prior to such termination.

10.10 If CUBIST determines that it will not develop or market Compound in one or more countries, either by itself or through the efforts of a sublicensee, or if ELI LILLY makes written request to CUBIST to develop or sell Compound in one or more countries and in which countries CUBIST either by itself or through the efforts of a sublicensee, has taken no action, all rights including rights to develop, market and sell Compound in that country(ies) shall revert to ELI LILLY one year after CUBIST receives written notice of ELI LILLY’s intent to pursue those rights is received by CUBIST if CUBIST either by itself or through the efforts of a sublicensee, has taken no action toward such development or marketing prior to the end of that year.

ARTICLE 11

FORCE MAJEURE

11.00 If the performance of this Agreement or any obligations hereunder, except the making of payments, is prevented, restricted or interfered with by reason of fire or other casualty or accident, earthquake, supplier delay, strikes or labor disputes, war or other violence, any law, order, proclamation, regulations, ordinance, demand or requirement of any government agency, or any other act or condition beyond the reasonable control of the parties hereto (“Event of Force Majeure”), the party so affected upon giving prompt notice to the other party shall be excused from such performance to the extent of such prevention, restriction, or interference; provided that the party so affected shall use its reasonable best efforts to avoid or remove such causes of nonperformance and shall continue performance hereunder with the utmost dispatch and that such party exercises due diligence to overcome such circumstances.

*Confidential treatment requested: Material has been omitted and filed with the Commission

11.01 The party suffering an Event of Force Majeure shall notify the other party within fifteen (15) days of the occurrence of such Events of Force Majeure and within thirty (30) days shall furnish the other party with a recovery plan of action. Without limiting the foregoing, a party suffering an Event of Force Majeure shall use its reasonable best efforts to limit the impact of the Event of Force Majeure on such party’s performance of this Agreement.

ARTICLE 12

NOTICES

12.00 Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes five (5) days after having been mailed by first class certified or registered mail, postage prepaid or by fax which is confirmed by certified mail. Unless otherwise specified in writing, the mailing addresses of the parties shall be as described below.

For ELI LILLY:

ELI LILLY & COMPANY

Attn: Legal Division

Lilly Corporate Center

Indianapolis, Indiana 46285

For CUBIST:

Alan D. Watson, Ph.D.

Senior Vice President, Corporate Development

Cubist Pharmaceuticals Incorporated

24 Emily Street

Cambridge, MA 02139

with a copy to:

CUBIST’S Legal Counsel:

Michael Lytton

Palmer & Dodge

One Beacon Street

Boston, MA 02108

ARTICLE 13

GOVERNING LAW

13.00 This Agreement shall be governed by and interpreted in accordance with the laws of the State of Indiana, United States of America, without reference to conflict of laws principles.

In the event of any action, controversy or claim arising out of or relating to any provision of this Agreement or the breach, termination or

*Confidential treatment requested: Material has been omitted and filed with the Commission

enforceability thereof, ELI LILLY and CUBIST shall make all efforts to settle those conflicts amicably between themselves. Should they fail to agree, the parties may assert any remedy available at law or in equity to enforce its rights under this Agreement.

ARTICLE 14

PARTIAL VALIDITY

14.00 If any provision of this Agreement shall be found or be held to be invalid or unenforceable by a court of competent jurisdiction in which this Agreement is being performed, then the meaning of said provision shall be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement, which shall remain in full force and effect. In such event, the parties shall negotiate, in good faith, a substitute, valid and enforceable provision which most nearly effects the parties’ intent in entering into this Agreement.

ARTICLE 15

CONFIDENTIALITY.

15.00 Except as otherwise provided in this Article 15, during the term of this Agreement and for a period of [ ]* years thereafter, the parties shall maintain the Confidential Information in confidence and use it only for purposes specifically authorized under this Agreement. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement: (i) a party may disclose Confidential Information it is otherwise obligated under this Article 15 not to disclose to third parties, on a need-to- know basis and on condition that such entities or persons agree to keep the Confidential Information confidential for the same time periods and to the same extent as such party is required to keep the Confidential Information confidential hereunder; and (ii) a party may disclose such Confidential Information to government or other regulatory authorities as required by law or statute. The parties hereto understand and agree that remedies at law may be inadequate to protect against any breach of any of the provisions of this Article 15 by either party or their employees, agents, officers or directors or any other person acting in concert with it or on its behalf. Accordingly, each party shall be entitled to, but not limited to, the granting of injunctive relief by a court of competent jurisdiction against any action that constitutes any such breach of this Article 15.

15.01 Notwithstanding the provisions of Section 15.00 above, CUBIST shall be free to make disclosures to third parties of Confidential Information of ELI LILLY consisting of data regarding the Compound in the Field under circumstances where, in CUBIST’S reasonable business judgment, such disclosures will (i) further the development and commercialization of the Compound and (u) not adversely affect any patent rights of ELI LILLY of which it is aware; PROVIDED, HOWEVER, that in the case of (a) technical papers disclosing such Confidential Information, or (b) other disclosures where ELI LILLY’S name is used or would reasonably be implied from the context, CUBIST will provide a copy of the proposed paper or disclosure to ELI LILLY at least two (2) weeks in advance of publication and will not proceed with such publication or disclosure without the consent of ELI LILLY, which consent will not be unreasonably withheld; and FURTHER, PROVIDED, that in the case of all other written disclosures of Confidential Information, CUBIST will provide to ELI LILLY a copy

*Confidential treatment requested: Material has been omitted and filed with the Commission

of the material incorporating such disclosure as promptly as is practicable, and in no event later than one (1) week after the disclosure takes place.

15.02 ELI LILLY will make no public pronouncements referencing this Agreement or CUBIST without CUBIST’s express written approval. No license or rights are granted to either party to use the name of the other without express written approval. CUBIST shall not release any information regarding the existence or terms of this Agreement that is not required by law.

ARTICLE 16

ENTIRE AGREEMENT

16.00 The terms and conditions herein contained, including the Exhibits hereto, constitute the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all previous communications, proposals, representations, and agreements (including the License Agreement dated November 7, 1997) whether oral or written, relating to the subject matter of this Agreement.

No agreement or understanding varying or extending the same shall be binding upon either party hereto unless in a written document which expressly refers to this Agreement and which is signed by both parties to be bound thereby.

ARTICLE 17

MISCELLANEOUS

17.00 It is understood and agreed that each party shall have the status of an independent contractor under this Agreement and that nothing in this Agreement shall be construed as authorization for either ELI LILLY or CUBIST to act as agent for the other. Nothing contained herein or done in pursuance of this Agreement shall constitute either party the agent of the other party for any purpose or in any sense whatsoever, or constitute the parties as partners or joint venturers.

17.01 The failure of either party to enforce at any time any of the provisions of this Agreement, or the failure to require at any time performance by the other party of any of the provisions of this Agreement, shall in no way be construed to be a present or future waiver of such provisions, nor in any way affect the validity of either party to enforce each and every such provision thereafter.

17.02 The headings set forth at the beginning of the various Articles of this Agreement are for reference and convenience and shall not affect the meanings of the provisions of this Agreement.

17.03 During the term of this Agreement, ELI LILLY shall not, directly or indirectly through or in connection with any third party, conduct research, develop, make or market Compound for use in the Field.

17.04 This Agreement may not be amended, supplemented, or otherwise modified except by an instrument in writing signed by both parties.

*Confidential treatment requested: Material has been omitted and filed with the Commission

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed in duplicate by duly authorized officers or representatives as of the date first above written.

ELI LILLY & COMPANY		CUBIST PHARMACEUTICALS
		INCORPORATED
By:	/s/ M.E. DANIELS, JR.	By:	/s/ ALAN WATSON
Print name: M.E. Daniel, Jr.		Print name:  Alan Watson
Title:  Sr. Vice President		Title: Senior Vice President

*Confidential treatment requested: Material has been omitted and filed with the Commission

EX-10.12

EXHIBIT 10.12

First Amendment

to “Manufacturing and Supply Agreement”

This First Amendment is dated May 8, 2002, and is made between Cubist Pharmaceuticals Inc (“Cubist”), and ACS Dobfar (“ACSD”), who are parties to a Manufacturing and Supply Agreement, dated September 30, 2001 (the “Agreement”);

Cubist and ACSD hereby agree that Section 5.3 (“Purchase Forecasts”) of the Agreement shall be removed in its entirety and shall be replaced with the following:

5.3 Purchase Forecasts

Initially within thirty (30) days following NDA Approval of Product, and continuing for the remaining duration of the Agreement, Cubist shall provide to ACSD, within the first fifteen (15) business days of each quarter, on a quarterly basis, a rolling forecast for orders of Product with respect to the four (4) quarters following the then current quarter (Purchase Forecast).  Cubist shall be obligated to purchase at least eighty percent (80%) of the amount of Product forecast for the first quarter of any Purchase Forecast, and shall execute a binding purchase order to that effect.  The forecast for the remaining three (3) quarters of any Purchase Forecast shall be non-binding.

Cubist Pharmaceuticals, Inc.				ACS Dobfar
By:	/s/ Christopher Guiffre			By:	/s/ Falciani Marco
Name:			Christopher Guiffre	Name:			Falciani Marco
Title:		General Counsel		Title:		The President
Date:		May 8, 2002		Date:		May 21, 2002

EX-10.16

Exhibit 10.16

LICENSE AGREEMENT

BY AND BETWEEN

CUBIST PHARMACEUTICALS, INC.

AND

CHIRON HEALTHCARE IRELAND LTD.

October 2, 2003

TABLE OF CONTENTS

	Page
ARTICLE 1. DEFINITIONS	2
1.1.   “Additional Daptomycin Product”	2
1.2.   “Affiliate”	2
1.3.   “Approved New Trademark”	2
1.4.   “Chiron Data”	2
1.5.   “Chiron Development Plan”	2
1.6.   “Chiron Interest”	2
1.7.   “Chiron Inventions”	2
1.8.   “Chiron Joint Technology Rights”	2
1.9.   “Chiron Know-How”	3
1.10.   “Chiron Marketing Information”	3
1.11.   “Chiron Patent”	3
1.12.   “Chiron Related Know-How”	3
1.13.   “Chiron Related Patent”	3
1.14.   “Chiron Technology”	3
1.15.   “Commercial Launch”	3
1.16.   “Commercialize”	4
1.17.   “Commercially Important Indications”	4
1.18.   “Commercially Reasonable Efforts”	4
1.19.   “Confidential Information”	4
1.20.   “Contract Manufacturing Agreements”	4
1.21.   “Control”	5
1.22.   “cSSSI”	5
1.23.   “Cubist Data”	5
1.24.   “Cubist Development Plan”	5
1.25.   “Cubist Inventions”	5
1.26.   “Cubist Joint Technology Rights”	5
1.27.   “Cubist Know-How”	5
1.28.   “Cubist Marks”	5
1.29.   “Cubist Patent”	5
1.30.   “Cubist Technology”	5
1.31.   “Daptomycin”	6
1.32.   “Daptomycin IV Product”	6
1.33.   “Defective Manufactured Product”	6
1.34.   “Directly Competitive Product”	6
1.35.   “Dollar”	6
1.36.   “Drug Approval Application”	6
1.37.   “Drug Master File,”	6
1.38.   “Effective Date Third Party Licenses”	6
1.39.   “EMEA”	6
1.40.   “Fair Market Value”	6

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE COMMISSION

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1.41.   “FDA”	6
1.42.   “Global Harm”	7
1.43.   “IND”	7
1.44.   “Indemnify”	7
1.45.   “Information”	7
1.46.   “Infringement”	7
1.47.   “Injection”	7
1.48.   “Joint Coordination Team”	7
1.49.   “Joint Inventions”	7
1.50.   “Joint Know-How”	7
1.51.   “Joint Patents”	7
1.52.   “Joint Technology”	7
1.53.   “Key Development Studies”	7
1.54.   “Knowable Patent”	7
1.55.   “Launch Indication(s)”	7
1.56.   “Licensed Products”	7
1.57.   “Lilly”	8
1.58.   “Lilly License”	8
1.59.   “Lilly Patent”	8
1.60.   “Losses”	8
1.61.   “MAA”	8
1.62.   “Major Market Countries”	8
1.63.   “Manufacturing Information”	8
1.64.   “Manufacturing Plan”	8
1.65.   “Marketing Plan”	8
1.66.   “Marketing Plan Trigger Event”	8
1.67.   “Medical Affairs Studies”	8
1.68.   “NDA”	8
1.69.   “Net Sales”	8
1.70.   “Other Licensee”	9
1.71.   “Other Licensee Data”	9
1.72.   “Patent”	10
1.73.   “Price Approval”	10
1.74.   “Primary Endpoint”	10
1.75.   “Reasonable Buyer”	10
1.76.   “Reciprocating Licensee”	11
1.77.   “Regulatory Approval”	11
1.78.   “Regulatory Authority”	11
1.79.   “Regulatory Plan”	11
1.80.   “Replacement Indication”	11
1.81.   “Replacement Indication Study”	11
1.82.   “Replacement Study”	11
1.83.   “Required Study”	11
1.84.   “Restricted Period”	11
1.85.   “Royalty Rate”	11
1.86.   “Stock Purchase Agreement”	11

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE COMMISSION

ii

1.87.   “Supply Agreement”	11
1.88.   “Term”	11
1.89.   “Territory”	12
1.90.   “Territory Specific Studies”	12
1.91.   “Third Party”	12
1.92.   “Third Party Infringement Claim”	12
1.93.   “Transfer Price”	12
1.94.   “Unlicensed Product”	12
1.95.   “Unlicensed Sales Threshold”	12
1.96.   “Valid Claim”	12
ARTICLE 2. PRODUCT RIGHTS AND RIGHTS OF FIRST NEGOTIATION	12
2.1.   Product Rights	12
2.2.   Licenses to Chiron	12
2.3.   Licenses to Cubist	13
2.4.   Existing Related Intellectual Property of Chiron	14
2.5.   Field	14
2.6.   Use of Patents and Know-How	14
2.7.   Exclusivity	14
(a)  Chiron	14
(b)  Cubist	15
2.8.   Sublicenses and Transfers of Chiron Technology or Chiron Joint Technology Rights	15
2.9.   Rights of First Negotiation	15
2.10.   Right of Co-Negotiation	15
2.11.   Marketing a Directly Competitive Product	16
2.12.   Mechanism to Determine Fair Market Value	17
2.13.   Subcontracting	17
2.14.   Rights of Last of Refusal for Canada	18
2.15.   Applicable Supply Agreement Provisions	18
ARTICLE 3. COORDINATION	19
3.1.   General	19
3.2.   Joint Coordination Team	20
(a)  Formation	20
(b)  Membership	20
(c)  Meetings	20
(d)  Specific Activities	20
(e)  Limited Authority; Not a Decision-Making Body	21
(f)  Meeting Agendas	22
3.3.   JCT Coordinators	22
3.4.   Independence	22
ARTICLE 4. DEVELOPMENT	22
4.1.   Key Development Studies; Diligence Obligations	22
4.2.   Cubist Development Plan	24
4.3.   Development by Chiron	25

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE COMMISSION

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(a)  Territory Specific Studies	25
(b)  Proposed Indications	25
(c)  Medical Affairs Studies	25
(d)  Chiron Development Plan	26
(e)  Limitation on Chiron’s Development Rights	26
4.4.   Access to Chiron Data	27
(a)  Information Sharing	27
(b)  Reciprocating Licensee	27
(c)  License Option	27
4.5.   No Debarred Personnel	28
4.6.   Chiron Compliance	28
ARTICLE 5. REGULATORY	28
5.1.   Regulatory Plan; Diligence Obligation	28
(a)  Cubist’s and Other Licensees’ Activities	28
(b)  Regulatory Plan	28
(c)  Specific Regulatory Activities	30
(d)  Costs and Expenses	32
(e)  Limitation on Activities	32
5.2.   Ownership of Regulatory Approvals	32
5.3.   Chiron Access to Cubist and Other Licensee Data	33
(a)  Information Sharing	33
(b)  Chiron Use of Cubist Data	33
(c)  License Option	33
(d)  Manufacturing Information	33
5.4.   Free Sales Certificates	34
5.5.   Safety; Adverse Event Reporting	34
(a)  General	34
(b)  Reporting Outside the Territory	35
(c)  Reporting in the Territory	35
(d)  Global Database	35
5.6.   Communications	35
(a)  Communications Relating to Regulatory Approval	35
(b)  Communications Relating to Development	35
5.7.   Recalls and Voluntary Withdrawals	36
5.8.   Label	37
5.9.   Governmental Inspections	37
ARTICLE 6. COMMERCIALIZATION; DILIGENCE	37
6.1.   Marketing Plan; Diligence Obligation	37
(a)  Marketing Plan	37
(b)  Marketing Activities	38
(c)  Costs and Expenses	39
(d)  Ownership of Marketing Information	39
6.2.   Prohibited Marketing and Sales Activities	40
6.3.   Discounting	40

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE COMMISSION

iv

6.4.   Marketing and Promotional Literature	40
ARTICLE 7. COMPENSATION	40
7.1.   Upfront Consideration	40
7.2.   Milestone Payments	41
(a)  Development Milestone Payments	41
(b)  Sales Milestone Payments	42
7.3.   Royalties	42
(a)  Royalty	42
(b)  Know-How Step-Down	43
(c)  Competition Step-Down	43
(d)  Competition Step-Down Procedures	44
(e)  Holdback of Royalties Upon Certain Cubist Enforcement Actions	44
(f)  Chiron Enforcement Action	45
(g)  Clinical Supplies	45
7.4.   Adjustments	46
7.5.   Third Party Royalties and Other Payments	46
7.6.   Royalty Payments and Reports	46
7.7.   No Reductions or Offsets	46
7.8.   Tax Matters	47
7.9.   Foreign Exchange	47
7.10.   Late Payments	47
7.11.   Exports of Licensed Product from the Territory; [*]	47
ARTICLE 8. INTELLECTUAL PROPERTY	47
8.1.   Ownership of Inventions	47
8.2.   Prosecution of Patents	48
(a)  Cubist Patents	48
(b)  Chiron Patents	48
(c)  Joint Patents	49
8.3.   Patent Term Extensions	49
8.4.   Infringement of Patents by Third Parties	50
(a)  Notification	50
(b)  Infringement of Patents in the Territory	50
(c)  Other Infringement of Cubist Patents	50
(d)  Infringement of Chiron Patents and Joint Patents outside the Territory	50
(e)  Settlement; Allocation of Proceeds	51
8.5.   Infringement of Third Party Rights	51
(a)  Notice	51
(b)  Avoidance of Infringement	52
(c)  Licensing to Resolve Infringement by Cubist Technology	52
(d)  Determination of Relative Financial Benefits	52
(e)  Limitation of Obligation to Sublicense	53
(f)  Defense	53
(g)  Settlement	53

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8.6.   Patent Oppositions.	53
(a)  Third Party Patent Rights	53
(b)  Parties’ Patent Rights	54
(c)  Noncontravention	54
8.7.   Sublicensed Technology	54
(a)  Generally	54
(b)  Lilly License	55
(c)  Decision to License Third Party Technology	55
(d)  Licensing of Third Party Technology	55
(e)  Limitation of Obligation to Sublicense	56
(f)  Determination of Relative Financial Benefits	56
8.8.   Patent Marking	56
8.9.   Applicability to Chiron Patents	56
8.10.   Trademarks	56
(a)  Trademark License	56
(b)  Selection and Registration of Product Trademarks	57
(c)  Infringement of Trademarks by Third Parties	57
(d)  Product Trademarks Infringe Third Party Rights	58
8.11.   Subordination to Lilly Rights	58
ARTICLE 9. REPRESENTATIONS AND WARRANTIES	58
9.1.   Mutual Representations and Warranties	58
(a)  Corporate Existence and Power	58
(b)  Authority and Binding Agreement	59
(c)  No Conflict	59
(d)  Validity	59
(e)  Consents	59
9.2.   Cubist Representations and Warranties	59
(a)  Ownership of Intellectual Property	59
(b)  Claims Related to Use of Intellectual Property	59
(c)  Notice to Third Persons	60
(d)  Effective Date Third Party Licenses	60
(e)  No Misappropriation	60
(f)  Regulatory Filings	60
(g)  Regulatory Data and Affairs	60
(h)  Non-Infringement of Cubist Technology by Third Parties	61
(i)  Litigation	61
(j)  Restrictive Agreements	61
(k)  Patent Prosecution	61
9.3.   Chiron Representation and Warranty - No Intellectual Property	61
9.4.   Disclaimer	61
9.5.   No Other Representations	61
ARTICLE 10. INDEMNIFICATION	62
10.1.   Indemnification by Cubist	62
10.2.   Indemnification by Chiron	62

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10.3.   Liability for Third Party Products Liability Claims	63
10.4.   Procedure	66
10.5.   Insurance	66
10.6.   Limitation of Liability	67
ARTICLE 11. RECORDS; PUBLICATIONS	68
11.1.   Records	68
11.2.   Publications	68
ARTICLE 12. CONFIDENTIALITY	69
12.1.   Treatment of Confidential Information	69
12.2.   Authorized Disclosure	69
12.3.   Publicity	70
ARTICLE 13. TERM AND TERMINATION	70
13.1.   Term	70
13.2.   Termination For Convenience by Chiron	71
13.3.   Termination By Either Party Upon Bankruptcy or Insolvency	71
13.4.   Termination for Breach	71
(a)  Notice	71
(b)  Failure to Cure	71
(c)  Disputes	71
(d)  Termination as to Certain Licensed Products	72
(e)  Right to Sell	72
13.5.   INTENTIONALLY OMITTED	72
13.6.   Consequences of Termination	72
13.7.   Survival	74
ARTICLE 14. DISPUTE RESOLUTION	75
14.1.   Disputes	75
14.2.   Arbitration	75
14.3.   Governing Law; Judicial Resolution	76
14.4.   Equitable Remedies; Injunctive Relief	77
14.5.   [*].	77
14.6.   Interest	77
ARTICLE 15. MISCELLANEOUS	77
15.1.   Entire Agreement; Amendment	77
15.2.   Force Majeure	77
15.3.   Notices	78
15.4.   Maintenance of Records	79
15.5.   No Strict Construction	79
15.6.   Assignment	79
(a)  Assignment by Cubist	79
(b)  Assignment by Chiron	79
(c)  Restrictions on Payments	80
(d)  Injunctive Relief	80

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15.7.   Performance by Affiliates	81
15.8.   Guaranty	81
15.9.   Counterparts	81
15.10.   Further Actions	81
15.11.   Severability	81
15.12.   Headings	81
15.13.   No Waiver	81

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LICENSE AGREEMENT

THIS LICENSE AGREEMENT (the “Agreement”) is made effective as of the 2nd day of October, 2003 (the “Effective Date”) by and between CHIRON HEALTHCARE IRELAND LTD., a company organized under the laws of Ireland with offices at United Drug House, Belgard Road, Tallaght, Dublin, Ireland (“Chiron”) and CUBIST PHARMACEUTICALS, INC., a Delaware corporation having its principal place of business at 65 Hayden Avenue, Lexington, Massachusetts 02421 (“Cubist”).  Cubist and Chiron are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.  CHIRON CORPORATION, a Delaware corporation having its principal place of business at 4560 Horton Street, Emeryville, California 94608 (the “Chiron Parent Company”), is a party to this Agreement only with respect to certain selected provisions of this Agreement as specified herein.

RECITALS

WHEREAS, Cubist is developing a proprietary compound known under the generic name of daptomycin, and in particular a form of daptomycin which is administered by intravenous injection;

WHEREAS, Cubist has filed a New Drug Application with the United States Food and Drug Administration for an intravenous formulation of daptomycin for the treatment of complicated skin and skin structure bacterial infections;

WHEREAS, Chiron possesses capabilities in the promotion and marketing of anti-infective pharmaceutical products throughout Europe and certain other countries (as further defined below as the “Territory”) and desires to seek regulatory approval for and market an injectable form of daptomycin in the Territory;

WHEREAS, Chiron wishes to obtain (i) exclusive (even as to Cubist) rights to commercialize all injectable forms of daptomycin in the Territory, and (ii) a right of first negotiation for rights in the Territory to all other forms of daptomycin, including oral formulations and combination products, and Cubist wishes to grant such rights to Chiron as set forth herein;

WHEREAS, the parties have executed a Manufacturing and Supply Agreement (the “Supply Agreement”) contemporaneously with this Agreement pursuant to which Cubist has agreed to manufacture or have manufactured Licensed Products for use by Chiron in connection with Commercialization of Daptomycin Products;

WHEREAS, Chiron wishes for Cubist to complete the Required Studies (as defined below)  in order to enable Chiron to obtain regulatory approval to market in the Territory an injectable form of daptomycin for complicated skin and skin structure bacterial infection and for a second

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indication, and Cubist has agreed to use commercially reasonable efforts to complete the Required Studies; and

WHEREAS, the parties wish to establish a mechanism for exchanging information and providing one another an opportunity to discuss and comment upon activities relating to daptomycin products in their respective territories, it being understood that such mechanism is for transparency purposes only.

NOW THEREFORE, based on the foregoing premises and the mutual covenants and obligations set forth below, the Parties agree as follows:

ARTICLE 1.

DEFINITIONS

The following terms shall have the following meanings as used in this Agreement:

1.1.  “Additional Daptomycin Product” shall mean any pharmaceutical composition containing Daptomycin other than a Daptomycin IV Product.  For the avoidance of doubt, “Additional Daptomycin Product” shall include, without limitation, any pharmaceutical composition containing Daptomycin formulated for oral delivery and any pharmaceutical composition containing Daptomycin and one or more active pharmaceutical ingredient other than Daptomycin.

1.2.  “Affiliate” shall mean, with respect to any Person,  (i) any other Person of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or, if applicable, general partnership interest of such other Person are owned, controlled, or held, directly or indirectly by, or under common ownership or control with, such Person; or (ii) any other Person that, directly or indirectly, owns, controls, or holds fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or, if applicable, the general partnership interest, of such Person.

1.3.  “Approved New Trademark” shall have the meaning assigned to such term in Section 8.10(b) hereof.

1.4.  “Chiron Data” shall have the meaning assigned to such term in Section 4.4(a) hereof.

1.5.  “Chiron Development Plan” shall have the meaning assigned such term in Section 4.3(d).

1.6.   “Chiron Interest” shall have the meaning assigned to such term in Section 15.6(b) hereof.

1.7.   “Chiron Inventions” shall have the meaning assigned to such term in Section 8.1.

1.8.  “Chiron Joint Technology Rights” shall mean all of Chiron’s right, title and interest in the Joint Patents, the Joint Know-How and the Joint Inventions.

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1.9.   “Chiron Know-How” shall mean all Information (i) that (A) is owned or Controlled by Chiron after the Effective Date, (B) is not generally known and is not disclosed in any published Chiron Patents, (C) is necessary or useful in connection with the development, manufacture, use, sale, import or export of Licensed Products, including, without limitation, all data and information regarding the safety and efficacy of Licensed Products, and (D) is created, conceived, invented, developed or reduced to practice during the Term in the course of performing research and development activities undertaken or carried out for the specific purpose of developing Licensed Products or of developing any invention necessary or useful to the development, manufacture, use, sale, import or export of Licensed Products, or (ii) that is included in “Chiron Know-How” pursuant to the provisions of Section 2.4 hereof. Notwithstanding the foregoing, the term “Chiron Know-How” shall not include any Chiron Marketing Information, Chiron Data (other than data generated from Medical Affairs Studies), Joint Know-How or any interest of Chiron in any of the foregoing.

1.10.  “Chiron Marketing Information” shall have the meaning assigned to such term in Section 6.1(d).

1.11.  “Chiron Patent” shall mean (i) any Patent that is owned or Controlled by Chiron, that has a filing date after the Effective Date and that covers any invention owned or Controlled by Chiron that is created, conceived, invented, developed or reduced to practice during the Term in the course of performing research and development activities undertaken or carried out for the specific purpose of developing Licensed Products or of developing any invention useful to the development, manufacture, use, sale, import or export of Licensed Products, and (ii) any Patent that becomes a “Chiron Patent” pursuant to the provisions of Section 2.4 hereof.  Notwithstanding the foregoing, the term “Chiron Patent” shall not include any Joint Patents or any interest of Chiron in any Joint Patents.

1.12.  “Chiron Related Know-How” shall mean all Information that (i) is not Chiron Marketing Information, Chiron Data, Chiron Know-How or Joint Know-How, (ii) is owned or Controlled by Chiron on the Effective Date, (iii) is not generally known and is not disclosed in any published patents or patent applications of Chiron, (iv) is necessary or useful in connection with the development, manufacture, use, sale, import or export of Licensed Products, and (v) is created, conceived, invented, developed or reduced to practice prior to the Effective Date.

1.13.  “Chiron Related Patent” shall mean any Patent (i) that is not a Chiron Patent or a Joint Patent, (ii) that is owned or Controlled by Chiron on or at any time after the Effective Date, and (iii) that covers any invention, compound, improvement, method, apparatus, material, method or technique of manufacture created, conceived, invented, developed or reduced to practice prior to the Effective Date that is necessary or useful to the development, manufacture, use, sale, import or export of Licensed Products.

1.14.  “Chiron Technology” shall mean Chiron Patents and Chiron Know-How.

1.15.  “Commercial Launch” shall mean the first commercial sale of a Licensed Product to a Third Party in a given country after obtaining Regulatory Approval to Commercialize such Licensed Product in such country.  For the purposes of determining whether

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or not Commercial Launch has occurred, sales of Licensed Product for use in clinical trials and named patient sales shall not be considered.

1.16.  “Commercialize” shall mean all activities relating to the commercialization of a Licensed Product including, without limitation, promotion, marketing, sales, distribution, development for label extensions, and conducting Medical Affairs Studies, whether conducted by a Party or for such party by another, and “Commercialization” shall be interpreted accordingly.

1.17.  “Commercially Important Indications” shall mean, with respect to a given Licensed Product on any given date of determination, those indications that are included in the label approved by a Regulatory Authority in the Territory for such Licensed Product and that each account for [*] of such Licensed Product for the four calendar quarters immediately preceding such date of determination, or, in the event that [*] in the Territory occurred within twelve months of such date of determination, then for the period from [*] through such date of determination, or if there is no indication that [*], then those three indications that account for the [*].

1.18.  “Commercially Reasonable Efforts” shall mean, with respect to a Party’s obligation under this Agreement, the level of efforts required to carry out such obligation in sustained manner consistent with the efforts a similarly situated pharmaceutical company devotes to a product of similar market potential, profit potential and strategic value and similar scientific, technical, development and regulatory risks, based on conditions then prevailing.

1.19.  “Confidential Information”  shall mean all Information, and other information and materials, received by either Party from the other Party pursuant to this Agreement, other than that portion of such information or materials which:

(a)           is publicly disclosed by the disclosing Party, either before or after it becomes known to the receiving Party;

(b)           was known to the receiving Party, without obligation to keep it confidential, prior to when it was received from the disclosing Party;

(c)           is subsequently disclosed to the receiving Party by a Third Party lawfully in possession thereof without obligation to keep it confidential;

(d)           has been publicly disclosed other than by the disclosing Party and without breach of an obligation of confidentiality with respect thereto; or

(e)           has been independently developed by the receiving Party without the aid, application or use of Confidential Information, as demonstrated by competent written proof.

1.20.  “Contract Manufacturing Agreements” means any and all agreements pursuant to which Licensed Products are manufactured on behalf of Cubist (including any such agreements for any step in the manufacturing process), including without limitation, the Abbott

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Laboratories, ACS Dobfar S.p.A. and DSM Capua S.p.A. contracts, together with all amendments and extensions of such agreements.

1.21.  “Control” shall mean possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any Third Party, and “Controlled” shall be interpreted accordingly.

1.22.  “cSSSI” shall mean complicated skin and skin structure bacterial infection.

1.23.  “Cubist Data” shall mean all Information (other than Other Licensee Data) owned or Controlled by Cubist pertaining to Licensed Products that is necessary or useful for making applications for Regulatory Approval or other regulatory filings for, or Commercializing, Licensed Products in the Territory.

1.24.  “Cubist Development Plan” shall have the meaning assigned such term in Section 4.2(a).

1.25.  “Cubist Inventions” shall have the meaning assigned to such term in Section 8.1.

1.26.  “Cubist Joint Technology Rights” shall mean all of Cubist’s right, title and interest in the Joint Patents, the Joint Know-How and the Joint Inventions.

1.27.  “Cubist Know-How” shall mean all Information (i) that (A) is owned or Controlled by Cubist on the Effective Date or at any time during the Term, (B) is not generally known and is not disclosed in any published Cubist Patents, and (C) is necessary or useful in connection with the development, manufacture, marketing, promotion, use, sale, import or export of Licensed Products, including, without limitation, all data and information regarding the safety and efficacy of Licensed Products.  Notwithstanding the foregoing, the term “Cubist Know-How” shall not include any Joint Know-How or any interest of Cubist in any Joint Know-How.

1.28.  “Cubist Marks” shall mean (i) all registered trademarks issued or that have issued on the application listed at Exhibit A; (ii) all pending trademark applications listed at Exhibit A, as amended by Cubist from time to time; (iii) the Cubist name and mark; and (iv) any and all Approved New Trademarks.

1.29.  “Cubist Patent” shall mean any Patent that is owned or Controlled by Cubist on the Effective Date, including those set forth on Exhibit B, or at any time during the Term, and that covers any Licensed Product or covers any invention, compound, improvement, method, apparatus, material, method or technique of manufacture necessary or useful in the development, manufacture, use, sale, import or export of Licensed Products, including without limitation, any and all Cubist Inventions.  Notwithstanding the foregoing, the term “Cubist Patent” shall not include any Joint Patents or any interest of Cubist in any Joint Patents.

1.30.  “Cubist Technology” shall mean all Cubist Patents and Cubist Know-How.

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1.31.  “Daptomycin” shall mean the molecule set forth and identified as the daptomycin molecule on Exhibit C, and all acids, salts and esters of such daptomycin molecule.

1.32.  “Daptomycin IV Product” shall mean any pharmaceutical composition containing Daptomycin in all current and future formulations, but only if such pharmaceutical composition is formulated for delivery via Injection. The term “Daptomycin IV Product” shall not include (i) any pharmaceutical composition formulated for delivery by any means other than via Injection or (ii) any pharmaceutical composition that includes one or more active pharmaceutical ingredients other than Daptomycin.

1.33.  “Defective Manufactured Product” shall have the meaning assigned to such term in the Supply Agreement.

1.34.  “Directly Competitive Product” shall mean, with respect to a given Licensed Product, (A) [*] or (B) any other pharmaceutical composition (other than a Licensed Product) formulated for delivery [*] and that is marketed and sold (i) primarily for [*], and (ii) solely to treat [*], and which other pharmaceutical composition has a label approved by a Regulatory Authority in the Territory which includes as indications for such other pharmaceutical composition [*].  Commercially Important Indications that are included in the label approved by a Regulatory Authority in the Territory for such Licensed Product.  Notwithstanding the foregoing, the term “Directly Competitive Product” shall not include [*.]

1.35.  “Dollar” shall mean a United States dollar, and “$” shall be interpreted accordingly.

1.36.  “Drug Approval Application” shall mean an application for Regulatory Approval required before commercial sale or use of a Licensed Product as a drug in a regulatory jurisdiction, including without limitation an NDA and a Biologics License Application (BLA) filed in the United States.

1.37.  “Drug Master File,” or “DMF” shall mean a voluntary submission that may be used to provide confidential, detailed information about the active pharmaceutical ingredient, daptomycin, and facilities, processes or articles used during the manufacturing, processing, packaging and storing of daptomycin or one or more other drug products.

1.38.  “Effective Date Third Party Licenses” shall have the meaning assigned to such term in Section 8.7(a).

1.39.  “EMEA” shall mean the European Medicines Evaluation Agency, or any successor thereto, which coordinates the scientific review of human pharmaceutical products under the centralized licensing procedures of the European Community.

1.40.  “Fair Market Value” shall have the meaning assigned to such term in Section 2.12 hereof.

1.41.  “FDA” shall mean the United States Food and Drug Administration, or any successor thereto.

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1.42.  “Global Harm” shall mean [*].

1.43.  “IND” shall mean an Investigational New Drug application.

1.44.  “Indemnify” shall have the meaning assigned to such term in Section 10.1 hereof.

1.45.  “Information” shall mean (i) techniques, information and data specifically relating to development, manufacture, use, sale, import or export of Licensed Products, including, but not limited to, inventions, practices, methods, knowledge, know-how, skill, experience, test data including pharmacological, toxicological and clinical test data, analytical and quality control data, regulatory submissions, correspondence and communications, marketing, pricing, distribution, cost, sales, manufacturing, patent and legal data or descriptions and (ii) compositions of matter, assays and biological materials specifically relating to development, manufacture, use, sale, import or export of Licensed Products.

1.46.  “Infringement” or “Infringe” shall have the meaning assigned to such term in Section 8.4(a) hereof.

1.47.  “Injection” shall mean all means of delivering a pharmaceutical composition by injection and includes, without limitation, delivery by intravenous, intramuscular and subcutaneous injection.

1.48.  “Joint Coordination Team” or “JCT” shall mean the committee formed as described in Section 3.2(a).

1.49.  “Joint Inventions” shall have the meaning assigned in Section 8.1.

1.50.  “Joint Know-How” shall mean all Information that (i) consists of Joint Inventions, (ii) is not generally known and is not disclosed in any published Joint Patents, and (iii) is necessary or useful in connection with the development, manufacture, marketing, promotion, use, sale, import or export of Licensed Products, including, without limitation, all data and information regarding the safety and efficacy of Licensed Products.

1.51.  “Joint Patents” shall have the meaning assigned such term in Section 8.2(c).

1.52.  “Joint Technology” shall mean all Joint Patents and Joint Know-How.

1.53.  “Key Development Studies” means [*.]

1.54.  “Knowable Patent” shall have the meaning assigned to such term in Section 8.5(c) hereof.

1.55.  “Launch Indication(s)” shall mean cSSSI and [*], but if at the relevant time Cubist has [*,] then the term “Launch Indication(s)” shall at such time mean cSSSI only.

1.56.  “Licensed Products” shall mean all Daptomycin IV Products, and all Additional Daptomycin Products that become Licensed Products pursuant to Section 2.9 hereof.

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1.57.  “Lilly” shall mean Eli Lilly and Company.

1.58.  “Lilly License” shall mean that certain Licensing Agreement between Cubist and Lilly, dated October 6, 2000, as amended by the amending agreement dated July 1, 2003, and as further amended and in effect from time to time, which License Agreement replaced the prior agreement between such parties, dated November 7, 1997.

1.59.  “Lilly Patent” shall have the meaning assigned to such term in Section 8.11.

1.60.  “Losses” shall have the meaning assigned such term in Section 10.1.

1.61.  “MAA” shall mean an application filed with the EMEA for regulatory approval to market and sell Licensed Products in the European Union, or an application filed through the mutual recognition procedures in the European Union having a similar purpose to the NDA in the United States.

1.62.  “Major Market Countries” shall mean, collectively, France, Germany, Italy, Spain, and the United Kingdom.  The term “Major Market Country” shall mean any of the Major Market Countries.

1.63.  “Manufacturing Information” shall have the meaning assigned to such term in Section 5.3(d) hereof.

1.64.  “Manufacturing Plan” shall have the meaning assigned to such term in Section 2.5 of the Supply Agreement.

1.65.  “Marketing Plan” shall have the meaning assigned such term in Section 6.1(a).

1.66.  “Marketing Plan Trigger Event” shall have the meaning assigned such term in Section 6.1(a).

1.67.  “Medical Affairs Studies” shall mean those clinical studies conducted after Regulatory Approval of Licensed Product has been obtained which are neither intended nor designed to support an application for Regulatory Approval, including but not limited to, pharmaco-economic studies, pharmaco-epidemiology studies, and investigator-sponsored clinical studies.

1.68.  “NDA” shall mean a New Drug Application for Regulatory Approval filed in the United States.

1.69.  “Net Sales” shall mean, with respect to a particular time period, the aggregate gross sales invoiced by Chiron and its Affiliates for Licensed Products sold directly by Chiron and its Affiliates to a Third Party (including, without limitation, any Third Party that is a distributor of Chiron and its Affiliates in any country within the Territory) during such time period, less:

(i)            discounts, including cash and quantity discounts, charge-back payments and rebates granted to managed health care organizations or to domestic and foreign

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governments (including any subdivision thereof), their agencies, purchasers and reimbursers or to trade customers, in each case to the extent actually allowed in amounts customary in the trade;

(ii)           credits or allowances actually granted upon returns of damaged, spoiled or Non-Conforming (as defined in the Supply Agreement) units of Licensed Products or upon recalls of units of Licensed Products, in each case in amounts customary in the trade;

(iii)         freight, postage, shipping, transportation and insurance charges actually allowed or paid by Chiron or any of its Affiliates for delivery of Licensed Products sold by Chiron or any of its Affiliates to a Third Party; and

(iv)          taxes, duties and other governmental charges levied on, absorbed or otherwise imposed on import, export, sale, distribution and use of such Licensed Products that are paid by Chiron (including, without limitation, any taxes paid by Chiron pursuant to Section 7.5 of the Supply Agreement), all as adjusted for rebates and refunds actually granted or reasonably anticipated to be granted if application therefor is made; provided, however, that in no event shall any of the following taxes or governmental charges paid or required to be paid by Chiron constitute a permitted deduction in calculating Net Sales: any taxes or governmental charges calculated based on, or levied or imposed on any profit or income earned by Chiron or any of its Affiliates or distributors.

Amounts received by Chiron and its Affiliates for the sale of Licensed Products among Chiron and its Affiliates for resale shall not be included in the computation of Net Sales hereunder.

[*] or otherwise in connection with any Licensed Products or in connection with any rights to any Licensed Products, then the amount of such payment to Chiron or its Affiliates shall be included in Net Sales in the calendar quarter in which Chiron or its Affiliates received such payment for purposes of calculating the royalty due to Cubist pursuant to Article 7.  Without limiting the applicability of the provisions of the foregoing sentence and without limiting any remedy or choice of remedies that Cubist may have under applicable law in connection with any breach by Chiron of the provisions of [*] hereof, [*] makes any payment or payments to Chiron or its Affiliates [*] Chiron or its Affiliates of any of the [*] then such payment or payments made to Chiron or its Affiliates shall be included in Net Sales in the calendar quarter in which Chiron or its Affiliates performed such actions or activities.

For the avoidance of doubt, any payments made by [*] (other than Licensed Products and other than products that are subject to the provisions of [*], or for customary services provided for customary consideration, [*] shall not be included in Net Sales.

1.70.  “Other Licensee” shall mean any Third Party to whom Cubist has granted or grants a license and/or sublicense to develop or Commercialize a Licensed Product outside the Territory.

1.71.  “Other Licensee Data” shall mean all Information that results from any development activities conducted by any Other Licensee with respect to Licensed Products and

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that is necessary or useful for making regulatory filings for, or Commercializing, Licensed Products in the Territory.

1.72.  “Patent” shall mean (i) unexpired letters patent (including inventor’s certificates)  which have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal or any like filing thereof and (ii) pending applications for letters patent, including without limitation any provisional, converted provisional, continued prosecution application, continuation, divisional or continuation-in-part thereof.

1.73.  “Price Approval” shall mean, with respect to any country in which the price at which Chiron sells Licensed Product must be approved by a governmental authority for reimbursement or payment purposes, the receipt of approval by the applicable governmental authority with respect to such price.

1.74.  “Primary Endpoint” shall mean, with respect to a clinical trial, the point at which the primary efficacy objective has been achieved with respect to a clinical or microbiological outcome as specified in the protocol for such trial, unless otherwise agreed by the Parties in writing.

1.75.  “Reasonable Buyer” shall mean, with respect to the sale, assignment, sublicense or other transfer of the Chiron Interest in accordance with the provisions of Section 15.6(b) hereof, a Third Party that, both at the time a definitive agreement is entered into by Chiron and such Third Party in connection any such transfer and at the time of the closing of such transfer:

(i)	[*];
(ii)	[*];
(iii)	[*]
(iv)	[*]:
	(a)	[*]
		[*]
	(b)	[*]*;
(v)	[*];
(vi)	[*];
(vii)	[*];
(viii)	[*];

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(ix)	[*]
(x)	[*.]

1.76.  “Reciprocating Licensee” shall have the meaning assigned to such term in Section 4.4(b).

1.77.  “Regulatory Approval” shall mean any approvals (including supplements, variations, amendments, pre- and post-approvals and Price Approvals), licenses, registrations or authorizations of any national, supra-national (e.g., the FDA, the European Commission or the Council of the European Union, or other similar body in any country), regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, necessary for the manufacture, distribution, use, sale, import or export of Licensed Products in a regulatory jurisdiction.

1.78.  “Regulatory Authority” shall mean a foreign counterpart of the FDA.

1.79.  “Regulatory Plan” shall have the meaning assigned to such term in Section 5.1(b) hereof.

1.80.  “Replacement Indication” shall have the meaning assigned to such term in Section 4.1(d) hereof.

1.81.  “Replacement Indication Study” shall have the meaning assigned to such term in Section 4.1(d) hereof.

1.82.  “Replacement Study” shall have the meaning assigned to such term in Section 4.1(c).

1.83.  “Required Study” shall have the meaning assigned to such term in Section 4.1.

1.84.  “Restricted Period” shall mean, with respect to either Party, the period of time commencing on the Effective Date and ending on the earlier of (i) the expiration or termination of the Term and (ii) the date when such Party sells, assigns, sublicenses or otherwise transfers all of its rights in this Agreement pursuant to, and in accordance with, the provisions of Section 15.6.

1.85.  “Royalty Rate” shall have the meaning assigned to such term in Section 7.3(a) hereof.

1.86.  “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement, dated as of the Effective Date, by and between Cubist and the Chiron Parent Company.

1.87.  “Supply Agreement” shall mean that certain Manufacturing and Supply Agreement, dated as of the Effective Date, by and between Cubist and Chiron.

1.88.  “Term” shall mean the term of this Agreement.

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1.89.  “Territory” shall mean the countries listed in Exhibit D, and the possessions and territories of each such country.  Whenever, in accordance with the terms of this Agreement, Chiron’s rights under this Agreement shall terminate with respect to any country or countries initially included in the definition of Territory, any reference in this Agreement to the term Territory shall, from and after such termination, be deemed not to refer to any such country or countries as to which Chiron’s rights under this Agreement have so terminated.

1.90.  “Territory Specific Studies” shall have the meaning mean assigned to such term in Section 4.3(a).

1.91.  “Third Party” shall mean any entity other than Cubist or Chiron or an Affiliate of either of them.

1.92.  “Third Party Infringement Claim” shall have the meaning assigned such term in Section 8.5(a).

1.93.  “Transfer Price” shall have the meaning assigned to such term in Section 7.1 of the Supply Agreement.

1.94.  “Unlicensed Product” shall mean, with respect to any given Licensed Product in any given country within the Territory, any pharmaceutical composition containing Daptomycin that (A) is commercially available in such country other than [*] and other than [*] (B) has the same [*], such Licensed Product, and (C) [*] as such Licensed Product.  If Chiron’s rights under this Agreement are expanded to include rights in Additional Daptomycin Products, then the foregoing definition of “Unlicensed Product” shall be deemed to be expanded to include those formulations of pharmaceutical compositions containing Daptomycin which have been so added to the scope of Licensed Products and the marketing and other rights of Chiron under this Agreement.

1.95.  “Unlicensed Sales Threshold” shall have the meaning assigned to such term in Section 7.3(e) hereof.

1.96.  “Valid Claim” shall mean (i) an unexpired claim of an issued patent within the Cubist Patents or Joint Patents which has not been found to be unpatentable, invalid or unenforceable by a court or other authority in the subject country, from which decision no appeal is taken or can be taken; or (ii) a claim of a pending patent application within the Cubist Patents or Joint Patents.

ARTICLE 2.

PRODUCT RIGHTS AND RIGHTS OF FIRST NEGOTIATION

2.1.  Product Rights. Subject to and upon the terms and conditions set forth in this Agreement, Chiron shall have exclusive rights (even as to Cubist) to Commercialize the Licensed Products in all countries of the Territory.

2.2.  Licenses to Chiron. Subject to, and in accordance with, the terms and conditions of this Agreement:

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(a)           Cubist grants to Chiron the exclusive (even as to Cubist) license, under the Cubist Technology and the Cubist Joint Technology Rights, to sell, offer for sale, have sold, import, export and Commercialize Licensed Products in the Territory. Except to the extent otherwise provided in this Agreement, the rights granted to Chiron pursuant to this Section 2.2(a) may not be sublicensed or transferred.

(b)           Cubist grants to Chiron the nonexclusive license, under the Cubist Technology, to practice and use the Cubist Technology and the Licensed Products anywhere in the world for the sole purpose of engaging in those research and development activities that Chiron is expressly required or permitted to perform pursuant to this Agreement. Except to the extent otherwise provided in this Agreement, the rights granted to Chiron pursuant to this Section 2.2(b) may not be sublicensed or transferred.

(c)           Cubist grants to Chiron a nonexclusive license, under the Cubist Technology, to make, have made, manufacture and have manufactured anywhere in the world Licensed Products for sale in the Territory, provided that such right to make, have made, manufacture and have manufactured shall not be exercised by Chiron so long as the Supply Agreement remains in effect. Except to the extent otherwise provided in this Agreement, the rights granted to Chiron pursuant to this Section 2.2(c) may not be sublicensed or transferred.

(d)           In addition to any rights expressly retained by Cubist in the foregoing provisions of this Section 2.2, Cubist shall retain any and all rights in and to the Cubist Technology and the Cubist Joint Technology Rights that are not expressly granted to Chiron pursuant to this Section 2.2.

2.3.  Licenses to Cubist. Subject to the terms and conditions of this Agreement:

(a)           Chiron grants to Cubist the exclusive (even as to Chiron) license, under the Chiron Technology and the Chiron Joint Technology Rights, to sell, offer for sale, have sold, import, export and Commercialize Licensed Products outside of the Territory. Except to the extent otherwise provided in this Agreement, the rights granted to Cubist pursuant to this Section 2.3(a) may not be sublicensed or transferred.

(b)           Chiron grants to Cubist the nonexclusive license, under the Chiron Technology, to practice and use the Chiron Technology and the Licensed Products anywhere in the world for the sole purpose of engaging in research and development activities with respect to Licensed Products pursuant to this Agreement. Except to the extent otherwise provided in this Agreement, the rights granted to Cubist pursuant to this Section 2.3(b) may not be sublicensed or transferred.

(c)           Chiron grants to Cubist a nonexclusive license, under the Chiron Technology, to make, have made, manufacture and have manufactured anywhere in the world Licensed Products. Except to the extent otherwise provided in this Agreement, the rights granted to Cubist pursuant to this Section 2.3(c) may not be sublicensed or transferred.

(d)           In addition to any rights expressly retained by Chiron in the foregoing provisions of this Section 2.3, Chiron shall retain any and all rights in and to the Chiron

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Technology and the Chiron Joint Technology Rights that are not expressly granted to Cubist pursuant to this Section 2.3.

(e)           Notwithstanding any provision of this Agreement to the contrary, the provisions of this Section 2.3 shall apply to any Chiron Patent only to the extent that the Parties have not otherwise agreed on the scope of rights granted and reserved in respect of any such Chiron Patent.

2.4.  Existing Related Intellectual Property of Chiron. If Chiron decides to use or apply any Chiron Related Patent or any Chiron Related Know-How, Chiron shall notify Cubist and provide any information concerning any such Chiron Related Patent or Chiron Related Know-How that Cubist reasonably requests.  In the event that either Party sends a written request to the other Party requesting a discussion at a JCT meeting concerning the need, usefulness and advisability of using any Chiron Related Patent or Chiron Related Know-How in connection with the development, manufacture, use or Commercialization of Licensed Products within and/or outside the Territory, then a meeting of the JCT shall be convened as promptly as practicable and the Parties shall discuss same.  If consensus is reached at the JCT that any such Chiron Related Patent and/or Chiron Related Know-How should be used for such purpose, then the Parties shall discuss the compensation that Chiron would require in order to license to Cubist any such Chiron Related Patent and/or Chiron Related Know-How.  If Cubist and Chiron agree on the terms of any such compensation, then the Parties may enter into an appropriate technology license agreement which license agreement shall address the scope of the license granted, compensation and responsibilities of the Parties on matters such as further research and development, prosecution, maintenance and enforcement of relevant Patents, and other customary provisions contained in such agreements.  If the Parties elect not to enter into a specific technology license agreement, any such Chiron Related Patent shall be included within the Chiron Patents and shall become subject to the licenses granted to Cubist pursuant to Section 2.3 hereof and/or any such Chiron Related Know-How shall be included within the Chiron Know-How and shall become subject to the licenses granted to Cubist pursuant to Section 2.3 hereof.

2.5.  Field. Notwithstanding anything in this Agreement to the contrary, it is acknowledged and agreed by the Parties that the licenses granted by Cubist to Chiron under this Agreement with respect to the Cubist Patents and Cubist Know-How that are licensed to Cubist pursuant to the Lilly License shall be solely for application to the treatment of infectious diseases.

2.6.  Use of Patents and Know-How. Each Party covenants to the other that it will not practice the Patents or Know-How of the other Party except as expressly permitted in the licenses granted to it in this Agreement.

2.7.  Exclusivity.

(a)  Chiron.  Chiron shall not develop, promote, sell or offer for sale Licensed Products for use outside of the Territory.  Chiron shall require its distributors who sell Licensed Products to make a covenant similar to that provided in this Section 2.7(a) with respect to Licensed Products.

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(b)  Cubist.  Cubist shall not promote, sell, or offer for sale a Licensed Product for use within the Territory (except for sales to Chiron pursuant to this Agreement or the Supply Agreement).  Cubist shall require any of its Other Licensees and distributors of Licensed Products to make a covenant similar to that provided in this Section 2.7(b) with respect to Licensed Products.

2.8.  Sublicenses and Transfers of Chiron Technology or Chiron Joint Technology Rights.  Chiron shall not sublicense or transfer any interest in the Chiron Technology or the Chiron Joint Technology Rights to any Third Party unless such Third Party shall have acknowledged and agreed in writing that any such sublicense or transfer to such Third Party, and the rights acquired by any such Third Party in and to the Chiron Technology and the Chiron Joint Technology Rights as a result of such sublicense or transfer, shall be subject to any and all rights that Chiron may have granted to Cubist pursuant to this Agreement and the Supply Agreement.

2.9.  Rights of First Negotiation.  Cubist hereby grants Chiron (a) a right of first negotiation to obtain Commercialization rights in the Territory with respect to any and all Additional Daptomycin Products, and (b) a right of first negotiation to obtain Commercialization rights in the Territory to any and all Directly Competitive Products, in each case, on the following terms:  In the event that Cubist proposes to grant, sell, assign or otherwise transfer to a Third Party all or any portion of any such Commercialization rights, regardless of whether Cubist or a Third party makes the initial proposal, then Cubist will promptly notify Chiron in writing thereof. As soon as practicable, Chiron will respond to Cubist in writing regarding its interest in entering into negotiations to obtain such rights and the Parties will promptly [*] following the date that Cubist gives such written notice to Chiron. Upon commencement of such negotiations, [*] to grant Commercialization rights with respect to such Additional Daptomycin Product or Directly Competitive Product.  If Chiron and Cubist are unable to agree on material terms within [*] after receipt by Chiron of Cubist’s notice of its intent to transfer Commercialization rights, then Cubist will [*].  Chiron shall have an exclusive [*] period to present (but shall not be obligated to present) to Cubist a revised proposal.  If Cubist does not accept Chiron’s revised proposal upon expiration of such exclusive period, in its sole discretion, Cubist will be free to enter into negotiations with any Third Party, provided, however, Chiron shall have the non-exclusive right to continue discussions with Cubist.  If Cubist determines that it is likely to accept terms with a Third Party for such Commercialization rights, Cubist will offer Chiron an opportunity for [*], at Chiron’s headquarters or at any other location that the Parties may mutually agree upon, within [*] of Cubist’s notification to Chiron that it is affording Chiron such opportunity to meet, for the purpose of explaining in reasonable detail the reasons that Cubist is likely to accept such terms.  Chiron shall have a period of [*] from the date of such meeting to present to Cubist [*] and Cubist hereby agrees that it will not accept the Third Party terms until the earlier of (a) the expiration of such [*] period, (b) the date that Chiron affirmatively declines to make an offer, and (c) the date that Chiron proposes, and Cubist rejects, such offer.  For the avoidance of doubt, Cubist is not obligated to offer the foregoing opportunity for [*].  Cubist will select the party with which it wishes to enter into negotiations for a definitive agreement in its sole discretion, provided, however, in making its determination, [*].  Chiron hereby acknowledges and agrees that [*]

2.10.  Right of Co-Negotiation.  Chiron hereby grants Cubist a right of co-negotiation to obtain all or any portion of the Commercialization rights in the Territory with respect to any and

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all Directly Competitive Products on the following terms:  In the event that Chiron proposes to grant, sell, assign or otherwise transfer to a Third Party all or any portion of such Commercialization rights in the Territory for a Directly Competitive Product, regardless of whether Chiron or a Third Party makes the initial proposal, then Chiron will promptly notify Cubist in writing thereof and thereafter, Cubist, to the extent that it remains so interested, shall be included among the interested parties with whom Chiron holds discussions for the transfer of such rights until such time as Chiron selects the party with whom it wishes to enter into negotiations for a definitive agreement for such rights. Cubist acknowledges that [*].  Without limiting the generality of the foregoing, Cubist acknowledges that Chiron shall have [*] for the Territory as Chiron sees fit.  Except as expressly provided in Section 2.11, Chiron shall have no obligation or liability to Cubist for selecting a Third Party as its Commercialization partner for Directly Competitive Products in the Territory.

2.11.  Marketing a Directly Competitive Product.  Subject to the right of first negotiation in favor of Chiron in Section 2.9, and the right of co-negotiation in favor of Cubist in Section 2.10, the Parties acknowledge that either Party may, at any time during the Restricted Period applicable to such Party, market a Directly Competitive Product in the Territory.  In the event that either Party launches, either directly or indirectly, a Directly Competitive Product in the Territory at any time during the Restricted Period applicable to such launching Party, then the other Party (the “Aggrieved Party”) shall have recourse to the remedies provided herein.  The Parties acknowledge and agree that the objective of the remedies provided in this Section 2.11 is to have the Party launching the Directly Competitive Product compensate the Aggrieved Party for the [*] [*] of its interest in the Licensed Products resulting from such action.  If Cubist is the Aggrieved Party, Cubist may elect to:

(a)           require Chiron to [*] to receive royalties for the sale of Licensed Products in the Territory (“Cubist Royalty Interest”) at the [*] as it existed immediately prior to Chiron’s launch of the Directly Competitive Product in the Territory, following which Chiron shall be entitled to continue to sell Licensed Products in the Territory without any further obligation to pay royalties to Cubist; or

(b)           require Chiron to pay the [*] of the Cubist Royalty Interest attributable to Chiron’s launch of the Directly Competitive Product in the Territory but following which Chiron shall be entitled to continue to sell Licensed Products in the Territory subject to payment of the royalties as provided herein.

If Chiron is the Aggrieved Party, then Chiron may elect to:

(c)           require Cubist to purchase the Chiron Interest at its [*] as it existed immediately prior to Cubist’s launch of the Directly Competitive Product in the Territory, following which Chiron shall have no further right to sell Licensed Products in the Territory; or

(d)           require Cubist to pay to Chiron the [*] of the Chiron Interest attributable to Cubist’s launch of the Directly Competitive Product in the Territory but following which Chiron shall be entitled to continue to sell Licensed Products in the Territory subject to payment of royalties as provided herein.

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In each of the foregoing [*] shall be determined in accordance with the [*].  In each instance in which a Party is required to make payment of compensation to the Aggrieved Party pursuant to the provisions of this Section 2.11, the Party required to pay compensation shall have the option of paying such amount due as a one-time lump sum or by installments paid over a period of time not to exceed [*], provided that, in the event that a compensating Party elects to make payment over a period of time, such compensating Party shall pay interest on all amounts due at the rate stipulated in Section 7.10 for late payments.

2.12.  Mechanism to Determine Fair Market Value.  [*] of this Agreement “Fair Market Value” (including any diminution thereof) shall mean the fair market value of the Cubist Royalty Interest or the Chiron Interest, as the case may be, determined as follows:  If the Parties cannot agree on the Fair Market Value within 30 days after the launch of the Directly Competitive Product, each Party shall promptly designate a reputable investment banking or appraisal firm of its choice (which in the case of an investment bank shall not be the regular banker of the Party) (the “Appraisers” or each an “Appraiser”), who will each be asked to provide its best, single number estimate of the applicable Fair Market Value (the “Estimate”), using a common set of assumptions provided by the Parties, or if the Parties cannot agree, determined by the Appraisers.  Each Party shall use its best efforts to cause its designated Appraiser to provide the Estimate not later than 30 days after the Parties or the Appraiser, as the case may be, have determined the common set of assumptions to be used.

If the Estimate submitted by one of the Appraisers exceeds the Estimate submitted by the other Appraiser by 10% or less, the Fair Market Value shall be deemed to be the arithmetic mean of the two Estimates.

If the Estimate submitted by one of the Appraisers exceeds the Estimate submitted by the other Appraiser by more than 10%, the Parties, or if the Parties cannot agree, the Appraisers, shall designate a third appraiser (which in the case of an investment bank shall not be the regular banker of either Party) (the “Third Appraiser”) to prepare an estimate of Fair Market Value using the same common set of assumptions but without access to the earlier Estimates.  The Third Appraiser shall be directed to provide its estimate of Fair Market Value within 30 days of its designation.  If the estimate of Fair Market Value submitted by the Third Appraiser falls between the Estimates of the Appraisers, the Fair Market Value shall be deemed to be the arithmetic mean of all three estimates of Fair Market Value.  If the estimate of Fair Market Value submitted by the Third Appraiser does not fall in between the Estimates of the Appraisers, the Estimate submitted by one of the two Appraisers that is closest to the estimate of Fair Market Value submitted by the Third Appraiser shall be deemed to be the Fair Market Value.

Each party shall bear the costs and expenses of its own Appraiser as well as 50% of the costs and expenses of the Third Appraiser, if necessary.

2.13.  Subcontracting.  Each Party may exercise any of the rights or obligations that such Party may have under this Agreement or the Supply Agreement to engage in research and development activities, manufacturing activities or testing activities with respect to Licensed Products by subcontracting all or any portion of such research and development activities, manufacturing activities or testing activities, and, in connection with any such subcontracting, to grant such sublicenses as may be necessary to permit any Third Party subcontractor to perform

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the activities subcontracted to such Third Party subcontractor.  Each Party may also exercise any of its rights or obligations under this Agreement to Commercialize Licensed Products by subcontracting all or any portion of such rights or obligations to distributors, and, in connection with any such subcontracting, to grant such sublicenses as may be necessary to permit any such distributor to perform the activities subcontracted to such distributor, provided, however, that Chiron shall not grant to any such distributor any right other than the right to Commercialize in the Territory Licensed Products supplied to such distributor by or on behalf of Chiron, and, specifically, Chiron shall not grant to such distributor any right to engage in research or development activities with respect to, or to manufacture or have manufactured, Licensed Products anywhere in the world. Any sublicenses granted pursuant to this Section 2.13 shall be consistent with all of the terms and conditions of this Agreement and the Supply Agreement that are applicable.  The scope of any such sublicenses shall be no greater than the scope of the rights under this Agreement or the Supply Agreement held by the Party granting such sublicenses and such sublicenses shall be subject to all of the limitations imposed on the rights under this Agreement and the Supply Agreement of the Party granting such sublicenses.  Subcontracting as contemplated by this Section 2.13 by either Party of any of the rights or obligations that such Party may have under this Agreement or the Supply Agreement shall not relieve such Party from any of its obligations under this Agreement or the Supply Agreement.

2.14.  Rights of Last of Refusal for Canada.  Cubist hereby grants Chiron a right of last refusal to obtain rights to sell any and all Licensed Products in Canada (the “Canadian Marketing Rights”), on the following terms:   In the event that Cubist proposes to grant, sell, assign or otherwise transfer all or any portion of the Canadian Marketing Rights to a Third Party (other than a distributor appointed by Cubist, directly or indirectly, who sells Licensed Products) who is not the party who has licensed or holds or will be licensed or hold the Commercialization rights with respect to all Licensed Products in the United States (the “U.S. Rights Holder”), then Cubist acknowledges and agrees that prior to entering into any agreement for the grant of the Canadian Marketing Rights with any Third Party (other than the U.S. Rights Holder or a distributor appointed by Cubist, directly or indirectly, who sells Licensed Products), Cubist will provide to Chiron a copy of the fully negotiated final draft of such proposed agreement with such Third Party and offer to Chiron the opportunity to enter into an agreement with Cubist for the same rights and on the same terms as set forth in such draft.  Provided that Cubist has given Chiron [*] notice of the possibility of such transaction, Chiron shall have [*] to provide Cubist written notice of its decision.  If and only if Chiron declines such offer, or fails to accept such offer within such [*], will Cubist then be free to enter into such agreement with such Third Party, it being understood and acknowledged by Cubist that any material modification of the terms of such proposed agreement with the Third Party after it had been declined by Chiron shall constitute a breach of Cubist’s obligations under this Section 2.14 and a violation of Chiron’s right of last refusal hereunder.  The provsions of this Section 2.14 shall not apply if Chiron is in material breach of this Agreement or the Supply Agreement.

2.15.  Applicable Supply Agreement Provisions.  The following provisions of the Supply Agreement are incorporated herein by reference and shall apply to this Agreement in the same manner as which they apply to the Supply Agreement:  Sections 2.4 (Second Manufacturing Source(s)), 2.5 (Global Manufacturing Plan), 7.1 (Transfer Pricing), 8.1 (Allocation in the Event of Shortages) and 11.6 (Back-up Supply Rights of Chiron).

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ARTICLE 3.

COORDINATION

3.1.  General.  The Parties desire to establish a committee to review the Parties’ activities under this Agreement, to exchange information regarding, and to discuss the Parties’ development and commercialization of, Licensed Products within and outside of the Territory.  It is the intent of the Parties that such committee would serve as a forum for discussion and exchange of ideas and that the Parties shall endeavor to reach consensus on matters discussed in this forum.  Such committee shall operate as set forth in this Article 3 and in other provisions of this Agreement.

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3.2.  Joint Coordination Team.

(a)  Formation.  Within thirty (30) days after the Effective Date, Cubist and Chiron shall establish the Joint Coordination Team (the “JCT”), which shall (i) serve as a forum for the review and discussion of the Parties’ efforts under this Agreement including the development and marketing and sales activities in the Territory and outside the Territory with respect to Licensed Products, and (ii) serve as a forum for the resolution of disputes between the Parties in accordance with the provisions of Article 15 of this Agreement.

(b)  Membership.  Cubist and Chiron each shall designate an equal number of representatives (but in no event more than four (4) representatives each) with appropriate expertise to serve as members of the JCT.  Of the initial representatives to be designated by each Party, there shall be expertise in regulatory matters, clinical development matters, and sales and marketing matters.  The Parties shall be free to change their representatives over time as the needs evolve over time.  Each representative serving on the JCT shall have appropriate technical credentials, experience and knowledge, and ongoing familiarity in the specific area of such representative’s expertise.  A Party may replace its representatives serving on the JCT from time to time by written notice to the other Party specifying the prior representative(s) to be replaced and the replacement(s) therefor.  Each Party shall select one (1) person appointed by it to the JCT to serve as co-chair.  The co-chairpersons shall be responsible for calling meetings, preparing and circulating an agenda in advance of each meeting, and preparing and issuing minutes of each meeting within thirty (30) days thereafter.

(c)  Meetings.  The JCT shall hold meetings at such times as it elects to do so, but in no event shall such meetings be held less frequently than once every three (3) months unless otherwise agreed by the Parties.  The first meeting of the JCT shall be held no earlier than 60 days after the Effective Date and no later than 90 days after the Effective Date.  The JCT shall meet alternately at Cubist’s facility and at Chiron’s facility, or at such location(s) as the Parties may otherwise agree.  With the consent of the representatives of each Party serving on the JCT, other representatives of each Party or of Third Parties involved in the manufacture, development or commercialization of the Licensed Products may attend meetings of the JCT.  Meetings of the JCT may be held by audio or video teleconference with the consent of each Party, provided that at least one (1) meeting per year shall be held in person.  Each Party shall be responsible for all of its own expenses of participating in the JCT.  Meetings of the JCT shall be effective only if at least two (2) representatives of each Party are present or participating.  The co-chairpersons will alternate responsibility for preparing minutes of each meeting of the JCT, which minutes will not be finalized until the co-chairperson that did not prepare such minutes reviews and confirms the accuracy of such minutes in writing.

(d)   Specific Activities.  In addition to its functions described in Section 3.2(a), the JCT shall in particular review, consider, discuss and comment upon where appropriate:

(i)            the overall strategy for the development of Licensed Products for sale within and outside the Territory, and the design of all pre-clinical trials and clinical trials in connection with the development of Licensed Products for sale within and outside the Territory;

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(ii)           the development activities of Cubist with respect to Licensed Products, and the development activities of Chiron with respect to Licensed Products;

(iii)         the Cubist Development Plan and Chiron’s development plan (if any), each updated annually;

(iv)          the strategies for obtaining and maintaining Regulatory Approvals within and outside the Territory;

(v)            the regulatory activities of Cubist for obtaining and maintaining Regulatory Approvals of Licensed Products in the United States, and the regulatory activities of Chiron for obtaining and maintaining Regulatory Approvals of Licensed Products in the Territory;

(vi)          the Regulatory Plan and the corresponding plan of Cubist for obtaining Regulatory Approval outside of the Territory updated annually;

(vii)         the general strategy for the manufacturing and supply of Licensed Products and the corresponding Manufacturing Plan, updated annually;

(viii)        the general strategy for the Commercialization of Licensed Products within and outside the Territory;

(ix)          the Commercialization activities of Cubist with respect to Licensed Products in the United States, and the Commercialization activities of Chiron with respect to Licensed Products in the Territory;

(x)           the Marketing Plan and the corresponding plan of Cubist for Commercializing the Licensed Products outside of the Territory updated annually;

(xi)          the Manufacturing Plan for the manufacture and supply of Licensed Products worldwide updated annually;

(xii)         the Parties’ scientific presentation and publication strategy relating to Licensed Products; and

(xiii)       such other materials as are specifically provided for review at the JCT elsewhere in this Agreement or in the Supply Agreement.

(e)   Limited Authority; Not a Decision-Making Body.

(i)            Except for its function as a dispute resolution forum, the role of the JCT shall be facilitative.  The JCT shall serve as a forum for the sharing of information.  In addition, the JCT may serve the purpose of preventing, or informally resolving, disputes between the Parties.  The rights and responsibilities of each Party shall be governed by this Agreement, including the exhibits hereto, and the JCT shall not have any power to amend, modify or waive compliance with this Agreement.

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(ii)           Although it is not the purpose of the JCT to make decisions that control the Parties’ respective activities under this Agreement, the JCT shall at all appropriate times endeavor to operate by consensus.  In the event that one Party elects to deviate from a course of action for which consensus was achieved in the JCT, as a courtesy to the other Party, the deviating Party will notify the other Party in writing of the intended deviation and the reasons therefor.  In addition, when a Party brings a matter to the JCT for review and comment (either as required by the provisions of this Agreement or voluntarily), if the Party seeking comment elects not to incorporate the other Party’s comments, then, as a courtesy to the other Party, the Party that sought comments will notify the other Party in writing of the decision not to incorporate the comments and the reasons therefor.  With respect to matters to be discussed by the JCT, the representatives of each Party shall endeavor to present a unified position on behalf of such Party.

(f)   Meeting Agendas.  Each Party will disclose to the other Party its final agenda items along with appropriate related information at least ten (10) business days in advance of each meeting of the JCT.

3.3.  JCT Coordinators.  Each Party shall appoint a designee (a “JCT Coordinator”) to coordinate its activities under this Agreement.  The JCT Coordinators shall serve as primary contacts between the Parties with respect to this Agreement.  Each Party shall notify the other Party within thirty (30) days of the date of this Agreement of the appointment of its JCT Coordinator and shall notify the other Party as soon as practicable upon changing such appointment.  The JCT Coordinator appointed by each Party shall be responsible for (i) preparing such Party’s representatives serving on the JCT for meetings of the JCT, (ii) coordinating the distribution and exchange of information to, from and among such Party’s representatives serving on the JCT, and (iii) assisting in the coordination of the day-to-day activities of such Party’s representatives serving on the JCT so that the JCT can function effectively and such representatives can more effectively discharge their responsibilities as members of the JCT.

3.4.  Independence.  Subject to the terms of this Agreement, the activities and resources of each Party shall be managed by such Party, acting independently and in its individual capacity.  The relationship between Cubist and Chiron is that of independent contractors, and neither Party shall have the power to bind or obligate the other Party in any manner, other than as is expressly set forth in this Agreement.

ARTICLE 4.

DEVELOPMENT

4.1.  Key Development Studies; Diligence Obligations.  Cubist shall use Commercially Reasonable Efforts to complete, subject to the provisions of this Section 4.1, the Key Development Studies.  Cubist reserves the right to change or modify any of the Key Development Studies, or to abandon or discontinue any of the Key Development Studies, in accordance with the provisions set forth below:

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(a)           Cubist may change or modify any Key Development Study if such change or modification is designed to improve the probability of obtaining Regulatory Approval of the indication targeted by such Key Development Study.

(b)           Cubist may change, modify, abandon or discontinue any Key Development Study in response to (i) any regulatory feedback, (ii) increases of [*] or more in the anticipated costs of clinical trials for any reason other than due to an increase in the size or scope of such clinical trials, or (iii) any significant adverse event or condition relating to the safety or efficacy of a Licensed Product.

(c)           If Cubist abandons or discontinues any Key Development Study, Cubist will use Commercially Reasonable Efforts to replace such study with another clinical study that is designed to improve the probability of obtaining Regulatory Approval of the indication targeted by such abandoned or discontinued study (a “Replacement Study”).  Following any such replacement, Cubist shall use Commercially Reasonable Efforts to complete the Replacement Study provided that Cubist may change, modify, abandon or discontinue such study to the same extent as provided in this Section 4.1 for the Key Development Studies.

(d)           If Cubist abandons or discontinues a Key Development Study or a Replacement Study, as the case may be, and if Cubist is required but is unable, using Commercially Reasonable Efforts, to replace such abandoned or discontinued study with another Replacement Study that Cubist is able to complete using Commercially Reasonable Efforts, then Cubist will use Commercially Reasonable Efforts to replace any such abandoned or discontinued study [*] who treat infectious diseases as being difficult to treat (such new indication, a “Replacement Indication” and any such clinical study for a Replacement Indication, a “Replacement Indication Study”).  In the event of, and following, any such replacement, Cubist shall use Commercially Reasonable Efforts to complete such Replacement Indication Study provided that Cubist may change, modify, abandon or discontinue such study to the same extent as provided in this Section 4.1 for the Key Development Studies.

Notwithstanding anything in this Section 4.1 to the contrary, prior to making any decision to abandon or discontinue any of the Key Development Studies, any Replacement Study or any Replacement Indication Study (each a “Required Study”), or to change or modify any Required Study so as to effectively abandon same, Cubist shall have first provided its reasons in support of such decision to Chiron via the JCT and the JCT shall have met to discuss the merits of such decision.  Cubist shall bear all of the costs and expenses in connection with any and all development activities engaged in by Cubist and its Affiliates in connection with all Required Studies.

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4.2.  Cubist Development Plan.

(a)           Cubist shall prepare and update annually a development plan for Licensed Products (the “Cubist Development Plan”).  The Cubist Development Plan may include, as appropriate and without limitation, the following elements:

(i)            Cubist’s plan for conducting and completing the Required Studies;

(ii)           Cubist’s general strategy for developing indications other than the indications pursued in the Required Studies for use of Licensed Products throughout the world;

(iii)         design and execution of pre-clinical and clinical studies for indications other than the indications pursued in the Required Studies;

(iv)          development of improvements in formulation, presentation and other features of Licensed Products considered desirable for life cycle management and maximizing sales of Licensed Products throughout the world; and

(v)            an analysis of the total costs and expenses incurred or to be incurred by Cubist in connection with its development activities set forth in the Development Plan.

Cubist shall update the Cubist Development Plan annually and provide such updated Cubist Development Plan to Chiron prior to the JCT’s last scheduled meeting during the then current year.  Chiron shall have the right to review and comment, via the JCT, on the Cubist Development Plan and any and all revisions and updates thereto,  and Cubist shall, in good faith, consider all comments made by Chiron.

(b)           Subject to the provisions of this Section 4.2(b), Cubist shall use Commercially Reasonable Efforts to carry out and perform during each calendar year the activities set forth in the Cubist Development Plan as may be in effect for such calendar year that are materially significant for obtaining Regulatory Approval.  With the exception of the Required Studies (which Cubist may not change, modify, abandon or discontinue except in accordance with the provisions of Section 4.1 hereof), Cubist reserves the right at any time to change or modify the Cubist Development Plan or any of the preclinical studies or clinical trials described in the Cubist Development Plan, or to abandon any portion of the Cubist Development Plan or discontinue any such preclinical studies or clinical trials, in response to (i) changes in clinical or regulatory strategy, (ii) regulatory feedback, (iii) scientific feasibility, (iv) increases in the anticipated costs of clinical trials, (v) any significant adverse event or condition relating to the safety or efficacy of a Licensed Product, (vi) manufacturing feasibility, including, without limitation, changes in the anticipated costs of manufacturing, (vii) significant adverse changes in market conditions or in market potential of a drug candidate, or (viii) any other reason that Cubist determines in its reasonable discretion justifies such change, modification, abandonment or discontinuation; however, prior to making any decision to abandon any development effort (or change or modify any such effort so as to effectively abandon same), Cubist shall have first

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provided its reasons in support of such decision to Chiron via the JCT and the JCT shall have met to discuss the merits of such decision.

(c)           Except to the extent otherwise provided in Section 4.2(d) below, Cubist shall bear all of the costs and expenses in connection with any and all development activities engaged in by Cubist and its Affiliates pursuant to, and in accordance with, the provisions of this Section 4.2 and any Cubist Development Plan made hereunder.

(d)           In the event that Cubist and Chiron consider it appropriate to consolidate their efforts in the Territory in the Cubist Development Plan and the Chiron Development Plan into common clinical studies, the Parties shall discuss at the JCT an appropriate sharing of resources, costs and expenses in connection with such studies.  If the Parties cannot agree to a sharing of resources, costs and expenses, then neither Party shall be obligated to consolidate its respective clinical activities with those of the other Party.  Except pursuant to any such agreement between Cubist and Chiron, Cubist shall have no obligation to undertake any clinical studies or to make material protocol changes that are not required by the FDA or any other Regulatory Authorities outside the Territory but are proposed to be undertaken for the sole purpose of complying with the requirements of any Regulatory Authority in the Territory.

4.3.  Development by Chiron.

(a)   Territory Specific Studies.  The Parties acknowledge that Regulatory Authorities in the Territory may require that certain clinical studies be conducted in connection with Regulatory Approval sought in the Territory by Chiron, but which studies are not required by the FDA or any other Regulatory Authorities outside the Territory (the “Territory Specific Studies” and each a “Territory Specific Study”).  Chiron shall use Commercially Reasonable Efforts to conduct the Territory Specific Studies provided that Chiron shall be entitled to decline to perform any Territory Specific Study if, in its sole discretion, it considers the study to be prohibitively expensive, uneconomical or not in its commercial interest.  If Chiron elects not to conduct any particular Territory Specific Study, it will notify Cubist in writing of its reasons therefor and discuss same at a meeting of the JCT.  If the Parties are unable to reach an agreement on cost sharing to conduct such Territory Specific Study, Chiron shall have no further obligation to conduct such Territory Specific Study.

(b)   Proposed Indications.  Chiron may, from time to time, propose to Cubist through the JCT that Cubist consider pursuing development for a new indication (the “Proposed Indication”).  Such proposal shall be in writing and contain such information as may be readily gathered which will assist Cubist to evaluate the proposal on its merits.  If after due consideration by Cubist and Chiron at the JCT, consensus is reached to pursue development for such new indication, Cubist shall add the Proposed Indication to the Cubist Development Plan.  In the event that the Parties are unable to reach consensus on adding the Proposed Indication then Chiron shall be free to pursue, at its own expense, development of such Proposed Indication.

(c)   Medical Affairs Studies.  Chiron may conduct Medical Affairs Studies of the Licensed Products at its sole cost and expense.  Chiron shall provide to Cubist via the JCT its proposal for any Medical Affairs Study it wishes to conduct, for review and discussion purposes only.  Cubist shall supply Licensed Products to be used in Medical Affairs Studies (i) at a

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purchase price equal to the Transfer Price, and (ii) in an amount not to exceed [*], during the first complete calendar year (and any part thereof) after Commercial Launch, and for any calendar year thereafter, [*] by Chiron for the corresponding period as reflected in the forecasts of purchase quantities delivered by Chiron to Cubist pursuant to the Supply Agreement.

(d)   Chiron Development Plan.  Chiron will prepare and update annually a development plan for Chiron’s development activities pursuant to this Section 4.3 (the “Chiron Development Plan”). Chiron shall update the Chiron Development Plan each year to reflect the activities that Chiron expects to conduct during the following calendar year and Chiron shall provide the updated Chiron Development Plan to Cubist prior to the JCT’s last scheduled meeting during the then current year.  Cubist shall have the right to review and comment, via the JCT, on the Chiron Development Plan and any and all revisions or updates thereto and Chiron shall, in good faith, consider all comments made by Cubist. Subject to the provisions set forth below in this Section 4.3(d), Chiron shall use Commercially Reasonable Efforts to carry out and perform during each calendar year the activities set forth in the Chiron Development Plan, as may be in effect for such calendar year, that are materially significant for obtaining Regulatory Approval in the Territory.  With the exception of the Territory Specific Studies (which Chiron may decline to perform in accordance with the provisions of Section 4.3(a) above), Chiron reserves the right at any time to change or modify the Chiron Development Plan or any of the preclinical studies or clinical trials described in the Chiron Development Plan, or to abandon any portion of the Chiron Development Plan or discontinue any such preclinical studies or clinical trials, in response to (i) changes in clinical or regulatory strategy of either Chiron or Cubist, (ii) regulatory feedback, (iii) scientific feasibility, (iv) increases in the anticipated costs of clinical trials, (v) any significant adverse event or condition relating to the safety or efficacy of a Licensed Product, (vi) manufacturing feasibility, including, without limitation, changes in the anticipated costs of manufacturing and/or procuring Licensed Product, (vii) significant adverse changes in market conditions or in market potential of a drug candidate, or (viii) any other reason that Chiron determines in its reasonable discretion justifies such change, modification, abandonment or discontinuation; however, prior to making any decision to abandon any development effort (or change or modify any such effort so as to effectively abandon same), Chiron shall have first provided its reasons in support of such decision to Cubist via the JCT and the JCT shall have met to discuss the merits of such decision. The exercise by Chiron of any right that it may have under this Section 4.3(d) to change, modify, abandon or discontinue all or any portion of the Chiron Development Plan or any of the preclinical studies or clinical trials described in the Chiron Development Plan shall not relieve Chiron from its obligations to use Commercially Reasonable Efforts under Section 5.1 or Section 6.1 hereof.

(e)   Limitation on Chiron’s Development Rights.  Notwithstanding anything in this Section 4.3 to the contrary, in the event that at any time Cubist reasonably believes, on the basis of medical, clinical, scientific and other data, facts and knowledge that have been published or are otherwise documented and available or are known to subject matter experts, and presented to Chiron, that any of the development activities being conducted or to be conducted by Chiron pursuant to this Section 4.3 is substantially likely to result in Global Harm, Cubist shall promptly convene a meeting of the JCT to discuss same.  Prior to the meeting, Cubist will provide to Chiron all relevant documents, materials and information suggesting the likelihood of Global Harm as well as Cubist’s recommendations to Chiron on the course of action (e.g. modify the

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study, terminate the study, etc.).  At the JCT, the Parties will discuss and attempt to reach consensus on the course of action.  Following such discussion, in the absence of consensus, Cubist shall have the right to require Chiron to modify or discontinue those development activities that Cubist reasonably and in good faith believes, based on the totality of the data, facts and knowledge presented to Chiron and the data, facts and knowledge presented by Chiron in response, are substantially likely to result in Global Harm.  In the event that there is no person (including a successor-in-interest to Cubist) to carry out Cubist’s development obligations under Section 4.1, then (i) the provisions of this Section 4.3(e) shall not be applicable to the Licensed Product(s) as to which such development obligations are not being performed, and (ii) Chiron shall be free from its obligations to consult via the JCT under Sections 4.3(b) and 4.3(c) with respect to the Licensed Product(s) as to which such development obligations are not being performed.   In the event that a successor-in-interest to Cubist shall be in material breach of such development obligations, then (i) the provisions of this Section 4.3(e) shall not be applicable to the Licensed Product(s) and the indication(s) as to which such development obligations are not being performed, and (ii) Chiron shall be free from its obligations to consult via the JCT under Sections 4.3(b) and 4.3(c) with respect to the Licensed Product(s) and the indications as to which such development obligations are not being performed.

4.4.  Access to Chiron Data.

(a)   Information Sharing.  Chiron will provide to Cubist all Information that results from any development activities conducted pursuant to Section 4.3 above or the Chiron Development Plan (the “Chiron Data”).  Subject to Section 4.4(c), any such Chiron Data so provided shall be strictly for information purposes only and Cubist shall have no right to use the Chiron Data for any purpose whatsoever, including without limitation, to access, reference, interpret, disclose, tabulate, analyze or otherwise use any such Chiron Data for the purpose of supporting any Drug Approval Application anywhere in the world.

(b)   Reciprocating Licensee.  Cubist may share the Chiron Data with any Other Licensee who has agreed in writing to permit reciprocal sharing by Cubist with Chiron of the results of such Other Licensee’s own development activities in accordance with the provisions of Section 5.3 hereof (each a “Reciprocating Licensee”), provided that Cubist has first communicated the restrictions set forth in this Section 4.4 on use of the Chiron Data and obtained the Reciprocating Licensee’s written agreement to abide by such restrictions.

(c)   License Option.  Chiron hereby grants to Cubist an option to acquire a nonexclusive license on commercially reasonable terms (as to which the Parties shall agree thereon at any time on or prior to the date of the exercise of the option) to access, reference, interpret, disclose, tabulate, analyze or otherwise use all Chiron Data for the purpose of supporting Drug Approval Applications in any country outside the Territory.  The Parties contemplate that such license will include a right of Cubist to grant sublicenses to any Reciprocating Licensee who agrees in writing to grant a reciprocal option to Cubist to acquire a nonexclusive license on commercially reasonable terms (as to which such Reciprocating Licensee and Cubist shall agree thereon at any time on or prior to the date of the exercise of the option) to access, reference, interpret, disclose, tabulate, analyze or otherwise use all similar development data of such Reciprocating Licensee for the purpose of supporting Drug Approval

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Applications in any country within the Territory, with a right of Cubist to grant sublicenses to Chiron.

4.5.  No Debarred Personnel.  In the course of the development of Licensed Products, neither Party shall use, during the term of this Agreement, the services of any employee or consultant that has been debarred by the FDA or Regulatory Authorities, or, to the best of such Party’s knowledge, is the subject of debarment proceedings by the FDA or Regulatory Authorities.

4.6.  Chiron Compliance.  In connection with any development activities undertaken by Chiron in connection with any Licensed Product, Chiron shall comply with all applicable laws and regulations regarding the care and use of experimental animals, as such laws and regulations are in effect where such development activities are undertaken.  All animals used by Chiron to evaluate Daptomycin or any Licensed Product shall be provided humane care and treatment in accordance with the most acceptable veterinary practices.

ARTICLE 5.

REGULATORY

5.1.  Regulatory Plan; Diligence Obligation.

(a)   Cubist’s and Other Licensees’ Activities.  Cubist shall prepare and present to Chiron via the JCT, and update annually, its regulatory plan for the Licensed Products outside of the Territory.  Cubist shall keep Chiron apprised of the status of Cubist’s and the Other Licensees’ efforts to obtain Regulatory Approval in countries outside of the Territory.  Prior to making any decision to abandon any efforts and activities set forth in such regulatory plan to obtain Regulatory Approval in the United States for a Licensed Product (or for an indication or formulation of same), Cubist shall have first provided its reasons in support of such decision to Chiron via the JCT and the JCT shall have met to discuss the reasons for such decision.

(b)   Regulatory Plan.  Within the time period set forth in Section 5.1(c)(i), Chiron shall prepare and deliver to Cubist one regulatory plan for the Territory, which regulatory plan shall set forth Chiron’s plan, strategy and proposed activities to obtain Regulatory Approval in the Territory for the Launch Indication(s) (the “Regulatory Plan”).  The Regulatory Plan may include, as appropriate and without limitation, the following elements:

(i)            Chiron’s general strategy for seeking Regulatory Approval for the Launch Indication(s) in the Major Market Countries;

(ii)           Chiron’s plans for the preparation and filing of applications for Regulatory Approval for the Launch Indication(s) in the Major Market Countries;

(iii)         Chiron’s general strategy for seeking Regulatory Approval for the Launch Indication(s) in the remaining countries of the Territory, however such outline may at Chiron’s sole discretion deal with such remaining countries individually or in the aggregate;

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(iv)          if known, a description of any clinical studies or clinical data that will be necessary in order to obtain Regulatory Approval in the countries referenced in the foregoing clauses (i)-(iii) of this Section 5.1(b), with respect to the Launch Indication(s), and a discussion of the impact of any such clinical studies or clinical data requirement on the timing of obtaining Regulatory Approval for the Launch Indication(s) in such country or countries; and

(v)            the proposed timetable for obtaining anticipated Regulatory Approval for the Launch Indication(s) in the countries referenced in the foregoing clauses (i) and (ii) of this Section 5.1(b), and the countries referenced in the foregoing clause (iii) of this Section 5.1(b), individually or in the aggregate, and a discussion of the factors that could result in an acceleration or a delay of such proposed timetable.

Chiron shall update the Regulatory Plan annually and provide such updated Regulatory Plan to Cubist prior to the JCT’s last scheduled meeting during the then current year.  Such updated Regulatory Plan shall, at such later time as and when considered appropriate by Chiron in its sole discretion, cover, among other things, additional Licensed Products, additional indications and additional countries, considered individually or in the aggregate.  Cubist shall have the right to review and comment, via the JCT, on the Regulatory Plan and any and all revisions and updates thereto, and Chiron shall, in good faith, consider all comments made by Cubist.  For the avoidance of doubt, the foregoing provisions of this Section 5.1(b) shall not impose any obligation on Chiron to have any plan, strategy or any proposed activities, or to conduct any particular activities, with respect to any specific country within the Territory (it being understood that Chiron may have no such plan, strategy or any proposed activities with respect to any specific country in the Territory) but shall only impose an obligation on Chiron to set forth in the Regulatory Plan any such plan, strategy or proposed activities with respect to any specific country within the Territory to the extent that Chiron has any such plan, strategy or proposed activities. The provisions of the foregoing sentence shall not relieve Chiron from its obligations to use Commercially Reasonable Efforts under Section 5.1(c) below.

Subject to the provisions of this Section 5.1(b), Chiron shall use Commercially Reasonable Efforts to carry out and perform during each calendar year the plan, strategy and proposed activities set forth in the Regulatory Plan, as may be in effect for such calendar year, that are materially significant for obtaining Regulatory Approval in the Territory.  Chiron reserves the right at any time to change or modify the Regulatory Plan in response to (i) changes in clinical strategy or regulatory strategy of either Chiron or Cubist, (ii) regulatory feedback, (iii) scientific feasibility, (iv)  increases in anticipated costs of any Territory Specific Studies, (v) any significant adverse event or condition relating to the safety or efficacy of a Licensed Product, (vi) manufacturing feasibility, including, without limitation, changes in the anticipated costs of manufacturing and/or procuring Licensed Product, (v) significant adverse changes in market conditions or a market potential of a drug candidate, or (vi) any other reason that Chiron determines in its reasonable discretion justifies such change or modification; however, prior to making any decision to change or modify the Regulatory Plan (other than the annual updates), Chiron shall have first provided its reasons in support of such decision to Cubist via the JCT and the JCT shall have met to discuss the merits of such decision.  The exercise by Chiron of any right that it may have under this Section 5.1(b) to change or modify all or any portion of the Regulatory Plan shall not relieve Chiron from its obligations to use Commercially Reasonable Efforts under Section 5.1(c) below or Section 6.1 hereof.

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(c)   Specific Regulatory Activities.  Chiron will use Commercially Reasonable Efforts to:

(i)            inform Cubist whether Chiron will pursue a central filing strategy or a mutual recognition strategy in the European Union as soon as practicable, but in no event later than [*] after the date that Cubist provides Chiron with all information submitted by Cubist to the FDA in connection with its application for Regulatory Approval of Licensed Product in the United States;

(ii)           if Chiron has determined to pursue a central filing strategy in the European Union, prepare and file an application to obtain Regulatory Approval of Licensed Products for the Launch Indication(s) with respect to all countries in the European Union within [*] after either (a) receiving from Cubist, or (b) collection on its own, as the case may be, all data and information required for such filing;

(iii)         if Chiron has determined to pursue a mutual recognition strategy in the European Union, prepare and file an application for Regulatory Approval of Licensed Products for the Launch Indication(s) in the reference member state within [*] after either (a) receiving from Cubist, or (b) collecting on its own, as the case may be, all data and information required for such filings;

(iv)          if Chiron has determined to pursue a mutual recognition strategy in the European Union, prepare and file applications for Regulatory Approval of Licensed Products for the Launch Indication(s) in all Major Market Countries within [*] of obtaining Regulatory Approval in the reference member state;

(v)            if Chiron has determined to pursue a mutual recognition strategy in the European Union, then no later than [*] after obtaining Regulatory Approval in the reference member state, prepare and file applications for Regulatory Approval of Licensed Products for the Launch Indication(s) in at least [*] other countries to be selected by Chiron from the countries listed under the caption “EUROPE” on Exhibit D hereto that are not Major Market Countries;

(vi)          no later than [*] after obtaining Regulatory Approval in the reference member state (if pursuing a mutual recognition strategy in the European Union) or in all countries of the European Union (if pursuing a central filing strategy in the European Union), prepare and file an application for Regulatory Approval of Licensed Products for the Launch Indication(s) in at least one country listed under the caption “LATIN AMERICA” on Exhibit D hereto, provided, however, that, in lieu of complying with the foregoing provisions of this clause (vii), Chiron may elect, instead, to have at least [*] with the Regulatory Authorities of at least [*] countries listed under the caption “LATIN AMERICA” on Exhibit D hereto no later than such [*] period, and, if Chiron makes such election, then the number of countries as to which Chiron must satisfy the requirements of clause (v) above in this Section 5.1(c) shall be increased from [*] other countries in the European Union to [*] other countries in the European Union;

(vii)         respond in timely fashion to requests for data and information from Regulatory Authorities, provided that such data and information are in Chiron’s possession,

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given to Chiron by Cubist or otherwise available to Chiron without having to incur any substantial cost in order to acquire such data and information;

(viii)        meet with officials from Regulatory Authorities at such times as may be requested by such Regulatory Authorities;

(ix)          subject to Chiron’s right under Section 4.3(a) to decline to perform any given Territory Specific Study for economic reasons (and subject to Cubist’s right under Section 4.3(e) to require Chiron to modify or discontinue a specific study for substantial likelihood of Global Harm), perform the following activities, as appropriate, with respect to any Territory Specific Study:

(1)          prepare draft protocols for the Territory Specific Study after the Regulatory Authority has confirmed any such requirement for such study;

(2)          take such actions to obtain approvals from appropriate Regulatory Authorities and other governmental authorities of any draft protocol and corresponding clinical trial application for the Territory Specific Study as soon as reasonably practicable after such draft protocol has been prepared;

(3)          identify and engage suitable investigators and study sites for the Territory Specific Study as soon as reasonably practicable after the draft protocol for the Territory Specific Study has been prepared and such protocol and corresponding clinical trial application has been approved by the appropriate Regulatory Authorities and other governmental authorities; and

(4)          commence enrollment for the Territory Specific Study as soon as reasonably practicable after all required approvals have been obtained, suitable investigators and study sites have been engaged, suitable quantities of Licensed Product for clinical use have been obtained by Chiron, and all other necessary or advisable steps have been taken to prepare investigators and study sites to enroll patients;

(x)           conduct and complete any Territory Specific Study in accordance with the approved protocol, subject to (X) Chiron’s right under Section 4.3(a) to decline to perform any given Territory Specific Study for economic reasons, (Y) Cubist’s right under Section 4.3(e) to require Chiron to modify or discontinue a specific study for substantial likelihood of Global Harm, and (Z) completion of the steps described in Section 5.1(c)(ix), above.

Notwithstanding any provision of this Section 5.1(c) to the contrary, Chiron shall not be deemed to be in material breach of any of its obligations under this Section 5.1(c) to prepare and file applications for Regulatory Approval for each Launch Indication if and to the extent that Chiron cannot meet any of such obligations solely by virtue of the fact that one or more Regulatory Authorities do not permit Chiron to file such applications for Regulatory Approval for only a single indication.  If a Regulatory Authority in the Territory informs Chiron that it may not file applications for Regulatory Approval for a single indication, then the Parties shall convene a meeting of the JCT to discuss alternative strategies that could be pursued by the

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Parties.  In the event that Chiron is not permitted to file applications for Regulatory Approval in any country within the Territory for a single indication, then the Parties agree that as soon thereafter as Chiron is permitted to file for Regulatory Approval in such country (whether because such filing will be for more than a single indication or because the regulatory environment in such country has changed so as to permit a filing for Regulatory Approval for a single indication), then Chiron shall at that time again be obligated to comply with the requirements, if any, imposed by this Section 5.1(c) with respect to preparing and making filings for Regulatory Approval in such country, and, for purposes of applying the timelines in this Section 5.1(c) at that time, the date on which Chiron is first permitted to make such filing in such country shall be deemed to be the end of the [*] period after Cubist has given to Chiron all of the information necessary to make such filing.

(d)   Costs and Expenses.  Chiron shall bear all of the costs and expenses in connection with any and all regulatory activities within the Territory engaged in by Chiron and its Affiliates pursuant to, and in accordance with, the provisions of this Section 5.1, it being understood that the foregoing regulatory activities shall not include any activities of Chiron to assist Cubist with its development obligations under this Agreement or outlined in the Cubist Development Plan.  Cubist shall bear all of the costs and expenses in connection with any and all regulatory activities engaged in by Cubist and its Affiliates in connection with obtaining and maintaining Regulatory Approval for Licensed Products outside the Territory, regardless of whether such activities occur within the Territory or outside the Territory.

(e)   Limitation on Activities.  Notwithstanding anything in this Section 5.1 or elsewhere in this Agreement to the contrary, in the event that at any time Cubist reasonably believes on the basis of medical, clinical, scientific and other data, facts and knowledge that have been published or are otherwise documented and available or are known to subject matter experts, and presented to Chiron, that obtaining Regulatory Approval in the Territory for any Licensed Product for any particular indication either: (i) substantially increases the risk that an adverse safety event will occur; or (ii) would result in the use of a Licensed Product to treat an indication for which such Licensed Product is an ineffective or inferior therapeutic alternative and such use would materially adversely affect the development, marketing, distribution or Commercialization of such Licensed Product or any other Licensed Product within or outside the Territory for other indications; Cubist shall promptly convene a meeting of the JCT to discuss same.  Prior to the meeting, Cubist will provide to Chiron all relevant documents, materials and information suggesting the likelihood of events described in clauses (i) and (ii) above, as well as Cubist’s recommendations to Chiron on the course of action (e.g., not seeking approval of a particular Licensed Product or not seeking approval of a particular indication, etc.).  At the JCT, the Parties will discuss and attempt to reach consensus on the course of action.  Following such discussion, in the absence of consensus, Cubist shall have the right to require Chiron to modify or discontinue those regulatory activities that Cubist reasonably and in good faith believes, based on the totality of the data, facts and knowledge presented to Chiron and the data, facts and knowledge presented by Chiron in response, are substantially likely to result in the events described in clause (i) or clause (ii) above in this Section 5.1(e).

5.2.  Ownership of Regulatory Approvals.  Except to the extent otherwise provided elsewhere in this Agreement, Chiron shall file in its own name and own all Drug Approval Applications and Regulatory Approvals for Licensed Products in the Territory, and shall be

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solely responsible for all communications with regulatory authorities in such countries. All such filings shall be made in such manner as may be required under the laws of the applicable jurisdiction to allow for the expeditious transfer of such Drug Approval Applications and Regulatory Approvals for Licensed Products to Cubist if such transfer is required pursuant to Article 13 hereof upon termination (but not expiration) of this Agreement.  Promptly following execution of this Agreement, Cubist shall transfer and assign to Chiron any and all such Drug Approval Applications or Regulatory Approvals held by Cubist as of the date hereof.

5.3.  Chiron Access to Cubist and Other Licensee Data.

(a)  Information Sharing.  Subject to the provisions of Section 5.3(d) below, during the Term, Cubist will provide to Chiron any Cubist Data and Other Licensee Data necessary or useful for making regulatory filings for, or marketing of, Licensed Products in the Territory as such Cubist Data and Other Licensee Data are or become available. The Parties shall discuss, via their participation in the JCT, the form in which Cubist shall provide Chiron Cubist Data and Other Licensee Data pursuant to this Section 5.3(a).  Subject to the provisions of Section 5.3(c) below, any such Other Licensee Data so provided shall be strictly for information purposes only and Chiron shall have no right to use the Other Licensee Data for any purpose whatsoever, including without limitation, to access, reference, interpret, disclose, tabulate, analyze or otherwise use any such Other Licensee Data for the purpose of supporting any Drug Approval Application anywhere in the world.

(b)  Chiron Use of Cubist Data.  Chiron shall have a right of access, a right of reference and the right to use and incorporate all Cubist Data provided to it pursuant to this Section 5.3 in its Drug Approval Applications for Regulatory Approvals of Licensed Products within the Territory.

(c)  License Option.  Cubist shall use Commercially Reasonable Efforts to obtain the written agreement of each Other Licensee granting to Cubist an option to acquire a nonexclusive license to access, reference, interpret, disclose, tabulate, analyze or otherwise use all Other Licensee Data for the purpose of supporting Drug Approval Applications in any country within the Territory.  Cubist shall also use Commercially Reasonable Efforts to obtain the written agreement of such Other Licensee that Cubist shall have the right to grant to Chiron a sublicense to any such nonexclusive license such that Chiron can access, reference, interpret, disclose, tabulate, analyze or otherwise use all the Other Licensee Data of such Other Licensee for the purpose of supporting Drug Approval Applications in any country within the Territory.  In the event that any such nonexclusive license may be sublicensed to Chiron and that Chiron requests that Cubist exercise any such option to acquire such nonexclusive license, then Chiron shall pay for any and all of the costs of exercising such option to the extent attributable to the grant of the sublicense to Chiron.

(d)  Manufacturing Information.  Cubist acknowledges and agrees that certain Cubist Know-How and other Information pertaining to the manufacture of the Licensed Products (the “Manufacturing Information”) will be required to be provided or made available to Chiron so as to permit Chiron to obtain Regulatory Approval in the Territory, conduct quality assurance testing and release of Licensed Products for use in the Territory and otherwise comply with the requirements of the Regulatory Authorities in the Territory.  The right of Chiron to

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receive and use Manufacturing Information shall be as set forth in this Section 5.3(d) and the Supply Agreement.

To the extent that Chiron needs to submit and make available any Manufacturing Information in connection with obtaining Regulatory Approval in the Territory, the Parties agree that, to the fullest extent permissible under applicable law, rules and regulations, such Manufacturing Information shall be made available to the applicable Regulatory Authorities in the Territory via a Drug Master File appropriately formatted for the country in which such DMF is filed and [*] (i.e. upon Chiron’s [*] under the Supply Agreement to manufacture or have manufactured Licensed Products).  Drug Master Files will be maintained and kept up to date by Cubist or the Cubist Suppliers.  Chiron will be notified of changes proposed to the DMF [*] in accordance with change control procedures set forth in Section 3.2 of the Supply Agreement.  Chiron shall be responsible for notifying the Regulatory Authorities in the Territory, as required by applicable laws, of the updating of the DMF by Cubist or the Cubist Suppliers.

Notwithstanding the foregoing, the applicable Regulatory Authorities in the Territory shall have full access to all of the Manufacturing Information in such DMF [*], to the extent considered necessary by such applicable Regulatory Authorities to consider and act upon any applications for Regulatory Approvals in the Territory that are submitted by Chiron, and [*] to allow such Regulatory Authorities to refer to all of the Manufacturing Information in such DMF to the extent necessary to assess applications for Regulatory Approvals of Licensed Products in the Territory and to obtain such Regulatory Approvals.

If and to the extent that Chiron needs to submit and make available any Manufacturing Information in connection with any submission by Chiron of any application for Regulatory Approval of Licensed Product within the Territory and the applicable regulatory requirements do not permit the submission of such Manufacturing Information via a DMF, then the Parties agree that such Manufacturing Information shall be made available to Chiron for the sole purpose of filing applications for Regulatory Approvals of Licensed Products in the Territory and obtaining such Regulatory Approvals, and that Chiron shall not be entitled to use such Manufacturing Information for any other purpose whatsoever other than to manufacture or have manufactured Licensed Products and conduct quality assurance testing and release of Finished Products, but only if, when and to the extent that Chiron is expressly authorized under the Supply Agreement to use such Information for such manufacturing purposes.

5.4.  Free Sales Certificates.  The Parties agree to cooperate with each other to obtain free sale certificates where appropriate.

5.5.  Safety; Adverse Event Reporting.

(a)  General.  The Parties shall promptly exchange any and all appropriate safety data, and the Parties shall report, and take other appropriate actions in relation to, adverse events with Licensed Products to each other, all in accordance with a reporting protocol that will be established by the JCT.  In addition, each Party shall have the right to review the other Party’s internal processes and procedures for the collection and processing of safety data.  Without limiting the generality of the foregoing, each Party shall maintain a record of all non-medical and medical product-related complaints and reports of adverse events that it receives with respect to

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any Licensed Product and each Party shall notify the other Party of any complaint received by it and, within [*] of the initial receipt, provide the other Party with a copy of such complaint(s) and adverse event reports.

(b)  Reporting Outside the Territory.  Cubist shall be responsible for reporting to the FDA and Regulatory Authorities outside of the Territory any adverse experience and safety issues for Licensed Products in compliance with the requirements of the U.S. Food, Drug and Cosmetic Act, 21 U.S.C. §321 et seq., the regulations promulgated thereunder, and the equivalent laws, rules and regulations in countries other than the United States outside of the Territory, and shall promptly thereafter provide to Chiron a copy of such report.

(c)  Reporting in the Territory.  Chiron shall be responsible for reporting to Regulatory Authorities in the Territory any adverse experience and safety issues for Licensed Products in compliance with the requirements of the applicable laws, rules and regulations, and shall promptly thereafter provide to Cubist a copy of such report.  Cubist shall require each of its Other Licensees to comply with obligations corresponding to those in this Section 5.5.

(d)  Global Database.  Cubist shall be responsible for compiling a validated global database that captures all adverse events reported to Cubist from any source and maintaining said database as defined in the Supply Agreement (or any associated Quality Agreement referenced in the Supply Agreement).  Cubist shall also provide Chiron with [*] so as to support the applications for Regulatory Approval and the maintenance of marketing authorizations in the Territory, provided that it is technically feasible to do so and that Chiron makes payment of any incremental license fees that may be required in order add Chiron as an authorized user.

5.6.  Communications.

(a)  Communications Relating to Regulatory Approval.  Except as may be required by law or as otherwise expressly provided in this Agreement or the Supply Agreement, during the Term, Cubist shall not communicate with any Regulatory Authority having jurisdiction in the Territory regarding Regulatory Approval for any Licensed Product in the Territory unless requested to do so by Chiron.  If Cubist is required by applicable laws or regulations or a Regulatory Authority having jurisdiction in the Territory to disclose such information directly to such Regulatory Authority, Cubist shall notify Chiron in writing of the requirement and the particulars of the information required to be disclosed, and Cubist shall coordinate with Chiron in making any such disclosure.  [*] between Cubist and such Regulatory Authority but Chiron shall lead any such face-to-face meetings or scheduled conference calls.  Each party shall advise the other party of material developments and events relating to their respective regulatory responsibilities in writing within two (2) business days after notice of such material development event.

(b)  Communications Relating to Development.  Cubist shall have the right to communicate with Regulatory Authorities in the Territory regarding Licensed Products for the purpose of advancing its global development activities in connection with Licensed Products, including, those development activities as described in the Cubist Development Plan, provided that Cubist complies with the provisions of this Section 5.6.  Cubist shall notify Chiron in

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advance of any such communications and Chiron shall have the right to be present and to participate at any face-to-face meetings or scheduled conference calls between Cubist and such Regulatory Authority regarding such communications, but Cubist shall lead any such face-to-face meetings or scheduled conference calls at which Chiron is present and participating.  Cubist shall consult with Chiron prior to any such face-to-face meeting or scheduled conference calls at which Chiron is present and participating to develop a strategy for the meeting.

5.7.  Recalls and Voluntary Withdrawals.

(a)           The Parties shall exchange their internal standard operating procedures (“SOPs”) as to product recalls and the treatment of product complaints and inquiries as to safety, quality or efficacy reasonably in advance of the date of Commercial Launch of any Licensed Product in the Territory.  If either Party becomes aware of information about any Licensed Product indicating that it may not conform to the specifications for Licensed Product then in effect pursuant to the Supply Agreement, or that there are potential adulteration, misbranding and/or other issues regarding safety or effectiveness, it shall promptly so notify the other Party.  The JCT shall meet to discuss such circumstances and to consider appropriate courses of action, which courses of action with respect to each recall shall be consistent with the internal SOP of the Party having the right to control such recall pursuant to this Section 5.7.  Except to the extent otherwise provided in Section 5.7(b) below, Chiron shall control, at its sole expense, all recalls of Licensed Product within the Territory.  Cubist shall control, at its sole expense, all recalls of Licensed Product outside the Territory.  Chiron shall maintain complete and accurate records of any recall for such periods as may be required by legal requirements, but in any event for no less than three (3) years.

(b)           In the event that any recall of Licensed Product in the Territory is required or necessary by virtue of such Licensed Product being Defective Manufactured Product, then both Parties shall work together to devise a reasonable and appropriate plan to implement such recall, it being understood that the objective of such plan shall be to effect such recall as quickly and as cost-effectively as reasonably possible under the circumstances.  After the Parties shall have reached agreement on the terms of such plan (or, in the event that the Parties cannot reach agreement as to the terms of such plan, Chiron shall have the right, acting reasonably and in good faith, to adopt another plan), Chiron shall implement such recall in a manner consistent with the terms of such plan.  Cubist shall cooperate with Chiron in any way that Chiron reasonably requests in order to support the implementation of such recall.  Subject to the limitation of liability set forth in Section 10.6(a), Cubist shall reimburse Chiron for all Recall Expenses (as defined below) provided that [*].  For the avoidance of doubt, the limitation set forth above in this Section 5.7(b) (and in Section 6.6(b) of the Supply Agreement) on Cubist’s responsibility for Recall Expenses shall not apply to limit Chiron’s remedies and Cubist’s obligations or liabilities with respect to matters other than Recall Expenses, including, without limitation, (i) Cubist’s obligation to indemnify Chiron pursuant to Sections 10.1 and 10.3 of this Agreement with respect to costs and expenses other than Recall Expenses, and (ii) Chiron’s remedies under Sections 8.1, 9.1(d) and 11.6 of the Supply Agreement.  “Recall Expenses” shall mean the costs and expenses incurred by Chiron in connection with a recall of Licensed Product that is implemented in accordance with this Section 5.7(b) (and/or Section 6.6(b) of the Supply Agreement), including, without limitation, the costs and expenses associated with notification and destruction and/or return of such recalled Licensed Product.

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5.8.  Label.  To the extent permitted by applicable law, regulation or the Regulatory Authority having jurisdiction, Chiron shall identify Cubist as the licensor of the Cubist Marks applied to Licensed Products on the vial label, package insert, outside of the packaging and advertising materials for such Licensed Product in each country of the Territory in a manner approved in advance in writing by Cubist, such consent not to be unreasonably withheld, conditioned or delayed. Chiron shall also comply with the patent marking provisions of Section 8.8 hereof.

5.9.  Governmental Inspections.  Each party shall advise the other party of any governmental visits to, or written or oral inquires about, any facilities or procedures for the manufacture, storage, or handling of the Licensed Product, or the marketing, selling, promotion or distribution of the Licensed Product, promptly (but in no event later than [*] after notice of such visit or inquiry.  Each party shall, within [*] of receipt or submission, furnish to the other party any report or correspondence issued by or provided to the governmental authority in connection with such visit or inquiry.

ARTICLE 6.

COMMERCIALIZATION; DILIGENCE

6.1.  Marketing Plan; Diligence Obligation.

(a)  Marketing Plan.  Not later than three (3) months after the acceptance by a Regulatory Authority of an application for Regulatory Approval for the Launch Indication(s) in any Major Market Country (the “Marketing Plan Trigger Event”), Chiron shall prepare and deliver to Cubist one marketing plan for the Territory, which marketing plan shall set forth Chiron’s plan, strategy and proposed activities to market the Licensed Products in the Territory with respect to the Launch Indication(s) (the “Marketing Plan”). The Marketing Plan may include, as appropriate and without limitation, the following elements:

(i)            the anticipated date of Commercial Launch for the Launch Indication(s) in each Major Market Country;

(ii)           a description of Chiron’s general strategy with respect to pre-launch and post-launch marketing, advertising and promotion activities (including, without limitation, sponsoring medical education events) for the Launch Indication(s) in each Major Market Country;

(iii)         a description of the marketing, advertising and promotional activities (including, without limitation, sponsoring medical education events and product positioning of Chiron) for the Launch Indication(s) in each Major Market Country;

(iv)          an estimated time schedule for the performance of marketing activities;

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(v)            a general description of the personnel resources of Chiron that will perform the marketing activities; and

(vi)          a general description of Chiron’s pricing strategy in the Territory.

Effective upon the occurrence of the Marketing Plan Trigger Event, Chiron shall update annually and provide such updated Marketing Plan to Cubist prior to the JCT’s last scheduled meeting during the then current year. Such updated Marketing Plan shall, at such later time as Chiron shall determine in its sole discretion, cover, among other things, additional Licensed Products, additional indications and additional countries for which Regulatory Approval has been obtained, considered individually or in the aggregate.  Cubist shall have the right to review and comment, via the JCT, on the Marketing Plan and any and all revisions and updates thereto, and Chiron shall, in good faith, consider all comments made by Cubist.  For the avoidance of doubt, the foregoing provisions of this Section 6.1(a) shall not impose any obligation on Chiron to have any plan, strategy or any proposed activities, or to conduct any particular activities, with respect to any specific country within the Territory (it being understood that Chiron may have no such plan, strategy or any proposed activities with respect to any specific country in the Territory) but shall only impose an obligation on Chiron to set forth in the Marketing Plan any such plan, strategy or proposed activities with respect to any specific country within the Territory to the extent that Chiron has any such plan, strategy or proposed activities. The provisions of the foregoing sentence shall not relieve Chiron from its obligations to use Commercially Reasonable Efforts under Section 6.1(b) below.

Effective from and after the Marketing Plan Trigger Event, and subject to the provisions of this Section 6.1(a), Chiron shall use Commercially Reasonable Efforts to carry out and perform during each calendar year the plan, strategy and proposed activities set forth in the Marketing Plan, as may be in effect for such calendar year.  Chiron reserves the right at any time to change or modify the Marketing Plan in response to (i) changes in clinical strategy or regulatory strategy of either Chiron or Cubist, (ii) regulatory feedback, (iii) scientific feasibility, (iv)  increases in anticipated costs of any Territory Specific Studies, (v) any significant adverse event or condition relating to the safety or efficacy of a Licensed Product, (vi) manufacturing feasibility, including, without limitation, changes in the anticipated costs of manufacturing and/or procuring Licensed Product, (v) significant adverse changes in market conditions or a market potential of a drug candidate, or (vi) any other reason that Chiron determines in its reasonable discretion justifies such change or modification; however, prior to making any decision to change or modify the Marketing Plan (other than annual updates), Chiron shall have first provided its reasons in support of such decision to Cubist via the JCT and the JCT shall have met to discuss the merits of such decision.  The exercise by Chiron of any right that it may have under this Section 6.1(a) to change or modify all or any portion of the Marketing Plan shall not relieve Chiron from its obligations to use Commercially Reasonable Efforts under Section 6.1(b) below.

(b)  Marketing Activities.  Chiron will use Commercially Reasonable Efforts to:

(i)            effect the Commercial Launch of Licensed Product for the Launch Indication(s) within [*] after obtaining Regulatory Approval and acceptable Price Approval therefor; and

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(ii)           market, sell and distribute Licensed Products for the Launch Indication(s), upon receipt of Regulatory Approval and acceptable Price Approval.

In addition and without limiting the foregoing, during the period commencing [*] before the date of first Commercial Launch of Licensed Product in each of the Major Market Countries, and continuing through the [*] after such first Commercial Launch, Chiron shall:

(1)           budget and spend on marketing, advertising and promotion activities with respect to Licensed Product (exclusive of fully loaded direct and indirect costs attributable to salespersons): (A) in each Major Market Country an amount equal to the greater of: (I) [*], or (II) [*] of the forecasted Net Sales of such Licensed Product in such Major Market Country; or (B) in all of the Major Market Countries collectively, an aggregate amount equal to the greater of: (III) [*] the amount in the foregoing clause (I) during the period commencing [*] before the date of first Commercial Launch of Licensed Product in the first such country and continuing through the [*] after such first Commercial Launch in the last such country, or (IV) [*] the amount in the foregoing clause (II) during the period commencing [*] before the date of first Commercial Launch of Licensed Product in the first such country and continuing through the [*] after such first Commercial Launch in the last such country; and

(2)           employ or engage not less than [*] salespersons to sell Licensed Products in each Major Market Country or not less than [*] salespersons in the aggregate in all of the Major Market Countries.

For purposes of the foregoing provisions of this Section 6.1(b), the availability of supply of Licensed Products shall be considered in determining whether Chiron has used Commercially Reasonable Efforts to meet its diligence obligations.  Further, any delay by Chiron in effecting Commercial Launch in any Major Market Country until Regulatory Approval in such country has been obtained for a second indication (to the extent that a single indication does not allow Chiron to obtain acceptable Price Approval in such country) shall be deemed not to be a material breach by Chiron of any of its obligations under this Agreement.

(c)  Costs and Expenses.  Chiron shall bear all of the costs and expenses in connection with any and all Commercialization activities engaged in by Chiron and its Affiliates pursuant to, and in accordance with, the provisions of this Section 6.1.

(d)  Ownership of Marketing Information.  Chiron shall be the sole owner of all rights, including intellectual property rights, in and to all sales, marketing, financial and business Information of Chiron, including without limitation, all customer and distributor lists of Chiron and all Information of Chiron regarding sales projections, distribution channels, market potential and competitive products analyses for the Licensed Products (the “Chiron Marketing Information”), and, except to the extent otherwise expressly provided elsewhere in this Agreement or the Supply Agreement, no right of access, use or other license is granted to Cubist or to any Other Licensee under this Agreement.  Notwithstanding any provision in this Agreement to the contrary, no Chiron Marketing Information shall form any part of Chiron Data, Chiron Know-How, Chiron Related Know-How or any Joint Know-How.

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6.2.  Prohibited Marketing and Sales Activities.  Chiron shall not engage in any direct marketing activities for the Licensed Products outside of the Territory without Cubist approval.  Cubist shall not engage in any direct marketing activities inside the Territory without Chiron approval.  The foregoing shall not prohibit either party from participating in any conferences, symposia or other industry gatherings merely because the venue for such gathering happens to be outside of the Territory in the case of Chiron or inside the Territory in the case of Cubist.  Chiron shall require that its distributors make all commercially reasonable efforts to prevent any units of Licensed Product sold by such distributors in any country within the Territory from being resold in, or transported to, any country outside of the Territory.

6.3.  Discounting.  Neither Chiron nor its Affiliates shall discount the price of Licensed Products or agree to reduce the unit volume of purchases or sales of any Licensed Product in consideration of any price increase on, the receipt of any payment in connection with, or the entering of an arrangement for the purchase or sale (including, without limitation, any arrangement guaranteeing volume increases or minimum volume) of, a product other than a Licensed Product, or shall enter into any agreement for such purpose.

6.4.  Marketing and Promotional Literature.  Marketing and promotional literature related to the Licensed Products and prepared for use in the Territory by Chiron shall be prepared in a manner consistent with relevant local statutes and regulations.  In all marketing and promotional literature, Cubist shall be presented and described as the party who developed the Licensed Product.  To the extent permitted by law, all marketing and promotional literature shall display the Cubist Marks, trade names, logos and trade dress of the Licensed Product in a manner that promotes the Product and each of the parties in an appropriate manner.  To the extent practical, the Cubist name and logo shall appear the same in size and proximity as the Chiron name and logo on all marketing and promotional literature used in each country of the Territory unless prohibited by the law, statutes or regulations of such country.  With the consent of Chiron, which consent shall not be unreasonably withheld or delayed, Cubist shall have the right to reproduce, distribute and otherwise use outside the Territory all Licensed Product related marketing and promotional literature prepared by Chiron.  With the consent of Cubist, which consent shall not be unreasonably withheld or delayed, Chiron shall have the right to reproduce, distribute and otherwise use in the Territory all Licensed Product related marketing and promotional literature prepared by Cubist.

ARTICLE 7.

COMPENSATION

7.1.  Upfront Consideration.

(a)           In consideration for the licenses granted to Chiron under this Agreement, Chiron shall, as soon as practicable after the Effective Date (but in no event later than the seventh (7th) business day following the Effective Date), make payment to Cubist of a license fee in the amount of eight million dollars ($8,000,000).  Such license fee shall be in the form of a

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cash payment made by wire transfer of immediately available funds to a bank account or bank accounts designated by Cubist.  Such license fee shall be nonrefundable and noncreditable.

(b)           Simultaneously with the execution and delivery of this Agreement, the Chiron Parent Company and Cubist are entering into the Stock Purchase Agreement pursuant to which, among other things, at the closing referred to below in this Section 7.1(b), Cubist shall agree to sell to the Chiron Parent Company, and the Chiron Parent Company shall agree to purchase from Cubist, [*] shares of Cubist common stock (subject to adjustment for any reclassification, stock split, stock dividend, reverse stock split merger, consolidation or similar transaction or event). The aggregate purchase price payable by the Chiron Parent Company for all of such shares of Cubist common stock shall be equal to ten million dollars ($10,000,000), payable in the form of a cash payment made by wire transfer of immediately available funds to a bank account or bank accounts designated by Cubist.

(c)           The closing of the sale and purchase of such shares of Cubist Common Stock shall take place as soon as practicable after the Effective Date but in no event later than the seventh (7th) business day following the Effective Date.

7.2.  Milestone Payments.  Subject to Section 13.6(a)(v), in consideration for the licenses and exclusive rights of this Agreement, Chiron shall make a milestone payment to Cubist upon the achievement of each development milestone with respect to a Licensed Product as set forth in the table in Section 7.2(a) below, and Chiron shall also make a milestone payment to Cubist upon the achievement of each sales milestone with respect to a Licensed Product as set forth in the table in Section 7.2(b) below. Chiron shall make payment of the applicable milestone payment within [*] after Chiron’s receipt of notice from Cubist of the first achievement of each such development milestone and of each such sales milestone, as documented by appropriate written and/or other materials. Each such milestone payment by Chiron shall be in the form of a cash payment made by wire transfer of immediately available funds to a bank account or bank accounts designated by Cubist.  Each milestone payment by Chiron to Cubist hereunder shall be paid only once, and shall be noncreditable and nonrefundable.

(a)  Development Milestone Payments.

Milestone Event		Payment Amount
		(in millions)
1.	Regulatory Approval of a Licensed Product [*]	[*]
2.	Price Approval of a Licensed Product [*]	[*]
3.	Regulatory Approval of a Licensed Product for [*] by Regulatory Authorities [*]	[*]
Total Potential Development Milestone Payments		[*]

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(b)  Sales Milestone Payments.

Milestone Event			Payment Amount
			(in millions)
1.	Cumulative Net Sales in the Territory is equal to or greater than [*]		[*]
2.	Cumulative Net Sales in the Territory is equal to or greater than [*]		[*]
3.	Cumulative Net Sales in the Territory is equal to or greater than [*]		[*]
4.	Cumulative Net Sales in the Territory is equal to or greater than [*]		[*]
5.	Cumulative Net Sales in the Territory is equal to or greater than [*]		[*]
		Total Potential Sales Milestone Payments	[*]

7.3.  Royalties.

(a)  Royalty.  Subject to the other terms and conditions of this Agreement (and, in particular , the provisions of Section 7.3(b) and Section 7.3(c) below), Chiron shall pay Cubist a royalty with respect to each Licensed Product sold by Chiron or its Affiliates equal to a percentage determined in accordance with the table below or in accordance with Sections 7.3(b) or 7.3(c) below, as applicable, taking into consideration the protection afforded by Cubist Patents at the relevant time, (such applicable percentage, the “Royalty Rate”), of Net Sales in any country within the Territory of units of such Licensed Product during each calendar quarter from and after the date of Commercial Launch in such country, less the aggregate Transfer Price previously paid to Cubist for having supplied pursuant to the Supply Agreement such units of such Licensed Product that are sold by Chiron or its Affiliates during such calendar quarter:

Royalty Year	Royalty Rate for the First [*] of Aggregate Annual Net Sales of All Licensed Products in All Countries of the Territory under Patent and Know-How Exclusivity	Royalty Rate for Aggregate Annual Net Sales of All Licensed Products in All Countries of the Territory in Excess Of [*] under Patent and Know-How Exclusivity
[*]	[*]	[*]
[*]	[*]	[*]
[*]	[*]	[*]

For purposes of this Section 7.3, the first Royalty Year with respect to all Licensed Products shall commence on the date of Commercial Launch by Chiron or any of its Affiliates in any country within the Territory and end on December 31 of the year in which the Commercial Launch occurred.  Each succeeding Royalty Year shall commence on January 1 of the ensuing

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year and end on December 31 of such year.  Accordingly, the determination of the Royalty Year for the purpose of determining the Royalty Rate which applies shall not be either on a Licensed Product-by-Licensed Product basis or on a country-by-country basis.

The determination of the Royalty Rate pursuant to the table in this Section 7.3(a) (i.e. whether the Royalty Rate in left hand column or the right hand column in the table above applies) shall also not be made on a Licensed Product-by-Licensed Product basis or on a country-by-country basis, but, instead, shall be made based on the aggregate amount of annual Net Sales for all Licensed Products in all countries in the Territory.

The determination of the amount of royalties due Cubist pursuant to this Section 7.3(a) shall be made on a Licensed Product-by-Licensed Product basis and on a country-by-country basis by multiplying the Royalty Rate that is applicable for any particular Royalty Year, as determined in accordance with the foregoing provisions of this Section 7.3(a), by the Net Sales arising from sales in each country within the Territory of units of each Licensed Product by Chiron or its Affiliates during each calendar quarter of the applicable Royalty Year.

(b)  Know-How Step-Down.  Notwithstanding Section 7.3(a) but subject to Section 7.3(c), for any given country in the Territory, if there is no Valid Claim that would be infringed by the sale by Chiron or its Affiliates of Licensed Product in such country but for the licenses granted by Cubist to Chiron hereunder (treating, for purposes of this Section 7.3(b) only, all Joint Patents as if Cubist owned all right, title and interest in and to the Joint Patents and Chiron had no interest in the Joint Patents other than the rights licensed to Chiron by Cubist), then the Royalty Rate applicable to Net Sales of such Licensed Product by Chiron or its Affiliates in such subject country shall be the rate as determined in accordance with the table in Section 7.3(a) above, but reduced by [*] (for example, the Royalty Rate for the second royalty year where aggregate annual Net Sales are less than [*] shall be [*] instead of [*]). The determination of the amount of royalties due Cubist pursuant to this Section 7.3(b) shall be made on a Licensed Product-by-Licensed Product basis and on a country-by-country basis by multiplying the Royalty Rate that is applicable for any particular Royalty Year, as determined in accordance with the foregoing provisions of this Section 7.3(b), by the Net Sales arising from sales in each country within the Territory of units of each Licensed Product by Chiron or its Affiliates during each calendar quarter of the applicable Royalty Year.  Notwithstanding anything in this Agreement to the contrary, no royalty shall be payable by Chiron pursuant to this Section 7.3(b) after June 30, 2020.

(c)  Competition Step-Down.  Notwithstanding anything in the foregoing provisions of this Section 7.3 to the contrary, for any given country within the Territory, if (i) the aggregate unit sales by all Third Parties in such country of Unlicensed Products constitute more than 30% of the market share on a per unit basis with respect to all unit sales of such Unlicensed Products and the affected Licensed Product in such country (i.e., including the unit sales by Chiron and its Affiliates and distributors of the Licensed Product whose market share has been affected by sales of such Unlicensed Product), and (ii) there is no Valid Claim which is being infringed by such Third Parties in connection with such Third Parties’ use or sale of such Unlicensed Products in such country or in connection with such Third Parties’ manufacture of such Unlicensed Products anywhere in the world, then, subject to the provisions set forth below

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in this Section 7.3(c) and Sections 7.3(d), 7.3(e) and 7.3(f), the obligation of Chiron and its Affiliates to pay royalties to Cubist under this Section 7.3 with respect to sales of such Licensed Product in such country shall terminate and be of no further force or effect.

(d)  Competition Step-Down Procedures.  If Chiron believes that the provisions of Section 7.3(c) apply, Chiron shall notify Cubist in writing of such belief and shall provide, together with such notice, copies of the market research studies, market surveys or other marketing data that show that the aggregate unit sales in such subject country of Unlicensed Products exceeds the 30% market share threshold set forth in clause (i) of Section 7.3(c).  Cubist shall have a period of [*] from the date that such notice and market data is delivered to Cubist to evaluate the issue and reach its own determination as to whether the criteria of Section 7.3(c) have been satisfied.

(i)            If within such [*] period Cubist sends written notice to Chiron stating that Cubist agrees with Chiron’s position on the issue, then the provisions of Section 7.3(c) shall apply to sales of such Licensed Product by Chiron or its Affiliates in such country and Chiron shall be entitled to cease paying royalties under this Section 7.3 in connection with such sales.

(ii)           If Cubist does not send such written notice to Chiron within the [*] period in clause (i) above, but within [*] after the end of such [*], Cubist commences an action against the allegedly infringing Third Parties to enforce the Valid Claims and prevent sales of Unlicensed Products in such country, then Chiron shall continue making payment of royalties in connection with sales of the affected Licensed Product by Chiron or its Affiliates in such country in the manner set forth in Section 7.3(e).

(iii)         If Cubist does not send such written notice to Chiron within the [*] period in clause (i) above and if Cubist does not commence such action within the [*] period in clause (ii) above, then the provisions of Section 7.3(c) shall be deemed to apply to sales of such Licensed Product by Chiron or its Affiliates in such country and Chiron shall be entitled to cease paying royalties under this Section 7.3 in connection with such sales.

If Chiron becomes entitled to cease paying royalties under Section 7.3(c) (i.e. pursuant to clause (i) or (iii) of this Section 7.3(d)), then, within [*] after Chiron so becomes entitled to cease paying royalties, Cubist shall make payment to Chiron of all unearned royalties previously paid by Chiron to Cubist as of the earliest month when sales of Unlicensed Product exceeded the 30% market share threshold, together with interest thereon at the rate specified for late payments pursuant to Section 7.10 hereof.

(e)  Holdback of Royalties Upon Certain Cubist Enforcement Actions.  If after having received Chiron’s notice to Cubist pursuant to Section 7.3(d), Cubist has timely commenced an action to enforce the Valid Claims as required by Section 7.3(d)(ii), then, with respect to any sales of such Licensed Product in the country in question, from and after the date that Cubist commences such action, Chiron shall pay to Cubist [*] of the royalties that Chiron otherwise would be required to pay to Cubist in connection with such sales pursuant to Section 7.3(a) or Section 7.3(b), as applicable, and without giving effect for this purpose to Section 7.3(c).  The obligation of Chiron to make the partial payment of royalties in accordance with the

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foregoing provisions of this Section 7.3(e) shall continue with respect to such sales of such Licensed Product in such country for so long as Cubist shall continue the action to enforce the Valid Claims in order to prevent sales in such country of the applicable Unlicensed Products, subject however to the other terms of this Agreement governing the duration of the obligation of Chiron to pay royalties to Cubist. If the final adjudication (following the expiration of all rights of appeal) or final settlement of such action will result in aggregate unit sales by all Third Parties in such country of such applicable Unlicensed Products to be less than 30% of the market share on a per unit basis with respect to all unit sales of such applicable Unlicensed Products and the affected Licensed Product in such country (i.e., including the unit sales by Chiron and its Affiliates and distributors of the Licensed Product whose market share has been affected by sales of such applicable Unlicensed Product) (such thirty percent (30%) market share on a per unit basis, the “Unlicensed Sales Threshold”), then, within [*] after written notice to Chiron that such final adjudication or final settlement has occurred, Chiron shall make payment to Cubist the remaining [*] of the royalties payable that Chiron withheld pursuant to this Section 7.3(e) together with interest thereon at the rate specified for late payments pursuant to Section 7.10 hereof.  If, on the other hand, the final adjudication or final settlement of such action will not result in the aggregate unit sales by all Third Parties in such country of such applicable Unlicensed Products to be below the Unlicensed Sales Threshold in such country, then, within [*] of such final adjudication or final settlement, Cubist shall make payment to Chiron of all unearned royalties paid by Chiron to Cubist pursuant to this Section 7.3(e) together with interest thereon at the rate specified for late payments pursuant to Section 7.10 hereof.

(f)  Chiron Enforcement Action.  Notwithstanding anything expressed or implied in Sections 7.3(c), 7.3(d) or 7.3(e) to the contrary, if Chiron commences an action to enforce a Valid Claim against any sales of Unlicensed Products in any given country in the Territory, then Chiron shall continue to make payment to Cubist of royalties payable in connection with sales of Licensed Products in such country in accordance with the provisions of Section 7.3(a) or Section 7.3(b), as applicable, unless and until there is a final adjudication (following the expiration of all rights of appeal) or final settlement of such action that will result in aggregate unit sales by all Third Parties in such country of such Unlicensed Products to be greater than the Unlicensed Sales Threshold in such country. If the final adjudication or final settlement of such action will result in aggregate unit sales by all Third Parties in such country of such Unlicensed Products to be greater than the Unlicensed Sales Threshold in such country, then, within [*] after written notice to Cubist that such final adjudication or final settlement has occurred, Cubist shall make payment to Chiron of all unearned royalties paid by Chiron to Cubist pursuant to this Section 7.3(f) as of the earliest month when sales of Unlicensed Product exceeded the 30% market share threshold, together with interest thereon at the rate specified for late payments pursuant to Section 7.10 hereof.  Chiron shall not enter into any such final settlement without the prior written consent of Cubist (which consent shall not be unreasonably withheld or delayed).

(g)  Clinical Supplies.  Notwithstanding any provision in this Agreement to the contrary, Chiron shall have no obligation to pay any royalty to Cubist for any Licensed Products distributed by Chiron for use in any clinical study conducted by Chiron under this Agreement, including without limitation, Territory Specific Studies, clinical studies for Proposed Indications and Medical Affairs Studies.

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7.4.  Adjustments.  In recognition and acknowledgement of the commercial advantage provided to Chiron under this Agreement even in the absence of a Valid Claim, including, but not limited to, advantages obtained by use of Cubist’s Know-How or regulatory exclusivity, the Parties have agreed to the royalty rates set forth in Section 7.3(b).  In the event that a court of competent jurisdiction or arbitration panel determines that the downward adjustment on the applicable Royalty Rate effected by the provisions of Section 7.3(b) is insufficient to avoid violating the doctrine of patent misuse or otherwise to avoid rendering the obligation of Chiron to pay royalties to Cubist pursuant to Section 7.3 unenforceable, in either case in connection with sales of any Licensed Product in any country in the Territory that would be subject to the foregoing provisions of Section 7.3(b), then the Parties hereby agree (i) that any such court of competent jurisdiction or arbitration panel shall have the discretion and right to reduce the applicable Royalty Rate to a level where such court of competent jurisdiction or arbitration panel deems appropriate or necessary so that the doctrine of patent misuse or any other applicable law is not violated and (ii) that such court of competent jurisdiction or arbitration panel shall enforce the obligation of Chiron and its Affiliates to pay royalties to Cubist pursuant to Section 7.3 using such reduced applicable Royalty Rate to calculate Chiron’s royalty obligation under Section 7.3.

7.5.  Third Party Royalties and Other Payments.  The royalties payable by Chiron to Cubist under Section 7.3 shall be inclusive of (and Cubist shall be solely responsible for) any and all royalty obligations or other payment obligations to Third Parties arising from license or other agreements entered into by Cubist prior to the Effective Date relating to the manufacture, use, sale, offer for sale or importation of the Licensed Products, including without limitation, the Lilly License, or after the Effective Date with respect to such obligations incurred by Cubist pursuant to Section 8.5(c) relating to Patents of any Third Party that were published or generally available prior to the Effective Date.

7.6.  Royalty Payments and Reports.  All amounts payable to Cubist under this Agreement shall be paid by Chiron in Dollars within [*] of the end of each calendar quarter except as otherwise specifically provided herein.  Each payment of royalties owing to Cubist shall be accompanied by a statement, on a country-by-country basis, of (i) the amount of gross sales of Licensed Product, (ii) an itemized calculation of Net Sales showing deductions during such calendar quarter provided for in the definition of Net Sales, (iii) the amount of aggregate gross sales of Licensed Product and Net Sales in all countries within the Territory during such calendar quarter and on a cumulative basis as of the end of such calendar quarter, (iv) the amount of royalty due on such sales, and (v) the currency exchange rates used in determining the amount of Dollars payable to Cubist.  If any royalty reductions are claimed by Chiron under this Agreement from the full royalty rates set forth in Section 7.3, then the report shall set forth in detail the claimed reduction and the related facts.

7.7.  No Reductions or Offsets.  Chiron and its Affiliates shall make payment to Cubist of all amounts that Chiron is required to pay to Cubist pursuant to this Article 7 without any reduction, offset or setoff, except to the extent otherwise expressly provided in Sections 7.3(c), 7.3(d), 7.3(e) or 7.3(f).  In addition, in the event that the amount of royalties due from Chiron to Cubist pursuant to this Agreement is less than the aggregate Transfer Price previously paid to Cubist for such units, then Chiron acknowledges and agrees that it shall not be entitled to any refund or credit of such previously paid Transfer Price, and that Cubist shall not be liable or responsible for, or owe Chiron any monies as a result of, such deficiency.

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7.8.  Tax Matters.

(a)           The Parties acknowledge and agree that under the current United States - Ireland Tax Treaty (the “Tax Treaty”), Chiron has no obligation to withhold any amounts on account of taxes from any payment by Chiron to Cubist under this Article 7.

(b)           [*] to Cubist under this Article 7 [*] shall at its sole discretion either (i) [*], or (ii) [*] to the extent of any [*].

(c)           [*] to Cubist [*] shall at its sole discretion either (i) [*], or (ii) [*] to the extent of any [*].

7.9.  Foreign Exchange.  For the purpose of computing the Net Sales for Licensed Products sold in a currency other than Dollars, such currency shall be converted into Dollars using the average monthly rate of exchange for the month in which such currencies are received, as at 12:00 P.M. New York time for the Federal Reserve Bank of New York (Bloomberg Page USCF Index).

7.10.  Late Payments.  Any amounts not paid by Chiron when due under this Agreement shall be subject to interest from and including the date payment is due through and including the date upon which Chiron has made a wire transfer of immediately available funds into an account designated by Cubist at a rate equal to [*] quoted in the Money Rates section of the Wall Street Journal (New York Edition) calculated daily on the basis of a 365-day year, or similar reputable data source, or, if lower, the highest rate permitted under applicable law.

7.11.  Exports of Licensed Product from the Territory; [*]  In the event that Cubist provides to Chiron written evidence that Licensed Products sold in any country in the Territory by Chiron are being exported from such country and imported into a country outside the Territory, and that such export of Licensed Product has had a material adverse effect on the sales by Cubist or an Other Licensee of Licensed Product in such country outside the Territory, then Chiron shall use Commercially Reasonable Efforts to employ such remedies as are available to Chiron under applicable laws in the Territory to prevent the continued export of Licensed Product from the country in the Territory to such country outside of the Territory.  In the event that Chiron is in breach of its obligations under this Section 7.11, The [*] until such time as Chiron shall have provided to Cubist and implemented a plan to remedy the situation.

ARTICLE 8.

INTELLECTUAL PROPERTY

8.1.  Ownership of Inventions.  Subject to the licenses granted by either Party to the other Party pursuant to this Agreement, the entire right, title and interest in and to all discoveries, improvements, processes, formulas, data, inventions, enhancements, know-how and trade secrets, patentable or otherwise, that arise from activities performed under or pursuant to this Agreement or the Supply Agreement and that were or are developed or invented:

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(a)           solely by employees of Cubist (“Cubist Inventions”) shall be owned solely by Cubist;

(b)           solely by employees of Chiron (“Chiron Inventions”) shall be owned solely by Chiron; and

(c)           jointly by employees of Cubist and Chiron (“Joint Inventions”) shall be owned jointly by Cubist and Chiron.

Inventorship shall be determined in accordance with U.S. patent laws.

8.2.  Prosecution of Patents.

(a)  Cubist Patents.  Cubist shall be responsible for the filing, prosecution and maintenance of the Cubist Patents at its sole expense; provided, however, that Cubist shall (i) provide Chiron with all material documentation and correspondence from, sent to or filed with patent offices in the Territory regarding the Cubist Patents, (ii) provide Chiron with a reasonable opportunity to review and comment upon all filings with such patent offices in advance of submissions to such patent offices, and (iii) shall consider, in good faith, incorporating any reasonable comments provided by Chiron. If Cubist determines in its sole discretion to abandon or not file or maintain any claim or patent application within the Cubist Patents anywhere in the Territory, then Cubist shall provide Chiron with thirty (30) days prior written notice of such determination, or reasonable notice if the period for determination is less than thirty (30) days, and shall provide Chiron with the opportunity to file, prosecute and maintain such claim or patent application in the Territory in the name of Chiron (or an Affiliate of Chiron) as assignee and Cubist shall assign to Chiron its entire right in such claim or patent application in the Territory, and thereafter Chiron shall be responsible for all costs and expenses in connection with the filing, prosecution or maintenance of any such claim or patent application assigned by Cubist to Chiron pursuant to this Section 8.2(a). Chiron shall also pay for all costs and expenses in connection with any assignment by Cubist to Chiron of any claim or patent application pursuant to this Section 8.2(a).  Cubist shall inform Chiron of any patents, information or proceeding of which Cubist becomes aware that relate to Cubist Patents that may adversely impact the validity, title or enforceability of Cubist Patents in the Territory.

(b)  Chiron Patents.  Chiron shall be responsible for the filing, prosecution and maintenance of the Chiron Patents at its sole expense; provided, however, that Chiron shall (i) provide Cubist with all material documentation and correspondence from, sent to or filed with patent offices regarding the Chiron Patents, (ii) provide Cubist with a reasonable opportunity to review and comment upon all filings with such patent offices in advance of submissions to such patent offices, and (iii) shall consider, in good faith, incorporating any reasonable comments provided by Cubist. If Chiron determines in its sole discretion to abandon or not file or maintain any claim or patent application within the Chiron Patents, then Chiron shall provide Cubist with thirty (30) days prior written notice of such determination, or reasonable notice if the period for determination is less than thirty (30) days, and shall provide Cubist with the opportunity to file, prosecute and maintain such claim or patent application in the name of Cubist (or an Affiliate of Cubist) as assignee and Chiron shall assign to Cubist its entire right in such claim or patent application, and thereafter Cubist shall be responsible for all costs and expenses in connection

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with the filing, prosecution or maintenance of any such claim or patent application assigned by Chiron to Cubist pursuant to this Section 8.2(b). Cubist shall also pay for all costs and expenses in connection with any assignment by Chiron to Cubist of any claim or patent application pursuant to this Section 8.2(b). Chiron shall inform Cubist of any patents, information or proceeding of which Chiron becomes aware that relate to Chiron Patents that may adversely impact the validity, title or enforceability of Chiron Patents.

(c)  Joint Patents.  Unless the Parties otherwise mutually agree in writing, Cubist shall have the first right to file, prosecute and maintain in the Territory and outside the Territory, upon appropriate consultation with Chiron, all patent applications and patents that claim any Joint Inventions (any such patent application and any patents issuing therefrom a “Joint Patent”), provided however, in the event that Cubist elects not to file any patent application in the Territory or outside the Territory with respect to any Joint Invention, Chiron shall have such right and upon exercise of such right, Chiron shall have the right to prosecute and maintain in the Territory and outside the Territory, upon appropriate consultation with Cubist, the Joint Patents to which such Joint Invention relates.  In each case, the filing Party (A) shall give the non-filing Party a reasonable opportunity to review the text of the application or submission before filing, (B) shall consult with the non-filing Party with respect thereto, (C) shall, prior to filing any application or submission, incorporate any reasonable comments that the non-filing Party shall make on a timely basis to such application or submission and (D) shall supply the non-filing Party with a copy of the application or submission as filed, together with notice of its filing date and serial number and all substantive prosecution.  Each Party shall keep the other advised of the status of the actual and prospective patent filings described above in this Section 8.2(c) and, upon the request of the other, provide advance copies of any papers related to the filing, prosecution and maintenance of such patent filings.  Cubist shall promptly give notice to Chiron of the grant, lapse, revocation, surrender, invalidation or abandonment in the Territory or outside the Territory of any Joint Patent being prosecuted by Cubist.  Chiron shall promptly give notice to Cubist of the grant, lapse, revocation, surrender, invalidation or abandonment in the Territory or outside the Territory of any Joint Patent being prosecuted by Chiron.  With respect to all filings hereunder, the filing Party shall be responsible for payment of all costs and expenses related to such filings (subject to partial reimbursement to the extent provided in the next sentence).  Where the filing Party is Chiron, it shall be entitled to reimbursement from Cubist for [*] of the expenses and costs incurred by the filing Party in connection with the prosecution and maintenance of Joint Patents.  Except to the extent either Party is restricted by the licenses granted to the other Party, and covenants contained herein, and to the extent permitted by law, each Party shall be entitled to practice and sublicense Joint Patents and Joint Know-How without restriction or an obligation to account to the other Party.  Either Party may disclaim its interest in any particular Patent covering a Joint Invention, in which case (X) the disclaiming Party shall assign its ownership interest in such Patent to the other Party for no additional consideration, (Y) the Party which is then the sole owner shall be solely responsible for all future costs of such Patent, and (Z) the disclaiming Party shall hold no further rights thereunder.

8.3.  Patent Term Extensions.  Cubist will, in its sole discretion, after discussing its strategy with Chiron and reasonably considering Chiron’s comments, in each country in the Territory, determine for which, if any, of the Patents within the Cubist Patents and Joint Patents, the Parties will apply to extend the patent term with respect to Licensed Products, as provided for

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in patent term extension laws or regulations in the Territory similar to the Patent Term Restoration Act or other similar laws and regulations affording an extension or restoration of patent terms in the United States, which similar laws and regulations shall include without limitation any Supplementary Protection Certificates. Chiron shall not make any submissions, filings or other communications with any governmental agency with respect to patent term restoration (or other similar grant of a monopoly right with respect to any Licensed Product) for any Patents within the Cubist Patents or Joint Patents without Cubist’s express consent.  Chiron will cooperate fully with Cubist in making such filings at Cubist’s sole expense which may include without limitation, making available regulatory data and information for such purpose.  Notwithstanding anything in the foregoing provisions of this Section 8.3 to the contrary, in the event that Cubist, in its sole discretion, makes a determination not to seek an extension within the Territory of the patent term of any Cubist Patent or Joint Patent in the Territory with respect to Licensed Products, then Cubist shall provide Chiron with thirty (30) days prior written notice of such determination, or reasonable notice if the period for determination is less than thirty (30) days, and shall provide Chiron with the opportunity, at Chiron’s sole discretion and sole cost and expense, to make submissions and filings, and take such other actions as may be reasonably required, on behalf of Cubist to extend within the Territory the patent term of any Cubist Patent or Joint Patent in the Territory with respect to License Products.

8.4.  Infringement of Patents by Third Parties.

(a)  Notification.  Each Party shall promptly notify the other Party in writing of any alleged or threatened infringement of the Cubist Patents, Chiron Patents and Joint Patents of which it becomes aware (such infringement, “Infringement”, and “Infringe” shall be interpreted accordingly).

(b)  Infringement of Patents in the Territory.  For all Infringement of Cubist Patents, Chiron Patents or Joint Patents in the Territory, Chiron shall have the right, but not the obligation, to bring, at its own expense and in its sole control, an appropriate action against the person or entity engaged in such Infringement directly or contributorily.  If Chiron does not bring such action within ninety (90) days of notification thereof to or by Cubist pursuant to Section 8.4(a) or within ninety (90) days of the date upon which notification thereof to Cubist was given by Chiron pursuant to Section 8.4(a) hereof, Cubist shall have the right, but not the obligation, to bring at Cubist’s expense and in its sole control, such appropriate action.  The Party not bringing an action under this paragraph (b) shall be entitled to separate representation in such matter by counsel of its own choice and at its own expense, but such Party shall cooperate reasonably with the Party bringing such action, including without limitation agreeing to be named as a party to such action if necessary.

(c)  Other Infringement of Cubist Patents.  For all Infringement of Cubist Patents other than Infringement described in Section 8.4(b) above, Cubist shall have the exclusive right, but not the obligation, to bring, at Cubist’s expense and in its sole control, an appropriate action against any person or entity engaged in such Infringement directly or contributorily.

(d)  Infringement of Chiron Patents and Joint Patents outside the Territory.  For all Infringement of Chiron Patents and Joint Patents outside of the Territory,

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Cubist shall have the right, but not the obligation, to bring, at Cubist’s expense and in its sole control, an appropriate action against any person or entity engaged in such Infringement directly or contributorily.  If Cubist does not bring such action within ninety (90) days of notification thereof to or by Chiron pursuant to Section 8.4(a) or within ninety (90) days of the date upon which notification thereof to Chiron was given by Cubist pursuant to Section 8.4(a) hereof, Chiron shall have the right, but not the obligation, to bring at Chiron’s expense and in its sole control, such appropriate action.  The Party not bringing an action under this paragraph (d) shall be entitled to separate representation in such matter by counsel of its own choice and at its own expense, but such Party shall cooperate reasonably with the Party bringing such action, including without limitation agreeing to be named as a party if necessary for such action.

(e)  Settlement; Allocation of Proceeds.  Cubist shall not settle a claim brought under this Section 8.4 involving Cubist Patents, Chiron Patents or Joint Patents in a manner that would limit or restrict the ability of Chiron to sell, or Chiron’s sales of, Licensed Products in the Territory, without the prior written consent of Chiron (which consent shall not be unreasonably withheld or delayed).  Chiron shall not settle a claim brought under this Section 8.4 involving Cubist Patents, Chiron Patents or Joint Patents in a manner that would limit or restrict the ability of Cubist to sell, or Cubist’s sales of, Licensed Products outside the Territory, without the prior written consent of Cubist (which consent shall not be unreasonably withheld or delayed).  In the event of any recovery of monetary damages from the Third Party in an action brought under Section 8.4(b), Section 8.4(c) or Section 8.4(d), whether such damages result from the infringement of Cubist Patents, Chiron Patents or Joint Patents, such recovery shall be allocated first to the reimbursement of any reasonable expenses incurred by the Parties in the litigation under this Section 8.4 (including, for this purpose, a reasonable allocation of internal counsel), and any remaining amounts (“Remainder”) shall be allocated as follows:

(i)            the portion of the Remainder that represents recovery for Infringement in the Territory shall be treated as Net Sales of Licensed Products in accordance with Section 7.3 with Chiron retaining such amounts and paying to Cubist the applicable royalty thereon unless the Remainder consists of a recovery in any action brought by Cubist pursuant to Section 8.4(b) hereof in which case the portion of the Remainder that represents recovery for Infringement in the Territory shall be [*] Cubist and [*] Chiron; and

(ii)           the portion of the Remainder that represents recovery for Infringement outside the Territory shall be [*] for Cubist unless the Remainder consists of a recovery in an action brought by Chiron pursuant to Section 8.4(d) hereof in which case the portion of the Remainder that represents recovery for Infringement outside the Territory shall be [*] Cubist and [*] Chiron.

8.5.  Infringement of Third Party Rights.

(a)  Notice.  If any Licensed Product developed, manufactured, used or sold by either Party, its Affiliates, licensees, sublicensees or distributors becomes the subject of a Third Party claim of patent infringement relating to the development, manufacture, use, sale, offer for sale or importation of such Licensed Product, or if either Party reasonably believes, based on facts that such Party has become aware of, that a reasonable potential for any such claim exists, the Party first having notice of such claim or having such reasonable belief shall promptly notify

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the other Party in writing, and the Parties shall promptly meet to evaluate the claim and discuss the appropriate course of action.  Any claim or potential claim referred to in this Section 8.5(a) is hereinafter referred to as a “Third Party Infringement Claim”.

(b)  Avoidance of Infringement.  In the event that there is a Third Party Infringement Claim that arises from the use or practice of any Cubist Technology, Chiron Technology or any Joint Technology in connection with the research, development, manufacture, use, sale, offer for sale or importation of Licensed Products in the Territory and/or outside the Territory, the Parties shall confer in good faith as promptly as practicable after both parties become aware of such Third Party Infringement Claim as to whether it is feasible to alter their approach to the infringing activities with respect to the Licensed Product so as to avoid such infringement without adversely affecting their rights under this Agreement.  In the event the Parties determine in good faith that it is feasible to alter their approach to such infringing activities without adversely affecting their rights under this Agreement, the Parties shall implement such alternative approach to such infringing activities.

(c)  Licensing to Resolve Infringement by Cubist Technology.  If the Parties determine in good faith that it is not feasible to alter their approach to any infringing activities referred to in Section 8.5(b) so as to avoid such infringement without adversely affecting their rights under this Agreement, then, if such infringement arises from the use or practice of any Cubist Technology or the research, development, manufacture, use, sale, offer for sale or importation of Licensed Products in the Territory, Cubist shall use commercially reasonable efforts to obtain a license on commercially reasonable terms from the Third Party whose intellectual property rights are being infringed so as to avoid, eliminate, resolve or settle such infringement.  In the event that Cubist shall obtain a license from a Third Party pursuant to this Section 8.5(c) in order to avoid, eliminate, resolve or settle any Third Party Infringement Claim of such Third Party and such license consists of or provides rights relating to the development, manufacture, use, sale, offer for sale or import of Licensed Products in the Territory, then Cubist shall sublicense such rights to Chiron for use in the Territory to the same extent that Cubist Technology is licensed by Cubist to Chiron for use in the Territory pursuant to Article 2 hereof, provided that Chiron agrees in writing to make payment, and makes payment when due, to Cubist of the portion of the costs or other amounts paid and required to be paid by Cubist to obtain and maintain such license that are reasonably appropriate for Chiron to bear in light of the relative financial benefits that could reasonably be expected to be derived from such license by Chiron in the Territory, on the one hand, and by Cubist and, if applicable, Third Party licensees of Cubist, outside the Territory, on the other hand. Notwithstanding any provision of this Agreement to the contrary, for purposes of this Section 8.5(c), the Parties hereby agree that Chiron shall not be obligated to bear any portion of the costs or other amounts paid and required to be paid by Cubist to obtain and maintain such license if the intellectual property rights of such Third Party that are infringed or allegedly infringed by the use or practice of any Cubist Technology, or the research, development, manufacture, use, sale, offer for sale or importation of Licensed Products in the Territory, consists of Patents of such Third Party that had published or were generally available to the public as of the Effective Date (a “Knowable Patent”).

(d)  Determination of Relative Financial Benefits.  In connection with any determination of the relative financial benefits that could reasonably be expected to be derived by Chiron, Cubist and, if applicable, Third Party licensees of Cubist in connection with any

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license obtained by Cubist or Chiron pursuant to Section 8.5(c), such relative financial benefits shall be determined by considering actual and projected net sales and actual or projected royalties from sales of the infringing Licensed Product by Chiron, Cubist and, if applicable, Third Party licensees of Cubist in the territory or territories that is or are covered by any such license.

(e)  Limitation of Obligation to Sublicense.  Notwithstanding anything in this Agreement expressed or implied to the contrary, Cubist shall have no obligation to sublicense to Chiron any rights licensed by Cubist pursuant to Section 8.5(c) if Chiron has not agreed in writing to pay, and does not make payment when due, of the portion of the cost and expense incurred or to be incurred by Cubist in connection with seeking and maintaining such license that Chiron is required to pay pursuant to Section 8.5(c).

(f)  Defense.  The Party against which a Third Party Infringement Claim is brought shall defend against such claim at its sole expense and the other Party shall have the right, but not the obligation, to participate in any such suit, at its sole option and at its own expense.  Such other Party shall reasonably cooperate with the Party conducting the defense of the claim, including if required to conduct such defense, furnishing a power of attorney.

(g)  Settlement.  Neither Party shall enter into any settlement of a claim brought under this Section 8.5 that materially adversely affects the other Party’s rights or interests without such other Party’s written consent, which consent shall not be unreasonably withheld or delayed.

8.6.  Patent Oppositions.

(a)  Third Party Patent Rights.  If either Party desires to bring an opposition, action for declaratory judgment, nullity action, interference, reexamination or other attack upon the validity, title or enforceability of a Patent owned or Controlled by a Third Party that covers or may cover the manufacture, use, sale, offer for sale or importation of any Licensed Product, such Party shall so notify the other Party and the Parties shall promptly confer in good faith to determine whether to bring such action or the manner in which to settle such action.  Cubist shall have the first right, but not the obligation, to bring at its own expense and in its sole control such action outside the Territory. If Cubist does not bring such action within ninety (90) days of notification thereof pursuant to this Section 8.6(a) (or earlier, if required by the nature of the proceeding), Chiron shall have the right, but not the obligation, to bring at Chiron’s expense and in its sole control, such action.  Chiron shall have the first right, but not the obligation, to bring at its own expense and in its sole control such action in the Territory.  If Chiron does not bring such action within ninety (90) days of notification thereof pursuant to this Section 8.6(a) (or earlier, if required by the nature of the proceeding), Cubist shall have the right, but not the obligation, to bring at Cubist’s expense and in its sole control, such action.  The Party not bringing an action under this Section 8.6(a) shall be entitled to separate representation in such proceeding by counsel of its own choice and at its own expense, and shall cooperate reasonably with the Party bringing such action. Any awards or amounts received in bringing any such action shall be first allocated to reimburse the Parties’ reasonable expenses incurred in such action, and any remaining amounts shall be retained by the Party bringing such action.

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(b)  Parties’ Patent Rights.  If a Cubist Patent, a Chiron patent or a Joint Patent becomes the subject of any proceeding commenced by a Third Party in connection with an opposition, reexamination request, action for declaratory judgment, nullity action, interference or other attack upon the validity, title or enforceability thereof, then the Party responsible for the prosecution of such Cubist Patent, such Chiron Patent or such Joint Patent pursuant to Section 8.2 hereof shall control such action at the sole cost or expense of the controlling Party unless the Parties otherwise agree in writing.  The controlling Party will permit the non-controlling Party to participate in the proceeding to the extent permissible under law, and to be represented by its own counsel in such proceeding, at the non-controlling Party’s expense.  If either Party decides that it does not wish to defend against such action, then the other Party shall have a backup right to assume defense of such Third Party action at its own expense.  Any awards or amounts received in defending any such Third Party action shall be allocated between the Parties as provided in Section 8.4(e) as if the Party conducting such opposition were the Party that brought an action against an alleged infringer.

(c)  Noncontravention.  Nothing in this Section 8.6 shall be construed to relieve either Party of its obligations under Section 8.5 hereof.

8.7.  Sublicensed Technology.

(a)  Generally.  The licenses granted under Article 2, to the extent they include sublicenses of Third-Party technology licensed by Cubist as of the Effective Date, a complete list of which is set forth in Exhibit E, and including without limitation the Lilly License (“Effective Date Third Party Licenses”), shall be subject to the terms and conditions of such Effective Date Third Party Licenses.  Cubist shall faithfully and timely perform and discharge its obligations under the Effective Date Third Party Licenses (including without limitation the payment of all royalties and other financial compensation due to such Third Parties thereunder in connection with the sale of Licensed Products) and shall not permit any action to be taken or event to occur, in each case, within Cubist’s reasonable control, which would give such Third Party the right to terminate such Effective Date Third Party License.  Further, Cubist shall not amend any Effective Date Third Party License without Chiron’s consent, such consent not to be unreasonably withheld.  Notwithstanding the provisions of the foregoing two sentences, Cubist shall not be liable to Chiron for breach of the obligations set forth in the foregoing two sentences unless such breach shall materially adversely affect Chiron’s ability to develop or Commercialize Licensed Products in accordance with the provisions of this Agreement.  If Cubist is notified or otherwise becomes aware of its material breach of any such Effective Date Third Party License, it shall promptly notify Chiron in writing, reasonably detailing such breach.  Cubist shall also notify Chiron of any material breach by such Third Parties of any of their obligations under the Effective Date Third Party Licenses.  The Parties shall promptly confer in good faith regarding an appropriate manner for curing any such breach within the time allotted by such Effective Date Third Party License, or if the Third Party is in breach, monitoring the ability and adequacy of the Third Party’s efforts to cure such breach.  If Cubist does not perform the agreed-upon remedy of such breach within the designated time, then Chiron may itself perform the agreed-upon remedy for such breach for the benefit of Cubist and any amounts that Chiron pays to cure such breach shall be either promptly reimbursed by Cubist or Chiron may withhold an equal amount from any payments due to Cubist under this Agreement.  If a good faith dispute between a Third Party and Cubist arises about the interpretation of any provision within such Effective Date Third Party

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License, Chiron shall use its Commercially Reasonable Efforts to ensure that its actions, if any, under this Section 8.7(a) do not detrimentally affect the ability of Cubist to contest the interpretation advanced by such Third Party.

(b)  Lilly License.  It is agreed and acknowledged that in the event of termination of the Lilly License, any sublicense granted by Cubist to Chiron under this Agreement of any rights granted by Lilly to Cubist under the Lilly License shall automatically be assigned by Cubist to Lilly in accordance with the provisions of Section 10.06 of the Lilly License.

(c)  Decision to License Third Party Technology.  In the event that either Party believes that certain Third Party intellectual property may be useful to the development, manufacture, use, sale, offer for sale or import of Licensed Products in the Territory and/or outside the Territory, then such Party shall request through the JCT that the Parties consider (i) whether the Parties should seek a license to such Third Party intellectual property to allow either or both Parties to use or practice such Third Party intellectual property in connection with the development, manufacture, use, sale, offer for sale or import of Licensed Products, (ii) how to allocate the costs of obtaining and maintaining such license between the Parties, (iii) how the Parties should proceed to seek such license, and (iv) whether, instead of seeking such license, the Parties can develop, manufacture, use, sell, offer for sale or import Licensed Product in a way that would eliminate or reduce the usefulness or desirability of licensing such Third Party intellectual property.

(d)  Licensing of Third Party Technology.  If the Parties reach a consensus that the Parties should seek a license to any Third Party intellectual property referred to in Section 8.7(c), then the Parties shall seek such license in a manner and on terms consistent with the determinations made by the Parties with respect to the matters set forth in clauses (i), (ii) and (iii) of Section 8.7(c). If the Parties are unable to reach a consensus that the Parties should seek such license and if the Parties are unable to reach a consensus that the Parties can develop, manufacture, use, sell, offer for sale or import Licensed Products in a way that would eliminate or reduce the usefulness and desirability of obtaining such license, then either Party shall be free to itself seek such license at its sole cost and expense. If Cubist is the Party that seeks such license and such license consists of or provides rights useful to the development, manufacture, use, sale, offer for sale or import of Licensed Products in the Territory, then, at Chiron’s request made at any time during the Term, Cubist shall sublicense such rights to Chiron for use in the Territory provided that Chiron agrees in writing to make payment, and makes payment when due,  to Cubist of the portion of the costs paid and required to be paid by Cubist to obtain and maintain such license that are reasonably appropriate for Chiron to bear in light of the relative financial benefits that could reasonably be expected to be derived from such license by Chiron in the Territory, on the one hand, and by Cubist and, if applicable, Third Party licensees of Cubist, outside the Territory, on the other hand. If Chiron is the Party that seeks such license and such license consists of or provides rights useful to the development, manufacture, use, sale, offer for sale or import of Licensed Products outside the Territory, then, at Cubist’s request made at any time during the Term, Chiron shall sublicense such rights to Cubist outside the Territory provided that Cubist agrees in writing to make payment, and makes payment when due, to Chiron of the portion of the costs paid and required to be paid by Chiron to obtain and maintain such license that are reasonably appropriate for Cubist to bear in light of the relative financial benefits that could reasonably be expected to be derived from such license by Cubist and, if

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applicable, Third Party licensees of Cubist outside the Territory, on the one hand, and by Chiron in the Territory, on the other hand.

(e)  Limitation of Obligation to Sublicense.  Notwithstanding anything in this Agreement expressed or implied to the contrary, the Party that obtains a license pursuant to Section 8.7(d) above shall have no obligation to make the licensed rights obtained pursuant to such license available to the other Party if such other Party is not bearing a reasonably appropriate portion of the cost and expense of seeking and maintaining such license in light of the relative financial benefits that could reasonably be expected to be derived from such license by Chiron in the Territory, on the one hand, and by Cubist and, if applicable, Third Party licensees of Cubist outside the Territory, on the other hand.

(f)  Determination of Relative Financial Benefits.  In connection with any determination of the relative financial benefits that could reasonably be expected to be derived by Chiron, Cubist and, if applicable, Third Party licensees of Cubist in connection with any license obtained by Cubist or Chiron pursuant to this Section 8.7, such relative financial benefits shall be determined by considering actual and projected net sales and actual or projected royalties from sales of the applicable Licensed Product by Chiron, Cubist and, if applicable, Third Party licensees of Cubist in the territory or territories that is or are covered by any such license.

8.8.  Patent Marking.  Licensed Products marketed and sold by the Parties hereunder shall be marked with appropriate patent numbers or indicia at Cubist’s request, to the extent permitted by law, in those countries in which such markings have notice value as against infringers of patents.

8.9.  Applicability to Chiron Patents.  Notwithstanding any provision of this Agreement to the contrary, the provisions of this Article 8 shall apply to any Chiron Patent only to the extent that the Parties have not otherwise agreed on responsibilities for prosecution, maintenance, enforcement, defense and other management of such Chiron Patent.

8.10.  Trademarks.

(a)  Trademark License.  Subject to the provisions set forth in this Section 8.10, Cubist hereby grants Chiron an exclusive, royalty-free license under its entire right, title and interest in and to the Cubist Marks to use and display the Cubist Marks in connection with the Commercialization of Licensed Products within the Territory.  Chiron shall not use Cubist’s trade names and/or marks in a way which would be confusing or otherwise adversely affect their value.  Chiron agrees that it will not reproduce or use the Cubist Marks in any manner whatsoever other than as authorized by this Agreement, and that its uses of the Cubist Marks will comply with the current trademark guidelines that Cubist may provide from time to time.  Chiron shall provide Cubist with copies of any materials containing any Cubist Marks prior to using or disseminating such materials, and shall reasonably consider all comments made by Cubist regarding the use of the Cubist Marks.  Cubist will have the right to monitor Chiron’s use of the Cubist Marks and to request that Chiron correct any failure to comply with this Section 8.10 adversely affecting the strength or value of such trademark.

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(b)  Selection and Registration of Product Trademarks.  Subject to the provisions set forth below in this Section 8.10, Chiron shall use in connection with the Commercialization of any Licensed Product in the Territory those trademarks used by Cubist in connection with the Commercialization of such Licensed Product outside the Territory.  In the event that (i) any trademark or trademarks used by Cubist in connection with the Commercialization of any Licensed Product outside the Territory may not be registered for use in the Territory with such Licensed Product or (ii) Chiron believes that it would be a significant advantage for the Commercialization of any Licensed Product in the Territory to select and use a trademark or trademarks in connection therewith that is or are different from the trademark or trademarks being utilized by Cubist in connection with the Commercialization of such Licensed Product outside the Territory, then Chiron shall notify Cubist about the matter and shall submit to Cubist several other trademarks that Chiron desires to use, and believes can be used, with the Licensed Product in question in the Territory.  Cubist and Chiron shall jointly consider, discuss and decide the matter.  Chiron shall not use any trademark in connection with the Commercialization of any Licensed Product within the Territory that is different from the trademark or trademarks being utilized by Cubist in connection with the Commercialization of such Licensed Product outside the Territory without Cubist’s written consent.  Any trademark used by Chiron in connection with the Commercialization of any Licensed Product in the Territory that is different than the trademark or trademarks utilized by Cubist in connection with the Commercialization of such Licensed Product outside the Territory and that has been selected and approved in accordance with the provisions of this Section 8.10(b) is hereinafter referred to as an “Approved New Trademark”. Subject to Chiron’s right to use each Approved New Trademark in accordance with the provisions of this Agreement, Cubist shall own all right, title and interest to each Approved New Trademark, and each Approved New Trademark shall become one of, and be included among, the Cubist Marks, and, to the extent permitted by applicable law, Cubist shall be responsible for registering and maintaining such Approved New Trademark within and outside the Territory, at Cubist’s own expense.  Chiron hereby assigns to Cubist any and all right, title, interest, and goodwill that Chiron may have in any such Approved New Trademark (other than the right, if applicable, set forth below in this Section 8.10 to register and maintain such Approved New Trademark and Chiron’s license and right to use such Approved New Trademark pursuant to the provisions of Section 8.10(a) hereof) and hereby agrees to execute such further documents as Cubist shall reasonably request to further evidence and perfect such assignment.  In the event that the laws of any applicable country within the Territory shall not permit Cubist to register any Cubist Mark, then Chiron shall be responsible for registering and maintaining such Cubist Mark in such applicable country, notwithstanding the fact that Cubist shall own such Cubist Mark, and any use or goodwill arising from use of the mark shall inure to the benefit of Cubist.

(c)  Infringement of Trademarks by Third Parties.  Each Party shall notify the other Party in writing promptly upon learning of any actual, alleged or threatened infringement in the Territory or outside the Territory of any Cubist Mark or of any unfair trade practices, trade dress imitation, passing off of counterfeit goods, or like offenses, in any case involving or affecting Licensed Products in the Territory or outside the Territory (hereinafter “TM Infringement”).  In the case of any TM Infringement in the Territory, after any such written notice has been sent and received with respect to such TM Infringement, the Parties shall confer in good faith as to the reasonable response to such TM Infringement.  In the absence of other

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agreement between the Parties, (i) Cubist shall have the exclusive right, in its own discretion and at its own expense, to bring an action to address TM Infringement outside the Territory, (ii) Chiron shall have the first right, in its own discretion and at its own expense, to bring an action to address TM Infringement in the Territory, and (iii) if Chiron does not exercise its rights under the foregoing clause (ii) within ninety (90) days after the Parties shall have conferred in good faith as to the reasonable response to such TM Infringement in the Territory in accordance with the above provisions of this Section 8.10(c), Cubist shall have the right, in its own discretion and its own expense, to bring an action to address such TM Infringement in the Territory.  Any recovery by the Party pursuing the Third Party for the alleged TM Infringement shall be applied first to reimburse the costs and expenses incurred by the Party pursuing the infringer, and the portion of any remainder that is attributable to TM Infringement outside the Territory shall be allocated [*] to Cubist, and the portion of such remainder that is attributable to TM Infringement in the Territory shall be allocated as follows: (i) if the pursuing Party is Chiron, [*]; and (ii) if the pursuing Party is Cubist, [*].

(d)  Product Trademarks Infringe Third Party Rights.  Each Party shall notify the other Party in writing promptly upon being notified that any Cubist Mark or trade dress associated with the sale of License Products in the Territory or outside the Territory is alleged to infringe any Third Party trademark or other related intellectual property rights. In the case of any such alleged infringement in the Territory, after any such written notice has been sent and received with respect to such alleged infringement, the Parties shall confer in good faith as to the reasonable response to such alleged infringement.

8.11.  Subordination to Lilly Rights.  Notwithstanding anything in this Article 8 expressed or implied to the contrary, the Parties hereby agree that the respective rights and obligations of the Parties under this Article 8 with respect to the Cubist Patents licensed by Cubist from Lilly pursuant to the Lilly Agreement and set forth on Exhibit F hereto (in each case, a “Lilly Patent”) shall, to the extent applicable, be subject to the respective rights and obligations of Lilly and Cubist with respect to such Lilly Patent as set forth in the Lilly Agreement.  In the event that the rights and obligations of Lilly and Cubist under the Lilly Agreement with respect to any Lilly Patent shall be in conflict with the respective rights and obligations of Cubist and Chiron under this Article 8 with respect to such Lilly Patent, the respective rights and obligations of Lilly and Cubist under the Lilly Agreement with respect to such Lilly Patent shall control, take precedence and supersede the respective rights and obligations of Cubist and Chiron under this Article 8 with respect to such Lilly Patent to the extent of any such conflict.

ARTICLE 9.

REPRESENTATIONS AND WARRANTIES

9.1.  Mutual Representations and Warranties.  Each Party hereby represents and warrants to the other Party as follows:

(a)  Corporate Existence and Power.  It is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated, and has full corporate power and authority and the legal right to own and operate its property and assets and

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to carry on its business as it is now being conducted and as contemplated in this Agreement, including, without limitation, the right to grant the licenses granted hereunder.

(b)  Authority and Binding Agreement.  As of the Effective Date, (i) it has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; (ii) it has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder; and (iii) the Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid and binding obligation of such Party that is enforceable against it in accordance with its terms.

(c)  No Conflict.  It has not entered into any agreement with any Third Party that is in conflict with the rights granted to the other Party under this Agreement, and has not taken any action that would in any way prevent it from granting the rights granted to the other Party under this Agreement, or that would otherwise materially conflict with or adversely affect the rights granted to the other Party under this Agreement.  Its performance and execution of this Agreement will not result in a breach of any other contract to which it is a Party.

(d)  Validity.  It is aware of no action, suit, inquiry or investigation instituted by any Third Party which questions or threatens the validity of this Agreement.

(e)  Consents.  All necessary consents, approvals and authorizations of all governmental authorities and other persons or entities required to be obtained by such Party in connection with the execution and delivery of this Agreement have been obtained.

9.2.  Cubist Representations and Warranties.  Cubist hereby represents and warrants to Chiron as follows:

(a)  Ownership of Intellectual Property.  Except for the rights licensed to Cubist pursuant to the Effective Date Third Party Licenses, except for any Third Party intellectual property rights that would be infringed or misappropriated by the use or practice of the Cubist Patents, Cubist Know-How and the Cubist Marks (as to which infringement or misappropriation Cubist has no knowledge as of the Effective Date), [*] Cubist is the owner of the Cubist Patents, the Cubist Know-How and Cubist Marks that exist as of the Effective Date, free and clear (as of the Effective Date) of all liens, encumbrances, security interests, licenses, and options to acquire or license in favor of Third Parties. Except for any Third Party intellectual property rights that would be infringed or misappropriated by the use or practice of the Cubist Patents, Cubist Know-How and the Cubist Marks (as to which infringement or misappropriation Cubist has no knowledge as of the Effective Date),  as of the Effective Date, (1) Cubist has the requisite right to grant to Chiron the licenses granted herein to Chiron, and (2) no right or license of any Third Party is required to permit Cubist to perform its obligations under this Agreement in accordance with the terms of this Agreement and to permit Chiron to exercise its rights hereunder in accordance with the terms of this Agreement.

(b)  Claims Related to Use of Intellectual Property.  As of the Effective Date, Cubist is not aware of any pending or threatened claims against Cubist asserting that any of the activities of Cubist relating to the Licensed Products or the conduct by the Parties of any of the

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activities contemplated by this Agreement relating to the Licensed Products infringes the rights of any Third Party.  As of the Effective Date, Cubist is not aware of any published or generally available Patents of any Third Party that would be infringed by the use or practice of the Cubist Patents, Cubist Know-How or the Cubist Marks.

(c)  Notice to Third Persons.  As of the Effective Date, Cubist has not given any notice to any Third Party asserting infringement, misappropriation or violation by such Third Party upon any of the Cubist Technology.

(d)  Effective Date Third Party Licenses.  Exhibit E is an accurate and complete list of all Effective Date Third Party Licenses, including without limitation, the Lilly License.  As of the Effective Date, all Effective Date Third Party Licenses remain in effect and Cubist is not in breach or default in the performance of its obligations under the Effective Date Third Party Licenses.  Cubist has not received any notice from any of the other parties to any of the Effective Date Third Party Licenses, including without limitation, Lilly, of any breach, default or non-compliance of Cubist under the terms of any of the Effective Date Third Party Licenses, including without limitation, the Lilly License.  There have been no amendments or other modification to the Effective Date Third Party Licenses, including without limitation, the Lilly License, except as have been disclosed to Chiron in writing.  Cubist has the requisite right under the Lilly License to grant to Chiron a sublicense of Cubist’s rights under the Lilly License.  Lilly’s right of first negotiation under the Lilly License to acquire the rights licensed by Cubist to Chiron as of the Effective Date pursuant to this Agreement has expired or been exhausted or waived.

(e)  No Misappropriation.  To the best knowledge of Cubist as of the Effective Date (after having made due inquiry of its employees on or prior to the Effective Date), it has not misappropriated the trade secret of any Third Party in its activities to develop and Commercialize Licensed Products.

(f)  Regulatory Filings.  Exhibit G is an accurate and complete list of all INDs, NDAs and other Drug Approval Applications for Licensed Products filed by Cubist anywhere in the world as of the Effective Date.  Except for the rights granted to Chiron pursuant to this Agreement and the Supply Agreement, Cubist is as of the Effective Date the owner of all INDs, NDAs and other Drug Approval Applications set forth on Exhibit G attached hereto, free and clear (as of the Effective Date) of all liens, encumbrances, security interests, licenses, and options to acquire or license in favor of Third Parties.  As of the Effective Date, Cubist has complied in all material respects with all laws applicable to all INDs, NDAs and other Drug Approval Applications set forth on Exhibit G attached hereto.

(g)  Regulatory Data and Affairs.  Cubist has disclosed to Chiron all material information and data that is known to Cubist and that is in the possession of, or otherwise available to, Cubist relating to (i) the results of pre-clinical and clinical studies of Licensed Products conducted by or on behalf of Cubist or Lilly, and (ii) Cubist’s pending Drug Approval Application in the United States for the Licensed Product and its status.  All such material information and data disclosed by Cubist to Chiron are complete and accurate in all material respects.

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(h)  Non-Infringement of Cubist Technology by Third Parties.  As of the Effective Date, Cubist is unaware of any activities by Third Parties that would constitute infringement or misappropriation of any Cubist Technology.

(i)  Litigation.  [*,] Cubist is not aware of any litigation against Cubist that has been pending or threatened with respect to the Cubist Technology, Licensed Products or Cubist’s rights in either of the foregoing.

(j)  Restrictive Agreements.  As of the Effective Date, Cubist has not entered into any agreement with a Third Party pursuant to which Cubist shall have agreed not to enforce any right of Cubist to preclude such Third Party from using or practicing any or all of the Cubist Technology or Commercialize Licensed Products in the Territory.

(k)  Patent Prosecution.  To the best of Cubist’s knowledge as of the Effective Date, (i) Cubist has complied in all material respects with all laws applicable to the prosecution and maintenance of the Cubist Patents, and (ii) those employees of Cubist having a duty to disclose to the patent office of any country in the Territory information material to the patentability of the subject matter of any or all of the Cubist Patents in such country have disclosed all such information.

9.3.  Chiron Representation and Warranty - No Intellectual Property.  Chiron hereby represents and warrants to Cubist that as of the Effective Date, Chiron is not aware (without having conducted any review of its existing intellectual property portfolio) that it has any patents, trade secrets or know-how that would be useful in connection with the development, manufacture, marketing, promotion, use, sale, import or export of Licensed Products.

9.4.  Disclaimer.  Chiron understands that Licensed Products are the subjects of ongoing clinical research and development and that Cubist cannot assure the safety or usefulness of Licensed Products, however, the foregoing shall not be construed to affect the allocation of risks agreed upon by the Parties under to Article 10.

9.5.  No Other Representations.  THE EXPRESS REPRESENTATIONS AND WARRANTIES STATED IN THIS ARTICLE 9 ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.

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ARTICLE 10.

INDEMNIFICATION

10.1.  Indemnification by Cubist. Subject to all of the provisions of this Article 10, Cubist hereby agrees to defend, hold harmless and indemnify (collectively “Indemnify”) Chiron and its Affiliates, and their respective agents, directors, officers and employees (the “Chiron Indemnitees”) from and against any and all suits, claims, actions, demands, liabilities, expenses and/or losses, including without limitation reasonable legal expenses and attorneys’ fees (collectively “Losses”) suffered or incurred by any of such Chiron Indemnitees resulting from (i) a material breach of any of Cubist’s representations and warranties pursuant to Article 9 of this Agreement or Article 9 of the Supply Agreement; (ii) a material breach of any of Cubist’s covenants and agreements made pursuant to this Agreement or the Supply Agreement; (iii) any Third Party claim made against any such Chiron Indemnitee for damages suffered by such Third Party arising from any failure of Cubist or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, to comply in any material respect with applicable laws or regulations; (iv) any Third Party claim made against any such Chiron Indemnitees for death, bodily injury or property damage suffered by such Third Party arising from the negligence, recklessness or willful misconduct of Cubist or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, in the course of carrying out any of the actions or activities of Cubist under or in connection with this Agreement or the Supply Agreement; or (v) any Third Party claim made against any such Chiron Indemnitees for death, bodily injury or property damage suffered by such Third Party arising from any activities of Cubist or any of its Affiliates, licensees (other than Chiron), contractors or distributors, or any of their respective agents or employees, anywhere in the world prior to, on, or after the Effective Date in connection with their respective development, manufacturing or Commercialization activities with respect to Licensed Products; provided, however, that Cubist shall not be required to indemnify the Chiron Indemnitees for any Losses pursuant to this Section 10.1 to the extent that (1) such Losses arise from matters or claims for which Chiron is required to indemnify any of the Cubist Indemnities pursuant to Section 10.2 hereof, (2) such Losses arise from Chiron’s breach or non-compliance with any of the provisions of this Agreement or the Supply Agreement, (3) such Losses arise or result from the negligence, recklessness or willful misconduct of Chiron or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, (4) such Losses arise or result from any Third Party products liability claim, (5) such Losses consist of Recall Expenses that are in excess of the maximum amount of such Recall Expenses for which Cubist is liable under Section 5.7(b) of this Agreement and Section 6.6(b) of the Supply Agreement or (6) Cubist’s liability for such Losses is limited pursuant to Section 10.6.  Cubist’s liability to any of the Chiron Indemnitees with respect to Third Party products liability claim is set forth in Section 10.3 below.

10.2.  Indemnification by Chiron. Subject to all of the provisions of this Article 10, Chiron hereby agrees to Indemnify Cubist  and its Affiliates, and their respective agents, directors, officers  and employees (the “Cubist Indemnitees”) from and against any and all Losses suffered or incurred by any of such Cubist Indemnitees resulting from (i) a material breach of any of Chiron’s representations and warranties pursuant to Article 9 of this Agreement or Article 9 of the Supply Agreement; (ii) a material breach of any of Chiron’s covenants and

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agreements made pursuant to this Agreement or the Supply Agreement; (iii) any Third Party claim made against any such Cubist Indemnitee for damages suffered by such Third Party arising from any failure of Chiron or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, to comply in any material respect with applicable laws and regulations; (iv) any Third Party claim made against any such Cubist Indemnitee for death, bodily injury or property damage suffered by such Third Party arising from the negligence, recklessness or willful misconduct of Chiron or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, in the course of carrying out any of the actions or activities of Chiron under or in connection with this Agreement or the Supply Agreement; or (v) any Third Party claim made against any such Cubist Indemnitees for death, bodily injury or property damage suffered by such Third Party arising from any activities of Chiron or any of its Affiliates, licensees (other than Cubist), contractors or distributors, or any of their respective agents or employees, anywhere in the world on or after the Effective Date in connection with their respective development, manufacturing or Commercialization activities with respect to Licensed Products; provided, however, that Chiron shall not be required to indemnify the Cubist Indemnitees for any Losses pursuant to this Section 10.2 to the extent that (1) such Losses arise from matters or claims for which Cubist is required to indemnify any of the Chiron Indemnities pursuant to Section 10.1 hereof, (2) such Losses arise from Cubist’s breach or non-compliance with any of the provisions of this Agreement or the Supply Agreement, (3) such Losses arise or result from the negligence, recklessness or willful misconduct of Cubist or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, (4) such Losses arise or result from any Third Party products liability claim or (5) Chiron’s liability for such Losses is limited pursuant to Section 10.6. Chiron’s liability to any of the Cubist Indemnitees with respect to Third Party products liability claim is set forth in Section 10.3 below.

10.3.  Liability for Third Party Products Liability Claims.

(a)Subject to all of the provisions of this Article 10, Cubist hereby agrees to Indemnify the Chiron Indemnitees from and against any and all Losses suffered or incurred by any of such Chiron Indemnitees resulting from any Third Party product liability claim made against any such Chiron Indemnitee for death, bodily injury or property damage suffered by such Third Party from or in connection with any Licensed Product sold by Chiron or its Affiliates or distributors for use in the Territory but only if and to the extent that such death, bodily injury or property damage was or is caused by reason of such Licensed Product being a Defective Manufactured Product; provided, however, that Cubist shall not be required to indemnify the Chiron Indemnitees for any Losses pursuant to this Section 10.3(a) to the extent that (1) such Losses arise from matters or claims for which Chiron is required to indemnify any of the Cubist Indemnities pursuant to Section 10.3(b) hereof or (2) such Losses arise from Chiron’s breach or non-compliance with any of the provisions of this Agreement or the Supply Agreement.

(b)Subject to all of the provisions of this Article 10, Chiron hereby agrees to Indemnify the Cubist Indemnitees from and against any and all Losses suffered or incurred by any of such Cubist Indemnitees resulting from any Third Party product liability claim made against any such Cubist Indemnitee for death, bodily injury or property damage suffered by such Third Party from or in connection with any Licensed Product sold or used by Chiron or its Affiliates or distributors but only if and to the extent that such death, bodily injury or property damage arises or results from (A) the improper use, transportation, packaging, storage or

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handling of such Licensed Product by Chiron or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, including, without limitation, any such use, transportation, packaging, storage or handling of such Licensed Products that does not conform with any of the applicable specifications of such Licensed Product or with the requirements of any Regulatory Authorities or any applicable laws within the Territory, (B) the failure of such Licensed Product to have an appropriate shelf-life at the time such Licensed Product was sold or used by Chiron or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, provided that such Licensed Product is not a Defective Manufactured Product, (C) any defect or deficiency in the label or package insert of, or the marketing or promotional materials with respect to, such Licensed Product, including, without limitation, the failure of the label or package insert of, or the marketing or promotional materials with respect to, such Licensed Product to meet the requirements of any Regulatory Authority or any applicable laws within the Territory, except to the extent that such defect or deficiency resulted from incorrect information received by Chiron from Cubist or from the failure by Cubist to disclose to Chiron information that is in the possession of Cubist, (D) the promotion (including the establishment of any program to provide treatment on a named patient basis or other similar basis) by Chiron or any of its Affiliates, contractors or distributors, or any of their respective agents or employees, of such Licensed Product for use in connection with an indication for which such Licensed Product has not received Regulatory Approval if data in Chiron’s possession establishes that it would not be safe or effective to use such License Product for the treatment of such indication, (E) a defect in such Licensed Product due to improper manufacture by Chiron or by a Third Party manufacturer, (F) any failure by Chiron to develop, use, market, promote or sell such License Product in compliance with all of the applicable requirements of the Regulatory Authorities in the Territory and all of the applicable laws within the Territory, (G) any of the activities or responsibilities that Chiron performs or is required to perform pursuant to the Supply Agreement, or (H) any breach by Chiron of any of its obligations under this Agreement or the Supply Agreement; provided, however, that Chiron shall not be required to indemnify the Cubist Indemnitees for any Losses pursuant to this Section 10.3(b) to the extent that (1) such Losses arise from matters or claims for which Cubist is required to indemnify any of the Chiron Indemnities pursuant to Section 10.3(a) hereof or (2) such Losses arise from Cubist’s breach or non-compliance with any of the provisions of this Agreement or the Supply Agreement.

(c)Subject to the provisions of Section 10.3(d) and 10.4(b) below, in the event that there is a Third Party products liability claim for death, bodily injury or property damage suffered by such Third Party from or in connection with any Licensed Product sold or used by Chiron or its Affiliates or distributors and neither Party is required to indemnify the other Party pursuant to Section 10.3(a) or 10.3(b) above in connection with such Third Party products liability claim, then the Parties agree to [*] amounts that are paid or are required to be paid to such Third Party in connection with such Third Party products liability claim (regardless of whether such amounts are determined by a court of competent jurisdiction, arbitration proceeding or negotiated settlement), with [*] of this Agreement in connection with [*] in connection with the [*].  The Parties hereby agree that this clause (c) is not intended to cover Third Party products liability claims arising from sales of Licensed Product outside of the Territory by Cubist, its Affiliates or Other Licensees, or any of their respective distributors.

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(d)Notwithstanding anything expressed or implied in Section 10.3(c) to the contrary, in no event shall Cubist have any obligation under Section 10.3(c) with respect to any Third Party products liability claim if and to the extent that, prior to the time that such Third Party products liability claim arises,  (i) Cubist has taken steps to eliminate or mitigate the risk of any such Third Party products liability claim arising outside the Territory, the adequacy of such steps to be judged in accordance with the applicable laws and regulatory requirements outside the Territory, (ii) Cubist has communicated to Chiron the potential risk of any such Third Party products liability claim could arise in the future and the steps that Cubist has taken, is taking or will be taking to eliminate or mitigate such risk outside the Territory and (iii) Chiron has not taken substantially the same steps in the Territory as Cubist has taken outside the Territory.  Cubist shall also not have any obligation under Section 10.3(c) with respect to any Third Party products liability claim if and to the extent that, prior to the time that such Third Party products liability claim arises, (x) Chiron has knowledge of facts and circumstances that establish that there is a risk of any such Third Party products liability claim arising in the Territory and fails to disclose such knowledge to Cubist, (y) Chiron fails to implement any plan previously discussed and agreed to by the Parties to eliminate or mitigate the risk of any such Third Party products liability claim arising in the Territory or (z) if the Parties have not discussed any such plan or cannot agree on any such plan, and Chiron fails to take steps to eliminate or mitigate the risk of any such Third Party products liability claim arising in the Territory, the adequacy of such steps to be judged in accordance with the applicable laws and regulatory requirements in the Territory.

(e)EXCEPT TO THE EXTENT EITHER PARTY HAS ANY LIABILITY TO THE OTHER PARTY PURSUANT TO THIS SECTION 10.3, NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY UNDER THIS AGREEMENT, THE SUPPLY AGREEMENT OR OTHERWISE UNDER ANY THEORY OF LIABILITY FOR ANY THIRD PARTY PRODUCTS LIABILITY CLAIM IN CONNECTION WITH LICENSED PRODUCTS.

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10.4.  Procedure

(a)If either Party is seeking indemnification under Section 10.1, 10.2, 10.3(a) or 10.3(b) in connection with a Third Party claim, it shall inform the indemnifying Party of such Third Party claim giving rise to the obligation to indemnify pursuant to such section as soon as reasonably practicable after receiving notice of the claim.  The indemnifying Party shall have the right to assume the defense of any such Third Party claim for which it is obligated to indemnify the indemnified Party under Section 10.1, 10.2, 10.3(a) or 10.3(b).  The indemnified Party shall cooperate with the indemnifying Party (and its insurer) as the indemnifying Party may reasonably request, and at the indemnifying Party’s sole cost and expense.  The indemnified Party shall have the right to participate, at its own expense and with counsel of its choice, in the defense of any claim or suit that has been assumed by the indemnifying Party.  Neither Party shall have any obligation to indemnify the other Party in connection with any settlement made without the indemnifying Party’s written consent, provided that the indemnifying Party does not unreasonably withhold or delay any such written consent.  If the Parties cannot agree as to the application of Sections 10.1, 10.2, 10.3(a) or 10.3(b) to any Third Party claim, the Parties may conduct separate defenses of such claims, with each Party retaining the right to claim indemnification from the other in accordance with Section 10.1, 10.2, 10.3(a) or 10.3(b) upon resolution of the underlying claim.

(b)If either Party becomes subject to a Third Party products liability claim for which such Party believes that it has the right to require the other Party to share, in accordance with the provisions of Section 10.3(c) above, in any payments to be made to such Third Party in connection with such claim, such Party shall inform the other of such Third Party products liability claim as soon as reasonably practicable after receiving notice of the claim.  The Party that is subject to the Third Party products liability claim shall have the right to control the defense of such claim, but the other Party shall have the right to participate, at its own expense and with counsel of its choice, in the defense of such Third Party products liability claim.  Neither Party shall have any obligation to share in the cost of any settlement of any such Third Party products liability claim if such settlement is made without such Party’s written consent, provided that such Party does not unreasonably withhold or delay any such written consent.

10.5.  Insurance. Each Party shall procure and maintain insurance or self-insurance, including product liability insurance, adequate to cover its obligations hereunder and which are consistent with normal business practices of prudent companies similarly situated at all times during which any Licensed Product is being clinically tested with human subjects or commercially distributed or sold by Chiron, Cubist or Other Licensees.  It is understood that such insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this Article 10.  Each Party shall provide the other with written evidence of such insurance (or financial information that describes the amounts available under any self-insurance facility) upon request.

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10.6.  Limitation of Liability

(a)NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR LOST PROFITS OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES OF THE OTHER PARTY IN CONNECTION WITH THIS AGREEMENT OR THE SUPPLY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE SUPPLY AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY.  THE FOREGOING LIMITATION SHALL NOT APPLY SO AS TO LIMIT THE LIABILITY OF EITHER PARTY FOR LOST PROFITS OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES THAT MAY BE IMPOSED UPON SUCH PARTY UNDER ANY THEORY OF LIABILITY (OTHER THAN BREACH OF CONTRACT), WHETHER BY STATUTE OR COMMON LAW, AS  A RESULT OF ANY INFRINGEMENT BY SUCH PARTY OF THE INTELLECTUAL PROPERTY RIGHTS OF THE OTHER PARTY OR AS A RESULT OF THE FAILURE OF SUCH PARTY TO PERFORM AND OBSERVE ITS CONFIDENTIALITY OBLIGATIONS TO THE OTHER PARTY.

(b)EXCEPT AS A RESULT OF A MATERIAL BREACH BY EITHER PARTY OF ITS REPRESENTATIONS AND WARRANTIES PURSUANT TO ARTICLE 9 OF THIS AGREEMENT OR OF A MATERIAL BREACH BY SUCH PARTY OF ITS COVENANTS AND AGREEMENTS IN SECTION 8.5 OR SECTION 8.10 OF THIS AGREEMENT, AND EXCEPT FOR ANY INDEMNIFICATION OBLIGATION THAT EITHER PARTY MAY HAVE UNDER CLAUSE (i) OR (ii) OF SECTION 10.1 OR 10.2 (AS APPLICABLE) OF THIS AGREEMENT WITH RESPECT TO ANY MATERIAL BREACH BY SUCH PARTY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS UNDER ARTICLE 9, SECTION 8.5 OR SECTION 8.10 OF THIS AGREEMENT, SUCH PARTY SHALL NOT HAVE ANY LIABILITY TO THE OTHER PARTY UNDER THIS AGREEMENT OR THE SUPPLY AGREEMENT FOR ANY THIRD PARTY CLAIM MADE AGAINST SUCH OTHER PARTY FOR ACTUAL OR ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY RIGHTS OF SUCH THIRD PARTY TO THE EXTENT THAT SUCH INFRINGEMENT OR MISAPPROPRIATION ARISES FROM ACTIVITIES UNDER OR PURSUANT TO THIS AGREEMENT OR THE SUPPLY AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY ACTUAL OR ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY RIGHTS OF SUCH THIRD PARTY CAUSED AS A RESULT OF THE USE OR PRACTICE BY SUCH OTHER PARTY OF THE INTELLECTUAL PROPERTY RIGHTS OF SUCH PARTY.

(c)CUBIST’S LIABILITY UNDER THIS AGREEMENT OR THE SUPPLY AGREEMENT OR UNDER TORT PRINCIPLES OF NEGLIGENCE FOR FAILURE TO SUPPLY LICENSED PRODUCT TO CHIRON OR THE SUPPLY OF DEFECTIVE MANUFACTURED PRODUCTS [*]  ANY FAILURE TO SUPPLY, OR ANY SUPPLY OF DEFECTIVE MANUFACTURED PRODUCT, WHICH ARISES OUT OF A PARTICULAR CIRCUMSTANCE (EVEN IF SUCH CIRCUMSTANCE AFFECTS MULTIPLE LOTS OF LICENSED PRODUCT) CONSTITUTES A SINGLE “BREACH” FOR THIS PURPOSE.  [*] SHALL NOT APPLY IN THE CASE OF FRAUD OR A WILLFUL BREACH BY CUBIST OF ITS SUPPLY OBLIGATIONS OR BREACH OF CUBIST’S OBLIGATION TO ALLOCATE

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LIMITED SUPPLIES IN ACCORDANCE WITH SECTION 8.1 OF THE SUPPLY AGREEMENT, OR TO CUBIST’S OBLIGATIONS UNDER SECTION 5.7 (RECALLS AND VOLUNTARY WITHDRAWALS) AND SECTION 10.3 (LIABILITY FOR THIRD PARTY PRODUCT LIABILITY CLAIMS) OF THIS AGREEMENT AND SECTION 9.1(d) (CUBIST’S PRODUCT WARRANTIES — EXCLUSIVE REMEDY) OF THE SUPPLY AGREEMENT.

ARTICLE 11.

RECORDS; PUBLICATIONS

11.1.  Records. Each Party shall keep or cause to be kept full and accurate books of account and records containing all particulars that may be necessary to determine, in a manner consistent with generally accepted accounting principles in the United States, the sums or credits due under this Agreement, including, but not limited to Transfer Prices, Manufacturing Costs and Net Sales.  At the written request (and expense) of either Party, the other Party and its Affiliates and licensees and sublicensees shall permit an independent certified public accountant appointed by such Party and reasonably acceptable to the other Party, accompanied by representatives of the financial department of the audited Party at reasonable times, upon reasonable notice and no more frequently than once per calendar year, to examine only (i) those records as may be necessary to determine the correctness or completeness of any report or payment made under this Agreement and the Supply Agreement, including but not limited to Transfer Prices, Manufacturing Costs, and Net Sales, with respect to any calendar year ending not more than three (3) years prior to such Party’s request and (ii) those records as may be necessary to comply with the requesting Party’s obligations under applicable law or with a request made by any governmental authority, in either case with respect to any calendar year ending not more than seven (7) years prior to such Party’s request.  Results of any such examination shall be (i) made available to both Parties, (ii) limited to information relating to the Licensed Products and (iii) subject to Article 12. The Party requesting the audit shall bear the full cost of the performance of any such audit, unless such audit discloses a variance of more than [*] from the amount of the original report, royalty or payment calculation.  In such case, the Party being audited shall bear the full cost of the performance of such audit.

11.2.  Publications. Neither Party shall publish or present the results of studies carried out under this Agreement without the opportunity for prior review by the other Party in accordance with the provisions set forth in this Section 11.2.  Subject to Section 12.2, each Party agrees to provide the other Party the opportunity to review any proposed abstracts, manuscripts or presentations (including verbal presentations) which relate to any Licensed Product at least sixty (60) days prior to their intended submission for publication and agrees, upon request, not to submit any such abstract or manuscript for publication, or to make such presentation, until the other Party is given a reasonable period of time to secure patent protection for any material in such publication or presentation that is owned by the requesting Party (either individually or jointly with the non-requesting Party) and which the requesting Party believes to be patentable.  In the event that the nature of the content of any proposed publication or presentation is such that a Party is entitled to request that submission of such publication or delivery of such presentation be delayed pursuant to the foregoing provisions of this Section 11.2, then both Parties understand that a reasonable commercial strategy may require delay of publication or presentation of

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information or filing of patent applications.  The Parties agree to review and consider delay of publication or presentation and filing of patent applications under certain circumstances. Neither Party shall have the right to publish or present Confidential Information of the other Party, and each Party shall remove the Confidential Information of the other Party from any proposed publication or presentation upon request by such other Party.  Nothing contained in this Section 11.2 shall prohibit the inclusion of information necessary to file a patent application with a government authority, except for Confidential Information of the non-filing Party, provided the non-filing Party is given a reasonable opportunity to review the information to be included prior to submission of such patent application.  Notwithstanding the foregoing, the Parties recognize that independent investigators have been engaged, and will be engaged in the future, to conduct clinical trials of Licensed Products.  Independent investigators that have been engaged by a Party or both Parties prior to or on the Effective Date may release information regarding such studies in a manner consistent with academic standards within the scope of such investigator’s agreement with the relevant Party. Independent investigators that are engaged by a Party or both Parties after the Effective Date are understood to operate in an academic environment and shall be allowed to release information regarding such studies in a manner consistent with academic standards and within the scope of such investigator’s agreement with the relevant Party.  With respect to any agreement entered by either Party with any independent investigator after the Effective Date to conduct clinical trials of Licensed Products, such Party shall use Commercially Reasonable Efforts to include in such agreements provisions that would give such Party the right to limit the publication rights of such independent investigator with respect to any results of such clinical trials to the same extent as such Party would have under this Section 11.2 if such independent investigator were the other Party to this Agreement; provided, however, that  in no event shall such Party be required or obligated to make any payment to such independent investigator or incur any financial cost or penalty for the benefit of such independent investigator in order to limit the publication rights of such independent investigator in the manner contemplated under this Section 11.2.

ARTICLE 12.

CONFIDENTIALITY

12.1.  Treatment of Confidential Information. The Parties agree that during the Term, and after this Agreement expires or terminates, a Party receiving Confidential Information of the other Party shall (i) maintain in confidence such Confidential Information to the same extent such Party maintains its own proprietary industrial information of similar kind and value (but at a minimum each Party shall use commercially reasonable efforts to maintain Confidential Information in confidence); (ii) not disclose such Confidential Information to any Third Party without prior written consent of the disclosing Party, except for disclosures made in confidence to any Third Party pursuant to a plan approved by the JCT or to its licensees or sublicensees who agree to be bound by obligations of non-disclosure and non-use at least as stringent as those contained in this Article 12; and (iii) not use such Confidential Information for any purpose except those purposes expressly permitted by this Agreement.

12.2.  Authorized Disclosure. Notwithstanding any other provision of this Agreement, each Party may disclose Confidential Information of the other Party:

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(a)to the extent and to the persons and entities required by an applicable governmental law, rule or regulation or court order; provided, however, that the Party required to disclose Confidential Information shall first have given prompt notice to the other Party hereto to enable it to seek any available exemptions from or limitations on such disclosure requirement and shall reasonably cooperate in such efforts by the other Party (in particular, the Parties acknowledge that Cubist and/or Chiron may be obligated to file a copy of this Agreement with the U.S. Securities and Exchange Commission with its next quarterly report on Form 10-Q, annual report on Form 10-K or current report on Form 8-K or with any registration statement filed with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to the Securities Act of 1933, as amended; in the event of any such filing, the Parties agree to cooperate and work together to request confidential treatment pursuant to, and in accordance with, the rules and regulations of the SEC);

(b)to the extent and to the persons and entities required by rules of the National Association of Securities Dealers;

(c)as necessary to file or prosecute patent applications, prosecute or defend litigation or otherwise establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary;

(d)as required by the Lilly License;

(e)to investigators, institutions, contract research organizations, clinical research associates and Regulatory Authorities and the like in connection with conducting clinical trials and obtaining authorizations for same; or

(f)to Regulatory Authorities in connection with Drug Approval Applications.

12.3.  Publicity. Subject to Section 11.2, any other publication, news release or other public announcement relating to this Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties, which approval shall not be unreasonably withheld.

ARTICLE 13.

TERM AND TERMINATION

13.1.  Term. This Agreement shall become effective on the Effective Date and shall remain in effect until the earlier of (i) the effective date of the termination of this Agreement pursuant to Section 13.2, 13.3 or 13.4 below, or (ii) the expiration of the term of this Agreement on the date on which Chiron is no longer obligated, pursuant to this Agreement, to make payment to Cubist of any royalties in connection with sales of Licensed Products in the Territory. In the event that the term of this Agreement expires pursuant to clause (ii) of this Section 13.1, then the licenses granted by Cubist to Chiron, and any licenses granted by Chiron to Cubist, pursuant to Article 2 and Section 8.10 shall survive such expiration and shall be fully paid-up, royalty-free, perpetual and irrevocable licenses.

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13.2.  Termination For Convenience by Chiron. Chiron shall have, at any time, the right to terminate this Agreement in its entirety upon [*] prior written notice to Cubist.  Chiron shall have, at any time, the right to terminate this Agreement with respect only to one or more countries within the Territory (but not more than [*] of all countries within the Territory in any [*] upon [*] prior written notice to Cubist; provided, however, that the foregoing right of Chiron to terminate this Agreement on a country-by-country basis shall not apply to any Major Market Country so as to permit Chiron to terminate this Agreement with respect to any Major Market Country.  Chiron’s termination rights under this Section 13.2 shall not apply on a Licensed Product-by-Licensed Product basis.

13.3.  Termination By Either Party Upon Bankruptcy or Insolvency. This Agreement may be terminated in its entirety by either Party by giving written notice of termination to the other Party in the event that such other Party files or institutes any bankruptcy, liquidation or receivership proceedings, or in the event that such other Party makes an assignment of a substantial portion of the assets of such other Party for the benefit of its creditors; provided, however, that, in the case of any involuntary bankruptcy proceeding such right to terminate shall only become effective if such other Party consents to the involuntary bankruptcy or such proceeding is not dismissed within [*] after the filing thereof.

13.4.  Termination for Breach.

(a)  Notice. If either Party believes that the other is in material breach of this Agreement with respect to one or more Licensed Products or if Cubist believes that Chiron is in material breach of the Supply Agreement with respect to one or more Licensed Products, then the Party holding such belief (the “Non-breaching Party”) may deliver notice of such breach to the other Party (the “Notified Party”). A breach by Chiron of its diligence obligations under Section 5.1 or under Section 6.1 hereof and a breach by Cubist of its obligation under Section 4.1 hereof, except as specified otherwise, shall be deemed to be a material breach of this Agreement by Chiron or Cubist, as the case may be. The Notified Party shall have ninety (90) days to cure such breach, provided that, if cure cannot be reasonably effected within such ninety (90) day period, the Notified Party may elect to deliver to the Non-breaching Party within such ninety (90) day period a plan to cure such breach within a timeframe that is reasonably prompt in light of the circumstances then prevailing, and the Non-breaching Party shall have the right to approve or reject in writing such proposed plan in its absolute discretion.  If the Non-breaching Party approves in writing such proposed plan, then the cure period will be extended in accordance with the terms of such plan and the Notified Party shall use Commercially Reasonable Efforts to carry out such plan and cure the breach in accordance with the provisions of such plan.

(b)  Failure to Cure. If the Notified Party fails to cure such breach as provided for in Section 13.4(a), the Non-breaching Party may terminate this Agreement either in its entirety or with respect to one or more Licensed Products upon written notice to the Notified Party, provided that, the Non-breaching Party gives such written notice of termination within [*] after the Notified Party has failed to cure such breach as provided for in Section 13.4(a).

(c)  Disputes. If a Party gives notice of termination under this Section 13.4 and the other Party disputes whether such termination is proper under this Section 13.4, then the issue of whether this Agreement may properly be terminated upon expiration of the notice period

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(unless such breach is cured as provided in Section 13.4(a)) shall be resolved in accordance with Article 14 (Dispute Resolution).  If as a result of such dispute resolution process it is determined that the notice of termination was proper, then such termination shall be deemed to have been effective ninety (90) days following the date of the notice of termination.  If as a result of such dispute resolution process it is determined that the notice of termination was improper, then no termination shall have occurred and this Agreement shall remain in effect.

(d)  Termination as to Certain Licensed Products. Notwithstanding the foregoing provisions of this Section 13.4, Cubist may exercise its right to terminate the Agreement pursuant to this Section 13.4 with respect to one or more particular Licensed Products as to which Chiron has breached its obligations under this Agreement or the Supply Agreement, rather than with respect to the entire Agreement, in which case the notice provided by Cubist pursuant to Section 13.4(a) shall specify that the Agreement is being terminated pursuant to this Section 13.4 only with respect to certain Licensed Products listed in such notice.  If Cubist makes such an election under this Section 13.4(d), then subsections (a) through (c) shall be deemed to refer to termination of the Agreement only with respect to those Licensed Products set forth in the notice provided pursuant to Section 13.4(a).

(e)  Right to Sell. Notwithstanding anything expressed or implied in this Agreement to the contrary, in the event that Cubist shall terminate this Agreement in accordance with the provisions of this Section 13.4, Chiron shall, notwithstanding any such termination, have the opportunity and right to sell, assign, sublicense or otherwise transfer this Agreement and the Chiron Interest to any Reasonable Buyer pursuant to, and in accordance with, the provisions of Section 15.6 of this Agreement, provided that any such sale, assignment, sublicense or other transfer is effected [*] after the expiration of the cure period referred to in Section  13.4(a) or, in the event that there is a dispute between the Parties as to whether Cubist’s termination of this Agreement has been proper, [*] after the resolution of such dispute pursuant to the provisions of Article 14 hereof.  Any such Reasonable Buyer shall acquire the Chiron Interest free and clear of any breach by Chiron that led to the termination of this Agreement and such Reasonable Buyer shall following such acquisition have all of the rights and obligations that Chiron would have had under this Agreement as if Chiron had not breached this Agreement and Cubist had not terminated the Agreement.  Any such sale, assignment, sublicense or other transfer of the Chiron Interest to a Reasonable Buyer pursuant to this Section 13.4(e) shall not relieve or release Chiron from any liability that Chiron may have to Cubist in connection with any breach that resulted in the exercise by Cubist of its right to terminate this Agreement. Until the expiration of the [*] referred to above in this Section 13.4(e), Chiron shall continue to perform in accordance with the provisions of this Agreement and the Supply Agreement, and shall be liable for, any and all  obligations that accrue during such [*] under this Agreement and the Supply Agreement.  In the event that Chiron is unable to consummate a sale, assignment, sublicense or other transfer of this Agreement and the Chiron Interest within such [*], then all of Chiron’s rights under this Section 13.4(e) shall terminate and be of no further force or effect whatsoever

13.5.  INTENTIONALLY OMITTED.

13.6.  Consequences of Termination.

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(a)If either Cubist or Chiron terminates this Agreement in its entirety, or with respect to one or more Licensed Product(s), or with respect to one or more countries, in each case pursuant to any provisions of this Article 13, then, subject to the right of Chiron to sell, assign, license or otherwise transfer its rights, obligations and interests under this Agreement pursuant to Section 13.4(e):

(i)The licenses granted by Cubist and Chiron under Article 2 shall terminate (1) with respect to all Licensed Products and all countries within the Territory if the Agreement has been terminated in its entirety, or (2) with respect to those Licensed Products as to which Chiron or Cubist has exercised termination rights, in which case the licenses granted by Cubist and Chiron under Article 2 shall terminate with respect to such Licensed Products for all countries in the Territory if Chiron or Cubist exercised termination rights with respect to such Licensed Products in all countries in the Territory or the licenses granted by Cubist and Chiron under Article 2 shall terminate with respect to such Licensed Products only in certain countries within the Territory if Chiron or Cubist exercised termination rights with respect to such Licensed Products only in such countries within the Territory but not the other countries within the Territory.  For purposes of this Agreement, the term “Reverted Products” shall mean those Licensed Products as to which Cubist or Chiron exercise termination rights pursuant to this Article 13 (and could mean, in any particular context, all of the Licensed Products if this Agreement is terminated in its entirety), and the term “Reverted Country” shall mean any country within the Territory as to which Cubist or Chiron exercise termination rights pursuant to this Article 13 (and could mean, in any particular context, all of the countries within the Territory if this Agreement were terminated in its entirety or, with respect to any particular Licensed Product, if Chiron’s rights to such Licensed Product are terminated as to all countries within the Territory).

(ii)Chiron shall discontinue making any representation regarding its status as a licensee of or distributor for Cubist in all Reverted Countries for all applicable Reverted Products, and shall cease conducting any Commercialization activities in all Reverted Countries with respect to all applicable Reverted Products.

(iii)As promptly as possible, Chiron shall transfer to Cubist all Drug Approval Applications and Regulatory Approvals that Chiron holds as of the time of any such termination for Reverted Products in all applicable Reverted Countries.  In such event, Chiron shall take all actions necessary to effect such transfer of such Drug Approval Applications and Regulatory Approvals to Cubist.

(iv)Promptly after any such termination, Chiron shall execute any documents required in the reasonable opinion of Cubist (1) for Cubist to be entered as a “registered user” or owner of the Cubist Marks in connection with the Commercialization of the Reverted Products in those applicable Reverted Countries in which Chiron was previously entered into as the registered user, owner or registered licensee of the Cubist Marks pursuant to, and in accordance with, the provisions of Section 8.10 hereof, or (2) for Chiron to be removed as registered user or licensee of the Cubist Marks in connection with the Commercialization of the Reverted Products in such applicable Reverted Countries.

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(v)Chiron shall be responsible for payment of any milestone payments that accrue to Cubist for any milestones achieved for any Reverted Product(s) prior to the effective date of any such termination, but not for any milestones achieved for any Reverted Product(s) after the effective date of any such termination.

(b)In the event that this Agreement is terminated due to the rejection of this Agreement by or on behalf of a Party under Section 365 of the United States Bankruptcy Code (the “Code”), all licenses and rights to licenses granted under or pursuant to this Agreement by one Party to the other are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Code, licenses of rights to “intellectual property” as defined under Section 101(35A)of the Code.  The Parties agree that the licensed Party, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Code.

13.7.  Survival.

(a)Expiration or termination of this Agreement shall not relieve the Parties of any liability hereunder which accrued, or which arose during or relates to, any period prior to the effective date of such expiration or termination, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement prior to the effective date of such expiration or termination, nor prejudice either Party’s right to obtain performance of any obligation hereunder which accrued, or which arose during or relates to, any period prior to the effective date of such expiration or termination.  The remedies provided in this Article 13 are not exclusive of any other remedies a Party may have in law or equity (it being understood that nothing in this sentence shall limit the scope or application of any limitations on Chiron’s remedies that may be expressly set forth elsewhere in this Agreement, including Section 10.6 of this Agreement).  Upon any expiration of the term of this Agreement pursuant to clause (ii) of Section 13.1 hereof, the following provisions of this Agreement shall survive any such expiration: Articles 1, 10, 12, 14 and 15 and Sections 2.2, 2.3, 2.8, 4.6, 5.5, 8.2(c), 8.4, 8.7(a), 8.7(b), 8.8, 8.9, 8.10, 8.11, 11.1 and this 13.7, and Sections 9.1, 9.2 and 9.3 (but Sections 9.1, 9.2 and 9.3 shall survive only for purposes of making an indemnification claim in accordance with the provisions of Article 10 with respect to a Third Party claim that arises from any breach of Section 9.1, 9.2 or 9.3 and that relates to any period prior to any such expiration of the term of this Agreement).  In addition, the provisions of Section 8.5 hereof shall survive the expiration of the term of this Agreement pursuant to clause (ii) of Section 13.1 hereof so as to cover and apply to any Third Party Infringement Claim that arises after such expiration and that is based on infringement of a Knowable Patent.

(b)Notwithstanding expiration of this Agreement,

(i)Chiron shall not promote, sell or offer for sale Licensed Products in any Cubist Patent Country;

(ii)Chiron shall require its distributors who sell Chiron’s Licensed Products to make a similar covenant;

(iii)Chiron shall require its sublicensees to make a similar covenant; and

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(iv)Chiron shall not grant to any subcontractor or sublicensee any rights that are broader in scope than the rights that Chiron has at the time of such expiration.

“Cubist Patent Country” means any country in which there is an unexpired Cubist Patent or Joint Patent which includes a valid and enforceable claim that covers the Licensed Product sold by Chiron and in which Cubist or its licensees are selling their own Licensed Products.

(c)Upon any termination of this Agreement pursuant to Sections 13.2, 13.3 or 13.4, the following provisions of this Agreement shall survive any such termination: Articles 1, 10, 12, 14 and 15, and Sections 11.1, 13.4, 13.6 and this Section 13.7, and Sections 9.1, 9.2 and 9.3 (but Sections 9.1, 9.2 and 9.3 shall survive only for purposes of making an indemnification claim in accordance with the provisions of Article 10 with respect to a Third Party claim that arises from any breach of Section 9.1, 9.2 or 9.3 and that relates to any period prior to any such termination of this Agreement).

ARTICLE 14.

DISPUTE RESOLUTION

14.1.  Disputes. The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either Party’s rights and/or obligations hereunder.  It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation.  To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 14.1 if and when a dispute arises under this Agreement.  Business issues that are not contractual disputes arising under this Agreement shall be discussed by the JCT at the request of either party.  Any contractual dispute arising under this Agreement shall be discussed first by the JCT.  In the event that the JCT is unable to resolve any such contractual dispute within thirty (30) days after such contractual dispute is submitted to the JCT, then any such contractual dispute shall, by either Party providing written notice to the other Party, be referred to the respective chief executive officers of the Parties for attempted resolution by good faith negotiations within thirty (30) days after such notice is received.  In the event that the designated officers are not able to resolve such dispute within such thirty (30) day period, and do not agree to extend the time period for resolving the dispute, or if the terms and conditions of the resolution or settlement of the dispute are breached, the dispute shall be submitted for mediation by a mutually acceptable Third Party within thirty (30) days after expiration of the previous thirty (30) day period, unless the Parties agree to extend the period for submitting the contractual dispute for mediation.  In the event that such contractual dispute is not resolved within thirty (30) days after such contractual dispute is submitted for mediation, unless the parties otherwise agree to extend the time period for resolving the dispute, then such contractual dispute shall be resolved by arbitration pursuant to the provisions of Section 14.2. Pending resolution of any dispute covered by this Section 14.1, both Parties will continue their performance under this Agreement and the Supply Agreement of any obligations (including, without limitation, payment obligations) that are not the subject of such dispute.

14.2.  Arbitration. If the dispute is not resolved pursuant to Section 14.1 above, then the Parties shall follow the procedures set forth below.

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(a)Any claim, dispute, or controversy arising out of or relating to this Agreement that is not resolved in accordance with the provisions of Section 14.1 and that the Parties agree to submit to binding arbitration pursuant to this Section 14.2 will be submitted by the parties to arbitration under rules then in effect (“ICC Rules”) of the International Chamber of Commerce (“ICC”) in New York, New York U.S.A. as modified herein or by agreement of the parties.  Any such arbitration shall be conducted in New York, New York by three (3) arbitrators.  Each Party shall select one (1) arbitrator and such arbitrators shall jointly appoint the third arbitrator who shall act as the chairman.  If either Party fails to appoint an arbitrator within thirty (30) days of a request by the other Party, or if the arbitrators selected by the parties cannot agree on a chairman within thirty (30) days after they have been selected, then either Party may request the ICC to appoint such co-arbitrator (for the non-responsive Party) or the chairman.  Such appointment shall be binding on the Parties.  Each Party irrevocably and unconditionally (i) consents to the jurisdiction of any such proceeding and waives any objection that it may have to personal jurisdiction or the laying of venue of any such proceeding; and (ii) knowingly and voluntarily waives its rights to have disputes tried and adjudicated by a judge and jury except as otherwise expressly provided herein.  The Parties hereby agree to exercise their respective rights under the ICC Rules to cause any arbitration proceeding under this Section 14.2(a) to be finalized and a decision rendered by the arbitrators as soon as reasonably practicable but in no event more than six (6) months after the commencement of such arbitration proceeding.  Without limiting the provisions of the preceding sentence, the Parties will cooperate with each other in causing the arbitration to be held in as efficient and expeditious a manner as practicable.  Unless the Parties agree otherwise, they shall be limited in their discovery to directly relevant documents.  Responses or objections to a document request shall be served twenty (20) days after receipt of the request.  The arbitrators shall resolve any discovery disputes.  Nothing herein shall prevent the Parties from settling any dispute by mutual agreement at any time.

(b)Except as otherwise required by law, the Parties and the arbitrator(s) shall maintain as confidential all information or documents obtained during the arbitration process, including the resolution of the dispute.  The arbitration shall be conducted in English language.

(c)The arbitrator(s) shall not have the authority to award any injunctive relief or to award exemplary or punitive damages, and the Parties expressly waive any right to such damages.  The arbitrator(s) shall have the authority to award actual money damages (including interest on unpaid amounts from the date due).  The costs and expenses of the arbitration, but not the costs and expenses of the Parties, shall be shared equally by the Parties, provided that the non-prevailing Party in any arbitration shall pay the other Party’s costs and expenses (including travel expenses) and reimburse such Party for its portion of the arbitration costs. In the event that neither Party wins totally, reimbursement shall be made proportionally in accordance with the ICC Rules.  Any award rendered by the arbitrator(s) shall be final and binding upon the Parties.  Judgment upon the award may be entered in any court of competent jurisdiction.  If a Party fails to proceed with arbitration, unsuccessfully challenges the arbitration award, or fails to comply with the arbitration award, the other Party is entitled to costs, including reasonable attorneys’ fees, for having to compel arbitration or defend or enforce the award.

14.3.  Governing Law; Judicial Resolution. Resolution of all disputes arising out of or related to this Agreement or the performance, enforcement, breach or termination of this Agreement and any remedies relating thereto, shall be governed by and construed under the

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substantive laws of the United States of America and the State of New York, as applied to Agreements executed and performed entirely in the State of New York by residents of the State of New York, without regard to conflicts of law rules.  Any dispute arising under this Agreement shall be submitted to a state or federal court of competent jurisdiction, except as otherwise expressly provided in this Agreement.

14.4.  Equitable Remedies; Injunctive Relief. Nothing in this Article 14 shall prohibit either Party from seeking or obtaining any equitable remedy, including, but not limited to, injunctive relief, from a court or government agency of competent jurisdiction.

14.5.  [*] If a dispute is submitted to arbitration in accordance with Section 14.2 in connection with any alleged breach of this Agreement by [*], provided however, [*] pursuant to this Agreement [*] that relates to such dispute. [*] after such dispute is submitted to arbitration [*] final determination of the arbitration or upon mutual agreement of Cubist and Chiron.

14.6.  Interest. All amounts owed by either Party to the other Party in connection with any breach of this Agreement or the Supply Agreement shall bear interest at the rate stipulated in Section 7.10 hereof for late payments.

ARTICLE 15.

MISCELLANEOUS

15.1.  Entire Agreement; Amendment. This Agreement, including the Exhibits hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and supersedes and terminates all prior agreements and understandings between the Parties.  There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein.  No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.

15.2.  Force Majeure. Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party.  Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party uses reasonable efforts to remove the condition.  For purposes of this Agreement, force majeure shall include conditions beyond the control of the parties, such as an act of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, an act of terrorism, civil commotion, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe; provided, however, the payment of invoices due and owing hereunder shall not be delayed by the payer because of a force majeure affecting the payer.

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15.3.  Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, express delivery service or personally delivered, or if sent by facsimile, electronic transmission confirmed.  Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below.

For Chiron:	Chiron Healthcare Ireland Ltd.
	United Drug House,
	Belgard Road,
	Tallaght, Dublin, Ireland
	Fax: +353 (1) 458-5583
With a Copy to:	Chiron Corporation
	460 Horton Street
	Emeryville, CA 94608
	Fax: (510) 923-5360
	Attention: General Counsel
For Chiron Corporation:	Chiron Corporation
	460 Horton Street
	Emeryville, CA 94608
	Fax: (510) 923-3823
	Attention: President, BioPharmaceuticals
With a Copy to:	Chiron Corporation
	460 Horton Street
	Emeryville, CA 94608
	Fax: (510) 923-5360
	Attention: General Counsel
For Cubist:	Cubist Pharmaceuticals, Inc.
	65 Hayden Avenue
	Lexington, Massachusetts 02421
	Attention: General Counsel
	Fax: 781-860-1407
With a Copy to:	Bingham McCutchen LLP
	150 Federal Street
	Boston, Massachusetts 02110
	Attention: Julio E. Vega, Esq.
	Fax: (617) 951-8736

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15.4.  Maintenance of Records. Each Party shall keep and maintain all records required by law or regulation with respect to Licensed Products and shall make copies of such records available to the other Party upon request.

15.5.  No Strict Construction. This Agreement has been prepared jointly and shall not be strictly construed against either Party.

15.6.  Assignment.

(a)  Assignment by Cubist. Cubist may sell, assign, sublicense or otherwise transfer this Agreement, the Supply Agreement, all (or any portion) of its rights under this Agreement or the Supply Agreement and/or all (or any portion) of its obligations under this Agreement or the Supply Agreement to a Third Party, without any requirement or condition that Chiron consent to any such sale, assignment, sublicense or other transfer, provided that:

(i)(A) if and to the extent that Cubist sells, assigns, sublicenses or transfers any of its obligations under this Agreement to such Third Party, then Cubist also sells, assigns, sublicenses or transfers to such Third Party any obligations of Cubist under the Supply Agreement that correspond, without limitation, on a Licensed Product by Licensed Product basis, or on a country by country basis, to the obligations of Cubist under this Agreement that are being sold, assigned, sublicensed or transferred to such Third Party by Cubist, and (B) if and to the extent that Cubist sells, assigns, sublicenses or transfers any of its obligations under the Supply Agreement to such Third Party, then Cubist also sells, assigns, sublicenses or transfers to such Third Party any obligations of Cubist under this Agreement that correspond, without limitation, on a Licensed Product by Licensed Product basis, or on a country by country basis, to the obligations of Cubist under the Supply Agreement that are being sold, assigned, sublicensed or transferred to such Third Party by Cubist; and

(ii)such Third Party has expressly agreed in writing to assume the performance of any and all obligations under this Agreement and the Supply Agreement that Cubist sells, assigns, sublicenses or transfers to such Third Party or is required to sell, assign, sublicense or transfer to such Third Party  pursuant to the provisions of this Section 15.6(a).

(b)  Assignment by Chiron. Notwithstanding any other provision in this Agreement to the contrary, Chiron may not sell, assign, sublicense or otherwise transfer this Agreement, the Supply Agreement or any of its rights or obligations under this Agreement or the Supply Agreement without the prior written consent of Cubist (which consent may be withheld or delayed by Cubist in its absolute discretion), except for any sale, assignment, sublicense or other transfer that is effected in strict compliance with the provisions set forth below in this Section 15.6(b) and Section 15.6(c) which shall not require or be conditioned upon any consent by Cubist to any such sale, assignment, sublicense or other transfer.  At any time from and after [*], Chiron may sell, assign, sublicense or otherwise transfer this Agreement and the Supply Agreement and all (but not less than all) of its rights and obligations under this Agreement and the Supply Agreement (collectively, the “Chiron Interest”) to any Reasonable Buyer without having to obtain the consent of Cubist to any such sale, assignment, sublicense or other transfer; provided, however, that (i) prior to any such sale, assignment, sublicense or other transfer of the Chiron Interest, such Reasonable Buyer has expressly agreed in writing to assume the

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performance of any and all obligations of Chiron under this Agreement and the Supply Agreement, and (ii) Chiron shall have given Cubist at least [*] advance notice of any such sale, assignment, sublicense or other transfer; and, provided, further, that, if and to the extent applicable, all of the conditions set forth in Section 15.6(c) below are satisfied. Notwithstanding the foregoing provisions of this Section 15.6(b), in the event that Cubist enters into a definitive agreement with any Third Party granting to such Third Party any Commercialization rights with respect to any Licensed Product in the United States, then at any time on or prior to [*] any such definitive agreement between Cubist and such Third Party, Chiron may sell, assign, sublicense or otherwise transfer the Chiron Interest to any Third Party without having to obtain the consent of Cubist; provided, however, that as a part of the consummation of such sale, assignment, sublicense or other transfer of the Chiron Interest, such Third Party has expressly agreed in writing to assume the performance of any and all obligations of Chiron under this Agreement and the Supply Agreement; and, provided, further, that, if and to the extent applicable, all of the conditions set forth in Section 15.6(c) below are satisfied.

(c)  Restrictions on Payments. Notwithstanding any other provision in this Section 15.6 to the contrary, Chiron’s right to sell, assign, sublicense or otherwise transfer its rights to the Chiron Interest to a Reasonable Buyer or any other Third Party subject to, and in accordance with, Section 15.6(b) without obtaining the consent of Cubist shall also be subject to the requirements and conditions that (i) such sale, assignment, sublicense or other transfer results in the transfer by Chiron of all of its then prospective economic rights in and to the Chiron Interest to such Reasonable Buyer or other Third Party, and (ii) in the event that any such sale, assignment, sublicense or other transfer calls for royalty payments, earn-out payments, milestone-based or performance-based payments or other payments of any kind to be made over time by such Reasonable Buyer or other Third Party to Chiron, the agreement between Chiron and such Reasonable Buyer or other Third Party shall stipulate a maximum aggregate dollar amount of royalty payments, earn-out payments, milestone-based or performance-based payments and/or other payments that such Reasonable Buyer or other Third Party shall pay to Chiron in connection with such sale, assignment, sublicense or other transfer of the Chiron Interest and shall also stipulate that from and after the sixth anniversary of the closing of any such sale, assignment, sublicense or other transfer such Reasonable Buyer or other Third Party shall have no further obligation to make any payments of any kind or pay any kind of consideration to Chiron in connection with such sale, assignment, sublicense or other transfer of the Chiron Interest.

(d)  Injunctive Relief. The Parties hereby acknowledge that Cubist would suffer irreparable damage and injury in the event of any sale, assignment, sublicense or other transfer by Chiron of the Chiron Interest to any Reasonable Buyer or other Third Party if any such sale, assignment, sublicense or other transfer would not be effected in compliance with the provisions of Section 15.6(b) and Section 15.6(c).  Accordingly, it is the intent of the Parties that in the event that Chiron attempts or is attempting to sell, assign, sublicense or otherwise transfer the Chiron Interest without complying with all of the provisions of Section 15.6(b) and Section 15.6(c), Cubist may, in addition to any other remedies that Cubist may have at law, seek injunctive relief against Chiron (and/or any proposed transferee to the extent Cubist may be so entitled under applicable law) for the sole purpose of enforcing all of the provisions of Section 15.6(b) and Section 15.6(c).  In the event that Cubist brings any such action for injunctive relief

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to enforce the provisions of Section 15.6(b) and Section 15.6(c), Chiron hereby agrees to waive any defenses that Cubist has an adequate remedy at law and that Cubist will not suffer irreparable harm, and also any requirement that Cubist post any bond in connection with any such action for injunctive relief.  For the avoidance of doubt, other than the defenses and the requirement specifically waived in the foregoing two sentences, nothing in this Section 15.6(d) shall be construed to be a waiver by Chiron of any of its remaining defenses at law or in equity.

15.7.  Performance by Affiliates. Each of Cubist and Chiron acknowledge that obligations under this Agreement may be performed by Affiliates of Cubist and Chiron.  Each of Cubist and Chiron guarantee performance of this Agreement by its Affiliates.  Wherever in this Agreement the Parties delegate responsibility to Affiliates or local operating entities, the Parties agree that such entities may not make decisions inconsistent with this Agreement, amend the terms of this Agreement or act contrary to its terms in any way.

15.8.  Guaranty. Chiron Parent Company hereby unconditionally and irrevocably guarantees, as primary obligor, to Cubist, the due and punctual payment and performance as and when due of the obligations, responsibilities, undertakings, representations, warranties, payment covenants, obligations and agreements of Chiron and its Affiliates under this Agreement, the Supply Agreement and any other agreement regarding Licensed Products.

15.9.  Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15.10.  Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

15.11.  Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof.  The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

15.12.  Headings. The headings for each article and section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular article or section.

15.13.  No Waiver. Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, except with respect to an express written and signed waiver relating to a particular matter for a particular period of time.

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IN WITNESS WHEREOF, the Parties have executed this License Agreement in duplicate originals by their proper officers as of the Effective Date.

CUBIST PHARMACEUTICALS, INC.			CHIRON HEALTHCARE IRELAND LTD.
By:	/s/ Oliver S. Fetzer		By:	/s/ Craig A. Wheeler
Title:		Senior Vice President and Chief Business Officer	Title:			President, Chiron Pharmaceuticals
Date:		October 2, 2003	Date:			October 2, 2003
			Agreed only as to Section 7.1(b) and (c)
			and Section 15.8 by:
			CHIRON CORPORATION
			By:		/s/ Craig A. Wheeler
			Title:			President, Chiron Biopharmaceuticals
			Date:			October 2, 2003

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EXHIBIT A

CUBIST MARKS

Mark	Country	Filing Date	Application Number
[*]

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EXHIBIT B

CUBIST PATENTS

Country	Docket	App Date	App No	Pub Date	Pub No	Sub Stat.	Pat No.	Grant Dt	Exp Dt
[*]

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EXHIBIT C

PRIMARY DAPTOMYCIN MOLECULE

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EXHIBIT D

REGIONS AND COUNTRIES OF THE TERRITORY

[*]

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EXHIBIT E

CUBIST TECHNOLOGY LICENSED FROM THIRD PARTIES

[*].

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE COMMISSION

EXHIBIT F

LILLY PATENTS

Country	Docket	App Date	App No	Pub Date	Pub No	Sub Stat.	Pat No.	Grant Dt	Exp Dt
[*]

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE COMMISSION

EXHIBIT G

INDS, NDAS AND DRUG APPROVAL APPLICATIONS

IND # 57,693

CTX # 20364/0001/A

CTX # 17658/0001/A (Expired)

NDA # 21-572

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE COMMISSION

EX-10.21

EXHIBIT 10.21

FIRST AMENDMENT

Cardinal Health PTS, LLC (“Cardinal Health”) and Cubist Pharmaceuticals, Inc., (“Cubist”) are parties to a Processing Services Agreement dated August 11, 2004 (the “Agreement”).

The parties now desire to amend the Agreement as set forth upon the terms and conditions set forth in the Agreement.

Therefore, in consideration of the mutual conditions and covenants set forth herein, Cardinal Health and Cubist agree as follows:

1.     Exhibit B-1 of the Agreement is deleted in its entirety and replaced with the revised Exhibit B-1 Pricing attached to this First Amendment.

Any conflict between the provisions of this First Amendment and the Agreement shall be resolved in favor of this First Amendment and capitalized terms used in this First Amendment shall have the same meaning given to them in the Agreement, unless otherwise defined in this First Amendment.

This First Amendment shall be effective May 1, 2005 (“Effective Date”). Unless otherwise expressly set forth herein, all other terms and conditions set forth in the Agreement shall remain in full force and effect.

CARDINAL HEALTH PTS LLC				CUBIST PHARMACEUTICALS, INC.
By:	/s/ Arthur Pelletier			By:	/s/ Robert J. Janosky
Name:			Arthur Pelletier	Name:			Robert J. Janosky
Title:		Vice President/General Manager		Title:		V.P. Manufacturing
Date:		May 12, 2005		Date:		May 23, 2005

EX-10.26

Exhibit 10.26

AMENDMENT NO. 4

to the

MANUFACTURING AND SUPPLY AGREEMENT

entered into as of September 30, 2001

by and between

ACS Dobfar, SpA and Cubist Pharmaceuticals, Inc.

This AMENDMENT NO. 4 (“Amendment No. 4”), to that certain Manufacturing and Supply Agreement (as amended to date pursuant to Amendments Nos. 1, 2 and 3, the “Agreement”) entered into as of September 30, 2001, is made this 22nd day of September, 2006 (“Amendment No. 4 Effective Date”), by and between ACS Dobfar, SpA, an Italian corporation (“ACSD”), and Cubist Pharmaceuticals, Inc., a Delaware corporation (“Cubist”). Unless otherwise defined herein, capitalized terms used but not defined herein shall have the meaning set forth in the Agreement, and the Agreement shall be amended to incorporate any additional definitions provided for in this Amendment No. 4, including definitions in the preamble and recitals hereto.

WHEREAS, Cubist and ACSD desire to amend the Agreement as set forth in this Amendment No. 4;

NOW, THEREFORE, in consideration of the foregoing and the mutual promises made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Agreement as follows:

1.             Amendment of Section 1.  The Agreement is hereby amended by deleting the definitions of “CIP” and “Contract Year.”

2.             Amendment of Section 5.1.  The Agreement is hereby amended by deleting the table included in Section 5.1 of the Agreement and by replacing “the following yearly purchases:” at the end of the first paragraph of Section 5.1 with the following:

minimum purchases in the amount of one thousand kilograms (1,000 kg) in each calendar year until the end of the term of this Agreement in 2015.

3.Amendment of Section 5.7.  The Agreement is hereby amended by:

(a)           Replacing “Payment Schedule” in the heading of Section 5.7 of the Agreement with “Invoicing”; and

(b)           deleting the remainder of Section 5.7, starting with “ will follow promptly behind the invoicing…” and replacing such language with the following:

 “, as well as any other Product supplied under this Agreement, shall be in accordance with Section 6.3(a).”

4.             Amendment of Section 6.1.  The Agreement is hereby amended by inserting the word “base” in between “at a” and “price” in the first paragraph of Section 6.1 of the Agreement and by adding the following language at the end of such first paragraph, immediately preceding the period:

through [ ]* and [ ]* in [ ]* ( the “Base Price”), and the Base Price shall [ ]*. [ ]*

Notwithstanding anything in the foregoing to the contrary, from [ ]* until [ ]*, Cubist shall pay [ ]* for every [ ]* hereunder.  On or around [ ]* after the Amendment No. 4

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

Effective Date, the parties will discuss in good faith whether any adjustment to the above is appropriate.  In addition, if the [ ]* above or below [ ]* on or after [ ]*, the parties shall discuss in good faith whether an adjustment to the Base Price is appropriate.

The second paragraph of Section 6.1 is hereby amended by inserting the words “the Base Price of” in between “will pay” and [ ]* in the second-to-last line of such second paragraph and by adding the following language at the end of such second paragraph, immediately preceding the period:

, subject to the first paragraph of this Section 6.1.

5.             Amendment of Section 6.3(a).  The Agreement is hereby amended by deleting “receipt by Cubist of” in the first line of Section 6.3(a) of the Agreement and by replacing “Certificate of Analysis, Batch Records, and Manufacturing Compliance Reports as required by Exhibit D with respect to such Product.” in the first sentence of such Section with “provided that, Cubist shall not have an obligation to pay an invoice [ ]*.”

6.             Amendment of Section 6.4. The Agreement is hereby amended by deleting the first three sentences of Section 6.4 of the Agreement and the following language at the beginning of the fourth paragraph: “Notwithstanding the above, for calendar year 2005 only,” and by replacing both instances of the word “Milan” with “Agnani”, such that Section 6.4 shall begin “The Product will be delivered “Ex works” Agnani, …”

7.             Amendment of Section 12.1. The Agreement is hereby amended by deleting Section 12.1 thereof in its entirety and replacing it with the following Section 12.1:

12.1        Term

This Agreement shall take effect as of the Effective Date and shall remain in effect until December 31, 2015, unless sooner terminated in accordance with Section 12.2 or extended in accordance with this Section 12.1. Unless, not later than [ ]*, Cubist notifies ACSD in writing that Cubist does not desire to extend the term of Agreement, the term of the Agreement will be extended for an additional two years; provided, that, ACSD and Cubist have negotiated in good faith a revision to the prices charged for Product, pursuant to Section 6.1 hereof, based on ACSD’s then current costs to manufacture Product. All applicable terms and conditions of this Agreement shall remain in effect during the extension term, unless expressly amended in writing by the parties. Cubist may renew this Agreement for additional two-year extension terms by

 providing written renewal notice to ACSD not later than twelve (12) months prior to the expiration of the then current extension term.

8.             Amendment to Exhibits.  The Agreement is hereby amended by replacing Exhibits C-1 (Master Product Specifications) and D (Quality Requirements) with the attached Exhibits C and D.  The parties intend to amend Exhibit D in the near future.

9.             No Other Amendments.  Except to the extent amended hereby, all of the definitions, terms, provisions and conditions set forth in the Agreement are hereby ratified and confirmed and shall remain in full force and effect.  The terms and conditions herein and subject matter hereof shall at all times be

* Confidential Treatment Requested.  Omitted portions filed with the Commission.

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considered Confidential Information of Cubist, as defined in the Agreement. The Agreement and this Amendment No. 4 shall be read and construed together as a single agreement and the term “Agreement”

* Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

shall be deemed a reference to the Agreement as amended by this Amendment No. 4.  This Amendment No. 4 may be signed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute but one and the same instrument.  In making proof of this Amendment No. 4 it shall not be necessary to produce or account for more than one such counterpart.

IN WITNESS WHEREOF, this Amendment No. 4 has been executed under seal by the parties hereto to be effective as of the day and year first above written.

ACS DOBFAR SpA
By:	/s/ Marco Falciani
Name: Marco Falciani
Title: President
Date: 9/22/06
CUBIST PHARMACEUTICALS, INC.
By:	/s/ Michael W. Bonney
Name: Michael W. Bonney
Title: President & CEO
Date: 9/22/06

EX-10.27

EXHIBIT 10.27

AMENDMENT # 2 to the

LICENSE AGREEMENT

THIS AMENDMENT #2, is made and effective retroactively to the 1st day of January 2007 (“Amendment #2 Effective Date”), by and between Cubist Pharmaceuticals, Inc. a Delaware corporation having its principal place of business at 65 Hayden Avenue, Lexington, Massachusetts  02421, USA (“Cubist”) and Chiron Healthcare Ireland Ltd. A company organized under the laws of Ireland with offices at United Drug House, Belgard Road, Tallaght, Dublin, Ireland (“Chiron”).

WHEREAS, Chiron and Cubist entered into a License Agreement  effective as of October 3, 2003 with respect to Cubicin® (daptomycin), and as amended by an April 1, 2004 Amendment #1 (the “Agreement”); and

WHEREAS, pursuant to the License Agreement, Cubist granted to Chiron, by itself or through its affiliates, the exclusive right (even to Cubist) to, inter alia, Commercialize the Licensed Products in the Territory, as listed in Exhibit D of the Agreement; and

WHEREAS, the parties hereto now mutually desire to amend, modify and restate certain terms and conditions of the Agreement to, inter alia, add Romania to the territory.

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:

1.DEFINITIONS

The definitions set forth in the Agreement are hereby incorporated and utilized for the purposes of this Amendment #2.

2.TERRITORY

The Parties agree that Romania will be added to the Territory.  Exhibit D of the Agreement is hereby deleted and replaced by the new Exhibit D, attached hereto.

3.ENTIRE AGREEMENT

The parties hereby agree that apart from the Exhibit of the Agreement specifically amended hereunder, all terms and conditions of the Agreement remain and shall remain in full force and effect.

The parties agree that this Amendment #2 is intended to form part of the arrangements contained in the Agreement.  The Agreement, as modified by this Amendment #2, constitutes the entire agreement between the parties in relation to the matters contained in this Amendment #2 and the Agreement and supersede all prior and/or contemporary

agreements and understanding that may exist between the parties, whether written, oral or otherwise.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment #2 to be executed by their duly authorized representatives in duplicate originals as of the Amendment #2 Effective Date.

Cubist Pharmaceuticals, Inc.

/s/ Thomas J. Slater

Name: Thomas J. Slater

Title: VP Commercial Development

Date: May 1, 2007

Chiron Healthcare Ireland Ltd.

/s/ Liouba Laederich

Name: Liouba Laederich

Title: Legal Counsel

Date: 25 April 2007

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EX-10.32

Exhibit 10.32

[                    ]

BY HAND DELIVERY

[                            ]

Cubist Pharmaceuticals, Inc.

65 Hayden Avenue

Lexington, MA  02421

Re:  Retention Letter

Dear [                   ]:

You are a highly valuable employee of Cubist Pharmaceuticals, Inc. (including any successor organizations, “Cubist”).  Cubist wishes to retain you as an employee, and is therefore willing to make certain commitments in order to induce you to remain an employee.  This letter will confirm the agreement between you and Cubist (“Agreement”) in that regard.  The Agreement is as follows:

1.             Definitions.  For the purposes of this Agreement, the following definitions apply:

(a)“Cause” means: (i) you commit of an act of dishonesty, fraud or misrepresentation in connection with your employment; (ii) you are convicted of, or plead nolo contendere to, a felony or a crime involving moral turpitude; (iii) you breach any material obligation under your Proprietary Information and Inventions Agreement or Cubist’s Code of Conduct and Ethics; (iv) you engage in substantial or continuing inattention to or neglect of your duties and responsibilities reasonably assigned to you by Cubist; (v) you engage in substantial or continuing acts to the detriment of Cubist or inconsistent with Cubist’s policies or practices; or (vi) you fail to carry out the reasonable and lawful instructions of your supervisor or the Cubist Board of Directors that are consistent with your duties.

(b)“Good Reason” means: (i) the failure of Cubist to employ you in your current or a substantially similar position, without regard to title, such that your duties and responsibilities are materially diminished without your consent (ii) a material reduction in your total target cash compensation  without your consent (unless such reduction is in connection with a proportional reduction in compensation to all or substantially all of Cubist’s employees); or (iii) a relocation of your primary place of employment more than 35 miles from

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your current site of employment without your consent; provided however, if any of these conditions occur, you are required to provide notice of any such condition to Cubist’s Board of Directors within 60 days of the initial occurrence of the condition, and Cubist will then have 30 days to remedy the condition, prior to the existence of such condition being deemed to be “Good Reason.

(c)a “Change of Control” occurs: (i) when any person or entity other than Cubist or one of its subsidiaries becomes the owner more than  fifty percent (50%) of Cubist’s common stock or (ii) upon the effective date of an agreement of acquisition, merger, or consolidation that has been approved by Cubist’s stockholders and that contemplates that all or substantially all of the business and/or assets of Cubist shall be owned or otherwise controlled by another person or entity upon the effective date of such agreement.

(d)“Bonus” shall mean the greater of either (i) the current year target annual bonus amount or (ii) the previous year’s actual bonus amount.

2.Severance.  (a) Except as set forth in Section 2(b) below, in the event that your employment is terminated by Cubist for any reason other than for Cause, then, following receipt by Cubist of your signed release as more fully described in Section 7 below, Cubist shall pay you an amount equal to eighteen (18) months of your then-current base salary, with such payment to be made in twelve (12) equal semi-monthly installments.

(b) In the event that, within twenty-four (24) months after a Change of Control, your employment is terminated either (i) by Cubist for any reason other than for Cause or (ii) by you for Good Reason, then Cubist shall make a one-time, lump-sum payment to you equal to eighteen (18) months of your then current base salary plus Bonus on the later of (i) your termination date or (ii) the eighth day following receipt by Cubist of your signed release.

Notwithstanding any other provision with respect to the timing of payments under this Section 2, in order to comply with the requirements of Section 409A of the Internal Revenue Code of 1986 (“Section 409A”), any payment or portion thereof, to which you are entitled under this Section 2 which is not exempt from the application of Section 409A’s “six month delay” provision (in Cubist’s sole discretion), shall be withheld until the first business day of the seventh month following your termination. At such time, you shall be paid the remaining balance otherwise owed to you under this Section 2 in a lump sum.

3.Withholding.  All payments made by Cubist under this Agreement shall be reduced by any tax or other amounts required to be withheld by Cubist under applicable law.

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4.Medical and Dental Benefits.  In the event that your employment is terminated by Cubist for any reason other than for Cause, or by you for Good Reason within twenty four (24) months after a Change of Control, then Cubist will maintain your medical and dental insurance coverage for a period of up to eighteen (18) months after the month in which your employment terminates, provided that you pay the employee portion for such coverage by making a payment to Cubist during the first five (5) days of any month in which you elect to continue such coverage.  Except for any right you have to continue participation in Cubist’s group health and dental plans as provided herein or under the federal law known as “COBRA,” all employee benefits shall terminate in accordance with the terms of the applicable benefit plans as of the date of termination of your employment. The “qualifying event” under COBRA, which triggers your right to continue your health insurance post employment, shall be deemed to have occurred on your termination date.

5.Equity Acceleration.  In the event that, within twenty-four (24) months after a Change of Control, your employment is terminated either (i) by Cubist for any reason other than for Cause or (ii) by you for Good Reason, then all outstanding unvested stock options and/or restricted stock awards granted to you under any Cubist equity plan prior to the Change of Control shall become exercisable and vested in full, and all restrictions thereon shall lapse, notwithstanding any vesting schedule or other provisions to the contrary in the agreements evidencing such options or awards, and Cubist and you hereby agree that such stock option agreements and restricted stock awards are hereby, and will be deemed to be, amended to give effect to this provision.

6.No Contract of Employment.  This Agreement is not a contract of employment for a specific term, and your employment is “At Will” and may be terminated by Cubist at any time.

7.Employee Release.  Any obligation of Cubist to provide you severance payments or other benefits under this Agreement is expressly conditioned upon your reviewing and signing (and not revoking during any applicable revocation period) a general release of claims in a form reasonably satisfactory to Cubist within the time period specified in such release.  Cubist shall provide you with the general release promptly after the date on which you give or receive, as the case may be, notice of termination of your employment.

8.Assignment.  You shall not make any assignment of this Agreement or any interest in it, by operation of law or otherwise, without the prior written consent of Cubist.  Cubist may assign its rights and obligations under this Agreement without your consent. This Agreement shall inure to the benefit of and be binding upon you and Cubist, and each of our respective successors, executors, administrators, heirs and permitted assigns, including any organization involved in a Change of Control.

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9.Severability.  If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision hereof shall be valid and enforceable to the fullest extent permitted by law.

10.Miscellaneous.  This Agreement will commence on the date hereof and will expire three (3) years from the date hereof, unless Cubist experiences a Change of Control prior to the expiration of the term of this Agreement, in which case this Agreement will expire on the later of: (a) three (3) years from the date hereof or (b) two (2) years from the date of the closing of such Change of Control.  This Agreement sets forth the entire agreement between you and Cubist in connection with the subject matter hereof, and replaces all prior and contemporaneous communications, agreements and understandings, written or oral, with respect to the subject matter hereof, other than any obligations set forth in your employee confidentiality agreement with Cubist, which obligations shall remain in full force and effect.  In consideration of the benefits provided to you hereunder, you agree that, in the event of your termination from Cubist, such benefits shall be in complete satisfaction of any and all obligations that Cubist may have to you.  This Agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you and an expressly authorized representative of Cubist.  This Agreement may be executed in two counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.  This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, without regard to its conflicts of laws principles, and all disputes hereunder shall be adjudicated in the courts of the Commonwealth of Massachusetts, to whose personal jurisdiction you hereby consent.

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If the foregoing is acceptable to you, please sign both copies of this letter in the space provided, at which time this letter will take effect as a binding agreement between you and Cubist.  Please keep one original for your records and return one original to me.

Cubist Pharmaceuticals, Inc.
By:
	Michael W. Bonney
Date:

Accepted and Agreed:

By:

Name:

Date:

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Retention Letter Details

The Retention Letters by and between Cubist and Lindon M. Fellows, David W.J. McGirr, and Robert J. Perez have an effective date of October 9, 2007

The Retention Letter by and between Cubist and Steven C. Gilman has an effective date of August 11, 2008

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EX-10.41

EXHIBIT 10.41

SIXTH AMENDMENT TO LEASE

THIS SIXTH AMENDMENT TO LEASE (this “Sixth Amendment”) is made as of the 31st day of July, 2008 (the “Sixth Amendment Date”), by and between THE REALTY ASSOCIATES FUND VI, L.P., a Delaware limited partnership (“Landlord”) and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

RECITALS:

WHEREAS, by a lease (the “Original Lease”) dated as of January, 2004, California State Teachers’ Retirement System (“Calsters”) leased to Tenant approximately 15,475 rentable square feet of space, consisting of a portion of the second (Suite 2201-55) and fourth (Suite 4201-55) floors in the building known as 45-55 Hayden Avenue, Lexington, Massachusetts (the “Building”); and

WHEREAS, Landlord has succeeded to the interests of Calsters as landlord under the Lease; and

WHEREAS, the Original Lease has been amended by a First Amendment to Lease between Landlord and Tenant, dated as of September 29, 2005 (the “First Amendment”), and by a Second Amendment to Lease between Landlord and Tenant dated as of November 18, 2005 (the “Second Amendment”), and by a Third Amendment to Lease between Landlord and Tenant dated as of June 20, 2007 (the “Third Amendment”), by a Fourth Amendment to Lease dated as of October 25, 2007 and by a Fifth Amendment to Lease (the “Fifth Amendment”) dated as of December 18, 2007 (the Original Lease, as so amended, being referred to as the “Lease”), pursuant to which the size of the premises demised under the Original Lease was increased to 120,648 rentable square feet (the “Existing Premises”). The Existing Premises consist of Suites 2201-55, 2200-55, 3000-55, 4201-55, 4200-55, 4600-45 and 1000-55; and

WHEREAS, by letter dated as of April 27, 2006, and pursuant to the Second Amendment, Tenant elected to include Suite 2200-55 (also known as the Comet Space) in the Existing Premises for the remainder of the Lease Term; and

WHEREAS, Landlord and Tenant now desire to further amend the Lease to, among other things, expand the size of the Existing Premises by adding thereto approximately 10,495 rentable square feet of space in Suites 3200-55 and 3201-55 on the third floor of the Building (the “Goodrich Space”), and to adjust the rent and certain provisions, all on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Landlord and Tenant hereby agree as follows:

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1.             Defined Terms. All of the foregoing recitals are true and correct. Unless otherwise defined herein, all capitalized terms used in this Sixth Amendment shall have the meanings ascribed to them in the Lease, the Lease shall be amended to incorporate any additional definitions provided for in this Sixth Amendment, and all references in the Lease to the “Lease” or “this Lease” or “herein” or “hereunder” or similar terms or to any section thereof shall mean the Lease, or such section thereof, as amended by this Sixth Amendment.

2.             Additional Terms and Definitions. (a) From and after the Sixth Amendment Effective Date, the following terms set forth in “Article 1 Reference Data” of the Lease are hereby amended or added, as applicable, to have the following meanings:

PREMISES:

The following areas in the 45 and 55 Hayden Avenue portions of the Building: (i) Suite 2201-55 on the second floor and Suite 4201-55 on the fourth floor, (ii) Suite 4200-55 on the fourth floor of the Building, (iii) Suite 2200-55 on the second floor of the Building, and (iv) Suite 3000-55 on the third floor of the Building; and (v) Suite 4600-45 on the fourth floor of the 45 Hayden Avenue portion of the Building; (vi) Suite 1000-55 on the first floor of the 55 Hayden Avenue portion of the Building; (vii) Suite 3200-55 on the third floor of the 55 Hayden Avenue portion of the Building; and (viii) Suite 3201-55 on the third floor of the 55 Hayden Avenue portion of the Building. All such spaces are shown on Exhibit A-6, attached hereto and incorporated herein.

RENTABLE FLOOR AREA OF THE PREMISES:

Approximately 131,143 square feet of the 45 and 55 Hayden Avenue portions of the Building as follows (i) 6,755 rentable square feet on the second floor contained in Suite 2201-55, (ii) 8,720 rentable square feet on the fourth floor contained in Suite 4201-55 and 31,453 rentable square feet on the fourth floor of the Building contained in Suite 4200-55, (iii) 6,150 rentable square feet on the second floor of the Building contained in Suite 2200-55, (iv) 30,019 rentable square feet on the third floor of the Building contained in Suite 3000-55; (v) 25,405 rentable square feet on the fourth floor of the 45 Hayden Avenue portion of the Building contained in Suite 4600-45, (vi) 12,146 rentable square feet on the first floor of the Building contained in Suite

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1000-55; (vii) 6,215 rentable square feet on the third floor of the Building contained in Suite 3200-55; and (viii) 4,280 rentable square feet on the third floor of the Building contained in Suite 3201-55.

(b)           From after the Sixth Amendment Effective Date, the term “Annual Rent” for the Premises shall be as set on Schedule I to this Sixth Amendment. Notwithstanding the foregoing, so long as the Lease remains in full force and effect, and so long as no Actionable Event of Default (as defined in the Third Amendment) shall exist under the Lease, Landlord will waive the requirement that Tenant pay Annual Rent on the First Floor Space for the months of May and June, 2008. For the avoidance of doubt, for the period prior to May 1, 2008, Tenant shall owe the Annual Rent attributable to the First Floor Space on a pro-rated basis only for the period of time from the Fifth Amendment Effective Date through April 30, 2008.

3.             [Intentionally Omitted]

4.             Operating Expenses and Real Estate Taxes. Tenant’s obligations under Section 4.2 of the Lease to pay Operating Expenses with respect to the Goodrich Space shall be computed using the calendar year ending December 31, 2009 as a base year; and Tenant’s obligations under Section 4.2 of the Lease to pay increases in Real Estate Taxes with respect to the Goodrich Space shall be computed using the fiscal year ending June 30, 2008 as the base year.

5.             Effective Date; Delivery and Condition. (a) The “Sixth Amendment Effective Date” shall be the later to occur of (i) November 1, 2008 and (ii) the date on which Goodrich, LLC (the “Existing Tenant”) vacates the Goodrich Space and Landlord delivers possession thereof to Tenant.

(b)           Tenant acknowledges that, except as explicitly provided in this Sixth Amendment and the Lease, it is leasing the Goodrich Space in its current AS IS condition, without any representation or warranty whatsoever on the part of Landlord. Tenant currently occupies the Existing Premises and is fully familiar with their condition and that of the common areas of the Building, and Tenant acknowledges that, to the best of Tenant’s knowledge (upon reasonable investigation and inquiry), the Existing Premises and the Goodrich Space are in good condition and suitable for Tenant’s uses. Without limiting the foregoing, Tenant agrees that Landlord has no obligation to perform any work in or to either the Existing Premises or the Goodrich Space to prepare the same for Tenant’s continued use and occupancy.

(c)           Landlord acknowledges that Tenant desires to make certain alterations or improvements in the Goodrich Space to make the same more suitable for Tenant’s occupancy. Such alterations or improvements may include tenant improvements to the Goodrich Space, installation of fixtures in the Goodrich Space, and architectural and engineering expenses in connection therewith (collectively, the “Goodrich

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Improvements”). All Goodrich Improvements shall be undertaken by Tenant in strict accordance with the applicable requirements of the Lease (including without limitation Sections 3.3 and 3.4). The Goodrich Improvements shall be deemed substantially complete on that date on which the Goodrich Improvements have been completed except for items of work (and, if applicable, adjustment of equipment and fixtures) which can be completed after Tenant has taken occupancy of the Goodrich Space, or any part thereof, without causing undue interference with Tenant’s use of the Goodrich Space or such part thereof. To the extent that (i) such work is substantially completed in accordance with such Lease requirements, and (ii) receipted invoices (and other material required under the Lease such as, but not limited to, lien waivers from any contractor or subcontractor performing the Goodrich Improvements) showing the actual cost thereof are presented to Landlord during the Term of the Lease, and (iii) at the time of any advance of funds, there then exists (A) no Event of Default on the part of Tenant, nor (B) any Actionable Event of Default (as defined in the Third Amendment), Landlord shall reimburse Tenant, within thirty (30) days after receipt of each such invoice (together with lien waivers for all costs theretofore billed), for costs actually incurred by Tenant (excluding the costs of furniture), as evidenced by such invoices, in connection with the design and construction of the Goodrich Improvements, but in no event shall Landlord be obligated to reimburse Tenant more than the lesser of (x) such actual cost, or (y) Two Hundred Sixty-two Thousand Three Hundred Seventy-five Dollars ($262,375.00), or $25.00 per square foot of Rentable Area in the Goodrich Space (the “Goodrich Improvements Allowance”). No portion of the Goodrich Improvements Allowance may be applied to costs of purchasing or installing furniture or wiring/cabling for the Goodrich Space. If the Existing Tenant’s lease is terminated effective as of a date that is prior to November 1, 2008, Landlord shall grant Tenant reasonable access to the Goodrich Space from and after such termination (and the Existing Tenant vacating the Goodrich Space) for the purpose of commencing the Goodrich Improvements.  To the extent that Tenant has not requested disbursement of any portion of the Goodrich Improvements Allowance prior to the expiration or earlier termination of the Lease, Landlord shall have no further obligation to reimburse Tenant for any such costs incurred by Tenant.

6.             Contingency.   Tenant acknowledges that the Sixth Amendment Effective Date occurring prior to the original expiration date of the lease with the Existing Tenant is contingent on Landlord’s ability to enter into a termination agreement with the Existing Tenant, on terms and conditions acceptable to Landlord in its sole discretion, pursuant to which the Existing Tenant would vacate and surrender possession of the Goodrich Space on or before October 31, 2008.

7.             Signage.  Section 5.1.7 of the Lease is hereby amended by adding the following at the end of such section: “In addition, so long as the Tenant named herein or a Permitted Affiliate continues to actually occupy at least 131,143 rentable square feet of space at the Building, and so long as this Lease remains in full force and effect and no Event of Default on the part of Tenant exists, Tenant shall have the exclusive right to have its

4

name displayed (i) on the existing outside “monument” sign near the west entrance to the Building, and (ii) in the lobby directory at the west entrance to the Building.”

8.             Lobby Area.  Landlord acknowledges that, from and after the Effective Date, Tenant will occupy all of the rentable area of the so-called “West Portion” of the Building (also referred to as 55 Hayden Avenue). Landlord further acknowledges that Tenant has expressed a desire (but not the obligation), at its own cost and expense, to design and construct a main reception area directly facing building 65 inside the west entrance on the 3rd floor of the Building, which is currently common area. Landlord agrees to consider the request in good faith, and to use its good faith efforts to obtain the consent of the other tenants and/or occupants that Landlord deems necessary or appropriate.  Landlord shall not be obligated to agree to any financial or other lease concessions in obtaining any such consent, nor shall Landlord be required to pay any sum of money therefor. If Landlord grants Tenant’s request, then the parties shall enter into a written agreement with respect to details, including without limitation rental amounts to be paid and other appropriate matters. If Tenant elects to do so, the common area in question (the “Lobby Space”), shall become Tenant-specific space, the Rentable Floor Area of the Premises shall be increased to include the Lobby Space, and Schedule I shall be amended to reflect the agreed-upon rent and other amounts as agreed by the parties.

9.             Parking.  From and after the Sixth Amendment Effective Date, Section 10.19 of the Lease shall be amended by, in the first sentence thereto:

(a)           Replacing “three hundred sixty-two (362)” with “three hundred ninety-three (393);” and

(b)           Replacing “120,648” with “131,143.”

10.           Brokers.  Tenant covenants, represents and warrants to Landlord that Tenant has had no dealings or communications with any broker or agent (other than Grubb & Ellis Company and Richards Barry Joyce & Partners) in connection with this Sixth Amendment, and Tenant covenants and agrees to pay, hold harmless and indemnify the Landlord from and against any and all cost, expense (including reasonable attorneys’ fees) or liability for any compensation, commission or charges to any broker or agent (other than the foregoing named brokers) claiming through the Tenant with respect hereto.

11.           Exhibits.  Exhibit A-6 attached hereto is hereby substituted for Exhibit A-4 to the Lease. All references in the Lease to Exhibit A-1, A-2, A-3, A-4 or A-5 shall be replaced by references to Exhibit A-6.

12.           Successors.  This Sixth Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of the Lease regarding assignment or other transfers of each party’s rights under the Lease.

5

13.           Authority.  Each party represents and warrants to the other that each person executing this Sixth Amendment on behalf of such party has the authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Sixth Amendment.

14.           No Further Amendment.  It is understood and agreed that all other conditions and terms contained in the Lease not herein specifically amended shall remain unmodified and in full force and effect, and the Lease, as modified by this Sixth Amendment, is hereby ratified and confirmed.

15.           Tenant Representations. As a material inducement to Landlord entering into this Sixth Amendment, Tenant represents and certifies to Landlord that as of the date hereof: (i) the Lease, as modified hereby, and together with that certain letter dated September 24, 2007 from Ron Friedman to Jack Kerrigan, with the subject line “Response to Specific Security Questions – Hayden Woods Corporate Center,” contains the entire agreement between the parties hereto relating to the Premises and that, except for that certain Amended and Restated Declaration of Covenants and Easements between the Landlord’s predecessor in title with respect to the Building and Tenant, as amended to date (the “Declaration”) there are no other agreements between the parties relating to the Premises, the Building or the Lease which are not contained or referred to herein or in the Lease, (ii) to the best of Tenant’s knowledge, Landlord is not in default (continuing beyond the expiration of any applicable notice or grace periods) in any respect in any of the terms, covenants and conditions of the Lease; (iii) Tenant has no existing setoffs, counterclaims or defenses against Landlord under the Lease; (iv) Tenant has not assigned or pledged its leasehold interest under the Lease, or sublet or licensed or granted any other occupancy rights with respect to any or all of the Premises; (v) no consent or approval of any third party or parties is required in order for Tenant to enter into and be bound by this Sixth Amendment; and (vi) Tenant is not, and the performance by Tenant of its obligations hereunder shall not render Tenant, insolvent within the meaning of the United States Bankruptcy Code, the Internal Revenue Code or any other applicable law, code or regulation.

16.           Landlord Representations.  As a material inducement to Tenant entering into this Sixth Amendment, Landlord represents and certifies to Tenant that as of the date hereof: (i) the Lease, as modified hereby, and together with that certain letter dated September 24, 2007 from Ron Friedman to Jack Kerrigan, with the subject line “Response to Specific Security Questions – Hayden Woods Corporate Center,” contains the entire agreement between the parties hereto relating to the Premises and that, except for the Declaration, there are no other agreements between the parties relating to the Premises, the Building or the Lease which are not contained or referred to herein or in the Lease, (ii) to the best of Landlord’s knowledge, there exists no Event of Default or Actionable Event of Default on the part of Tenant in any respect in any of the terms, covenants and conditions of the Lease; (iii) no consent or approval of any third party or parties is required in order for Landlord to enter into and be bound by this Sixth Amendment; and (iv) Landlord has the right to lease the Goodrich Space, as provided herein, to Tenant.

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17.           Governing Law. The Lease, this Sixth Amendment and the rights and obligations of both parties thereunder and hereunder shall be governed by the laws of The Commonwealth of Massachusetts.

18.           HVAC.  Landlord and Tenant acknowledge that letter from Tenant’s counsel to Landlord’s counsel dated August 13, 2007, with a subject line “45-55 Hayden Avenue, Lexington, MA,” and the response from Landlord’s counsel dated October 18, 2007.

19.           Counterparts. This Sixth Amendment may be executed in counterparts, each of which shall be an original and all of which counterparts taken together shall constitute one and the same instrument.

[Text Ends Here]

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IN WITNESS WHEREOF, the undersigned have hereunto se their hands and seals as of the date first above written.

LANDLORD:
The Realty Associates Fund VI, L.P., a Delaware limited partnership
	By: Realty Associates Fund VI LLC, a Massachusetts limited liability company, general partner
			By:    Realty Associates Advisors LLC, a Delaware limited liability company, Manager
				By:   Realty Associates Advisors Trust, a Massachusetts business trust, Manager
				By:		/s/ Heather L. Hohenthal
				Officer: Regional Director
	By: Realty Associates Fund VI Texas Corporation, a Texas corporation, general partner
	By:	/s/ Heather L. Hohenthal
	Officer: Regional Director
			TENANT:
			CUBIST PHARMACEUTICALS, INC.
			By:		/s/ David W.J. McGirr
			Name: David W.J. McGirr
			Title: Senior Vice President and Chief Financial Officer

8

Exhibit A-6

Plans of Premises

9

10

11

12

13

14

15

16

SCHEDULE I TO SIXTH AMENDMENT

Annual Rent

Annual Rent for the Premises shall be the sum of the rents shown below for each portion of the Premises, determined as of the date in question.

As to Suites 2201-55, 4201-55 and 4200-55:

(a)For the period from [Effective Date of First Amendment], 2006 through July 31, 2009:

(i) As to Suite 2201-55 and Suite 4201-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
5/1/06 – 1/31/07	$	371,400.00	$	30,950.00	$	24.00
2/1/07 – 1/31/08	$	386,875.00	$	32,238.58	$	25.00
2/1/08 – 7/31/09	$	402,350.00	$	33,529.17	$	26.00

plus (ii) as to Suite 4200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
7/1/06 – 4/30/07	$	723,419.00	$	60,284.92	$	23.00
5/1/07 – 4/30/08	$	739,145.50	$	61,595.46	$	23.50
5/1/08 – 4/30/09	$	754,872.00	$	62,906.00	$	24.00
5/1/09 – 7/31/09	$	794,188.25	$	66,182.35	$	25.25

(b)           For the period after July 31, 2009, as to all of Suites 2201-55, 4201-55 and 4200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
8/1/09 – 4/30/10	$	1,184,932.00	$	98,744.33	$	25.25
5/1/10 – 4/30/11	$	1,208,396.00	$	100,699.67	$	25.75
5/1/11 – 4/30/12	$	1,231,860.00	$	102,655.00	$	26.25
5/1/12 – 4/30/13	$	1,267,056.00	$	105,588.00	$	27.00
5/1/13 – 4/30/14	$	1,325,716.00	$	110,476.33	$	28.25
5/1/14 – 4/30/15	$	1,384,376.00	$	115,364.67	$	29.50
5/1/15 – 4/30/16	$	1,419,572.00	$	118,297.67	$	30.25

17

As to Suite 2200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
6/1/06 – 4/30/07	$	140,415.00	$	11,787.50	$	23.00
5/1/07 – 4/30/08	$	144,525.00	$	12,043.75	$	23.50
5/1/08 – 4/30/09	$	147,600.00	$	12,300.00	$	24.00
5/1/09 – 4/30/10	$	155,287.50	$	12,940.63	$	25.25
5/1/10 – 4/30/11	$	158,362.50	$	13,196.88	$	25.75
5/1/11 – 4/30/12	$	161,437.50	$	13,453.13	$	26.25
5/1/12 – 4/30/13	$	166,050.00	$	13,837.50	$	27.00
5/1/13 – 4/30/14	$	173,737.50	$	14,478.13	$	28.25
5/1/14 – 4/30/15	$	181,425.00	$	15,118.75	$	29.50
5/1/15 – 4/30/16	$	186,037.50	$	15,503.13	$	30.25

As to Suite 3000-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/08	$	780,494.00	$	65,041.17	$	26.00
5/1/08 – 4/30/09	$	810,513.00	$	67,542.75	$	27.00
5/1/09 – 4/30/10	$	825,522.50	$	68,793.54	$	27.50
5/1/10 – 4/30/11	$	840,532.00	$	70,044.33	$	28.00
5/1/11 - 4/30/12	$	900,570.00	$	75,047.50	$	30.00
5/1/12– 4/30/13	$	945,598.50	$	78,799.88	$	31.50
5/1/13– 4/30/14	$	975,617.50	$	81,301.46	$	32.50
5/1/14– 4/30/15	$	1,035,655.50	$	83,304.63	$	34.50
5/1/15– 4/30/16	$	1,065,674.50	$	88,806.21	$	35.50

As to Suite 4600-45

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/09	$	819,311.25	$	68,275.94	$	32.25
5/1/09 – 4/30/10	$	844,716.25	$	70,393.02	$	33.25
5/1/10 – 4/30/11	$	870,121.25	$	72,510.10	$	34.25
5/1/11 – 4/30/12	$	895,526.25	$	74,627.19	$	35.25
5/1/12 - 4/30/13	$	920,931.25	$	76,744.27	$	36.25
5/1/13– 4/30/14	$	946,336.25	$	78,861.35	$	37.25
5/1/14– 4/30/15	$	971,741.25	$	80,978.44	$	38.25
5/1/15– 4/30/16	$	997,146.25	$	83,095.52	$	39.25

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As to Suite 1000-55

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/08	$	266,024.16	$	22,168.68	N/A
5/1/08 – 4/30/09	$	346,161.00	$	28,846.75	$	28.50
5/1/09 – 4/30/10	$	352,234.00	$	29,352.83	$	29.00
5/1/10 – 4/30/11	$	358,307.00	$	29,858.92	$	29.50
5/1/11 – 4/30/12	$	364,380.00	$	30,365.00	$	30.00
5/1/12 - 4/30/13	$	370,453.00	$	30,871.08	$	30.50
5/1/13– 4/30/14	$	376,526.00	$	31,377.17	$	31.00
5/1/14– 4/30/15	$	382,599.00	$	31,883.25	$	31.50
5/1/15– 4/30/16	$	388,672.00	$	32,389.33	$	32.00

As to Suites 3200 and 3201

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/09	$	338,463.75	$	28,205.31	$	32.25
5/1/09 – 4/30/10	$	348,958.75	$	29,079.90	$	33.25
5/1/10 – 4/30/11	$	364,701.25	$	30,391.77	$	34.25
5/1/11 – 4/30/12	$	369,948.75	$	30,829.06	$	35.25
5/1/12 – 4/30/13	$	380,443.75	$	31,703.65	$	36.25
5/1/13 – 4/30/14	$	390,938.75	$	32,578.23	$	37.25
5/1/14 – 4/30/15	$	401,433.75	$	33,452.81	$	38.25
5/1/15 – 4/30/16	$	411,928.75	$	34,327.40	$	39.25

19

EX-10.42

Exhibit 10.42

November 12, 2008

Santosh J. Vetticaden, Ph.D., M.D.

Dear Santosh,

It is a great pleasure to offer you the position of Senior Vice President, Clinical Development and Chief Medical Officer, with Cubist Pharmaceuticals, Inc. reporting directly to me.  In this position you will be considered a Section 16 officer.

The following summarizes the principal terms of our revised offer which supersedes all previous offers, written or oral, including the written offer dated November 7, 2008:

Salary:  $ 370,000.00 / $ 15,416.67 Per Semi-Monthly Pay Period.  Your first merit review will be in January 2010 and will cover the performance period after your date of hire.  Any first year merit increase you receive will be pro-rated based on the number of months you are employed during the review period, which is January 1, 2009 to December 31, 2009. This position is exempt, so you will not be eligible for overtime.

Performance Bonus:  You will be eligible for a bonus target for 2009 performance of 40% of your earned base salary.  This bonus will be based 65% on company performance and 35% on individual performance.  Any 2009 performance award will be pro-rated based upon your start date.

Stock Options and Restricted Stock Units:  A ten-year option to purchase 80,000 shares of Cubist Pharmaceuticals, Inc. common stock.  The date of grant will be, and the strike price will be determined by using the closing price on, the 15th day of the month after your employment commences. If no trades were reported on such date, the date of grant will be, and the strike price will be determined by using the closing price on, the most recent trading day preceding the 15th on which a trade occurred.  Contingent upon employment, these options are exercisable in equal quarterly installments over four years beginning on the grant date.  Additionally, you will be granted Restricted Stock Units (RSUs) equivalent in value to $150,000.  These RSUs will be granted on the date that we make our annual year-end performance grants to employees and executive officers, which is currently expected to be May 15, 2009, and will be calculated based on the closing price on the annual grant date.  Example: value $150,000 / close price $20.00 = 7,500 RSUs.  Contingent upon employment, the RSUs will vest in equal annual installments over four years beginning on the grant date.

Sign-on bonus:  You will receive a one-time payment of $150,000.00 (grossed up for taxes). If you voluntarily resign from Cubist within one (1) year of your start date or you are terminated by Cubist for cause (as defined below) or misconduct within one (1) year of your start date, you are required to repay Cubist for the total of such sign-on bonus amount (excluding the tax gross-up) within one week of your termination date, and you hereby authorize Cubist to deduct any sign-on bonus amounts owed to Cubist from any amounts owed to you by Cubist as of your termination date, including your last paycheck, any incentive compensation and/or expense report.   “Cause” means that: (i) you commit of an act of dishonesty; (ii) you are convicted of, or plead nolo contendere to, a felony or a crime involving moral turpitude; or (iii) you breach any material obligation under your Proprietary Information and Inventions Agreement or Cubist’s Code of Conduct and Ethics.

Benefits:  Participation in Cubist’s comprehensive benefit plan, including Health, Dental, Life and Disability Insurance, 401(k) Plan, Employee Stock Purchase Plan, etc.  As part of your benefits package you will receive three weeks of paid vacation.  All paid time off, including vacation time, is prorated based on your start date.   Please see the enclosed benefits brochure for further details on the Cubist benefits plan.

Relocation:  As detailed below and on Exhibit A to this letter (and subject thereto), Cubist will provide you with financial assistance in connection with your move from California to the Greater Boston, Massachusetts area. Cubist partners with Coldwell Banker Relocation Services to coordinate relocation packages on its behalf and a relocation consultant will be assigned to assist you during this period.  Reimbursement and payment for relocation expenses that Cubist has agreed to cover (as detailed on Exhibit A) is subject to the terms of Exhibit A and your agreement to coordinate your relocation activities with the relocation consultant assigned to you.   Among other things. your relocation consultant will help you determine the expenses that can be billed directly to Cubist and the expenses that will be reimbursed by Cubist.

If your employment with Cubist terminates for any reason other than for cause or misconduct within the first 6 months after your start date, you will not be required to repay any relocation expenses.  If you voluntarily resign during months 7 through 12 after your start date or you are terminated by Cubist for cause (as defined above) or misconduct during the first 12 months of your start date, you are required to repay Cubist for the total of such relocation amounts within one week of your termination date. If you voluntarily resign from Cubist during months 13 through 24 after your start date or you are terminated by Cubist for cause (as defined above) or misconduct within months 13 through 24 after your start date, you are required to repay Cubist 50% of such relocation amounts within one week of your termination date.  You will be required to sign a Relocation Agreement evidencing this commitment with customary terms and conditions.  You additionally authorize Cubist to deduct any relocation amounts from any amounts owed to you by Cubist as of your termination date, including your last paycheck, any incentive compensation and/or expense report.

Change in Control: After 6 months of employment, you will be eligible to receive our standard form of retention letter.   In the event that a change in control occurs prior to the end of your initial six months of employment, you will receive the same treatment as other Section 16 officers.

If during the first 6 months of employment you leave the company for any reason other than for cause (as defined above) or misconduct, Cubist will provide you with 3 months of salary continuation beginning on your termination date.

Please note that this offer is expressly conditioned upon you being legally authorized to work in the United States, and is further conditioned on you signing the Cubist employee confidentiality agreement.

Your employment at Cubist is at-will, which means that either Cubist or you may end the relationship at any time for any reason. This letter constitutes our entire offer regarding the terms and conditions of your prospective employment with Cubist.  It supersedes any prior agreements, or other promises or statements (whether oral or written) regarding the offered terms of employment or any aspect of your anticipated employment.  The terms of your employment shall be governed by the law of the Commonwealth of Massachusetts.  By accepting this offer of employment, you agree that any action, demand, claim or counterclaim in connection with any aspect of your employment with Cubist, or any separation of employment (whether voluntary or involuntary) from Cubist, shall be resolved in a court of

competent jurisdiction in Massachusetts by a judge alone, and you waive and forever renounce your right to a trial before a civil jury.

We are very enthusiastic about your becoming a member of the Cubist team.

Sincerely,

/s/ Michael W. Bonney
Michael W. Bonney
President and Chief Executive Officer
This offer expires on November 17, 2008.
Yes, I accept the terms and conditions of this offer.
Signed:	/s/ Santosh J. Vetticaden	Date: 11/14/08

Exhibit A

Relocation Expenses

Subject to the terms of this Exhibit A, Cubist will cover the following relocation expenses and you will be entitled to utilize the financial assistance for a period of two years after your employment start date:

Temporary Living/Duplicate Housing Assistance:   Cubist will cover temporary living for you and your family in the greater Boston area or provide duplicate housing assistance, as detailed below, for a period of 12 months after your employment start date, subject to the following conditions:  (a) This assistance will terminate earlier than 12 months after your employment start date in the event that you have sold your California house and purchased a house in the greater Boston area within the 12-month period, in which case both the temporary living and duplicate housing assistance will terminate upon the later of these two events; and (b) if you purchase a home in the greater Boston area within 12 months after your employment start date but have not sold your house in California, then, effective upon the date you purchase your house in the greater Boston area, the assistance to be provided by Cubist under this section will convert solely to duplicate housing assistance and you will no longer be entitled to temporary living assistance.    Duplicate assistance consists of the payment by Cubist of the lesser of your mortgage payments on the California house and the house you purchase in the greater Boston area.

Additionally, Cubist will cover one return trip home every other weekend during the first 12 months after your employment start date so long as you own your house in California.

For temporary living, our relocation provider will identify a furnished and accessorized temporary apartment for you and your family to stay in if you begin employment with Cubist before you are able to purchase a home in the greater Boston area.

Home Sale Closing Costs:  Our relocation provider will be in touch with you to identify at least two approved real estate agencies and agents to provide current market analyses of your property.  You are not required to list your property with either of these agents.  We will cover the following customary closing costs required to be paid by a home seller, provided that the total home sale closing/settlement  costs that we will cover will not exceed 7% of the sale price of your home:

·Brokerage commission

·Reasonable and customary legal fees and expenses

·Recording fees, title expenses

·Transfer taxes

·Other seller expenses customary and in accordance with local practice

·Expenses associated with one return trip to settle on the sale of your residence — not to exceed three days

·Seller Incentive — If you sell and close on your home within 90 days of its listing and you use a Coldwell Banker approved Realtor, you will receive the higher of $10,000 or 2% gross of sales price for your effort to complete your relocation as quickly as possible.  You will not be eligible for this benefit if you choose your own realtor.

The following home sale closing/settlement charges will not be covered:

·Real estate taxes due

·Insurance or seller concessions (including buyer’s points and/or closing costs, property repairs)

·Home warranties

Home Purchase Closing Costs:  Cubist will cover all normal and customary non-recurring home purchase closing costs incurred with the purchase of your primary residence in the greater Boston area and will cover up to $6,000 towards mortgage points to buy down your mortgage interest rate.  The following costs will not be covered:

·Attorney’s fees over $800.00

·Owner’s title insurance (only Lender’s title insurance is covered)

·Property Tax escrows

·Hazard Insurance

House hunting Trips:  Two house hunting trips of up to seven (7) nights total with your family, minivan rental, airfare or mileage, lodging, and meals up to $90 per day per person will be covered by Cubist.

Miscellaneous Expense Allowance:  Recognizing that you may incur costs associated with your relocation that are not expressly addressed here, Cubist will additionally provide you with $8,500 less applicable taxes processed through payroll to assist you with any additional expenses.  This allowance will be disbursed once your official relocation process begins and you have signed the Relocation Agreement.

Household Goods Shipment:  Our relocation provider will facilitate your obtaining two estimates from our preferred van lines.  These estimates must be approved in advance by Cubist and our relocation provider.  These costs will be billed directly to Cubist.  Additionally, the cost of transporting two automobiles will be covered by Cubist, and up to 12 months of storage will be covered if it is necessary to move your household goods prior to closing on a property in the new location.

Tax Consequences:  Please note that corporate relocation can have personal tax implications.  Please contact your tax advisor for more information related to the tax implications of relocation. Cubist will pay the estimated federal, state and FICA tax liability (gross up) that arises from taxable Company reimbursed expenses associated with your relocation as detailed on Exhibit B.  As noted on this Exhibit A and Exhibit B, you will not be grossed up for the miscellaneous expense allowance or the amount of the tax gross up that you receive from the Company.   The amount of the tax gross up will be remitted by Cubist directly to the appropriate revenue agency and reported as withheld taxes on your W-2 Wage and Tax Statement.

Exhibit B

Tax Consequences

Policy	Tax Situation
Household Goods ·      Storage (1st 30 days only) ·      Moving Extras	Excludable/Deductible Excludable/Deductible Excludable/Deductible
Final Move Expenses ·      Transportation ·      Lodging ·      Meals	Excludable/Deductible Excludable/Deductible Excludable/Deductible TAXABLE
Home Sale Assistance ·      Pre-marketing / advance marketing	Non-event Non-event
Selling Costs Temporary Living Return Trips Home House Hunting Trips Tax Assistance / Gross Up New Home Purchase Costs Misc. Expense Allowance Mortgage Interest Differential Cost of-living Allowance Mortgage Program Incentives — Bonuses Tax Counseling (if paid by employer) Per Diem Allowance Lease Breaking Costs Legal Costs Special Assistance	TAXABLE TAXABLE TAXABLE TAXABLE TAXABLE (not grossed up) TAXABLE TAXABLE (not grossed up) TAXABLE TAXABLE Non-event TAXABLE TAXABLE TAXABLE TAXABLE TAXABLE TAXABLE

EX-10.43

EXHIBIT 10.43

SEVENTH AMENDMENT TO LEASE

THIS SEVENTH AMENDMENT TO LEASE (this “Seventh Amendment”) is made as of the 18th day of November, 2008 (the “Seventh Amendment Date”), by and between THE REALTY ASSOCIATES FUND VI, L.P., a Delaware limited partnership (“Landlord”) and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

RECITALS:

WHEREAS, by a lease (the “Original Lease”) dated as of January, 2004, California State Teachers’ Retirement System (“Calsters”) leased to Tenant approximately 15,475 rentable square feet of space, consisting of a portion of the second (Suite 2201-55) and fourth (Suite 4201-55) floors in the building known as 45-55 Hayden Avenue, Lexington, Massachusetts (the “Building”); and

WHEREAS, Landlord has succeeded to the interests of Calsters as landlord under the Lease; and

WHEREAS, the Original Lease has been amended by a First Amendment to Lease between Landlord and Tenant, dated as of September 29, 2005 (the “First Amendment”), by a Second Amendment to Lease between Landlord and Tenant dated as of November 18, 2005 (the “Second Amendment”), by a Third Amendment to Lease between Landlord and Tenant dated as of June 20, 2007 (the “Third Amendment”), by a Fourth Amendment to Lease dated as of October 25, 2007, by a Fifth Amendment to Lease (the “Fifth Amendment”) dated as of December 18, 2007, and by a Sixth Amendment to Lease (the “Sixth Amendment”) dated as of July 31, 2008 (the Original Lease, as so amended, being referred to as the “Lease”), pursuant to which the size of the premises demised under the Original Lease was increased to 131,143 rentable square feet (the “Existing Premises”). The Existing Premises consist of Suites 2201-55, 2200-55, 3000-55, 3200-55, 3201-55, 4201-55, 4200-55, 4600-45, and 1000-55; and

WHEREAS, by letter dated as of April 27, 2006, and pursuant to the Second Amendment, Tenant elected to include Suite 2200-55 (also known as the Comet Space) in the Existing Premises for the remainder of the Lease Term; and

WHEREAS, Landlord and Tenant now desire to further amend the Lease to, among other things, grant to Tenant the exclusive right to use approximately 1,754 square feet of space on the ground floor of the 55 Hayden Avenue portion of the Building (the “Lobby Space”), and to adjust the rent and certain provisions, all on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Landlord and Tenant hereby agree as follows:

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1.             Defined Terms. All of the foregoing recitals are true and correct. Unless otherwise defined herein, all capitalized terms used in this Seventh Amendment shall have the meanings ascribed to them in the Lease, the Lease shall be amended to incorporate any additional definitions provided for in this Seventh Amendment, and all references in the Lease to the “Lease” or “this Lease” or “herein” or “hereunder” or similar terms or to any section thereof shall mean the Lease, or such section thereof, as amended by this Seventh Amendment.

2.             Lobby Space. Effective from and after the Seventh Amendment Date, and for so long as Tenant continues to occupy all of the Premises in the 55 Hayden Avenue portion of the Building, Landlord hereby grants to Tenant the exclusive right to use, as appurtenant to the Premises, the Lobby Space, shown on Exhibit A-7, attached hereto and incorporated herein by reference. The Lobby Space shall be used by Tenant as a reception area and lobby for Tenant’s employees and invitees to Tenant’s offices in the Building. From and after the Seventh Amendment Date, the Lobby Space shall be treated as if it were a part of the Premises for all purposes of the Lease, including without limitation Article 6 thereof.

3.             Annual Rent for Lobby Space. From after the Seventh Amendment Date, and in addition to Annual Rent and additional rent payable with respect to the Existing Premises, the Tenant shall pay Annual Rent for the Lobby Space as provided below:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/09	$	56,566.50	$	4,713.88	$	32.25
5/1/09 – 4/30/10	$	58,320.50	$	4,860.04	$	33.25
5/1/10 – 4/30/11	$	60,074.50	$	5,006.21	$	34.25
5/1/11 –4/30/12	$	61,828.50	$	5,152.38	$	35.25
5/1/12 – 4/30/13	$	63,582.50	$	5,298.54	$	36.25
5/1/13 – 4/30/14	$	65,336.50	$	5,444.71	$	37.25
5/1/14–4/30/15	$	67,090.50	$	5,590.88	$	38.25
5/1/15 – 4/30/16	$	68,844.50	$	5,737.04	$	39.25

4.             Delivery and Condition of Lobby Space. (a) Tenant acknowledges that Tenant will accept possession of the Lobby Space on the Seventh Amendment Date in its current AS IS condition, without any representation or warranty whatsoever on the part of Landlord. Tenant currently occupies the Existing Premises and is fully familiar with the condition of the Lobby Space, and Tenant acknowledges that the Lobby Space is in good condition and suitable for Tenant’s intended uses.

(b) Without limiting any other provision of the Lease, all plans and specifications for any alterations or improvements that Tenant desires to make in the Lobby Space (together, the “Lobby Improvements”), will be prepared by Tenant and submitted to Landlord for its review and approval. All Lobby Improvements shall be

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undertaken by Tenant at Tenant’s sole cost and expense, in a good and workmanlike manner and in strict accordance with the applicable requirements of the Lease (including without limitation Sections 3.3 and 3.4). Tenant shall coordinate the timing of any Lobby Improvements with Landlord, and shall perform the same in such a manner as to minimize any disturbance to, or interference with the business operations of, other tenants or occupants of the Building.

(c)             At such time as Tenant shall cease to occupy all of the Premises in the 55 Hayden Avenue portion of the Building, Tenant shall at Landlord’s election, remove any Lobby Improvements made by Tenant and restore such other of the Lobby Improvements as Landlord may deem reasonably necessary to return the Lobby Space to use as a part of the Building common area.

(d)             Without in any way limiting Tenant’s repair and maintenance obligations under the Lease with respect to the Premises or the Lobby Space (as if it were a part of the Premises), Tenant shall at all times that Tenant has the right to use the Lobby Space, repair, maintain and (as necessary) replace: (i) the exterior entry system leading to the Lobby Space (including without limitation the door(s), exterior and interior glass, closers, locks and lighting); (ii) carpeting and floor tiles in the Lobby Space; (iii) heating, ventilation and air conditioning equipment in the Lobby Space (as well as any supplemental systems serving only the Lobby Space); and (iv) life safety alarms, systems and equipment located in the Lobby Space.

(e) Promptly upon the Seventh Amendment Date, Landlord shall (i) revise the existing signage on the monument sign to reflect that Tenant’s Premise are in Building 55 and that other tenants in the Building are in Building 45, (ii) install necessary exterior directional signage indicating the proper entrances to Building 45 and to Building 55, and (iii) to the extent not already done, make necessary changes to the existing elevator card readers to as to prevent tenants in other portions of the Building from using their cards to access the elevators in Building 55, and to satisfy any applicable life safety or other codes and legal requirements. Tenant acknowledges that the mail and other delivery service drop boxes for the Building are currently located outside of the Building, adjacent to the Lobby Space entrance. Landlord will investigate whether it will be preferable for the Building as a whole to relocate the existing drop boxes to a more central location, or to leave the existing boxes and install additional drop boxes in a new location. Tenant shall reimburse Landlord within 30 days after receipt of invoices for the costs and expenses reasonably incurred in connection with all of the foregoing actions described in this paragraph (e), up to an aggregate maximum reimbursement amount of Ten Thousand Dollars ($10,000).

5. Brokers. Tenant covenants, represents and warrants to Landlord that Tenant has had no dealings or communications with any broker or agent (other than Grubb & Ellis Company and Richards Barry Joyce & Partners) in connection with this Seventh Amendment, and Tenant covenants and agrees to pay, hold harmless and indemnify the Landlord from and against any and all cost, expense (including reasonable attorneys’

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fees) or liability for any compensation, commission or charges to any broker or agent (other than the foregoing named brokers) claiming through the Tenant with respect hereto.

6.               Successors. This Seventh Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of the Lease regarding assignment or other transfers of each party’s rights under the Lease.

7.               Authority. Each party represents and warrants to the other that each person executing this Seventh Amendment on behalf of such party has the authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Seventh Amendment.

8.               No Further Amendment. It is understood and agreed that all other conditions and terms contained in the Lease not herein specifically amended shall remain unmodified and in full force and effect, and the Lease, as modified by this Seventh Amendment, is hereby ratified and confirmed.

9.               Tenant Representations. As a material inducement to Landlord entering into this Seventh Amendment, Tenant represents and certifies to Landlord that as of the date hereof: (i) the Lease is in full force and effect, (ii) to the best of Tenant’s knowledge, Landlord is not in default (continuing beyond the expiration of any applicable notice or grace periods) in any respect in any of the terms, covenants and conditions of the Lease; and (iii) Tenant has no existing setoffs, counterclaims or defenses against Landlord under the Lease.

10.             Landlord Representations. As a material inducement to Tenant entering into this Seventh Amendment, Landlord represents and certifies to Tenant that as of the date hereof: (i) the Lease is in full force and effect, an d(ii) to the best of Landlord’s knowledge, there exists no Event of Default on the part of Tenant in any respect in any of the terms, covenants and conditions of the Lease.

11.             Governing Law. The Lease, this Seventh Amendment and the rights and obligations of both parties thereunder and hereunder shall be governed by the laws of The Commonwealth of Massachusetts.

12.             Counterparts. This Seventh Amendment may be executed in counterparts, each of which shall be an original and all of which counterparts taken together shall constitute one and the same instrument.

[Text Ends Here]

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IN WITNESS WHEREOF, the undersigned have hereunto se their hands and seals as of the date first above written.

LANDLORD:
The Realty Associates Fund VI, L.P., a Delaware limited partnership
	By: Realty Associates Fund VI LLC, a Massachusetts limited liability company, general partner
			By:      Realty Associates Advisors LLC, a Delaware limited liability company, Manager
					By: Realty Associates Advisors Trust, a Massachusetts business trust, Manager
					By:	/s/ Heather L. Hohenthal
					Officer: Regional Director
	By: Realty Associates Fund VI Texas Corporation, a Texas corporation, general partner
	By:	/s/ Heather L. Hohenthal
	Officer: Regional Director
			TENANT:
			CUBIST PHARMACEUTICALS, INC.
			By:	/s/ David W.J. McGirr
			Name: David W.J. McGirr
			Title: Senior Vice President and Chief Financial Officer

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Exhibit A-7

Plans of Lobby Space

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EX-10.44

EXHIBIT 10.44

EIGHTH AMENDMENT TO LEASE

THIS EIGHTH AMENDMENT TO LEASE (this “Eighth Amendment”) is made as of the 18th day of November, 2008 (the “Eighth Amendment Date”), by and between THE REALTY ASSOCIATES FUND VI, L.P., a Delaware limited partnership (“Landlord”) and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

RECITALS:

WHEREAS, by a lease (the “Original Lease”) dated as of January, 2004, California State Teachers’ Retirement System (“Calsters”) leased to Tenant approximately 15,475 rentable square feet of space, consisting of a portion of the second (Suite 2201-55) and fourth (Suite 4201-55) floors in the building known as 45-55 Hayden Avenue, Lexington, Massachusetts (the “Building”); and

WHEREAS, Landlord has succeeded to the interests of Calsters as landlord under the Lease; and

WHEREAS, the Original Lease has been amended by: a First Amendment to Lease between Landlord and Tenant, dated as of September 29, 2005 (the “First Amendment”); and by a Second Amendment to Lease between Landlord and Tenant dated as of November 18, 2005 (the “Second Amendment”); and by a Third Amendment to Lease between Landlord and Tenant dated as of June 20, 2007 (the “Third Amendment”); and by a Fourth Amendment to Lease dated as of October 25, 2007 (the “Fourth Amendment”); and by a Fifth Amendment to Lease (the “Fifth Amendment”) dated as of December 18, 2007; and by a Sixth Amendment to Lease (the “Sixth Amendment”) dated as of July 31, 2008; and by a Seventh Amendment to Lease (the “Seventh Amendment”) dated as of November       , 2008 (the Original Lease, as so amended, being referred to as the “Lease”), pursuant to which the size of the premises demised under the Original Lease was increased to 131,143 rentable square feet (the “Existing Premises”). The Existing Premises consist of Suites 2201-55, 2200-55, 3000-55, 4201-55, 4200-55, 4600-45, 1000-55, 3200-55 and 3201-55; and

WHEREAS, by letter dated as of April 27, 2006, and pursuant to the Second Amendment, Tenant elected to include Suite 2200-55 (also known as the Comet Space) in the Existing Premises for the remainder of the Lease Term; and

WHEREAS, Landlord and Tenant now desire to further amend the Lease to, among other things, expand the size of the Existing Premises by adding thereto approximately 3,089 rentable square feet of space, known as Suite 2600-45, on the second floor of the Building (the “FCG Space”) and 2,805 rentable square feet of space, known as Suite 2800-45, on the second floor of the Building (the “Summit Space;” the FCG Space and the Summit Space are collectively referred to as the “Eighth Amendment Expansion Space”), and to adjust the rent and certain provisions, all on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Landlord and Tenant hereby agree as follows:

1.             Defined Terms. All of the foregoing recitals are true and correct. Unless otherwise defined herein, all capitalized terms used in this Eighth Amendment shall have the meanings ascribed to them in the Lease, the Lease shall be amended to incorporate any additional definitions provided for in this Eighth Amendment, and all references in the Lease to the “Lease” or “this Lease” or “herein” or “hereunder” or similar terms or to any section thereof shall mean the Lease, or such section thereof, as amended by this Eighth Amendment.

2.             Additional Terms and Definitions. (a) From and after the Eighth Amendment Effective Date, the following terms set forth in “Article 1 Reference Data” of the Lease are hereby amended or added, as applicable, to have the following meanings:

PREMISES:

The following areas in the 45 and 55 Hayden Avenue portions of the Building: (i) Suite 2201-55 on the second floor and Suite 4201-55 on the fourth floor, (ii) Suite 4200-55 on the fourth floor of the Building, (iii) Suite 2200-55 on the second floor of the Building, and (iv) Suite 3000-55 on the third floor of the Building; and (v) Suite 4600-45 on the fourth floor of the 45 Hayden Avenue portion of the Building; (vi) Suite 1000-55 on the first floor of the 55 Hayden Avenue portion of the Building; (vii) Suite 3200-55 on the third floor of the 55 Hayden Avenue portion of the Building; (viii) Suite 3201-55 on the third floor of the 55 Hayden Avenue portion of the Building; (ix) Suite 2600-45 on the second floor of the 45 Hayden Avenue portion of the Building; and (x) Suite 2800-45 on the second floor of the 45 Hayden Avenue portion of the Building. All such spaces are shown on Exhibit A-8, attached hereto and incorporated herein.

RENTABLE FLOOR AREA OF THE PREMISES:

Approximately 137,037 square feet of the 45 and 55 Hayden Avenue portions of the Building as follows (i) 6,755 rentable square feet on the second floor contained in Suite 2201-55, (ii) 8,720 rentable square feet on the fourth floor contained in Suite 4201-55 and 31,453 rentable square feet on the fourth floor of the Building contained in Suite 4200-

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55, (iii) 6,150 rentable square feet on the second floor of the Building contained in Suite 2200-55, (iv) 30,019 rentable square feet on the third floor of the Building contained in Suite 3000-55; (v) 25,405 rentable square feet on the fourth floor of the 45 Hayden Avenue portion of the Building contained in Suite 4600-45, (vi) 12,146 rentable square feet on the first floor of the Building contained in Suite 1000-55; (vii) 6,215 rentable square feet on the third floor of the Building contained in Suite 3200-55; and (viii) 4,280 rentable square feet on the third floor of the Building contained in Suite 3201-55; (ix) 3,089 rentable square feet on the third floor of the Building contained in Suite 2600-45; and (x) 2,805 rentable square feet on the second floor of the Building contained in Suite 2800-45.

(b)           From after the Eighth Amendment Effective Date, the term “Annual Rent” for the Premises shall be as set on Schedule I to this Eighth Amendment.

3.             [Intentionally Omitted]

4.             Operating Expenses and Real Estate Taxes. Tenant’s obligations under Section 4.2 of the Lease to pay Operating Expenses with respect to the Eighth Amendment Expansion Space shall be computed using the calendar year ending December 31, 2009 as a base year; and Tenant’s obligations under Section 4.2 of the Lease to pay increases in Real Estate Taxes with respect to the Eighth Amendment Expansion Space shall be computed using the fiscal year ending June 30, 2009 as the base year.

5.             Effective Date; Delivery and Condition. (a) The “Eighth Amendment Effective Date” shall be the later to occur of (i) February 1, 2009 and (ii) the date on which First Consulting Group (the “Existing Tenant”) vacates and surrenders the FCG Space and Landlord delivers possession of the Eighth Amendment Expansion Space to Tenant. Landlord represents that the Summit Space is currently vacant.

(b)           Tenant acknowledges that, except as explicitly provided in this Eighth Amendment and the Lease, it is leasing the Eighth Amendment Expansion Space in its current AS IS condition, without any representation or warranty whatsoever on the part of Landlord. Tenant currently occupies the Existing Premises and is fully familiar with their condition and that of the common areas of the Building, and Tenant acknowledges that, to the best of Tenant’s knowledge (upon reasonable investigation and inquiry), the Existing Premises and the Eighth Amendment Expansion Space are in good condition and suitable for Tenant’s uses. Without limiting the foregoing, Tenant agrees that Landlord has no obligation to perform any work in or to either the Existing Premises or

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the Eighth Amendment Expansion Space to prepare the same for Tenant’s continued use and occupancy.

(c)           Landlord acknowledges that Tenant desires to make certain alterations or improvements in the Eighth Amendment Expansion Space to make the same more suitable for Tenant’s occupancy. Such alterations or improvements may include tenant improvements to the Eighth Amendment Expansion Space, installation of fixtures in the Eighth Amendment Expansion Space, and architectural and engineering expenses in connection therewith (collectively, the “Eighth Amendment Expansion Space Improvements”). All Eighth Amendment Expansion Space Improvements shall be undertaken by Tenant in strict accordance with the applicable requirements of the Lease (including without limitation Sections 3.3 and 3.4). The Eighth Amendment Expansion Space Improvements shall be deemed substantially complete on that date on which the Eighth Amendment Expansion Space Improvements have been completed except for items of work (and, if applicable, adjustment of equipment and fixtures) which can be completed after Tenant has taken occupancy of the Eighth Amendment Expansion Space, or any part thereof, without causing undue interference with Tenant’s use of the Eighth Amendment Expansion Space or such part thereof. To the extent that (i) such work is substantially completed in accordance with such Lease requirements, and (ii) receipted invoices (and other material required under the Lease such as, but not limited to, lien waivers from any contractor or subcontractor performing the Eighth Amendment Expansion Space Improvements) showing the actual cost thereof are presented to Landlord during the Term of the Lease, and (iii) at the time of any advance of funds, there then exists (A) no Event of Default on the part of Tenant, nor (B) any Actionable Event of Default (as defined in the Third Amendment), Landlord shall reimburse Tenant, within thirty (30) days after receipt of each such invoice (together with lien waivers for all costs theretofore billed), for costs actually incurred by Tenant (excluding the costs of furniture), as evidenced by such invoices, in connection with the design and construction of the Eighth Amendment Expansion Space Improvements, but in no event shall Landlord be obligated to reimburse Tenant more than the lesser of (x) such actual cost, or (y) One Hundred Forty-seven Thousand Three Hundred Fifty Dollars ($147,350.00), or $25.00 per square foot of Rentable Area in the Eighth Amendment Expansion Space (the “Eighth Amendment Expansion Space Improvements Allowance”). No portion of the Eighth Amendment Expansion Space Improvements Allowance may be applied to costs of purchasing or installing furniture or wiring/cabling for the Eighth Amendment Expansion Space. If the Existing Tenant vacates and surrenders possession of the FCG Space prior to January 31, 2009, Landlord shall grant Tenant reasonable access to the FCG Space from and after such surrender (and the Existing Tenant vacating the FCG Space) for the purpose of commencing the Eighth Amendment Expansion Space Improvements in the FCG Space. From and after the date hereof, Tenant shall have reasonable access to the Summit Space for the purpose of commencing the Eighth Amendment Expansion Space Improvements in the Summit Space. To the extent that Tenant has not requested disbursement of any portion of the Eighth Amendment Expansion Space Improvements

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Allowance prior to the expiration or earlier termination of the Lease, Landlord shall have no further obligation to reimburse Tenant for any such costs incurred by Tenant. Notwithstanding the foregoing, to the extent that Tenant has not used the entire Eighth Amendment Expansion Space Improvements Allowance, then Tenant shall have the right to use any remaining portion thereof for Lobby Improvements made by Tenant to the Lobby Area (as those terms are defined in the Seventh Amendment), provided that Tenant shall not use more than $25.00 per rentable square foot of Lobby Space area from the Eighth Amendment Expansion Space Improvements Allowance.

6.             Parking.  From and after the Eighth Amendment Effective Date, Section 10.19 of the Lease shall be amended by, in the first sentence thereto:

(a)          Replacing “three hundred ninety-three (393)” with “four hundred eleven (411);” and

(b)          Replacing “131,143” with “137,037.”

7.             Brokers.  Tenant covenants, represents and warrants to Landlord that Tenant has had no dealings or communications with any broker or agent (other than Grubb & Ellis Company and Richards Barry Joyce & Partners) in connection with this Eighth Amendment, and Tenant covenants and agrees to pay, hold harmless and indemnify the Landlord from and against any and all cost, expense (including reasonable attorneys’ fees) or liability for any compensation, commission or charges to any broker or agent (other than the foregoing named brokers) claiming through the Tenant with respect hereto.

8.             Exhibits.  Exhibit A-8 attached hereto is hereby substituted for Exhibit A-6 to the Lease. All references in the Lease to Exhibit A-1, A-2, A-3, A-4, A-5 or A-6 shall be replaced by references to Exhibit A-8.

9.             Successors.  This Eighth Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of the Lease regarding assignment or other transfers of each party’s rights under the Lease.

10.           Authority.  Each party represents and warrants to the other that each person executing this Eighth Amendment on behalf of such party has the authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Eighth Amendment.

11.           No Further Amendment.  It is understood and agreed that all other conditions and terms contained in the Lease not herein specifically amended shall remain unmodified and in full force and effect, and the Lease, as modified by this Eighth Amendment, is hereby ratified and confirmed.

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12.           Tenant Representations. As a material inducement to Landlord entering into this Eighth Amendment, Tenant represents and certifies to Landlord that as of the date hereof: (i) the Lease, as modified hereby, and together with that certain letter dated September 24, 2007 from Ron Friedman to Jack Kerrigan, with the subject line “Response to Specific Security Questions — Hayden Woods Corporate Center,” contains the entire agreement between the parties hereto relating to the Premises and that, except for that certain Amended and Restated Declaration of Covenants and Easements between the Landlord’s predecessor in title with respect to the Building and Tenant, as amended to date (the “Declaration”) there are no other agreements between the parties relating to the Premises, the Building or the Lease which are not contained or referred to herein or in the Lease, (ii) to the best of Tenant’s knowledge, Landlord is not in default (continuing beyond the expiration of any applicable notice or grace periods) in any respect in any of the terms, covenants and conditions of the Lease; (iii) Tenant has no existing setoffs, counterclaims or defenses against Landlord under the Lease; (iv) Tenant has not assigned or pledged its leasehold interest under the Lease, or sublet or licensed or granted any other occupancy rights with respect to any or all of the Premises; (v) no consent or approval of any third party or parties is required in order for Tenant to enter into and be bound by this Eighth Amendment; and (vi) Tenant is not, and the performance by Tenant of its obligations hereunder shall not render Tenant, insolvent within the meaning of the United States Bankruptcy Code, the Internal Revenue Code or any other applicable law, code or regulation.

13.           Landlord Representations.  As a material inducement to Tenant entering into this Eighth Amendment, Landlord represents and certifies to Tenant that as of the date hereof: (i) the Lease, as modified hereby, and together with that certain letter dated September 24, 2007 from Ron Friedman to Jack Kerrigan, with the subject line “Response to Specific Security Questions — Hayden Woods Corporate Center,” contains the entire agreement between the parties hereto relating to the Premises and that, except for the Declaration, there are no other agreements between the parties relating to the Premises, the Building or the Lease which are not contained or referred to herein or in the Lease, (ii) to the best of Landlord’s knowledge, there exists no Event of Default or Actionable Event of Default on the part of Tenant in any respect in any of the terms, covenants and conditions of the Lease; (iii) no consent or approval of any third party or parties is required in order for Landlord to enter into and be bound by this Eighth Amendment; and (iv) Landlord has the right to lease the Eighth Amendment Expansion Space, as provided herein, to Tenant.

14.           Governing Law. The Lease, this Eighth Amendment and the rights and obligations of both parties thereunder and hereunder shall be governed by the laws of The Commonwealth of Massachusetts.

15.           HVAC.  Landlord and Tenant acknowledge that letter from Tenant’s counsel to Landlord’s counsel dated August 13, 2007, with a subject line “45-55 Hayden Avenue, Lexington, MA,” and the response from Landlord’s counsel dated October 18, 2007.

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16.           Counterparts. This Eighth Amendment may be executed in counterparts, each of which shall be an original and all of which counterparts taken together shall constitute one and the same instrument.

[Text Ends Here]

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IN WITNESS WHEREOF, the undersigned have hereunto se their hands and seals as of the date first above written.

LANDLORD:
The Realty Associates Fund VI, L.P., a Delaware limited partnership
	By: Realty Associates Fund VI LLC, a Massachusetts limited liability company, general partner
			By:    Realty Associates Advisors LLC, a Delaware limited liability company, Manager
					By: Realty Associates Advisors Trust, a Massachusetts business trust, Manager
					By:	/s/ Heather L. Hohenthal
					Officer: Regional Director
	By: Realty Associates Fund VI Texas Corporation, a Texas corporation, general partner
	By:	/s/ Heather L. Hohenthal
	Officer: Regional Director
			TENANT:
			CUBIST PHARMACEUTICALS, INC.
			By:	/s/ David W.J. McGirr
			Name: David W.J. McGirr
			Title: Senior Vice President and Chief Financial Officer

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Exhibit A-8

Plans of Premises

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10

11

12

13

14

15

16

17

18

SCHEDULE I TO EIGHTH AMENDMENT

Annual Rent

Annual Rent for the Premises shall be the sum of the rents shown below for each portion of the Premises, determined as of the date in question. This Schedule does not include payments due under the Seventh Amendment in respect of the Lobby Space, which shall be in addition to the amounts shown below.

As to Suites 2201-55, 4201-55 and 4200-55:

(a)For the period from [Effective Date of First Amendment], 2006 through July 31, 2009:

(i) As to Suite 2201-55 and Suite 4201-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
5/1/06 – 1/31/07	$	371,400.00	$	30,950.00	$	24.00
2/1/07 – 1/31/08	$	386,875.00	$	32,238.58	$	25.00
2/1/08 – 7/31/09	$	402,350.00	$	33,529.17	$	26.00

plus (ii) as to Suite 4200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
7/1/06 – 4/30/07	$	723,419.00	$	60,284.92	$	23.00
5/1/07 – 4/30/08	$	739,145.50	$	61,595.46	$	23.50
5/1/08 – 4/30/09	$	754,872.00	$	62,906.00	$	24.00
5/1/09 – 7/31/09	$	794,188.25	$	66,182.35	$	25.25

(b)           For the period after July 31, 2009, as to all of Suites 2201-55, 4201-55 and 4200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
8/1/09 – 4/30/10	$	1,184,932.00	$	98,744.33	$	25.25
5/1/10 – 4/30/11	$	1,208,396.00	$	100,699.67	$	25.75
5/1/11 – 4/30/12	$	1,231,860.00	$	102,655.00	$	26.25
5/1/12 – 4/30/13	$	1,267,056.00	$	105,588.00	$	27.00
5/1/13 – 4/30/14	$	1,325,716.00	$	110,476.33	$	28.25
5/1/14 – 4/30/15	$	1,384,376.00	$	115,364.67	$	29.50
5/1/15 – 4/30/16	$	1,419,572.00	$	118,297.67	$	30.25

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As to Suite 2200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
6/1/06 – 4/30/07	$	140,415.00	$	11,787.50	$	23.00
5/1/07 – 4/30/08	$	144,525.00	$	12,043.75	$	23.50
5/1/08 – 4/30/09	$	147,600.00	$	12,300.00	$	24.00
5/1/09 – 4/30/10	$	155,287.50	$	12,940.63	$	25.25
5/1/10 – 4/30/11	$	158,362.50	$	13,196.88	$	25.75
5/1/11 – 4/30/12	$	161,437.50	$	13,453.13	$	26.25
5/1/12 – 4/30/13	$	166,050.00	$	13,837.50	$	27.00
5/1/13 – 4/30/14	$	173,737.50	$	14,478.13	$	28.25
5/1/14 – 4/30/15	$	181,425.00	$	15,118.75	$	29.50
5/1/15 – 4/30/16	$	186,037.50	$	15,503.13	$	30.25

As to Suite 3000-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/08	$	780,494.00	$	65,041.17	$	26.00
5/1/08 – 4/30/09	$	810,513.00	$	67,542.75	$	27.00
5/1/09 – 4/30/10	$	825,522.50	$	68,793.54	$	27.50
5/1/10 – 4/30/11	$	840,532.00	$	70,044.33	$	28.00
5/1/11 - 4/30/12	$	900,570.00	$	75,047.50	$	30.00
5/1/12– 4/30/13	$	945,598.50	$	78,799.88	$	31.50
5/1/13– 4/30/14	$	975,617.50	$	81,301.46	$	32.50
5/1/14– 4/30/15	$	1,035,655.50	$	83,304.63	$	34.50
5/1/15– 4/30/16	$	1,065,674.50	$	88,806.21	$	35.50

As to Suite 4600-45

RENTAL PERIOD	TOTAL ANNUAL  RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/09	$	819,311.25	$	68,275.94	$	32.25
5/1/09 – 4/30/10	$	844,716.25	$	70,393.02	$	33.25
5/1/10 – 4/30/11	$	870,121.25	$	72,510.10	$	34.25
5/1/11 – 4/30/12	$	895,526.25	$	74,627.19	$	35.25
5/1/12 - 4/30/13	$	920,931.25	$	76,744.27	$	36.25
5/1/13– 4/30/14	$	946,336.25	$	78,861.35	$	37.25
5/1/14– 4/30/15	$	971,741.25	$	80,978.44	$	38.25
5/1/15– 4/30/16	$	997,146.25	$	83,095.52	$	39.25

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As to Suite 1000-55

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/08	$	266,024.16	$	22,168.68	N/A
5/1/08 – 4/30/09	$	346,161.00	$	28,846.75	$	28.50
5/1/09 – 4/30/10	$	352,234.00	$	29,352.83	$	29.00
5/1/10 – 4/30/11	$	358,307.00	$	29,858.92	$	29.50
5/1/11 – 4/30/12	$	364,380.00	$	30,365.00	$	30.00
5/1/12 - 4/30/13	$	370,453.00	$	30,871.08	$	30.50
5/1/13– 4/30/14	$	376,526.00	$	31,377.17	$	31.00
5/1/14– 4/30/15	$	382,599.00	$	31,883.25	$	31.50
5/1/15– 4/30/16	$	388,672.00	$	32,389.33	$	32.00

As to Suites 3200-55 and 3201-55

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/09	$	338,463.75	$	28,205.31	$	32.25
5/1/09 – 4/30/10	$	348,958.75	$	29,079.90	$	33.25
5/1/10 – 4/30/11	$	364,701.25	$	30,391.77	$	34.25
5/1/11 – 4/30/12	$	369,948.75	$	30,829.06	$	35.25
5/1/12 – 4/30/13	$	380,443.75	$	31,703.65	$	36.25
5/1/13 – 4/30/14	$	390,938.75	$	32,578.23	$	37.25
5/1/14 – 4/30/15	$	401,433.75	$	33,452.81	$	38.25
5/1/15 – 4/30/16	$	411,928.75	$	34,327.40	$	39.25

As to Suites 2600-45 and 2800-45

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/09	$	190,081.50	$	15,840.13	$	32.25
5/1/09 – 4/30/10	$	195,975.50	$	16,331.25	$	33.25
5/1/10 – 4/30/11	$	201,869.50	$	16,822.46	$	34.25
5/1/11 – 4/30/12	$	207,763.50	$	17,313.63	$	35.25
5/1/12 – 4/30/13	$	213,657.50	$	17,804.79	$	36.25
5/1/13 – 4/30/14	$	219,551.50	$	18,295.96	$	37.25
5/1/14 – 4/30/15	$	225,445.50	$	18,787.13	$	38.25
5/1/15 – 4/30/16	$	231,339.50	$	19,278.29	$	39.25

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EX-10.45

EXHIBIT 10.45

NINTH AMENDMENT TO LEASE

THIS NINTH AMENDMENT TO LEASE (this “Ninth Amendment”) is made as of the 19th day of December, 2008 (the “Ninth Amendment Date”), by and between THE REALTY ASSOCIATES FUND VI, L.P., a Delaware limited partnership (“Landlord”) and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

RECITALS:

WHEREAS, by a lease (the “Original Lease”) dated as of January, 2004, California State Teachers’ Retirement System (“Calsters”) leased to Tenant approximately 15,475 rentable square feet of space, consisting of a portion of the second (Suite 2201-55) and fourth (Suite 4201-55) floors in the building known as 45-55 Hayden Avenue, Lexington, Massachusetts (the “Building”); and

WHEREAS, Landlord has succeeded to the interests of Calsters as landlord under the Lease; and

WHEREAS, the Original Lease has been amended by: a First Amendment to Lease between Landlord and Tenant, dated as of September 29, 2005 (the “First Amendment”); and by a Second Amendment to Lease between Landlord and Tenant dated as of November 18, 2005 (the “Second Amendment”); and by a Third Amendment to Lease between Landlord and Tenant dated as of June 20, 2007 (the “Third Amendment”); and by a Fourth Amendment to Lease dated as of October 25, 2007 (the “Fourth Amendment”); and by a Fifth Amendment to Lease (the “Fifth Amendment”) dated as of December 18, 2007; and by a Sixth Amendment to Lease (the “Sixth Amendment”) dated as of July 31, 2008; and by a Seventh Amendment to Lease (the “Seventh Amendment”) dated as of November 18, 2008; and by an Eighth Amendment to Lease (the “Eighth Amendment”), dated as of November 18, 2008 (the Original Lease, as so amended, being referred to as the “Lease”), pursuant to which the size of the premises demised under the Original Lease was increased to 137,037 rentable square feet (the “Existing Premises”). The Existing Premises consist of Suites 2201-55, 2200-55, 3000-55, 4201-55, 4200-55, 4600-45, 1000-55, 3200-55, 3201-55, 2600-45 and 2800-25; and

WHEREAS, by letter dated as of April 27, 2006, and pursuant to the Second Amendment, Tenant elected to include Suite 2200-55 (also known as the Comet Space) in the Existing Premises for the remainder of the Lease Term; and

WHEREAS, Landlord and Tenant now desire to further amend the Lease to, among other things, expand the size of the Existing Premises by adding thereto approximately 14,092 rentable square feet of space, known as Suites 2100-45 and 2100-55, on the second floor of the Building (together, the “JLL Space”), and to adjust the rent and certain provisions, all on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby

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acknowledged, and intending to be legally bound hereby, Landlord and Tenant hereby agree as follows:

1.             Defined Terms. All of the foregoing recitals are true and correct. Unless otherwise defined herein, all capitalized terms used in this Ninth Amendment shall have the meanings ascribed to them in the Lease, the Lease shall be amended to incorporate any additional definitions provided for in this Ninth Amendment, and all references in the Lease to the “Lease” or “this Lease” or “herein” or “hereunder” or similar terms or to any section thereof shall mean the Lease, or such section thereof, as amended by this Ninth Amendment.

2.             Additional Terms and Definitions. (a) From and after the Ninth Amendment Effective Date, the following terms set forth in “Article 1 Reference Data” of the Lease are hereby amended or added, as applicable, to have the following meanings:

PREMISES:	The following areas in the 45 and 55 Hayden Avenue portions of the Building: (i) Suite 2201-55 on the second floor and Suite 4201-55 on the fourth floor, (ii) Suite 4200-55 on the fourth floor of the Building, (iii) Suite 2200-55 on the second floor of the Building, and (iv) Suite 3000-55 on the third floor of the Building; and (v) Suite 4600-45 on the fourth floor of the 45 Hayden Avenue portion of the Building; (vi) Suite 1000-55 on the first floor of the 55 Hayden Avenue portion of the Building; (vii) Suite 3200-55 on the third floor of the 55 Hayden Avenue portion of the Building; (viii) Suite 3201-55 on the third floor of the 55 Hayden Avenue portion of the Building; (ix) Suite 2600-45 on the second floor of the 45 Hayden Avenue portion of the Building; (x) Suite 2800-45 on the second floor of the 45 Hayden Avenue portion of the Building; (xi) Suite 2100-45 on the second floor of the 45 Hayden Avenue portion of the Building; and (xii) Suite 2100-55 on the second floor of the 55 Hayden Avenue portion of the Building. All such spaces are shown on Exhibit A-9, attached hereto and incorporated herein.
RENTABLE FLOOR AREA
OF THE PREMISES:	Approximately 151,129 square feet of the 45 and 55 Hayden Avenue portions of the Building as follows (i) 6,755 rentable square feet on the second floor contained in Suite 2201-55, (ii) 8,720 rentable square feet on the fourth floor contained in Suite

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4201-55 and 31,453 rentable square feet on the fourth floor of the Building contained in Suite 4200-55, (iii) 6,150 rentable square feet on the second floor of the Building contained in Suite 2200-55, (iv) 30,019 rentable square feet on the third floor of the Building contained in Suite 3000-55; (v) 25,405 rentable square feet on the fourth floor of the 45 Hayden Avenue portion of the Building contained in Suite 4600-45, (vi) 12,146 rentable square feet on the first floor of the Building contained in Suite 1000-55; (vii) 6,215 rentable square feet on the third floor of the Building contained in Suite 3200-55; and (viii) 4,280 rentable square feet on the third floor of the Building contained in Suite 3201-55; (ix) 3,089 rentable square feet on the third floor of the Building contained in Suite 2600-45; (x) 2,805 rentable square feet on the second floor of the Building contained in Suite 2800-45; (xi) 1,184 rentable square feet on the second floor of the Building contained in Suite 2100-45; and (xii) 12,908 rentable square feet on the second floor of the Building contained in Suite 2100-55.

(b)           From after the Ninth Amendment Effective Date, the term “Annual Rent” for the Premises shall be as set on Schedule I to this Ninth Amendment.

3.             [Intentionally Omitted]

4.             Operating Expenses and Real Estate Taxes. Tenant’s obligations under Section 4.2 of the Lease to pay Operating Expenses with respect to the JLL Space shall be computed using the calendar year ending December 31, 2009 as a base year; and Tenant’s obligations under Section 4.2 of the Lease to pay increases in Real Estate Taxes with respect to the Ninth Amendment Expansion Space shall be computed using the fiscal year ending June 30, 2009 as the base year.

5.             Effective Date; Delivery and Condition. (a) The “Ninth Amendment Effective Date” shall be the later to occur of (i) February 1, 2009 and (ii) the date on which Jones Lang LaSalle (the “Existing Tenant”) vacates and surrenders the JLL Space and Landlord delivers possession of the Ninth Amendment Expansion Space to Tenant.

(b)           Tenant acknowledges that, except as explicitly provided in this Ninth Amendment and the Lease, it is leasing the JLL Space in its current AS IS condition, without any representation or warranty whatsoever on the part of Landlord. Tenant currently occupies the Existing Premises and is fully familiar with their condition and that of the common areas of the Building, and Tenant acknowledges that, to the best of

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Tenant’s knowledge (upon reasonable investigation and inquiry), the Existing Premises and the JLL Space are in good condition and suitable for Tenant’s uses. Without limiting the foregoing, Tenant agrees that Landlord has no obligation to perform any work in or to either the Existing Premises or the JLL Space to prepare the same for Tenant’s continued use and occupancy.

(c)           Landlord acknowledges that Tenant desires to make certain alterations or improvements in the JLL Space to make the same more suitable for Tenant’s occupancy. Such alterations or improvements may include tenant improvements to the Ninth Amendment Expansion Space, installation of fixtures in the Ninth Amendment Expansion Space, and architectural and engineering expenses in connection therewith (collectively, the “JLL Space Improvements”). All Ninth Amendment Expansion Space Improvements shall be undertaken by Tenant in strict accordance with the applicable requirements of the Lease (including without limitation Sections 3.3 and 3.4). The JLL Space Improvements shall be deemed substantially complete on that date on which the JLL Space Improvements have been completed except for items of work (and, if applicable, adjustment of equipment and fixtures) which can be completed after Tenant has taken occupancy of the JLL Space, or any part thereof, without causing undue interference with Tenant’s use of the JLL Space or such part thereof. To the extent that (i) such work is substantially completed in accordance with such Lease requirements, and (ii) receipted invoices (and other material required under the Lease such as, but not limited to, lien waivers from any contractor or subcontractor performing the JLL Space Improvements) showing the actual cost thereof are presented to Landlord during the Term of the Lease, and (iii) at the time of any advance of funds, there then exists (A) no Event of Default on the part of Tenant, nor (B) any Actionable Event of Default (as defined in the Third Amendment), Landlord shall reimburse Tenant, within thirty (30) days after receipt of each such invoice (together with lien waivers for all costs theretofore billed), for costs actually incurred by Tenant (excluding the costs of furniture), as evidenced by such invoices, in connection with the design and construction of the JLL Space Improvements, but in no event shall Landlord be obligated to reimburse Tenant more than the lesser of (x) such actual cost, or (y) Three Hundred Fifty-two Thousand Three Hundred Dollars ($352,300.00), or $25.00 per square foot of Rentable Area in the JLL Space (the “JLL Space Improvements Allowance”). No portion of the JLL Space Improvements Allowance may be applied to costs of purchasing or installing furniture or wiring/cabling for the JLL Space. If the Existing Tenant vacates and surrenders possession of the JLL Space prior to January 31, 2009, Landlord shall grant Tenant reasonable access to the JLL Space from and after such surrender (and the Existing Tenant vacating the JLL Space) for the purpose of commencing the JLL Space Improvements in the JLL Space. To the extent that Tenant has not requested disbursement of any portion of the JLL Space Improvements Allowance prior to the expiration or earlier termination of the Lease, Landlord shall have no further obligation to reimburse Tenant for any such costs incurred by Tenant. Notwithstanding the foregoing, to the extent that Tenant has not used the entire JLL Space Improvements Allowance for JLL Space Improvements, then Tenant shall have the

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right to use any remaining portion (in addition to any unused portion of the Eighth Amendment Expansion Space Improvements Allowance) for Lobby Improvements made by Tenant to the Lobby Area (as those terms are defined in the Seventh Amendment), provided that Tenant shall not use more than $25.00 per rentable square foot of Lobby Space area, in the aggregate, from the Eighth Amendment Expansion Space Improvements Allowance (as defined in the Eighth Amendment) and the JLL Space Improvements Allowance.

6.             Contingency.   Tenant acknowledges that the Ninth Amendment Effective Date occurring prior to the original expiration date of the lease with the Existing Tenant is contingent on Landlord’s ability to enter into a termination agreement with the Existing Tenant, on terms and conditions acceptable to Landlord in its sole discretion, pursuant to which the Existing Tenant would vacate and surrender possession of the JLL Space on or before January 31, 2009. If Landlord is unable to enter into a termination agreement with the Existing Tenant, on terms and conditions acceptable to Landlord in its sole discretion, on or before January 5, 2009, then Landlord shall so advise Tenant and Landlord shall have the right to terminate this Ninth Amendment by giving notice to Tenant (unless, prior to the giving of such notice, Landlord and the Existing Tenant reach such an agreement). Upon any such termination, this Ninth Amendment shall be void and without further force or effect, and Landlord shall have no liability hereunder.

7.             Parking.  From and after the Ninth Amendment Effective Date, Section 10.19 of the Lease shall be amended by, in the first sentence thereto:

(a)           Replacing “four hundred eleven (411)” with “five hundred three;” and

(b)           Replacing “137,037” with “151,129.”

8.             Brokers.  Tenant covenants, represents and warrants to Landlord that Tenant has had no dealings or communications with any broker or agent (other than Grubb & Ellis Company and Richards Barry Joyce & Partners) in connection with this Ninth Amendment, and Tenant covenants and agrees to pay, hold harmless and indemnify the Landlord from and against any and all cost, expense (including reasonable attorneys’ fees) or liability for any compensation, commission or charges to any broker or agent (other than the foregoing named brokers) claiming through the Tenant with respect hereto.

9.             Exhibits.  Exhibit A-8 attached hereto is hereby substituted for Exhibit A-6 to the Lease. All references in the Lease to Exhibit A-1, A-2, A-3, A-4, A-5, A-6 or A-8 shall be replaced by references to Exhibit A-9.

10.           Successors.  This Ninth Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of the Lease regarding assignment or other transfers of each party’s rights under the Lease.

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11.           Authority.  Each party represents and warrants to the other that each person executing this Ninth Amendment on behalf of such party has the authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Ninth Amendment.

12.           No Further Amendment.  It is understood and agreed that all other conditions and terms contained in the Lease not herein specifically amended shall remain unmodified and in full force and effect, and the Lease, as modified by this Ninth Amendment, is hereby ratified and confirmed.

13.           Tenant Representations. As a material inducement to Landlord entering into this Ninth Amendment, Tenant represents and certifies to Landlord that as of the date hereof: (i) the Lease, as modified hereby, and together with that certain letter dated September 24, 2007 from Ron Friedman to Jack Kerrigan, with the subject line “Response to Specific Security Questions — Hayden Woods Corporate Center,” contains the entire agreement between the parties hereto relating to the Premises and that, except for that certain Amended and Restated Declaration of Covenants and Easements between the Landlord’s predecessor in title with respect to the Building and Tenant, as amended to date (the “Declaration”) there are no other agreements between the parties relating to the Premises, the Building or the Lease which are not contained or referred to herein or in the Lease, (ii) to the best of Tenant’s knowledge, Landlord is not in default (continuing beyond the expiration of any applicable notice or grace periods) in any respect in any of the terms, covenants and conditions of the Lease; (iii) Tenant has no existing setoffs, counterclaims or defenses against Landlord under the Lease; (iv) Tenant has not assigned or pledged its leasehold interest under the Lease, or sublet or licensed or granted any other occupancy rights with respect to any or all of the Premises; (v) no consent or approval of any third party or parties is required in order for Tenant to enter into and be bound by this Ninth Amendment; and (vi) Tenant is not, and the performance by Tenant of its obligations hereunder shall not render Tenant, insolvent within the meaning of the United States Bankruptcy Code, the Internal Revenue Code or any other applicable law, code or regulation.

14.           Landlord Representations.  As a material inducement to Tenant entering into this Ninth Amendment, Landlord represents and certifies to Tenant that as of the date hereof: (i) the Lease, as modified hereby, and together with that certain letter dated September 24, 2007 from Ron Friedman to Jack Kerrigan, with the subject line “Response to Specific Security Questions — Hayden Woods Corporate Center,” contains the entire agreement between the parties hereto relating to the Premises and that, except for the Declaration, there are no other agreements between the parties relating to the Premises, the Building or the Lease which are not contained or referred to herein or in the Lease, (ii) to the best of Landlord’s knowledge, there exists no Event of Default or Actionable Event of Default on the part of Tenant in any respect in any of the terms, covenants and conditions of the Lease; (iii) no consent or approval of any third party or parties is required in order for Landlord to enter into and be bound by this Ninth Amendment; and

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(iv) Landlord has the right to lease the Ninth Amendment Expansion Space, as provided herein, to Tenant.

15.           Governing Law. The Lease, this Ninth Amendment and the rights and obligations of both parties thereunder and hereunder shall be governed by the laws of The Commonwealth of Massachusetts.

16.           HVAC.  Landlord and Tenant acknowledge that letter from Tenant’s counsel to Landlord’s counsel dated August 13, 2007, with a subject line “45-55 Hayden Avenue, Lexington, MA,” and the response from Landlord’s counsel dated October 18, 2007.

17.           Counterparts. This Ninth Amendment may be executed in counterparts, each of which shall be an original and all of which counterparts taken together shall constitute one and the same instrument.

[Text Ends Here]

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IN WITNESS WHEREOF, the undersigned have hereunto se their hands and seals as of the date first above written.

LANDLORD:
The Realty Associates Fund VI, L.P., a Delaware limited partnership
	By:  Realty Associates Fund VI LLC, a Massachusetts limited liability company, general partner
			By:     Realty Associates Advisors LLC, a Delaware limited liability company, Manager
					By:  Realty Associates Advisors Trust, a Massachusetts business trust, Manager
					By:	/s/ James P. Raisides
					Officer: Sr. Vice President
	By:  Realty Associates Fund VI Texas Corporation, a Texas corporation, general partner
	By:	/s/ James P. Raisides
	Officer: Sr. Vice President
			TENANT:
			CUBIST PHARMACEUTICALS, INC.
			By:	/s/ David W.J. McGirr
			Name: David W.J. McGirr
			Title: Senior Vice President and Chief Financial Officer

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Exhibit A-8

Plans of Premises

9

10

11

12

13

14

15

16

17

18

19

20

SCHEDULE I TO NINTH AMENDMENT

Annual Rent

Annual Rent for the Premises shall be the sum of the rents shown below for each portion of the Premises, determined as of the date in question. This Schedule does not include payments due under the Seventh Amendment in respect of the Lobby Space, which shall be in addition to the amounts shown below.

As to Suites 2201-55, 4201-55 and 4200-55:

(a)For the period from [Effective Date of First Amendment], 2006 through July 31, 2009:

(i) As to Suite 2201-55 and Suite 4201-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
5/1/06 – 1/31/07	$	371,400.00	$	30,950.00	$	24.00
2/1/07 – 1/31/08	$	386,875.00	$	32,238.58	$	25.00
2/1/08 – 7/31/09	$	402,350.00	$	33,529.17	$	26.00

plus (ii) as to Suite 4200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
7/1/06 – 4/30/07	$	723,419.00	$	60,284.92	$	23.00
5/1/07 – 4/30/08	$	739,145.50	$	61,595.46	$	23.50
5/1/08 – 4/30/09	$	754,872.00	$	62,906.00	$	24.00
5/1/09 – 7/31/09	$	794,188.25	$	66,182.35	$	25.25

(b)           For the period after July 31, 2009, as to all of Suites 2201-55, 4201-55 and 4200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
8/1/09 – 4/30/10	$	1,184,932.00	$	98,744.33	$	25.25
5/1/10 – 4/30/11	$	1,208,396.00	$	100,699.67	$	25.75
5/1/11 – 4/30/12	$	1,231,860.00	$	102,655.00	$	26.25
5/1/12 – 4/30/13	$	1,267,056.00	$	105,588.00	$	27.00
5/1/13 – 4/30/14	$	1,325,716.00	$	110,476.33	$	28.25
5/1/14 – 4/30/15	$	1,384,376.00	$	115,364.67	$	29.50
5/1/15 – 4/30/16	$	1,419,572.00	$	118,297.67	$	30.25

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As to Suite 2200-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
6/1/06 – 4/30/07	$	140,415.00	$	11,787.50	$	23.00
5/1/07 – 4/30/08	$	144,525.00	$	12,043.75	$	23.50
5/1/08 – 4/30/09	$	147,600.00	$	12,300.00	$	24.00
5/1/09 – 4/30/10	$	155,287.50	$	12,940.63	$	25.25
5/1/10 – 4/30/11	$	158,362.50	$	13,196.88	$	25.75
5/1/11 – 4/30/12	$	161,437.50	$	13,453.13	$	26.25
5/1/12 – 4/30/13	$	166,050.00	$	13,837.50	$	27.00
5/1/13 – 4/30/14	$	173,737.50	$	14,478.13	$	28.25
5/1/14 – 4/30/15	$	181,425.00	$	15,118.75	$	29.50
5/1/15 – 4/30/16	$	186,037.50	$	15,503.13	$	30.25

As to Suite 3000-55:

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/08	$	780,494.00	$	65,041.17	$	26.00
5/1/08 – 4/30/09	$	810,513.00	$	67,542.75	$	27.00
5/1/09 – 4/30/10	$	825,522.50	$	68,793.54	$	27.50
5/1/10 – 4/30/11	$	840,532.00	$	70,044.33	$	28.00
5/1/11 - 4/30/12	$	900,570.00	$	75,047.50	$	30.00
5/1/12– 4/30/13	$	945,598.50	$	78,799.88	$	31.50
5/1/13– 4/30/14	$	975,617.50	$	81,301.46	$	32.50
5/1/14– 4/30/15	$	1,035,655.50	$	83,304.63	$	34.50
5/1/15– 4/30/16	$	1,065,674.50	$	88,806.21	$	35.50

As to Suite 4600-45

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/09	$	819,311.25	$	68,275.94	$	32.25
5/1/09 – 4/30/10	$	844,716.25	$	70,393.02	$	33.25
5/1/10 – 4/30/11	$	870,121.25	$	72,510.10	$	34.25
5/1/11 – 4/30/12	$	895,526.25	$	74,627.19	$	35.25
5/1/12 - 4/30/13	$	920,931.25	$	76,744.27	$	36.25
5/1/13– 4/30/14	$	946,336.25	$	78,861.35	$	37.25
5/1/14– 4/30/15	$	971,741.25	$	80,978.44	$	38.25
5/1/15– 4/30/16	$	997,146.25	$	83,095.52	$	39.25

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As to Suite 1000-55

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/08	$	266,024.16	$	22,168.68	N/A
5/1/08 – 4/30/09	$	346,161.00	$	28,846.75	$	28.50
5/1/09 – 4/30/10	$	352,234.00	$	29,352.83	$	29.00
5/1/10 – 4/30/11	$	358,307.00	$	29,858.92	$	29.50
5/1/11 – 4/30/12	$	364,380.00	$	30,365.00	$	30.00
5/1/12 - 4/30/13	$	370,453.00	$	30,871.08	$	30.50
5/1/13– 4/30/14	$	376,526.00	$	31,377.17	$	31.00
5/1/14– 4/30/15	$	382,599.00	$	31,883.25	$	31.50
5/1/15– 4/30/16	$	388,672.00	$	32,389.33	$	32.00

As to Suites 3200-55 and 3201-55

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through  4/30/09	$	338,463.75	$	28,205.31	$	32.25
5/1/09 – 4/30/10	$	348,958.75	$	29,079.90	$	33.25
5/1/10 – 4/30/11	$	364,701.25	$	30,391.77	$	34.25
5/1/11 – 4/30/12	$	369,948.75	$	30,829.06	$	35.25
5/1/12 – 4/30/13	$	380,443.75	$	31,703.65	$	36.25
5/1/13 – 4/30/14	$	390,938.75	$	32,578.23	$	37.25
5/1/14 – 4/30/15	$	401,433.75	$	33,452.81	$	38.25
5/1/15 – 4/30/16	$	411,928.75	$	34,327.40	$	39.25

As to Suites 2600-45 and 2800-45

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/09	$	190,081.50	$	15,840.13	$	32.25
5/1/09 – 4/30/10	$	195,975.50	$	16,331.25	$	33.25
5/1/10 – 4/30/11	$	201,869.50	$	16,822.46	$	34.25
5/1/11 – 4/30/12	$	207,763.50	$	17,313.63	$	35.25
5/1/12 – 4/30/13	$	213,657.50	$	17,804.79	$	36.25
5/1/13 – 4/30/14	$	219,551.50	$	18,295.96	$	37.25
5/1/14 – 4/30/15	$	225,445.50	$	18,787.13	$	38.25
5/1/15 – 4/30/16	$	231,339.50	$	19,278.29	$	39.25

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As to Suites 2100-45 and 2100-55

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
Through 4/30/09	$	454,467.00	$	37,872.25	$	32.25
5/1/09 – 4/30/10	$	468,559.00	$	39,046.58	$	33.25
5/1/10 – 4/30/11	$	482,651.00	$	40,220.91	$	34.25
5/1/11 – 4/30/12	$	496,743.00	$	41,395.25	$	35.25
5/1/12 – 4/30/13	$	510,835.00	$	42,569.58	$	36.25
5/1/13 – 4/30/14	$	524,927.00	$	43,743.91	$	37.25
5/1/14 – 4/30/15	$	539,019.00	$	44,918.25	$	38.25
5/1/15 – 4/30/16	$	553,111.00	$	46,092.33	$	39.25

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EX-10.49

Exhibit 10.49

RESTRICTED STOCK UNIT AGREEMENT

CUBIST PHARMACEUTICALS, INC.

This Restricted Stock Unit Agreement (the “Agreement”) governs the Award of restricted stock units (“RSUs”) to employees (“Participants”) of Cubist Pharmaceuticals, Inc. (the “Company”).  The details of any RSU Award made to a Participant will be set forth in a letter from the Participant’s manager or other written communication from the Company (a “Notice”).

In consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.             Relationship to the Plan.  The Participant specifically understands and agrees that the Award is being issued under the Company’s Amended and Restated Equity Incentive Plan (the “Plan”), a copy of which the Participant acknowledges he or she has read and understands and by which Plan he or she agrees to be bound.  The provisions of the Plan are incorporated into this Agreement by reference.  Any terms used and not defined in this Agreement have the meanings ascribed to such terms in the Plan.

2.             Grant of Award.  Participants will be notified of their RSU Award through a Notice.  The Notice will contain, among other things, the number of RSUs in the Award and the grant date of the Award.  The Award represents a contingent entitlement of the Participant to receive shares of the Company’s common stock, par value $.001 per share (“Common Stock”).

3.             Vesting of Award.  Subject to the terms and conditions set forth in this Agreement and the Plan, including the potential impact of a Change in Corporate Control upon the vesting of the Award, the Award will vest annually on a pro rata basis over four years from the grant date, provided that the Participant remains continuously employed by the Company or a Subsidiary through the applicable vesting date.  On each vesting date, the Participant will be entitled to receive such number of shares of Common Stock equivalent to the number of RSUs that vest on the vesting date, provided that the Participant is employed by the Company or a Subsidiary on such vesting date.  Such shares of Common Stock shall thereafter be delivered by the Company to the Participant in accordance with this Agreement and the Plan and as required to comply with Section 409A of the Code.  Notwithstanding the foregoing, if the Participant is as of the vesting date a “specified employee” (as defined under Section 409A of the Code) then such delivery of shares of Common Stock, if required by Section 409A of the Code, will be made six months after the date of a Separation from Service (as defined in Section 409A of the Code).

4.             Forfeiture of the Award.  Except as otherwise set forth in this Agreement or the Plan, if the Participant ceases to be employed for any reason by the Company or a Subsidiary prior to a vesting date, then as of the date on which the Participant’s employment terminates, all unvested RSUs subject to an RSU Award shall immediately be forfeited to the Company.

5.             Prohibitions on Transfer and Sale.  Except as permitted by the Plan, an Award shall not be assigned, pledged or transferred in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.  Any attempted transfer, assignment, pledge or other disposition of an Award or of any rights granted under this Agreement that is contrary to the provisions of the Plan or this Section 4, or the levy of any attachment or similar process upon an Award shall be null and void.  Except as permitted by the Plan, the shares of Common Stock to be issued pursuant to this Agreement shall be issued, during the Participant’s lifetime, only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant’s guardian or representative).

6.             Securities Law Compliance.  The Participant specifically acknowledges and agrees that any sales of shares of Common Stock issued hereunder shall be sold in accordance with the requirements of the Securities Act of 1933, as amended.

7.             Rights as a Stockholder.  The Participant shall have no right as a stockholder, including voting and dividend rights, until the Award vests in accordance with Section 3 of this Agreement.

8.             Tax Liability of the Participant and Payment of Taxes.

(a) The Participant acknowledges and agrees that any income or other taxes due from the Participant with respect to an Award or the shares of Common Stock to be issued pursuant to this Agreement or otherwise sold shall be the Participant’s responsibility.

(b)  The Participant agrees that the Participant will owe taxes on each vesting date on the portion of an Award that vests on the vesting date and, unless the Participant elects to pay such taxes in cash in accordance with the procedure described in Section 8(c), the Company shall be entitled to have the broker designated by the Company sell on the Participant’s behalf a whole number of shares of Common Stock from those shares issuable to you on each vesting date to generate cash proceeds sufficient to satisfy the tax withholding obligations (including U.S. federal, state and local taxes and any non-U.S. taxes or social contributions) that the Company determines are or may be required in connection with such event (referred to as “Sell to Cover Taxes”).  In the event of a Sell to Cover Taxes, the Participant will be responsible for all broker’s fees and other costs of sale.  In addition, the broker will be instructed by the Company to sell a sufficient number of whole shares of Common Stock to generate cash proceeds equal to the tax withholding obligations described above.  Neither the Company nor the broker used by the Company will guarantee any particular sale price for the sale of such shares.

(c)  In lieu of a Sell to Cover Taxes, the Participant may elect to pay the tax withholding obligations described on Section 8(b) in cash if the Participant completes the RSU tax election form (cash payment) to be distributed to recipients of RSU Awards, returns the form to the Company designated broker at least thirty (30) days prior to each vesting date, and complies with all of the other instructions on the form.

9.             Participant Acknowledgements and Authorizations.

The Participant acknowledges the following:

(a)           The Company is not by the Plan, this Agreement or an Award obligated to continue the Participant’s employment relationship or consulting relationship with the Company or any Subsidiary.

(b)           The grant of an Award is considered a one-time benefit and does not create a contractual or other right to receive any other award under the Plan, benefits in lieu of such awards or any other benefits in the future.

(c)           The Plan is a voluntary program of the Company and future awards, if any, will be at the sole discretion of the Company, including, but not limited to, the timing of any award, the amount of any award, vesting provisions and purchase price, if any.

(d)           The value of an Award is an extraordinary item of compensation outside of the scope of the Participant’s employment.  As such, an Award is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-term service awards, pension or retirement benefits or similar payments.  The

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future value of the shares of Common Stock underlying the Award is unknown and cannot be predicted with certainty.

(e)           The Participant authorizes the Company to use and disclose to any agent administering the Plan or providing recordkeeping services with respect to the Plan with such information and data as the Company shall request in order to facilitate the grant of an Award, the administration of an Award and the administration of the Plan, and the Participant waives any data privacy rights he or she may have with respect to such information or the sharing of such information.

10.           Notices.  Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

If to the Company:

Cubist Pharmaceuticals, Inc.

65 Hayden Avenue

Lexington, MA 02421

Attn:  General Counsel

Fax:  781-860-1407

Tel: 781-860-8660

If to the Participant at the address set forth in the Company’s records, or to such other address or addresses of which notice in the same manner has previously been given.  Any such notice shall be deemed to have been given on the earliest of receipt, one business day following delivery by the sender to a recognized overnight courier service, or three business days following mailing by registered or certified mail.

11.           Benefit of Agreement.  Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

12.           Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof.  For the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Massachusetts or the federal courts of the United States for the District of Massachusetts.

13.           Severability.  If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

14.           Entire Agreement.  This Agreement, together with the Plan, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

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15.           Modifications and Amendments; Waivers and Consents.  The terms and provisions of this Agreement may be modified or amended as provided in the Plan.  Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

16.           Company Signature; Participant Electronic Acknowledgment.  An authorized representative has signed the Agreement below.  By acknowledging your acceptance of the terms of this Agreement through an electronic acknowledgment system established by the Company or its agents, you agree to be bound by all of the terms of this Agreement and the Plan.  The Award will not become effective, and you will therefore have not rights to or in the Award, until you acknowledge your acceptance of the terms of this Agreement in the manner required by the Company.

CUBIST PHARMACEUTICALS, INC.

By:

Name:

Title:

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EX-10.50

EXHIBIT 10.50

Cubist Pharmaceuticals, Inc.

Director Compensation

Effective December 18, 2007

Director Compensation

Element	Compensation
Retainer	Chairman of the Board - $24,000 Lead Director - $18,000 Board Member - $12,000 Paid on an annual basis in June in either cash or stock; cash/stock election to be made at March board meeting; pro rated based on number of months served during the 12 months beginning on the prior calendar year’s Annual Meeting Date
Initial Option Grant	10,000 options; vests quarterly on a pro rata basis over 3 years from the grant date
Annual Option Grant	15,000 options granted on the Annual Meeting Date; vests 100% on the first anniversary of the grant date
Board Meetings	$3,000 per meeting (in person) $1,000 per meeting (by phone)
Committee Meetings	$1,000 per meeting (in person or by phone)
Committee Chairmen	$2,000 additional per meeting led
Chairman of the Board	$1,000 additional per Board Meeting led, and 2 times options of outside director
Lead Director	$1,000 additional per Board Meeting led and 1.5 times options of outside director

EX-14.1

Exhibit 14.1

Cubist Employee Policy CODE OF CONDUCT AND ETHICS

Cubist Pharmaceuticals, Inc., and its affiliates (together “Cubist” or the “Company”) is committed to conducting business with a high degree of integrity.  This Code of Conduct and Ethics is your guide to applicable laws and regulations as well as key Cubist policies and procedures that provide guidance for conducting business in a legal and ethical manner.

All employees and Directors must act in accordance with the Code and seek to avoid even the appearance of improper behavior.  The Code should also be provided to and followed by consultants to the Company. Violations of the standards in this Code will subject you to disciplinary action up to and including termination.

The Code does not cover every situation that may arise but establishes important standards, principles, and rules to guide the actions of all employees and Directors.   If you are uncertain whether an action may violate the Code or another Cubist policy, you should seek advice before taking action.  A good basis for deciding when to get advice is to ask yourself whether the conduct might be embarrassing to the Company or the persons involved if the details were fully disclosed to the public by the media.  Since we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem.  These are the steps to keep in mind:

·Make sure you have all the facts.  In order to reach the right solutions, we must be as fully informed as possible.

·Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper?  This will enable you to focus on the specific question you are faced with and the alternatives you have.  Use your judgment and common sense; if something seems unethical or improper, it probably is.

·Clarify your responsibility and role.  In most situations, there is shared responsibility.  Are your colleagues informed?  It may help to get others involved and discuss the problem.

·Discuss the problem with your supervisor.  This is the basic guidance for all situations.  In many cases, your supervisor will be more knowledgeable about the question and will appreciate being brought into the decision-making process.  Remember that it is your supervisor’s responsibility to help you solve problems.

·Seek help from Company resources.  In the case where it may not be appropriate to discuss an issue with your supervisor or where you do not feel comfortable approaching your supervisor with your question, discuss it with any director-level or higher employee in the Law Department or the Chief Compliance Officer.

·Always ask first, act later.  If you are unsure of what to do in any situation, seek guidance before you act.

Policy Owner: Compliance Effective: September 2008

Employees must promptly report any violations or suspected violations of this Code or any illegal activities they observe.  Reports may be made in confidence and without fear of retaliation.

 If you know or reasonably believe that there has been a violation of this Code or any kind of unlawful behavior, you must report that information to your supervisor or a more senior manager or, if your manager will not or cannot help or is part of the problem, to any director-level or higher employee in the Law Department or the Chief Compliance Officer.     You may also call the Company’s internal Compliance Helpline at 781-860-8600.

If you prefer, you may also submit reports   anonymously, through the Company’s external Corporate Responsibility Hotline at 1-888-690-3869 or on the web at www.silentwhistle.com.

Directors must report violations or suspected violations of the Code to the Chairman, Lead Director or Chairman of the Governance Committee of the Board of Directors.

Section 1.Compliance with Laws, Rules and Regulations

Obeying the law, both in letter and in spirit, is the foundation on which this Company’s ethical standards are built.  All employees and Directors must respect and obey the laws of the jurisdictions in which we operate.  If a law conflicts with a policy in this Code, you must comply with the law; however, if a local custom or policy conflicts with this Code, you must comply with the Code.  Although not all employees and Directors are expected to know the details of these laws, it is important to know enough to determine when to seek advice.

The Company holds information and training sessions and has put in place various policies and procedures in order to promote compliance with laws, rules and regulations, including insider-trading laws.  Each department head is responsible for ensuring that his/her employees attend all mandatory training sessions that are related to compliance with laws, rules and regulations applicable to his/her job functions.

Section 2.Conflicts of Interest

All employees and Directors are expected to make decisions in the best interest of the Company and not for personal gain, and therefore are required to avoid “conflicts of interest.” Conflicts of interest may not always be clear-cut and you should seek advice if you are unsure whether a situation poses a conflict of interest.

A “conflict of interest” exists when a person’s private interest interferes in any way with the interests of the Company.  A conflict can arise when an employee or Director takes actions or has interests that may make it difficult to perform his or her Company responsibilities objectively and effectively.  Conflicts of interest may also arise when an employee or Director, or members of his or her family, receives personal benefits as a result of his or her position in the Company.  Loans to, or guarantees of obligations of, employees or Directors and their family members may create conflicts of interest.

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It is almost always a conflict of interest for a Company employee to work simultaneously for a competitor, customer, supplier, or vendor.  Employees are not allowed to work for a competitor in any capacity, including as a consultant or board member.  The best policy is to avoid any direct or indirect business connection with customers, suppliers, or competitors, except on the Company’s behalf.

Directors must comply with the Conflict of Interest provisions set forth in the Amended and Restated Corporate Governance Guidelines.

Section 3.Insider Trading

Employees and Directors who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the Company’s business.  All non-public information about the Company should be considered confidential information.  To use non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also illegal.  If you have any questions, please refer to the Company’s Policy on Insider Trading and Confidentiality, and then ask any director-level or higher employee in the Law Department.

Section 4.Corporate Opportunities

Employees and Directors are prohibited from exploiting for their personal advantage opportunities that are discovered through the use of corporate property, information, or position without the consent of the Board of Directors.  No employee or Director may use corporate property, information, or position for personal gain, and no employee or Director may compete with the Company directly or indirectly.  Employees and Directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

Section 5.Competition and Fair Dealing

We seek to outperform our competition fairly and honestly.  We seek competitive advantages through superior performance, never through unethical or illegal business practices.  Stealing proprietary information, possessing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present employees of other companies is prohibited.  Each employee and Director should endeavor to respect the rights of and deal fairly with the Company’s customers, suppliers, competitors, vendors, and their employees.  No employee or Director should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice.

Drug development is highly competitive, and it is the policy of the Company to compete aggressively, but fairly.  All employees are expected to protect the integrity of the research and development process by ensuring that all research, non-clinical, and clinical development activities are conducted with the highest ethical standards.

A major part of this commitment to compete fairly is a commitment to abide fully by the antitrust laws.  In general, these complex laws prohibit any form of agreement or understanding — whether formal, informal, express, or implied — that unreasonably reduces competition and

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business rivalry.  Our commitment in this regard also prohibits any unfair or untrue disparagement of a Company competitor.

All suppliers, vendors and contractors should be selected on the basis of written competitive bids if the amount of the services or goods to be provided is significant.  Employees should check with Purchasing to determine if a competitive bid is required.

The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers.  Gifts or entertainment should not ever be offered, given, provided to any customer, supplier, or vendor, or accepted from any customer, supplier, or vendor by any Company employee or Director, or family member of an employee or Director unless it: (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be construed as a bribe or payoff, (5) does not violate any laws or regulations, and (6) is offered in compliance with applicable Company policies and procedures.

It is the policy of the Company to comply with health care “fraud and abuse” laws.  This includes Federal and State anti-kickback laws that prohibit offering or giving kickbacks or other improper inducements to healthcare professionals, which includes anyone who may be in a position to purchase or prescribe or to arrange for or recommend the purchase or prescription of the Company’s products.  Any arrangements with healthcare professionals, including, for example, gifts, research grants, and business courtesies, must comply with applicable laws, Company policies, and procedures, which are available from the Compliance Department.

If you are uncertain about offering or accepting a gift or business entertainment, you should seek advice before taking any action.

Section 6.Discrimination and Harassment

The diversity of the Company’s employees is a tremendous asset.  We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any discrimination or harassment of any kind. Please refer to Cubist’s “Policy Against Sexual Harassment in the Workplace” for additional information and guidance.

Section 7.Health and Safety

The Company strives to provide each employee with a safe and healthful work environment.  Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions.

The Company will not tolerate violence and threatening behavior.  Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol.  The Company will not tolerate the use of illegal drugs in the workplace or on the Company’s property.  Please see the Company’s policies for further guidance.

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Section 8.              Record-Keeping

All business records must be recorded accurately and truthfully.  The Company follows the accepted accounting rules and controls set forth by the U.S. Securities and Exchange Commission and the Financial Accounting Standards Board.  The Company requires honest and accurate recording and reporting of information in all circumstances, and without exception.  The Company requires that its certified public accountants have access to any and all information necessary for them to conduct audits properly.

Business expense accounts must be documented and recorded accurately.  If you are not sure whether a certain expense is legitimate, ask your supervisor or the Accounts Payable Supervisor, Accounting Manager or Director of Accounting.   They can also provide you with rules and guidelines.

All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must conform both to applicable legal requirements and to the Company’s system of internal controls. Unrecorded or “off the books” funds or assets should not be maintained unless permitted by applicable law or regulation and approved in writing by the Chief Financial Officer.

Business records and communications often become public, and should not contain exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies. This applies equally to e-mail, internal memos, and formal reports.  Records should always be retained or destroyed according to the Company’s record retention policies.  In accordance with those policies, in the event of litigation or governmental investigation, threatened or known, please consult with a director-level or higher employee in the Law Department.

Section 9.Confidentiality

Employees and Directors must maintain the confidentiality of confidential information entrusted to them by the Company, including confidential information that the Company has received from a third party, except when disclosure is authorized by a director-level or higher employee in the Law Department, or required by laws or regulations.  Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed.  It also includes information that suppliers, customers, and other third parties have entrusted to the Company.  The obligation to preserve confidential information continues even after employment ends.

Section 10.Protection and Proper Use of Company Assets

All employees and Directors should endeavor to protect the Company’s assets and ensure their efficient use.  Theft, carelessness, and waste have a direct impact on the Company’s profitability.  Any suspected incident of fraud or theft should be immediately reported for investigation.  Company equipment should not be used for non-Company business, though incidental personal use may be permitted.  The obligation of employees and Directors to protect the Company’s assets includes its proprietary information.  Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports.  Unauthorized use or distribution of this information would violate Company policy.  It could also be illegal and result in civil or

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even criminal penalties.  Please see the Company’s policies on information technology usage and confidentiality for further guidance.

Section 11.  Political Activities and Engagement with Government Personnel

To foster active responsible citizenship at the national, state and local level, Cubist supports and encourages employee participation in traditional political activities during non-work time.  Such activities may include civic projects, supporting candidates for elective office or participation in public issue campaigns.  An employee’s involvement and participation in civic affairs, the political process or legislative and executive branch matters must be on his or her own time and at his or her own expense, not interfere with work responsibilities, not use corporate property, and not be as a representative of Cubist.  The exceptions to this are employees who are specifically designated by the Vice President of Government Affairs or General Counsel.  Subject to strict legal and policy limitations, Cubist may also be involved in the political process through a Political Action Committee (PAC).  It is imperative that all political activities be conducted in strict compliance with all applicable laws, regulations and corporate policies, and in accordance with the highest standards of honesty and integrity. If you have any questions regarding proposed political activity, check with the Vice President of Government Affairs.

In addition, the U.S. government has a number of laws and regulations regarding the provision of business gratuities to U.S. government personnel, including, for example, employees of Medicare, Medicaid, and the Veterans Administration. The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not only violate Company policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules.

The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to employees of foreign governments (including doctors and other health care personnel employed by foreign government agencies) or foreign political candidates in order to obtain or retain business. It is strictly prohibited to make payments to government employees of any country.

Section 12.            Misrepresentations and False Statements

Employees and Directors must never make a deliberate misrepresentation concerning the Company or its business operations.  No employee or Director shall create, or assist another in creating, a false or misleading entry on the Company’s books or business records.

Section 13.Responding to Government Requests

It is the Company’s policy to cooperate with all reasonable requests from Governmental agencies concerning the Company’s business operations. Employees and Directors are expected to respond truthfully to Governmental inquiries.  All government inquiries, whether initiated by telephone, subpoena, or other request, must be immediately communicated to a director-level or higher member of the Law Department before taking any action.

6

Section 14.Waivers of the Code of Business Conduct and Ethics

While some standards in this Code require strict application and exceptions or waivers are not allowed, others do allow for waivers.  Any waiver of this Code for Executive Officers or Directors may be made only by the Board of Directors and will be promptly disclosed as required by law or Nasdaq regulation.

Employees other than Executive Officers who believe they may merit a waiver should first consult their supervisor.  If the supervisor agrees that a waiver is warranted, the supervisor should forward the request to the Chief Compliance Officer.  The Chief Compliance Officer and CEO will jointly approve or disapprove the request.

7

EX-21

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Exhibit 21.1

CUBIST PHARMACEUTICALS, INC.

        The following is a list of subsidiaries of the Company as of December 31, 2008:

Subsidiary	Jurisdiction of Incorporation
Cubist Pharmaceuticals Holdings, Inc.	Delaware
Cubist Pharmaceuticals U.S.	Massachusetts
Cubist Pharmaceuticals (UK) Ltd.	England and Wales
Cubist Pharmaceuticals GmbH	Switzerland
Illumigen BioSciences, Inc.	Delaware

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Exhibit 21.1

CUBIST PHARMACEUTICALS, INC.

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-134623, 333-134559, 333-108023, 333-75862, 333-64943, 333-32186 and 333-123152) and Form S-8 (Nos. 333-155352, 333-148455, 333-148454, 333-136937, 333-118065, 333-106388, 333-101908, 333-99739, 333-65385, 333-65383, 333-60168, 333-60152, 333-54140, 333-49522, 333-32178, 333-25707, 333-124210, 333-126225 and 333-132248) of Cubist Pharmaceuticals, Inc. of our report dated February 27, 2009 relating to the financial statements, financial statements schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts
February 27, 2009

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-23.2

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Exhibit 23.2

CONSENT OF INDEPENDENT VALUATION FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-134623, 333-134559, 333-108023, 333-75862, 333-64943, 333-32186, and 333-123152) and Form S-8 (Nos. 333-155352, 333-148455, 333-148454, 333-136937, 333-118065, 333-106388, 333-101908, 333-99739, 333-65385, 333-65383, 333-60168, 333-60152, 333-54140, 333-49522, 333-32178, 333-25707, 333-124210, 333-126225 and 333-132248) of Cubist Pharmaceuticals, Inc. of our report dated as of December 31, 2008 relating to the valuation of financial securities which appears in this Form 10-K.

/s/ HOULIHAN SMITH & COMPANY INC. Houlihan Smith & Company Inc.
Chicago, Illinois
February 27, 2009

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Exhibit 23.2

CONSENT OF INDEPENDENT VALUATION FIRM

EX-31.1

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Exhibit 31.1

CERTIFICATION

I, Michael W. Bonney, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Cubist Pharmaceuticals, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 27, 2009

/s/ MICHAEL W. BONNEY
Michael W. Bonney
President and Chief Executive Officer
(Principal Executive Officer)

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Exhibit 31.1

CERTIFICATION

EX-31.2

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Exhibit 31.2

CERTIFICATION

I, David W.J. McGirr, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Cubist Pharmaceuticals, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 27, 2009

/s/ DAVID W.J. MCGIRR
David W.J. McGirr
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

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Exhibit 31.2

CERTIFICATION

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Cubist Pharmaceuticals, Inc. ("Cubist") on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael W. Bonney, President and Chief Executive Officer of Cubist, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cubist.

February 27, 2009

/s/ MICHAEL W. BONNEY
Michael W. Bonney
President and Chief Executive Officer

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Cubist Pharmaceuticals, Inc. ("Cubist") on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David W.J. McGirr, Chief Financial Officer of Cubist, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cubist.

February 27, 2009

/s/ DAVID W.J. MCGIRR
David W.J. McGirr
Senior Vice President and
Chief Financial Officer

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002