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, 2009
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

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

None
(Title of Each Class)

         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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    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. ý

         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 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, 2009, (without admitting that any person whose shares are not included in the calculation is an affiliate) was $762.5 million computed by reference to $18.33, the closing price of our common stock, as reported on the NASDAQ Global Select Market^SM on June 30, 2009. The number of outstanding shares of common stock of Cubist on February 11, 2010, was 58,146,373.

DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS
ANNUAL MEETING OF STOCKHOLDERS, WHICH IS EXPECTED TO BE HELD ON JUNE 3, 2010,
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	32
1B.	Unresolved Staff Comments	52
2.	Properties	53
3.	Legal Proceedings	53
4.	Submission of Matters to a Vote of Security Holders	53
PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	54
6.	Selected Financial Data	56
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	58
7A.	Quantitative and Qualitative Disclosures About Market Risk	85
8.	Financial Statements and Supplementary Data	86
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	137
9A.	Controls and Procedures	137
9B.	Other Information	137
PART III
10.	Directors, Executive Officers and Corporate Governance	138
11.	Executive Compensation	138
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	138
13.	Certain Relationships and Related Transactions, and Director Independence	138
14.	Principal Accountant Fees and Services	138
PART IV
15.	Exhibits and Financial Statement Schedule	139
	Signatures	145

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FORWARD-LOOKING STATEMENTS

        This document contains and incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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, capital expenditures and income taxes;

•

our expectations regarding the commercialization and manufacturing of CUBICIN® (daptomycin for injection), including our expectations with respect to the ability of our single source provider of CUBICIN active pharmaceutical ingredient, or API, to complete the expansion of its manufacturing facility to meet anticipated CUBICIN demand;

•

our expectations regarding the strength of our intellectual property portfolio protecting CUBICIN and our patent infringement lawsuit against Teva Parenteral Medicines, Inc., or Teva, and its affiliates in connection with the February 9, 2009, notification to us by Teva 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 before the expiration of certain of the patents covering CUBICIN;

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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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our expectations regarding our agreement with AstraZeneca Pharmaceuticals, LP, or AstraZeneca, for the promotion of MERREM® I.V. (meropenem for injection) in the U.S.;

•

the impact of new accounting pronouncements;

•

our future capital requirements and capital expenditures and our ability to finance our operations, debt obligations and capital requirements; and

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•

our expectations regarding the impact of ordinary course legal proceedings.

        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 filed 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 time commitment associated with the litigation;

•

whether or not other third parties may seek to market generic versions of CUBICIN or any other products that we commercialize in the future 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;

•

our ability to successfully work with AstraZeneca with respect to promoting and supporting MERREM I.V. in the U.S. and similar market and competitive factors with respect to MERREM 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 of relevance to our developmental activities;

•

whether our partners 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 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;

•

the ability of our CUBICIN API manufacturer to complete the expansion of its manufacturing facility for CUBICIN API, including the receipt of any required regulatory approvals, on a timely basis in order to meet anticipated future demand for CUBICIN;

•

our ability to discover, acquire or in-license drug candidates, the costs related thereto, and the high level of competition from other companies that are also seeking to discover, acquire or in-license the same or similar drug candidates;

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•

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.;

•

our ability to integrate successfully the operations of any business that we may acquire, including our recent acquisition of Calixa Therapeutics Inc., 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 and our drug candidates;

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

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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;

•

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

•

our ability to protect our proprietary technologies; and

•

a variety of risks common to our industry, including healthcare reform in the U.S. and other jurisdictions where our products are sold which negatively impacts our business, 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

Overview

        Cubist Pharmaceuticals, Inc., which we refer to as "we", "Cubist", or the "Company," is 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, or are being developed to be used, primarily in hospitals but also may be used in acute care settings, including home infusion and hospital outpatient clinics. We were 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 02421. Our telephone number is 781-860-8660, and our website address is www.cubist.com.

        We had a total of $496.2 million in cash and cash equivalents and investments as of December 31, 2009, as compared to $417.9 million as of December 31, 2008. Our 2009 net income was $79.6 million, or $1.38 and $1.36 per basic and diluted share, respectively, as compared to 2008 net income of $127.9 million, or $2.26 and $2.07 per basic and diluted share, respectively, and 2007 net income of $35.6 million, or $0.64 and $0.62 per basic and diluted share, respectively. 2008 net income includes an income tax benefit of $102.2 million related to the reversal of a significant portion of the valuation allowance on our deferred tax assets. Our 2009 total net revenues were $562.1 million, as compared to 2008 total net revenues of $433.6 million, and 2007 total net revenues of $294.6 million. As of December 31, 2009, we had an accumulated deficit of $239.0 million.

        We currently derive substantially all of our revenues from CUBICIN® (daptomycin for injection), which we launched in the U.S. in November 2003 and commercialize on our own in the U.S. CUBICIN is a once-daily, bactericidal, intravenous, or I.V., antibiotic with activity against certain Gram-positive organisms, including methicillin-resistant Staphylococcus aureus (S. aureus), or MRSA, and, as of December 31, 2009, has been used in the treatment of more than an estimated 880,000 patients. 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 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. The following is a breakdown of our revenues from CUBICIN:

	2009		2008		2007
	(in millions)
Net worldwide revenues	$	537.8	$	422.1	$	290.4
Net U.S. revenues	$	524.0	$	414.7	$	285.1
International revenues	$	13.8	$	7.4	$	5.3

        Our net worldwide revenues for CUBICIN represent net U.S. revenues and international revenues, which represent the payments we receive from international distributors in connection with their commercialization of CUBICIN. Our total international revenues are primarily based on sales of CUBICIN by Novartis AG, or Novartis (which sells CUBICIN through a subsidiary), our distribution partner in the EU.

        On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva Parenteral Medicines, Inc., or Teva, notifying us that Teva had submitted an Abbreviated New Drug Application, or ANDA, to the U.S. Food and Drug Administration, or FDA, for approval to market a generic

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version of CUBICIN. Teva's notice letter advised that it is seeking FDA approval to market daptomycin for injection, the active ingredient in CUBICIN, 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 is 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. On March 23, 2009, we filed a patent infringement lawsuit against Teva, Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. in response to the ANDA filing. The complaint, which was filed in the U.S. District Court for the District of Delaware, alleges infringement of the referenced patents. Under current U.S. law, the filing of the lawsuit automatically prevents the FDA from approving the ANDA for 30 months from our receipt of Teva's Paragraph IV notification letter on February 9, 2009, unless the court enters judgment in favor of Teva in less than 30 months, or finds that a party has failed to cooperate reasonably to expedite the lawsuit. The court has set a date for trial beginning on April 25, 2011. The court also scheduled a claim construction hearing (a.k.a. a Markman hearing) for June 2, 2010. The court indicated that summary judgment motions will not be permitted in this lawsuit. It is possible that additional third parties may seek to market generic versions of CUBICIN in the U.S. by filing an ANDA. We are confident in our intellectual property portfolio protecting CUBICIN, including the patents listed in the Orange Book. Our ability to continue to generate significant revenues from CUBICIN is dependent upon our ability to prevail in the litigation with Teva or to otherwise resolve the litigation on favorable terms.

        The success of our business is primarily dependent upon our ability to develop and commercialize our current and future acute care products and product candidates. The following tables summarize important information about our marketed products, including service agreements (Table 1), and our clinical pipeline programs (Table 2).

Table 1—Marketed Products

Products, Compound or Program	Commercial Indication(s)	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 methicillin-susceptible S. aureus, or MSSA; and S. aureus bacteremia, including RIE caused by 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 approximately 66 countries outside the U.S. for one or more indications; launches ongoing.

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Products, Compound or Program	Commercial Indication(s)	Marketing Alliances or Development Collaborations	U.S. Status	Ex-U.S. Status
MERREM I.V. Agreement with AstraZeneca under which we promote MERREM I.V. in the U.S. MERREM I.V. is a registered trademark of the AstraZeneca group of companies.	In the U.S., approved for cSSSI and intra-abdominal infections caused by certain susceptible Gram-positive and Gram-negative bacteria; and bacterial meningitis in pediatric patients >3 months of age.	U.S.—we have the right to promote MERREM I.V. in U.S. hospitals for the first six months of 2010, subject to extension for an additional six months upon mutual agreement with AstraZeneca.	In market: Launched in 1996; we began promoting MERREM I.V. in the U.S. in July 2008.	AstraZeneca commercializes MERREM I.V. outside the U.S.; we have no rights to MERREM I.V. outside the U.S.

Table 2—Clinical Pipeline Programs

Products, Compound or Program	Therapeutic Area of Study	Marketing Alliances or Development Collaborations	U.S. Status	Ex-U.S. Status/Rights
CB-500,929 (ecallantide)	Licensed by us in the field of prevention of blood loss during surgery; initial indication we are seeking is for the reduction of blood loss in patients undergoing cardiac surgery using cardiopulmonary bypass.	In-licensed from Dyax Corp., or Dyax, in North America and the EU; Dyax has worldwide rights to CB-500,929 for non-surgical indications and for surgical indications outside of North America/EU.	We expect to determine next steps on this program in the first half of 2010. We ended enrollment early in CONSERV™-1 and -2 as described below.	We have EU rights to CB-500,929 for surgical indications.
CXA-201 (acquired rights as part of our December 2009 acquisition of Calixa Therapeutics Inc.)	Being developed as a first-line I.V. therapy for the treatment of certain serious Gram-negative bacterial infections in the hospital, including those caused by multi-drug resistant, or MDR, Pseudomonas aeruginosa.	Licensed from Astellas Pharma Inc., or Astellas, which retains rights in select Asia-Pacific and Middle East territories.	We expect to begin a Phase 2 trial in complicated intra-abdominal infection, or cIAI, and a Phase 2 trial in complicated urinary tract infection, or cUTI, in the first half of 2010.    We also expect to begin lung pharmacokinetic studies for hospital acquired pneumonia, or HAP, and ventilator associated pneumonia, or VAP, in the second half of 2010.	We have worldwide rights to CXA-201, except in territories where Astellas retains rights.

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Products, Compound or Program	Therapeutic Area of Study	Marketing Alliances or Development Collaborations	U.S. Status	Ex-U.S. Status/Rights
CB-182,804	Being developed for various infections caused by MDR Gram-negative bacteria.	None	In the clinic: We plan to make a decision on whether to advance CB-182,804 into Phase 2 clinical trials in the first quarter of 2010.	We have worldwide rights to CB-182,804.
CB-183,315	Being developed for Clostridium difficile-associated diarrhea, or CDAD.	None	In the clinic: We have completed Phase 1 studies and expect to initiate a Phase 2 trial in the first half of 2010.	We have worldwide rights to CB-183,315.

CUBICIN

        We derive substantially all of our revenues from CUBICIN, a once-daily bactericidal I.V. antibiotic which we developed and launched in the U.S. in November 2003. On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva notifying us that Teva had submitted an ANDA to the FDA for approval to market a generic version of CUBICIN. We subsequently commenced patent infringement litigation against Teva and its affiliates. See the "Overview" section for a summary of the status of the ANDA litigation.

CUBICIN in the U.S. Market

        As of December 31, 2009, CUBICIN has been used in the treatment of an estimated 880,000 patients in the U.S. We believe that CUBICIN provides important advantages over existing antibiotic therapies in its approved indications in the U.S., including:

•

its rapid bactericidal properties demonstrated in vitro;

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its mechanism of action; and

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its established safety profile.

        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, 2009, CUBICIN had approximately an 11% 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 160 clinical business manager positions, or CBMs, as of February 1, 2010. Our U.S. acute care sales organization also includes regional business directors, or RBDs, who manage our CBMs, senior sales directors, who manage the RBDs, regional access managers, or RAMs, whose primary objective is to sell CUBICIN in the U.S. to outpatient acute care settings, such as home infusion and physician office infusion markets, and regional access directors, who manage the RAMs.

        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:

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manufacturing and supplying CUBICIN active pharmaceutical ingredient, or API;

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•

converting CUBICIN API into its finished, vialed and packaged formulation;

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managing warehousing and distribution of CUBICIN to our customers; and

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performing the order processing, order fulfillment, shipping, collection and invoicing services related to our U.S. CUBICIN product sales.

CUBICIN's Role in the Treatment of Certain Serious Gram-Positive 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 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.

        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.

        CUBICIN's spectrum of activity includes strains of Gram-positive pathogens that are both susceptible and resistant to other antibiotic therapies. In particular, CUBICIN is potent and rapidly cidal in vitro against isolates of S. aureus that are both susceptible and resistant to other antibiotics.

MRSA: 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 (glycopeptide intermediate S. aureus, vancomycin MIC = 4 - 8 µg/ml), and VRSA (vancomycin-resistant S. 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 tighter 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

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

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 "Antimicrobial susceptibility of Gram-positive bacteria isolated from U.S. medical centers: results of the Daptomycin Surveillance Program (2007-2008)" published in the October 2009 edition of the Diagnostic Microbiology and Infectious Diseases, or DMID, daptomycin demonstrated potent 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. Surveillance monitoring to assess the potency of CUBICIN is ongoing.

        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.

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 certain serious Gram-positive 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:

•

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. The last patient was enrolled in 2009. We currently expect to make data available from this study in 2010;

•

The study of CUBICIN at 10 mg/kg per day 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 2 to 17 year olds (a pharmacokinetics study in 2 to 6 year olds has been completed);

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

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A safety and pharmacokinetics study in children 3 months to 2 years of age; and

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A cSSSI and S. aureus bacteremia, or SAB, safety and efficacy study in renal-compromised patients.

Competition in the U.S.

        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®,

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marketed by Pfizer, Inc., or Pfizer, Synercid®, marketed by King Pharmaceuticals, Inc., and Tygacil®, marketed by Wyeth, which is now a wholly-owned subsidiary of Pfizer. In particular, vancomycin has been a widely used and well known antibiotic for more than 50 years and is sold in a relatively inexpensive generic form. CUBICIN also faces competition from VIBATIV™, or telavancin, which was approved by the FDA in September 2009 as a treatment for cSSSI and is being co-marketed in the U.S. by Astellas Pharma US, Inc. and Theravance, Inc.

        In addition, CUBICIN may, if Teva's ANDA is approved and/or another third party files an ANDA that is ultimately approved, face competition in the U.S. from generic versions of CUBICIN. Teva's launch of a generic version of CUBICIN could occur after the district court proceeding in our litigation with Teva and its affiliates 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), which is currently expected to expire in August 2011, has expired and Teva decides to launch prior to the district court decision.

        CUBICIN may also face competition in the future from drug candidates currently in clinical development, including drug candidates being developed as treatments for cSSSI for which new drug applications, or NDAs, have been filed with the FDA. These include oritavancin, which is being developed by The Medicines Company, ceftaroline, which is being developed by Forset Laboratories, Inc., and ceftobiprole, which is being developed by Basilea Pharmaceutica AG. In February 2010, a division of Johnson & Johnson, which has rights to ceftobiprole, provided notice to Basilea of its intent to relinquish such rights.

CUBICIN in International Markets

        Since the time of its U.S. launch, CUBICIN has received regulatory approvals in many markets outside the U.S., including the EU. The approved indications are generally similar to the approved indications in the U.S. We currently commercialize CUBICIN on our own in the U.S. and have established distribution agreements with other companies for commercialization of CUBICIN in all countries outside the U.S. As of December 31, 2009, CUBICIN had received regulatory approval or an import license in approximately 66 countries and was being marketed in approximately 32 countries. Novartis is marketing and selling CUBICIN in the EU and, in May 2009, launched a 2-minute rapid injection formulation of CUBICIN in the EU. In inpatient settings, such as intensive care units, 2-minute rapid injection offers physicians flexibility where fluid volume and vein access might be concerns. The convenience of the 2-minute delivery also offers opportunity in the developing outpatient setting in the EU. We are seeking approval for a rapid injection option in the U.S. as well. Awareness of CUBICIN in the EU is growing and sales are increasing as the sales and marketing efforts of Novartis continue to increase and become more effective.

        CUBICIN is being introduced and commercialized in markets outside the U.S. through alliances we have entered into with other companies. In addition to the EU, Novartis has rights to develop, market and sell CUBICIN in Australia, New Zealand, India, and certain Central American, South American and Middle East countries; AstraZeneca AB has rights to develop, market and sell CUBICIN in China as well as more than one hundred additional countries around the world; and Merck & Co., Inc., or Merck, through its wholly-owned subsidiary, Banyu Pharmaceutical Co., Ltd., has rights to develop, market and sell CUBICIN in Japan. Other international partners for CUBICIN include Medison Pharma, Ltd. for Israel, Sepracor, Inc., or Sepracor, successor-in-interest to Oryx Pharmaceuticals, Inc., for Canada, TTY BioPharm for Taiwan, and Kuhnil Pharma Co., Ltd. for Korea. Sepracor was acquired by Dainippon Sumitomo Pharma Co., Ltd. in October 2009.

        Each partner is responsible for seeking regulatory approvals to market CUBICIN and for selling and marketing 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

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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' territory, and (ii) June 30, 2020.

Eli Lilly License Agreement

        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 from which these rights arise, we have made payments to Eli Lilly of $1.15 million for milestones, which were paid in Cubist common stock. In July 2003, we issued to Eli Lilly $8.0 million of our common stock in consideration for a 1% reduction in the royalty rates payable to Eli Lilly. In March 2005, we issued to Eli Lilly $20.0 million of our common stock in consideration for an additional 2% reduction in the royalty rates payable to Eli Lilly. As of December 31, 2009, we have paid Eli Lilly approximately $155.4 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 UK, Germany, France, Italy, Spain, Switzerland, Netherlands or Belgium in which know-how royalties are due under the agreement.

MERREM I.V.

        We promote and support MERREM I.V. using our existing U.S. acute care sales and medical affairs organizations pursuant to a commercial services agreement that we entered into with AstraZeneca Pharmaceuticals, LP, or AstraZeneca, in July 2008. 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 MERREM I.V. sales representatives and clinical science directors. AstraZeneca provides marketing and other commercial support for MERREM I.V.

        We recognize revenues related to this agreement as service revenues in our consolidated statements of income. For the second half of 2008 and all of 2009, the agreement established a baseline annual payment by AstraZeneca to Cubist of $20.0 million (this amount was pro rated for 2008), received in quarterly increments, that was adjusted up or down through a true-up payment or refund at the end of the year based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount, subject to a minimum annual payment of $6.0 million. For the second half of 2008 and all of 2009, we could have also earned a percentage of the gross profit on sales exceeding the annual baseline sales amount. The payments for any such sales over the baseline amount would have been recognized in the quarter in which AstraZeneca provided us with its annual sales report. 2009 U.S. sales were below the established annual baseline sales amount. Service revenues of $22.5 million for the year ended December 31, 2009, include a $4.5 million payment received in 2009 for exceeding the 2008 annual baseline sales amount.

        Given anticipated market conditions for carbapenems and the potential impact of the June 2010 expiration of the composition of matter patent for MERREM I.V. in the U.S., we and AstraZeneca entered into an amendment to the agreement in December 2009. The amendment establishes a six-month baseline sales amount for 2010 with a six-month baseline payment of up to $9.0 million, received in quarterly increments, to be adjusted up or down by a true-up payment or refund at the end of the six-month period based on actual U.S. sales of MERREM I.V. exceeding or falling short of the established six-month baseline sales amount. If the actual U.S. sales fall short of the six-month baseline

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sales amount, the amendment provides stepped down payments, subject to a minimum payment of $4.0 million. The amendment also provides for the possibility that we will market MERREM I.V. during the final six months of 2010 if we and AstraZeneca mutually agree that the agreement should continue on acceptable terms. We cannot assure you that we will be able to reach an agreement with AstraZeneca to promote MERREM I.V. after June 30, 2010.

        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, (ii) in the event that we cease to promote CUBICIN, (iii) if AstraZeneca withdraws MERREM I.V. from the market in the U.S. 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 of the exclusivity 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, and may face competition from generic versions of MERREM I.V. as the composition of matter patent for MERREM I.V. expires in June 2010. Primaxin I.V. has been a widely used and well known antibiotic for over 20 years, and generic Primaxin may be introduced in the U.S. shortly by Ranbaxy Laboratories Limited, or Ranbaxy, pursuant to its settlement agreement with Merck which allows Ranbaxy to launch its generic version after September 1, 2009.

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.

CB-500,929 (ecallantide):

        We obtained an exclusive license for the development and commercialization in North America and Europe of the I.V. formulation of CB-500,929 for the prevention of blood loss during surgery pursuant to a license and collaboration agreement with Dyax Corp., or Dyax. We are studying ecallantide initially in the reduction of blood loss in patients undergoing cardiac surgery using cardiopulmonary bypass, which includes coronary artery bypass graft, or CABG, and heart valve repair and replacement procedures. The prevention of blood loss during cardiac surgery using cardiopulmonary bypass 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 March 2009, we began a Phase 2 dose-ranging trial, CONSERV™-1, assessing three different doses of ecallantide in cardiac surgery patients using cardiopulmonary bypass undergoing procedures associated with a relatively low risk of bleeding. In July 2009, we began a Phase 2 trial, CONSERV-2, assessing a high dose of ecallantide in cardiac surgery patients using cardiopulmonary bypass undergoing procedures associated with a higher risk of bleeding. In December 2009, we announced the early closing of enrollment of both Phase 2 trials based on a recommendation from the Data Safety

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Monitoring Board, or DSMB, to close the CONSERV-2 trial due to the observation of a statistically significant difference in mortality between the arms of the CONSERV-2 trial that the DSMB felt needed to be assessed before the trial could be resumed. Overall mortality was consistent with expected outcomes for the patient population in the CONSERV-2 trial. However, the data for patients treated in the trial as of the closing of enrollment showed more deaths in the CB-500,929 arm. Initial review shows mortality observed in the trial was due to a variety of causes typically expected in a high-risk-for-bleed population undergoing cardiac surgery. There was no such imbalance detected by the DSMB in the CONSERV-1 trial. We expect to complete analysis of all the data from both the CONSERV-1 and CONSERV-2 trials in the first half of 2010 and subsequently determine next steps for the program.

        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 were included in research and development expense in 2008. We are responsible for all development costs associated with CB-500,929 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 CB-500,929 by us. The agreement provides an option for Dyax to retain certain U.S. co-promotion rights. Dyax retains exclusive rights to CB-500,929 in all other indications, including for its hereditary angioedema program. Except under certain circumstances, Dyax will supply us with CB-500,929 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.

CXA-201:

        We acquired Calixa Therapeutics Inc., or Calixa, in December 2009 and with it rights to CXA-201, Calixa's lead compound, an I.V. combination of a novel anti-pseudomonal cephalosporin, or CXA-101, which Calixa licensed from Astellas, and the beta-lactamase inhibitor tazobactam. CXA-101 is currently in Phase 2 clinical trials for cUTI. Cubist obtained Calixa's rights to develop and commercialize the lead compound, CXA-201, and other products that incorporate CXA-101. Under a license agreement with Astellas, as further described below, we have the exclusive rights to develop, manufacture, market and sell any eventual products which incorporate CXA-101, including CXA-201, in all territories of the world except select Asia-Pacific and Middle East territories.

        CXA-201 is being developed as a first-line therapy for the treatment of certain serious Gram-negative bacterial infections in the hospital, including those caused by MDR Pseudomonas aeruginosa. Pan-resistant P. aeruginosa, or P.aeruginosa,—resistant in vitro to all groups of antibiotics—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, tetracyclines, chloramphenicols, macrolides, trimethoprim/sulfa, and aminoglycosides.

        We anticipate advancing the clinical program for cUTI and cIAI in the first half of 2010. The next study in the cUTI program would take into consideration the results of the ongoing cUTI trial with CXA-101. In addition, we expect to begin a Phase 2 trial of CXA-201 for cIAI in the first half of 2010. In the second half of 2010, we also expect to begin lung pharmacokinetic studies of CXA-201 for HAP and VAP.

        Pursuant to the terms of the merger agreement under which we acquired Calixa, we paid the Calixa stockholders $100.0 million, subject to certain adjustments and escrow provisions, and Calixa became our wholly-owned subsidiary. We are also required to make potential payments to the Calixa stockholders of up to $310.0 million in the event that certain development, regulatory, and commercial milestones related to products which incorporate CXA-101 are achieved.

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        Under the license agreement with Astellas, we have an obligation to make milestone payments to Astellas that could total up to $44.0 million if certain specified development and sales events are achieved. In addition, if licensed products are successfully developed and commercialized in our territories, we will be required to pay Astellas tiered single-digit royalties on net sales of such products in such territories, subject to offsets under certain circumstances. Unless terminated earlier in accordance with the agreement, the agreement expires on a country-by-country basis when we stop developing or selling licensed products in such country. We have the right to terminate the agreement without cause on prior notice to Astellas, and either party may terminate the agreement in the event of a breach of specified provisions of the agreement by the other party.

CB-182,804:

        CB-182,804 is in Phase 1 clinical trials for the treatment of MDR Gram-negative infections. We plan to make a decision on whether to advance CB-182,804 into Phase 2 trials in the first quarter of 2010. CB-182,804 is a novel, proprietary, I.V. administered Gram-negative antibiotic that has demonstrated in vitro efficacy and rapid bactericidal activity against 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.

CB-183,315:

        CB-183,315 has completed single-and multiple-ascending dose Phase 1 clinical trials for the treatment of Clostridium CDAD. We expect to launch Phase 2 clinical trials in CDAD in the first half of 2010. 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, which is an opportunistic anaerobic Gram-positive bacterium which causes 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 UK, 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:

        Cubist is working on several pre-clinical programs, addressing areas of significant medical needs. These include an anti-infective program for the treatment of respiratory syncytial virus, or RSV, in children, therapies to treat various serious bacterial infections, and agents to treat acute pain.

        Of note, in January 2009, we entered into a collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam, related to Alnylam's RNA interference, or RNAi, therapeutics as potential therapy for the treatment RSV, an area of high unmet medical need, particularly in children. 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 agreement was amended in November 2009 to carve ALN-RSV01, which is in Phase 2 clinical trials, out of the licensed products included in the collaboration, subject to our right to opt-in to development after Alnylam completes a Phase 2b study of ALN-RSV01 for the treatment of RSV infection in adult lung transplant patients. We have a pre-IND program underway in novel treatments for RSV infections in children using Alnylam's RNAi technology.

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        Under the agreement, 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 Cubist 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 milestone 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 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).

Other R&D/preclinical partnerships:

        We also have ongoing collaborations and agreements with additional third parties that are focused on the research and development of acute care products. These include:

•

A collaboration with Forma Therapeutics to discover and develop novel antibacterial compounds using a new and different chemical approach—diversity oriented synthesis;

•

An agreement with the Broad Institute to transform natural products discovery by applying genomic methods to identify "cryptic" genes and try to get them to produce novel natural products; and

•

A collaboration with Hydra Biosciences, or Hydra, to develop novel ion channel drugs, focusing on Hydra's research and development program for ion channel compounds that target the TRPA1 receptor, which is believed to have an important role in pain management.

Our Research and Development Expenditures

        Our research and development expenditures, which include research related to CUBICIN, were $170.6 million, $126.7 million and $85.2 million in 2009, 2008 and 2007, 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 2010.

Our Significant Customers

        Revenues from Cardinal Health, Inc. accounted for approximately 25%, 28% and 32% of total net revenues for the years ended December 31, 2009, 2008 and 2007, respectively. Revenues from Amerisource Bergen Drug Corporation accounted for approximately 30%, 28% and 30% of total net revenues for the years ended December 31, 2009, 2008 and 2007, respectively. Revenues from McKesson Corporation accounted for approximately 21%, 20% and 20% of total net revenues for the years ended December 31, 2009, 2008 and 2007, respectively.

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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.

        To date, Cubist and its subsidiaries own or co-own 27 issued U.S. patents, 17 pending U.S. patent applications, 97 issued foreign patents and approximately 82 pending foreign patent applications. Not included in these totals are the patents and patent applications which Cubist has exclusively licensed.

CUBICIN:

        As noted above, we have acquired and exclusively licensed technology from Eli Lilly related to the composition, manufacture, and use of daptomycin, the active ingredient in CUBICIN. 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	December 2011

        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 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 is 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 filed a patent infringement lawsuit against Teva on March 23, 2009, in response to the ANDA filing. Filing the lawsuit against Teva within 45 days of receiving the notice letter meant that the FDA was 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. The 30-month stay period began as of February 9, 2009, the date we were notified of the filing. The U.S. District Court for the District of Delaware has set a date for trial beginning on April 25, 2011. The court also scheduled a claim construction hearing (a.k.a., a Markman hearing) for June 2, 2010. The court indicated that summary judgment motions will not be permitted in this lawsuit.

        In addition, we also have 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.

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CB-500,929 for the reduction of blood loss in patients undergoing cardiac surgery using cardiopulmonary bypass:

        We have exclusively licensed from Dyax rights to CB-500,929 (a biologic). The composition of matter patent in the U.S. is U.S. Patent No. 7,276,480.

CXA-101/CXA-201 for the treatment of Gram-negative infections:

        Through our acquisition of Calixa, we have an exclusive license to patents covering the novel CXA-101 compound through at least 2023 in Europe, including the European Patent EP 1 556 389 B1, and through October 2024 in the U.S., including U.S. Patent No. 7,129,232.

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. Our exclusive license to this technology includes pending patent applications covering the CB-182,804 antibacterial compound and methods of making and using this compound. If issued in the U.S., these licensed patent rights would expire no earlier than December 2029.

CB-183,315 for infections caused by CDAD:

        We own the rights related to the composition of matter of CB-183,315 and its manufacture and use. U.S. Patent No. 7,335,725 protects the compound through December 2020. An additional patent is pending and, if a patent is issued in the U.S., it would expire no earlier than December 2029.

ALN-RSV compounds:

        We have exclusively licensed from Alnylam rights to the licensed products remaining in the collaboration and, if we exercise our opt-in right, to ALN-RSV01 that Alnylam has developed or will develop. 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.

Manufacturing and Supply

CUBICIN:

        We outsource many of our supply chain activities, including:

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manufacturing CUBICIN API;

•

processing to convert CUBICIN API into its finished, vialed and packaged formulation;

•

managing warehousing and distribution of CUBICIN to our customers, and performing the order processing, order fulfillment, shipping, collection and invoicing services related to our CUBICIN product sales in the U.S.

        API: We have a manufacturing and supply agreement with ACS Dobfar SpA, or ACSD, pursuant to which ACSD manufactures and supplies us API for CUBICIN, on an exclusive basis, for commercial purposes. ACSD also manufactures API for our CUBICIN clinical trials. Pursuant to our agreement with ACSD, which was amended in November 2009, ACSD currently stores some CUBICIN API at its facilities in Italy. Under the November 2009 amendment, we and ACSD have agreed on: (a) a project plan process, equipment and associated plant improvements and expansion to ACSD's facility intended to increase the capacity of the facility to produce CUBICIN API, and the reimbursement to ACSD for

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certain costs associated with these activities; (b) a new CUBICIN API pricing schedule based on payments in Euros to ACSD that can be updated in the event that future facility or process improvements are implemented; and (c) a new minimum order requirement structure based on a percentage of our CUBICIN API requirements rather than an absolute annual minimum. Unless earlier terminated in accordance with its terms, our agreement with ACSD will terminate on December 31, 2015, subject to a two year renewal at our option. Subject to the timely completion of the ongoing improvements and expansion of ACSD's CUBICIN API manufacturing facility, we expect that ACSD's fermentation and purification plant capacity can meet all of our anticipated needs for CUBICIN API for at least the next several years.

        Fill-Finish/Packaging: We have an agreement with Hospira, Inc., or Hospira, under which 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 second vial size for the supply by Hospira of CUBICIN vials; and (c) our ability to have Hospira provide us with packaging and labeling services for CUBICIN. We are paying Hospira to perform some of these development obligations, but there are no milestone payments associated with the services.

        We have 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 and labeling services for the finished CUBICIN product at Oso's Albuquerque, New Mexico, facility.

        Warehousing/Distribution/Logistics: We have 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.

Clinical Pipeline Programs:

        CB-500,929: Under our agreement with Dyax, Dyax, except under certain circumstances, is responsible for manufacturing and supplying drug substance for the development and commercialization of CB-500,929. 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 drug product. Following our Phase 2 clinical trials, we will be responsible for turning ecallantide drug substance into drug product.

        CXA-201, CB-182,804 and CB-183,315: We are currently using third party suppliers to supply us with drug substance and drug product for these product candidates.

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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, or in an artificial environment outside of a living organism, and in vivo, or 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. Phase 3 clinical development programs consist 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.

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        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 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 us. 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.

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        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.

        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. 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 FDA granted CUBICIN three years of exclusivity, which expired on May 25, 2009, for the additional indication of S. aureus bloodstream infections (bacteremia).

        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

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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. We filed a patent infringement lawsuit against Teva in response to the ANDA filing on March 23, 2009, which was within the required 45-day period. As described above, this means that the FDA is 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. The 30-month stay period began as of February 9, 2009, the date we were notified of the filing and, therefore, ends on August 9, 2011.

        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.

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Pricing and Reimbursement

        In the U.S. and internationally, sales of CUBICIN and any other products that we market in the future, and our ability to generate revenues on such sales, are dependent, in significant part, on the availability and level of reimbursement from third-party payors such as state and federal governments, including Medicare and Medicaid, managed care providers, and private insurance plans. The significant governmental reimbursement and cost programs are described below. Private insurers, such as health maintenance organizations and managed care providers, have also implemented cost-cutting and reimbursement initiatives and will likely continue to do so in the future. These include establishing formularies that govern the drugs and biologics that will be offered and the out-of-pocket obligations for such products. In addition, in the U.S. in particular, we are required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities. The current health care reforms being considered at the federal level will likely impact reimbursement rates for CUBICIN and the products we are developing and may develop in the future, along with the level of rebates and discounts that we would have to provide in connection with sales of such products that are paid for or reimbursed by state and federal governments and agencies. Any health care reforms that impact these areas could significantly impact our ability to generate revenues from sales of CUBICIN and other products that, if successfully developed, we bring to market.

        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, or CMS, on a quarterly basis. This information is used to compute Medicare payment rates, which are generally set at ASP plus six percent, updated quarterly. This is the current payment rate for CUBICIN in the inpatient, or hospital, setting. Medicare also uses the ASP payment methodology to determine Medicare rates paid for most drugs and biologicals furnished by hospital outpatient departments. For 2008, the reimbursement rate in the hospital outpatient setting was ASP plus five percent, for 2009 it was ASP plus four percent, and for 2010 it is ASP plus four percent. 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. 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 for each day in which the misrepresentation was applied.

        Medicare also provides for an expanded prescription drug benefit for all Medicare beneficiaries known as Medicare Part D. This is a voluntary benefit that is implemented through private plans under contractual arrangements with the federal government. Similar to pharmaceutical coverage through private health insurance, Part D plans are expected to negotiate discounts from drug manufacturers and pass on some of those savings to Medicare beneficiaries.

        Medicare may not make a higher payment for inpatient services that are caused by hospital acquired medical conditions, or HACs, arising after a patient is admitted to the hospital. This was implemented through statute, and implementing regulations, on October 1, 2008. As a result, 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. If a case would be assigned to a higher paying MS-DRG because of a specified HAC, the Medicare payment would remain at the lower paying MS-DRG that would have applied in the absence of such condition. CMS is responsible for specifying the HACs to which this lower payment policy would apply. In July 2008, CMS issued a final rule that did not 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

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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. 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 average manufacture price, or AMP, or the difference between AMP and the best price available from us to any commercial or non-governmental customer, which we are obligated to report on a monthly basis. 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 Consumer Price Index—Urban, or CPI-U, 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 CMS. 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 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 Act 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.

        As noted above, future legislation, including the current versions of health care legislative reform being considered at the federal level, 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 depends in part on the extent to which reimbursement for the costs of our products

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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.

Sales and Marketing

        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 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 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 laws relating to the oversight activities of the Securities and Exchange Commission, or SEC, and the regulations of the NASDAQ Global Select 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, 2010, we had approximately 600 full-time employees. We consider our employee relations to be good.

Our Executive Officers and Directors
Michael W. Bonney	51	President, Chief Executive Officer and Director
Robert J. Perez, MBA	45	Executive Vice President, Chief Operating Officer
Lindon M. Fellows	58	Senior Vice President, Technical Operations
Steven C. Gilman, Ph.D.	57	Senior Vice President, Discovery and Non-clinical Development and Chief Scientific Officer
Tamara L. Joseph, J.D.	47	Senior Vice President, General Counsel and Secretary
David W.J. McGirr, MBA	55	Senior Vice President and Chief Financial Officer
Gregory Stea	52	Senior Vice President, Commercial Operations
Santosh Vetticaden, Ph.D., M.D.	50	Senior Vice President, Clinical Development and Chief Medical Officer
Kenneth M. Bate, MBA(1)	59	Lead Director
Mark H. Corrigan, M.D.(1)(4)	52	Director
Sylvie Grégoire, Pharm. D.(3)(4)	48	Director
Nancy J. Hutson, Ph.D.(3)*(4)	60	Director
Walter R. Maupay, Jr., MBA(2) (3)	71	Director
Leon O. Moulder, Jr., MBA	52	Director
Martin Rosenberg, Ph.D.(4)*	64	Director
J. Matthew Singleton, MBA, CPA(1)*	57	Director
Martin H. Soeters(2)	55	Director
Michael B. Wood, M.D.(2)*	66	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. Mr. Bonney is a director of NPS Pharmaceuticals, Inc. and serves on the Boards of Trustees of the Beth Israel Deaconess Medical Center and Bates College. Mr. Bonney is also a board member of the Pharmaceutical Research and Manufacturers of America (PhRMA) and is a former board member of the Biotechnology Industry Organization, or BIO, Health Section Governing Body.

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. Mr. Perez is a director of AMAG Pharmaceuticals, Inc.

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

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Millennium Pharmaceuticals, Inc., 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.

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 Chief Executive Officer of ActivBiotics. From 2004 to April 2007, he served as President, Chief Executive Officer, and a member of the Board of Directors of ActivBiotics. Dr. Gilman serves on the boards of directors of Nextcea, Inc., a private drug discovery company, and the Massachusetts Society for Medical Research.

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 of Mayne Pharma Ltd. from July 2006 until joining Cubist. Previously, Ms. Joseph was Vice President, General Counsel and Secretary, at Transkaryotic Therapies, Inc. from 2005 to 2006, and before that, 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 Idec's international operations, serving as Vice President, International, Legal, from March 2002 until she left Biogen Idec in 2005.

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. In December 2003, Hippo Inc. liquidated under Chapter 7 of the Federal bankruptcy laws. Mr. McGirr served as Chief Operating Officer of Hippo Inc. from October 1999 to October 2002 and as President of Hippo, Inc. over an approximately two-year period during that time, ending in October 2002. Mr. McGirr also served as a director of Hippo Inc. from October 1999 until October 2003.

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 our Vice President, Sales, from July 2005 to August 2007, and our Executive Director, Sales, from August 2002 to June 2005.

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 Phase 1 through Phase 4 trials.

Mr. Bate has served as one of our directors since June 2003 and became our lead director in June 2006. Since May 2009, Mr. Bate has served as President and Chief Executive Officer of Archemix Corp., a privately-held biotechnology company. From January 2007 to April 2009, Mr. Bate was President and Chief Executive Officer of Nitromed, Inc. 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. Mr. Bate is a director of AVEO Pharmaceuticals, Inc. During the previous five years, Mr. Bate has also served as a director of NitroMed, Inc. and Coley Pharmaceutical Group, Inc.

Dr. Corrigan has served as one of our directors since June 2008. Dr. Corrigan is President and Chief Executive Officer of CombinatoRx, Incorporated, or CombinatoRx, and has served in that role

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since January 2010. He is also a member of the Board of Directors of CombinatoRx. From April 2003 to December 2009, Dr. Corrigan was Executive Vice President, Research and Development at Sepracor, Inc.

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. From August 2005 to June 2008, she served as a director of IDM-Pharma, 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.

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 is also a director at Endo Pharmaceuticals, Inc and Inspire Pharmaceuticals, Inc.

Mr. Maupay has served as one of our directors since June 1999. Mr. Maupay retired from Calgon Vestal Laboratories, a division of Bristol-Myers Squibb Corporation, in June 1995, where he served as Group Executive and President. Mr. Maupay is also a director of SyntheMed, Inc., a biomaterials company, and is director and non-executive chair of Kensey Nash Corporation, a medical device company. During the previous five years, Mr. Maupay has also served as a director of PolyMedica Corporation.

Mr. Moulder has served as one of our directors since February 2010. From April 2009 to January 2010, Mr. Moulder served as Vice Chairman, President and Chief Executive Officer of Abraxis BioScience, Inc. and as President and Chief Executive Officer of Abraxis's wholly-owned operating subsidiary, Abraxis BioScience, LLC, and the Abraxis Oncology division. Before that, he served as Vice Chairman of Eisai Corporation of North America from January 2008 until January 2009, after Eisai acquired MGI PHARMA, Inc., where he served as President and Chief Executive Officer since May 2003. Mr. Moulder also serves on the Board of Visitors of the Temple University School of Pharmacy. During the previous five years, Mr. Moulder also has served as a director of MethylGene, Inc.

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. 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.

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 CitationAir (formerly CitationShares, LLC), a wholly-owned subsidiary of Cessna Aircraft Company and Textron Inc. During the previous five years, Mr. Singleton has served as a director of Salomon Reinvestment Company Inc.

Mr. Soeters has served as one of our directors since September 2006. Since 1980, Mr. Soeters has worked at Novo Nordisk, a global healthcare company located in Copenhagen, Denmark. Since 2008, Mr. Soeters has served as President of Novo Nordisk Europe A/S. From 2000 to 2007, Mr. Soeters served as President, North America and Senior Vice President of Novo Nordisk, Inc. He is also a member of the European Federation of Pharmaceuticals Industries and Associations (EFPIA) Heads of Europe. During the previous five years, Mr. Soeters has also served as a director of Pharmacopeia, Inc.

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. Dr. Wood is also a director of SingHealth, an integrated health

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system in Singapore, STERIS Corporation, a medical device company, and two private healthcare-related companies: Assistive Technologies Group, Inc. and Helix Medical LLC.

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 commercial success 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 CUBICIN's continued acceptance by the medical community and the future market demand and medical need for CUBICIN. CUBICIN is approved in the U.S. as a treatment for complicated skin and skin structure infections, or cSSSI, and 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 hospitals, physicians and other healthcare providers for its approved indications in the U.S. Further, CUBICIN faces intense competition in the U.S. from a number of currently-approved antibiotic drugs manufactured and marketed by major pharmaceutical companies, including an inexpensive generic product and a recently approved drug, and may in the future compete with other drugs that are being reviewed for approval by the U.S. Food and Drug Administration, or FDA, or are under development, including late stage development.

        The degree of continued market acceptance of CUBICIN in the U.S., 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 favorable resolution of our patent infringement lawsuit against Teva Parenteral Medicines, Inc., or Teva, and its affiliates in connection with the February 9, 2009, notification to us by Teva that it has submitted an Abbreviated New Drug Application, or ANDA, to the FDA seeking approval to market a generic version of CUBICIN before the expiration of the patents covering CUBICIN;

•

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;

•

maintaining prescribing information, also known as a label, that is substantially consistent with current prescribing information for CUBICIN in the U.S. and other jurisdictions where CUBICIN is sold;

•

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 continued growth of the overall market into which CUBICIN is sold;

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•

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

•

effects of the economic downturn in the U.S. and around the world, which could lower demand for CUBICIN due to, for example, pharmacists', 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.

        We market and sell CUBICIN in the U.S. through our own sales force and marketing team. Our sales force also promotes MERREM I.V. in the U.S. Significant turnover or changes in the level of experience of our sales and marketing personnel, particularly our most senior sales and marketing personnel, would impact our ability to sell and market CUBICIN and promote MERREM I.V.

        As of December 31, 2009, CUBICIN had been approved or received an import license in more than 60 countries outside of the U.S. and is being marketed by our international partners in more than 30 of these countries, including countries in the EU. We cannot guarantee that our partners will be successful in launching or marketing CUBICIN in their markets. For example, to date, EU sales have grown more slowly than U.S. sales due primarily to lower methicillin-resistant Staphylococcus aureus (S. aureus), or MRSA, rates both in and outside the hospital in some EU countries, an additional glycopeptide competitor (teicoplanin), which is not approved in the U.S., the evolving commercialization strategy and mix of resources that our EU partner, Novartis, has been using to commercialize CUBICIN, as well as other factors. Even if our international partners are successful in commercializing CUBICIN, we only receive a portion of the revenues from non-U.S. sales of CUBICIN.

We may not be able to obtain, maintain or protect proprietary rights necessary for the development and commercialization of CUBICIN, particularly with respect to our litigation with Teva, or our drug candidates and research technologies.

        CUBICIN Patents/Teva Litigation.    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 or collaborators with respect to any of our or their pending patent applications for CUBICIN. Of particular concern for a company like ours that is primarily dependent upon one product, CUBICIN, to generate revenues and profits, is that third parties may seek to market generic versions of CUBICIN by filing an 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 daptomycin, the active ingredient in CUBICIN, prior to the expiration of U.S. Patent Nos. 6,468,967 and 6,852,689, which expire on September 24, 2019, and RE39,071, which expires on June 15, 2016. Each of these patents is listed in the Orange Book. The notice letter further stated that Teva is asserting that claims in the referenced patents are not infringed and/or invalid. On March 23, 2009, we filed a patent infringement lawsuit against Teva, Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. in response to the ANDA filing, which we refer to as the Teva litigation. The complaint, which was filed in the U.S. District Court for the District of Delaware, alleges infringement of the referenced patents. Under current U.S. law, the filing of the lawsuit automatically prevents the FDA from approving the ANDA for 30 months from our receipt of Teva's Paragraph IV notification letter

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on February 9, 2009, or until August 9, 2011, unless the court enters judgment in favor of Teva in less than 30 months or finds that a party has failed to cooperate reasonably to expedite the lawsuit. In the lawsuit, which is currently scheduled for trial beginning on April 25, 2011, the court may find the patents that are the subject of the notice letter invalid, not infringed and/or unenforceable. During the period in which the Teva litigation is pending, the uncertainty of its outcome may cause our stock price to decline. In addition, an adverse result in the Teva litigation, whether appealable or not, will likely cause our stock price to decline. Any final, unappealable, adverse result in the Teva litigation will likely have a material adverse effect on our results of operations and financial condition and cause our stock price to decline.

        Proprietary Rights Generally.    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, including with respect to generic challenges.

        We cannot be sure that our patents and patent applications, including those that we own or license from third parties, will adequately protect our intellectual property for a number of reasons, including but not limited to the following:

•

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;

•

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;

•

intellectual property laws and regulations and legal standards relating to the validity, scope and enforcement of patents covering pharmaceutical and biotechnological inventions are continually developing and changing, both in the U.S. and in other important markets outside the U.S.;

•

because publication of discoveries in scientific or patent literature often lag behind the date of such discoveries, 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; and

•

the coverage claimed in a patent application can be significantly reduced before the patent is issued, and, as a consequence, our patent applications may result in patents with narrow coverage.

        We cannot assure you that the patents or the unpatented proprietary technology we hold or have rights to will be commercially useful in protecting CUBICIN or our other drug candidates. Even if we have valid and enforceable patents, these patents still may not provide us with sufficient proprietary protection or competitive advantages against competing products or processes.

        If our licensors, collaborators or 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.

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Protracted and costly litigation could be necessary to enforce and determine the scope of our proprietary rights.

        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 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. These agreements could be invalidated or breached and we might not have adequate remedies.

        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 United States Patent and Trademark Office 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.

We are completely dependent on third parties to manufacture CUBICIN and other products that we are commercializing and developing.

        CUBICIN.    We do not have the capability to manufacture our own CUBICIN active pharmaceutical ingredient, or API, or CUBICIN finished drug product. We contract with ACS Dobfar SpA, or ACSD, to manufacture and supply us with CUBICIN API for commercial purposes. ACSD is our sole provider of our commercial supply of CUBICIN API. ACSD 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 ACSD. 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. ACSD is currently in the process of expanding and making certain improvements to its CUBICIN API manufacturing facility. We are assisting in the planning for this project and sharing the costs. Any unanticipated delays in this project may result in our inability to achieve supply of CUBICIN API in adequate quantities to meet demand and could have a material adverse effect on our results of operations and financial condition. In addition, any significant unanticipated additional costs of this project could have a material adverse effect on our results of operations and financial condition.

        We contract with both Hospira Worldwide, Inc., or Hospira, and Oso Biopharmaceuticals Manufacturing, LLC, or Oso, to manufacture and supply to us finished drug product.

        If Hospira, Oso, or, in particular, ACSD, experience any significant difficulties in their respective manufacturing processes, including any difficulties with their raw materials, if they have significant problems with their businesses, including lack of capacity, whether as a result of the constrained credit and financial markets or otherwise, or if our relationship with any of these manufacturers terminates, we could experience significant interruptions in the supply of CUBICIN. Any such supply interruptions 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 API or finished drug product supplier, we could experience significant interruptions in the supply of CUBICIN if we decided to

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transfer the manufacture of CUBICIN API or the finished drug product to one or more other suppliers in an effort to address these or any other difficulties with our current suppliers.

        Because the ACSD manufacturing facilities are located in Italy, we must ship CUBICIN API to the U.S. for finishing, packaging and labeling. Each shipment of API is of significant value. While in transit to the U.S., stored at our warehouser, Integrated Commercialization Solutions, Inc., or in transit to our finished product manufacturers, our API could be lost or become adulterated. Depending on when in this process the API is lost or adulterated, we could experience significant interruptions in the supply of CUBICIN and our financial performance could be impacted. 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, particularly if any of such events took place in Italy where ACSD is located.

        Reliance on third-party suppliers also entails risks, to which we would not be subject if we manufactured product candidates or products ourselves, including reliance, in part, on the third party for regulatory compliance and quality assurance. Our third-party suppliers may not be able to comply with current Good Manufacturing Practice requirements or similar regulatory requirements outside the U.S. Failure of our third-party suppliers to comply with applicable regulations could result in their inability to continue supplying us in a timely manner and could also be the basis for sanctions being imposed on them or us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our financial performance.

        Other Products.    Under our agreement with AstraZeneca for MERREM I.V., we do not have the capability to manufacture and supply MERREM I.V. 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. In addition, if the third party suppliers of our pipeline products fail to supply us with sufficient quantities of bulk or finished products to meet our development needs, our development of these products could be stopped, delayed or impeded.

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.

        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 develop, acquire or license on an exclusive basis technologies and drug products that are safer, easier to administer, 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 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.

        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, Inc., or Pfizer, Synercid®, marketed by King Pharmaceuticals, Inc., and Tygacil®, marketed by Wyeth, which is now a wholly-owned subsidiary of Pfizer. In particular, vancomycin has been a widely used and well known antibiotic for over 40 years and is sold in a relatively inexpensive

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generic form. CUBICIN also faces competition from VIBATIV™ (telavancin), which was approved by the FDA in September 2009 as a treatment for cSSSI and will be co-marketed in the U.S. by Astellas Pharma US, Inc. and Theravance, Inc. In addition, CUBICIN may, if Teva's ANDA is approved and/or another third party files an ANDA that is ultimately approved, face competition in the U.S. from generic versions of CUBICIN. Teva's launch of a generic version of CUBICIN 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), which is currently expected to expire in August 2011, has expired and Teva decides to launch prior to the district court decision. CUBICIN may also face competition in the future from drug candidates currently in clinical development, including drug candidates being developed as treatments for cSSSI for which NDAs have been filed. These include oritavancin, which is being developed by The Medicines Company, ceftaroline, which is being developed by Forest Laboratories, Inc., and ceftobiprole, which is being developed by Basilea Pharmaceutica AG. In February 2010 a division of Johnson & Johnson which has global rights to ceftobiprole, provided notice to Basilea of its intent to relinquish such rights.

        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, and may face competition from generic versions of MERREM I.V. as the composition of matter patent for MERREM I.V. expires in June 2010. Primaxin I.V. has been a widely used and well known antibiotic for over 20 years, and generic Primaxin may be introduced in the U.S. shortly by Ranbaxy Laboratories Limited, or Ranbaxy, pursuant to its settlement agreement with Merck which allows Ranbaxy to launch its generic version after September 1, 2009.

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

We need to manage our growth and increased breadth of our activities effectively.

        We have expanded the scope of our business significantly over the last two years. We have added MERREM I.V. as a product that we promote, acquired and in-licensed several drug candidates, and been progressing multiple clinical stage drug candidates. We also have grown our employee base substantially, particularly in research and development and sales. We plan to continue adding products and drug candidates through internal development, in-licensing and acquisition over the next several years and to continue developing 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 building our organization and making 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, add and integrate new products, and satisfy our commitments under our collaboration and acquisition 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.

Our long-term strategy is dependent upon our ability to attract and retain highly qualified personnel.

        Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends in large part upon our ability to attract and retain highly qualified managerial, scientific, medical and sales personnel. In order to induce valuable employees to remain at Cubist, we have provided stock options and restricted stock units that vest over time. In the future, we expect to continue using 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

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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 and certain other key employees. 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. The failure to attract and retain our executive officers or other key employees could potentially harm our business or financial results.

Our long-term strategy is dependent upon successfully discovering, obtaining, developing and commercializing drug candidates.

        We have made significant investments in research and development and have recently increased our research and development workforce. However, except for CB-182,804 and CB-183,315, for which we initiated Phase 1 clinical trials in early 2009, 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.

        CUBICIN and our other drug candidates that have progressed to Phase 2 clinical trials were the result of in-licensing or acquiring patents, product candidates and technologies from third parties. These types of activities represent a significant expense, as they generally require us to pay to other parties upfront payments, development and commercialization milestone payments and royalties on product sales. 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, as well as any resulting profits, with a third party.

        There can be no assurance that we will be able to acquire, in-license or otherwise obtain rights to additional desirable drug candidates or marketed drug products on acceptable terms or at all. In fact, we have faced and will continue to face significant competition for these types of drug candidates and marketed products 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. Because of the rising intensity of the level of competition for these types of drug candidates and marketed products, the cost of acquiring, in-licensing or otherwise obtaining rights to such candidates and products has grown dramatically in recent years, and they 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 marketed products, which have the lowest risk and would have the most immediate impact on our business. If we need additional capital to fund our acquisition, in-licensing or otherwise obtaining rights to a drug candidate or marketed product, we would need to seek financing by borrowing funds or through the capital markets. Given the current state of 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 additional promising candidates or to develop successfully the candidates we have, 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 or any of our current candidates to gain approval for use in humans, that they can be manufactured economically, that they can be successfully commercialized or that they will be widely accepted in the marketplace. Because of the long development timelines and the fact that most drug candidates that make it into clinical development are not ultimately approved for commercialization, none of the drug candidates that we are currently developing would generate revenues for many years, if at all. If we are unable to bring any of our current or future drug candidates to market or to acquire or obtain other rights to any additional marketed drug products, our ability to create long-term shareholder value may be limited and could have a material adverse effect on our long term business, operating results and financial condition.

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

        As noted above, one of the ways we intend to grow our pipeline and business is through acquisitions, such as our recent acquisition of Calixa Therapeutics Inc., or Calixa. We have limited experience in acquiring businesses. Acquisitions involve a number of particular 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; and uncertainty about 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 acquisitions and/or funding the development and commercialization of drug products that we acquire through acquisitions, we may deplete our cash resources or need to raise additional funds through public or private debt or equity financings, 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 constrained. Furthermore, there is the risk that our technical and 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 result in the accounting effect of the acquisition being different than what we had anticipated. We may also have to adjust certain aspects of the accounting for acquisitions, such as goodwill, in-process research and development, or IPR&D, other intangible assets and contingent consideration over time as events or circumstances occur, which could have a material adverse effect on our results of operations.

        We may not be able to realize the benefit of acquiring businesses with promising drug candidates if we are unable to successfully develop and commercialize such drug candidates, as happened with the Hepatitis C Virus compound that we acquired through our acquisition of Illumigen Biosciences, Inc. in December 2007. As a result, we cannot assure you that, following the acquisition of Calixa or any future acquisitions, 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.

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

        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 our antibiotic product candidates or approval of 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 of 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. 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

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U.S. In November 2008, the FDA's Anti-Infective Drugs Advisory Committee, or AIDAC, 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.

        In addition, 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. 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 with respect to antibiotics.

        The factors described above could delay for several years or ultimately prevent commercialization of any new antibiotic product candidates that we are developing or may seek to develop, such as CB-182,804, CB-183,315, CXA-201, or the approval of any additional indications for CUBICIN in the U.S. This would likely have a material adverse effect on our business and results of operations.

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 types of contractual 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 several pharmaceutical companies, including a Novartis subsidiary, AstraZeneca AB and a Merck subsidiary, to develop and commercialize CUBICIN outside the U.S., and we have collaborations with respect to MERREM I.V. and certain of our pipeline candidates, including CB-500,929 and ALN-RSV. Collaborations such as these are necessary for us to research, develop, and commercialize drug candidates.

        In order for existing and future collaborations to be successful, we need to able to work successfully with our collaborators or their successors. If not, these arrangements would likely be unsuccessful and/or terminate early. In addition, factors external to our collaborations, such as patent coverage, regulatory developments or market dynamics could impact the collaboration. For example, we and AstraZeneca recently amended our agreement with respect to the promotion of MERREM I.V. in the U.S. to shorten the term of the agreement due primarily to the expiration of the composition of matter patent coverage of MERREM I.V. in June 2010.

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

•

other than the rights we have by contract, the focus, direction, amount and timing of resources dedicated by our CUBICIN international distributors to their efforts to develop and commercialize CUBICIN 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 international partners may not perform their contractual 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;

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•

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 CB-500,929 and Alnylam for ALN-RSV02, 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 CB-500,929, where our collaborator retains rights to develop and commercialize the product, or with ALN-RSV02, 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-RSV02, 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, commercial terms, the level of efforts being utilized to develop or commercialize product candidates that are the subject of a particular collaboration, 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, 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 and could cause disruptions in the collaborative nature of these relationships, which could impede the success of our endeavors;

•

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

•

our collaborators could merge with or be acquired by another company or experience financial or other setbacks unrelated to our collaboration.

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

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, 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

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on our business, results of operations, liquidity and financial condition. For example, we have previously recorded an other-than-temporary impairment charge on our $58.1 million par value auction rate securities, which are currently recorded at their estimated fair value of $25.9 million. 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.

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

        We have been profitable for eleven consecutive quarters before considering the retrospective application, on January 1, 2009, of the provisions of accounting guidance for convertible debt with conversion and other options. Despite our recent profitability, we may incur future operating losses related to the development of our other drug candidates or investments in other product opportunities and/or a negative outcome in the ANDA litigation with Teva. 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 strain in the financial and credit markets.

        We may be required to seek additional funds due to economic and strategic factors. We expect capital outlays and operating expenditures to increase over the next several years as we continue our commercialization of CUBICIN, 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, 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 constrained.

        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 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 constrained.

        Our annual debt service obligations on our outstanding convertible 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.

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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 damages 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 the risks set forth elsewhere in this "Risk Factors" section and the following:

•

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, like the Teva litigation described above;

•

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

•

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 of such technology; and

•

if third parties initiate litigation claiming that our brand names infringe their trademarks, we or our collaborators will need to defend against such proceedings.

        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. For the reasons stated in the "Risk Factors" section above regarding the possibility that we may not be able to obtain, maintain or protect our proprietary rights, the uncertainty of the outcome of the Teva litigation, and developments in the Teva litigation that may be perceived to negatively impact our position in the litigation, may cause our stock price to decline. In addition, an adverse result in the Teva litigation, whether appealable or not, will likely cause our stock price to decline and will likely have a material adverse effect on our results of operations and financial condition.

        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 the Teva litigation. Patent litigation and other proceedings may also absorb significant management time. 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. Some of our competitors may be able to sustain the cost of similar litigation and proceedings more effectively than we can because of their substantially greater resources.

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Revenues generated by products we currently commercialize or may commercialize in the future depend on reimbursement from third-party payors.

        In both domestic and foreign markets, sales of our products are dependent, in part, on the availability of reimbursement from third-party payors such as state and federal governments, including Medicare and Medicaid, managed care providers, and private insurance plans. Our future revenues and profitability will be adversely affected if these third-party payors do not sufficiently cover and reimburse the cost of CUBICIN, or related procedures or services, or any other future drug product we may market. If these entities do not provide coverage and reimbursement for CUBICIN or provide an insufficient level of coverage and reimbursement, CUBICIN may be too costly for general use, and physicians may not prescribe it. In this manner, levels of reimbursement for drug products by government authorities, private health insurers, and other organizations, such as HMOs, are likely to have an effect on the successful commercialization of, and our ability to attract 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, including but not limited to the following, can reduce the revenues that we derive from CUBICIN:

•

The statutory requirement that Medicare may not make a higher payment for inpatient services that are necessitated by hospital acquired medical conditions, or HACs, arising after a patient is admitted to a hospital may affect the rate of reimbursement for CUBICIN. Although MRSA has not been designated as a HAC, it is covered by this statutory requirement in situations where MRSA triggers another condition that is itself a HAC. In addition, MRSA may be added as a HAC in the future. 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.

•

The Medicare payment rate to physicians and hospital outpatient departments for CUBICIN is set on a quarterly basis based upon the average sales price for previous quarters. Significant downward fluctuations in such reimbursement rate could negatively affect sales of CUBICIN. While hospital outpatient rates can change through regulatory or legislative action, the Medicare payment methodology for physicians can only change through legislation.

•

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 and is required to be recomputed each quarter based on our report of current average manufacturer price, or 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, and such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision.

•

The availability of federal funds to pay for CUBICIN under the Medicaid and Medicare Part B programs requires that we extend discounts under the Public Health Service, or PHS, 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 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 federal agencies and certain federal grantees.

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        In addition to these existing legislative and regulatory mandates, future legislation or regulatory actions altering these mandates or imposing new ones may have a significant effect on our business. In the U.S. and elsewhere, there have been, and we expect there will continue to be, actions and proposals to control and reduce healthcare costs. For example, there are a number of pending legislative proposals involving prescription drug benefits in various federal health care programs that could have a material impact on the pricing and sale of our products, including proposals that would increase the Medicaid drug rebate liability for manufacturers and expand the number of entities to which manufacturers must extend discounts under the 340B/PHS pricing program.

        Third-party payors, including the U.S. government, are increasingly challenging the prices charged for and the cost-effectiveness of medical products, which is sometimes referred to as comparative effectiveness research, and they are increasingly limiting both coverage and the level of reimbursement for prescription drugs. 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. 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.

        Furthermore, substantial uncertainty exists as to the reimbursement status of newly-approved health care products by third party payors. We will not know what the reimbursement rates will be for our future drug products, if any, until we are ready to market the product and we actually negotiate the rates. If we are unable to obtain sufficiently high reimbursement rates for our products, they may not be commercially viable or our future revenues and gross margins may be adversely affected.

        Finally, 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 revenues from sales by our collaborators in those countries.

Our business and industry is highly regulated and scrutinized and our long-term strategy and success is dependent upon compliance with applicable regulations and maintaining our business integrity.

        Research and Development.    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. We cannot be sure that pre-clinical testing or clinical trials of any of our drug candidates will demonstrate the quality, safety and efficacy necessary to obtain marketing approvals. In addition, drug candidates that experience success in pre-clinical testing and early-stage clinical trials will not necessarily experience the same success in late-stage clinical 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, we must submit an Investigational New Drug application, or IND, to the FDA or a similar document to competent authorities outside the U.S. The FDA and other countries' authorities will allow us to begin clinical trials under an IND if we demonstrate in our submission that a potential drug candidate will not expose humans to unreasonable risks and that the compound has pharmacological activity that justifies clinical development. It takes significant time and expense to generate the data to support an IND. In many cases, companies spend the time and resources only to discover that the data are not sufficient to support an IND and therefore are unable to enter clinical trials. This has happened to us in the past and likely will again in the future.

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        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. Institutional Review Boards, or IRBs, and Ethical Committees, or ECs) associated with the centers where the studies are conducted. There may be delays in preparing protocols or receiving approval for them that may delay either or both the start and the finish of the clinical trials. Feedback from regulatory authorities or safety monitoring boards or results from earlier stage and/or concurrent 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. For example, in December 2009, we announced the early closing of enrollment of both Phase 2 trials of CB-500,929 based on a recommendation from the Data Safety Monitoring Board, or DSMB, to close one of the trials, known as the CONSERV-2 trial, due to the observation of a statistically significant difference in mortality between the arms of the CONSERV-2 trial that the DSMB felt needed to be assessed before the trial could be resumed.

        Furthermore, there are a number of additional factors that may cause our clinical trials to be delayed or prematurely terminated, such as:

•

unforeseen safety issues or findings of an unacceptable safety profile;

•

findings of an unacceptable risk-benefit profile or findings of futility with respect to observing reasonable efficacy as a result of analyses conducted during the course of ongoing clinical trials or other types of adverse events that occur in clinical trials that are disproportionate to statistical expectations; this was the primary reason for the early close in enrollment of our CB-500,929 Phase 2 trials;

•

inadequate efficacy observed in the clinical trials;

•

the rate of patient enrollment, including limited availability of patients who meet the criteria for certain clinical trials or inability to enroll patients;

•

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 CB-500,929 that may be conducted by Dyax or its other licensees, clinical trials of ALN-RSV01 that may be conducted by Alnylam or Alnylam's partner in Asia, Kyowa Hakko Kirin Co., Ltd., and clinical trials of CXA-101 or CXA-201 that may be conducted by Astellas;

•

the delay or failure in reaching agreement on contract terms with prospective study sites and other third party vendors who are supporting our clinical trials;

•

our inability to reach agreement on trial design and priorities with collaborators with whom we are co-developing a drug candidate, such as ALN-RSV02, which we are co-developing with Alnylam in North America;

•

the difficulties and complexity of testing our drug candidates in clinical trials with pediatric patients as subjects, particularly with respect to CUBICIN and in the development of the products that are the subject of our collaboration with Alnylam, one of which is focused on the treatment of RSV in the pediatric population;

•

the failure of third-party clinical research organizations and other third-party service providers and independent clinical investigators that we have engaged to manage and conduct the trials to perform their oversight of the trials or to meet expected deadlines;

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•

the failure of our clinical investigational sites, and related facilities and the records kept at such sites, and clinical trial data 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;

•

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;

•

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

•

difficulty in adequately following up with patients after treatment; and

•

changes in laws, regulation, or regulatory policy, or clinical practices.

        If clinical trials for our drug candidates are unsuccessful, delayed or cancelled, we will be unable to meet our anticipated development and commercialization timelines and we may incur increased development costs and delays in marketing approvals, which could harm our business and cause our stock price to decline.

        Regulatory Product Approvals.    We must obtain government approvals before marketing or selling our drug candidates in the U.S. and in foreign jurisdictions. To date, we have not obtained government approval in the U.S. for any drug product other than CUBICIN. In territories around the world where CUBICIN is not already approved, our international collaborators have submitted or plan on submitting applications for approvals to market CUBICIN. However, we cannot be sure that any regulatory authority will approve these or any future submissions on a timely basis or at all. The FDA and comparable regulatory agencies in foreign countries impose substantial and rigorous requirements for the development, production and commercial introduction of drug products. These include pre-clinical, laboratory and clinical testing procedures, sampling activities, clinical trials and other costly and time-consuming procedures. 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.

        Generally, no product can receive FDA approval or approval from comparable regulatory agencies in foreign countries unless human clinical trials show both safety and efficacy for each target indication in accordance with FDA standards or standards developed by regulatory agencies in countries other than the U.S. The large majority of drug candidates that begin human clinical trials fail to demonstrate the required safety and efficacy characteristics. Failure to demonstrate the safety and efficacy of any of our 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

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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. Moreover, recent events, including complications experienced by patients taking 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. In summary, we cannot be sure that regulatory approval will be granted for drug candidates that we submit for regulatory review. Our ability to generate revenues from the commercialization and sale of additional drug products will be limited by any failure to obtain these approvals. In addition, biotechnology stock prices have declined significantly in certain instances where companies have failed to obtain FDA approval of a drug candidate or if the timing of FDA approval is delayed. If the FDA's or any foreign regulatory authority's response to any application for approval is delayed or not favorable for any of our drug candidates, our stock price could decline significantly.

        Moreover, even 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. 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 combination therapy in the treatment of S. aureus infective right-sided bacterial endocarditis. Our business could be seriously harmed if we do not complete these studies and the FDA, as a result, requires us to change related sections of the marketing label for CUBICIN.

        In addition, adverse medical events that occur during clinical trials or during commercial marketing of CUBICIN could result in legal claims against us and the temporary or permanent withdrawal of CUBICIN from commercial marketing, which could seriously harm our business and cause our stock price to decline. In particular, our ongoing pediatric trial, which we are conducting as part of our Phase 4 clinical study commitments to the FDA, exposes us to more uncertain and potentially greater risk because of the age of the patients.

        Commercialization.    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, 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 U.S. state and federal laws and regulations and similar provisions in other countries 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 U.S. legislation, or legislation in other countries, 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 U.S. law, or similar laws of other countries, including laws that prohibit certain payments to healthcare professionals and/or require reports with respect to the payments and marketing efforts with respect to healthcare professionals, or any regulations of the FDA and other regulatory agencies can, among other things,

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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 regulations may have a negative effect on our operating results and financial condition.

        Compliance/Fraud and Abuse.    We 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 compliance with 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 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.

        International Operations/Relationships.    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, including:

•

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 or unpredictable operating expenses and reduced revenues, and other obligations incident to doing business in another country;

•

unexpected changes in tariffs, trade barriers and regulatory requirements;

•

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

•

violations of laws by our licensees, distributors, manufacturers, clinical research organizations, and other third parties with whom we do business, including violations of the U.S. Foreign Corrupt Practices Act.

        These and other risks associated with our international operations, including those described elsewhere in this Risk Factors section, may materially adversely affect our business and results of operations.

        Environmental, Safety and Climate Control.    Our research, development and manufacturing efforts, and those of third parties that research, develop and manufacture our products and product candidates on our behalf or in collaboration with us, involve the controlled use of hazardous materials, including chemicals, viruses, bacteria and various radioactive compounds, and are therefore subject to numerous U.S. and international environmental and safety laws and regulations and to periodic inspections for possible violations of these laws and regulations. In addition, we, and our collaborators and third party

49

manufacturers, may also become subject to laws and regulations related to climate change, including the impact of global warming. The costs of compliance with environmental and safety laws and regulations are significant and the costs of complying with climate change laws could also be significant. Any violations, even if inadvertent or accidental, of current or future environmental, safety or climate change laws or regulations and the cost of compliance with any resulting order or fine could adversely affect our operations.

The current credit and financial market conditions may exacerbate certain risks affecting our business.

        Sales of our products are made, in part, through direct sales to our customers, which include hospitals, physicians and other healthcare providers. As a result of current global credit and financial market conditions, our customers may be unable to satisfy their payment obligations for invoiced product sales or may delay payments, which could negatively affect our revenues, earnings and cash flow. In addition, we rely upon third parties for certain aspects of our business, including collaboration partners, wholesale distributors for our products, contract clinical trial providers, research organizations and manufacturers, and third-party suppliers. Because of the recent tightening of global credit and the volatility in the financial markets, there may be a delay or disruption in the performance or satisfaction of commitments to us by these third parties, which could adversely affect our business.

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, inventories, investments, impairment of long-lived assets including other intangible assets, goodwill, IPR&D, accrued clinical research costs, income taxes, stock-based compensation, and product rebate and return accruals. 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 they 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 or events occur which cause us to have to re-assess our assumptions, there could be a material adverse impact on our financial results and the performance of our stock.

        The Financial Accounting Standards Board, or FASB, the Securities and Exchange Commission, or 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 could incur substantial costs resulting from product liability claims relating to our pharmaceutical products.

        The nature of our business exposes us to potential liability inherent in the testing, manufacturing and marketing of pharmaceutical and biotechnology products. Our products and the clinical trials

50

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.

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 those factors described elsewhere in this "Risk Factors" section and 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, even if not final, in the Teva litigation;

•

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

•

any liabilities in excess of amounts that have been accrued or reserved;

•

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

•

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

•

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

•

rumors, whether based in fact or unfounded, of any such transactions that are publicized in the media or are otherwise disseminated to investors in our stock and expectations in the financial markets that we may or may not be the target of potential acquirers;

•

litigation, including stockholder or patent litigation;

•

our failure to adequately protect our confidential, electronically stored, transmitted and communicated information; and

•

volatility in the markets unrelated to our business and other events or factors, many of which are beyond our control.

        In addition, the stock market in general and the NASDAQ Global Select Market and the stock of 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

51

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 and might act 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 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 may be costly and time-consuming, and may disrupt our operations and divert the attention of management and our employees;

•

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

•

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

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

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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 178,000 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 158,000 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

        On February 9, 2009, Cubist received a Paragraph IV Certification Notice Letter from Teva Parenteral Medicines, Inc., or Teva, notifying Cubist that Teva 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, the active ingredient in CUBICIN, 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 is 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. On March 23, 2009, Cubist filed a patent infringement lawsuit against Teva, Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. in response to the ANDA filing. The complaint, which was filed in the U.S. District Court for the District of Delaware, alleges infringement of the referenced patents. Under current U.S. law, the filing of the lawsuit automatically prevents the FDA from approving the ANDA for 30 months from Cubist's receipt of Teva's Paragraph IV notification letter on February 9, 2009, unless the court enters judgment in favor of Teva in less than 30 months, or finds that a party has failed to cooperate reasonably to expedite the lawsuit. The court has set a date for trial beginning on April 25, 2011. The court also scheduled a claim construction hearing (a.k.a. a Markman hearing) for June 2, 2010. The court indicated that summary judgment motions will not be permitted in this lawsuit.

        From time to time we are party to other legal proceedings in the course of our business. We do not, however, expect such other legal proceedings to have a material adverse effect on our business, financial condition or results of operations.

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, 2009.

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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, 2009 and 2008.

	Common Stock Price
	2009				2008
	High		Low		High		Low
First Quarter	$	25.50	$	13.81	$	22.10	$	16.54
Second Quarter	$	19.75	$	15.60	$	21.33	$	17.05
Third Quarter	$	22.39	$	16.27	$	24.00	$	17.70
Fourth Quarter	$	20.25	$	16.50	$	28.74	$	16.25

Holders

        As of February 11, 2010, we had 166 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, 2004, through December 31, 2009. The comparison assumes $100 was invested on December 31, 2004, 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.

	2004		2005		2006		2007		2008		2009
CBST		100		180		153		173		204		160
Nasdaq Stock Market (U.S.)		100		102		112		122		59		84
Nasdaq Pharmaceutical Index		100		110		108		113		105		119

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ITEM 6.    SELECTED FINANCIAL DATA

        The selected financial data presented below for the years ended December 31, 2009, 2008, 2007, 2006, and 2005 are derived from our audited consolidated financial statements.

			Year Ended December 31,
			2009			2008			2007			2006			2005
						(as adjusted)(1)			(as adjusted)(1)			(as adjusted)(1)
			(in thousands, except share and per share data)
Operations Data:
U.S. product revenues, net			$	523,972		$	414,681		$	285,059		$	189,512		$	113,434
International product revenues				13,759			7,400			5,347			808			80
Service revenues				22,550			9,451			—			—			—
Other revenues				1,863			2,109			4,214			4,428			7,131
		Total revenues, net		562,144			433,641			294,620			194,748			120,645
Costs and expenses:
	Cost of product revenues			116,889			90,381			68,860			48,803			32,739
	Research and development			170,575	(2)		126,670	(3)		85,175	(6)		57,405			51,673
	Sales and marketing			82,202			84,997			67,662			56,879			42,331
	General and administrative			54,718			40,704			31,485			26,745			19,335
		Total costs and expenses		424,384			342,752			253,182			189,832			146,078
Interest income				4,260			10,066			18,036			10,589			3,292
Interest expense				(20,891	)		(21,070	)		(21,978	)		(22,560	)		(9,836	)
Other income (expense)				(1,226	)		(50,365	)(4)		(20	)		12			125
Income (loss) before income taxes				119,903			29,520			37,476			(7,043	)		(31,852	)
Provision (benefit) for income taxes				40,303			(98,372	)(5)		1,880			—			—
		Net income (loss)	$	79,600		$	127,892		$	35,596		$	(7,043	)	$	(31,852	)
Basic net income (loss) per common share			$	1.38		$	2.26		$	0.64		$	(0.13	)	$	(0.60	)
Diluted net income (loss) per common share			$	1.36		$	2.07		$	0.62		$	(0.13	)	$	(0.60	)
Shares used in calculating:
Basic net income (loss) per common share				57,745,724			56,645,962			55,591,775			54,490,376			53,053,307
Diluted net income (loss) per common share				68,382,230			67,955,061			57,448,661			54,490,376			53,053,307

(1)

In 2009, we adopted the provisions of accounting guidance for convertible debt with conversion and other options, which required retroactive application. See Note M., "Debt," in the accompanying notes to consolidated financial statements for more information.

(2)

In 2009, we recorded $25.0 million in upfront payments relating to our collaboration agreements with Alnylam and Hydra.

(3)

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

(4)

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

(5)

In 2008, we recorded an income tax benefit of $102.2 million related to the reversal of a significant portion of the valuation allowance on our deferred tax assets.

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(6)

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,
	2009		2008		2007		2006		2005
			(as adjusted)(1)		(as adjusted)(1)		(as adjusted)(1)
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and investments	$	496,163	$	417,945	$	398,184	$	308,327	$	101,490
Working capital	$	323,820	$	451,696	$	342,496	$	303,482	$	99,004
Total assets	$	977,675	$	689,141	$	531,789	$	435,805	$	218,065
Total debt	$	245,386	$	232,194	$	256,444	$	243,389	$	165,000
Other long-term obligations, excluding long-term deferred revenue	$	116,624	$	3,697	$	2,698	$	1,759	$	—
Stockholders' equity	$	470,643	$	352,327	$	189,532	$	143,970	$	16,599
Dividends	$	—	$	—	$	—	$	—	$	—

(1)

In 2009, we adopted the provisions of accounting guidance for convertible debt with conversion and other options, which required retroactive application. See Note M., "Debt," in the accompanying notes to consolidated financial statements for more information.

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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, 2009, 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, 2009, 2008 and 2007.

•

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.

•

Commitments and Contingencies: This section provides a summary of our material legal proceedings and commitments and contingencies that are outside our normal course of business, as well as our commitment to make potential future milestone payments to third parties as part of our various business agreements.

•

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 had a total of $496.2 million in cash and cash equivalents and investments as of December 31, 2009, as compared to $417.9 million as of December 31, 2008. Our 2009 net income was $79.6 million, or $1.38 and $1.36 per basic and diluted share, respectively, as compared to 2008 net income of $127.9 million, or $2.26 and $2.07 per basic and diluted share, respectively, and 2007 net income of $35.6 million, or $0.64 and $0.62 per basic and diluted share, respectively. 2008 net income includes an income tax benefit of $102.2 million related to the reversal of a significant portion of the valuation allowance on our deferred tax assets. Our 2009 total net revenues were $562.1 million, as compared to 2008 total net revenues of $433.6 million, and 2007 total net revenues of $294.6 million. As of December 31, 2009, we had an accumulated deficit of $239.0 million.

        Net income for the twelve months ended December 31, 2008 and 2007, has been adjusted pursuant to the adoption of recently issued accounting guidance for convertible debt with conversion and other options, from net income previously reported for 2008 and 2007 of $169.8 million and $48.1 million,

58

respectively, to net income of $127.9 million and $35.6 million, respectively. See Note M., "Debt," in the accompanying notes to consolidated financial statements for more information.

        CUBICIN.    We derive substantially all of our revenues from CUBICIN® (daptomycin for injection), which we launched in the U.S. in November 2003 and currently commercialize on our own in the U.S. CUBICIN is a once-daily, bactericidal, intravenous, or I.V., antibiotic with activity against methicillin-resistant S. aureus, or MRSA, and, as of December 31, 2009, has been used in the treatment of more than an estimated 880,000 patients with serious infections caused by Gram-positive pathogens such as 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. The following is a breakdown of our revenues from CUBICIN:

	2009		2008		2007
	(in thousands)
Net worldwide revenues	$	537.8	$	422.1	$	290.4
Net U.S. revenues	$	524.0	$	414.7	$	285.1
International revenues	$	13.8	$	7.4	$	5.3

        Our net worldwide revenues for CUBICIN represent net U.S. revenues and international revenues, which represent the payments we receive from international distributors in connection with their commercialization of CUBICIN. Our total international revenues are primarily based on sales of CUBICIN by Novartis AG, or Novartis (which sells CUBICIN through a subsidiary), our distribution partner in the EU.

        We expect both net revenues from 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 we and our international partners may implement. Future sales of CUBICIN are, to a large extent, dependent upon our ability to compete successfully with the products of current and future competitors, the growth of the market for CUBICIN, our ability to secure sufficient quantities of CUBICIN to meet demand and, in particular, to work with the supplier of our CUBICIN active pharmaceutical ingredient, or API, to complete the expansion of the capacity at the facility at which it manufactures CUBICIN API, including the receipt of any related required regulatory approvals, on a timely basis, and our ability to obtain, maintain and enforce U.S. and foreign patent protection for CUBICIN, and continuing to have CUBICIN reimbursed at adequate levels by third party payors and maintaining discount and rebate levels for federal government programs at levels that are similar to the current levels.

        On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva Parenteral Medicines, Inc., or Teva, notifying us that Teva 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, the active ingredient in CUBICIN, 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 is 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. On March 23, 2009, we filed a patent infringement lawsuit against Teva, Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. in response to the ANDA filing. The complaint, which was

59

filed in the U.S. District Court for the District of Delaware, alleges infringement of the referenced patents. Under current U.S. law, the filing of the lawsuit automatically prevents the FDA from approving the ANDA for 30 months from our receipt of Teva's Paragraph IV notification letter on February 9, 2009, unless the court enters judgment in favor of Teva in less than 30 months, or finds that a party has failed to cooperate reasonably to expedite the lawsuit. The court has set a date for trial beginning on April 25, 2011. The court also scheduled a claim construction hearing (a.k.a. a Markman hearing) for June 2, 2010. The court indicated that summary judgment motions will not be permitted in this lawsuit. 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. (meropenem for injection), an established (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. We recognize revenues from this agreement as service revenues. For the second half of 2008 and all of 2009, the agreement established a baseline annual payment by AstraZeneca to us of $20.0 million (pro rated for 2008), received in quarterly increments, to be adjusted up or down by a true-up payment or refund at the end of the year based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount, subject to a minimum annual payment of $6.0 million. For the second half of 2008 and all of 2009, we could have also earned a percentage of the gross profit on sales exceeding the annual baseline sales amount. The payments for any such sales over the baseline amount would have been recognized in the quarter in which AstraZeneca provided us with its annual sales report. Service revenues of $22.5 million for the year ended December 31, 2009, include a $4.5 million payment received in 2009 for exceeding the 2008 annual baseline sales amount. The 2009 actual U.S. sales were below the established annual baseline sales amount. As such we will not receive a gross profit percentage payment for 2009 sales in the first quarter of 2010.

        Given anticipated market conditions for carbapenems and the potential impact of the June 2010 expiration of the composition of matter patent for MERREM I.V. in the U.S., we and AstraZeneca entered into an amendment to the agreement in December 2009. The amendment establishes a six-month baseline sales amount for 2010 with a six-month baseline payment of up to $9.0 million, received in quarterly increments, to be adjusted up or down by a true-up payment or refund at the end of the six-month period based on actual U.S. sales of MERREM I.V. exceeding or falling short of the established six-month baseline sales amount. If the actual U.S. sales fall short of the six-month baseline sales amount, the amendment provides stepped down payments, subject to a minimum payment of $4.0 million. The amendment also provides for the possibility that we will market MERREM I.V. during the final six months of 2010 if we and AstraZeneca mutually agree that the agreement should continue on acceptable terms. We cannot assure you that we will be able to reach an agreement with AstraZeneca to promote MERREM I.V. after June 30, 2010.

        Product Pipeline.    We are building a pipeline of acute care therapies through licensing and collaboration agreements as well as by progressing into clinical development compounds that we have developed internally. Summaries of the license and collaboration agreements referenced below are set forth in Note C., "Business Agreements," in the accompanying notes to consolidated financial statements.

        CB 500,929.    We obtained an exclusive license for the development and commercialization in North America and Europe of the I.V. formulation of CB-500,929 for the prevention of blood loss during surgery pursuant to a license and collaboration agreement with Dyax Corp., or Dyax. We are studying CB-500,929 initially in the reduction of blood loss in patients undergoing cardiac surgery using

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cardiopulmonary bypass, which includes coronary artery bypass graft, or CABG, and heart valve repair and replacement procedures. In March 2009, we began a Phase 2 dose-ranging trial, CONSERV™ 1, assessing three different doses of ecallantide in cardiac surgery patients using cardiopulmonary bypass undergoing procedures associated with a relatively low risk of bleeding. In July 2009, we began a Phase 2 trial, CONSERV-2, assessing a high dose of ecallantide in cardiac surgery patients using cardiopulmonary bypass undergoing procedures associated with a higher risk of bleeding. In December 2009, we announced the early closing of enrollment of both Phase 2 trials based on a recommendation from the Data Safety Monitoring Board, or DSMB, to close the CONSERV-2 trial due to the observation of a statistically significant difference in mortality between the arms of the CONSERV-2 trial that the DSMB felt needed to be assessed before the trial could be resumed. Overall mortality was consistent with expected outcomes for the patient population in the CONSERV-2 trial. However, the data for patients treated in the trial as of the closing of enrollment showed more deaths in the CB-500,929 arm. Initial review shows mortality observed in the trial was due to a variety of causes typically expected in a high-risk-for-bleed population undergoing cardiac surgery. There was no such imbalance detected by the DSMB in the CONSERV-1 trial. We expect to complete analysis of all the data from both CONSERV-1 and CONSERV-2 in the first half of 2010 and subsequently determine next steps for the program.

        CXA-201.    We acquired Calixa Therapeutics Inc., or Calixa, in December 2009 and with it rights to CXA-201, Calixa's lead compound, an I.V. combination of a novel anti-pseudomonal cephalosporin, CXA-101, which Calixa licensed from Astellas Pharma, Inc., Astellas, and the beta-lactamase inhibitor tazobactam. CXA-101 is currently in Phase 2 clinical trials for complicated urinary tract infection, or cUTI. We obtained Calixa's rights to develop and commercialize the lead compound, CXA-201, and other products that incorporate CXA-101. Under a license agreement with Astellas, as further described below, we have the exclusive rights to develop, manufacture, market and sell any eventual products which incorporate CXA-101, including CXA-201, in all territories of the world except select Asia-Pacific and Middle East territories. CXA-201 is being developed as a first-line therapy for the treatment of certain serious Gram-negative bacterial infections in the hospital, including those caused by multi-drug resistant, or MDR, Pseudomonas aeruginosa, or P. aeruginosa. Pan-resistant P. aeruginosa—resistant in vitro to all groups of antibiotics—is a major cause of opportunistic infections among immunocompromised patients. We anticipate advancing the clinical program for cUTI and complicated intra-abdominal infection, or cIAI, in the first half of 2010. The next study in the cUTI program would take into consideration the results of the ongoing cUTI trial with CXA-101. In addition, a Phase 2 trial of CXA-201 for cIAI is expected to begin in the first half of 2010. In the second half of 2010, we also expect to begin lung pharmacokinetic studies of CXA-201 for hospital acquired pneumonia and ventilator associated pneumonia.

        Pursuant to the terms of the merger agreement, which is summarized in Note D., "Business Combinations," in the accompanying notes to consolidated financial statements, we paid the Calixa stockholders $100.0 million, subject to certain adjustments and escrow provisions, and Calixa became our wholly-owned subsidiary. We are also required to make potential payments to Calixa stockholders of up to $310.0 million upon achieving certain development, regulatory, and commercial milestones related to products which incorporate CXA-101. This contingent consideration liability is recognized at its estimated fair value of $101.6 million on our consolidated balance sheet as of December 31, 2009.

        CB-182,804.    CB-182,804 is in Phase 1 clinical trials for the treatment of MDR Gram-negative infections. We plan to make a go/no go decision on whether to advance CB-182,804 into Phase 2 trials in the first quarter of 2010. 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.

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        CB-183,315.    CB-183,315 is in Phase 1 clinical trials for the treatment of Clostridium difficile associated diarrhea, or CDAD. We expect to launch Phase 2 clinical trials for the same indication in the first half of 2010. CB-183,315 is a potent, oral, cidal lipopeptide with rapid in vitro bactericidal activity against C. difficile, which is an opportunistic anaerobic Gram-positive bacterium which causes 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 UK, 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.

        ALN-RSV.    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, particularly in children. The agreement was amended in November 2009 to carve ALN-RSV01, which is in Phase 2 clinical trials, out of the collaboration, subject to our rights to opt-in to development after Alnylam completes a Phase 2b study of ALN-RSV01 for the treatment of RSV infection in adult lung transplant patients. We have a pre-Investigational New Drug Application, or IND, program underway in novel treatments for RSV infections in children using Alnylam's RNAi technology.

Results of Operations

Years Ended December 31, 2009 and 2008

Revenues

        The following table sets forth revenues for the years ended December 31, 2009 and 2008:

		December 31,
		2009		2008		% Change
		(in millions)
U.S. product revenues, net		$	524.0	$	414.7		26	%
International product revenues			13.8		7.4		86	%
Service revenues			22.5		9.4		139	%
Other revenues			1.8		2.1		-12	%
	Total revenues, net	$	562.1	$	433.6		30	%

Product Revenues, net

        Cubist's net revenues from sales of CUBICIN, which consists of U.S. product revenues, net, and international product revenues, were $537.8 million in 2009 and $422.1 million in 2008, an increase of $115.7 million, or 27%. Gross U.S. product revenues totaled $567.2 million and $444.2 million for the years ended December 31, 2009 and 2008, respectively. The $123.0 million increase in gross U.S. product revenues was primarily due to increased vial sales of CUBICIN in the U.S., which resulted in higher gross U.S. product revenues of $101.9 million, as well as price increases for CUBICIN in October 2008 and June 2009, which resulted in $21.1 million of additional gross U.S. product revenues. Gross U.S. product revenues are offset by allowances for sales returns, Medicaid rebates, chargebacks, discounts and wholesaler management fees of $43.2 million and $29.5 million, for the years ended December 31, 2009 and 2008, respectively. The increase in allowances against U.S. gross product revenues was primarily driven by increases in chargebacks and Medicaid rebates due to increased U.S. sales of CUBICIN, as well as the price increases described above. International product revenues of $13.8 million and $7.4 million for the years ended December 31, 2009 and 2008, respectively, consisted

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primarily of CUBICIN product sales to, and royalty payments based on CUBICIN net sales in the EU 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 years ended December 31, 2009 and 2008, were $22.5 million and $9.4 million, respectively, and relate to our exclusive agreement with AstraZeneca to promote and provide other support in the U.S. for MERREM I.V, which is described further in the overview section of this MD&A. Service revenues from MERREM I.V. of $22.5 million for the year ended December 31, 2009, represent (i) $18.0 million related to 2009 U.S. sales of MERREM I.V. and (ii) a $4.5 million payment reflecting the percentage of gross profit that we received in 2009 for sales in 2008 exceeding the 2008 annual baseline sales amount. U.S. sales of MERREM I.V. did not exceed the established annual sales amount in 2009. As such we will not receive a gross profit percentage payment for 2009 sales in the first quarter of 2010.

Costs and Expenses

        The following table sets forth costs and expenses for the years ended December 31, 2009 and 2008:

		December 31,
		2009		2008		% Change
		(in millions)
Cost of product revenues		$	116.9	$	90.4		29	%
Research and development			170.6		126.7		35	%
Sales and marketing			82.2		85.0		-3	%
General and administrative			54.7		40.7		34	%
	Total costs and expenses	$	424.4	$	342.8		24	%

Cost of Product Revenues

        Cost of product revenues were $116.9 million and $90.4 million for the years ended December 31, 2009 and 2008, respectively. Included in our cost of product revenues are royalties owed on net sales of CUBICIN under our license agreement with Eli Lilly & Co., or Eli Lilly, costs to procure, manufacture and distribute CUBICIN, and the amortization expense related to certain intangible assets. Our gross margin for the year ended December 31, 2009, was 78%, as compared to 79% for the year ended December 31, 2008. The increase in cost of product revenues of $26.5 million during the year ended December 31, 2009, as compared to the year ended December 31, 2008, is primarily attributable to the increase in sales of CUBICIN in the U.S. We expect our gross margin percentage in 2010 to be similar to our gross margin percentage in 2009.

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Research and Development Expense

        Total research and development expense in the year ended December 31, 2009, was $170.6 million as compared to $126.7 million in the year ended December 31, 2008, an increase of $43.9 million, or 35%. The increase in research and development expense was due primarily to (i) an increase of $19.3 million in clinical expenses due to the higher number of studies that we were conducting; (ii) an increase of $17.2 million in license and collaboration expenses, which includes $25.0 million of upfront payments in 2009 related to the Alnylam and Hydra Biosciences, Inc., or Hydra, license and collaboration agreements, compared to $17.5 million of upfront and milestone payments during 2008 related to the Dyax license and collaboration agreement; (iii) an increase of $9.0 million in payroll, benefits, travel and other employee-related expenses due to an increase in headcount, and (iv) $4.3 million of stock-based compensation charges related to the acquisition of Calixa. These increases were partially offset by a decrease of $7.9 million of process development expenses.

        We expect a modest increase in research and development expenses in 2010 resulting from shifts in our various research and development investment activities. While expense relating to upfront and milestone payments is expected to be less than 2009, expenses related to process and development activity to develop our commercial and development stage compounds are expected to increase.

Sales and Marketing Expense

        Sales and marketing expense in the year ended December 31, 2009, was $82.2 million as compared to $85.0 million in the year ended December 31, 2008, a decrease of $2.8 million, or 3%. The decrease in sales and marketing expense is primarily related to a decrease in employee-related expenses, including travel and entertainment. Sales and Marketing expenses are expected to increase in 2010 reflecting the cost associated with a series of pilot programs supported by a modest increase in the sales staff.

General and Administrative Expense

        General and administrative expense in the year ended December 31, 2009, was $54.7 million as compared to $40.7 million in the year ended December 31, 2008, an increase of $14.0 million, or 34%. This increase is primarily due to an increase in professional services and consulting charges, including legal costs associated with the patent infringement litigation with Teva and its affiliates, fees incurred for business development activities, and transaction costs of $1.3 million incurred related to our acquisition of Calixa.

        We expect general and administrative expense in 2010 to increase primarily due to (i) an increase in salaries, benefits and employee related expenses due to additional headcount hired throughout 2009 and planned new hires during 2010, (ii) an increase in stock-based compensation expense in 2010, and (iii) a full year of fees and expenses related to the patent infringement litigation with Teva.

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Other Income (Expense), net

        The following table sets forth other income (expense), net for the years ended December 31, 2009 and 2008:

		December 31,
		2009			2008 (as adjusted)			% Change
		(in millions)
Interest income		$	4.3		$	10.1			-58	%
Interest expense			(20.9	)		(21.1	)		-1	%
Other income (expense)			(1.2	)		(50.4	)		-98	%
	Total other income (expense), net	$	(17.8	)	$	(61.4	)		-71	%

Interest Income

        Interest income in the year ended December 31, 2009, was $4.3 million as compared to $10.1 million in the year ended December 31, 2008, a decrease of $5.8 million, or 58%. The decrease in interest income is primarily due to a decrease of $9.3 million due to lower rates of return on our investments resulting from a decline in overall market interest rates, offset by $2.9 million in additional income as a result of higher average invested cash balances.

Interest Expense

        Interest expense in the year ended December 31, 2009, was $20.9 million as compared to $21.1 million in the year ended December 31, 2008, a decrease of $0.2 million, or 1%.

        In January 2009, we adopted the provisions of recently issued accounting guidance for convertible debt with conversion and other options. The adoption of the accounting guidance required us to adjust prior periods as if the guidance had been in effect in prior periods. Interest expense for the years ended December 31, 2009 and 2008, included $13.2 million and $12.6 million, respectively, of interest expense relating to the amortization of a debt discount as a result of the new standard. Approximately $0.8 million of debt issuance costs were written off 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. The adoption of this standard is discussed in Note M., "Debt," in the accompanying notes to consolidated financial statements.

        The table below summarizes our interest expense for the years ended December 31, 2009 and 2008:

		December 31,
		2009		2008 (as adjusted)
		(in millions)
Contractual interest coupon payment		$	6.8	$	6.8
Amortization of debt discount			13.2		12.6
Amortization of the liability component of the debt issuance costs			0.9		1.7
	Total interest expense	$	20.9	$	21.1

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Other Income (Expense)

        Other expense for the year ended December 31, 2009, was $1.2 million as compared to $50.4 million for the year ended December 31, 2008, a decrease of $49.2 million, or 98%. This decrease primarily relates to the write-down of $49.2 million of our investment in auction rate securities during 2008 that we determined to be other-than-temporarily impaired. See Note E., "Investments," in the accompanying notes to consolidated financial statements for additional information.

Provision for Income Taxes

        For the year ended December 31, 2009, our provision for income taxes was $40.3 million on income before income taxes of $119.9 million, resulting in an effective tax rate of 33.6%. The difference between the effective tax rate and the U.S. federal statutory income tax rate of 35% is primarily the result of a $3.0 million net income tax benefit for discrete items related to the termination of the development of the Hepatitis C Virus compound that we had acquired through our acquisition of Illumigen Biosciences, Inc., or Illumigen, in December 2007. This net benefit included the write-off of our tax investment in Illumigen net of the write-off of Illumigen's federal net operating loss carryforwards. Our effective tax rate for the year ended December 31, 2008, was -333.2%, and relates to federal alternative minimum tax expense and state tax expense, offset by a $102.2 million tax benefit relating to the reversal of the valuation allowance for a significant portion of our deferred tax assets. For the year ended December 31, 2008, we recorded a net income tax benefit of $98.4 million.

        During the fourth quarter of 2009, we completed an analysis of certain meals and entertainment costs and made final computations of other tax return items, both of which related to prior periods. This analysis identified a $2.2 million tax benefit that should have been reported in the three month period ended December 31, 2008, upon the release of a significant portion of our valuation allowance and $0.6 million that related to the first three quarters of 2009. In accordance with SEC Staff Accounting Bulletin, or SAB, No. 99, "Materiality," and SAB No. 108, we assessed the materiality of this error on our prior period financial statements. We concluded the effect of this error was not material to any of our prior period financial statements, and as such, these financial statements are not materially misstated. We also concluded that providing for the correction of the error in the fourth quarter of 2009 would not have a material impact on our financial statements for the year ended December 31, 2009. Accordingly, we recorded an income tax benefit of $2.8 million relating to these items during the quarter ended December 31, 2009.

        We expect our tax rate to be approximately 38.8% for the year ended December 31, 2010, which is comprised of the federal statutory income tax rate of 35.0% and a state income tax rate of 3.8%, net of federal benefit, before giving effect to income tax credits, if any, and other adjustments.

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	%

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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. product revenues totaled $444.2 million and $301.5 million for the years ended December 31, 2008 and 2007, respectively. The increase in gross U.S. product 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. product 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.

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., which we entered in July 2008. These service revenues represent the minimum payment amount that we were entitled to with respect to this period under our agreement with AstraZeneca, which is described in the overview section of this MD&A.

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.

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	%

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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%.

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 under development and to test and improve our 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 acquisition in December 2007; and (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.

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 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.

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; and (iii) an increase of $1.9 million in professional services due to an increase in consulting and legal expenses.

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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 (as adjusted)			2007 (as adjusted)			% Change
		(in millions)
Interest income		$	10.1		$	18.0			-44	%
Interest expense			(21.1	)		(22.0	)		-4	%
Other income (expense)			(50.4	)		-			N/A
	Total other income (expense), net	$	(61.4	)	$	(4.0	)		-1449	%

Interest Income

        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

        Interest expense in the year ended December 31, 2008, was $21.1 million as compared to $22.0 million in the year ended December 31, 2007, a decrease of $0.9 million, or 4%. 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 $0.8 million of debt issuance costs related to the repurchase of the 2.25% Notes.

        In January 2009, we adopted the provisions of recently issued accounting guidance for convertible debt with conversion and other options. The adoption of the accounting guidance required us to adjust prior periods as if the guidance had been in effect in prior periods. Interest expense for the years ended December 31, 2008 and 2007, included $12.6 million and $13.1 million, respectively, of interest expense relating to the amortization of a debt discount as a result of the new standard. The adoption of this standard is discussed in Note M., "Debt," in the accompanying notes to consolidated financial statements.

        The table below summarizes our interest expense for the years ended December 31, 2008 and 2007, following the adoption of the accounting guidance for convertible debt with conversion and other options:

		December 31,
		2008 (As adjusted)		2007 (As adjusted)
		(in millions)
Contractual interest coupon payment		$	6.8	$	7.9
Amortization of debt discount			12.6		13.1
Amortization of the liability component of the debt issuance costs			1.7		1.0
	Total interest expense	$	21.1	$	22.0

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Other Income (Expense)

        Other expense for the year ended December 31, 2008, was $50.4 million, and primarily consists of the write-down of $49.2 million of our investment in auction rate securities that we determined to be other-than-temporarily impaired, as well as a net loss on the repurchase of $50.0 million of the 2.25% Notes in February 2008, as adjusted under the accounting guidance for convertible debt with conversion and other options that was adopted in January 2009. More information can be found in the "Liquidity and Capital Resources" section below.

Provision for Income Taxes

        Our effective tax rates for the years ended December 31, 2008 and 2007, were -333.2% and 5.0%, respectively, as adjusted under the accounting guidance for convertible debt with conversion and other options that was adopted in January 2009. 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. 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 $102.2 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 $98.4 million as compared to a provision of $1.9 million for the year ended December 31, 2007.

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.

        As of December 31, 2009, we had an accumulated deficit of $239.0 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, investments in other product opportunities, our business development activities, to enforce our intellectual property rights, for construction and other expenses related to the expansion of our facility at 65 Hayden Avenue, Lexington, Massachusetts, and for funding of the necessary increased capacity at the manufacturing facility of our CUBICIN API supplier to meet our expected demand of CUBICIN API. Our total cash, cash equivalents and investments at December 31, 2009, was $496.2 million as compared to $417.9 million at December 31, 2008. Based on our current business plan, we believe that our available cash, cash equivalents, investments and

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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 constrained.

Operating Activities

        Net cash flows provided by operating activities are as follows:

		Twelve months ended December 31,
		2009			2008 (as adjusted)			2007 (as adjusted)
		(in millions)
Net income		$	79.6		$	127.9		$	35.6
Non-cash adjustments, net			82.1			(11.2	)		50.3
Change in working capital			(1.1	)		5.5			14.9
	Net cash flows provided by operating activities	$	160.6		$	122.2		$	100.8

        Net cash provided by operating activities in 2009 was $160.6 million, compared to $122.2 million and $100.8 million in 2008 and 2007, respectively. Cash provided by operating activities in 2009 increased by $38.4 million, as compared to 2008, driven primarily by an increase in net income after adjustments for non-cash charges. The $93.4 million increase in non-cash charges is primarily attributable to the difference between a deferred tax provision of $34.1 million in 2009 compared to a deferred tax benefit of $102.2 million in 2008, as a result of a reversal of a significant portion of the valuation allowance on our deferred tax assets in the fourth quarter of 2008.

Investing Activities

        Net cash used in investing activities in 2009 was $417.0 million, compared to $35.5 million used in investing activities in 2008 and $226.2 million provided by investing activities in 2007. Cash used in investing activities in 2009 consisted of $92.2 million for the acquisition of Calixa, and also includes the purchase of $364.7 million in investments, offset by proceeds of $51.0 million from our investments, and the purchase of $11.1 million of property and equipment. Net cash used in investing activities during the twelve months ended December 31, 2008, included the payment of $10.2 million to former shareholders of Illumigen, which we acquired in December 2007. Cash used in investing activities in 2008 also included $25.3 million of purchases of property and equipment, including $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 renovating additional leased space at the 45 and 55 Hayden Avenue building in Lexington, Massachusetts. Cash provided by investing activities in 2007 consisted of a net cash inflow of $235.6 million related to maturities offset by 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. We estimate that capital expenditures for 2010 will be in the range of $13.0 million to $16.0 million, driven by the investment in laboratory equipment, information technology solutions and enhancements to support the needs of an expanding business, as well as facility and leasehold improvements, including the work to expand our facility at 65 Hayden Avenue in Lexington, Massachusetts.

Financing Activities

        Net cash provided by financing activities in 2009 was $5.0 million, compared to $32.4 million used in financing activities in 2008 and $11.8 million provided by financing activities in 2007. Cash provided

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by financing activities includes cash received from stock option exercises and purchases of common stock through our employee stock purchase plan of $4.7 million, $14.4 million and $12.1 million for the years ended December 31, 2009, 2008 and 2007, respectively. Cash used in financing activities in 2008 also includes $46.8 million of cash used to repurchase $50.0 million of our 2.25% Notes.

Auction Rate Securities

        At December 31, 2009 and 2008, 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 value. Due to repeated failed auctions since August 2007, we do not consider these securities to be liquid and have therefore classified them as long-term investments. A decline in the financial markets has impacted the fair value of our auction rate securities. As of December 31, 2009 and 2008, we estimate the fair value of the auction rate securities to be $25.9 million and $8.9 million, respectively. As of December 31, 2009, our investment in auction rate securities is our only financial asset measured using Level 3 inputs in accordance with accounting guidance for fair value measurements and represents approximately 7% of the total financial assets measured at fair value. Additional information can be found in Note E., "Investments," in the accompanying notes to consolidated financial statements.

        The estimated fair value of the auction rate securities could change significantly based on future financial market conditions. The fair value of our auction rate securities increased by $16.9 million during the twelve months ended December 31, 2009, primarily related to improved financial market conditions. We will continue to monitor the securities and the financial markets, and if there is deterioration in the fair value of these securities, individually or in the aggregate, it could result in other-than-temporary impairment charges.

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 up to the maximum of the available remaining credit. 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, 2009.

Repurchases of Common Stock or Convertible Subordinated Notes Outstanding

        From time to time, our Board of Directors may authorize 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 that the Board of Directors determines are in the best interest of our company. Any such repurchases could deplete some of our cash resources.

Commitments and Contingencies

Legal Proceedings

        On February 9, 2009, we received a Paragraph IV Certification Notice Letter from Teva, notifying Cubist that Teva has submitted an ANDA to the 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

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injection, the active ingredient in CUBICIN, 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 is 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. On March 23, 2009, we filed a patent infringement lawsuit against Teva, Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. in response to the ANDA filing. The complaint, which was filed in the U.S. District Court for the District of Delaware, alleges infringement of the referenced patents. Under current U.S. law, the filing of the lawsuit automatically prevents the FDA from approving the ANDA for 30 months from our receipt of Teva's Paragraph IV notification letter on February 9, 2009, unless the court enters judgment in favor of Teva in less than 30 months, or finds that a party has failed to cooperate reasonably to expedite the lawsuit. The court has set a date for trial beginning on April 25, 2011. The court also scheduled a claims construction hearing (a.k.a. a Markman hearing) for June 2, 2010, and has indicated that summary judgment motions will not be permitted in this lawsuit.

        We have retained the services of Wilmer Cutler Pickering Hale and Dorr LLP, or WilmerHale, to represent us in the ANDA litigation. We have entered into a fee arrangement with WilmerHale under which we will pay WilmerHale a fixed monthly fee over the course of the litigation and a potential additional payment that could be due to WilmerHale based on the ultimate outcome of the lawsuit. We are accruing amounts due to WilmerHale based on our best estimate of the fees that we expect to incur as services are provided. Based on the nature of this fee arrangement, we could incur legal fees in excess of amounts accrued as a result of future events.

Business Agreements

        Upon achievement of certain development, regulatory, or commercial milestones, 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. During the twelve months ended December 31, 2009, we made a $20.0 million upfront payment to Alnylam, which represented 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. Additionally, during the twelve months ended December 31, 2009, we entered into a collaboration and license agreement with Hydra under which we made a $5.0 million upfront payment. Unless earlier terminated pursuant to the terms of this agreement, we will also provide research and development funding payments of $5.0 million annually to Hydra for the first and second years of the research collaboration. These payments were included in research and development expense for the twelve months ended December 31, 2009. Additional information regarding our business agreements can be found in Note C., "Business Agreements," in the accompanying notes to consolidated financial statements.

Contingent Consideration

        If certain development, regulatory, or commercial milestones are achieved with respect to products incorporating CXA-101, we have committed, under the terms of the merger agreement pursuant to which we acquired Calixa in December 2009, to make future milestone payments to the former shareholders of Calixa. In accordance with accounting for business combinations guidance, this contingent consideration liability is required to be recognized on the balance sheet at fair value. The total undiscounted potential milestone payments range from zero to $310.0 million. The estimated fair value of these payments, after adjustments for probabilities of success and a discount factor, was $101.6 million as of December 31, 2009. As of December 31, 2009, the contingent consideration related to the Calixa acquisition is our only financial liability measured using Level 3 inputs in accordance with

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accounting guidance for fair value measurements and represents 100% of the total financial liabilities measured at fair value. The fair value of contingent consideration is required to be reassessed at each reporting period, with changes in fair value reflected in the consolidated statement of income as other income (expense). The amount and timing of any such payments cannot be reliably predicted, and accordingly, such payments are excluded from the contractual obligations table below. Additional information can be found in Note D., "Business Combinations," in the accompanying notes to the 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, potential milestone payments and continent consideration associated with the acquisition of Calixa, as we cannot reasonably predict the amount and timing of future payment. Reserves for unrecognized tax benefits of $4.7 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 significant contractual obligations at December 31, 2009, 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		3.4		—		23.7
Operating leases, net of sublease income			5.4		11.0		10.5		7.3		34.2
Royalty payments due			44.4		—		—		—		44.4
Inventory purchase obligations			51.3		29.8		15.6		—		96.7
Other purchase obligations			50.1		28.2		—		—		78.3
	Total contractual cash obligations	$	158.0	$	82.5	$	329.5	$	7.3	$	577.3

        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.

        Our operating leases consist of approximately 178,000 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 158,000 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 royalty payments listed above represent amounts expected to be owed to Eli Lilly on sales of CUBICIN. The inventory purchase obligations listed above represent purchases for the manufacturing of CUBICIN API by our supplier, ACS Dobfar SpA, or ACSD, as well as payments for converting CUBICIN API into its finished, vialed and packaged formulation. The other purchase obligations listed above primarily represent expected future payments for clinical trial expenses, payments pursuant to research funding and collaboration agreements and payments related to the expansion at ACSD's CUBICIN API manufacturing facility, as described below.

        We have a manufacturing and supply agreement with ACSD which was amended in November 2009. Under this amendment, we and ACSD have agreed to: (a) a project plan for the process, equipment and associated plant improvements and expansion to the facility intended to increase the

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capacity of the facility to produce CUBICIN API and the reimbursement to ACSD for certain costs associated with these activities, (b) a new CUBICIN API pricing schedule based on payments in Euros to ACSD that can be updated in the event that future facility or process improvements are implemented, and (c) a new minimum order requirement structure based on a percentage of our CUBICIN API requirements rather than an absolute annual minimum. The ACSD inventory purchase commitments, as well as the expected payments for the reimbursement of costs related to the ACSD expansion, have been translated to U.S. dollars using the exchange rate at December 31, 2009. Amounts paid related to the expansion at ACSD are capitalized within other assets in our consolidated balance sheets until the related assets are put into service for their intended use, after which the assets will be amortized to cost of sales over their estimated useful life.

Critical Accounting Policies and Estimates

        We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. 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;

•

Inventories;

•

Clinical research costs;

•

Investments;

•

Property and equipment and other intangible assets;

•

Income taxes;

•

Stock-based compensation; and

•

Business combinations.

I. Revenue Recognition

        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.

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        We maintain a return policy that allows our customers to return product within a specified period prior to and subsequent to the expiration date of the product. 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.

        Reserves for Medicaid rebate programs are included in accrued liabilities and were $2.2 million and $1.4 million at December 31, 2009 and 2008, respectively. Reserves for returns, discounts, chargebacks and wholesaler management fees are offset against accounts receivable and were $5.2 million and $4.9 million at December 31, 2009 and 2008, respectively. In the years ended December 31, 2009, 2008 and 2007, provisions for sales returns, chargebacks, rebates, wholesaler management fees and discounts that were offset against product revenues totaled $43.2 million, $29.5 million and $16.4 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

        We sell our product to international distribution partners based upon a transfer price arrangement that is generally established annually. Once Cubist's 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. pursuant to a commercial services agreement that we entered into with AstraZeneca in July 2008. AstraZeneca provides marketing and commercial support for MERREM I.V. We recognize the revenues from this agreement as service revenues in our consolidated statement of income. For the second half of 2008 and all of 2009, the agreement established a baseline annual payment by AstraZeneca to Cubist of $20.0 million (which was pro rated for 2008) received in quarterly increments, that was adjusted up or down through a true-up payment or refund at the end of the year based on actual U.S. sales of MERREM I.V.

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exceeding or falling short of an established annual baseline sales amount, subject to a minimum annual payment of $6.0 million. For the second half of 2008 and all of 2009, we could have also earned a percentage of the gross profit on sales exceeding the annual baseline sales amount. The revenue for any such sales over the baseline amount would have been recognized in the quarter in which AstraZeneca provided us with its annual sales report. We recognize revenues related to this agreement over each annual period of performance based on the minimum annual payment amount that we can receive under the agreement with AstraZeneca. 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 that could not be subject to adjustment based on future quarter performance. Amounts received in excess of revenue recognized are included in deferred revenues.

        Service revenues from MERREM I.V. of $22.5 million for the year ended December 31, 2009, represent (i) $18.0 million related to 2009 U.S. sales of MERREM I.V. and (ii) a $4.5 million payment reflecting the percentage of gross profit that we received during the first quarter of 2009 for sales in 2008 exceeding the 2008 annual baseline sales amount, which was recorded in the first quarter of 2009. Our service revenues from MERREM I.V. for the year ended December 31, 2008, were $9.4 million, which represents the pro-rated annual payment earned by us in 2008. U.S. sales of MERREM I.V. in 2009 were below the established annual sales amount. As such we will not receive any gross profit percentage payment for 2009 sales in the first quarter of 2010.

        Given anticipated market conditions for carbapenems and the potential impact of the June 2010 expiration of the composition of matter patent for MERREM I.V. in the U.S., we and AstraZeneca entered into an amendment to the agreement in December 2009 to establish a six-month baseline sales amount for 2010 with a six-month baseline payment of up to $9.0 million, received in quarterly increments, to be adjusted up or down by a true-up payment or refund at the end of the six-month period based on actual U.S. sales of MERREM I.V. exceeding or falling short of the established six-month baseline sales amount. If the actual U.S. sales fall short of the six-month baseline sales amount, the amendment provides stepped down payments, subject to a minimum payment of $4.0 million. The amendment also provides the possibility that we will market MERREM I.V. during the final six months of 2010 if we and AstraZeneca mutually agree that the agreement should continue on acceptable terms. We cannot assure you that we will be able to reach an agreement with AstraZeneca to promote MERREM I.V. after June 30, 2010.

Other Revenues

        Other revenues include revenue related to upfront license payments, license fees and milestone payments received through Cubist's 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.

License Revenues

        Non-refundable license fees for out-license of our technology are recognized depending on the provisions of each agreement. We recognize non-refundable upfront license payments as revenue upon receipt if the license has standalone value and the fair value of Cubist's undelivered items can be determined. If the license is 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 our performance for such undelivered items or services. License fees with ongoing involvement or performance obligations for Cubist 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 by us. Our assessment of our obligations and related performance periods requires significant management judgment. If an agreement contains research and development obligations of Cubist, the relevant time period for the research and development phase is based on management estimates and could vary depending on the

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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 research and development on a quarterly basis.

Milestones

        Revenue 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 revenue over the term of the arrangement as we complete our performance obligations.

II. Inventories

        Inventories are stated at the lower of cost or market with cost determined under the first-in, first-out, or FIFO, basis. 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 written-down 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. Clinical research costs

        We utilize external entities such as contract research organizations, or CROs, independent clinical investigators, and other third-party service providers to assist us with the execution of our clinical studies. 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. 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 income. 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 $33.0 million, $13.8 million and $5.6 million for the years ended December 31, 2009, 2008 and 2007, 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 each study, the required level of patient enrollment, and the number of sites involved in each study. Clinical trials that bear the greatest risk of change in estimates are typically

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those that have a significant number of sites, require a large number of patients, have complex patient screening requirements or 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.

IV. Investments

        Investments with original maturities of greater than 90 days and remaining maturities of less than one year are classified as short-term investments. Investments with remaining maturities of greater than one year are classified as long-term investments. Our short-term investments include bank deposits, corporate notes, U.S. treasury securities, and U.S. government agency securities. Long-term investments include corporate notes, U.S. treasury securities and U.S. government agency securities, as well as auction rate securities, which are private placement, synthetic collateralized debt obligations that mature in 2017. Investments are considered available-for-sale as of December 31, 2009 and 2008, and are carried at fair value. Given the repeated failure of auctions for the auction rate securities, these investments are not considered to be liquid and are classified as long-term investments as of December 31, 2009 and 2008.

        In April 2009, we adopted accounting guidance which established a new method of recognizing and reporting other-than-temporary impairments for debt securities. Under this guidance, if the fair value of a debt security is less than its amortized cost basis at the measurement date and the entity intends to sell the debt security or it is more-likely-than-not that it will be required to sell the security before the recovery of its amortized cost basis, the entire impairment is considered other-than-temporary and is recognized in other income (expense). Otherwise, the impairment should be separated into an amount relating to the credit loss and an amount relating to all other factors, or non-credit loss. The other-than-temporary impairment relating to the credit loss is recognized in other income (expense), representing the difference between amortized cost and the present value of cash flows expected to be collected. Any non-credit loss is recognized, in certain circumstances, within equity as a separate component of accumulated other comprehensive income (loss), net of applicable income taxes. See Note E., "Investments," in the accompanying notes to consolidated financial statements for additional information.

        Unrealized gains and losses are included in accumulated other comprehensive income (loss) as a separate component of stockholders' equity, except in certain circumstances, including unrealized credit losses related to an other-than-temporary impairment. Realized gains and losses, dividends and interest income, including declines in value judged to be other-than-temporary credit losses are included in other income (expense). Amortization of any premium or discount arising at purchase is included in interest income.

V. 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 range from three 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, 2009, there were approximately $16.8 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

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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 other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable or that the useful lives of these assets are no longer appropriate. 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. An impairment loss would be recognized when the carrying amount of the asset group exceeds the estimated undiscounted future cash flows expected to be generated from the use of the asset group and its eventual disposition.

VI. Income Taxes

        We account 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.

        Effective January 1, 2007, we adopted the provisions of a standard which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. This standard also provides guidance on the derecognition of previously recognized income tax items, measurement, classification, interest and penalties, accounting in interim periods and financial statement disclosure. Under this standard, we recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as a provision for income taxes in the consolidated statements of income. At December 31, 2009, we did not have any interest or penalties accrued related to uncertain tax positions.

VII. Stock-Based Compensation

        We expense the fair value of employee stock options and other forms of stock-based employee compensation, including restricted stock units, over the employees' service periods, which are 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 expected 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

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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, 2009, 2008 and 2007, we incurred stock-based compensation costs of $14.4 million, $11.8 million and $10.5 million, respectively.

VIII. Business Combinations

        On December 16, 2009, we acquired Calixa for total consideration of $201.6 million, consisting of a cash payment of $100.0 million and contingent consideration with an estimated fair value of $101.6 million. We allocated the value of the purchase price of $196.1 million to the tangible assets and identifiable intangible assets acquired and liabilities assumed, on the basis of their fair values at the date of acquisition. The difference between the total fair value of consideration transferred and the purchase price relates to $5.5 million of charges primarily related to stock-based compensation recognized in the postcombination period ended December 31, 2009, resulting from the settlement of Calixa's unvested equity awards pursuant to the merger agreement. The total $5.5 million charge was comprised of $4.3 million of research and development expense and $1.2 million of general and administrative expense. The difference between the purchase price and the fair value of assets acquired and liabilities assumed of $63.0 million was allocated to goodwill. This goodwill primarily relates to a potential future tax benefit related to acquired IPR&D assets.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):

		December 16, 2009
Cash		$	5,079
Investments			2,657
IPR&D			194,000
Deferred tax assets			9,257
Goodwill			63,020
Other assets acquired			77
	Total assets acquired		274,090
Other liabilities assumed			(2,791	)
Deferred tax liabilities			(75,201	)
	Total liabilities assumed		(77,992	)
Total purchase price		$	196,098

IPR&D

        The intangible assets identified of $194.0 million are IPR&D assets relating to the drug candidate CXA-201 for pneumonia and cUTI/cIAI indications. CXA-201 is an intravenously administered combination of Calixa's novel antipseudomonal cephalosporin, CXA-101, and the beta-lactamase inhibitor tazobactam. CXA-101 is currently in Phase 2 clinical trials for cUTI. CXA-201 is being

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developed as a first-line therapy for the treatment of certain serious Gram-negative bacterial infections in the hospital, including those caused by MDR Pseudomonas aeruginosa. Pan-resistant P. aeruginosa—resistant in vitro to all groups of antibiotics—is a major cause of opportunistic infections among immunocompromised patients. We anticipate advancing the clinical program for cUTI and complicated intra-abdominal infection, or cIAI, in the first half of 2010. The next study in the cUTI program would take into consideration the results of the ongoing cUTI trial with CXA-101 and, in addition, a Phase 2 trial of CXA-201 for cIAI is expected to begin in the first half of 2010. We also expect to begin lung pharmacokinetic studies of CXA-201 for hospital acquired pneumonia and ventilator associated pneumonia in the second half of 2010. CXA-201 for pneumonia had an estimated fair value of $174.0 million and for cUTI/cIAI had an estimated fair value of $20.0 million as of the acquisition date. We did not attribute value to the CXA-101 compound alone because we currently do not believe that, acting alone, it has the efficacy profile to obtain approval from applicable regulatory agencies.

        We assessed the fair value of IPR&D assets using an income method approach, including discounted cash flow models that are probability-adjusted for assumptions relating to the development and potential commercialization of CXA-201 for the indications described above. The valuation model used to estimate the fair values of CXA-201 indications reflects significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the probability of successfully completing clinical trials and obtaining regulatory approval; market size and market growth projections; estimates regarding the timing of and the expected costs to advance CXA-201 to commercialization; estimates of future cash flows from potential product sales; and a discount rate of 12%. The use of different assumptions or changes in assumptions used could result in materially different fair values.

        Upon acquisition, IPR&D assets are recorded at their acquisition-date fair value. Until the underlying project is completed, the carrying value of the IPR&D is amortized over the estimated useful life of the asset. If a project becomes impaired or is abandoned, the carrying value of the IPR&D is written down to its revised fair value with the related impairment charge recognized in the period in which the impairment occurs. If the fair value of CXA-201 in the indications described above becomes impaired as the result of unfavorable data from any ongoing or future clinical trial or because of any other information regarding the prospects of successfully developing or commercializing CXA-201 for any of these indications, we could incur significant charges in the period in which the impairment occurs. The intangible assets will be tested for impairment on an annual basis during the fourth quarter, or earlier if impairment indicators are present, using projected discounted cash flow models. Post-acquisition research and development expenses related to the in-process research and development projects will be expensed as incurred.

        Development of CXA-201 for the indications described above requires various levels of in-house and external testing, clinical trials and approvals from the FDA or comparable foreign regulatory authorities before it could be commercialized in the U.S. or other territories. The estimated cost to advance CXA-201 to commercialization ranges from $140.0 million to $190.0 million for the cUTI/cIAI indications and from $170.0 million to $220.0 million for the pneumonia indication. These amounts represent management's best estimate of expected costs, but are subject to change given the stage of development of CXA-201 and additional information to be received as development activities advance.

        We expect to file a New Drug Application, or NDA, for the cUTI/cIAI indication by the end of 2013, and a supplemental NDA for the pneumonia indication during 2015. We expect to commercially launch as promptly as commercially practicable after necessary regulatory approvals are received. Assuming a traditional timeline for the regulatory review process, we expect to commercially launch CXA-201 in cUTI/cIAI in 2015 and in the pneumonia indication in 2017. The successful development of new pharmaceutical products is subject to numerous risks and uncertainties, including, but not limited to, those set forth in the "Risk Factors" section of this Annual Report on Form 10-K. Given these uncertainties, there can be no assurance that CXA-201 will be successfully developed for these

82

indications or, if successfully developed, that it will be developed in the timeframes described above or within the cost ranges described above. If such development is not successful or completed in a timely manner or is more expensive than currently anticipated, we may not realize the financial benefits expected for CXA-201 or for the Calixa acquisition as a whole.

Contingent Consideration

        The undiscounted contingent consideration amounts ultimately paid relating to our acquisition of Calixa range from zero to $310.0 million. The fair value of this contingent consideration liability was estimated to be $101.6 million as of the date of acquisition and as of December 31, 2009. We determined the fair value of the contingent consideration based on a probability-weighted income approach. This fair value measurement is based on significant inputs not observable in the market and therefore represents a Level 3 measurement within the fair value hierarchy. See Note F., "Fair Value Measurements," in the accompanying notes to consolidated financial statements for a further discussion of fair value. The contingencies for consideration include development, regulatory and sales milestones for CXA-201 indications. The valuation of contingent consideration takes into account various assumptions, including the probabilities associated with successfully completing clinical trials and obtaining regulatory approval, the period in which these milestones are achieved, as well as a discount rate of 5%, which represents a pre-tax working capital rate. The valuation was developed using assumptions we believe would be made by a market participant. Estimates will be assessed on an on-going basis as additional data impacting the assumptions is obtained. The changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized within the consolidated statements of income as other income (expense).

Goodwill

        Goodwill resulting from the purchase price allocation will be evaluated for impairment on an annual basis, during the fourth quarter, or more frequently if an indicator of impairment is present. Various analyses, assumptions and estimates were made as of the date of acquisition of Calixa in determining the value of goodwill. When we perform impairment tests in future years, changes in forecasts and estimates from those used at the acquisition date could result in impairment charges that would be recognized in the consolidated statement of income at that time.

Recent Accounting Pronouncements

        In January 2010, the Financial Accounting Standards Board, or FASB, issued an amendment to the accounting for fair value measurements and disclosures. This amendment details additional disclosures on fair value measurements, requires a gross presentation of activities within a Level 3 rollforward, and adds a new requirement to disclosure transfers in and out of Level 1 and Level 2 measurements. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. This amendment is effective in the first interim or reporting period beginning after December 15, 2009, with an exception for the gross presentation of Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The adoption of this amendment is not expected to have a material impact on our financial statement disclosures.

        In October 2009, the FASB issued an amendment to the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This amendment clarifies how an entity should account for an agreement between a company (share lender) and an investment bank (share borrower) under which the company loans shares of its stock to the investment bank, enabling the investment bank to use the shares to enter into equity derivative contracts with the ultimate investors of the convertible debt. Under the amendment, at the date of issuance, the share lending arrangement is required to be measured at fair value and recognized as a debt issuance cost in the financial statements of the entity. The debt issuance cost should be amortized under the effective

83

interest method over the life of the financing arrangement as interest cost. This amendment is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years. Early adoption is not permitted. The adoption of this amendment requires retrospective application for all arrangements outstanding as of the beginning of the fiscal year in which the guidance is initially applied. The adoption of this amendment is not expected to have a material impact on our results of operations or financial condition.

        In October 2009, the FASB issued an amendment to the accounting for multiple-deliverable revenue arrangements. This amendment provides guidance on whether multiple deliverables exist, how the arrangements should be separated, and how the consideration paid should be allocated. As a result of this amendment, entities may be able to separate multiple-deliverable arrangements in more circumstances than under existing accounting guidance. This guidance amends the requirement to establish the fair value of undelivered products and services based on objective evidence and instead provides for separate revenue recognition based upon management's best estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The existing guidance previously required that the fair value of the undelivered item reflect the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. If the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This amendment will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption and retrospective application is also permitted. We are currently evaluating the potential effect of the adoption of this amendment on our results of operations or financial condition.

        In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities, or VIEs. This amendment requires an enterprise to qualitatively assess the determination of the primary beneficiary, or "consolidator," of a VIE based on whether the entity (i) has the power to direct matters that most significantly impact the activities of the VIE, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The amendment changes the consideration of kick-out rights in determining if an entity is a VIE and requires an ongoing reconsideration of both whether an entity is a VIE and of the primary beneficiary. This amendment is effective as of January 1, 2010, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier adoption is prohibited. The amendment requires companies to reassess, under the amended requirements, arrangements existing on or before the effective date of the amendment that may fit within its scope and requires retrospective application. We are currently evaluating the potential effect of the adoption of this amendment but do not expect it will have a material impact on our results of operations or financial condition.

        In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. This amendment seeks to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. Additionally, on and after the effective date, this amendment eliminates the concept of a qualifying special-purpose entity for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. This amendment is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier adoption is prohibited. The adoption of this amendment is not expected to have a material impact on our results of operations or financial condition.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We invest our cash in a variety of financial instruments, which may include bank deposits, money market instruments, securities issued by the U.S. government and its agencies, investment grade corporate bonds and auction rate securities. These investments are primarily denominated in U.S. dollars, with limited investments denominated in Euros. 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, 2009 and 2008, 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. The decline in the financial markets has impacted the fair value of our auction rate securities. In addition, liquidity continues to be impacted by the extremely limited market for these securities. We estimate the fair value of the auction rate securities to be $25.9 million as of December 31, 2009.

        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. The other-than-temporary impairment charge of $49.2 million was recorded as other income (expense) in our consolidated statement of income for the year ended December 31, 2008, and did not have a material impact on our financial flexibility or stability.

        In April 2009, we adopted recently issued accounting guidance which established a new method of recognizing and reporting other-than-temporary impairments for debt securities. Pursuant to the adoption of this guidance, we reviewed all previously recorded other-than-temporary impairments of securities as of April 1, 2009, and estimated that $40.4 million of the $49.2 million other-than-temporary impairment recognized in 2008 represented a credit loss. We determined that the remaining $8.8 million in previously recognized other-than-temporary impairment was due to non-credit related factors, which are now required, in certain circumstances, to be included as a component of accumulated other comprehensive income (loss). As a result, we reclassified, through a cumulative effect adjustment, from accumulated deficit to accumulated other comprehensive loss as of April 1, 2009, $8.8 million of the $49.2 million other-than-temporary impairment charge that we recognized in 2008.

        The potential change in the fair value of our fixed-rate investments 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 a decrease in fair value of $1.8 million on our fixed-rate investments. We estimate that a hypothetical adverse 100 basis point movement in our auction rate securities 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, net of a debt discount, on our consolidated balance sheets. As of December 31, 2009, the fair value of the 2.25% Notes was estimated by us to be $285.0 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 $5.2 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		87
Consolidated Balance Sheets as of December 31, 2009 and 2008		88
Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007		89
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007		90
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2009, 2008 and 2007		91
Notes to Consolidated Financial Statements		92
Financial Statement Schedule:
	Schedule II Valuation and Qualifying Accounts for the years ended December 31, 2009, 2008 and 2007	140

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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, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 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, 2009 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. 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 described in Note F to the consolidated financial statements, in 2008 the Company changed the manner in which it measured fair value.

        As described in Note M to the consolidated financial statements, in 2009 the Company changed the manner in which it accounts for its convertible debt instrument.

        As described in Note E to the consolidated financial statements, in 2009 the Company changed the methodology used to recognize and report other-than-temporary impairments for debt securities.

        As described in Note D to the consolidated financial statements, in 2009 the Company changed the manner in which it accounts for business combinations.

        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 26, 2010

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CUBIST PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

			December 31,
			2009			2008
						(as adjusted)
			(in thousands, except share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	157,316		$	409,023
	Short-term investments			161,686			—
	Accounts receivable, net			57,827			43,162
	Inventory			25,497			21,958
	Current deferred tax assets, net			33,387			46,577
	Prepaid expenses and other current assets			14,316			12,456
		Total current assets		450,029			533,176
Property and equipment, net				68,382			66,819
In-process research and development				194,000			—
Goodwill				63,020			—
Other intangible assets, net				16,783			19,720
Long-term investments				177,161			8,922
Deferred tax assets, net				—			55,670
Other assets				8,300			4,834
		Total assets	$	977,675		$	689,141
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	18,660		$	11,575
	Accrued liabilities			85,471			68,009
	Short-term deferred revenue			2,078			1,896
	Short-term contingent consideration			20,000			-
		Total current liabilities		126,209			81,480
Long-term deferred revenue, net of short-term portion				18,813			19,444
Deferred tax liabilities, net				31,205			-
Contingent consideration, net of short-term portion				81,600			-
Long-term debt, net				245,386			232,194
Other long-term liabilities				3,819			3,696
		Total liabilities		507,032			336,814
Commitments and contingencies (Notes C, D, L, M, O)
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; 57,978,174 and 57,430,200 shares issued and outstanding as of December 31, 2009 and December 31, 2008, respectively			58			57
Additional paid-in capital				702,248			679,640
Accumulated other comprehensive income				7,318			—
Accumulated deficit				(238,981	)		(327,370	)
		Total stockholders' equity		470,643			352,327
Total liabilities and stockholders' equity			$	977,675		$	689,141

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

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CUBIST PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF INCOME

				For the Years Ended December 31,
				2009			2008			2007
							(as adjusted)			(as adjusted)
				(in thousands except share and per share amounts)
Revenues:
	U.S. product revenues, net			$	523,972		$	414,681		$	285,059
	International product revenues				13,759			7,400			5,347
	Service revenues				22,550			9,451			—
	Other revenues				1,863			2,109			4,214
		Total revenues, net			562,144			433,641			294,620
Costs and expenses:
	Cost of product revenues				116,889			90,381			68,860
	Research and development				170,575			126,670			85,175
	Sales and marketing				82,202			84,997			67,662
	General and administrative				54,718			40,704			31,485
		Total costs and expenses			424,384			342,752			253,182
Operating income					137,760			90,889			41,438
Other income (expense):
	Interest income				4,260			10,066			18,036
	Interest expense				(20,891	)		(21,070	)		(21,978	)
	Other income (expense)				(1,226	)		(50,365	)		(20	)
			Total other income (expense), net		(17,857	)		(61,369	)		(3,962	)
Income before income taxes					119,903			29,520			37,476
Provision (benefit) for income taxes					40,303			(98,372	)		1,880
Net income				$	79,600		$	127,892		$	35,596
Basic net income per common share				$	1.38		$	2.26		$	0.64
Diluted net income per common share				$	1.36		$	2.07		$	0.62
Shares used in calculating:
	Basic net income per common share				57,745,724			56,645,962			55,591,775
	Diluted net income per common share				68,382,230			67,955,061			57,448,661

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,
						2009			2008			2007
									(as adjusted)			(as adjusted)
						(in thousands)
Cash flows from operating activities:
	Net income					$	79,600		$	127,892		$	35,596
	Adjustments to reconcile net income to net cash provided by operating
			activities, net of assets and liabilities acquired:
	Loss on write-off of property						—			2,323			—
	Loss on debt repurchase, net of debt issuance costs write-off						—			2,294			—
	Depreciation and amortization						12,942			9,362			9,669
			Amortization of debt discount and debt issuance costs (excluding write-off relating to debt repurchase)				14,091			13,458			14,102
	Impairment of auction rate securities						—			49,178			—
	Deferred income taxes						34,121			(102,247	)		—
	Foreign exchange loss						1,169			—			—
	Stock-based compensation						14,438			11,831			10,605
	Postcombination stock-based compensation charge related to Calixa acquisition						2,760			—			—
	Charge for company 401(k) common stock match						3,060			2,589			2,109
	Other non-cash						(435	)		—			(582	)
	Acquired in-process research and development						—			—			14,433
	Changes in assets and liabilities, net of assets and liabilities acquired:
			Accounts receivable				(14,665	)		(14,087	)		(8,005	)
			Inventory				(3,467	)		(3,217	)		(2,774	)
			Prepaid expenses and other current assets				(1,786	)		(5,770	)		(1,468	)
			Other assets				(2,279	)		(276	)		(271	)
			Accounts payable and accrued liabilities				21,359			24,340			20,401
			Deferred revenue and other long-term liabilities				(327	)		4,522			6,954
				Total adjustments			80,981			(5,700	)		65,173
				Net cash provided by operating activities			160,581			122,192			100,769
Cash flows from investing activities:
	Acquisition of Calixa, net of cash acquired						(92,179	)		—			—
	Acquisition of Illumigen, net of cash acquired						—			(10,191	)		(4,350	)
	Purchases of property and equipment						(11,107	)		(25,336	)		(5,133	)
	Purchases of investments						(364,747	)		—			(3,407,532	)
	Proceeds from investments						51,000			—			3,643,180
				Net cash (used in) provided by investing activities			(417,033	)		(35,527	)		226,165
Cash flows from financing activities:
	Issuance of common stock, net						4,744			14,424			12,073
	Excess tax benefit on exercise of stock options						235			—			—
	Repurchase of convertible subordinated debt						—			(46,845	)		—
	Repayments of long-term debt and capital lease obligations						—			—			(245	)
				Net cash provided by (used in) financing activities			4,979			(32,421	)		11,828
Net (decrease) increase in cash and cash equivalents							(251,473	)		54,244			338,762
Effect of changes in foreign exchange rates on cash balances							(234	)		(6	)		44
Cash and cash equivalents at beginning of year							409,023			354,785			15,979
Cash and cash equivalents at end of year						$	157,316		$	409,023		$	354,785
Cash paid during the year for:
	Interest					$	6,750		$	6,921		$	7,875
	Cash paid for income taxes					$	7,825		$	3,467		$	1,413
Supplemental disclosures of cash flow information:
	Non-cash investing and financing activities:
		Purchases of property and equipment included in accounts payable and accrued expenses				$	950		$	—		$	—
		Contingent consideration portion of Calixa purchase price (Note D.)				$	98,840		$	—		$	—
		Acquisition obligation payable to former Illumigen shareholders				$	—		$	—		$	10,191
	The fair value of the assets acquired and liabilities assumed in conjunction with the acquisition of Calixa Therapeutics Inc. are as follows:
		Cash				$	5,079
		Investments					2,657
		In-process research and development					194,000
		Deferred tax assets, net					9,257
		Goodwill					63,020
		Other assets acquired					77
		Other liabilities assumed					(2,791	)
		Deferred tax liabilities					(75,201	)
					Total purchase price	$	196,098

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

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

			Number of Common Shares		Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity
			(in thousands, except share data)
Balance at December 31, 2006 (As reported)				55,001,058	$	55	$	524,726		$	—		$	(484,191	)	$	40,590
Impact of adopting accounting guidance for convertible debt instruments that may be settled in cash on January 1, 2009				—		—		110,048			—			(6,667	)		103,381
Balance at December 31, 2006 (As adjusted)				55,001,058		55		634,774			—			(490,858	)		143,971
Comprehensive income (loss):
	Net income			—		—		—			—			35,596			35,596
	Decrease (increase) of unrealized loss on long-term investments			—		—		—			(14,701	)		—			(14,701	)
		Total comprehensive income		—		—		—			—			—			20,895
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 (As adjusted)				56,142,105		56		659,439			(14,701	)		(455,262	)		189,532
Comprehensive income:
	Net income			—		—		—			—			127,892			127,892
	Reclassification adjustment for losses included in net income			—		—		—			14,701			—			14,701
		Total comprehensive income		—		—		—			—			—			142,593
Equity component of convertible debt				—		—		(8,548	)		—			—			(8,548	)
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 (As adjusted)				57,430,200		57		679,640			—			(327,370	)		352,327
Cumulative effect adjustment to reclassify a portion of previously recognized other-than temporary impairment of auction rate securities				—		—		—			(8,789	)		8,789			—
Comprehensive income:
	Net income			—		—		—			—			79,600			79,600
	Decrease in unrealized loss on auction rate securities			—		—		—			16,357			—			16,357
	Other unrealized investment losses			—		—		—			(250	)		—			(250	)
		Total comprehensive income															95,707
Exercise of stock options and related tax benefit				271,262		1		3,422			—			—			3,423
Shares issued in connection with employee stock purchase plan and 401(k) plan				266,992		—		4,680			—			—			4,680
Stock-based compensation to employees				9,720		—		14,506			—			—			14,506
Balance at December 31, 2009				57,978,174	$	58	$	702,248		$	7,318		$	(238,981	)	$	470,643

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

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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 only one marketed product, CUBICIN® (daptomycin for injection), which it launched in the U.S. in November 2003. CUBICIN is a 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.

        Cubist has focused its product pipeline-building efforts on opportunities that leverage its acute-care discovery, development, regulatory, and commercialization expertise. In December 2009, Cubist acquired Calixa Therapeutics Inc., or Calixa, and with it rights to CXA-201, Calixa's lead compound, an I.V. combination of the anti-pseudomonal cephalosporin, or CXA-101, which Calixa licensed from Astellas Pharma, Inc., or Astellas, and the beta-lactamase inhibitor tazobactam. CXA-101 is currently in Phase 2 clinical trials for complicated urinary tract infection, or cUTI. CXA-201 is being developed as a first-line intravenous therapy for the treatment of certain serious Gram-negative bacterial infections in the hospital, including those caused by multi-drug resistant, or MDR, Pseudomonas aeruginosa.

        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, inhibitors as potential therapy for the treatment of respiratory syncytial virus, or RSV, infection, an area of high unmet medical need. 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 surgery. In December 2008, the Company submitted 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 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.

        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 provides other support for 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 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 research and development

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A. NATURE OF BUSINESS (Continued)

stage products, 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, the ability to manufacture and supply sufficient quantities of its products and product candidates to meet commercial and clinical demand, the 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, Cubist received a Paragraph IV Certification Notice Letter from Teva Parenteral Medicines, Inc., or Teva, notifying Cubist that Teva has submitted an Abbreviated New Drug Application, or ANDA, to the 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, the active ingredient in CUBICIN, 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 is 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. On March 23, 2009, Cubist filed a patent infringement lawsuit against Teva, Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. in response to the ANDA filing. The complaint, which was filed in the U.S. District Court for the District of Delaware, alleges infringement of the referenced patents. Under current U.S. law, the filing of the lawsuit automatically prevents the FDA from approving the ANDA for 30 months from Cubist's receipt of Teva's Paragraph IV notification letter on February 9, 2009, unless the court enters judgment in favor of Teva in less than 30 months, or finds that a party has failed to cooperate reasonably to expedite the lawsuit. The court has set a date for trial beginning on April 25, 2011. The court also scheduled a claims construction hearing (a.k.a. Markman hearing) for June 2, 2010. The court indicated that summary judgment motions will not be permitted in this lawsuit. Any final, unappealable, adverse result in the litigation will likely have a material adverse effect on the Company's results of operations and financial condition.

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. On January 1, 2009, Cubist adopted new accounting guidance which requires the issuers of certain convertible debt instruments that may be settled in cash upon conversion to separately account for the liability and equity components in a manner that reflects the issuer's non-convertible debt borrowing rate of similar debt. The provisions of this accounting guidance were retroactively applied to all periods since the 2.25% convertible subordinated notes were issued in June 2006. See Note M., "Debt," for additional information regarding the adoption of this standard. On December 16, 2009, the Company acquired Calixa. Accordingly, as of the date of the acquisition, all of the assets acquired and liabilities assumed were recorded at their respective fair values, and the Company consolidated Calixa's operating results with those of Cubist from the date of acquisition through December 31, 2009. See Note D., "Business Combinations," for additional information regarding the acquisition.

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

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B. ACCOUNTING POLICIES (Continued)

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, impairment of long-lived assets including other intangible assets, goodwill, in-process research and development, accrued clinical research costs, contingent consideration, 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.

Fair Value Measurements

        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. Investments are considered available-for-sale as of December 31, 2009 and 2008, and are carried at fair value.

        Short-term investments include bank deposits, corporate notes, U.S. treasury securities and U.S. government agency securities with original maturities of greater than 90 days and remaining maturities of less than one year. Long-term investments include corporate notes, U.S. treasury securities and U.S. government agency securities with maturities greater than one year and auction rate securities, which are private placement, synthetic collateralized debt obligations that mature in 2017. The auction rate securities have an original cost of $58.1 million and an estimated fair value of $25.9 million and $8.9 million as of December 31, 2009 and 2008, respectively. During 2008, Cubist recorded an other-than-temporary impairment charge of $49.2 million on these investments.

        In connection with its acquisition of Calixa, the Company recorded contingent consideration relating to amounts payable to Calixa shareholders upon the achievement of certain development, regulatory and sales milestones. This contingent consideration is recognized at its estimated fair value of $101.6 million, both on the date of the acquisition and as of December 31, 2009, and was determined based on a probability-weighted income approach.

        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 of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. See Note F., "Fair Value Measurements," for more information.

Cash and Cash Equivalents

        Cash and cash equivalents consist of short-term, interest-bearing instruments with original maturities of three months or less at the date of purchase. The carrying value of these instruments approximates their fair value.

Investments

        Investments with original maturities of greater than 90 days and remaining maturities of less than one year are classified as short-term investments. Investments with remaining maturities of greater than one year are classified as long-term investments. Short-term investments consist of bank deposits, corporate notes, U.S. treasury securities and U.S. government agency securities. Long-term investments

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

B. ACCOUNTING POLICIES (Continued)

include corporate notes, U.S. treasury securities and U.S. government agency securities with maturities greater than one year, as well as auction rate securities, which are private placement, synthetic collateralized debt obligations that mature in 2017. Investment securities are considered available-for-sale as of December 31, 2009 and 2008, and are carried at fair market value. 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, 2009 and 2008.

        In April 2009, Cubist adopted accounting guidance which established a new method of recognizing and reporting other-than-temporary impairments for debt securities. Under this guidance, if the fair value of a debt security is less than its amortized cost basis at the measurement date and the entity intends to sell the debt security or it is more-likely-than-not that it will be required to sell the security before the recovery of its amortized cost basis, the entire impairment is considered other-than-temporary and is recognized in other income (expense). Otherwise, the impairment should be separated into an amount relating to the credit loss and an amount relating to all other factors, or non-credit loss. The other-than-temporary impairment relating to the credit loss is recognized in other income (expense), representing the difference between amortized cost and the present value of cash flows expected to be collected. Any non-credit loss is recognized, in certain circumstances, within equity as a separate component of accumulated other comprehensive income (loss), net of applicable income taxes. See Note E., "Investments," for additional information.

        Unrealized gains and losses are included in accumulated other comprehensive income (loss) as a separate component of stockholders' equity, except in certain circumstances, including unrealized credit losses related to an other-than-temporary impairment. Realized gains and losses, dividends and interest income, including declines in value judged to be other-than-temporary credit losses are included in other income (expense). Amortization of any premium or discount arising at purchase is included in interest income. See Note E., "Investments," for more information.

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. The Company's cash and cash equivalents are held primarily with two financial institutions in the U.S. Investments are restricted, in accordance with the Company's policies, to a concentration limit per issuer.

        Cubist's trade receivables in 2009 and 2008 primarily represent amounts due to the Company from wholesalers, including Cardinal Health, Inc., Amerisource Bergen Drug Corporation and McKesson Corporation, and Cubist's international collaborators for CUBICIN. Cubist performs ongoing credit evaluations of its customers and generally does not require collateral. For the year ended December 31,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

B. ACCOUNTING POLICIES (Continued)

2009, Cubist did not have any significant write-offs of accounts receivable and its days sales outstanding has not significantly changed since December 31, 2008.

	Percentage of total accounts receivable balance as of December 31,
	2009			2008
Cardinal Health, Inc.		21	%		24	%
Amerisource Bergen Drug Corporation		29	%		27	%
McKesson Corporation		17	%		22	%

	Percentage of total revenues for the year ended December 31,
	2009			2008			2007
Cardinal Health, Inc.		25	%		28	%		32	%
Amerisource Bergen Drug Corporation		30	%		28	%		30	%
McKesson Corporation		21	%		20	%		20	%

Inventory

        Inventories are stated at the lower of cost or market. Cost is determined on a first in first out, or 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:

	2009		2008
	(in thousands)
Raw materials	$	9,351	$	10,377
Work in process		7,818		5,970
Finished goods		8,328		5,611
	$	25,497	$	21,958

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

B. ACCOUNTING POLICIES (Continued)

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. 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.

        Cubist evaluates the potential impairment of property, plant and equipment if 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. An impairment loss would be recognized when the carrying amount of the asset group exceeds the estimated undiscounted future cash flows expected to be generated from the use of the asset group and its eventual disposition.

Acquired In-process Research and Development

        Prior to the adoption of new accounting guidance for business combinations on January 1, 2009, in-process research and development, or IPR&D, acquired in a business combination was expensed immediately upon acquisition if the IPR&D had no alternative future use. Subsequent to the adoption of this standard, IPR&D acquired in a business combination is capitalized on the Company's consolidated balance sheet at its acquisition-date fair value. Until the underlying project is completed, these assets are accounted for as indefinite-lived intangible assets. Once the project is completed, the carrying value of the IPR&D is amortized over the estimated useful life of the asset. If a project becomes impaired or is abandoned, the carrying value of the IPR&D is written down to its revised fair value with the related impairment charge recognized in the period in which the impairment occurs. IPR&D will be tested for impairment on an annual basis during the fourth quarter, or earlier if an indicator of impairment is present, using a projected discounted cash flow model.

Goodwill and Other Intangible Assets

        The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill. Goodwill will be evaluated for impairment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

B. ACCOUNTING POLICIES (Continued)

on an annual basis, during the fourth quarter, or more frequently if an indicator of impairment is present.

        Cubist's other 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 which range from 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. The Company evaluates potential impairment of other intangible assets whenever events or circumstances indicate the carrying value may not be fully recoverable. The impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset group. 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

        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 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, administrative 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 $2.2 million and $1.4 million at December 31, 2009 and 2008, respectively. The Company allows customers to return products within a specified period prior to and subsequent to the product's 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 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 $5.2 million and $4.9 million at December 31, 2009 and 2008, respectively. In the years ended December 31, 2009, 2008 and 2007, provisions for sales returns, chargebacks, rebates, wholesaler management fees and discounts that were offset against product revenues totaled $43.2 million, $29.5 million and $16.4 million, respectively. The increase in the amount of the provisions that were offset against product revenues is primarily due to increases in chargebacks and Medicaid rebates resulting from increased revenues from U.S. sales of CUBICIN.

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B. ACCOUNTING POLICIES (Continued)

International Product Revenues

        Cubist sells its product to international distribution partners based upon a transfer price arrangement that 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, which the Company entered into in July 2008. AstraZeneca provides marketing and commercial support for MERREM I.V. The Company recognizes the revenues from this agreement as service revenues. For the second half of 2008 and all of 2009, the agreement with AstraZeneca established a baseline annual payment to Cubist of $20.0 million (which was pro rated for 2008), received in quarterly increments, to be adjusted up or down by a true-up payment or refund at the end of the year based on actual U.S. sales of MERREM I.V. exceeding or falling short of an established annual baseline sales amount, subject to a minimum annual payment of $6.0 million. For the second half of 2008 and all of 2009, the Company was also entitled to earn a percentage of the gross profit on sales exceeding the annual baseline sales amount. The revenue for any such sales over the baseline amount would be recognized upon Cubist's receipt of an annual report from AstraZeneca.

        The Company and AstraZeneca entered into an amendment to the agreement to establish a six-month baseline sales amount for 2010 with a six-month baseline payment of up to $9.0 million, received in quarterly increments, to be adjusted up or down by a true-up payment or refund at the end of the six-month period based on actual U.S. sales of MERREM I.V. exceeding or falling short of the established six-month baseline sales amount. If the actual U.S. sales fall short of the six-month baseline sales amount, the amendment provides stepped down payments, subject to a minimum payment of $4.0 million. Cubist recognizes revenues related to this agreement over each annual period of performance based on the minimum annual payment amount that it can receive under the agreement with AstraZeneca. Cubist assesses the amount of revenue it recognizes at the end of each quarterly period to reflect its actual performance against the annual baseline sales amount that could not be subject to adjustment based on future quarter performance. Amounts received in excess of revenue recognized are included in deferred revenues.

        Service revenues from MERREM I.V. of $22.5 million for the year ended December 31, 2009, represent (i) $18.0 million that the Company is entitled to for 2009 performance under the agreement with AstraZeneca; and (ii) a $4.5 million payment reflecting the percentage of gross profit that Cubist received during the first quarter of 2009 for sales in 2008 exceeding the 2008 annual baseline sales amount, which was received and recorded as revenue in the first quarter of 2009. Cubist's service revenues from MERREM I.V. for the twelve months ended December 31, 2008, were $9.4 million, which represents the pro-rated annual payment earned by the Company in 2008.

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Other Revenues

        Other revenues include 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.

License Revenues

        Non-refundable license fees for out-license of Cubist technology are recognized depending on the provisions of each agreement. The Company recognizes non-refundable upfront license payments as revenue upon receipt if the license has standalone value and the fair value of Cubist's undelivered items can be determined. If the license is 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 Cubist's 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 by Cubist. The Company's assessment of its obligations and related performance periods requires significant management judgment. If an agreement contains research and development obligations, the relevant time period for the research and 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 research and development on a quarterly basis.

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.

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

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consolidated statement of income. The Company defers and capitalizes its nonrefundable advance payments that are for research and development activities until the related goods are delivered or the related services are performed. Research and development expenses primarily 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, upfront and milestone payments related to external collaborations and other research and development related costs. Prior to the adoption of new accounting guidance for business combinations on January 1, 2009, IPR&D acquired in a business combination was expensed immediately upon acquisition if the IPR&D had no alternative future use. Subsequent to the adoption of this standard, acquired IPR&D is capitalized on the Company's consolidated balance sheet at its acquisition-date fair value. Post-acquisition research and development expenses related to the acquired IPR&D will be expensed as incurred.

Advertising Costs

        Advertising costs are expensed as incurred, and may include promotional expenses and costs related to trade shows. Advertising costs for the year ended December 31, 2009, were approximately $4.6 million, of which $1.4 million and $3.2 million are included in general and administrative expense and sales and marketing expense, respectively, in the consolidated statement of income. Advertising costs for the years ended December 31, 2008 and 2007, are included in sales and marketing expense within the consolidated statements of income, and were approximately $9.1 million and $9.6 million, respectively.

Stock-Based Compensation

        The Company expenses the fair value of employee stock options and other forms of stock-based employee compensation, including restricted stock units, over the awards' vesting periods. Compensation expense is measured using the fair value of the award at the grant date, net of 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 grants prior to the first quarter of 2006 and under the straight-line method for grants commencing in the first quarter of 2006. See Note K., "Employee Stock Benefit Plans," 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.

        Effective January 1, 2007, the Company adopted the provisions of a standard which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. This standard also provides guidance on the derecognition of previously recognized income tax items, measurement, classification,

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interest and penalties, accounting in interim periods and financial statement disclosure. Under this standard, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as a provision for income tax in the consolidated statement of income.

        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 the guidance for accounting for income taxes. 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 recognized a tax benefit of $102.2 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 N., "Income Taxes," for additional information.

Foreign Currency Translation

        The functional currency of Cubist's U.K. subsidiary is the U.S. dollar. Accordingly, the re-measurement method is used to convert the foreign currency balances from the local currency into the U.S. dollar. The Company also translates foreign currency denominated cash and investment balances into the U.S. dollar.

Basic and Diluted Net Income Per Common Share

        Basic net income per common share has been computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share has been computed by dividing diluted net income 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 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.

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

			December 31,
			2009		2008		2007
					(as adjusted)		(as adjusted)
Net income basic			$	79,600	$	127,892	$	35,596
Effect of dilutive securities:
	Interest on 2.25% convertible subordinated notes, net of tax			4,266		4,227		—
	Debt issuance costs, net of tax			568		565		—
	Debt discount amortization, net of tax			8,337		7,779		—
Net income diluted			$	92,771	$	140,463	$	35,596
Shares used in calculating basic net income per common share				57,745,724		56,645,962		55,591,775
Effect of dilutive securities:
		Options to purchase shares of common stock and restricted stock units		887,076		1,390,963		1,856,886
		Notes payable convertible into shares of common stock		9,749,430		9,918,136		—
Shares used in calculating diluted net income per common share				68,382,230		67,955,061		57,448,661
		Net income per share, basic	$	1.38	$	2.26	$	0.64
		Net income per share, diluted	$	1.36	$	2.07	$	0.62

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

	2009		2008		2007
Options to purchase shares of common stock and restricted stock units		4,517,262		2,870,239		3,183,803
Notes payable convertible into shares of common stock		—		—		11,374,335

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Subsequent Events

        Cubist considers events or transactions that have occurred after the balance sheet date but prior to the filing of the financial statements with the SEC to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the filing of the financial statements accompanying this Annual Report on Form 10-K with the SEC.

Recent Accounting Pronouncements

        In January 2010, the Financial Accounting Standards Board, or FASB, issued an amendment to the accounting for fair value measurements and disclosures. This amendment details additional disclosures on fair value measurements, requires a gross presentation of activities within a Level 3 rollforward, and adds a new requirement to the disclosure of transfers in and out of Level 1 and Level 2 measurements. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. This amendment is effective in the first interim or reporting period beginning after December 15, 2009, with an exception for the gross presentation of Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The adoption of this amendment is not expected to have a material impact on Cubist's financial statement disclosures.

        In October 2009, the FASB issued an amendment to the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This amendment clarifies how an entity should account for an agreement between a company (share lender) and an investment bank (share borrower) under which the company loans shares of its stock to the investment bank, enabling the investment bank to use the shares to enter into equity derivative contracts with the ultimate investors of the convertible debt. Under the amendment, at the date of issuance, the share lending arrangement is required to be measured at fair value and recognized as a debt issuance cost in the financial statements of the entity. The debt issuance cost should be amortized under the effective interest method over the life of the financing arrangement as interest cost. This amendment is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years. Early adoption is not permitted. The adoption of this amendment requires retrospective application for all arrangements outstanding as of the beginning of the fiscal year in which the guidance is initially applied. The adoption of this amendment is not expected to have a material impact on Cubist's results of operations or financial condition.

        In October 2009, the FASB issued an amendment to the accounting for multiple-deliverable revenue arrangements. This amendment provides guidance on whether multiple deliverables exist, how the arrangements should be separated, and how the consideration paid should be allocated. As a result of this amendment, entities may be able to separate multiple-deliverable arrangements in more circumstances than under existing accounting guidance. This guidance amends the requirement to establish the fair value of undelivered products and services based on objective evidence and instead provides for separate revenue recognition based upon management's best estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The existing guidance previously required that the fair value of the undelivered item reflect the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. If the fair value of all of the

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elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This amendment will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption and retrospective application is also permitted. The Company is currently evaluating the potential effect of the adoption of this amendment on its results of operations or financial condition.

        In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities, or VIEs. This amendment requires an enterprise to qualitatively assess the determination of the primary beneficiary, or "consolidator," of a VIE based on whether the entity (i) has the power to direct matters that most significantly impact the activities of the VIE, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The amendment changes the consideration of kick-out rights in determining if an entity is a VIE and requires an ongoing reconsideration of both whether an entity is a VIE and of the primary beneficiary. This amendment is effective as of January 1, 2010, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier adoption is prohibited. The amendment requires companies to reassess, under the amended requirements, arrangements existing on or before the effective date of the amendment that may fit within its scope and requires retrospective application. The Company is currently evaluating the potential effect of the adoption of this amendment but does not expect it will have a material impact on its results of operations or financial condition.

        In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. This amendment seeks to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. Additionally, on and after the effective date, this amendment eliminates the concept of a qualifying special-purpose entity for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. This amendment is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier adoption is prohibited. The adoption of this amendment is not expected to have a material impact on Cubist's results of operations or financial condition.

C. BUSINESS AGREEMENTS

Licensing and Collaboration Agreements

        In October 2009, Cubist entered into a collaboration and license agreement with Hydra Biosciences, Inc., or Hydra, to provide funding for the research and development of potential acute care therapeutics for the management of pain. Under the terms of the agreement, Cubist has the exclusive rights to research, develop and commercialize licensed products. Cubist paid Hydra a $5.0 million upfront license fee in October 2009, which is included in research and development expense for the year ended December 31, 2009. Unless earlier terminated, pursuant to the terms of the

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agreement, Cubist will also provide Hydra with research and development funding payments of $5.0 million annually for the first and second years of the research collaboration.

        In January 2009, Cubist entered into a collaboration agreement with Alnylam for the development and commercialization of Alnylam's RNAi therapeutics as a potential therapy for the treatment of RSV infection, an area of high unmet medical need. The agreement with Alnylam is structured as a 50/50 co-development and profit sharing 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 is governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist has 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 has sole responsibility for any required additional development of licensed products, at the Company's cost, and the sole right to commercialize such products. The RSV-specific RNAi therapeutic program includes ALN-RSV01, which has recently completed a Phase 2 trial 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 November 2009, the collaboration agreement with Alnylam was amended to carve ALN-RSV01 out of the licensed products included in the collaboration, subject to Cubist's rights to opt-in to development after Alnylam completes a Phase 2b study of ALN-RSV01 for the treatment of RSV infection in adult transplant patients.

        Upon signing the agreement, Cubist made a $20.0 million upfront payment to Alnylam. This payment is included in research and development expense for the year ended December 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 milestone 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 milestone 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.

        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

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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 and research funding payments of $3.0 million in 2009, which are included in research and development expense for the years then ended. Cubist will also provide Forma with research funding payments totaling $3.0 million annually for 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, including accrued interest, was converted to preferred stock in Forma in November 2009, which is accounted for using the cost method. The carrying value of the investment of $2.1 million is included in other assets on the consolidated balance sheet. This asset is reviewed for impairment whenever events or changes in circumstances would indicate that its carrying value may not be fully recoverable. The fair value of the investment is not estimated since the security is not publicly traded, it would be impractical to do so, and there have been no identified events or circumstances that may have a significant adverse effect on the fair value of the investment.

        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 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 surgery Phase 2 clinical trial known as Kalahari™ 1, which was terminated in June 2008. In March 2009, Cubist began a Phase 2 dose-ranging trial, CONSERV™-1, assessing three different doses of ecallantide in patients undergoing cardiac surgery, using cardiopulmonary bypass undergoing procedures associated with a relatively low risk of bleeding. In July 2009, Cubist began a Phase 2 trial, CONSERV-2, assessing a high dose of ecallantide in cardiac surgery patients using cardiopulmonary bypass undergoing procedures associated with a higher risk of bleeding. In December 2009, Cubist announced the early closing of enrollment of both Phase 2 trials based on a recommendation from the Data Safety Monitoring Board, or DSMB, to close the CONSERV-2 trial due to the observation of a statistically significant difference in mortality between the arms of the CONSERV-2 trial that the DSMB felt needed to be assessed before the trial could be resumed. Overall mortality was consistent with expected outcomes for the patient population in the CONSERV-2 trial, however the data for patients treated in the trial as of the closing of enrollment

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showed more deaths in the CB-500,929 arm. Initial review shows mortality observed in the trial was due to a variety of causes typically expected in a high-risk-for-bleed population undergoing cardiac surgery. There was no such imbalance detected by the DSMB in the CONSERV-1 trial. Cubist expects to complete analysis of all the data from both CONSERV- 1 and CONSERV-2 in the first half of 2010 and subsequently determine next steps for the program.

        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 $155.4 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.

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. For the second half of 2008 and all of 2009, the agreement established 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. For the second half of 2008 and all of 2009, Cubist could have also earned a percentage of the gross profit on sales exceeding the annual baseline sales amount. The

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payment for any such sales over the baseline amount would be recognized in the quarter in which AstraZeneca provided Cubist with its annual sales report.

        Given anticipated market conditions for carbapenems and the potential impact of the June 2010 expiration of the composition of matter patent for MERREM I.V. in the U.S., Cubist and AstraZeneca entered into an amendment to the agreement. The amendment establishes a six-month baseline sales amount for 2010 with a six-month baseline payment of up to $9.0 million if the actual U.S. sales meet or exceed the baseline sales amount. If the actual U.S. sales fall short of the six-month baseline sales amount, the amendment provides stepped down payments, subject to a minimum payment of $4.0 million. The amendment also provides for the possibility that Cubist will market MERREM I.V. during the final six months of 2010 if the Company and AstraZeneca mutually agree that the agreement should continue on acceptable terms.

        Cubist recognizes revenues related to its services agreement as service revenues over each period of performance based on the estimated minimum payment amount for such period 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. 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 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 upfront 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. 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, net of the transfer price, based on Novartis's sales of CUBICIN.

D. BUSINESS COMBINATIONS

Acquisition of Calixa Therapeutics Inc.

        On December 16, 2009, Cubist acquired 100% of the outstanding stock of Calixa for an upfront payment of $100.0 million in cash and contingent consideration with an estimated fair value of $101.6 million, upon which Calixa became a wholly-owned subsidiary of Cubist. Calixa was a privately-held development stage biopharmaceutical company based in San Diego, California, focused on the development of novel antibiotics that address MDR, Gram-negative pathogens. Calixa's lead compound, CXA-201, is an intravenously administered combination of an anti-pseudomonal cephalosporin or CXA-101, which Calixa licensed rights to from Astellas, and the beta-lactamase inhibitor tazobactam. CXA-101 is currently in Phase 2 clinical trials for complicated urinary tract infection, or cUTI. As a result of the acquisition, Cubist obtained the rights to develop and commercialize CXA-201 and other products that incorporate CXA-101. Cubist's rights to CXA-101 cover all territories of the world except select Asia-Pacific and Middle East territories. The Company incurred $1.3 million in transaction expenses related to the Calixa acquisition. These costs primarily include fees incurred for financial advisory, valuation and legal services, and have been recorded as general and administrative expense for the year ended December 31, 2009.

        The transaction was accounted for under the acquisition method. Accordingly, the fair value of the purchase price was allocated to the fair value of tangible assets and identifiable intangible assets acquired and liabilities assumed.

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D. BUSINESS COMBINATIONS (Continued)

        The following table summarizes the fair value of total consideration at December 16, 2009, and the amounts allocated to purchase price (in thousands):

	Total Acquisition-Date Fair Value		Amount Allocated to Purchase Price
Cash	$	100,012	$	97,258
Contingent consideration		101,600		98,840
Total consideration	$	201,612	$	196,098

        The difference between the total fair value of consideration transferred and the purchase price relates to $5.5 million of charges primarily related to stock-based compensation recognized in the postcombination period ended December 31, 2009, resulting from the settlement of Calixa's unvested equity awards pursuant to the merger agreement. The total $5.5 million charge was comprised of $4.3 million of research and development expense and $1.2 million of general and administrative expense.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):

		December 16, 2009
Cash		$	5,079
Investments			2,657
IPR&D			194,000
Deferred tax assets			9,257
Goodwill			63,020
Other assets acquired			77
	Total assets acquired		274,090
Other liabilities assumed			(2,791	)
Deferred tax liabilities			(75,201	)
	Total liabilities assumed		(77,992	)
Total net assets acquired		$	196,098

        The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the acquired assets and liabilities. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.

        Of the identifiable assets acquired, $194.0 million are IPR&D assets relating to CXA-201. The fair value of the IPR&D acquired was determined using an income method approach, including discounted cash flow models that are probability-adjusted for assumptions the Company believes a market participant would make relating to the development and potential commercialization of CXA-201 indications. IPR&D assets relating to CXA-201 for the pneumonia indication had an estimated fair value of $174.0 million and for the complicated urinary tract infection, or cUTI, and complicated intra-

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D. BUSINESS COMBINATIONS (Continued)

abdominal infection, or cIAI, had an estimated fair value of $20.0 million. Cubist did not attribute value to the CXA-101 compound alone because it does not currently believe that, acting alone, it has the efficacy profile to obtain approval from applicable regulatory agencies.

        The Company expects to file a New Drug Application, or NDA, for the cUTI/cIAI indications by the end of 2013, and a supplemental NDA for the pneumonia indication during 2015. Cubist expects to commercially launch as promptly as commercially practicable after necessary regulatory approvals are received. Assuming a traditional timeline for the regulatory review process, Cubist expects to commercially launch CXA-201 in cUTI/cIAI indications in 2015 and pneumonia indications in 2017. Development of CXA-201 for each of these indications requires various levels of in-house and external testing, clinical trials and approvals from the FDA or comparable foreign regulatory authorities before CXA-201 could be commercialized for these indications in the U.S. or other territories. Drug development involves a high degree of risk and most products that make it into clinical development do not receive marketing approval. Numerous risks and uncertainties can delay or stop clinical development of a pharmaceutical product prior to the receipt of marketing approval, including, but not limited to, results from clinical trials that do not support continuing development, issues related to manufacturing or intellectual property protection, and other events or circumstances that cause unanticipated delays, technical problems or other difficulties. Given these risks and uncertainties, there can be no assurance that the development of CXA-201 for any of the indications described above will be successfully completed. If the development of CXA-201 is not successful, in whole or in part, or completed in a timely manner, the Company may not realize the expected financial benefits from the development of CXA-201 or the transaction as a whole. See Note H., "Acquired In-Process Research and Development," for a further discussion of IPR&D.

        The deferred tax assets of $9.3 million are primarily related to federal net operating loss carryforwards of Calixa. The deferred tax liability of $75.2 million primarily relates to the temporary differences associated with IPR&D assets, which are not deductible for tax purposes. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed of $63.0 million was allocated to goodwill. This goodwill primarily relates to a potential future tax benefit related to acquired IPR&D assets. None of this goodwill is expected to be deductible for income tax purposes.

        The contingent consideration relates to amounts payable upon the achievement of certain development, regulatory and sales milestones for CXA-201 indications. The undiscounted amounts Cubist could pay under the merger agreement range from zero to $310.0 million. The estimated fair value of $101.6 million recognized on the date of the acquisition was determined based on a probability-weighted income approach. This fair value measurement is based on significant inputs not observable in the market and therefore represents a Level 3 measurement within the fair value hierarchy. See Note F., "Fair Value Measurements," for a further discussion of fair value. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized within the consolidated statement of income.

        The operating results of Calixa, which include approximately $0.5 million of research and development expense, have been included in the accompanying consolidated financial statements from December 16, 2009, to December 31, 2009. Calixa had no revenues during this period. The following

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D. BUSINESS COMBINATIONS (Continued)

supplemental unaudited pro forma information presents Cubist's financial results as if the acquisition of Calixa had occurred on January 1, 2008 (in thousands):

	December 31,
	2009		2008
	(unaudited)
Net income	$	68,526	$	122,735

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 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, 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 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 $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 terminated development of CB-183,872 in the first half of 2009. The termination resulted in a $3.0 million net income tax benefit for discrete items related to the termination of the development of the compound acquired from Illumigen. The net benefit included the write-off of Cubist's investment in Illumigen, net of the write-off of Illumigen's federal net operating loss carryforwards.

E. INVESTMENTS

        The Company considers all highly liquid investments with original maturities at the date of purchase of 90 days or less as cash equivalents. These investments include money markets, bank deposits, corporate notes, U.S. treasury securities and U.S. government agency securities. Similar investments with original maturities of greater than 90 days and remaining maturities of less than one year are included in short-term investments. Included in long-term investments are similar investments with remaining maturities greater than one year.

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E. INVESTMENTS (Continued)

        Also included in long-term investments are auction rate securities, which are private placement, synthetic collateralized debt obligations of $58.1 million in original cost. While the auction rate securities do not contractually mature until 2017, 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 are classified as long-term investments as of December 31, 2009 and 2008, as they are no longer considered liquid.

        During the quarter ended December 31, 2008, the Company recognized $49.2 million of other-than-temporary impairment charges on its auction rate securities in its consolidated statement of income. In April 2009, the Company adopted accounting guidance that established a new method of recognizing and reporting other-than-temporary impairments for debt securities. Upon adoption of this standard, the Company recorded a cumulative effect adjustment, resulting in a reclassification of $8.8 million of non-credit losses related to the previously recognized other-than-temporary impairment charges from accumulated deficit to accumulated other comprehensive loss. The non-credit loss was calculated as the difference between the $49.2 million impairment charges recorded previously and the $40.4 million of estimated credit losses as of April 1, 2009. The determination of the bifurcation of impairment between credit and non-credit losses is highly judgmental, and changes in certain estimates and assumptions, including those set forth above, could affect the amount and timing of loss realization.

        In estimating the credit losses of the Company's previously recognized impairments as of April 1, 2009, and December 31, 2009, the Company estimated the present value of expected cash flows for each auction rate security compared to the securities' amortized cost basis for the respective period. This process involved significant judgments and estimates specifically around default rates, recovery rates, interest rates and the timing of expected cash flows. In addition, the Company considered other available evidence, including trends in credit ratings and changes in financial market conditions including the general economic environment. The Company's estimates indicate an increase in the present value of expected cash flows as of December 31, 2009, which is being accreted to interest income using the effective interest method over the remaining maturities of the securities. As a result, approximately $0.6 million was recognized as interest income during the year ended December 31, 2009.

        The following table is a rollforward of other-than-temporary impairments within accumulated deficit as a result of the adoption of amendments to accounting guidance (in thousands):

Impairment charges included in accumulated deficit as of December 31, 2008:	$	49,178
Cumulative effect adjustment to reclassify non-credit loss to accumulated other comprehensive income upon adoption on April 1, 2009		(8,789	)
Accretion of credit loss impairments previously recognized, due to an increase in cash flows expected to be collected		(579	)
Credit losses remaining in accumulated deficit as of December 31, 2009:	$	39,810

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E. INVESTMENTS (Continued)

        The following table summarizes the amortized cost and estimated fair values of the Company's investments:

			Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
			(in thousands)
Balance at December 31, 2009:
	Bank deposits		$	45,511	$	56	$	(4	)	$	45,563
	U.S. treasury securities			96,676		7		(106	)		96,577
	Federal agencies			61,657		16		(43	)		61,630
	Corporate notes			92,460		2		(179	)		92,283
	Auction rate securities			18,290		7,568		—			25,858
		Total	$	314,594	$	7,649	$	(332	)	$	321,911
Balance at December 31, 2008:
	Auction rate securities		$	8,922	$	—	$	—		$	8,922
		Total	$	8,922	$	—	$	—		$	8,922

        Refer to Note F., "Fair Value Measurements," for a discussion of fair value.

F. FAIR VALUE MEASUREMENTS

        The accounting standard for fair value measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires detailed disclosures about fair value measurements. Under this standard, 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. The valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. This standard 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.

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F. FAIR VALUE MEASUREMENTS (Continued)

        The fair values of the Company's financial assets and liabilities carried at fair value as of December 31, 2009 and 2008, are classified in the table below in one of the three categories described above:

		December 31, 2009
		Fair Value Measurements Using
		Level 1		Level 2		Level 3		Total
		(in thousands)
Assets
Money market funds		$	66,329	$	—	$	—	$	66,329
Bank deposits			—		45,563		—		45,563
U.S. treasury securities			96,577		—		—		96,577
Federal agency			61,630		—		—		61,630
Corporate notes			57,228		35,055		—		92,283
Auction rate securities			—		—		25,858		25,858
	Total assets	$	281,764	$	80,618	$	25,858	$	388,240
Liabilities
Contingent consideration		$	—	$	—	$	101,600	$	101,600
	Total liabilities	$	—	$	—	$	101,600	$	101,600

	December 31, 2008
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Money market funds	$	334,522	$	—	$	—	$	334,522
Auction rate securities		—		—		8,922		8,922
Total assets	$	334,522	$	—	$	8,922	$	343,444

        Intangible assets acquired in connection with the Company's acquisition of Calixa were accounted for using Level 3 inputs as described in Note D., "Business Combinations."

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F. FAIR VALUE MEASUREMENTS (Continued)

        The table below provides a reconciliation of fair value for which the Company used Level 3 or significant unobservable inputs for the years ended December 31, 2009 and 2008 (in thousands):

		Auction Rate Securities			Contingent Consideration
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		$	—
Acquisition-date fair value of contingent consideration obligation			—			101,600
Total realized and unrealized gains (losses)
	Included in interest income		579			—
	Included in comprehensive income (loss)		16,357			—
Balance at December 31, 2009		$	25,858		$	101,600

Auction Rate Securities

        Due to the fact that there is a limited market for the Company's 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, and Morgan Stanley to establish the fair value for these securities. The Company weighted the valuation model equally with the market bid sources when developing the final fair value, given the Company's conclusion that both the valuation model and bids data points have equal relevance in estimating fair value.

        The first data point used, Houlihan Smith's valuation model and the resulting fair value assessment, incorporates the structure of each auction rate security, the 125-entity reference pool of credit default swaps, or CDS, spreads per reference entity, the collateral underlying the securities, the cash flow characteristics of the securities and the current trading environment of such securities. Houlihan Smith's valuation model considers various components of risk, including market-based bond and CDS pricing and a 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. The model incorporates market data and CDS prices as of December 31, 2009. The Houlihan Smith valuation model includes recovery rate assumptions as of December 31, 2009, between 21% and 32%. The CDS spreads on the underlying reference entities as of December 31, 2009, ranged from 16 to 4,176 basis points. Cubist's validation of the fair value included a review of various assumptions, including, but not limited to, bond default rates, bond recovery rates, credit ratings, cash flow streams and discount rates.

        The second data point used to calculate fair value is actual market bids from DB and Morgan Stanley. The Company has no specific details regarding any auction rate securities being traded at these

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F. FAIR VALUE MEASUREMENTS (Continued)

prices, but considers the market bids received from DB and Morgan Stanley as relevant data points, given their role as brokers trading these types of securities.

        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 2009, all of the five auction rate securities the Company holds were downgraded by Standard & Poor's, and Fitch Ratings downgraded four of the five auction rate securities. As a result, the Standard & Poor's credit ratings for these auction rate securities now range from CCC to CCC-, and the Fitch Ratings for these auction rate securities now range from BBB to B. The underlying risk components of the auction rate securities include pools of CDS, 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 CC. The riskiness of each underlying component of the auction rate securities was assessed and factored into the fair value of the securities as of December 31, 2009.

        The fair value of the auction rate securities increased during the year ended December 31, 2009, primarily as a result of lower projected default rates in Houlihan Smith's valuation model, lower CDS spreads, as well as higher market bids from both DB and Morgan Stanley, reflecting improvement in the financial market conditions, despite the downgrade in the credit ratings. The Company believes that the credit ratings for the auction rate securities reflect their long-term outlook and credit profile, whereas fair value is reflected by the factors described above. The increase in fair value of $16.9 million is included in other comprehensive income for the year ended December 31, 2009.

        The Company will continue to monitor the auction rate securities and the financial markets, and if there is deterioration of the fair value of these securities, it could result in additional other-than-temporary impairment charges.

Contingent Consideration

        Contingent consideration relates to potential amounts payable by the Company under the achievement of certain development, regulatory and sales milestones for CXA-201 indications, in connection with the Company's acquisition of Calixa. The estimated fair value of $101.6 million recognized on the date of the acquisition was determined based on a probability-weighted income approach. This valuation takes into account various assumptions, including the probabilities associated with successfully completing clinical trials and obtaining regulatory approval, the period in which these milestones are achieved, as well as a discount rate of 5%, which represents a pre-tax working capital rate. This valuation was developed using assumptions the Company believes would be made by a market participant. The Company will assess these estimates for revision on an on-going basis as additional data impacting the assumptions is obtained. The changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized within the consolidated statement of income as other income (expense). There was no change in the fair value of contingent consideration from the acquisition date to December 31, 2009.

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G. PROPERTY AND EQUIPMENT

        Property and equipment consisted of the following at:

	December 31,
	2009			2008
	(in thousands)
Building	$	56,597		$	54,019
Leasehold improvements		14,626			14,443
Laboratory equipment		24,672			17,741
Furniture and fixtures		2,108			1,873
Computer equipment		16,998			15,143
Construction in progress		1,376			1,590
		116,377			104,809
Less accumulated depreciation		(47,995	)		(37,990	)
Property and equipment, net	$	68,382		$	66,819

        Property and equipment additions during the year ended December 31, 2009, primarily related to laboratory equipment. 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. 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 expense was $10.0 million, $6.4 million and $4.6 million in 2009, 2008 and 2007, respectively.

H. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

        Acquired IPR&D as December 31, 2009, and changes during the year then ended is as follows:

		(in thousands)
Balance at December 31, 2008		$	—
Additions related to acquisition of Calixa
	CXA-201 for pneumonia		174,000
	CXA-201 for cUTI/cIAI		20,000
Balance at December 31, 2009		$	194,000

        The acquired IPR&D assets above relate to CXA-201, which the Company acquired with its acquisition of Calixa in December 2009, as discussed in Note D., "Business Combinations." The fair value of the IPR&D acquired was determined using an income method approach, including discounted cash flow models that are probability-adjusted for assumptions the Company believes a market participant would make relating to the development and potential commercialization of CXA-201 indications, using a discount rate of 12%. CXA-201 for pneumonia had an estimated fair value of $174.0 million and CXA-201 for cUTI/cIAI had an estimated fair value of $20.0 million as of the

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H. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT (Continued)

acquisition date and at December 31, 2009. Once the research and development project is completed, the carrying value of the IPR&D is amortized over the estimated useful life of the asset.

I. GOODWILL AND OTHER INTANGIBLE ASSETS

        Goodwill as of December 31, 2009, and changes during the year then ended is as follows:

	(in thousands)
Balance at December 31, 2008	$	—
Additions related to acquisition of Calixa		63,020
Balance at December 31, 2009	$	63,020

        Goodwill has been assigned to the Company's only reporting unit, which is the single operating segment by which the chief decision maker manages the Company. See Note P., "Business Segments," for additional information. The Company will evaluate this goodwill for impairment on an annual basis, during the fourth quarter, or more frequently if an indicator of impairment is present.

        Other intangible assets consisted of the following at:

		December 31,
		2009			2008
		(in thousands)
Patents		$	2,627		$	2,627
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			39,015
Less:	accumulated amortization—patents		(2,245	)		(2,184	)
	accumulated amortization—manufacturing rights		(2,083	)		(1,667	)
	accumulated amortization—acquired technology rights		(12,525	)		(10,068	)
	accumulated amortization—intellectual property		(5,379	)		(5,376	)
Other intangible assets, net		$	16,783		$	19,720

        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 ACSD, 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

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I. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

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 ACSD 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 $2.9 million, $3.0 million and $5.1 million in 2009, 2008 and 2007, respectively. The amortization expense for 2007 includes amounts relating to the DSM manufacturing rights. The estimated aggregate amortization of intangible assets as of December 31, 2009, for each of the five succeeding years is as follows:

	(in thousands)
2010	$	2,937
2011		2,521
2012		2,521
2013		2,521
2014		2,521
2015 and thereafter		3,762
	$	16,783

J. ACCRUED LIABILITIES

        Accrued liabilities consisted of the following at:

		December 31,
		2009		2008
		(in thousands)
Accrued incentive compensation		$	4,823	$	6,854
Accrued bonus			8,913		9,026
Accrued benefit costs			4,047		2,631
Accrued clinical trials			7,858		1,525
Accrued manufacturing costs			1,853		2,380
Accrued royalty			44,390		34,855
Other accrued costs			13,587		10,738
	Total	$	85,471	$	68,009

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J. ACCRUED LIABILITIES (Continued)

        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 $7.9 million and $1.5 million at December 31, 2009 and 2008, 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.

K. EMPLOYEE STOCK BENEFIT PLANS

Summary of Stock-Based Compensation 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 Plan, 13,535,764 shares of common stock may be issued to employees, officers or consultants in the form of stock options, restricted stock, restricted stock units and stock grants. Options granted under this plan have exercise prices no less than the fair market value on the grant date, vest ratably on a quarterly basis over a four-year period and expire ten years from the grant date. Restricted stock units granted under this plan vest ratably on an annual basis over a four-year period. At December 31, 2009, there were 3,185,261 shares available for future grant under this plan.

        Under the Cubist Amended and Restated 2002 Directors' Equity Incentive Plan, 1,375,000 shares of common stock may be issued to members of the Company's Board of Directors in the form of stock options, restricted stock, restricted stock units and stock grants. Options granted under this plan have 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, 2009, there were 564,124 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.

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K. EMPLOYEE STOCK BENEFIT PLANS (Continued)

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 1,250,000 shares of common stock to eligible employees. At December 31, 2009, there were 667,219 shares available for future sale to employees under this plan.

Summary of 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 176,884, 127,687 and 97,206 shares of common stock in 2009, 2008 and 2007, respectively, pursuant to this plan. During the years ended December 31, 2009, 2008 and 2007, the Company recorded $3.2 million, $2.6 million and $2.1 million in expense associated with its 401(k) company match.

Summary of Stock-Based Compensation Expense

        The effect of recording stock-based compensation in the consolidated statement of income for the years ended December 31, 2009, 2008 and 2007, was as follows:

		December 31,
		2009		2008		2007
		(in thousands except per share amounts)
Stock-based compensation expense allocation:
	Cost of product revenues	$	288	$	311	$	303
	Research and development		4,402		3,285		3,195
	Sales and marketing		4,334		3,887		3,076
	General and administrative		5,414		4,348		3,965
Total stock-based compensation		$	14,438	$	11,831	$	10,539

        During each of the years ended December 31, 2009, 2008 and 2007, the Company capitalized $0.4 million, $0.3 million and $0.3 million, respectively, of employee stock-based compensation costs to inventory. The carrying value of inventory in the consolidated balance sheets as of the years ended December 31, 2009 and 2008, includes employee stock-based compensation costs of $0.3 million and $0.2 million, respectively.

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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K. 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:

	2009	2008	2007
Stock option plans:
Expected stock price volatility	49%	43%	47%
Risk free interest rate	2.0%	2.8%	4.6%
Expected annual dividend yield per share	0%	0%	0%
Expected life of options	4.4 years	4.3 years	4.3 years
Stock purchase plan:
Expected stock price volatility	45%	30%	30%
Risk free interest rate	1.0%	3.3%	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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K. EMPLOYEE STOCK BENEFIT PLANS (Continued)

General Option Information

        A summary of the status of Cubist's stock options, as of December 31, 2009, and changes during the year then ended, is presented below:

	Number			Weighted Average Exercise Price
Outstanding at December 31, 2008		7,959,482		$	18.57
Granted		1,483,335		$	17.77
Exercised		(276,705	)	$	11.69
Canceled		(200,029	)	$	21.33
Outstanding at December 31, 2009		8,966,083		$	18.60
Vested and exercisable at December 31, 2009		5,977,674		$	18.40
Expected to vest at December 31, 2009		2,302,492		$	18.98

        The total intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007, was $2.1 million, $11.8 million and $10.5 million, respectively. The aggregate intrinsic value of options outstanding as of December 31, 2009, was $20.9 million. These options have a weighted average remaining contractual life of 6.5 years.

        As of December 31, 2009, there was $18.1 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 1.2 years. The aggregate intrinsic value of options fully vested and exercisable as of December 31, 2009, was $18.4 million. These options have a weighted average remaining contractual life of 5.5 years. The aggregate intrinsic value of options expected to vest as of December 31, 2009, was $1.9 million. These options have a weighted average remaining contractual life of 8.5 years. The fair value of shares vested during 2009 was approximately $13.4 million.

        The weighted average grant-date fair value of options granted during the years ended December 31, 2009, 2008 and 2007, was $7.46, $7.34 and $9.15, respectively. The weighted-average grant-date fair value of options vested as of December 31, 2009, 2008 and 2007, was $10.20, $10.69 and $11.32, respectively.

Restricted Stock Units

        In May 2009, the Company granted 202,063 restricted stock units to employees of the Company. The Company values its restricted stock units based on the closing price of the Company's stock on the date of grant. As a result, the fair value of the restricted stock units granted in May 2009 was approximately $3.4 million on the date of grant. The Company recognizes expense ratably over the restricted stock units' vesting period of four years, net of estimated forfeitures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

K. EMPLOYEE STOCK BENEFIT PLANS (Continued)

        A summary of the Company's restricted stock units activity during the year ended December 31, 2009, is presented below:

	Number			Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2008		—		$	—
Granted		202,063		$	16.76
Vested		—			—
Forfeited		(2,574	)	$	16.76
Nonvested at December 31, 2009		199,489		$	16.76
Vested at December 31, 2009		—			—
Expected to vest at December 31, 2009		151,547		$	16.76

        At December 31, 2009, there were 199,489 restricted stock units outstanding, with an aggregate intrinsic value of $3.8 million. At December 31, 2009, there was $2.3 million total unrecognized compensation cost related to nonvested restricted stock units granted under the Company's stock-based compensation plans, which is expected to be recognized over a period of approximately of 3.0 years. The aggregate intrinsic value of restricted stock units expected to vest as of December 31, 2009, was $2.9 million.

L. 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.

        At December 31, 2009, future minimum lease payments under all non-cancelable leases, net of sublease income, are as follows (in thousands):

	Operating
2010	$	5,915
2011		5,469
2012		5,488
2013		5,192
2014		5,335
Thereafter		7,339
Total minimum lease payments	$	34,738

        Rental expense for operating leases was $5.7 million, $5.5 million and $4.1 million in the years ended December 31, 2009, 2008 and 2007, respectively. Sublease income, which is recorded as a reduction of rent expense, was $0.7 million, $2.0 million and $2.6 million in the years ended December 31, 2009, 2008 and 2007, respectively.

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L. COMMITMENTS AND CONTINGENCIES (Continued)

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 2009, 2008 and 2007, Cubist entered into foreign currency transactions between the U.S. dollar, the Euro and the British pound. During the year ended December 31, 2009, foreign exchange losses were approximately $1.2 million, primarily relating to certain available-for-sale investments denominated in Euros which are re-measured at the end of each period. The impact of foreign exchange was de minimus for the years ended December 31, 2008 and 2007.

Other

        Cubist has minimum volume purchase commitments with third party contract manufacturers with scheduled payments over the next five years that total $96.7 million at December 31, 2009.

M. DEBT

2.25% Notes

        Cubist's outstanding debt at December 31, 2009, consisted of $300.0 million aggregate principal amount of 2.25% convertible subordinated notes, or 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 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 at Cubist's option. 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. As of December 31, 2009, the "if converted value" does not exceed the principal amount of the 2.25% Notes. The fair value of the 2.25% Notes was estimated to be $285.0 million as of December 31, 2009, and was determined using quoted market rates.

        On January 1, 2009, Cubist adopted new accounting guidance which requires the issuers of certain convertible debt instruments that may be settled in cash upon conversion to separately account for the liability ($236.4 million as of June 2006, the date of issuance) and equity ($113.6 million as of the date of issuance) components in a manner that reflects the issuer's non-convertible debt borrowing rate of similar debt. The equity component of $113.6 million was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2.25% Notes and the fair value of the liability at the date of issuance. This debt discount is amortized to the consolidated statement of income over the expected life of a similar liability without the equity component. The Company determined this expected life to be equal to the seven-year term of the 2.25% Notes, resulting in an amortization period ending June 15, 2013. The net equity component recorded as additional paid-in capital was $66.0 million as of the date of issuance, which is net of deferred taxes of $44.0 million and debt issuance costs reclassified to additional paid-in capital of $3.6 million.

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M. DEBT (Continued)

        In February 2008, Cubist repurchased, in privately negotiated transactions, $50.0 million in original principal amount of the 2.25% Notes, reducing the outstanding amount of the 2.25% Notes from $350.0 million to $300.0 million, at an average price of approximately $93.69 per $100 of debt. These repurchases, which were funded out of the Company's working capital, 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 $0.2 million, resulting in a cash outflow of $46.8 million. The repurchase resulted in an adjusted net loss of $2.3 million, comprised of (i) a $1.3 million difference between the net carrying value and the fair value of the $50.0 million principal at the time of repurchase, recorded to other income (expense); (ii) the write-off of debt issuance costs of $0.8 million, recorded as a non-cash charge to interest expense; and (iii) transaction expenses of $0.2 million, recorded to general and administrative expense.

        The provisions of this accounting guidance were retroactively applied to all periods since the 2.25% Notes were issued in June 2006 and resulted in an adjustment of the following amounts (in thousands, except per share amounts):

	As Previously Reported			Adjustment			As Adjusted
Consolidated Balance Sheet:
December 31, 2008
Deferred income taxes	$	127,792		$	(25,545	)	$	102,247
Other assets	$	6,740		$	(1,906	)	$	4,834
Long-term debt	$	300,000		$	(67,806	)	$	232,194
Additional paid-in capital	$	578,140		$	101,500		$	679,640
Accumulated deficit	$	(266,225	)	$	(61,145	)	$	(327,370	)
Consolidated Statements of Income:
Year ended December 31, 2008
Interest expense	$	(9,342	)	$	(11,728	)	$	(21,070	)
Gross gain (loss) on debt repurchase	$	3,343		$	(4,655	)	$	(1,312	)
Income tax benefit	$	123,916		$	(25,544	)	$	98,372
Net income	$	169,819		$	(41,927	)	$	127,892
Basic net income per common share	$	3.00		$	(0.74	)	$	2.26
Diluted net income per common share	$	2.56		$	(0.49	)	$	2.07
Consolidated Statements of Income:
Year ended December 31, 2007
Interest expense	$	(9,427	)	$	(12,551	)	$	(21,978	)
Net Income	$	48,147		$	(12,551	)	$	35,596
Basic net income per common share	$	0.87		$	(0.23	)	$	0.64
Diluted net income per common share	$	0.83		$	(0.21	)	$	0.62
Shares used in calculating diluted net income		68,822,996			(11,374,335	)		57,448,661

        The adjustment to deferred income taxes as of December 31, 2008, primarily relates to the recognition of a deferred tax liability for the unamortized debt discount.

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M. DEBT (Continued)

        The table below summarizes the carrying amounts of the liability component of the 2.25% Notes as of December 31, 2009 and 2008:

		December 31,
		2009			2008
		(in thousands)
Total debt outstanding at the end of the period		$	300,000		$	300,000
Unamortized discount			(54,614	)		(67,806	)
	Net carrying amount of the liability component	$	245,386		$	232,194

        The net carrying value of the equity component of the 2.25% Notes as of both December 31, 2009 and 2008, was $57.5 million, which includes the reduction of additional paid-in capital of $8.5 million related to the February 2008 repurchase of $50.0 million in original principal amount of the 2.25% Notes.

        The unamortized discount on the liability component is being amortized to interest expense using the effective interest method over the term of the note. As of December 31, 2009 and 2008, the effective interest rate on the liability component of the 2.25% Notes was 8.37%. The debt issuance costs associated with the sale of the 2.25% Notes were $10.9 million. These costs were allocated between the liability and equity components as $7.3 million and $3.6 million as of the date of issuance, respectively. The costs associated with the liability component are included in other assets on the consolidated balance sheet and are amortized to interest expense ratably over the life of the 2.25% Notes. The costs associated with the equity component are included in additional paid-in capital and are not amortized. The table below summarizes the interest expense the Company incurred for the year ended December 31, 2009, 2008, and 2007:

		December 31,
		2009		2008		2007
		(in thousands)
Contractual interest coupon payment		$	6,750	$	6,817	$	7,875
Amortization of discount on debt			13,192		12,547		13,055
Amortization of the liability component of the debt issuance costs			899		1,706		1,048
Other interest expense			50		—		—
	Total interest expense	$	20,891	$	21,070	$	21,978

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M. DEBT (Continued)

        At December 31, 2009, future payments of principal and interest on existing debt are due as follows:

Fiscal year ending December 31, 2009	Principal		Interest		Total
	(in thousands)
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	$	23,625	$	323,625
Less current portion		—
Total long term debt obligation	$	300,000

Credit Facility

        In December 2008, Cubist entered into a $90.0 million revolving credit facility with 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, 2009.

N. INCOME TAXES

Income Tax Expense (Benefit)

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

		December 31,
		2009			2008			2007
					(as adjusted)			(as adjusted)
					(in thousands)
Current income tax expense
	Federal	$	2,897		$	1,855		$	1,422
	State		3,285			2,020			458
Total current income tax expense		$	6,182		$	3,875		$	1,880
Deferred income tax expense (benefit)
	Federal	$	35,083		$	(96,641	)	$	—
	State		(962	)		(7,606	)		—
Total deferred income tax (benefit)		$	34,121		$	(102,247	)	$	—
Total current and deferred income tax expense (benefit)		$	40,303		$	(98,372	)	$	1,880

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N. INCOME TAXES (Continued)

        During the fourth quarter of 2009, the Company completed an analysis of certain meals and entertainment costs and made final computations of other tax return items, both of which related to prior periods. This analysis identified a $2.2 million tax benefit that should have been reported in the three month period ended December 31, 2008, upon the release of a significant portion of the Company's valuation allowance and $0.6 million that related to the first three quarters of 2009. In accordance with SEC Staff Accounting Bulletin, or SAB, No. 99, "Materiality," and SAB No. 108, the Company assessed the materiality of this error on its prior period financial statements. The Company concluded the effect of this error was not material to any of its prior period financial statements, and as such, these financial statements are not materially misstated. The Company also concluded that providing for the correction of the error in the fourth quarter of 2009 would not have a material impact on its financial statements for the year ended December 31, 2009. Accordingly, the Company recorded an income tax benefit of $2.8 million relating to these items during the quarter ended December 31, 2009.

Effective Tax Rate

        Cubist's federal statutory tax rate was 35% for each of the years ended December 31, 2009, 2008 and 2007. The effective rate differs from the statutory rate of 35% due to the following:

	2009			2008			2007
				(as adjusted)			(as adjusted)
Federal		35.0	%		35.0	%		35.0	%
State		4.2	%		6.6	%		6.4	%
Federal and state credits		-3.8	%		-7.9	%		-3.3	%
Valuation allowance		-0.2	%		-369.8	%		-45.9	%
In-process research & development		0.0	%		0.0	%		10.6	%
Tax Benefit of Illumigen write-off		-1.9	%		0.0	%		0.0	%
Other		0.3	%		2.9	%		2.2	%
Effective tax rate		33.6	%		-333.2	%		5.0	%

        The effective tax rate for the years ended December 31, 2009, 2008 and 2007 was 33.6%, -333.2%, and 5.0%, respectively. The effective tax rate for the year ended December 31, 2009, primarily relates to the Company's statutory income tax rate, offset by a $3.0 million net income tax benefit for discrete items related to the termination of the development of the Hepatitis C Virus compound that we had acquired through our acquisition of Illumigen in December 2007. The net benefit included the write-off of the Company's tax investment in Illumigen, net of the write off of Illumigen's federal net operating loss carryforwards and other deferred tax assets. 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 a significant portion of the Company's deferred tax assets. The effective tax rates for the years ended December 31, 2008 and 2007, have been adjusted pursuant to the adoption of accounting for convertible debt with conversion and other options. See Note M., "Debt," for additional information.

        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. Changes in the effective tax rates from period to

131

CUBIST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

N. INCOME TAXES (Continued)

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.

Deferred Taxes and Valuation Allowance

        The components of the net deferred tax assets and the related valuation allowance are as follows:

	December 31,
	2009			2008
				(as adjusted)
	(in thousands)
Deferred income tax assets:
Net operating loss carryforwards	$	20,770		$	63,928
Deferred revenues		7,495			6,295
Research and development costs		10,678			17,168
Tax credit carryforwards		26,983			20,758
Stock-based compensation		14,996			9,518
Unrealized loss on investments		12,498			19,063
Amortization of milestone payments		14,098			5,691
Deferred rent		1,636			1,574
Depreciation		824			1,448
Other		2,896			2,823
Total deferred tax assets		112,874			148,266
Deferred income tax liabilities:
Debt discount		(21,170	)		(26,284	)
In-process research and development		(75,201	)		—
Total deferred tax liabilities		(96,371	)		(26,284	)
Total deferred tax assets and liabilities		16,503			121,982
Valuation allowance		(14,321	)		(19,735	)
Net deferred tax assets	$	2,182		$	102,247

        At December 31, 2009, the Company has federal and state net operating loss, or NOL, carryforwards of $102.5 million and $49.8 million, respectively. Included in the NOLs are federal and state NOLs of $47.6 million and $9.8 million respectively, attributable to excess tax benefits from the exercise of non-qualified stock options. The tax benefits attributable to these NOLs will be credited directly to additional paid-in capital when realized. These NOLs expire between 2011 and 2029. The Company also has federal and state income tax credit carryforwards of approximately $19.8 million and $7.6 million, respectively. These income tax credits expire between 2016 and 2029. In addition, the Company has $6.2 million of federal alternative minimum tax credits that can be carried forward indefinitely to offset future regular income tax liabilities.

        Certain stock option exercises resulted in tax deductions in excess of previously recorded benefits based on the option value at the time of grant. Although these additional tax benefits or "windfalls"

132

CUBIST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

N. INCOME TAXES (Continued)

are reflected in the NOL carryforwards in tax returns, pursuant to the guidance for accounting for stock-based compensation, the additional tax benefit associated with the windfall is not recognized until the deduction reduces taxes payable. Accordingly, since the tax benefit does not reduce the Company's current taxes payable due to NOL carryforwards, these windfall tax benefits are not reflected in Cubist's NOLs in deferred tax assets for all periods presented.

        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 recognized a deferred tax asset of $102.2 million and reversed a significant portion of its valuation allowance. At December 31, 2009 and 2008, the Company maintains a valuation allowance of $14.3 million and $19.7 million, respectively, primarily relating to the unrealized loss on the auction rate securities. 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 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. 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.

        As stated in Note D., "Business Combinations," Cubist acquired Calixa in December 2009. Calixa had approximately $47.3 million of gross federal and state NOL carryforwards available, resulting in a net deferred tax asset of $9.3 million. Due to the timing of the acquisition, the Company has not completed 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 assess whether past changes in ownership may limit or restrict the Company's ability to utilize these NOL carryforwards.

        Ownership changes resulting from the issuance of capital stock may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income. The amount of the annual limitation is determined based on Cubist's value immediately prior to the ownership change. The Company has not yet updated its analysis of historical changes in ownership but does not believe there are any limitations on its ability to use any of its net operating losses. Subsequent significant changes in ownership could affect the limitations in future years.

133

CUBIST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

N. INCOME TAXES (Continued)

Uncertain Tax Positions

        A reconciliation of the Company's changes in uncertain tax positions for the years ended December 31, 2009, 2008 and 2007, is as follows (in thousands):

	December 31,
	2009			2008		2007
Uncertain tax positions at the beginning of the year	$	5,560		$	2,000	$	2,000
Additions based on tax positions related to the current year		768			437		—
Additions for tax positions of prior years		731			3,123		—
Subtractions based on tax positions related to the current year		—			—		—
Subtractions for tax positions of prior years		(2,403	)		—		—
Balance at the end of the year	$	4,656		$	5,560	$	2,000

        The net decrease in uncertain tax positions during 2009 is primarily due to the continuing evaluation of uncertain tax positions conducted in the current period. All of these amounts, 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 income. At December 31, 2009 and 2008, the Company did not have any interest or penalties accrued related to uncertain tax positions.

        The statute of limitations for assessment by the Internal Revenue Service, or the IRS, and state tax authorities is closed for tax years prior to December 31, 2006, although carryforward attributes that were generated prior to 2006 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period.

O. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

        On February 9, 2009, Cubist received a Paragraph IV Certification Notice Letter from Teva notifying Cubist that Teva has submitted an ANDA to the 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, the active ingredient in CUBICIN, 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 is 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. On March 23, 2009, Cubist filed a patent infringement lawsuit against Teva, Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. in response to the ANDA filing. The complaint, which was filed in the U.S. District Court for the District of Delaware, alleges infringement of the referenced patents. Under current U.S. law, the filing of the lawsuit automatically prevents the FDA

134

CUBIST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

O. COMMITMENTS AND CONTINGENCIES (Continued)

from approving the ANDA for 30 months from Cubist's receipt of Teva's Paragraph IV notification letter on February 9, 2009, unless the court enters judgment in favor of Teva in less than 30 months, or finds that a party has failed to cooperate reasonably to expedite the lawsuit. The court has set a date for trial beginning on April 25, 2011. The court also scheduled a claims construction hearing (a.k.a. Markman hearing) for June 2, 2010, and has indicated that summary judgment motions will not be permitted in this lawsuit.

        Cubist has retained the services of Wilmer Cutler Pickering Hale and Dorr LLP, or WilmerHale, to represent the Company in the ANDA litigation. Cubist entered into a fee arrangement with WilmerHale under which the Company will pay WilmerHale a fixed monthly fee over the course of the litigation and a potential additional payment that could be due to WilmerHale based on the ultimate outcome of the lawsuit. The Company is accruing amounts due to WilmerHale based on its best estimate of the fees that it expects to incur as the services are provided. Based on the nature of this fee arrangement, Cubist could incur legal fees in excess of amounts accrued as a result of future events.

P. 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. Approximately 98% of the Company's revenues are currently generated within the U.S.

Q. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

        The following table contains quarterly financial information for fiscal years 2009 and 2008. Cubist believes that the following information reflects all normal recurring adjustments necessary for a fair

135

CUBIST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Q. 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)
2009
Total revenues, net	$	121,110		$	130,779		$	143,534	$	166,721
Product revenues, net	$	114,625		$	128,844		$	141,588	$	152,674
Cost of product revenues	$	24,374		$	28,184		$	30,771	$	33,560
Net income	$	7,776	(1)	$	23,776		$	25,379	$	22,669	(2)
Basic net income per share	$	0.14		$	0.41		$	0.44	$	0.39
Diluted net income per share	$	0.13		$	0.40		$	0.42	$	0.38
2008 (as adjusted)(3)
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 (loss)(3)	$	9,716		$	(1,262	)(4)	$	24,969	$	94,469	(5)
Basic net income (loss) per share	$	0.17		$	(0.02	)(4)	$	0.44	$	1.65	(5)
Diluted net income (loss) per share(3)	$	0.17		$	(0.02	)(4)	$	0.44	$	1.43	(5)

(1)

In the first quarter of 2009, Cubist recorded $20.0 million of research and development expense for upfront payments made pursuant to its license and collaboration agreement with Alnylam (See Note C.).

(2)

In the fourth quarter of 2009, Cubist recorded an income tax benefit of $2.8 million relating to an analysis of certain meals and entertainment costs and to final computations of other tax return items, both of which related to prior periods (See Note N.).

(3)

In January 2009, Cubist adopted the provisions a new standard for accounting for debt with conversion and other options. Net income for the year ended December 31, 2008, has been adjusted to reflect the adoption of this standard.

(4)

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.).

(5)

In the fourth quarter of 2008, Cubist recorded a tax benefit of $102.2 million related to the reversal of a significant portion of the valuation allowance on its deferred tax assets (See Note N.) and an other-than-temporary impairment loss of $49.2 million on its investment in auction rate securities (See Notes E. and F.).

136

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, 2009.

        PricewaterhouseCoopers LLP, our independent registered public accounting firm, which audited our financial statements for the fiscal year ended December 31, 2009, 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, 2009, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        None.

137

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, which is currently expected to be held on June 3, 2010. 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, which is currently expected to be held on June 3, 2010. 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, which is currently expected to be held on June 3, 2010. 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, which is currently expected to be held on June 3, 2010. 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, which is currently expected to be held on June 3, 2010. Such information is incorporated herein by reference.

138

PART IV.

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, 2009 and 2008

•

Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007

•

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007

•

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2009, 2008 and 2007

•

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.

139

SCHEDULE II

Cubist Pharmaceuticals, Inc.
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2009, 2008 and 2007

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, 2009	$	6,332		32,726		(31,623	)	$	7,435
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

(1)

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

140

3.     List of Exhibits

†2.1	Agreement and Plan of Merger, dated December 24, 2007, 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)
*2.2	Agreement and Plan of Merger, dated December 12, 2009, among Cubist, SD Acquisition Corporation, Calixa Therapeutics Inc., or Calixa, and the other parties named therein
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	Indenture, dated 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)
4.3	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 Registration Statement on Form S-1 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, 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)
†10.6	Assignment and License Agreement, dated October 6, 2000, between Eli Lilly & Company, or Eli Lilly, and Cubist (Exhibit 10.6, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
**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, dated September 30, 2001, 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 May 8, 2002, to Manufacturing and Supply Agreement between ACS and Cubist, dated September 30, 2001 (Exhibit 10.12, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
†10.13	Amendment No. 2, dated February 12, 2003, to Manufacturing and Supply Agreement between ACS and Cubist, dated September 30, 2001 (Exhibit 10.67, Annual Report on Form 10-K filed on March 28, 2003, File No. 000-21379)

141

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 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 October 2, 2003, 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) (Exhibit 10.16, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
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 License Agreement 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, dated August 11, 2004, 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 3, 2005, to 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 Processing Services Agreement between Oso and Cubist, dated August 11, 2004 (Exhibit 10.21, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
10.22	First Amendment, dated September 29, 2005, to Lease 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 October 20, 2005, to Manufacturing and Supply Agreement between ACS and Cubist, dated 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, dated November 18, 2005, to Lease 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 June 1, 2006, to Development and Supply Agreement 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 September 22, 2006, to Manufacturing and Supply Agreement between ACS and Cubist, dated September 30, 2001 (Exhibit 10.26, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
10.27	Amendment #2, dated January 1, 2007, to License Agreement between Cubist, Chiron, and Novartis Vaccines, dated October 2, 2003 (Exhibit 10.27, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
†10.28	Amendment No. 2, dated April 18, 2007, to Processing Services Agreement between Oso and Cubist, dated August 11, 2004 (Exhibit 10.3, Quarterly Report on Form 10-Q filed on August 3, 2007, File No. 000-21379)
10.29	Third Amendment, dated June 28, 2007, to Lease 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)

142

**10.30	Retention Letter, dated October 9, 2007, between Cubist and Michael W. Bonney (Exhibit 10.1, Quarterly Report on Form 10-Q filed on November 2, 2007, File No. 000-21379)
**10.31	Form of Retention Letter between Cubist and Lindon M. Fellows, Steven C. Gilman, Tamara L. Joseph, David W.J. McGirr, Robert J. Perez, Gregory Stea, and Santosh Vetticaden, or Vetticaden
10.32	Fourth Amendment, dated October 25, 2007, to Lease 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)
*10.33	License Agreement, dated November 1, 2007, between Astellas Pharma Inc. and Calixa
10.34	Fifth Amendment, dated December 18, 2007, to Lease 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, 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	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)
†10.37	Second Amendment, dated June 26, 2008, to Development and Supply Agreement 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)
†10.38	Commercial Services Agreement, dated July 1, 2008, between AstraZeneca Pharmaceuticals LP, or AstraZeneca, and Cubist (Exhibit 10.1, Quarterly Report on Form 10-Q filed on November 10, 2008, File No. 000-21379)
10.39	Sixth Amendment, dated July 31, 2008, to Lease between RA and Cubist, dated January 2004 (Exhibit 10.41, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
**10.40	Offer Letter, dated November 12, 2008, between Cubist and Vetticaden (Exhibit 10.42, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
10.41	Seventh Amendment, dated November 18, 2008, to Lease between RA and Cubist, dated January 2004 (Exhibit 10.43, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
10.42	Eighth Amendment, dated November 18, 2008, to Lease between RA and Cubist, dated January 2004 (Exhibit 10.44, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
10.43	Ninth Amendment, dated December 19, 2008, to Lease between RA and Cubist, dated January 2004 (Exhibit 10.45, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
10.44	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)
10.45	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)
†10.46	License and Collaboration Agreement, dated January 9, 2009, between Alnylam Pharmaceuticals, Inc., or Alnylam, and Cubist (Exhibit 10.1, Quarterly Report on Form 10-Q filed on May 1, 2009, File No. 000-21379)
*10.47	First Amendment, dated February 26, 2009, to Commercial Services Agreement between AstraZeneca and Cubist, dated July 1, 2008
**10.48	Form of Restricted Stock Unit Agreement for awards under Cubist's Amended and Restated 2000 Equity Incentive Plan (Exhibit 10.49, Annual Report on Form 10-K filed on February 27, 2009, File No. 000-21379)
**10.49	Amendment Letter, dated April 13, 2009, to Offer Letter between Cubist and Vetticaden, dated November 12, 2008 (Exhibit 10.3, Quarterly Report on Form 10-Q filed on July 29, 2009, File No. 000-21379)

143

**10.50	Amended and Restated 2002 Directors' Equity Incentive Plan (Appendix B, Definitive Proxy Statement on Form DEF-14A filed on April 24, 2009, File No. 000-21379)
10.51	Tenth Amendment, dated May 8, 2009, to Lease between RA and Cubist, dated January 2004
*10.52	Second Amendment, dated May 20, 2009, to Commercial Services Agreement between AstraZeneca and Cubist, dated July 1, 2008
**10.53	Amendment Letter, dated June 23, 2009, to Offer Letter between Cubist and Vetticaden, dated November 12, 2008 (Exhibit 10.4, Quarterly Report on Form 10-Q filed on July 29, 2009, File No. 000-21379)
*10.54	Third Amendment, dated September 30, 2009, to Commercial Services Agreement between AstraZeneca and Cubist, dated July 1, 2008
*10.55	Fourth Amendment, dated October 15, 2009, to Commercial Services Agreement between AstraZeneca and Cubist, dated July 1, 2008
*10.56	Fifth Amendment, dated October 16, 2009, to Commercial Services Agreement between AstraZeneca and Cubist, dated July 1, 2008
*10.57	First Amendment, dated November 2, 2009, to License and Collaboration Agreement between Alnylam and Cubist, dated January 9, 2009
*10.58	Amendment No. 5, dated November 17, 2009, to Manufacturing and Supply Agreement between ACS and Cubist, dated September 30, 2001
*10.59	Sixth Amendment, dated December 11, 2009, to Commercial Services Agreement between AstraZeneca and Cubist, dated July 1, 2008
**10.60	Amended and Restated 1997 Employee Stock Purchase Plan
**10.61	Director Compensation Summary Sheet
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.

144

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act, the registrant has duly caused this report 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 26, 2010
/s/ DAVID W.J. MCGIRR David W.J. McGirr	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 26, 2010
/s/ KENNETH M. BATE Kenneth M. Bate	Director	February 26, 2010
/s/ MARK H. CORRIGAN Mark H. Corrigan	Director	February 26, 2010
/s/ SYLVIE GRÉGOIRE Sylvie Grégoire	Director	February 26, 2010
/s/ NANCY J. HUTSON Nancy J. Hutson	Director	February 26, 2010
/s/ WALTER R. MAUPAY, JR. Walter R. Maupay, Jr.	Director	February 26, 2010

145

Signature	Title	Date
/s/ MARTIN ROSENBERG Martin Rosenberg	Director	February 26, 2010
/s/ J. MATTHEW SINGLETON J. Matthew Singleton	Director	February 26, 2010
/s/ MARTIN H. SOETERS Martin H. Soeters	Director	February 26, 2010
/s/ MICHAEL B. WOOD Michael B. Wood	Director	February 26, 2010

146

EX-2.2

Exhibit 2.2

CONFIDENTIAL TREATMENT

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

CUBIST PHARMACEUTICALS, INC.,

SD ACQUISITION CORPORATION,

CALIXA THERAPEUTICS INC.,

and

THE MEMBERS OF THE

STOCKHOLDERS’ COMMITTEE

December 12, 2009

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

LIST OF EXHIBITS AND SCHEDULES

Exhibit A	Definitions
Exhibit B	Form of Certificate of Merger
Exhibit C	Form of Payment Agent Agreement
Exhibit D	Form of Escrow Agreement
Exhibit E	Form of Letter of Transmittal
Exhibit F	Form of Press Release
Exhibit G	Description of CXA-101
Exhibit H	Description of CXA-201
Exhibit I	Consultants
Target Disclosure Schedules
Acquiror Disclosure Schedules

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of December 12, 2009 (the “Agreement Date”) by and among Cubist Pharmaceuticals, Inc., a Delaware corporation (“Acquiror”), SD Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Acquiror (“Merger Sub”), Calixa Therapeutics Inc., a Delaware corporation (“Target”), and Eckard Weber and Dennis Podlesak, as the members of the Stockholders’ Committee (solely for purposes of Section 8, and as defined by Section 8.3(a) herein).  Acquiror, Merger Sub and Target may be referred to herein individually as a “Party”, and collectively as the “Parties”.  Capitalized terms used in this Agreement shall have the meanings ascribed to such terms in Exhibit A of this Agreement or, if applicable, as provided in the text of this Agreement.

RECITALS

A.The Boards of Directors of Target, Acquiror and Merger Sub each has declared the advisability of the combination of Target and Merger Sub into a single company through the statutory merger of Merger Sub with and into Target (the “Merger”) and, in furtherance thereof, have approved this Agreement and the Merger.

B.In connection with the Merger, the outstanding shares of Target’s capital stock will be converted into the right to receive the cash amount and contingent payments, if any, described in this Agreement.

C.Acquiror, Target and the members of the Stockholders’ Committee will enter into an Escrow Agreement (defined below) to be executed and delivered in accordance with Section 5.8.

D.Target, Acquiror and Merger Sub desire to make certain representations and warranties and enter into certain covenants in connection with the Merger.

NOW, THEREFORE, in consideration of the covenants, representations and warranties set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

1.The Merger.

1.1The Merger.  At the Effective Time and upon the terms and subject to the conditions set forth in this Agreement, in the Certificate of Merger filed pursuant to Section 1.2 and in the applicable provisions of the Delaware General Corporation Law (“Delaware Law”), Merger Sub shall be merged with and into Target, the separate corporate existence of Merger Sub shall cease and Target shall continue as the surviving corporation in the Merger (the “Surviving Corporation”).

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

1.2Closing; Effective Time.  The consummation of the Merger (the “Closing”) shall take place as soon as practicable, but no later than two Business Days, after the satisfaction or waiver of the last of the conditions set forth in Section 6 to be satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing), or at such other time as the Parties agree (the actual date on which the Closing takes place being the “Closing Date”).  The Closing shall take place at the offices of Reed Smith LLP at 2500 One Liberty Place, Philadelphia, PA 19103 or at such other location as the Parties agree.  In connection with the Closing, Target shall cause the Merger to be made effective by filing the Certificate of Merger in substantially the form attached hereto as Exhibit B (the “Certificate of Merger”) with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware Law (the time of such filing being the “Effective Time”).

1.3Effect of the Merger.  At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger as filed pursuant to Section 1.2 and the applicable provisions of Delaware Law.

1.4Certificate of Incorporation; Bylaws.  Unless otherwise agreed to by Acquiror and Target prior to the Closing, at the Effective Time:

(a)the certificate of incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided by Delaware Law; provided, however, that Article I of the certificate of incorporation of the Surviving Corporation shall be amended to read as follows:  “The name of the corporation is Calixa Therapeutics Inc.”; and

(b)the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended.

1.5Directors and Officers.  At the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, to serve until their respective successors are duly elected or appointed and qualified.

1.6Closing Payments.  At the Effective Time, Acquiror shall deliver an amount equal to the Upfront Payment to Wells Fargo Bank, N.A. (the “Payment Agent”) and the Payment Agent shall, at or as soon as reasonably practicable after the Effective Time, subject to and in accordance with the provisions of Section 1.6 hereof and a Payment Agent Agreement in the form of Exhibit C (the “Payment Agent Agreement”) (with such additional revisions, prior to the Closing, as Acquiror and the Stockholders’ Committee may mutually agree after consultation with the Payment Agent), pay and distribute the Upfront Payment as follows:

(a)One Hundred Thousand Dollars ($100,000) (the “Committee Reimbursement Amount”) shall be deposited with the Stockholders’ Committee, to be held by the Stockholders’ Committee for the payment of expenses incurred by the Stockholders’ Committee in performing its duties pursuant to this Agreement and the Escrow Agreement;

(b)The Escrow Contribution Amount shall be deposited with Wells Fargo Bank, N.A. (the “Escrow Agent”) to be held on behalf of the Former Holders pursuant to

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

4

an Escrow Agreement in the form of the attached Exhibit D (the “Escrow Agreement”) (with such additional revisions, prior to the Closing, as Acquiror and the Stockholders’ Committee may mutually agree after consultation with the Escrow Agent); and

(c)The Net Upfront Payment shall be paid in respect of all of the shares of Target Capital Stock, the Target Options and the Target Warrants outstanding immediately prior to the Effective Time pursuant to the terms of this Agreement and the Payment Agent Agreement.

1.7Determining Closing Adjustment Amount.

(a)Target Determination.  On the Business Day immediately prior to the Closing Date, the Target’s Chief Financial Officer shall deliver to Acquiror a certificate setting forth:

(i)Target’s good faith estimate of the Closing Cash Balance (the “Estimated Closing Cash Balance”)

(ii)Target’s good faith estimate of the Closing Debt (the “Estimated Closing Debt”);

(iii)Target’s good faith estimate of the Closing Liabilities (the “Estimated Closing Liabilities”);

(iv)Target’s good faith estimate of the Closing Tax Liabilities (the “Estimated Closing Tax Liabilities”);

(v)Target’s good faith estimate of the Target Lease Liabilities (the “Estimated Target Lease Liabilities”);

(vi)Target’s good faith estimate of the Transactional Expenses (the “Estimated Transactional Expenses”);

(vii)Target’s good faith estimate of the Target Severance (the “Estimated Target Severance”); and

(viii)the amount, which amount may be a positive or negative number (the “Estimated Closing Adjustment Amount”), equal to the Estimated Closing Cash Balance, minus the Estimated Closing Debt, Liability & Expense Amount;

all in reasonable detail together with appropriate backup documentation (including final invoices and pay-off letters with respect to the Transactional Expenses and Closing Debt and depositary account statements reflecting the cash and cash equivalents of Target, net of outstanding checks, as of the date of such certificate) to support such estimates and calculations (collectively, the “Target Determination”).

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

5

(b)Post-Closing Adjustment. Within 90 days following the Closing Date, the Acquiror’s Chief Financial Officer may, at Acquiror’s sole discretion, deliver to the Stockholders’ Committee a certificate setting forth:

(i)Acquiror’s good faith determination of the Closing Cash Balance;

(ii)Acquiror’s good faith determination of the Closing Debt;

(iii)Acquiror’s good faith determination of the Closing Liabilities;

(iv)Acquiror’s good faith determination of the Closing Tax Liabilities;

(v)Acquiror’s good faith determination of the Target Lease Liabilities;

(vi)Acquiror’s good faith determination of the Transactional Expenses;

(vii)Acquiror’s good faith determination of the Target Severance; and

(viii)the amount, which amount may be a positive or negative number (the “Closing Adjustment Amount”), equal to the Closing Cash Balance, minus the Closing Debt, Liability & Expense Amount;

all in reasonable detail together with appropriate backup documentation to support such determinations (collectively, the “Acquiror Determination”).

(c)After the delivery of the Acquiror Determination, if any, Acquiror shall, and shall cause the Surviving Corporation to, cooperate with the Stockholders’ Committee during customary business hours upon reasonable prior notice in connection with its review of the Acquiror Determination. The Stockholders’ Committee may dispute any amounts reflected on the Acquiror Determination by notifying Acquiror in writing of each disputed item, specifying the amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within 30 days after the Stockholders’ Committee’s receipt of the Acquiror Determination.  If the Stockholders’ Committee delivers a notice of dispute within such 30-day period, the Stockholders’ Committee and Acquiror shall, during the 30 days following such delivery, each use good faith efforts to reach agreement on the disputed items or amounts in order to finally determine the Closing Adjustment Amount.  If the Stockholders’ Committee and Acquiror are unable to reach agreement concerning the Closing Adjustment Amount during such 30-day period, they shall promptly thereafter submit the dispute to the Accounting Referee for resolution pursuant to Section 1.8.

(d)The Closing Adjustment Amount shall be deemed conclusively determined for purposes of this Agreement upon the earlier to occur of (x) the failure of the

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

6

Stockholders’ Committee to notify Acquiror of a dispute within 30 days of the Stockholders’ Committee’s receipt of the Acquiror Determination, (y) the written resolution of all disputes pursuant to Section 1.7(c) above by Acquiror and the Stockholders’ Committee, and (z) the resolution of all disputes by the Accounting Referee pursuant to Section 1.8.  If the Closing Adjustment Amount is less than the Estimated Closing Adjustment Amount, Acquiror shall be entitled to receive within three Business Days of such conclusive determination from the Escrow Fund an amount equal to the absolute value of the difference between the Closing Adjustment Amount and the Estimated Closing Adjustment Amount.

1.8Adjustment Dispute Resolution.  If the Stockholders’ Committee and Acquiror are unable to reach agreement concerning the Closing Adjustment Amount pursuant to Section 1.7(d), they shall submit such dispute to a nationally recognized independent accounting expert, mutually acceptable to Acquiror and the Stockholders’ Committee, which is not the auditor of Acquiror, the Target or any of their respective Affiliates (the “Accounting Referee”) for resolution pursuant to this Section 1.8 and instruct the Accounting Referee to review the disputed items or amounts for the purpose of final determination of the Closing Adjustment Amount. In making such determination and calculations, the Accounting Referee shall consider only those items or amounts in the Closing Adjustment Amount or in the Acquiror Determination as to which Acquiror and the Stockholders’ Committee have disagreed in writing.  Acquiror and the Stockholders’ Committee shall instruct the Accounting Referee to use its reasonable best efforts to deliver to the Stockholders’ Committee and Acquiror as promptly as practicable (but in no event later than 30 days after submission of the dispute to the Accounting Referee) a report setting forth the Accounting Referee’s calculation of the disputed amounts.  Such report shall be final and binding upon the Stockholders’ Committee, Acquiror and the Surviving Corporation, and the resulting calculation of the Closing Adjustment Amount shall be final for all purposes of this Agreement.  The fees, costs and expenses of the Accounting Referee shall be borne (i) by Acquiror if the aggregate difference between the finally determined Closing Adjustment Amount and Acquiror’s calculation of such amount at the time the disagreement(s) were submitted to the Accounting Referee is greater than the aggregate difference between the finally determined Closing Adjustment Amount and the Stockholders’ Committee’s calculation of such amount at the time the disagreement(s) were submitted to the Accounting Referee, (ii) by the Stockholders’ Committee if the aggregate difference between the finally determined Closing Adjustment Amount and the Stockholders’ Committee’s calculation of such amount at the time the disagreement(s) were submitted to the Accounting Referee is greater than the aggregate difference between the finally determined Closing Adjustment Amount and Acquiror’s calculation of such amount at the time the disagreement(s) were submitted to the Accounting Referee, and (iii) in any other case, one-half by Acquiror and one-half by the Stockholders’ Committee.

1.9Effect on Capital Stock.  Subject to Section 1.6, at the Effective Time, by virtue of the Merger and without any further action on the part of Acquiror, Merger Sub, Target, the Stockholders’ Committee or the holders of any of the securities identified below:

(a)each share of Common Stock and Series A Preferred Stock, issued and outstanding immediately prior to the Effective Time (excluding Dissenting Shares) shall be converted into the right to receive (without interest) an amount of cash equal to:  (i) the Upfront Per Share Price; plus (ii) any cash disbursements required to be made from the Escrow Fund with

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

7

respect to each such share to the Former Holders thereof in accordance with the terms of the Escrow Agreement, such amount initially equal to the Per Share Escrow Amount, as and when such disbursements are required to be made; plus (iii) any cash disbursements required to be made from the Committee Reimbursement Amount with respect to such share of Target Capital Stock to the Former Holders thereof pursuant to the terms hereof, plus (iv) a right to receive a portion of the Contingent Payments, if any, under Section 9;

(b)each share of Target Capital Stock that is owned by Target as treasury stock, or by Acquiror or Merger Sub, shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor; and

(c)each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation.

The amount of cash, if any, that each Former Holder of Target is entitled to receive for the shares of Target Capital Stock held by such Former Holder and/or Target Options or Target Warrants held by such Former Holder (as provided in Section 1.14) shall be rounded to the nearest cent (with $0.005 being rounded upward) and computed after aggregating the cash amounts payable for all shares of each class and series of Target Capital Stock, Target Options and Target Warrants held by such Former Holder.

1.10Cancellation and Surrender of Certificates.

(a)No Further Rights as Target’s stockholders.  At the Effective Time, all shares of Target Capital Stock, all Target Options and all Target Warrants outstanding immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no holder of record of a certificate that immediately prior to the Effective Time represented outstanding shares of Target Capital Stock (a “Certificate”) or any Target Option or Target Warrant shall have any rights as a stockholder, optionholder or warrantholder, as the case may be, of Target or the Surviving Corporation.

(b)Exchange Procedures.  Prior to the Effective Time, Acquiror will cause the Payment Agent to distribute, by electronic mail to each record holder of Certificates (other than Dissenting Shares), Target Options and Target Warrants, a letter of transmittal in the form attached hereto as Exhibit E (the “Letter of Transmittal”).  Upon surrender of a Certificate (in the case of Target Capital Stock) or original option agreement (in the case of Target Options) or an original warrant (in the case of Target Warrants), for cancellation, together with the Letter of Transmittal, duly completed and validly executed in accordance with the instructions thereto, provided that the Effective Time has occurred and the transactions contemplated hereunder, including the Merger, have been consummated, (i) the holder of such Certificate, Target Option or Target Warrant, as the case may be, shall be entitled to receive in exchange therefor an amount equal to the share of the Merger Consideration which such holder has the right to receive pursuant to Section 1.9(a), Section 1.14(a) or Section 1.14(b) as applicable, payable in cash in the amounts set forth therein without any interest thereon, and (ii) all Certificates, original option agreements and original warrants so surrendered shall forthwith be canceled.  The Payment

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

8

Agent shall, no later than two Business Days after the later of (x) the Effective Time or (y) the receipt of each properly surrendered Certificate, option agreement or warrant, cause the payment described in the preceding sentence (not including any amounts covered by clauses (ii)-(iv) of Sections 1.9(a), 1.14(a) and 1.14(b)) to be made to such Former Holder so surrendering by wire transfer of immediately available funds to the account designated by such Former Holder in the Letter of Transmittal delivered with such Certificate, original option agreements and original warrants, or, by check (in which case payment shall be made no later than three Business Days after receipt of each properly surrendered Certificate, option agreement or warrant) sent to the address designated by such holder in the Letter of Transmittal delivered with such Certificate, original option agreements and original warrants.  Until so surrendered, each outstanding Certificate, original option agreement and original warrant that prior to the Effective Time represented shares of Target Capital Stock (other than Dissenting Shares) will be deemed from and after the Effective Time, for all purposes, to evidence the right to receive the payments provided, as applicable, in Sections 1.9(a), 1.14(a) and 1.14(b).  After the surrender and payment described in the preceding sentence, each Former Holder shall remain entitled to receive, as applicable, additional cash distributions of the amounts covered by clauses (ii)-(iv) of Sections 1.9(a), 1.14(a) and 1.14(b).  If, after the Effective Time, any Certificate is presented to the Surviving Corporation or Acquiror, it shall be cancelled and exchanged as provided in this Section 1.10.

(c)Transfers of Ownership.

(i)At the Effective Time, the stock transfer books of Target shall be closed, and there shall thereafter be no further registration of transfers of shares of Target Capital Stock, Target Options or Target Warrants outstanding immediately prior to the Effective Time on the records of Target.

(ii)The right of each Former Holder to receive the portion of the Merger Consideration, if any, to which such Former Holder is entitled pursuant to this Agreement upon consummation of the Merger: (i) shall be personal to such Former Holder; (ii) shall not be transferable by such Former Holder or any person claiming under such Former Holder, whether by sale, assignment, pledge or otherwise, except as set forth below in this Section 1.10(c)(ii) and any other purported transfer shall be void and of no force or effect; (iii) shall not constitute or represent any equity or ownership interest in Acquiror or the Surviving Corporation; and (iv) shall not entitle such Former Holder to any voting or dividend rights, rights to any other distributions or other rights common to stockholders of the Surviving Corporation or Acquiror.  Notwithstanding the foregoing, this Agreement shall not restrict any Former Holder from transferring such Former Holder’s right to receive the portion of the Merger Consideration, if any, to which such Former Holder is entitled pursuant to this Agreement upon consummation of the Merger (A) to other entities controlled by such Former Holder, (B) in the case of any Former Holder that is a corporation, general partnership, limited partnership, limited liability company or venture capital firm, to such Former Holder’s stockholders, partners, members or other holders of equity securities in such Former Holder, as applicable, (C) in connection with tax, estate or financial planning, (D) upon the death of such Former Holder or (E) by operation of law, provided that, (1) such Former Holder (or in the event of death, if applicable, such Former Holder’s executor or legal representative) provides to Acquiror and the Stockholders’ Committee prompt written notice of such transfer, which written notice shall be given in accordance with the

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

9

provisions of Section 10.1 hereof and shall set forth the name and address of each transferee, (2) such Former Holder does not receive any consideration in connection with such transfer and (3) any such permitted transferee agrees to assume all of the obligations of such Former Holder under this Agreement to the extent such obligations are applicable to the portion of the Merger Consideration so transferred to such permitted transferee.  Additionally, each Former Holder that is an entity may transfer its right to receive that portion of the Merger Consideration to which such Former Holder is entitled pursuant to this Agreement in connection with the sale of all or substantially all of the assets or capital stock (or other equity securities) of such Former Holder, or any merger, consolidation, business combination, recapitalization or similar transaction involving such Former Holder in which such Former Holder’s stockholders or other equity owners would cease to own 50% or more of the capital stock (or other equity securities) of such Former Holder.  Subsequent transfers by any such transferee of the right to receive a portion of the Merger Consideration shall also be made pursuant to, and in accordance with, all of the provisions of this Section 1.10(c)(ii) to the same extent as if each such transferee were a Former Holder.  Notwithstanding any other provision of this Agreement, where a provision in this Agreement refers to the payment of any portion of the Merger Consideration to a Former Holder, the term Former Holder shall be deemed to include any transferees of such Former Holder, as permitted pursuant to this Section 1.10(c)(ii).

(d)No Liability.  Notwithstanding anything to the contrary in this Section 1.10, neither Acquiror nor the Surviving Corporation or any other party hereto shall be liable to any person for any amount properly paid to a public official pursuant to any applicable abandoned property law, escheat law or similar law.

(e)Withholding Rights.  Each of the Acquiror and Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any Former Holder such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “Code”), or any provision of state, local or foreign Tax law.  To the extent that amounts are so withheld by the Acquiror or Surviving Corporation, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Former Holder in respect of which such deduction and withholding was made.  To the extent the Acquiror or the Surviving Corporation deducts and withholds any such amounts payable pursuant to this Agreement, the Acquiror or the Surviving Corporation, as the case may be, shall remit to the appropriate Taxing Authority all such amounts deducted and withheld.

1.11Lost, Stolen or Destroyed Certificates.  In the event any Certificate shall have been lost, stolen or destroyed, Acquiror shall pay to the record holder of such Certificate the consideration payable pursuant to Section 1.9, 1.14(a) or 1.14(b), as applicable, upon the making of an affidavit of that fact by such record holder; provided, however, that Acquiror may, in its discretion and as a condition precedent to the payment of such consideration, require such record holder to deliver an indemnification agreement in form and substance reasonably acceptable to Acquiror as indemnity against any claim that may be made against Acquiror or the Surviving Corporation with respect to such Certificate, original option agreement or original warrant.

1.12Dissenting Shares.  Notwithstanding anything in this Agreement to the contrary, any Dissenting Share shall not be converted into the right to receive the consideration

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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to which the holder of such share (a “Dissenting Stockholder”) would be entitled pursuant to Section 1.9, but rather shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Share pursuant to Delaware Law.  If any Dissenting Stockholder fails to perfect such stockholder’s appraisal rights under Delaware Law or effectively withdraws or otherwise loses such rights with respect to any Dissenting Shares, such Dissenting Shares shall thereupon automatically be converted into the right to receive the consideration referred to in Section 1.9, without any interest thereon, pursuant to the exchange procedures set forth in Section 1.10.  Target shall give Acquiror (a) prompt notice of any demand for payment of the fair value of any shares of Target Capital Stock or any attempted withdrawal of any such demand for payment and any other instrument served pursuant to Delaware Law and received by Target relating to any stockholder’s appraisal rights, and (b) the opportunity to participate in all negotiations and proceedings with respect to any such demands for payment under Delaware Law.  Target shall cooperate with Acquiror concerning, and shall not make any payment with respect to any demands for the appraisal of shares of Target Capital Stock, or settle or offer to settle any such demands, other than with the prior written consent of Acquiror, by operation of law or pursuant to a final order of a court of competent jurisdiction.

1.13Taking of Further Action.  If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Target and Merger Sub, Acquiror and the Surviving Corporation are fully authorized in their respective names to take, and will take, all such lawful and necessary or desirable action, so long as such action is not inconsistent with this Agreement.

1.14Target Options;  and Target Warrants and Restricted Stock.

(a)On or prior to the Effective Time, the board of directors of Target (or, if appropriate, any committee thereof administering the 2008 Stock Plan) shall adopt such resolutions or take such other actions as may be required to adjust the terms of all outstanding Target Options, whether vested or unvested, as necessary to provide that Target Options will become fully exercisable and may be exercised before the Effective Time at such applicable time or times as specified in the 2008 Stock Plan, and at the Effective Time, each Target Option outstanding immediately prior to the Effective Time, whether or not then vested or exercisable, shall be canceled.  The Acquiror shall not assume any Target Options.  At the Effective Time, the former holder of any Target Options so canceled shall then become entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount, in cash equal to:  (i) the product of (a) the number of shares of Common Stock subject to such Target Option immediately prior to the Effective Time, multiplied by (b) the amount by which the Upfront Per Share Price exceeds the exercise price per share of Common Stock that is subject to such Target Option; plus (ii) any cash disbursements required to be made from the Escrow Fund with respect to such Target Option to the Former Optionholder thereof in accordance with the terms of the Escrow Agreement, such amount initially equal to the Per Share Escrow Amount, as and when such disbursements are required to be made; plus (iii) any cash disbursements required to be made from the Committee Reimbursement Amount with respect to such Target Options to the Former Optionholder pursuant to the terms hereof; plus (iv) a right to a portion of any Contingent Payments under Section 9.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(b)At the Effective Time, each Target Warrant outstanding immediately prior to the Effective Time, whether or not then vested or exercisable, shall become fully exercisable and be canceled.  Acquiror shall not assume any Target Warrants. At the Effective Time, the former holder of a Target Warrant so canceled shall then become entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount, in cash, equal to:  (i) the product of (a) the number of shares of Target Capital Stock subject to such Target Warrant immediately prior to the Effective Time, multiplied by (b) the amount by which the Upfront Per Share Price exceeds the exercise price per share of Target Capital Stock that is subject to such Target Warrant; plus (ii) any cash disbursements required to be made from the Escrow Fund with respect to such Target Warrant to the Former Warrantholder thereof in accordance with the terms of the Escrow Agreement, such amount initially equal to the Per Share Escrow Amount, as and when such disbursements are required to be made; plus (iii) any cash disbursements required to be made from the Committee Reimbursement Amount with respect to such Target Warrants to the Former Warrantholder pursuant to the terms hereof; plus (iv) a right to a portion of any Contingent Payments under Section 9.

(c)On or prior to the Effective Time, the board of directors of Target (or, if appropriate, any committee thereof) shall adopt such resolutions or take such other actions as may be required to adjust the terms of all outstanding shares of Common Stock as to which the Target retains at the Effective Time the right (whether generally or under specified conditions) to reacquire such shares at an amount equal to or less than their market value or which are otherwise subject to risks of forfeiture in favor of the Target (collectively, the “Restricted Stock”), whether vested or unvested, as necessary to provide that such Restricted Stock will become fully vested and no longer subject to any repurchase right on behalf of the Target, and at the Effective Time, each share of Restricted Stock outstanding immediately prior to the Effective Time, whether or not then vested or exercisable, shall be canceled.  At the Effective Time, the former holder of any shares of Restricted Stock so canceled shall then become entitled to receive, in full satisfaction of the rights of such holder with respect thereto, Merger Consideration as set forth in Sections 1.10 and 9 hereof payable to holders of Common Stock.

1.15Escrowed Funds.

(a)Subject to the terms of this Section 1.15(a), Article 8 hereof and the Escrow Agreement, the Escrow Fund other than the Specified Tax Claim Escrow Amount shall be held until the date that is twelve (12) months after the Closing Date (the “First Escrow Release Date”) in order to ensure the satisfaction of indemnification claims made pursuant to Article 8 of this Agreement, except that all or any portion of the Escrow Fund may be released from such escrow prior to the First Escrow Release Date if Acquiror and the Stockholders’ Committee jointly agree to such release in accordance with the terms of the Escrow Agreement.  Promptly following the First Escrow Release Date, the Escrow Fund other than the Specified Tax Claim Escrow Amount shall be released to the Payment Agent pursuant to, and in accordance with, this Agreement, the Payment Agent Agreement and the Escrow Agreement, except for that amount required to be held pursuant to, and in accordance with, the provisions of the Escrow Agreement to satisfy any claims (whether or not disputed) by Acquiror for indemnification made on or prior to such date pursuant to Article 8 of this Agreement and that amount subject to claims of the Stockholders’ Committee for reimbursement of expenses

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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incurred by the Stockholders’ Committee in accordance with the provisions of Section 8.3(b) hereof or for indemnification of the Stockholders’ Committee in accordance with the provisions of Section 8.3(b) hereof.  The portion of the Escrow Fund released on the First Escrow Release Date shall be paid by the Payment Agent ratably to the Former Holders in the same proportion as the payment of the Upfront Payment to such persons in accordance with this Agreement.

(b)Subject to the terms of this Section 1.15(b), Article 8 hereof and the Escrow Agreement, the Specified Tax Claim Escrow Amount shall be held until the date that is twenty four (24) months after the Closing Date (the “Final Escrow Release Date”) in order to ensure the satisfaction of indemnification claims made pursuant to Article 8 of this Agreement for Specified Tax Claims, except that all or any portion of the Specified Tax Claim Escrow Amount may be released from such escrow prior to the Final Escrow Release Date if Acquiror and the Stockholders’ Committee jointly agree to such release in accordance with the terms of the Escrow Agreement.  Promptly following the Final Escrow Release Date, the Specified Tax Claim Escrow Amount shall be released to the Payment Agent pursuant to, and in accordance with, this Agreement, the Payment Agent Agreement and the Escrow Agreement, except for that amount required to be held pursuant to, and in accordance with, the provisions the Escrow Agreement to satisfy any claims (whether or not disputed) by Acquiror for indemnification made on or prior to such date pursuant to Article 8 of this Agreement and that amount subject to claims of the Stockholders’ Committee for reimbursement of expenses incurred by the Stockholders’ Committee in accordance with the provisions of Section 8.3(b) hereof or for indemnification of the Stockholders’ Committee in accordance with the provisions of Section 8.3(b) hereof. The portion of the Escrow Fund released on the Final Escrow Release Date shall be paid by the Payment Agent ratably to the Former Holders in the same proportion as the payment of the Upfront Payment to such persons in accordance with this Agreement. This Section 1.15(b) shall not be applicable if before the first anniversary of the Closing Date Acquiror shall have made Specified Tax Claims in an aggregate amount equal to or greater than the Special Tax Claim Escrow Amount.

2.Representations and Warranties of Target.  Target represents and warrants to Acquiror and the Merger Sub as of each of the Agreement Date and the Closing Date that, except as disclosed in the disclosure schedule of even date herewith delivered by Target to Acquiror with this Agreement and complying with the provisions of Section 10.2(a) (the “Target Disclosure Schedule”):

2.1Organization, Standing and Power. Each of Target and its Subsidiaries is a corporation or a limited company duly organized, validly existing and in good standing, if applicable, under the laws of the jurisdiction of its formation.  Target and its Subsidiaries have the corporate or limited company power to own their properties and to carry on their business as currently being conducted (collectively, the “Current Target Business”).  Each of Target and its Subsidiaries is duly qualified to conduct business, and is in good standing (if such concept is applicable in the relevant jurisdiction), in each jurisdiction where such qualification is required, except where the failure to be so qualified would not reasonably be expected to be materially adverse to Target and its Subsidiaries, taken as a whole, or the Current Target Business.  Target has delivered, or made available for review in the Data Room, to Acquiror or its advisors true and correct copies of the certificate of incorporation and bylaws or other equivalent organizational documents, as applicable, of Target and each of its Subsidiaries.  The minute

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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books of Target and each of its Subsidiaries have been made available in the Data Room for review by Acquiror or its advisors and contain a materially complete and accurate summary of all meetings of directors and stockholders or actions by written consent since the time of incorporation of Target and each Subsidiary, respectively.  Target has no Subsidiaries, other than those listed in Section 2.1 of the Target Disclosure Schedule, and Target does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity other than as set forth on Section 2.1 of the Target Disclosure Schedule.

2.2Authority.  Target has all requisite corporate power and authority to enter into this Agreement and, subject to receiving the Required Stockholder Vote, to consummate the transactions contemplated hereby, including the Merger.  The affirmative vote or consent of the holders of (a) a majority of the shares of Common Stock and Series A Preferred Stock (voting together as a single class on an as-converted basis) outstanding on the record date chosen for purposes of determining the stockholders of Target entitled to vote on the adoption of this Agreement and (b) sixty-six and two-thirds percent (66 2/3%) of the shares of Series A Preferred Stock (voting separately as a class) outstanding on the record date chosen for purposes of determining the stockholders of Target entitled to vote on the adoption of this Agreement and (c) sixty-six and two-thirds percent (66 2/3%) of the shares of Series A Preferred Stock (voting separately as a class) outstanding on the record date chosen for purposes of waiving the transactions, including the Merger, contemplated by this Agreement, as a “Liquidating Transaction” as defined in and pursuant to Article V, Section 2 of Target’s certificate of incorporation as in effect as of the Agreement Date are the only votes of the holders of any Target Capital Stock necessary under Delaware Law, Target’s certificate of incorporation and bylaws to approve this Agreement and the Merger (the “Required Stockholder Vote”).  The board of directors of Target has unanimously (a) adopted this Agreement and approved its execution and delivery and the performance by Target of its obligations under this Agreement, and the consummation of the Merger; and (b) declared the advisability of the Merger. This Agreement has been duly executed and delivered by Target and, assuming this Agreement constitutes a valid and binding obligation of the other parties hereto, this Agreement constitutes a valid and binding obligation of Target, enforceable against Target in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors’ rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

2.3Noncontravention. Except as set forth in Section 2.3 of the Target Disclosure Schedule, neither the execution and delivery by Target of this Agreement, nor the consummation by Target of any of the transactions contemplated hereby, will:

(a)conflict with or violate any provision of the certificate of incorporation or bylaws of Target;

(b)require on the part of Target any registration, declaration or filing with, or any permit, order, authorization, consent or approval of, any Governmental Entity, except for (i)  any registration, declaration, filing, permit, order, authorization, consent or approval which if not made or obtained would not reasonably be expected to be materially

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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adverse to Target and its Subsidiaries, taken as a whole, or the Current Target Business, and (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware;

(c)(i) in any material respect, conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under any Material Contract, or (ii) create in any party any right to terminate or modify, in any material respect, any Material Contract, or (iii) require any notice, consent, approval or waiver under any Material Contract that is necessary for the consummation by Target of the Merger and the transactions contemplated under this Agreement, including, but not limited to, all consents, waivers, notices and approvals that are necessary or required on the part of Target in connection with, or as a result of, the Merger to preserve all of Target’s rights and benefits in its business, assets, properties, leases and Material Contracts following the Merger;

(d)violate any order, writ, injunction or decree applicable to Target or any of its properties or assets, except for any violation that would not reasonably be expected to be materially adverse to Target and its Subsidiaries, taken as a whole, or the Current Target Business;

(e)violate any statute, rule or regulation applicable to Target or its properties or assets, except for any violation that would not reasonably be expected to be materially adverse to Target and its Subsidiaries, taken as a whole, or the Current Target Business.

2.4Governmental Authorizations.  Target and its Subsidiaries have obtained each material federal, state, county, local or foreign governmental consent, license, permit, grant or other authorization of a Governmental Entity that is required for the operation by Target and its Subsidiaries of the Current Target Business, and all of such consents, licenses, permits, grants and authorizations obtained by Target or its Subsidiaries are in full force and effect.  Target and each of its Subsidiaries are in material compliance with all such consents, licenses, permits, grants and authorizations.

2.5Financial Statements.

(a)Attached as Section 2.5 of the Target Disclosure Schedule is a copy of each of (a) the audited consolidated balance sheets and related statements of operations and statements of cash flows of Target as of and for the fiscal year ended December 31, 2008, (b)  the audited consolidated balance sheets and related statements of operations and statements of cash flows of Target as of and for the period from July 11, 2007 (inception) to December 31, 2007, (c)(i) the unaudited consolidated balance sheet of Target as of September 30, 2009 together with all footnotes thereto, (ii) the unaudited consolidated statements of operations of Target for the nine-month periods ended September 30, 2009 and September 30, 2008 together with all footnotes thereto and (iii) the unaudited consolidated statements of cash flows of Target for the nine-month periods ended September 30, 2009 and September 30, 2008 and (d)(i) the unaudited consolidated balance sheet of Target as of November 30, 2009 (the “Target Balance Sheet”) and (ii) the unaudited consolidated statement of operations of Target for the eleven-month period ended November 30, 2009 (collectively, the “Target Financial Statements”).  The

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

15

Target Financial Statements fairly and accurately present, in all material respects and in accordance with GAAP, the financial condition of Target and its Subsidiaries as of the dates indicated therein and the operating results of Target and its Subsidiaries for the periods indicated therein, subject to normal year-end audit adjustments, the effect of which are not expected to be material in amount individually and in the aggregate, and, with respect to the unaudited consolidated balance sheet and statement of operations of Target  as of and for the ten-month period ended November 30, 2009, the absence of footnotes.  No financial statements of any person other than Target and its Subsidiaries listed on Section 2.1 of the Target Disclosure Schedule are required by GAAP to be included in the Target Financial Statements.  The Target Financial Statements were derived from the books and records of Target and its Subsidiaries, which books and records are maintained in all material respects in accordance with sound business practices.

(b)The Monthly Financials, the Closing Balance Sheet and 2009 Unaudited Statements, if any, when delivered in accordance with Section 5.19 will fairly and accurately present, in all material respects and in accordance with GAAP, the financial condition of Target and its Subsidiaries as of the dates indicated therein and the operating results of Target and its Subsidiaries for the periods indicated therein,subject to normal year-end audit adjustments, the effect of which are not expected to be material in amount individually and in the aggregate, and the absence of footnotes. The Monthly Financials, the Closing Balance Sheet and the 2009 Unaudited Statements, if any, when delivered in accordance with Section 5.19, will include all financial statements of any person other than Target that are required by GAAP to be included in such financials.  The Monthly Financials, the Closing Balance Sheet and the 2009 Unaudited Statements, if any, will be derived from the books and records of Target and its Subsidiaries, which books and records will have been maintained in all material respects in accordance with sound business practices.

2.6Capitalization; Shares and Stockholder Information.

(a)Capitalization.  The authorized capital stock of Target consists of (i) 40,000,000 shares of Common Stock, of which there were issued and outstanding as of the close of business on the Agreement Date, 9,022,000 shares, and (ii) 28,669,726 shares of designated Series A Preferred Stock, of which as of the close of business on the Agreement Date, there were issued and outstanding, 27,752,294 shares of Series A Preferred Stock.  All outstanding shares of Common Stock and Series A Preferred Stock (i) are duly authorized, validly issued, fully paid and non-assessable, (ii) are free of any liens or encumbrances created by Target, and, to the Knowledge of Target, free of any liens or encumbrances created by or imposed upon the holders thereof, and (iii) were not issued in violation of any Applicable Laws, including securities laws, preemptive rights or rights of first refusal created by statute, the certificate of incorporation or bylaws of Target or any agreement to which Target is a party or by which it is bound.  As of the Agreement Date, there were 576,000 shares of Common Stock reserved for issuance under the 2008 Stock Plan, of which 547,838 shares of Common Stock were subject to outstanding options and 28,162 shares of Common Stock were reserved for future option grants. As of the Agreement Date, there were outstanding warrants to purchase 917,432 shares of Series A Preferred Stock at an exercise price of $1.09 per share.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(b)Target has delivered to Acquiror or its advisors (or made available in the Data Room) true and complete copies of the 2008 Stock Plan and each form of agreement evidencing each Target Option.  Except for the rights created pursuant to this Agreement and the options, warrants and other rights disclosed in the preceding sentences, in Section 2.6(a) or in Section 2.6(b) of the Target Disclosure Schedules, there are no options, warrants, calls, rights, commitments or agreements that are outstanding to which Target is a party or by which it is bound, obligating Target to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of Target Capital Stock or obligating Target to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into any option, warrant, call, right, commitment or agreement regarding shares of Target Capital Stock.  All shares of Common Stock issuable upon conversion of the outstanding shares of Series A Preferred Stock or upon exercise of the options described in this Section 2.6 will be, when issued pursuant to the respective terms of such Series A Preferred Stock or options, duly authorized, validly issued, fully paid and nonassessable.  Except as set forth in Section 2.6(b) of the Target Disclosure Schedule, there are no other contracts, commitments or agreements relating to the voting, purchase or sale of Target’s capital stock (a) between or among Target and any of its stockholders; and (b) to the Knowledge of Target, between or among any of Target’s stockholders.

(c)Shares and Stockholder Information.  Section 2.6(c) of the Target Disclosure Schedule sets forth: (i) the name of each current stockholder of Target and the number of shares of Target Capital Stock that such current stockholder of Target holds of record; (ii) the name of each person who holds any option, warrant or other right to acquire shares of Target Capital Stock or other securities, the number and type of shares or securities subject to such option or right, the per-share exercise price payable therefor and, in the case of warrants, the amount of consideration to be payable upon exercise thereof; and (iii) to the Knowledge of Target, the address and state of residence of each such stockholder, optionholder, warrantholder or other securityholder.  Each share of Series A Preferred Stock is convertible into one share of Common Stock.

2.7Absence of Certain Changes.  Except as set forth in Section 2.7(a) of the Target Disclosure Schedule, since the Target Balance Sheet Date, Target and its Subsidiaries have conducted their business in the ordinary course consistent with past practice, and there has not occurred any event that has had a Target Material Adverse Effect. Except as set forth in Section 2.7(b) of the Target Disclosure Schedule, between the Target Balance Sheet Date and the Agreement Date, there has not occurred (a) any acquisition, sale or transfer of any material asset of Target or its Subsidiaries other than in the ordinary course of business; (b) any amendment to the certificate of incorporation or bylaws or equivalent organizational documents of Target or its Subsidiaries; (c) any material increase in, or material modification of, the compensation or benefits payable by Target or its Subsidiaries to any of their respective employees, consultants, directors or executive officers; (d) any declaration, setting aside or payment of a dividend or other distribution with respect to shares of Target Capital Stock or otherwise other than the Permitted Dividend; (e) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting, either in any case or in the aggregate, the Current Target Business or any material asset of Target or its Subsidiaries; (f) any material loss of the services of any executive officer, key employee or key consultant; (g) issuance of any shares of the capital stock of Target or any redemption, purchase, or other acquisition by Target of any such

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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capital stock; (h) forgiveness or cancellation of any debts or claims by the Target or any intentional waivers of any material rights; (i) entry by Target into any transaction with any of its Affiliates; (j) incurrence or imposition of any lien or encumbrance on any of the material assets, tangible or intangible, of Target or any of its Subsidiaries, except for Permitted Encumbrances; (k) any adoption of any plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring or other reorganization of Target (other than in connection with the Merger); (l) any capital expenditures, capital additions or capital improvements, other than expenditures in the ordinary course of business; (m) any grant or payment of any severance or termination pay or benefits to any consultant or Employees of Target or its Subsidiaries, except for payments and benefits contractually required to be made pursuant to agreements existing as of the Target Balance Sheet Date and are disclosed on the Target Disclosure Schedule; or (n) any failure to make any payment with respect to any of Target’s accounts payable or its Indebtedness in a timely manner in accordance with their respective terms and consistent with past practice.

2.8Absence of Undisclosed Liabilities; No Indebtedness. Neither Target nor any of its Subsidiaries has any material obligations or liabilities of any nature (matured or unmatured, fixed or contingent) other than: (a) those set forth or adequately provided for in Target Balance Sheet or in Section 2.8 of the Target Disclosure Schedule; (b) those not required to be reflected in the liabilities column of a balance sheet prepared in accordance with GAAP; (c) those incurred in the ordinary course of business since Target Balance Sheet Date; (d) those under or pursuant to any contract or agreement of Target that are to be performed or incurred after the Agreement Date; and (e) those incurred pursuant to or in connection with the execution, delivery or performance of this Agreement.  Neither Target nor its Subsidiaries have any outstanding indebtedness that if outstanding immediately prior to the Closing would constitute Closing Debt. There are no Transactional Expenses other than as set forth in the Target Determination.

2.9Litigation; Orders.  There is no private or governmental action, suit, proceeding, litigation, arbitration or, to the Knowledge of Target, investigation, pending before any Governmental Entity or other person (or, to the Knowledge of Target, being overtly threatened) against Target or its Subsidiaries or, to the Knowledge of Target, against any of their respective Employees or Consultants (in their capacities as such), and to Target’s Knowledge there is no factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any such private or governmental action, suit, proceeding, litigation, arbitration or investigation.  There is no judgment, decree or order against Target or its Subsidiaries or, to the Knowledge of Target, against any of their respective Employees or Consultants (in their capacities as such), that specifically names Target or its Subsidiaries or such Employees or Consultants.

2.10Intellectual Property.

(a)For purposes of this Agreement, the following terms shall be defined as follows:

(i)“IP Rights” means any and all Patents, know-how, inventions, trademarks, trade names, domain names, service marks, trade dress, slogans, designs, concepts, compilations of information, copyrights, or any application or registration thereof.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(ii)“Licensed IP Rights” means any IP Rights for which Target or its Subsidiaries have an exclusive or non-exclusive license or other right to use.

(iii)“Patents” means the patents and patent applications in any country in the world, together with any patents that may issue therefrom and any future patent filings claiming priority to existing patents or patent applications in any country in the world, including any and all extensions, renewals, continuations, continuations-in-part, divisionals, patents-of-additions, reissues, supplementary protection certificates or foreign counterparts of any of the foregoing and any patents based on applications that claim priority from any of the foregoing, and the right to claim priority to any Patent.

(iv)“Target IP Rights” means (1) all material IP Rights owned solely by Target or its Subsidiaries, or owned jointly by Target or its Subsidiaries and any third party; and (2) all material Licensed IP Rights.

(b)Section 2.10(b) of the Target Disclosure Schedule sets forth an accurate and complete list of all Target IP Rights, including, but not limited to, the following:

(i)all Patents owned or filed by, or on behalf of, Target or used in the Current Target Business, including the country of filing, owner, filing number, date of issue, expiration date and title;

(ii)all registered trademarks and applications for registration of trademarks owned or filed by, or on behalf of, or used by Target, including country of filing, description of goods or services, registration or application number and date of issue;

(iii)all license or other agreements pursuant to which Target has outstanding rights to any Licensed IP Rights; and

(iv)all license or other agreements pursuant to which Target has granted to any person any outstanding right to any Target IP Rights.

(c)Except as otherwise set forth in Section 2.10(c) of the Target Disclosure Schedule:

(i)No third party has brought any claim in any suit or action that has been served on Target, or to the Knowledge of Target, overtly threatened in writing to make a claim, that would materially and adversely affect (1) the right, title or interest of Target or its Subsidiaries in any of Target IP Rights; or (2) the validity, enforceability or claim construction of any Patent included in Target IP Rights, either through ownership or exclusive license, and to Target’s Knowledge there is no factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any such suit or action; nor, to the Knowledge of Target, has any Patent included in the Target IP Rights been, or is currently, the subject of any administrative or judicial proceeding relating to validity, enforceability or claim construction, including reissue, reexamination or opposition proceedings, and to Target’s Knowledge there is no factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any such administrative or judicial proceeding;

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(ii)To Target’s Knowledge, Target IP Rights constitute all of the IP Rights necessary to enable Target and its Subsidiaries to conduct the Current Target Business (other than those which, individually or in the aggregate, are not material to the conduct of the Current Target Business) or to develop Products in accordance with Target’s development plans as made available to the Acquiror for review in the Data Room;

(iii)To Target’s Knowledge, the conduct of Current Target Business does not, and the development of Products in accordance with Target’s development plans as made available to the Acquiror for review in the Data Room will not, infringe, misappropriate or violate the IP Rights of any other person, and neither Target nor its Subsidiaries has received any written notice or other written communications asserting any of the foregoing, and to Target’s Knowledge there is no factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any such infringement, misappropriation or violation;

(iv)To Target’s Knowledge, no Target IP Rights are being infringed or misappropriated by any third party;

(v)All Employees and Consultants of Target and its Subsidiaries have executed and delivered to Target or its Subsidiaries an agreement regarding the protection or proprietary information and the assignment by such persons to Target or its Subsidiaries of any IP Rights arising from services performed for Target or its Subsidiaries by such persons; and

(vi)Neither the execution, delivery or performance of this Agreement by Target nor the consummation by Target of the transactions contemplated by this Agreement will contravene, conflict with or result in any limitations on Target’s right, title or interest in or to any Target IP Rights.

(d)Except as otherwise set forth in Section 2.10(d) of the Target Disclosure Schedule, Target and its Subsidiaries have the full right to control the maintenance, prosecution and enforcement of the IP Rights and the Licensed IP Rights.

2.11Interested Party Transactions.  Neither Target nor its Subsidiaries is indebted to any of their respective Employees or Consultants (except for amounts due as payments, fees, salaries and bonuses under employment or consulting contracts or employee benefit plans and amounts payable in reimbursement of ordinary expenses), and no such Employee or Consultant is indebted to Target or its Subsidiaries.

2.12Material Contracts.

(a)Section 2.12(a) of the Target Disclosure Schedule lists all of the Material Contracts currently in effect.  Target has delivered to Acquiror, or made available to Acquiror or its advisors in the Data Room, a complete and accurate copy of each such Material Contract and all amendments or modifications thereto that exist.

(b)With respect to each Material Contract (i) such Material Contract is in full force and effect and is binding and enforceable against Target and its Subsidiaries, as

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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the case may be, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors’ rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law; and (ii) to the Knowledge of Target, (A) no party to such Material Contract is in material breach or material default of such Material Contract, and (B) no event has occurred that with notice or lapse of time would constitute a material breach or material default thereunder by Target or any Subsidiary that is party to such Material Contract, or would permit the modification or premature termination of such Material Contract by any other party thereto.  Except as otherwise accrued for in accordance with GAAP in the Target Financials Statements , all payments required under each Material Contract that is legally enforceable by or against or otherwise binding on Target or any of its Subsidiaries in excess of $100,000 are set forth on Section 2.12(b) of the Target Disclosure Schedule.

(c)“Material Contract” means any written or oral legally binding, executory contract, agreement, understanding or commitment to which Target or any of its Subsidiaries is a party and which is material to the Current Target Business and specifically includes, without limitation, such agreements, contracts, understanding or commitments (i) under which expected receipts or expenditures exceed $50,000 in the current or any future calendar year; (ii) pursuant to which Target or any of its Subsidiaries has obtained or granted any right, title or interest in, under or to any Target IP Rights or Licensed IP Rights, other than nonexclusive licenses that are available to the public generally; (iii) evidencing indebtedness for borrowed or loaned money or capital leases of $50,000 or more, including guarantees of such indebtedness by Target or any of its Subsidiaries; (iv) creating or relating to any partnership or joint venture or any sharing of profits or losses by Target or its Subsidiaries with any third party; (v) with any Governmental Entity (including any public university or college); (vi) with any current Employee or consultant (other than agreements terminable by Target upon 30 days notice or less and which termination does not result in any continuing material obligations or liabilities to Target or in any termination or severance fees or payments or material penalties); (vii) under which Target agrees to refrain from competing with any party; (viii) for the purchase, lease or other acquisition of any or substantially all of the assets or capital stock of any other person or for the sale, lease or other transfer, conveyance or disposition of any material assets of Target or Target Capital Stock; (ix) creating or relating to any distribution, joint marketing, research collaboration or development arrangements with any third party;(x) agreements under which the primary obligation of Target is to indemnify any party or to share tax liability of any party; (xi) any agreements relating to venture capital and other equity financings by Target (but excluding any compensatory plans or other agreements, contracts, understandings or commitments); (xii) any stockholder agreements or other agreements with any of Target’s stockholders pertaining to the shares of Target Capital Stock held by them or their rights as stockholders of Target (but excluding any compensatory plans or other agreements, contracts, understandings or commitments); (xiii) to the Knowledge of Target, related to any voting trust or voting agreements among Target’s stockholders; and (xiv) that if terminated, would reasonably be expected to be materially adverse to Target and its Subsidiaries, taken as a whole, or the Current Target Business.

2.13Suppliers; Licensors.  No material current supplier of Target or its Subsidiaries has canceled or otherwise terminated, or made any written threat to Target or its Subsidiaries to cancel or otherwise terminate, its relationship with Target or its Subsidiaries or

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

21

has at any time on or after Target Balance Sheet Date, decreased materially its services or supplies to Target or its Subsidiaries in the case of any such supplier.  No such material supplier has indicated in a writing delivered to Target or any of its Subsidiaries that such supplier intends to cancel or otherwise terminate its relationship with Target or its Subsidiaries or to decrease materially its delivery of services or supplies to Target or its Subsidiaries. No licensor under a material license agreement with Target or its Subsidiaries has canceled or otherwise terminated, or made any written threat to Target or its Subsidiaries to cancel or otherwise terminate, its relationship with Target or its Subsidiaries.  No such licensor has indicated in writing delivered to Target or any of its Subsidiaries that such licensor intends to cancel of otherwise terminate its relationship with Target of its Subsidiaries or to substantially alter Target’s or its Subsidiaries’ rights under such material license.

2.14Title to Property.  Target and its Subsidiaries have (a) good and valid title to all of their tangible owned properties, real and personal, reflected in Target Balance Sheet or acquired after Target Balance Sheet Date (except properties sold or otherwise disposed of  in the ordinary course of business consistent with past practices since Target Balance Sheet Date), and (b) with respect to tangible leased properties, valid leasehold interests therein, free and clear of all mortgages, liens, pledges, charges or other encumbrances of any kind or character, except, as to clause (a) and clause (b) of this Section 2.14, for the following (collectively, “Permitted Encumbrances”):  (i) liens for current Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings or that are otherwise not material; (ii) encumbrances that do not materially impair the ownership or use of the assets to which they relate; (iii) statutory or common law liens to secure obligations to landlords, lessors or renters under leases or rental agreements; (iv) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by applicable law; and (v) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies, and other like liens.  All such properties and assets, taken as a whole, are in good condition and repair, reasonable wear-and-tear excepted, and are, and as of the Closing Date will be, adequate and sufficient to carry on the Current Target Business.

2.15Real Estate.

(a)Section 2.15 of the Target Disclosure Schedule lists all leases for real property (each a “Lease” and collectively, “Leases”) to which Target or any of its Subsidiaries is a party.  All of the Leases are in full force and effect and are binding and enforceable against Target and, to the Knowledge of Target, against the lessors, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors’ rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law.  True and correct copies of all such Leases, as amended or modified, have been made available in the Data Room for review by Acquiror.  Neither Target nor any of its Subsidiaries owns any real property.

(b)Neither Target nor any of its Subsidiaries nor, to the Knowledge of Target, any other party to the Leases is in material default under any of the terms of the Leases.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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2.16Tax Matters.

(a)All Tax Returns required to be filed with any Taxing Authority (determined without regard to extensions) by or on behalf of Target or any Subsidiary, have been filed when due (determined with regard to valid extensions) in compliance with all Applicable Laws.  All such Tax Returns are true and complete in all respects. Target and each Subsidiary have timely paid, or withheld and remitted to the appropriate Taxing Authority, all Taxes owed by Target or any Subsidiary (whether or not shown, or required to be shown, on any Tax Return). Neither Target nor any Subsidiary is or will be liable for any additional Taxes in respect of any Taxable period or any portion thereof ending on or before the date of Target Financial Statements in an amount that exceeds the corresponding reserve therefor separately identified in Section 2.16(a) of the Target Disclosure Schedule, if any, as reflected on Target Financial Statements, and any Taxes of Target or any Subsidiary arising after such date and at or before the Effective Time have been or will be incurred in the ordinary course of business of Target or any Subsidiary.  No claim has ever been made to Target or any Subsidiary in writing by a Taxing Authority representing a jurisdiction where Target or any Subsidiary does not pay Tax or file Tax Returns that Target or any Subsidiary is or may be subject to Tax in that jurisdiction.

(b)Neither Target nor any Subsidiary has: (i) requested or been granted any extension of time within which to file any Tax Return that has not yet been filed; or (ii) consented to any extension or waiver of the statute of limitations period applicable to any Tax Return, which period (after giving effect to such extension or waiver) has not yet expired.  There are no outstanding rulings or requests for rulings of any Taxing Authority with respect to Target or any Subsidiary or any tax liability of Target or any Subsidiary.  No deficiency or adjustment in respect of Taxes has been proposed, asserted or assessed by any Taxing Authority in writing against Target or any Subsidiary.  Neither Target nor any Subsidiary has received any written notice indicating an intent to open a Tax audit or administrative proceeding or any written request from any Taxing Authority for information related to Tax matters.  Since its formation, neither Target nor any Subsidiary has, for U.S. federal income Tax purposes, filed any amended Tax Return, entered into any closing agreement relating to Tax, settled any Tax claim or assessment, or surrendered any right to claim a Tax refund, offset or other reduction in Tax liability.

(c)Target and any Subsidiary have timely and properly withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any Employee, independent contractor, creditor, shareholder or other person.

(d)Neither Target nor any Subsidiary has ever been a member of an affiliated group of corporations (as defined in Section 1504(a) of the Code) or filed or been included in a consolidated, combined or unitary Tax Return. Neither Target nor any Subsidiary is a party to or bound by any Tax sharing, Tax indemnity, or Tax allocation agreement.  Neither Target nor any Subsidiary is presently liable, or potentially liable, for the Taxes of another person (i) under Treasury Regulations Section 1.1502-6 (or a comparable provision of state, local or foreign law), (ii) as transferee or successor, or (iii) by contract or indemnity or otherwise.

(e)Neither Target nor any Subsidiary (i) has participated in any way in (A) any “reportable transaction” within the meaning of Treasury Regulations Section

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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1.6011-4(b) (other than a reportable transaction described in Treasury Regulations Section 1.6011-4(b)(5)) or any comparable laws of any state, local or foreign jurisdiction or (B) to the Knowledge of Target, a reportable transaction described in Treasury Regulations Section 1.6011-4(b)(5) or any comparable laws of any state, local or foreign jurisdiction; (ii) has been a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code; or (iii) has participated in or cooperated with an international boycott within the meaning of Section 999 of the Code or has been requested to do so in connection with any transaction or proposed transaction.

(f)Neither Target nor any Subsidiary will be required to include: (i) any adjustment in taxable income for any Post-Closing Tax Period under Section 481(c) of the Code (or any similar provision of state, local or foreign Tax Law) as a result of a change in method of accounting for a Pre-Closing Tax Period; (ii) for a Post-Closing Tax Period taxable income economically attributable to a Pre-Closing Tax Period as a result of the installment method or the look-back method (as defined in Section 460(b) of the Code) or any prepaid amount received on or prior to the Closing Date; or (iii) any amount in income for any Post-Closing Period as a result of entering into any “closing agreement” within the meaning of Section 7121 of the Code (or any similar provision of state, local or foreign Tax Law) on or prior to the Closing Date.

(g)No election has been made under Treasury Regulations Section 301.7701-3 or any similar provision of state, local or foreign Tax law to treat Target or any Subsidiary as an association, corporation or partnership, and neither Target nor any Subsidiary is disregarded as an entity for Tax purposes. All elections with respect to Taxes affecting Target or any Subsidiary that were not made in the income Tax Returns made available in the Data Room are described in Section 2.16(g) of the Target Disclosure Schedule.

(h)Neither Target nor any Subsidiary owns, directly or indirectly, any interests in an entity that is or has been a “passive foreign investment company” within the meaning of Section 1297 of the Code or a “controlled foreign corporation” within the meaning of Section 957 of the Code.

(i)Target has delivered to Acquiror or made available for review in the Data Room, correct and complete copies of all income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by Target, filed by or received by Target since Target’s inception.

(j)There are no liens for Taxes (other than current Taxes not yet due and payable) on any of the assets of Target or any Subsidiary.

(k)Target and each Subsidiary are in compliance in all material respects with all terms and conditions of any Tax exemptions, Tax holidays or other Tax reduction agreements, approvals or orders of any Taxing Authority and, to Target’s Knowledge, the consummation of the Merger will not have any adverse effect on the validity and effectiveness of any such Tax exemptions, Tax holidays or other Tax reduction agreements or orders.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(l)Neither Target nor any Subsidiary has an office or fixed place of business in any country with which the United States of America has a relevant Tax treaty or otherwise operates or conducts business through any branch in any country other than the United States of America.

(m)None of the assets of Target or any Subsidiary directly or indirectly secures any indebtedness, the interest on which is tax exempt under Section 103(a) of the Code, and neither Target nor any Subsidiary is directly or indirectly an obligor or guarantor with respect to any such indebtedness.

(n)Neither Target nor any Subsidiary has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments, that will not be deductible under Section 280G of the Code or that could be subject to Section 4999 of the Code.

(o)To the Knowledge of Target, all persons who have purchased shares of Target’s stock that at the time of such purchase were and at the Effective Time will be subject to a substantial risk of forfeiture under Section 83 of the Code have timely filed elections under Section 83(b) of the Code and any analogous provisions of applicable foreign, state and local Tax law.

(p)The exercise price of each Target Option is no less than the fair market value of a share of Target Common Stock determined on the date of grant of such Target Option (and as of any later modification thereof within the meaning of Section 409A of the Code).  Each plan, program, arrangement or agreement that constitutes in any part a nonqualified deferred compensation plan within the meaning of Section 409A of the Code is identified as such on Section 2.16(p) of the Target Disclosure Schedule.  Since December 31, 2004 and through December 31, 2008, each plan, program, arrangement or agreement identified or required to be identified on Section 2.16(p) of the Target Disclosure Schedule has been operated and maintained in accordance with a good faith, reasonable interpretation of Section 409A of the Code and its purpose with respect to amounts deferred (within the meaning of Section 409A of the Code) after December 31, 2004.  By December 31, 2008, each plan, program, arrangement or agreement identified or required to be identified on Section 2.16(p) of the Target Disclosure Schedule has been amended to the extent necessary or appropriate to comply with Section 409A of the Code and the final regulations promulgated thereunder.  From and after January 1, 2009, each plan, program, arrangement or agreement identified or required to be identified on Section 2.16(p) of the Target Disclosure Schedule has been operated and maintained in accordance with Section 409A of the Code and applicable guidance thereunder, including but not limited the final regulations promulgated thereunder.

2.17Employee and Labor Matters; Benefit Plans.

(a)The name and current annual salary and other compensation payable by Target to each of its Employees and Consultants including, but not limited to, wages, salary, commissions, normal bonus, profit sharing, deferred compensation, and other extra compensation, are as set forth in Section 2.17(a) of the Target Disclosure Schedule.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(b)Target has delivered to Acquiror or its advisors or made available for review in the Data Room, copies of all employee manuals and handbooks, policy statements, forms, severance plans, Reduction in Force plans and other materials whether prepared or made available in hard copy or electronic form or scheduled to be in effect thereafter, relating to the employment or engagement of the current Employees or Consultants of Target.

(c)Target and its Subsidiaries are and have been in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions and classification of employment, wages and hours, and nondiscrimination in employment, and are not and have not been engaged in any unfair labor practice.  Neither Target nor any Subsidiary is delinquent in any material payments to any of its Employees or Consultants for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for Target or its Subsidiaries.  There are no material grievances, complaints or charges pending against Target or any Subsidiary under any dispute resolution procedure and to Target’s Knowledge there is no factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any such grievance, complaint or charge. There are no inquiries or investigations of any kind, by any agency or office of the federal, state or local government, pending against or, to Target’s Knowledge, scheduled to be commenced against Target or any of its Subsidiaries with respect to one or more employment practices or workplace safety and to Target’s Knowledge there is no factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any such inquiry or investigation. Neither Target nor any Subsidiary is a party to a collective bargaining agreement. There is no strike or other labor dispute involving Target or any Subsidiary pending, or to the Knowledge of Target threatened, nor is Target aware of any labor organization activity involving its Employees and Consultants. Except as set forth in Section 2.17(c) of the Target Disclosure Schedule, the employment or engagement of each Employee or Consultant of Target or any Subsidiary is terminable at will without compensation or other payment following or as a result of such termination by Target or any Subsidiary, except as may be required by Applicable Law.

(d)Section 2.17(d) of the Target Disclosure Schedule sets forth each Benefit Plan. For the purposes of this Section 2.17(d), the term “Benefit Plan” shall not include a Government Plan.

(e)Target has delivered to Acquiror or its advisors or made available for review in the Data Room: (i) correct and complete copies of each Employment Agreement and each Benefit Plan, including all amendments thereto (or if such Benefit Plan is not written, an accurate description of the material terms thereof), and any associated trust, custodial, insurance or service agreements; (ii) the most recent annual actuarial valuations, if any, prepared for each Benefit Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code, or any similar Applicable Laws of other jurisdictions applicable to Target, in connection with each Benefit Plan or related trust; (iv) if any Benefit Plan is funded, the most recent, if any, annual and periodic accounting of Benefit Plan assets; (v) the most recent summary plan description for Benefit Plans for which a summary plan description is required by Applicable Law, together with all summaries of material modifications, if any, with respect to each such Benefit Plan; (vi) all IRS determination, opinion, notification and advisory letters and rulings from the IRS or any similar Governmental Entity

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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having jurisdiction over Target relating to Benefit Plans and copies of all applications and correspondence regarding actual or potential audits or investigations to or from the IRS, DOL or any other Governmental Entity with respect to any Benefit Plan, in each case sent or received in the three years prior to the Agreement Date; (vii) all policies pertaining to fiduciary liability insurance covering the fiduciaries of each Benefit Plan, (viii) all discrimination and qualification tests, if any, prepared for each Benefit Plan described in Section 401(k) of the Code for the plan year ended December 31, 2008 and (ix) any written policies or procedures used in Benefit Plan administration. For the purposes of this Section 2.17(e), the term “Benefit Plan” shall not include a Government Plan.

(f)Each Benefit Plan has been established and maintained in all material respects in accordance in with its terms and all Applicable Laws, including ERISA and the Code (whether as a matter of substantive law or as necessary to secure favorable tax treatment).  Each Benefit Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code is so qualified and has either (a) received a favorable determination letter or opinion letter from the IRS with respect to such Benefit Plan as to its qualified status under the Code, including all amendments to the Code effected by the so called “GUST” and “EGTRRA” legislation, or has a period of time remaining under applicable Treasury regulations or IRS pronouncements in which to apply for and obtain such a letter or (b) been maintained pursuant to a prototype plan document that is subject to a reliance letter from the IRS to the prototype sponsor on which the Target is entitled to rely, and to the Knowledge of Target nothing has occurred as to each which has resulted or is likely to result in the revocation of such qualification or which requires or could require action under the compliance resolution programs of the IRS to preserve such qualification.  No non-exempt “prohibited transaction,” within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Benefit Plan.  To the Knowledge of Target, there are no audits or legal proceedings pending or being threatened in writing by the IRS or DOL or any other similar Governmental Entity having jurisdiction over Target or any Subsidiary with respect to any Benefit Plan, or to the Knowledge of Target any fiduciary or service provider thereof and, to the Knowledge of Target, there is no basis for any such legal action or proceeding.  All annual reports and other material filings required to be filed since their respective dates of formation, by the DOL or the IRS or any other similar Governmental Entity having jurisdiction over Target or any Subsidiary have been timely made.  Neither Target, nor any Subsidiary, nor any of its ERISA Affiliates is subject to any penalty or Tax with respect to any Benefit Plan under Section 501(i) of ERISA or Section 4975 through 4980D of the Code or any similar Applicable Laws and no Benefit Plan is sponsored or maintained by any person that is or was considered to be a co-employer with Target or any Subsidiary.

(g)No communication, report or disclosure has been made which, at the time made, did not accurately reflect the material terms and operations of any Benefit Plan.  Target has not announced its intention, or undertaken (whether or not legally bound) to modify or terminate any Benefit Plan or adopt any arrangement or program which, once established, would come within the definition of a Benefit Plan.  Target has not undertaken to maintain any Benefit Plan for any period of time and each such Plan is terminable at the sole discretion of the sponsor thereof, subject only to such constraints as may imposed by applicable law, and without penalty or cost (other than routine administrative costs or full vesting of benefits in the case of a Qualified Plan).  Target has no liability, including under any Benefit Plan or any Employment

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

27

Agreement or agreement with any Consultant or other independent contractor, arising out of the treatment of any service provider as a consultant or independent contractor and not as an employee, or vice-versa.

(h)No Benefit Plan provides, or has any obligation to provide, life insurance, medical or other employee welfare benefits to any Employee or Consultant or his, her or its beneficiaries upon any Employee’s retirement or termination of employment for any reason, or upon any Consultant’s cessation of services for any reason, except as may be required by Applicable Law, and neither Target nor any Subsidiary has notified any Employee or Consultant (either individually or to Employees or Consultants as a group) in writing that such Employee(s)  or Consultant(s) would be provided with life insurance, medical or other employee welfare benefits upon any Employee’s retirement or termination of employment or any Consultant’s cessation of services, except to the extent required by Applicable Law.

(i)With respect to each Benefit Plan for which a separate fund of assets is or is required to be maintained, full and timely payment has been made of all amounts required of Target or any Subsidiary, under the terms of each such Benefit Plan or Applicable Law, as applied through the Closing Date. The fair market value of the assets of each such Benefit Plan, as of the end of the most recently ended plan year of that Benefit Plan, equals or exceeded the present value of all benefits liabilities under that Benefit Plan as of that same date.

(j)No Benefit Plan to which Target or any Subsidiary is party constitutes a “nonqualified deferred compensation plan” subject to Section 409A of the Code.  Neither Target nor any Subsidiary has elected to or is required to defer payment of amounts from a foreign entity which will be subject to the provisions of Section 457A of the Code.  Neither Target nor any Subsidiary has an obligation to gross-up or otherwise reimburse any person for any tax incurred by such person pursuant to Section 409A of the Code.

(k)Section 2.17(k) of the Target Disclosure Schedule sets forth a list of each agreement providing for a change in control payment.

(l)No Benefit Plan is a multiple employer plan, or a plan subject to Section 412 of the Code, or Section 302 or Title IV of ERISA, and neither Target nor any ERISA Affiliate has in the past contributed to any multiple employer plan, or plan subject to Section 412 of the Code, or Section 302 or Title IV of ERISA.

2.18Insurance.  Section 2.18 of the Target Disclosure Schedule lists the policies of products liability, theft, fire, liability, worker’s compensation, life, property and casualty, directors and officers, and other insurance owned or held by Target. There is no material claim pending under any of Target’s insurance policies or fidelity bonds, nor to Target’s Knowledge is there any factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any such claim, as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds.  Target is in compliance in all material respects with the terms of such policies and bonds.  Target has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies or bonds and to Target’s Knowledge there is no factor or circumstance relating to Target or the Current Target Business that would reasonably be expected to give rise to any

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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such right of termination or premium increase. All such policies are in full force and effect; are valid, outstanding, and enforceable policies and will not in any way be materially affected by, or terminate or lapse as a result of the consummation of, the transactions contemplated by this Agreement.

2.19Compliance With Laws.  Target and its Subsidiaries are in material compliance with, and have not received any written or oral notices of any material pending violation with respect to, any federal, state, local or foreign statute, law or regulation, except for violations that have been cured or are no longer being asserted.

2.20Brokers’ and Finders’ Fee.  No broker, finder or investment banker is entitled to brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges from Target or any Subsidiary in connection with the Merger, this Agreement or any transaction contemplated hereby.

2.21Regulatory Compliance.

(a)All biological and drug products being developed by Target (“Target Products”) that are subject to the jurisdiction of the FDA are being manufactured, labeled, stored, tested, and distributed in compliance in all material respects with all applicable requirements under the FD&C Act, the Public Health Service Act, their applicable implementing regulations and all comparable state laws and regulations.

(b)All human clinical trials conducted by or on behalf of Target have been, and are being, conducted in material compliance with the applicable requirements of Good Clinical Practice, Informed Consent and all other applicable requirements relating to protection of human subjects contained in 21 CFR Parts 50, 54, 56, 58 and 312 and all other applicable foreign, state and local laws and regulations.

(c)All manufacturing operations conducted by or for the benefit of Target with respect to Target Products being used in human clinical trials have been and are being conducted in accordance, in all material respects, with the FDA’s recommended current Good Manufacturing Practices continuum for drug and/or biological products.

(d)Target has not received any written notice that the FDA or any other Governmental Entity has initiated, or is threatening to initiate, any action to suspend any clinical trial, suspend or terminate any Investigational New Drug Application sponsored by Target or otherwise restrict the preclinical research on or clinical study of any Target Product, or to suspend or otherwise restrict the manufacture of any Target Product. Target has no Knowledge of any act, omission, event, or circumstance relating to Target’s activities and conduct that Target reasonably expects would give rise to or lead to any Governmental Entity taking any such action.

(e)To Target’s Knowledge, neither Target nor any of its officers, key employees, consultants, agents or clinical investigators acting for Target, has committed any act, made any statement or failed to make any statement that would reasonably be expected to provide a basis for the FDA to invoke its policy with respect to “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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1991) and any amendments thereto.  Neither Target nor, to the Knowledge of Target, any officer, key employee or agent of Target has been convicted of any crime or, to the Knowledge of Target, engaged in any conduct that would reasonably be expected to result in (i) debarment under the Generic Drug Enforcement Act of 1992, as amended, in 21 U.S.C. Section 335a or any similar state law or (ii) exclusion under 42 U.S.C. Section 1320a-7 or any similar state law or regulation.

(f)There are no proceedings pending with respect to a violation by Target of the FD&C Act, FDA regulations adopted thereunder, the Controlled Substance Act or any other legislation or regulation promulgated by any other Governmental Entity.

(g)Target and its contractors and agents have submitted to the FDA, any other Governmental Entity and any institutional review board, or accreditation body, all material supplemental applications, notices, and annual or other reports and information, including adverse experience reports and product deviation reports, related to the manufacture, testing, sale, marketing, distribution, import, or export of any Target Product.

(h)Target is not a “covered entity,” as defined under Health Insurance Portability and Accountability Act of 1996 and the regulations promulgated thereunder (“HIPAA”), and Target has not received any requests or demands from a covered entity or Governmental Entity to make available its internal practices, books, and/or records relating to its use and disclosure of health information for purposes of determining a covered entity’s or Target’s compliance with HIPAA or with other applicable privacy laws.

(i)Target has provided to Acquiror copies of regulatory filings and applications and all material written communications to and from the FDA and/or any other Governmental Entity relating specifically to Target Products or the Target and its Subsidiaries and their respective operations or business, including any official notices, citations, decisions, warning or untitled letters, material reports of inspection observations and establishment inspections. Target has provided to Acquiror all material Information that has resulted from any research or development activities conducted with respect to CXA-101, CXA-201 and all other Target Products.

2.22Bank Accounts, Signing Authority, Powers of Attorney.  Section 2.22 of the Target Disclosure Schedule sets forth a complete and accurate list of all bank, brokerage, and other accounts, and all safe-deposit boxes, of Target and its Subsidiaries and the persons with signing or other authority to act with respect thereto.  Except as so listed, Target and its Subsidiaries do not have any account or safe deposit box in any bank, and no person has any power, whether singly or jointly, to sign any checks on behalf of Target or its Subsidiaries, to withdraw any money or other property from any bank, brokerage, or other account of Target or its Subsidiaries, or to act under any agency or power of attorney granted by Target or its Subsidiaries at any time with respect to such accounts.

2.23Distribution of Merger Consideration.  The Merger Consideration, when distributed in accordance with the terms of this Agreement and the Merger Consideration Certificate, will have been distributed to the Former Holders in accordance with the provisions of Target’s certificate of incorporation in effect immediately prior to the Effective Time and any

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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other document or agreement among Target and the Former Holders related to the distribution of the Merger Consideration.

3.Representations and Warranties of Acquiror and Merger Sub.  Acquiror and Merger Sub jointly and severally represent and warrant to Target as of each of the Agreement Date and the Closing Date that, except as disclosed in the disclosure schedule of even date herewith delivered by Acquiror with this Agreement and complying with the provisions of Section 10.2(b) (the “Acquiror Disclosure Schedule”):

3.1Organization, Standing and Power.  Each of Acquiror and Merger Sub is a corporation duly organized, validly existing and in good standing, if applicable, under the laws of the state in which it was incorporated.  There is no pending or, to the Knowledge of Acquiror or Merger Sub, threatened, action for the dissolution, liquidation or insolvency of either Acquiror or Merger Sub. Each of Acquiror and Merger Sub is duly qualified to do business, and is in good standing (if such concept is applicable in the relevant jurisdiction), in each jurisdiction where the operation of its business and ownership of its properties requires such qualification, except where the failure to so qualify would reasonably be expected to be materially adverse to Acquiror or Merger Sub or their respective ability to consummate the Merger or any of the transactions contemplated hereby (the “Acquiror Material Adverse Effect”).

3.2Authority.  Acquiror and Merger Sub have all requisite corporate power and authority to enter into and deliver this Agreement and to consummate the Merger.  The execution and delivery by Acquiror and Merger Sub of this Agreement and the consummation by Acquiror and Merger Sub of the Merger have been duly authorized by all necessary corporate action on the part of Acquiror and Merger Sub, and no other authorization or consent of Acquiror, Merger Sub or their respective stockholders is necessary.  This Agreement has been duly executed and delivered by Acquiror and Merger Sub, and, assuming this Agreement constitutes the valid and binding obligation of Target, this Agreement constitutes a valid and binding obligation of each of Acquiror and Merger Sub, enforceable against each of Acquiror and Merger Sub in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors’ rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law.

3.3Noncontravention.  Neither the execution and delivery by Acquiror and Merger Sub of this Agreement, nor the consummation by Acquiror or Merger Sub of any of the transactions contemplated hereby, will:

(a)conflict with or violate any provision of the certificate of incorporation or bylaws of Acquiror or the certificate of incorporation or bylaws of Merger Sub;

(b)require on the part of Acquiror or Merger Sub any registration, declaration or filing with, or any permit, order, authorization, consent or approval of, any Governmental Entity, except for (i)  the filing by Acquiror of such reports and information with the SEC under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder, as may be required in connection with this Agreement, the Merger and the other transactions contemplated by this Agreement, (ii) any registration,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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declaration, filing, permit, order, authorization, consent or approval which if not made or obtained would not reasonably be expected to have an Acquiror Material Adverse Effect, and (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware;

(c)(i) in any material respect, conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under any material contract or agreement to which Acquiror or Merger Sub is a party or by which Acquiror or Merger Sub is bound, (ii) create in any party any right to terminate or modify in any material respect any such material contract or agreement or (iii) require any notice, consent or waiver under any such material contract or agreement;

(d)violate any order, writ, injunction or decree applicable to Acquiror or Merger Sub or any of their respective properties or assets, except for any violation that would not reasonably be expected to have an Acquiror Material Adverse Effect;

(e)violate any statute, rule or regulation applicable to Acquiror or Merger Sub or any of their respective properties or assets, except for any violation that would not reasonably be expected to have an Acquiror Material Adverse Effect; or

(f)render Acquiror insolvent or unable to pay its debts as they become due.

3.4Litigation.

(a)There is no private or governmental action, suit, proceeding, claim, arbitration or, to the Knowledge of Acquiror, investigation, pending before any Governmental Entity or, to the Knowledge of Acquiror, overtly threatened in a communication with Acquiror, against Acquiror or its Subsidiaries or any of their respective properties or any of their respective officers or directors (in their capacities as such), and that would reasonably be expected to result in an Acquiror Material Adverse Effect, nor to Acquiror’s Knowledge is there any factor or circumstance relating to Acquiror or Merger Sub that would reasonably be expected to give rise to any such governmental action, suit, proceeding, litigation, arbitration or investigation.

(b)There is no judgment, decree or order against Acquiror or Merger Sub or, to the Knowledge of Acquiror and Merger Sub, against any of their respective directors or officers (in their capacities as such) that specifically names Acquiror or its Subsidiaries or such directors or officers and that would reasonably be expected to result in an Acquiror Material Adverse Effect.

3.5Merger Sub.  Merger Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement.

3.6Adequacy of Funds.  Acquiror currently has, and will at Closing continue to have, adequate financial resources to satisfy its monetary and other obligations under this Agreement, including its obligations to pay the Merger Consideration as contemplated by Section 1.9 and to make the payments required by Section 1.14, and Acquiror will have adequate

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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financial resources to satisfy its payment obligations under Section 9 hereof, when such payment obligations are due.

4.Conduct Prior to the Effective Time.

4.1Conduct of Business of Target.  During the period from the Agreement Date through the Effective Time (the “Pre-Closing Period”), except (i) to the extent necessary to comply with Target’s obligations under this Agreement, (ii) as reasonably necessary to ensure that Target complies with Applicable Laws and regulations and pre-existing contractual obligations, (iii) as set forth on Section 4.1 of the Target Disclosure Schedules or (iv) as consented to in writing by Acquiror (which consent shall not be unreasonably withheld or delayed), (A) Target shall (1) carry on its business in the ordinary course consistent with past practices, (2) use commercially reasonable efforts to preserve intact its present business organization, (3) use commercially reasonable efforts to preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others to whom Target or its Subsidiaries has contractual obligations and (4) use commercially reasonable efforts to prevent and not permit any damage, destruction or loss, whether or not covered by insurance any material asset of Target or its Subsidiaries; (B) Target shall promptly advise Acquiror in writing of any event or occurrence of which it becomes aware which results in or is reasonably likely to result in a Target Material Adverse Effect, in a breach of any representation or warranty or covenant set forth in this Agreement or in the failure or inability of any of the conditions precedent set forth in Section 6.2 to be satisfied; and (C) Target shall not and shall cause its Subsidiaries to not:

(a)Charter Documents.  Amend its certificate of incorporation or bylaws or equivalent organizational documents;

(b)Dividends; Certain Changes in Capital Stock.  Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock or other securities, or split, combine or reclassify any of its capital stock or other securities, other than (i) the grant of Target Options in the ordinary course of business and issuance of Target Capital Stock pursuant to the exercise of any Target Warrants or Target Options and (ii) the declaration and payment of the Permitted Dividend;

(c)Intellectual Property Rights.  Enter into or amend any agreements pursuant to which Target (i) transfers or licenses to any person any Target IP Rights, or (ii) otherwise grants to any person rights in any Target IP Rights;

(d)Dispositions.  Sell, lease, license or otherwise transfer to any person, or grant or permit the imposition of any security interest, or any lien or encumbrance (other than Permitted Encumbrances) on, any of its properties or assets that are material, individually or in the aggregate, to the Current Target Business;

(e)Indebtedness; Preservation of Claims and Rights.  Incur any indebtedness for borrowed money, or guarantee any such indebtedness, or issue or sell any debt securities or guarantee any debt securities of others, in each case in excess of $50,000; or forgive

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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or cancel any debts or claims by Target or its Subsidiaries or knowingly waive any material rights of Target or its Subsidiaries;

(f)Capital Expenditures.  Make any capital expenditures, capital additions or capital improvements, in each case in excess of $50,000 in the aggregate, other than expenditures in the ordinary course of business;

(g)Insurance.  Reduce the amount of any insurance coverage provided by existing insurance policies other than upon the expiration of any such policy;

(h)Waiver.  Knowingly waive any material right under any Material Contract;

(i)Employee Benefit Plans; New Hires; Pay Increases.  Except as contemplated by Section 1.14 or Section 5.9(d), amend any Benefit Plan or adopt any Benefit Plan, hire any new employee or consultant or terminate any Employee or Consultant, pay any special bonus, special remuneration or special noncash benefit (except payments and benefits contractually required to be made pursuant to existing written agreements that are disclosed on the Target Disclosure Schedule), or increase the benefits, salaries or wage rates of Target’s or its Subsidiaries’ consultants or Employees;

(j)Severance Arrangements.  Grant or pay any severance or termination pay or benefits to any consultant or Employee of Target or its Subsidiaries, except for payments and benefits contractually required to be made pursuant to existing agreements that are disclosed on the Target Disclosure Schedule;

(k)Lawsuits.  Commence a lawsuit other than (i) for the routine collection of bills, (ii) in such cases where Target in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of Target’s business, provided that it consults with Acquiror prior to the filing of such a suit or (iii) for a breach of this Agreement;

(l)Acquisitions.  Acquire or agree to acquire by merging with, or by purchasing a substantial portion of the stock or assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets that are material individually or in the aggregate, to its business, taken as a whole;

(m)Taxes.  Make or change any election in respect of Taxes, adopt or change any accounting method or its accounting period in respect of Taxes, file any amendment to any Tax Return, enter into any closing agreement, settle any claim or assessment in respect of Taxes, surrender any right to claim a Tax refund, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes;

(n)Obligations.  Enter into or amend any contracts or commitments, other than any contracts or commitments entered into, in each case in the ordinary course of business with persons other than Affiliates of Target that involve payments or potential payments

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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to or by Target or any Subsidiary in any single instance of less than $50,000 or in the aggregate for all such contracts or commitments, less than $100,000;

(o)Accounts Payable.  Fail to make any payment with respect to any of Target’s accounts payable or its Indebtedness in a timely manner in accordance with their respective terms and consistent with past practice;

(p)Extraordinary Transactions. Adopt any plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring or other reorganization of Target (other than in connection with the Merger);

(q)New Agreements; Amendments; Defaults.  Enter into or modify, or permit any Subsidiary to enter into or modify, any Material Contract, including any supply, license, development, research or collaboration agreement, with any other person or take or omit to take any action, or permit any Subsidiary to take or omit to take any action, that would be reasonably likely to cause a material default under or a material breach of any of its Material Contracts;

(r)Subsidiaries.  Establish or create any Subsidiaries;

(s)Securities.  Sell or issue any securities of Target, including, without limitation, any shares of capital stock of Target and any stock options, warrants, subscription rights or other securities exercisable, convertible or exchangeable for any shares of capital stock of Target, in any case that would increase the aggregate amount of the Merger Consideration or would be reasonably likely to cause a delay in the Closing of the Merger or that would adversely affect or be reasonably likely to adversely affect the ability of Target’s stockholders as of the Agreement Date to vote a sufficient number of shares of Target Capital Stock to provide the Required Stockholder Vote or to continue to own at all times prior to the Effective Time shares of Target Capital Stock  having voting power no less than the Required Stockholder Vote;

(t)Agreements with Affiliates.  Enter into any agreements with any Affiliates of Target or its Subsidiaries (other than stock option, stock award, or similar agreements entered into with Affiliates of Target or its Subsidiaries in the ordinary course of business); or

(u)Other.  Agree to take, take or permit any Subsidiary to take or agree to take, any of the actions described in Sections 4.1(a) through 4.1(t).

5.Additional Agreements.

5.1Satisfaction of Conditions.  Each of the Parties will use reasonable best efforts to cause the satisfaction as promptly as possible of the conditions contained in Sections 6.1 through 6.3 hereof that impose obligations on it or require action on its part or the part of any of its stockholders or Affiliates.

5.2Further Assurances.  Subject to the terms and conditions set forth in this Agreement, from time to time both before and after the Effective Time, Target, Acquiror and

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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Merger Sub and the Stockholders’ Committee, and their respective proper members, officers and directors, will use reasonable best efforts, to take or cause to be taken all actions, and to do or cause to be done all other things, as are necessary or required to consummate the Merger and the other transactions contemplated hereby.

5.3Access to Information.  During the Pre-Closing Period, Target shall afford Acquiror and its personnel, accountants, counsel and other representatives reasonable access, upon request and reasonable notice to (i) all of Target’s properties, assets (including, without limitation, patents, patent applications, other intellectual property, manufacturing know how, trade secrets, preclinical and clinical data and results and other confidential information), books, records (including, without limitation, regulatory filings and correspondence, patent prosecution files and correspondence, other intellectual property files and correspondence and manufacturing records), contracts, and documents of Target or pertaining to the Compound, all clinical and pre-clinical trials or studies relating to the Compound, the Current Target Business or the development and commercialization of Products, and a reasonable opportunity to make such investigations, and will furnish or cause to be furnished to Acquiror and its authorized representatives all such information with respect to Target’s affairs, the Compound, all clinical and pre-clinical trials of studies relating to the Compound, the development and commercialization of Products and the Current Target Business asAcquiror reasonably requests; provided, however, that in exercising access rights under this Section 5.3, Acquiror shall not be permitted to interfere unreasonably with the conduct of the business of Target.  Notwithstanding the foregoing, any such access shall be conducted at Acquiror’s expense, at a reasonable time, under the supervision of appropriate personnel of Target and in such a manner as to maintain the confidentiality of this Agreement and the transactions contemplated hereby in accordance with the terms hereof and not to interfere with the normal operation of the business of Target and its Subsidiaries.  The Parties shall use reasonable best efforts to take any steps necessary prior to disclosing or providing access to information pursuant to this Section 5.3, to preserve attorney-client privilege under any circumstances in which such privilege may be jeopardized by such disclosure or access.

5.4Stockholder Consent; Section 280G Approvals.

(a)Target shall, in accordance with its certificate of incorporation, bylaws and Applicable Law, solicit the Required Stockholder Vote by written consent immediately after the execution of this Agreement and shall use reasonable best efforts to obtain the Required Stockholder Vote within 24 hours after the execution of this Agreement.  Subject to Section 5.12 hereof, Target’s board of directors will recommend to Target’s stockholders the adoption and approval of this Agreement and the transactions contemplated hereby and the other matters to be submitted to such Target’s stockholders in connection therewith.

(b)Notwithstanding anything to the contrary contained in this Agreement, if, in connection with the Merger, Target is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments, that will not be deductible under Section 280G of the Code if the stockholder approval requirements of Section 280G(b)(5)(B) of the Code are not satisfied, then Target shall use its reasonable best efforts to obtain stockholder approval of the “excess payments” (as hereafter defined) on a basis consistent with the requirements of Section 280G(b)(5)(B) of the Code and

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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the regulations issued thereunder, which approval may be by written consent action of the stockholders if allowed by applicable corporate law. For this purpose, the “excess payments” are those payments described in Section 280G of the Code but only to the extent they equal or exceed three times the “base amount” (as defined in Section 280G(b)(3)(A) of the Code) for the relevant individual. Any form of waiver of benefits, disclosure material, and form of consent or vote prepared in connection with seeking the foregoing vote shall be subject to the review and approval of the Acquiror, not to be unreasonably withheld, conditioned or delayed.

5.5Notice of Merger and Appraisal Rights; Notice of Stockholder Approval.  As promptly as practicable after the Required Stockholder Vote has been obtained, Target shall prepare and deliver to the holders of Target Capital Stock (i) a Notice of Merger and Appraisal Rights (the “Stockholder Notice”), which Stockholder Notice shall comply in all material respects with the requirements of Delaware Law and (ii) a notice under Section 228(e) of Delaware Law  informing those Target’s stockholders that did not execute the written consent obtaining the Required Stockholder Vote of such action by written consent, in compliance in all material respects with the applicable requirements of Delaware Law.

5.6Public Disclosure.  Except as may be required by law or by obligations pursuant to any listing agreement with The Nasdaq Global Market or any applicable national securities exchange and other than with respect to the issuance of the agreed press release attached hereto as Exhibit F, during the Pre-Closing Period, (a) Acquiror and Target shall consult with each other before issuing any other press release or otherwise making any other public statement or making any other public (or non-confidential) disclosure (whether or not in response to an inquiry) regarding the terms of this Agreement and the transactions contemplated hereby and (b) without limiting Acquiror’s obligations under that certain confidentiality agreement, dated May 19, 2009, between Target and Acquiror (the “Confidentiality Agreement”), neither Acquiror nor Target shall issue any such press release or make any such public statement or disclosure without the prior approval of Target or Acquiror, as the case may be (which approval shall not be unreasonably withheld or delayed).  Any and all non-public information disclosed or made available by Acquiror to Target or by Target to Acquiror as a result of the negotiations or due diligence investigations leading to the execution of this Agreement, or in furtherance thereof, including any information disclosed or made available pursuant to Section 5.3 hereof, shall remain subject to the terms and conditions the Confidentiality Agreement.

5.7Regulatory Approval; Further Assurances. Acquiror, Target and the Stockholders’ Committee, and their respective members, officers and directors shall use reasonable best efforts to consummate the Merger and the other transactions contemplated by this Agreement as soon as practicable following the Agreement Date and in no event later than one Business Day after the satisfaction or waiver of the conditions to Closing set forth in Section 6.  Subject to the terms and conditions set forth in this Agreement, from time to time both before and after the Effective Time, Target, Acquiror and Merger Sub, will use their respective reasonable best efforts, as promptly as is practicable, to take or cause to be taken all actions, and to do or cause to be done all other things, as are necessary or required to consummate the Merger and the other transactions contemplated hereby. Without limiting the generality of the foregoing, each party to this Agreement shall: (i) make any filings and give any notices required to be made or given by such party in connection with the Merger and the other transactions contemplated by

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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this Agreement; (ii) subject to Section 5.14 below, use reasonable best efforts to obtain any material consents required to be obtained (pursuant to any applicable legal requirement, contract or otherwise) by such party in connection with the Merger or any of the other transactions contemplated by this Agreement; and (iii) use reasonable best efforts to lift any restraint, injunction or other legal bar to the Merger.  Each of Acquiror and Target shall promptly deliver to the other a copy of each such filing made, each such notice given and each such consent obtained during the Pre-Closing Period.

5.8Escrow Agreement; Payment Agent Agreement.  At or before the Effective Time, Acquiror, Merger Sub and the Stockholders’ Committee shall, and shall use reasonable best efforts to cause Escrow Agent and the Payment Agent to, execute and deliver the Escrow Agreement and Payment Agent Agreement, respectively.

5.9Employees.

(a)Attached as Section 5.9(a) of the Acquiror Disclosure Schedule is a list of those employees Acquiror wishes to continue to employ after the Effective Time (such employees, the “Designated Continuing Employees”).

(b)Except as set forth herein, at or after the Effective Time, Acquiror shall enroll each Designated Continuing Employee who accepts Acquiror’s offer of continued employment after the Closing and has not resigned as an employee of Acquiror within 60 days following the Closing (each a “Continuing Employee”) in the Acquiror plans, programs, policies, practices, contracts, agreements or other arrangements providing for employment, compensation, retirement, deferred compensation, loans, severance, separation, termination pay, performance awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom stock, stock appreciation right, supplemental retirement, fringe benefits, cafeteria benefits or other benefits, whether written or unwritten, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA (the “Acquiror Employee Plans”), to the extent applicable, which are provided to similarly situated employees of Acquiror based on levels of responsibility and shall (i) use commercially reasonable efforts to cause any pre-existing conditions or limitations and eligibility waiting periods under any group health plans of Acquiror or its affiliates to be waived with respect to Continuing Employees and their eligible dependents, (ii) to the extent permissible under Acquiror’s health and welfare plans, give each Continuing Employee credit for the plan year in which the Effective Time occurs towards applicable deductibles and annual out-of-pocket limits for medical expenses incurred prior to the Effective Time for which payment has been made, and (iii) give such Continuing Employees service credit for their employment with Target for eligibility and vesting purposes (but not for benefit accrual) under any such applicable Acquiror Employee Plan, as if such service had been performed with Acquiror. Until the effective date of the enrollment of the Continuing Employees in a particular Acquiror Employee Plan, Acquiror shall continue in effect without amendment or reduction in benefits the existing Benefit Plan covering the same or similar benefits as would be covered by such Acquiror Employee Plan.  Nothing in this Section 5.9 is intended to prevent Acquiror from terminating any of its benefit plans in a manner that does not affect the vested or other pre-existing rights of any Target Employee. Notwithstanding any of the foregoing, Acquiror shall have the option to enroll any Continuing Employee in its medical and dental plans or keep them on the existing medical and dental plans offered by Target prior to the Closing.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(c)No provision of this Section 5.9 shall create any third-party beneficiary rights in any Employee or former Employee (including any beneficiary or dependent thereof) of Target or any Subsidiary of Target in respect of continued employment (or resumed employment) with Acquiror, the Surviving Corporation or any of Acquiror’s Subsidiaries, and no provision of this Section 5.9 shall create such rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any employee program or any plan or arrangement that may be maintained or established by Acquiror or any of its Subsidiaries or be deemed to constitute an amendment of any such program, plan or arrangement.

(d)At the Closing, Target shall provide Acquiror with evidence that Target’s board of directors has terminated of any and all Target employee benefit plans intended to include a Code Section 401(k) arrangement (each a “Target 401(k) Plan” and collectively, the “Target 401(k) Plans”), effective as of the day immediately preceding the day on which the Effective Time occurs subject to the occurrence of the Effective Time, and a copy of the notice that Target has prepared and signed to notify the plan administrator(s) for such Target 401(k) Plan(s) of such termination; such notices to be sent immediately following the Closing Date.  In the event that termination of a Target 401(k) Plan would reasonably be anticipated to trigger liquidation charges, surrender charges or other fees, then Target shall take such actions as are necessary to reasonably estimate the amount of such charges and/or fees and provide such estimate in writing to Acquiror on the Closing Date.

5.10FIRPTA Matters.  At the Closing, Target shall deliver to Acquiror: a properly executed statement, dated as of the Closing Date, in a form reasonably acceptable to Acquiror, conforming to the requirements of Treasury Regulations Sections 1.1445-2(c)(3) and 1.897-2(h).

5.11Indemnification of Officers and Directors of Target and its Subsidiaries.

(a)From and after the Effective Time, Acquiror shall cause the Surviving Corporation to fulfill and honor in all respects the obligations to the extent legally permissible of Target and its Subsidiaries pursuant to any indemnification provisions under the certificate of incorporation and bylaws of Target and the equivalent organizational documents of its Subsidiaries, each as is in effect on the Closing Date (the persons entitled to be indemnified pursuant to such provisions, and all other current and former directors and officers of Target and its Subsidiaries, being referred to collectively as the “Indemnified Parties”).  Acquiror shall cause the certificate of incorporation and bylaws of Merger Sub and the Surviving Corporation to contain the provisions with respect to indemnification and exculpation from liability set forth in Target’s certificate of incorporation and bylaws on the Closing Date, which provisions shall not be amended, repealed or otherwise modified during the period ending on the sixth anniversary of the Effective Time in any manner that would adversely affect the rights of any Indemnified Party under such provisions.

(b)Through the sixth anniversary of the Effective Time, Acquiror shall cause to be maintained in effect, for the benefit of the Indemnified Parties, the current level and scope of directors’ and officers’ liability insurance coverage as set forth in Target’s current directors’ and officers’ liability insurance policy in effect as of the Agreement Date; provided, however, that in no event shall Acquiror be required pursuant to this Section 5.11(b) to expend in

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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any one year an amount in excess of 200% of the annual premium currently payable by Target with respect to such current policy, it being understood that if the annual premiums payable for such insurance coverage exceed such amount, Acquiror shall be obligated to obtain a policy with the greatest coverage available for a cost equal to such amount.

(c)This Section 5.11 shall survive the consummation of the Merger and the Effective Time, is intended to benefit and may be enforced by the Indemnified Parties, and shall be binding on all successors and assigns of Acquiror and the Surviving Corporation.

5.12No Solicitation by Target; Board Recommendation; Fiduciary Exceptions.

(a)Subject to Section 5.12(b), Target shall not, nor shall it authorize or permit any of its Subsidiaries or any of their respective directors or officers to (and Target shall use its reasonable efforts to cause its employees and any investment banker, financial advisor, attorney, accountant or other advisor, agent or representative retained by it or any of its Subsidiaries not to), directly or indirectly, (i) solicit, initiate or knowingly encourage, or take any other action designed to facilitate, any Takeover Proposal (as defined below) or (ii) enter into any discussions or negotiations with any third party regarding, or furnish to any person any information in connection with, any Takeover Proposal.  Target shall, and shall cause its Subsidiaries to immediately cease and cause to be terminated all existing discussions or negotiations with any person conducted heretofore with respect to any Takeover Proposal or that may lead to a Takeover Proposal.

(b)The term “Takeover Proposal” means any proposal or offer from any person that would reasonably be expected to lead to any acquisition or purchase, in one transaction or a series of related transactions, of assets or businesses that constitute 15% or more of the revenues, net income or the assets of Target and its Subsidiaries, taken as a whole, or 15% or more of any class of equity securities of Target, any tender offer or exchange offer that if consummated would result in any person beneficially owning 15% or more of any class of equity securities of Target, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving Target pursuant to which any person or the stockholders of any person would own 15% or more of any class of equity securities of Target or of any resulting parent of Target, other than the transactions contemplated by this Agreement.

(c)Notwithstanding the provisions of clause (a) of this Section 5.12 or anything else in this Agreement, in response to any bona fide written Takeover Proposal  received before the Required Stockholder Vote is obtained that the board of directors of Target determines in good faith (after consultation with a financial advisor of nationally recognized reputation and outside legal counsel) constitutes or would reasonably be expected to lead to a Superior Proposal, and which Takeover Proposal did not result from a breach of this Section 5.12 by Target and was not in any way solicited by Target or its Subsidiaries, Affiliates, agents or representatives, Target may, if its board of directors determines in good faith (after consultation with outside legal counsel) that failure to do so is reasonably likely to be inconsistent with its fiduciary duties to the stockholders of Target under Applicable Laws, (x) furnish information with respect to Target and its Subsidiaries to the person making such Takeover Proposal and such person’s representatives pursuant to a customary confidentiality agreement, provided that

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

40

all such information has previously been provided to Acquiror or is provided to Acquiror prior to or substantially concurrent with the time it is provided to such person and (y) participate in discussions or negotiations with the person making such Takeover Proposal (and such person’s representatives) regarding such Takeover Proposal.  Notwithstanding anything to the contrary expressed or implied in this Agreement, the provisions of this Section 5.12(c) and the rights of Target and the board of directors of Target under this Section 5.12(c) shall terminate immediately upon receipt of the Required Stockholder Vote.

(d)The term “Superior Proposal” means any bona fide written proposal made by a third party that if consummated would result in such person (or its stockholders) owning, directly or indirectly, (A) all or substantially all of the shares of capital stock of Target then outstanding, or (B) all or substantially all of the assets of Target and its Subsidiaries, taken as a whole, in each case which was not solicited in any way by Target or any of its Subsidiaries, Affiliates, agents or representatives and did not otherwise result from a breach of this Agreement and which the board of directors of Target determines in good faith (after consultation with a financial advisor of nationally recognized reputation) to be (x) on terms, taking into account all the terms and conditions of such proposal and this Agreement (including any proposal by Acquiror to amend the terms of this Agreement and the transactions contemplated hereby), more favorable to the stockholders of Target from a financial point of view than the transactions contemplated by this Agreement and (y) reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal.

(e)Except as permitted by this Section 5.12(e), neither the board of directors of Target nor any committee thereof shall (i) (A) withdraw (or modify in a manner adverse to Acquiror), or publicly propose to withdraw (or modify in a manner adverse to Acquiror), the approval, recommendation or declaration of advisability by such board of directors or any such committee thereof of this Agreement, the Merger or the other transactions contemplated by this Agreement or (B) recommend, adopt or approve, or propose publicly to recommend, adopt or approve, any Takeover Proposal or (ii) allow, cause or authorize Target or any of its Subsidiaries to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement providing for or contemplating the consummation of any Takeover Proposal (other than a confidentiality agreement as provided in Section 5.12(c)).  Notwithstanding the foregoing or any other provision of this Agreement other than the termination provisions set forth below in this Section 5.12(e), (x) the board of directors of Target may take the actions set forth in clause (i)(A) above, or take the actions set forth in clause (i)(B) above with respect to a Superior Proposal, if (I) a Superior Proposal has actually been received, (II) in light of such Superior Proposal the board of directors of Target determines in good faith (after consultation with outside legal counsel) that the failure to do so would constitute a breach by the board of directors of Target of its fiduciary duties to the stockholders of Target under Applicable Laws, (III) Target has notified Acquiror in writing of such determination by the board of directors of Target, (IV) at least three Business Days following receipt by Acquiror of the notice referred to in clause (III) above, and taking into account any revised proposal made by Acquiror since receipt of the notice referred to in clause (III) above, such Superior Proposal remains a Superior Proposal and the board of directors has again made the determinations referred to in clause (II) above, (V) Target is in compliance with this Section 5.12 and (VI) Acquiror is not at such time entitled to terminate this Agreement

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

41

pursuant to Section 7.1(f) and (y) if the board of directors of Target receives a bona fide written Takeover Proposal that the board of directors of Target determines in good faith (after consultation with a financial advisor of nationally recognized reputation) constitutes a Superior Proposal, and which Takeover Proposal was not in any way solicited by Target or its Subsidiaries, Affiliates, agents or representatives, and otherwise did not result from a breach of this Agreement, Target may, contemporaneously with the termination of this Agreement pursuant to Section 7.1(e) and within 24 hours of the three Business Day period described below, enter into a definitive agreement with respect to such Superior Proposal, provided, however, that Target may not enter into any such agreement until the third Business Day following Acquiror’s receipt of written notice from Target advising Acquiror that the board of directors of Target has received a Superior Proposal, specifying the material terms and conditions of the Superior Proposal, identifying the person making such Superior Proposal and stating that the board of directors intends to exercise its right to enter into an agreement with respect to such Superior Proposal (it being understood that, prior to entering into any such agreement, any amendment to the price or any other material terms of a Superior Proposal shall require a new notice to Acquiror and a new three Business Day period). In the event that during such three Business Day period Acquiror offers in good faith to amend this Agreement to match such Superior Proposal, Target, the board of directors of Target and the Stockholders’ Committee shall accept such amendment and cease all discussions with the person making such Superior Proposal and shall not enter into any agreement (other than a termination agreement if necessary) with respect to such Superior Proposal. Notwithstanding anything to the contrary expressed or implied in this Agreement, the provisions of this Section 5.12(e) and the rights of Target and the board of directors of Target under this Section 5.12(e), including the provisions of this Section 5.12(e) that allow Target and the board of directors of Target to take the actions described in clause (x) or clause (y) above shall terminate immediately upon receipt of the Required Stockholder Vote.

(f)In addition to the obligations of Target set forth in this Section 5.12, Target shall promptly advise Acquiror orally and in writing after any director, agent or officer of Target becomes aware of any Takeover Proposal, the material terms and conditions of any such Takeover Proposal (including any changes to the price or other material terms thereof) and the identity of the person making any such Takeover Proposal.  Target shall keep Acquiror reasonably informed of the status and details of any such Takeover Proposal and provide to Acquiror as soon as practicable after receipt or delivery thereof with copies of all correspondence and other written material sent or provided to Target from any third party in connection with any Takeover Proposal or sent or provided by Target to any third party in connection with any Takeover Proposal.  Notwithstanding anything in this Section 5.12, the board of directors of Target may not take any action that would result in Target’s stockholders no longer being legally capable under Delaware Law of validly approving the Merger.

5.13Tax Returns.  During the Pre-Closing Period, Target shall, and shall cause each Subsidiary to, (a) timely file all of its Tax Returns as they become due (taking all timely filed proper extension requests into account), all such Tax Returns to be true, correct and complete, (b) timely pay and discharge as they become due and payable all Taxes (other than Taxes contested in good faith by Target or its Subsidiary in appropriate proceedings) imposed upon it or its income or any of its property and (c) timely and properly withhold and pay all Taxes required to be withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, supplier, shareholder or other person.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

42

5.14Consents.  Target shall use commercially reasonable efforts to obtain all material consents, waivers and approvals necessary for the consummation of the Merger and the transactions contemplated under this Agreement (all of such consents, waivers and approvals having been set forth in Section 5.14 of the Target Disclosure Schedule), including, but not limited to, all consents, waivers and approvals that are necessary or required in connection with, or as a result of, the Merger to preserve all of Target’s rights and benefits in its business, assets, properties, leases and Material Contracts following the Merger and without incurring any additional or special liability, or accelerating any existing liability or obligation, in connection with or under its business, assets properties, leases and Material Contracts following the Merger; provided that, Target shall not be required to pay any material amounts, incur any additional or special liability, or suffer the acceleration of any existing liability or obligation in order to obtain any such consents, waivers and approvals.

5.15Notification of Certain Matters.  Between the Agreement Date and the Effective Time, each of Acquiror and Target shall, upon obtaining Knowledge of any of the following, promptly notify the other of:

(a)any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the Merger;

(b)any actions, suits, claims, investigations or other judicial proceedings to have commenced or have been threatened against such person or any of its Subsidiaries which, if pending on the Agreement Date, would have been required to have been disclosed pursuant to Section 2.9 hereof or which relate to the consummation of the Merger;

(c)any breach or inaccuracy of any representation or warranty made  by such person as of the Agreement Date;

(d)the occurrence or non-occurrence of any other event which is likely to cause any representation or warranty of such person contained in this Agreement to be materially untrue or inaccurate at or prior to the Effective Time; and

(e)any failure of such person to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder.

Additionally, Target shall promptly notify Acquiror of any adverse determination or recommendation in connection with any governmental proceeding to license any of Target’s products and any report filed with the FDA regarding any adverse event with respect to any such product.  The delivery of any notice pursuant to this Section 5.15 shall not limit or otherwise affect any rights, obligations, or remedies available to a party.

5.16Diligence Regarding Products.  The Acquiror shall, and shall cause any of its transferees or assignees, as required in Section 9.4(b) to, comply with and satisfy, in all respects, the obligations set forth in Section 9 as provided therein.

5.17Payment of Transactional Expenses.  Acquiror shall pay up to $[]* of Transactional Expenses at the Closing and Target shall pay all other Transactional Expenses at Closing.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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5.18Resignation of Directors and Officers.  Except as otherwise requested by Acquiror at or prior to the Closing, at the Closing, Target shall deliver to Acquiror the written resignation of each director and officer from such positions of Target and its Subsidiaries, provided, however, that in no case shall any such resignations have any effect with respect to change in control arrangements between such directors and officers on the one hand, and Target, on the other hand, that are disclosed on Section 2.17(k) of the Target Disclosure Schedule.

5.19Financial Statements; Further Assurances.

(a)On or prior to the third Business Day following the last day of each calendar month ending after the Agreement Date until the Closing, Target shall deliver to Acquiror an unaudited balance sheet of Target as of the end of the immediately preceding calendar month and the related unaudited statements of income and cash flows, respectively, of Target, for such period then ended (the “Monthly Financials”).

(b)At the Closing, Target shall deliver to Acquiror an unaudited balance sheet of Target as of the Closing Date (the “Closing Balance Sheet”).

(c)In the event that the Closing is to occur after December 31, 2009, on or prior to the third Business Day prior to the Closing, Target shall deliver to Acquiror (i) all Supporting Materials and (ii) in the event that the Closing is to occur after December 31, 2009, an unaudited balance sheet of Target as of December 31, 2009 and the related unaudited statements of income and cash flows, respectively, of Target, for the fiscal year ended on such date (the “2009 Unaudited Statements”).

(d)Prior to the Closing, Target shall use reasonable efforts to cause Target’s auditors to agree to deliver all necessary consents to allow Acquiror to include the 2008 Audited Financials, the 2007 Audited Financials and all other Target financial statements (and such auditors’ reports with respect thereto) in Acquiror’s current and future registration statements filed with the SEC on Forms S-1, S-3, S-8 or any successor forms by incorporation by reference to any Current Report on Form 8-K to be filed with the SEC within four Business Days of the date hereof, as may be amended or otherwise.

(e)At the Closing, Target shall deliver to Acquiror all of the applicable materials, work papers, documents, books, records, files (physical or electronic), information and other supporting materials, including financial accounting and other information with respect to Target and its Subsidiaries and all of their respective predecessors that are necessary or required to produce the audited and unaudited consolidated financials statements of Target for all periods prior to the Effective Time (the “Supporting Materials”).

6.Conditions to the Merger.

6.1Conditions to Obligation of Each Party to Effect the Merger.  The respective obligations of Acquiror and Merger Sub, on the one hand, and Target, on the other hand, to effect the Merger and otherwise to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that (i) any one or more of the following conditions may be waived by the agreement of Acquiror and Target and (ii) by proceeding with the Closing,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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Acquiror, Merger Sub and Target will be deemed to have waived any of such conditions that remain unsatisfied):

(a)No Injunctions or Restraints; Illegality.  No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction, or other legal restraint or prohibition preventing the consummation of the Merger shall have been issued and remain in effect, and no petition or request for any such injunction, order or other legal restraint or prohibition shall be pending, nor shall there be any statute, rule or regulation enacted or deemed applicable to the Merger that prohibits or prevents the consummation of the Merger or makes the consummation of the Merger illegal.

(b)Required Stockholder Vote.  The Required Stockholder Vote shall have been obtained.

6.2Additional Conditions to the Obligations of Acquiror and Merger Sub.  The obligations of each of Acquiror and Merger Sub, respectively, to effect the Merger and otherwise to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that (i) any one or more of the following conditions may be waived by Acquiror and (ii) by proceeding with the Closing, Acquiror and Merger Sub will be deemed to have waived any of such conditions that remain unsatisfied):

(a)Representations and Warranties.  The representations and warranties of Target in this Agreement (i) that are qualified as to materiality or Target Material Adverse Effect shall be true and correct when made and as of the Closing Date as though each such representation and warranty had been made on and as of the Closing Date (except to the extent any such representation or warranty speaks as of any other specific date, in which case such representation or warranty shall have been accurate as of such date), and (ii) that are not so qualified shall be true and correct in all material respects when made and as of the Closing Date (except to the extent any such representation or warranty speaks as of any other specific date, in which case such representation or warranty shall have been accurate as of such date), except to the extent that such inaccuracies (considered collectively) do not have an Target Material Adverse Effect as of the Closing Date.

(b)Compliance with Agreement.  Target shall have performed and complied in all material respects with all of its obligations under this Agreement to be performed or complied with by it before or at the Closing.

(c)Closing Certificates.  Target will have executed and delivered to Acquiror, at and as of the Closing,

(i)a certificate certifying that the conditions referred to in Sections 6.1(b), 6.2(a), 6.2(b) and 6.2(d) hereof have been satisfied;

(ii)a certificate that incorporates by reference the representations and warranties set forth in Section 2.6 hereof and sets forth the information required to be set forth in Section 2.6 of the Target Disclosure Schedule as of the Effective Time,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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which certificate shall be deemed to be a representation and warranty of Target hereunder (the “Capitalization Certificate”); and

(iii)a certificate that sets forth (i) the respective portions of the Closing Payment and each Contingent Payment payable to each Former Holder and (ii) each Former Holder’s percentage interest in the Escrow Fund and the Committee Reimbursement Amount (the “Merger Consideration Certificate”).

(d)Stockholder Approval.  The Merger, this Agreement and the other transactions contemplated hereby shall have been approved by Target’s stockholders who collectively hold shares of Target Capital Stock representing at least 97% of the issued and outstanding shares of Target Capital Stock.

(e)Resignation of Directors and Officers.  The directors and officers of Target in office immediately prior to the Effective Time shall have resigned as directors and officers of Target effective as of the Effective Time.

(f)Escrow Agreement and Payment Agent Agreement.  Acquiror and Escrow Agent shall have entered into the Escrow Agreement and Acquiror and Payment Agent shall have entered into the Payment Agent Agreement.

(g)Third Party Consents.  Acquiror shall have been furnished with evidence reasonably satisfactory to it that Target has obtained the consents, approvals and waivers identified as “required consents” in Section 6.2(g) of the Acquiror Disclosure Schedule.

6.3Additional Conditions to the Obligations of Target.  The obligations of Target to effect the Merger and to otherwise consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that (i) any one or more of the following conditions may be waived by Target and (ii) by proceeding with the Closing, Target will be deemed to have waived any of such conditions that remain unsatisfied):

(a)Representations and Warranties.  The representations and warranties of Acquiror and Merger Sub in this Agreement (i) that are qualified as to materiality or Acquiror Material Adverse Effect shall be true and correct when made and as of the Closing Date as though each such representation and warranty had been made on and as of the Closing Date (except to the extent any such representation or warranty speaks as of any other specific date, in which case such representation or warranty shall have been accurate as of such date), and (ii) that are not so qualified shall be true and correct in all material respects when made and as of the Closing Date (except to the extent any such representation or warranty speaks as of any other specific date, in which case such representation or warranty shall have been accurate as of such date), except to the extent that such inaccuracies (considered collectively) do not have an Acquiror Material Adverse Effect as of the Closing Date.

(b)Compliance with Agreement.  Acquiror and Merger Sub shall have performed and complied in all respects with their respective payment obligations, and in all material respects with all of their other respective obligations, under this Agreement to be performed or complied with by them before or at the Closing.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(c)Closing Certificate.  Acquiror and Merger Sub shall have executed and delivered to Target, at and as of the Closing, a certificate certifying that the conditions referred to in Sections 6.3 (a) and 6.3(b) hereof have been satisfied.

(d)Escrow Agreement and Payment Agent Agreements.  Escrow Agent and the Stockholders’ Committee shall have entered into the Escrow Agreement and Payment Agent and the Stockholders’ Committee shall have entered in the Payment Agent Agreement.

7.Termination.

7.1Termination.  This Agreement may be terminated at any time prior to the Closing (with respect to Sections 7.1(b) through 7.1(f), by prior written notice from the terminating person to the other persons party hereto setting forth a brief description of the basis for termination):

(a)by the mutual written consent of Acquiror and Target;

(b)by either Acquiror or Target if the Merger shall not have been consummated by the date which is 60 days after the Agreement Date; provided, however, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to either Acquiror or Target whose material breach of a representation or warranty or failure to comply with or perform any covenant under this Agreement, including with respect to Target, the delivery of the Monthly Financials, the Closing Balance Sheet, the 2009 Unaudited Statements (if required by Section 5.19 hereof) or the Supporting Materials pursuant to Section 5.19 hereof, has been the cause of, or resulted in the failure of, the Merger to occur on or before such date;

(c)by either Acquiror or Target if a court of competent jurisdiction shall have issued a non-appealable final and permanent injunction, or other binding legal restraint or prohibition, having the effect of permanently prohibiting or preventing the consummation of the Merger or the other transactions contemplated hereby;

(d)without limiting the right of either Acquiror or Target to terminate this Agreement pursuant to Section 7.1(b), by Target if (i) there is an inaccuracy in any of the representations or warranties of Acquiror or Merger Sub in this Agreement such that the condition set forth in Section 6.3(a) would not be satisfied, or there has been a breach by Acquiror or Merger Sub of any of their respective covenants in this Agreement such that the condition set forth in Section 6.3(b) would not be satisfied, (ii) Target shall have delivered to Acquiror a written notice of breach, and (iii) at least 60 days shall have elapsed since the delivery of such notice without such breach having been cured;

(e)by Target if (i) Target previously has not breached any of its obligations under Section 5.12, (ii) Target previously has solicited the Required Stockholder Vote in full compliance with all of Target’s obligations under Section 5.4 and the Required Stockholder Vote has not been obtained and (iii) concurrently with such termination Target enters into a definitive agreement with respect to a Superior Proposal in accordance with Section 5.12;

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(f)without limiting the right of either Acquiror or Target to terminate this Agreement pursuant to Section 7.1(b), by Acquiror if (i) there is an inaccuracy in any of the representations or warranties of Target in this Agreement such that the condition set forth in Section 6.2(a) would not be satisfied, or there has been a breach by Target of any of its covenants in this Agreement such that the condition set forth in Section 6.2(b) would not be satisfied, (ii) Acquiror shall have delivered to Target a written notice of breach, and (iii) at least 60 days shall have elapsed since the delivery of such notice without such breach having been cured;

(g)by Acquiror, at any time prior to (but not following) 11:59 p.m. Boston time on the day immediately following the Agreement Date, if the Required Stockholder Vote shall not have been obtained by such time; or

(h)by Acquiror:

(i)if Target shall have breached Section 5.12;

(ii)if the board of directors of Target or any committee thereof withdraws or modifies, in a manner adverse to Acquiror, or proposes to withdraw or modify, in a manner adverse to Acquiror, its approval or recommendation of this Agreement, fails to recommend to Target’s stockholders that they adopt this Agreement or approves or recommends, or proposes to approve or recommend, any Takeover Proposal; or

(iii)if the board of directors of Target fails to reaffirm publicly and unconditionally its recommendation to Target’s stockholders that they adopt this Agreement promptly after Acquiror’s request to do so (which request may be made at any time), which public reaffirmation must also include the unconditional rejection of any Takeover Proposal if so requested by Acquiror.

7.2Effect of Termination.

(a)If this Agreement is validly terminated by Target pursuant to Section 7.1(e) hereof, then Target shall pay to Acquiror, in cash, a fee in the amount equal to Five Million Dollars ($5,000,000).  Any fee due under this Section 7.2(a) shall be paid by wire transfer of same-day funds on the date of termination of this Agreement.

(b)In the event of termination of this Agreement as provided in Section 7.1, then (i) the provisions of this Section 7.2, Section 7.3 and Section 10 shall survive any such termination, (ii) such termination shall not relieve any party hereto from liability arising from willful breach by such person of its representations or warranties under this Agreement or from any breach of a covenant of such person under this Agreement, if such breach occurred prior to such termination, (iii) each party hereto will return all documents, work papers and other material of the other party or parties relating to the transactions contemplated hereby including such memoranda, notes, lists, records or other documents compiled or derived from such material, whether so obtained before or after the execution hereof, to the party furnishing the same and (iv) all information received by any party hereto with respect to the business of the other parties hereto or their affiliated companies shall remain subject to the terms of the Confidentiality Agreement.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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7.3Costs and Expenses.  Except as otherwise provided in this Agreement and whether or not the transactions contemplated by this Agreement are consummated, all costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be borne by the person incurring such expenses.  The fees and expenses of the Escrow Agent and the Payment Agent shall be borne and paid by Acquiror.

8.Escrow and Indemnification

8.1Escrow Fund.  The Escrow Fund:  (A) shall be held by the Escrow Agent in accordance with the terms of this Agreement and the Escrow Agreement; (B) shall be held as an interest bearing trust fund and shall not be subject to any lien, attachment, trustee process or other judicial process of any creditor of any person; and (C) shall be held and disbursed solely for the purposes and in accordance with the terms of this Agreement and the Escrow Agreement.

8.2Indemnification.

(a)Expiration of Representations, Warranties and Covenants.  All representations and warranties (except for those representations and warranties set forth in Section 2.6, the Capitalization Certificate, Section 2.16 and Section 2.20, each of which shall survive until the date on which the last Contingent Payment, if any, is made) by Target in this Agreement shall expire on the one year anniversary of the Closing Date (as applicable to any representation or warranty, the “Representation Termination Date”); provided, however, that if at any time prior to the applicable Representation Termination Date, Acquiror delivers to the Stockholders’ Committee a notice stating the existence of an inaccuracy in any of the representations and warranties made by Target (and setting forth in reasonable detail the basis for Acquiror’s determination that such inaccuracy exists and the amount of the Damages incurred by Acquiror as a result of such inaccuracy) and asserting a claim for recovery under this Section 8.2 based on such inaccuracy, then the claim asserted in such notice shall survive the applicable Representation Termination Date until such time as such claim is fully and finally resolved.  All obligations of the parties under the covenants contained herein (including the covenants set forth in Sections 4 and 5) shall expire at the Effective Time, except to the extent that any such covenant expressly specifies that it is to be (or is otherwise required by this Agreement to be) performed after the Effective Time; provided, however, that notwithstanding the expiration of the parties’ obligations under such covenants, claims for breaches of any covenants of Target prior to their expiration may be brought after the Effective Time and until the date on which the last Contingent Payment, if any, is made. Notwithstanding anything to the contrary expressed or implied in this Section 8.2(a), nothing in this Section 8.2(a) shall limit Acquiror’s ability to assert a Fraud Claim at any time prior to the date on which the last Contingent Payment, if any, is paid.

(b)Indemnification.

(i)Subject to the limitations set forth in Sections 8.2(a) and 8.2(c) and the other limitations set forth in this Agreement, the Escrow Fund has been deposited with the Escrow Agent for the purpose of, and all of the Escrow Fund (as well as a portion of the Contingent Consideration subject to, and in accordance with, the provisions of this Section 8) shall be available for, indemnifying, defending, protecting and holding harmless Acquiror, Merger Sub, the Surviving Corporation and each of the directors, officers, employees,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

49

agents, representatives and Affiliates of Acquiror, the Surviving Corporation and/or Merger Sub (all persons entitled to indemnification under this Section 8.2(b)(i) being hereinafter referred to as the “Acquiror Indemnified Parties”) from and against any and all Damages related to or arising, directly or indirectly, out of or in connection with (A) any inaccuracy in any representation or warranty of Target set forth in Section 2, (B) the breach of any covenant of Target in this Agreement required to be performed at or prior to the Effective Time, and (C) (1) any inaccuracy in any representation or warranty of Target set forth in Section 2.16(p) (disregarding for all purposes of this Section 8 any disclosures on the Target Disclosure Schedule or otherwise with respect to the representations and warranties made in such Section 2.16(p)), (2) the misclassification of any employee as an independent contractor for Tax purposes, or (3) an underpayment of sales or use Taxes (each a “Specified Tax Claim”).  For purposes of this Section 8, “Damages” shall mean any liabilities, losses, damages, penalties, fines, costs, Taxes or expenses, including reasonable legal, expert and consultant fees and expenses, but excluding any special, indirect, consequential, exemplary or punitive damages that are not recoverable under Applicable Law by virtue of not being foreseeable; provided that for purposes of computing the amount of any Damages incurred by Acquiror there shall be deducted an amount equal to the amount of any insurance proceeds, indemnification payments, contribution payments, tax benefits, or reimbursements actually received (or, in the case of tax benefits, actually receivable) by Acquiror or any of its Affiliates in connection with such Damages or any of the circumstances giving rise thereto.  The parties agree that any indemnity payment made pursuant to this Section 8, including any amounts released to Acquiror from the Escrow Fund or offset against any Contingent Payment pursuant to this Section 8.2 shall be treated as a reduction in the aggregate consideration paid in connection with the Merger for all income Tax purposes.

(ii)Any payments made from the Escrow Fund pursuant to this Section 8.2(b) shall automatically reduce on a pro-rata basis the interest in the Merger Consideration of each Former Holder that would have otherwise received such payments.  In the event that the Escrow Fund is not sufficient to indemnify, defend, protect and hold harmless Acquiror or any of the other Acquiror Indemnified Parties from and against any and all Damages to which Acquiror or such other Acquiror Indemnified Party shall be entitled to indemnification under this Section 8.2(b), then Acquiror or such other Acquiror Indemnified Party, as the case may be, shall also be entitled to additional indemnification pursuant to the set off provisions of Section 9.3 hereof.

(c)Limitations of Liability.

(i)Subject to Section 8.2(c)(iv), the right of Acquiror to be indemnified from the Escrow Fund and the Contingent Payments pursuant to this Section 8 shall be the sole and exclusive remedy with respect to any inaccuracy of any representation or warranty of Target contained in, or any breach by Target of any covenant or agreement contained in, this Agreement, or otherwise in connection with the transactions contemplated by this Agreement.  Subject to Section 8.2(c)(iv), no current or former stockholder, optionholder, director, officer, employee, Affiliate or advisor of Target or party to the Escrow Agreement shall have any personal or individual liability of any nature to Acquiror, the Surviving Corporation or any Affiliate of Acquiror or the Surviving Corporation with respect to any inaccuracy of any representation or warranty contained in, or any breach of, this Agreement, or otherwise in connection with the transactions contemplated by this Agreement.  The parties acknowledge that

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(A) except as set forth in the Letter of Transmittal, no current or former stockholder, director, officer, employee, Affiliate or advisor of Target or any party to the Escrow Agreement has made or is making any representations, warranties or commitments whatsoever regarding the subject matter of this Agreement, express or implied, (B) except as expressly provided in Section 2 or elsewhere in this Agreement, the Target Disclosure Schedule, the Target Determination and the Capitalization Certificate and other certificates delivered in connection with this Agreement and the consummation of the transactions contemplated hereby, Target has not made and is not making any representations, warranties or commitments whatsoever regarding the subject matter of this Agreement, express or implied, and (C) except as expressly provided in Section 2 or elsewhere in this Agreement, the Target Disclosure Schedule, the Capitalization Certificate and other certificates delivered in connection with this Agreement and the consummation of the transactions contemplated hereby and the Letter of Transmittal, Acquiror is not relying and has not relied on any representations, warranties or commitments whatsoever regarding the subject matter of this Agreement, express or implied.

(ii)Without limiting the effect of any other limitation contained in this Section 8, the indemnification provided for in this Section 8.2 shall not apply, and Acquiror shall not be entitled to exercise any indemnification rights under this Agreement, except to the extent that the aggregate amount of the Damages against which Acquiror would otherwise be entitled to be indemnified under this Section 8.2 exceeds $500,000 (the “Basket Amount”).  If the aggregate amount of such Damages exceeds the Basket Amount, then Acquiror shall, subject to the other limitations contained herein (including, without limitation, Section 9.3(a) hereof), be entitled to be indemnified from the Escrow Fund and the Contingent Payments only against the portion of such Damages in excess of the Basket Amount; provided, however, that the limitations set forth in this Section 8.2(c)(ii) shall not be applicable to any indemnification under this Section 8.2 with respect to (and Acquiror shall be entitled to be indemnified under this Section 8.2 for any and all Damages, irrespective of the Basket Amount, related to or arising, directly or indirectly, out of or in connection with) (A) any breach of any covenant or agreement of Target or any of its Subsidiaries set forth in this Agreement (a “Covenant Claim”), (B) any breach of those representations and warranties set forth in Section 2.6 or the Capitalization Certificate (a “Capitalization Claim”), (C) any breach of those representations and warranties set forth in Section 2.20, (D) any Fraud Claim (as defined in Section 8.2(c)(iv) below) or (E) any Specified Tax Claim or any breach of the representations and warranties set forth in Section 2.16 or of the covenants set forth in Section 4.1(m) or Section 5.13 (each a “Tax Claim”).

(iii)Without limiting the effect of any other limitation contained in this Section 8, the indemnification provided for in this Section 8.2 shall not apply, and Acquiror shall not be entitled to exercise any indemnification rights under this Agreement, with respect to a Tax Claim, other than a Tax Claim related to or arising, directly or indirectly, out of or in connection with a Specified Tax Claim (each such Tax Claim other than a Specified Tax Claim, a “Restricted Tax Claim”), except to the extent that the aggregate amount of the Damages against which Acquiror would otherwise be entitled to be indemnified under this Section 8.2 with respect to all Restricted Tax Claims exceeds $50,000 (the “Tax Basket Amount”).  If the aggregate amount of such Damages exceeds the Tax Basket Amount, then Acquiror shall, subject to the other limitations contained herein (including, without limitation,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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Section 9.3(a) hereof), be entitled to be indemnified from the Escrow Fund and the Contingent Payments only against the portion of such Damages in excess of the Tax Basket Amount.

(iv)Nothing in this Section 8.2(c) shall limit any remedy Acquiror may have against any person who committed fraud for such fraud (a “Fraud Claim”), nor shall it limit any Party’s remedies under Section 10.6 hereof.

(d)Defense of Third-Party Claims.  Promptly after Acquiror obtains knowledge of any actual or possible claim, demand, suit, action, arbitration, investigation, inquiry or proceeding that has been or may be brought or asserted by a third party against Acquiror or any of Acquiror’s Subsidiaries or other Affiliates and that may be subject to indemnification hereunder (a “Third-Party Claim”), Acquiror shall promptly give notice of such Third-Party Claim to the Stockholders’ Committee, stating the nature and basis of such Third-Party Claim and the dollar amount of such Third-Party Claim, to the extent known.  The Stockholders’ Committee shall have the right at its election, exercisable at any time prior to the 30th day after the Stockholders’ Committee obtains knowledge of such Third Party Claim, to defend any Third-Party Claim (other than a Third-Party Claim that, if decided in a manner adverse to Acquiror or any of the other Acquiror Indemnified Parties, could reasonably result in either an obligation to pay monetary damages in an amount greater than the aggregate cash amount remaining in the Escrow Fund and available to pay such damages or would materially adversely affect any of the Acquiror Indemnified Parties or their respective businesses), in which case: (i) Stockholders’ Committee shall diligently and in good faith defend such Third-Party Claim; (ii) the attorneys’ fees of counsel reasonably acceptable to Acquiror (approval of such counsel not to be unreasonably withheld), other professionals’ and experts’ fees and court or arbitration costs incurred by the Stockholders’ Committee in connection with defending such Third-Party Claim shall be payable from the Escrow Fund, without the requirement of any consent or approval by Acquiror; (iii) Acquiror shall not be entitled to be indemnified (from the Escrow Fund or otherwise) for any costs or expenses incurred by Acquiror in connection with the defense of such Third-Party Claim; (iv) Acquiror shall be entitled to monitor such defense at its expense; (v) Acquiror shall make available to the Stockholders’ Committee all books, records and other documents and materials that are under the direct or indirect control of Acquiror or any of its Subsidiaries or other Affiliates and that the Stockholders’ Committee considers necessary or desirable for the defense of such Third-Party Claim; (vi) Acquiror shall execute such documents and take such other actions as the Stockholders’ Committee may reasonably request for the purpose of facilitating the defense of, or any settlement, compromise or adjustment relating to, such Third-Party Claim; (vii) Acquiror shall otherwise fully cooperate as reasonably requested by the Stockholders’ Committee in the defense of such Third-Party Claim; (viii) Acquiror shall not admit any liability with respect to such Third-Party Claim; and (ix) the Stockholders’ Committee shall not enter into any settlement agreement providing for the settlement of such Third-Party Claim without the prior written consent of Acquiror (which consent shall not be unreasonably withheld) if such settlement agreement imposes on Acquiror or any of its Subsidiaries or other Affiliates any obligation, other than an obligation to pay monetary damages in an amount less than the aggregate cash amount remaining in the Escrow Fund and available to pay such damages.  If the Stockholders’ Committee elects not to defend such Third-Party Claim or otherwise fails or is unable or unwilling to defend such Third Party Claim, then Acquiror shall have the right at its election, at any time, to defend such Third-Party Claim, in which case the provisions of clauses (ii)-(viii) set forth above in this Section 8.2(d)

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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shall not be applicable to such Third Party Claim and Acquiror shall have the right to settle and compromise such Third-Party Claim, provided that Acquiror shall have no right to seek indemnification under this Section 8 in respect of such Third-Party Claim for any settlement entered into without the prior written consent of the Stockholders’ Committee, which consent shall not be unreasonably withheld.

(e)Subrogation.  To the extent that Acquiror obtains indemnification pursuant to this Section 8 with respect to any Damages, the Stockholders’ Committee shall be entitled to exercise, and shall be subrogated to, any rights and remedies (including rights of indemnity, rights of contribution and other rights of recovery) that Acquiror or any of Acquiror’s Subsidiaries or other Affiliates may have against any other person with respect to such Damages. Acquiror shall take such actions as the Stockholders’ Committee may reasonably request for the purpose of enabling the Stockholders’ Committee to perfect or exercise the right of subrogation of the Stockholders’ Committee under this Section 8.2(e).

(f)Payment of Indemnification Claims Made by Acquiror Indemnified Parties.  In the event of any claim for indemnification pursuant to Section 8.2 hereof, the Acquiror Indemnified Party will notify the Stockholders’ Committee and, if applicable, the Escrow Agent in writing with reasonable specificity of the amount and circumstances surrounding such claim, provided, however, that failure to give such notice shall not affect such Acquiror Indemnified Party’s right to indemnification hereunder, except to the extent that the indemnifying party is prejudiced thereby.  If within thirty (30) days of receipt by the Stockholders’ Committee of any such notice of any claim for indemnification the Stockholders’ Committee has not contested such claim in writing to Acquiror and the Escrow Agent, the full amount thereof shall be paid to the Acquiror Indemnified Party out of the Escrow Fund to the extent available and subject to the limitations set forth in Section 8.2(c) hereof, within two (2) days after the expiration of such 30-day period. In the event the Stockholders’ Committee objects to the payment of any such claim, the amount of any claim not contested shall be paid to the Acquiror and any amount so contested shall remain with the Escrow Agent until the settlement or final adjudication of the dispute as evidenced by the final order of a court of competent jurisdiction or an agreement in writing signed by the Stockholders’ Committee and the Acquiror. To the extent the Escrow Fund is insufficient or not available to satisfy the full amount of such claim for indemnification, Acquiror shall be entitled to set off, and accordingly reduce, each Contingent Payment that Acquiror would otherwise be required to make pursuant to Section 9 hereof, subject to the limitations set forth in Section 8.2(c) hereof and Section 9.3(a).

8.3Stockholders’ Committee.

(a)By virtue of the adoption of this Agreement by Target’s stockholders, and without further action of any Target stockholder, optionholder, or warrantholder, each Former Holder shall be deemed to have irrevocably constituted and appointed Eckard Weber and Dennis Podlesak (and by execution of this Agreement they hereby accept such appointment), together, as agents and attorneys-in-fact (“Stockholders’ Committee”) for and on behalf of the Former Holders, with full power of substitution, to act in the name, place and stead of each Former Holder with respect to this Section 8, the Payment Agent Agreement and the Escrow Agreement and the taking by the Stockholders’ Committee of any and all actions and the making of any decisions required or permitted to be taken by the Stockholders’

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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Committee under this Agreement, the Payment Agent Agreement or the Escrow Agreement, including the exercise of the power to: (i) give and receive notices and communications under this Section 8, the Payment Agent Agreement or the Escrow Agreement; (ii) authorize delivery to Acquiror of cash from the Escrow Fund in satisfaction of claims for indemnification made by Acquiror under this Section 8; (iii) object to claims for indemnification made by Acquiror under this Section 8; (iv) agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to claims for indemnification made by Acquiror under this Section 8; and (v) take all actions necessary or appropriate in the good faith judgment of the Stockholders’ Committee for the accomplishment of the foregoing.  The power of attorney granted in this Section 8.3 is coupled with an interest and is irrevocable, may be delegated by the Stockholders’ Committee and shall survive the death or incapacity of any Former Holder.  The identity of members of the Stockholders’ Committee and the terms of the agency may be changed, and successor members of the Stockholders’ Committee may be appointed, from time to time (including in the event of the death, disability or other incapacity of a member of the Stockholders’ Committee) by Former Holders whose aggregate Pro Rata Portions exceed 50%, and any such successor shall succeed such member of the Stockholders’ Committee as a member of the Stockholders’ Committee hereunder.  No bond shall be required of the Stockholders’ Committee, and the Stockholders’ Committee shall receive no compensation for their services.

(b)The Stockholders’ Committee, both as a group and its individual members, shall not be liable for any liability, loss, damage, penalty, fine, cost or expense incurred by the Stockholders’ Committee while acting in good faith and arising out of or in connection with the acceptance or administration of their duties hereunder (it being understood that any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith).  Each Former Holder (in the same proportion as the portion of the Upfront Payment to which such Former Holder is entitled as of the Effective Time bears to the portion of the Upfront Payment to which all Former Holders collectively are entitled as of the Effective Time) agrees to indemnify the Stockholders’ Committee against liability for any action taken or not taken by him in his capacity as such agent. The Committee Reimbursement Amount, any Contingent Payment and any amounts of the Escrow Fund being released to the Former Holders pursuant to this Agreement and the Escrow Agreement (prior to distribution to the Former Holders) shall be available to indemnify and hold the Stockholders’ Committee, and any member thereof, harmless against any liability, loss, damage, penalty, fine, cost or expense incurred by the Stockholders’ Committee without bad faith on the part of the Stockholders’ Committee and arising out of or in connection with the acceptance or administration of their duties under this Agreement and the Escrow Agreement.  The Stockholders’ Committee shall be entitled to recover any out-of-pocket costs and expenses (“Committee Reimbursable Expenses”) reasonably incurred by the Stockholders’ Committee in connection with actions taken by the Stockholders’ Committee pursuant to the terms of this Agreement or the Escrow Agreement (including the hiring of legal counsel and the incurring of legal fees and costs) from the Committee Reimbursement Amount, any Contingent Payment and any amounts of the Escrow Fund being released to the Former Holders pursuant to this Agreement and the Escrow Agreement (prior to distribution to the Former Holders), without the requirement of any consent or approval by Acquiror.

(c)From and after the Effective Time, Acquiror shall cause the Surviving Corporation to provide the Stockholders’ Committee with reasonable access to

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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information about the Surviving Corporation and the reasonable assistance of the officers and employees of Acquiror and the Surviving Corporation for purposes of performing their duties and exercising their rights under this Agreement, provided that the Stockholders’ Committee shall enter into a confidentiality and nondisclosure agreement with Acquiror and the Surviving Corporation on terms satisfactory to Acquiror and the Stockholders’ Committee pursuant to which the Stockholders’ Committee shall agree to treat confidentially any nonpublic information he receives from Acquiror regarding the Acquiror, the Surviving Corporation or any of their respective officers, directors, employees or Affiliates (except in connection with the performance by the Stockholders’ Committee of their duties or the exercise of the Stockholder’ Committee’s rights under this Agreement).

8.4Actions of the Stockholders’ Committee.  From and after the Effective Time, a decision, act, consent or instruction of the Stockholders’ Committee shall constitute a decision of all Former Holders and shall be final, binding and conclusive upon each Former Holders, and the Escrow Agent and Acquiror may rely upon any decision, act, consent or instruction of the Stockholders’ Committee as being the decision, act, consent or instruction of each Former Holders.  Acquiror and Surviving Corporation are hereby relieved from any liability to any person for any acts done by Stockholders’ Committee and any acts done by Acquiror or Surviving Corporation in accordance with any such decision, act, consent or instruction of the Stockholders’ Committee.

9.Contingent Payments; Diligence Requirements.

9.1Milestones.  As part of the consideration being paid in respect of the shares of Target Capital Stock, Target Options and Target Warrants outstanding immediately prior to the Effective Time pursuant to the terms of this Agreement and the Payment Agent Agreement, Acquiror shall pay each of the following Contingent Payments upon the []* occurrence of each of the following Milestone events to which such Contingent Payments relates (whether achieved by Acquiror, the Surviving Corporation or any of their Affiliates or licensees):

(a)Promptly (and in any event within []* Business Days thereafter) upon the occurrence of the Completion of Current Phase II Study Milestone, Acquiror shall []* and, within 30 days following the occurrence of the Completion of Current Phase II Study Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the Completion of Current Phase II Study Contingent Payment.

(b)If and only if the Commencement of Pivotal Study - 1st Target Combo Product Indication Milestone has not occurred previously, promptly (and in any event within []* Business Days thereafter) upon the occurrence of the Commencement of Pivotal Study - 1st Other Product Indication Milestone, Acquiror shall []* and, within 30 days following the occurrence of the Commencement of Pivotal Study - 1st Other Product Indication Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the  Commencement of Pivotal Study - 1st Other Product Indication Contingent Payment.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(c)Promptly (and in any event within []* Business Days thereafter) upon the occurrence of the Commencement of Pivotal Study - 1st Target Combo Product Indication Milestone, Acquiror shall []* and, within 30 days following the occurrence of the Commencement of Pivotal Study - 1st Target Combo Product Indication Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions (1), in the event that the Commencement of Pivotal Study - 1st Other Product Indication Contingent Payment has not been made previously pursuant to Section 9.1(b), an amount equal to the Commencement of Pivotal Study - 1st Target Combo Product Indication Contingent Payment or (2), in the event that the Commencement of Pivotal Study - 1st Other Product Indication Contingent Payment has been made previously pursuant to Section 9.1(b), an amount equal to (A) the Commencement of Pivotal Study - 1st Target Combo Product Indication Contingent Payment minus (B) the Commencement of Pivotal Study - 1st Other Product Indication Contingent Payment.

(d)If and only if the Commencement of Pivotal Study - 2nd Target Combo Product Indication Milestone has not occurred previously, promptly (and in any event within []* Business Days thereafter) upon the occurrence of the Commencement of Pivotal Study - 2nd Other Product Indication Milestone, Acquiror shall []* and, within 30 days following the occurrence of the Commencement of Pivotal Study - 2nd Other Product Indication Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the Commencement of Pivotal Study - 2nd Other Product Indication Contingent Payment.

(e)Promptly (and in any event within []* Business Days thereafter) upon the occurrence of the Commencement of Pivotal Study - 2nd Target Combo Product Indication Milestone, Acquiror shall []* and, within 30 days following the occurrence of the Commencement of Pivotal Study - 2nd Target Combo Product Indication Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions (1), in the event that the Commencement of Pivotal Study - 2nd Other Product Indication Contingent Payment has not been made previously pursuant to Section 9.1(d), an amount equal to the Commencement of Pivotal Study - 2nd Target Combo Product Indication Contingent Payment  or (2) in the event that the Commencement of Pivotal Study - 2nd Other Product Indication Contingent Payment has been made previously pursuant to Section 9.1(d), an amount equal to (A) the Commencement of Pivotal Study - 2nd Target Combo Product Indication Contingent Payment minus (B) Commencement of Pivotal Study - 2nd Other Product Indication Contingent Payment.

(f)If and only if the Completion of Phase II Target Combo Product Pneumonia Study Milestone has not occurred previously, promptly (and in any event within []* Business Days thereafter) upon the occurrence of the Completion of Phase II Other Product Pneumonia Study Milestone, Acquiror shall []* and, within 30 days following the occurrence of the Completion of Phase II Other Product Pneumonia Study Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the Completion of Phase II Other Product Pneumonia Study Contingent Payment.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(g)Promptly (and in any event within []* Business Days thereafter) upon the occurrence of the Completion of Phase II Target Combo Product Pneumonia Study Milestone, Acquiror shall []* and, within 30 days following the occurrence of the Completion of Phase II Target Combo Product Pneumonia Study Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions (1), in the event that the Completion of Phase II Other Product Pneumonia Study Milestone has not been made previously pursuant to Section 9.1(f), an amount equal to the Completion of Phase II Target Combo Product Pneumonia Study Contingent Payment or (2) in the event that the Completion of Phase II Other Product Pneumonia Study Contingent Payment has been made previously pursuant to Section 9.1(f), an amount equal to (A) the Completion of Phase II Target Combo Product Pneumonia Study Contingent Payment minus (B) the Completion of Phase II Other Product Pneumonia Study Contingent Payment.

(h)If and only if the NDA Acceptance Target Combo Product Milestone has not occurred previously, promptly (and in any event within []* Business Days thereafter) upon the occurrence of the NDA Acceptance Other Product Milestone, Acquiror shall []* and, within 30 days following the occurrence of the NDA Acceptance Other Product Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the NDA Acceptance Other Product Contingent Payment.

(i)Promptly (and in any event within []* Business Days thereafter) upon the occurrence of the NDA Acceptance Target Combo Product Milestone, Acquiror shall []* and, within 30 days following the occurrence of the NDA Acceptance Target Combo Product Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions (1), in the event that the NDA Acceptance Other Product Milestone has not been made previously pursuant to Section 9.1(h), an amount equal to the NDA Acceptance Target Combo Product Contingent Payment or (2) in the event that the NDA Acceptance Other Product Contingent Payment has been made previously pursuant to Section 9.1(h), an amount equal to (A) the NDA Acceptance Target Combo Product Contingent Payment minus (B) the NDA Acceptance Other Product Contingent Payment.

(j)If and only if the First Commercial Sale U.S. Target Combo Product Milestone has not occurred previously, promptly (and in any event within []* Business Days thereafter) upon the occurrence of the First Commercial Sale U.S. Other Product Milestone, Acquiror shall []* and, within 30 days following the occurrence of the First Commercial Sale U.S. Other Product Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the First Commercial Sale U.S. Other Product Contingent Payment.

(k)Promptly (and in any event within []* Business Days thereafter) upon the occurrence of the First Commercial Sale U.S. Target Combo Product Milestone, Acquiror shall []* and, within 30 days following the occurrence of the First Commercial Sale U.S. Target Combo Product Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions (1), in the event that the First Commercial Sale U.S. Other Product Milestone has not been made previously pursuant to Section 9.1(j), an amount equal to the First Commercial Sale U.S. Target Combo Product

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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Contingent Payment or (2) in the event that the First Commercial Sale U.S. Other Product Contingent Payment has been made previously pursuant to Section 9.1(j), an amount equal to (A) the First Commercial Sale U.S. Target Combo Product Contingent Payment minus (B) the First Commercial Sale U.S. Other Product Contingent Payment.

(l)If and only if the First Commercial Sale E.U. Target Combo Product Milestone has not occurred previously, promptly (and in any event within []* Business Days thereafter) upon the occurrence of the First Commercial Sale E.U. Other Product Milestone, Acquiror shall []* and, within 30 days following the occurrence of the First Commercial Sale E.U. Other Product Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the First Commercial Sale E.U. Other Product Contingent Payment.

(m)Promptly (and in any event within []* Business Days thereafter) upon the occurrence of the First Commercial Sale E.U. Target Combo Product Milestone, Acquiror shall []* and, within 30 days following the occurrence of the First Commercial Sale E.U. Target Combo Product Milestone, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions (1), in the event that the First Commercial Sale E.U. Other Product Milestone has not been made previously pursuant to Section 9.1(l), an amount equal to the First Commercial Sale E.U. Target Combo Product Contingent Payment or (2) in the event that the First Commercial Sale E.U. Other Product Contingent Payment has been made previously pursuant to Section 9.1(l), an amount equal to (A) the First Commercial Sale E.U. Target Combo Product Contingent Payment minus (B) the First Commercial Sale E.U. Other Product Contingent Payment.

(n)Within []* days after the end of the fiscal quarter in any calendar year in which the First Sales Milestone is met, Acquiror shall []* and, within []* days following the []*, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the First Sales Contingent Payment.

(o)Within []* days after the end of the fiscal quarter in any calendar year in which the Second Sales Milestone is met, Acquiror shall []* and, within []* days following the []*, Acquiror shall pay or cause to be paid to the Payment Agent for the benefit of the Former Holders in their Pro Rata Portions an amount equal to the Second Sales Contingent Payment.  For the avoidance of doubt, the First Sales Milestone and the Second Sales Milestone may occur in the same calendar year, []*.

9.2Payment Procedures.

(a)Each Contingent Payment shall be paid in U.S. Dollars by wire transfer of immediately available funds into an account designated in writing by the Payment Agent pursuant to the Payment Agent Agreement.  Each Contingent Payment shall be non-refundable and non-creditable against any other payments due under this Agreement, but shall be subject to off set as set forth in Section 8, Section 9.3 and elsewhere in this Agreement. Each Contingent Payment shall only be []*.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(b)As promptly as practicable following receipt by the Payment Agent of each Contingent Payment, if any, pursuant to Section 9.1, the Payment Agent shall pay pursuant to the Payment Agent Agreement to each Former Holder such person’s Pro Rata Portion of such Contingent Payment, as applicable.  All payments shall be made by wire transfer of immediately available funds (or by check, as reasonably directed by such person).  The right of the Former Holders to receive their respective Pro Rata Portions of the Contingent Payments shall not be evidenced by any form of certificate or instrument.

(c)If any Milestone occurs prior to the Effective Time, (1) Acquiror shall not be obligated to make any Contingent Payment unless the Effective Time occurs, and (2) the related Contingent Payment will be payable at the Effective Time.

(d)No interest shall accrue on any Contingent Payments, if any, to be paid hereunder; provided such Contingent Payments are timely made in accordance with the terms of this Agreement.  Interest on Contingent Payments not timely made in accordance with the terms hereof will accrue at an annual rate equal to the prime rate published in The Wall Street Journal (or a successor publication in the event The Wall Street Journal is no longer available) on the applicable due date of the late payment[]*.

9.3Adjustments.

(a)Any Contingent Payment that is payable following the completion of a Milestone (i) shall be reduced by the aggregate amount of any claim for indemnification or reimbursement by any Acquiror Indemnified Party pursuant to Section 8 of this Agreement not previously paid from or reserved against the Initial Escrow Fund (each an “Acquiror Set-Off Claim”), provided, however, that, notwithstanding the foregoing, such Contingent Payment shall not be reduced pursuant to the foregoing provisions of this Section 9.3(a) by more than an amount equal to the sum of []* of such Contingent Payment, plus the Special Set Off Amount (as defined below), except that the limitation set forth in this proviso shall not apply to (A) any Covenant Claim or (B) any Fraud Claim, and (ii) shall be reduced by the aggregate amount of any Committee Reimbursable Expenses payable under Section 8.3 to the extent not previously paid from the Upfront Payment, the Committee Reimbursement Amount or any prior Contingent Payment.  The term “Special Set Off Amount” shall mean (A) []*, minus (B) the aggregate amount of all Special Tax Claims actually paid from the Escrow Fund or set off against any prior Contingent Payment, plus (C) an amount equal to all Acquiror Set-Off Claims (other than Special Tax Claims), provided that such amount shall in no event exceed the aggregate amount of Special Tax Claims paid out of the Initial Escrow Fund. For the avoidance of doubt, the Special Set Off Amount shall only be available for payment of any Special Tax Claims and any Acquiror Set-Off Claim described in clause (C) above.

(b)For the avoidance of doubt to the extent that the amount of a particular Contingent Payment that is available to satisfy any Acquiror Set-Off Claim is insufficient to satisfy in full such Acquiror Set-Off Claim, the unsatisfied portion of such Acquiror Set-Off Claim shall be carried forward and deducted from the portions of the next Contingent Payments that are available to satisfy such Acquiror Set-Off Claim in the manner provided herein.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(c)Within []* Business Days following the final determination of all outstanding Acquiror Set-Off Claims and other claims for which a Contingent Payment was reduced pursuant to Section 9.3(a), Acquiror shall pay or cause to be paid to the Payment Agent for distribution to the Former Holders, the net amount of such Contingent Payment (after giving effect to all such reductions pursuant to Section 9.3(a) hereof) in the manner set forth in Section 9.2.

(d)Subject to the provisions of Section 8 of this Agreement: (i) the Stockholders’ Committee shall have []* Business Days from the date of payment of any Contingent Payment that was reduced by an Acquiror Set-Off Claim to accept or object to all or a portion of such Acquiror Set-Off Claim; (ii) in the event that the Stockholders’ Committee, in good faith, disagrees with all or a portion of such Acquiror Set-Off Claim, then the Stockholders’ Committee shall deliver to Acquiror, by no later than the expiration of such []* Business Day period, written notice of such disagreement, which notice shall include in reasonable detail its reasons for such disagreement; (iii) if the Stockholders’ Committee delivers a timely notice, the Stockholders’ Committee and Acquiror shall have []* Business Days from the date of delivery of the notice to resolve all disputes set forth in the notice; and (iv) if the Stockholders’ Committee fails to dispute such Acquiror Set-Off Claim or any portion thereof in accordance with the foregoing provisions, then such Acquiror Set-Off Claim or any portion thereof shall be deemed to be finally determined for all purposes under this Agreement.

9.4Development Diligence Requirements.

(a)Following the Closing Date, the Stockholders’ Committee shall appoint one (1) person as its representative (the “Stockholder Representative”) to discuss product research, development, regulatory and marketing activities relating to the Products pursuant to Section 9.4, 9.5, 9.6 and 9.7.  The Stockholder Representative initially shall be Eckard Weber, M.D..  In the event that any person appointed as the Stockholder Representative becomes unable or unwilling to serve in the capacity provided in this Section 9, the Stockholders’ Committee may select another person to succeed the Stockholder Representative in such role.

(b)Acquiror shall prepare and deliver to the Stockholder Representative within []* days after the Closing Date a draft of the development plan in form, detail and substance []*.

(c)Following the delivery by the Acquiror of such draft development plan in accordance with Section 9.4(b) above, the Stockholder Representative shall have the opportunity, within []* days following such delivery, to review and provide comments to Acquiror on such draft development plan. After good faith consideration of such comments by the Acquiror, the Acquiror may in its discretion revise such draft development plan and deliver such development plan in final form to the Stockholder Representative. The development plan delivered in final form pursuant to this Section 9.4(c), as amended, modified, changed or updated from time to time pursuant to Section 9.4(d), shall be referred to as the “Development Plan.”

(d)The Acquiror may, at any time and from time to time, amend, modify, change or update the Development Plan, as in effect immediately prior to such amendment, modification, change or update, including changes to any of the []* in good faith

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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and consistent with []*.  On []*, or following any []*, Acquiror shall deliver to the Stockholder Representative a copy of the Development Plan as then in effect.

(e)From and after the Closing Date and subject to the provisions of Section 9.4(c) and (d) above, the Acquiror shall []* perform the development activities []*.

(f)In the event that the Acquiror, despite complying with its obligations under Section 9.4(e) hereof, is not able to or does not achieve a particular Development Milestone, then the Acquiror shall not be obligated to pay the Contingent Payment relating to such Development Milestone.

(g)From and after the Closing Date, Acquiror shall (and shall cause its licensees to) provide an annual written report to the Stockholder Representative, on or before []*, of all []*.

(h)The obligations of the Acquiror under Sections 9.4(d), 9.4(e) and 9.4(g) shall terminate on the earlier of (i) the date on which, consistent with the obligations of the Acquiror under Section 9.4(e), []* and (ii) the date on which []*.

9.5Commercialization Diligence Requirements.

(a)The Acquiror shall []* launch and commercialize any Product []*. The obligations of the Acquiror under this Section 9.5(a) shall terminate on the earlier of (i) the date on which, consistent with the obligations of the Acquiror under this Section 9.5(a), []* and (ii) the date on which []*.

(b)In the event that the Acquiror, complying with its obligations under Section 9.5(a) hereof, is not able to or does not achieve a Commercialization Milestone (as defined below in this Section 9.5(b)), then the Acquiror shall not be obligated to pay the Contingent Payment relating to such Commercialization Milestone.  For purposes of this Agreement, the term “Commercialization Milestones” shall mean, collectively, the First Commercial Sale U.S. Target Combo Product Milestone, the First Commercial Sale E.U. Target Combo Product Milestone, the First Sales Milestone and the Second Sales Milestone, and the term “Commercialization Milestone” shall mean any of the Commercialization Milestones.

(c)On []* after the Closing Date and []*.  The obligations of the Acquiror under this Section 9.5(c) shall terminate on the earlier of (i) the date on which, consistent with the obligations of the Acquiror under Section 9.5(a), the Acquiror is not []* and (ii) the date on which []*.

9.6Other Ongoing Covenants.  Acquiror and the Surviving Corporation covenant and agree as follows:

(a)The Acquiror may not transfer, sell, license, convey or dispose of the Products or commercial rights in and to the Products except to Affiliates and except to third party transferees, assignees or licensees that expressly agree to be bound by the obligations with respect to the Contingent Payments and all of the Acquiror’s other obligations as set forth in this

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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Section 9, and Acquiror remains responsible for the payment of the Contingent Payments in the event the transferees or assignees fail to make any such payments when due.

(b)Within 15 days after the receipt of any []* from Acquiror pursuant to Section 9.4(g) or 9.5(c), at the request of the Stockholder Representative, the Acquiror shall []*.

(c)The Stockholders’ Committee shall have the right to cause an independent, certified public accountant reasonably acceptable to the Acquiror to audit such records to confirm the correctness of any report or payment made or to be made under this Agreement, including annual Net Sales of any Products.  Such audits may be exercised during normal business hours upon reasonable prior written notice to the Acquiror only by an independent certified public accountant selected by the Stockholders’ Committee who does not currently serve as the independent auditor of the Acquiror.  The Former Holders shall bear the full cost of such audit unless such audit discloses that a Milestone has been satisfied and Acquiror failed to []* pay the Contingent Payment when due, in which case, Acquiror shall bear the full cost of such audit and shall promptly remit the Contingent Payment.

(d)If Acquiror transfers its rights to research, develop, manufacture and/or commercialize any Product to any of its Affiliates, transferees, assignees or licensees, Acquiror shall ensure that such Affiliate, transferee, assignee or licensee is contractually obligated to the same diligence obligations to which Acquiror is obligated hereunder with respect to such activities relating to such Product, and that for this purpose, in applying the definition of the term “[]*” to such Affiliate’s, transferee’s, assignee’s or licensee’s diligence obligations, any reference to “Acquiror” in the definition of “[]*” shall be replaced with a reference to such Affiliate, transferee, assignee or licensee.  Notwithstanding the foregoing, if any such rights are transferred to an Affiliate who is controlled by Acquiror, then such references to “Acquiror” in the definition of the term “[]*” shall continue to apply to Acquiror.

9.7Dispute Resolution for Section 9 Obligations.

(a)If within []* days following delivery of []*, the Stockholder Representative in good faith believes that the Acquiror is not using []* as required by this Section 9, the Stockholder Representative shall provide the Acquiror with written notice thereof specifying the reasons for such belief and a detailed description of the activities performed or not performed forming the basis for such belief (a “Diligence Breach Notice”),  If the Stockholder Representative does not deliver a Diligence Breach Notice within such []*-day period, Acquiror shall be deemed to have met its obligation to use []* hereunder through the dates covered by any []* pursuant to the foregoing sentence and the Stockholders’ Committee shall not be permitted to deliver a Diligence Breach Notice with respect to activities conducted, or otherwise claim that Acquiror failed to use []*, during the time period covered by []* and all times prior thereto. Upon receipt of a Diligence Breach Notice, the Acquiror will have []* days from the date of such Diligence Breach Notice in which to reasonably demonstrate to the Stockholder Representative that the Acquiror is meeting such diligence obligation. During such []*-day period, the Acquiror may submit to the Stockholder Representative an amended []* to address any breach or alleged breach of its obligations to use []* pursuant to this Section 9. If the Stockholder Representative continues to dispute whether or not Acquiror was using []* pursuant to this Section 9 following

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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the delivery of []* []*, as the case may be, or, the expiration of such []*-day period if no []*, the Acquiror and the Stockholder Representative shall attempt for at least []* days, in good faith, to resolve any dispute as to the Acquiror’s use of []* hereunder. Acquiror shall reasonably respond to any requests for information by the Stockholder Representative that could be reasonably expected to assist in evaluating such determination, and the Stockholder Representative shall consider in good faith any further []*, as the case may be, presented to it by Acquiror designed to address any breach or alleged breach of Acquiror’s obligations to use []* pursuant to this Section 9.

(b)If at the end of the []* day period set forth in 9.7(a) (after adding together the two []*-day periods referred to therein), the Acquiror and the Stockholder Representative shall not have reached agreement with respect to the activities that are the subject of the applicable Diligence Breach Notice, such dispute shall be determined through arbitration in New York, New York.  The arbitration shall be conducted in the English language and in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  Unless the Acquiror and the Stockholder’s Committee agree otherwise, the []* shall consist of []*.  If []* is not appointed within the time prescribed above, then the American Arbitration Association shall appoint []*.  []* shall []* with knowledge of the life sciences industry and at least 10 years of experience in the area(s) of drug development, process sciences, manufacturing, regulatory affairs, product development and/or product commercialization, as applicable to the subject matter of the dispute. The parties shall cooperate in conducting the arbitration in an expedited manner, and the parties will use their reasonable best efforts to cause the []* to render a final award no later than []* months after the appointment of the []*. In all arbitration proceedings conducted under this Section 9.7(b), the Stockholders’ Committee shall have the burden of proof with respect to whether or not Acquiror complied with is obligations to use []* hereunder. A record shall be made of all hearings and all evidence (including exhibits, deposition transcripts, affidavits admitted into evidence) in the arbitration proceeding.  The []* required to reach a decision in compliance with the applicable law and must render a written decision setting forth the factual and legal bases of the award.  Each party shall bear its own attorney’s fees, costs and disbursements incurred in the arbitration and in preparation for the arbitration.  The costs of the []* and any fees of the arbitration institution shall be equally divided between the Parties.  Unless a timely appeal is taken under Section 9.7(c), any court of competent jurisdiction may enter judgment on the award.

(c)An appeal may be taken under the Arbitration Appeal Procedure of the International Institute for Conflict Prevention and Resolution (the “Appeal Procedure”) from any final award of the []* in any arbitration under Section 9.7(b).  The person seeking to appeal must commence the appeal within []* days after its receipt of the original []* final award.  The appeal shall be conducted in the English language, and, unless otherwise agreed by the Acquiror and the Stockholders’ Committee and the appeal tribunal, the appeal shall be conducted at the place of the original arbitration.  The appeal []* shall consist of []*, selected as specified in the Appeal Procedure, who shall be retired judges or active or retired attorneys with substantial experience litigating commercial disputes.  Each person shall bear its own attorney’s fees, costs and disbursements incurred in the arbitration and in preparation for the arbitration.  The costs of []* and any fees of the arbitration institution shall be equally divided between the Acquiror and the Stockholders’ Committee.  The award of the original []* or of the []* shall become final in

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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the manner specified in the Appeal Procedure, and any court of competent jurisdiction may enter judgment on such award.

10.General Provisions.

10.1Notices.  All notices and other communications hereunder shall be in writing and shall be deemed duly delivered (i) upon receipt if delivered personally, (ii) one Business Day after being sent by commercial overnight courier service or (iii) upon transmission if sent via facsimile with confirmation of receipt to the parties at the following addresses (or at such other address for a party hereto as shall be specified upon like notice):

(a)if to Acquiror or Merger Sub, to:

Cubist Pharmaceuticals, Inc.

65 Hayden Avenue

Lexington, Massachusetts 02421

Attention:  Chief Executive Officer

Telecopier No.: 781-861-0566

with a copy sent at the same time and by the same means to:

Cubist Pharmaceuticals, Inc.

65 Hayden Avenue

Lexington, Massachusetts 02421

Attention:  General Counsel

Telecopier No.: 781-861-0566

and

Bingham McCutchen LLP

150 Federal Street

Boston, Massachusetts  02110

Attention:  Julio E. Vega, Esq.

Matthew J. Cushing, Esq.

Telecopier No.: (617) 951-8736

(b)if to Target, to:

Calixa Therapeutics, Inc.

12481 High Bluff Drive, Suite 150

San Diego, California 92130

Attention: Chief Executive Officer

Facsimile: (877) 393-3519

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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with a copy to:

Reed Smith LLP

1901 Avenue of the Stars, Suite 700

Los Angeles, CA 90067

Attention: Michael Sanders, Esq.

Facsimile: 310-734-5299

(c)if to the Stockholders’ Committee, to:

David Podlesak

c/o Domain Associates, L.L.C.

One Palmer Square, Suite 515

Princeton, NJ 08542

Facsimile:      609-683-9789

Eckard Weber, M.D.

c/o Domain Associates, L.L.C.

One Palmer Square, Suite 515

Princeton, NJ 08542

Facsimile:      609-683-9789

with a copy to:

Reed Smith LLP

1901 Avenue of the Stars, Suite 700

Los Angeles, CA 90067

Attention: Michael Sanders, Esq.

Facsimile: 310-734-5299

10.2Disclosure Schedules.

(a)The Target Disclosure Schedule will be arranged to correspond to the representations and warranties in Section 2 of this Agreement, or, in each case, as applicable to the relevant other Sections of this Agreement, and the disclosure in any portion of the Target Disclosure Schedule shall qualify the corresponding provision in Section 2 and any other provision of Section 2 to which it is reasonably apparent on its face that such disclosure relates.  Notwithstanding any of the foregoing, Target hereby covenants to make a good faith effort to make all appropriate cross-references within and to any and all Sections of the applicable disclosure schedule.

(b)The Acquiror Disclosure Schedule will be arranged to correspond to the representations and warranties in Section 3 of this Agreement, or, in each case, as applicable to the relevant other Sections of this Agreement, and the disclosure in any portion of the Acquiror Disclosure Schedule shall qualify the corresponding provision in Section 3 and any

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

65

other provision of Section 3 to which it is reasonably apparent on its face that such disclosure relates.  Notwithstanding any of the foregoing, Acquiror hereby covenants to make a good faith effort to make all appropriate cross-references within and to any and all Sections of the applicable disclosure schedule.

10.3Counterparts.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart.

10.4Entire Agreement; Nonassignability; Parties in Interest.  This Agreement and the documents and instruments delivered pursuant hereto, including the exhibits hereto, the Escrow Agreement, the Payment Agent Agreement, the Target Disclosure Schedule, the Acquiror Disclosure Schedule and the other schedules hereto: (a) together constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, except for the Confidentiality Agreement, which shall continue in full force and effect in accordance with their terms and shall survive any termination of this Agreement; (b) are not intended to confer upon any other person any rights or remedies hereunder, except as provided in the final sentence of this Section 10.4; and (c) shall not be assigned by Acquiror or Merger Sub, on the one hand, or by Target, on the other hand (by operation of law or otherwise), without the written consent of each of the parties hereto.  Notwithstanding anything to the contrary contained in this Agreement (but without limiting any of the rights of the Stockholders’ Committee hereunder), if the Merger is consummated, (i) the Former Holders shall be third party beneficiaries of the provisions set forth in Section 1 and (ii) the Indemnified Parties shall be third party beneficiaries of the provisions set forth in Section 5.11.

10.5Severability.  In the event that any provision of this Agreement, or the application thereof becomes, or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances other than those as to which it is determined to be illegal, void or unenforceable, will not be impaired or otherwise affected and will continue in full force and effect and be enforceable to the fullest extent permitted by law.

10.6Remedies Cumulative.  Any remedy herein expressly conferred upon a party hereto will be deemed cumulative with, and not exclusive of, any other remedy herein expressly conferred hereby, and the exercise by a party hereto of any such remedy will not preclude the exercise of such remedy.

10.7Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to parties hereto residing in the State of Delaware, without regard to applicable principles of conflicts of law.  Each of the parties irrevocably consents to the exclusive jurisdiction and venue of the state and federal courts located within New Castle County, Delaware, in connection with any matter based upon or arising out of this Agreement or the transactions contemplated hereby and agrees that process

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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may be served upon it in any manner authorized by the laws of the State of Delaware for such persons and waives and covenants not to assert or plead any objection which it might otherwise have to such jurisdiction and such process.  Each of the parties irrevocably waives the right to trial by jury in connection with any matter based upon or arising out of this Agreement or the transactions contemplated hereby.

10.8Rules of Construction.

(a)The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. The captions of sections or subsections of this Agreement are for reference only and will not affect the interpretation or construction of this Agreement.

(b)For purposes of this Agreement, whenever the context requires:  the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.

(c)As used in this Agreement, (i) the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation” and (ii) the words “hereby,” “herein,” “hereunder” and “hereto” shall be deemed to refer to this Agreement in its entirety and not to any specific section of this Agreement.

(d)Except as otherwise indicated, all references in this Agreement to “Sections,” “Schedules” and “Exhibits” are intended to refer to Sections of this Agreement and Schedules and Exhibits to this Agreement.

10.9Time is of the Essence; Enforcement.  Time is of the essence of this Agreement.  Each of the parties hereto agrees that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injunction, injunctions, specific performance and/or other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.

10.10Amendment; Waiver.  This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto; provided, however, that any amendment, modification, change, waiver or supplement to any provision or provisions of this Agreement at any time subsequent to the time Target’s stockholders approve this Agreement may be effected and implemented if, but only if, such amendment, modification, change, waiver or supplement is set forth in a written instrument or agreement duly executed by Acquiror and a the Stockholders’ Committee with any approval by Target’s stockholders required by applicable law.  Any waiver of any of the terms or conditions of this Agreement must be in writing and

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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must be duly executed by or on behalf of the party to be charged with such waiver.  Except as expressly set forth in this Agreement, the failure of a party to exercise any of its rights hereunder or to insist upon strict adherence to any term or condition hereof on any one occasion shall not be construed as a waiver or deprive that party of the right thereafter to insist upon strict adherence to the terms and conditions of this Agreement at a later date.  Further, no waiver of any of the terms and conditions of this Agreement shall be deemed to or shall constitute a waiver of any other term of condition hereof (whether or not similar).

[remainder of page intentionally left blank]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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IN WITNESS WHEREOF, Target, Acquiror, Merger Sub and the Stockholders’ Committee (solely for the purposes of Section 8) have caused this Agreement to be executed and delivered by each of them or their respective officers thereunto duly authorized, all as of the date first written above.

CUBIST PHARMACEUTICALS, INC.
By:	/s/ Michael W. Bonney
	Name: Michael W. Bonney
	Title: President and CEO
SD ACQUISITION CORPORATION
By:	/s/ Michael W. Bonney
	Name: Michael W. Bonney
	Title: President
CALIXA THERAPEUTICS INC.
By:	/s/ Dennis Podlesak
	Name: Dennis Podlesak
	Title: President and CEO
STOCKHOLDERS’ COMMITTEE
/s/ Dennis Podlesak
Dennis Podlesak, as a member of the Stockholders’ Committee
/s/ Eckard Weber
Eckard Weber, as a member of the Stockholders’ Committee

[Signature Page to Agreement and Plan of Merger]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

EXHIBIT A

DEFINITIONS

Certain Defined Terms.  As used in this Agreement, the following terms shall have the following meanings:

“2008 Stock Plan” means Target’s 2008 Stock Plan.

“2009 Unaudited Statements” has the meaning set forth in Section 5.19(c).

“Accounting Referee” has the meaning set forth in Section 1.8.

“Acquiror” has the meaning set forth in the introductory paragraph.

“Acquiror Determination” has the meaning set forth in Section 1.7(b).

“Acquiror Disclosure Schedule” has the meaning set forth in Section 3.

“Acquiror Employee Plans” has the meaning set forth in Section 5.9(b).

“Acquiror Indemnified Parties” has the meaning set forth in Section 8.2(b).

“Acquiror Material Adverse Effect” has the meaning set forth in Section 3.1.

“Acquiror Set-Off Claim” has the meaning set forth in Section 9.3(a).

“Affiliate” means any entity that directly or indirectly controls, is controlled by, or is under common control with that party, for so long as such control exists.  In the case of companies and corporations “control” and “controlled” means beneficial ownership of more than fifty percent of the voting stock, shares, interest or equity in an entity.  In the case of any other legal entity, “control” and “controlled” shall exist through the ability to directly or indirectly control the management and/or business of the legal entity.

“Agreement” has the meaning set forth in the introductory paragraph.

“Agreement Date” has the meaning set forth in the introductory paragraph.

“Appeal Procedure” has the meaning set forth in Section 9.7(c).

“Applicable Law” shall mean, with respect to any person, any law, code, rule, regulation or other similar legal requirement enacted, adopted or promulgated by a Governmental Entity that is binding upon or applicable to such person and its properties or assets.

“Basket Amount” has the meaning set forth in Section 8.2(c)(ii).

“Benefit Plan” shall mean any legally binding plan, program, policy, practice or agreement  providing for deferred compensation, profit sharing, bonus, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits, survivor benefits, group

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

1

or individual welfare, pension or other employee benefits, plans, policies, arrangements or remuneration of any kind, funded or unfunded, formal or informal, written or oral, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, in each case (i) that covers any Employee and any current, former, or retired consultant, of any ERISA Affiliates of Target and its Subsidiaries and (ii) that is maintained, contributed to, or required to be contributed to by Target, its Subsidiaries or its ERISA Affiliates, or pursuant to which Target or its Subsidiaries has any liability.

“Business Day” means any day other than Saturday, Sunday or a public holiday under the laws of the Commonwealth of Massachusetts and the State of California.

“Capitalization Certificate” has the meaning set forth in Section 6.2(c).

“Capitalization Claim” has the meaning set forth in Section 8.3(c)(ii).

“Certificate” has the meaning set forth in Section 1.10(a).

“Certificate of Merger” has the meaning set forth in Section 1.2.

“Closing” has the meaning set forth in Section 1.2.

“Closing Adjustment Amount” has the meaning set forth in Section 1.7(b)(viii).

“Closing Balance Sheet” has the meaning set forth in Section 5.19(b).

“Closing Date” has the meaning set forth in Section 1.2.

“Closing Cash Balance” means all cash and cash equivalents of Target, net of outstanding checks, as of the Effective Time.

“Closing Debt” means any Indebtedness of Target and its Subsidiary that is outstanding as of the Effective Time and is referred to in any of clauses (a), (b), (c), (d), (f) or (g) of the definition of the term Indebtedness.

“Closing Debt, Liability & Expense Amount” means the sum of (A) the Closing Debt plus (B) the greater of (1) zero and (2) (x) the sum of the Closing Liabilities, the Closing Tax Liabilities, the Target Lease Liabilities, the Transactional Expenses to the extent greater than $[]*, and Target Severance, in each case as determined in good faith by Acquiror, minus (y) $[]*.

“Closing Liabilities” means all of the accounts payable and accrued expenses of Target as of the Effective Time as determined in accordance with GAAP consistently applied by Target in accordance with past practices, excluding Transactional Expenses, Closing Tax Liabilities, Target Lease Liabilities and Target Severance.

“Closing Target Share Number” shall mean the sum of (a) the aggregate number of shares of Common Stock issued and outstanding immediately prior to the Effective Time, other than shares to be canceled and retired pursuant to Section 1.9(b), (b) the aggregate number of shares of Common Stock into which each issued and outstanding share of Series A Preferred Stock is convertible into immediately prior to the Effective Time, and (c) the aggregate number

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

of shares of Common Stock subject to all Target Options and Target Warrants (on as converted to Common Stock basis) that are unexercised and outstanding immediately prior to the Closing.

“Closing Tax Liabilities” means all of Target’s liabilities for Taxes as of the Effective Time as determined in accordance with GAAP, whether or not then due.

“Code” has the meaning set forth in Section 1.10(e).

“Combination Product” means (a) a product that is not a Target Combo Product or an Other Product and that consists of a combination of (i) Target Combo Product or an Other Product and (b) any other compound(s), product(s) or functional component(s) that is not a Target Combo Product or an Other Product.

“Commencement of Pivotal Study - 1st Other Product Indication Contingent Payment” means a payment in the amount of $[]*.

“Commencement of Pivotal Study - 1st Other Product Indication Milestone” means []* in the first Pivotal Study to be conducted for an Other Product for its first indication.

“Commencement of Pivotal Study - 1st Target Combo Product Indication Contingent Payment” means a payment in the amount of $[]*.

“Commencement of Pivotal Study - 1st Target Combo Product Indication Milestone” means []* in the first Pivotal Study to be conducted for a Target Combo Product for its first clinical indication.

“Commencement of Pivotal Study - 2nd Other Product Indication Contingent Payment” means a payment in the amount of $[]*.

“Commencement of Pivotal Study - 2nd Other Product Indication Milestone” means []* in the first Pivotal Study to be conducted for an Other Product for its second clinical indication.

“Commencement of Pivotal Study - 2nd Target Combo Product Indication Contingent Payment” means a payment in the amount of $[]*.

“Commencement of Pivotal Study - 2nd Target Combo Product Indication Milestone” means []* in the first Pivotal Study to be conducted for a Target Combo Product for its second clinical indication.

“Committee Reimbursable Expenses” has the meaning set forth in Section 8.3(b).

“Committee Reimbursement Amount” has the meaning set forth in Section 1.6(a).

“Common Stock” means the common stock (par value $0.0001 per share) of Target.

“Completion of Current Phase II Study Contingent Payment” means a payment in the amount of $[]*.

“Completion of Current Phase II Study Milestone” means (a) []*.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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“Completion of Phase II Other Product Pneumonia Study Contingent Payment” means a payment in the amount of $[]*.

“Completion of Phase II Other Product Pneumonia Study Milestone” means (a) []*.

“Completion of Phase II Target Combo Product Pneumonia Study Contingent Payment” means a payment in the amount of $[]*.

“Completion of Phase II Target Combo Product Pneumonia Study Milestone” means (a) []*.

“Compound” means CXA-101[]*.

“Confidentiality Agreement” has the meaning set forth in Section 5.6.

“Consultant” means each of the persons providing services to Target pursuant to the agreements listed on Exhibit I.

“Contingent Consideration” means collectively, all of the Contingent Payments in the aggregate.

“Contingent Payment” means each or any of the Completion of Current Phase II Study Contingent Payment, the Commencement of Pivotal Study - 1st Target Combo Product Indication Contingent Payment, the Commencement of Pivotal Study - 1st Other Product Indication Contingent Payment, the Commencement of Pivotal Study - 2nd Target Combo Product Indication Contingent Payment, the Commencement of Pivotal Study - 2nd Other Product Indication Contingent Payment, the Completion of Phase II Target Combo Product Pneumonia Study Contingent Payment, the Completion of Phase II Other Product Pneumonia Study Contingent Payment, the NDA Acceptance Target Combo Product, Contingent Payment, the NDA Acceptance Other Product Contingent Payment, the First Commercial Sale U.S. Target Combo Product Contingent Payment, the First Commercial Sale U.S. Other Product Contingent Payment, the First Commercial Sale E.U. Target Combo Product Contingent Payment, the First Commercial Sale E.U. Other Product Contingent Payment, the First Sales Contingent Payment and the Second Sales Contingent Payment.

“Continuing Employees” has the meaning set forth in Section 5.9(b).

“Covenant Claim” has the meaning set forth in Section 8.3(c)(ii).

“Current Phase II Study” means that certain Phase II Study referred to as “CXA101-03, A Multicenter, Double-blind, Randomized, Phase 2 Study to Compare the Safety and Efficacy of Intravenous CXA-101 and Intravenous Ceftazidime in Complicated Urinary Tract Infection, Including Pyelonephritis” that is currently being conducted by or on behalf of Target.

“Current Target Business” has the meaning set forth in Section 2.1.

“CXA-101” means the Target’s pharmaceutical compound known as CXA-101 as more fully described on Exhibit G hereto.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

4

“CXA-201” means the Target’s product candidate known as CXA-201 which contains the Compound as an active pharmaceutical ingredient in combination with tazobactam as more fully described on Exhibit H hereto.

“Damages” has the meaning set forth in Section 8.2(b)(i).

“Data Room” means the on-line data room maintained by IntraLinks, Inc. located on the internet at []* with appropriate security authorization.

“Delaware Law” has the meaning set forth in Section 1.1.

“Designated Continuing Employees” has the meaning set forth in Section 5.9(a).

“Development Milestones” means the Completion of the Current Phase II Study Milestone, the Commencement of Pivotal Study - 1st Target Combo Product Indication Milestone, the Commencement of Pivotal Study - 2nd Target Combo Product Indication Milestone and the Completion of Phase II Target Combo Product Pneumonia Study Milestone.

“Development Plan” has the meaning set forth in Section 9.4(c).

“Diligence Breach Notice” has the meaning set forth in Section 9.7(a).

[]*.

“Dissenting Share” means a share of Target Capital Stock that is issued and outstanding immediately prior to the Effective Time and which is held by a stockholder who did not consent to or vote in favor of the adoption of this Agreement, which stockholder complies with all of the provisions of Delaware Law relevant to the exercise of appraisal rights and has not, as of the applicable time, withdrawn such stockholder’s exercise of such appraisal rights.

“Dissenting Stockholder” has the meaning set forth in Section 1.12.

“DOL” shall mean the United States Department of Labor.

“Effective Time” has the meaning set forth in Section 1.2.

“EMEA”means the European Medicines Agency or its successor.

“Employee” shall mean any current, former, or retired employee, officer, or director of Target and its Subsidiaries.

“Employment Agreement” shall mean each management, employment, severance, consulting, relocation, repatriation, expatriation or similar agreement between Target and any Employee or independent contractor.

“Enrollment of the First Patient” shall mean []*.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

5

“ERISA Affiliate” of any entity shall mean any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code or Section 4001 of ERISA.

“Escrow Agent” has the meaning set forth in Section 1.6(b).

“Escrow Agreement” has the meaning set forth in Section 1.6(b).

“Escrow Contribution Amount” means the amount equal []* percent ([]*%) of the difference between (A) the Upfront Payment and (B) the Estimated Closing Cash Balance.

“Escrow Fund” means the aggregate amount being held by the Escrow Agent in escrow pursuant to this Agreement and the Escrow Agreement.

“Estimated Closing Adjustment Amount” has the meaning set forth in Section 1.7(a)(viii).

“Estimated Closing Cash Balance” has the meaning set forth in Section 1.7(a)(i).

“Estimated Closing Debt” has the meaning set forth in Section 1.7(a)(ii).

“Estimated Closing Debt, Liability & Expense Amount” means the sum of (A) the Estimated Closing Debt plus (B) the greater of (1) zero and (2) (x) the sum of the Estimated Closing Liabilities, the Estimated Closing Tax Liabilities, the Estimated Target Lease Liabilities, the Estimated Transactional Expenses to the extent greater than $[]*, and the Estimated Target Severance, minus (y) $[]*.

“Estimated Closing Liabilities” has the meaning set forth in Section 1.7(a)(iii)

“Estimated Closing Tax Liabilities” has the meaning set forth in Section 1.7(a)(iv).

“Estimated Target Lease Liabilities” has the meaning set forth in Section 1.7(a)(v).

“Estimated Target Severance” has the meaning set forth in Section 1.7(a)(vii).

“Estimated Transactional Expenses” has the meaning set forth in Section 1.7(a)(vi).

“E.U.” means the countries of the European Union as it exists at any time.

“excess payments” has the meaning set forth in Section 5.4(b).

“FDA” means the Food and Drug Administration and its successor.

“FD&C Act”means the U.S. Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder.

“Final Escrow Release Date” has the meaning set forth in Section 1.15(b).

“First Commercial Sale” means the []*.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

6

“First Commercial Sale E.U. Other Product Contingent Payment” means a payment in the amount of $[]*.

“First Commercial Sale E.U. Other Product Milestone” means the First Commercial Sale of an Other Product in []*.

“First Commercial Sale E.U. Target Combo Product Contingent Payment” means a payment in the amount of $[]*.

“First Commercial Sale E.U. Target Combo Product Milestone” means the First Commercial Sale of a Target Combo Product in []*.

“First Commercial Sale U.S. Other Product Contingent Payment” means a payment in the amount of $[]*.

“First Commercial Sale U.S. Other Product Milestone” means the First Commercial Sale of an Other Product in the U.S.

“First Commercial Sale U.S. Target Combo Product Contingent Payment” means a payment in the amount of $[]*.

“First Commercial Sale U.S. Target Combo Product Milestone” means the First Commercial Sale of a Target Combo Product in the U.S.

“First Escrow Release Date” has the meaning set forth in Section 1.15(a).

“First Sales Contingent Payment” means a payment in the amount of $[]*.

“First Sales Milestone” means the first time when aggregate Net Sales in the Territory of all Products in the Territory equals or exceeds $[]*.

“Former Holder” means a person that is a Former Stockholder and/or a Former Optionholder and/or a Former Warrantholder.

“Former Optionholders” means those persons who shall have held an unexpired Target Option immediately prior to the Effective Time (whether or not vested or exercisable).

“Former Stockholders” means those persons who shall have held shares of Target Capital Stock immediately prior to the Effective Time.

“Former Warrantholders” means those persons who shall have held an unexpired Target Warrant immediately prior to the Effective Time.

“Fraud Claim” has the meaning set forth in Section 8.2(c)(iv).

“GAAP” means generally accepted accounting principles in the U.S. as of the date hereof, applied on a consistent basis. For avoidance of doubt, GAAP takes precedence over Target’s consistent application of accounting.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

7

“Governmental Entity” means any court, administrative agency or commission or other governmental authority or instrumentality.

“Government Plan” means a plan or program mandated by Applicable Law and administered by a Governmental Entity, such as the Social Security Program in the United States.

“HIPAA” has the meaning set forth in Section 2.21(h)

“Indebtedness,” as applied to any person, means (a) all indebtedness of such person for borrowed money, whether current or funded, or secured or unsecured, including, without limitation, (i) the unpaid principal amount thereof, (ii) all accrued and unpaid interest, fees or penalties on such indebtedness, and (iii) the amount of any unwinding costs, prepayment penalties or any other fees or costs with respect to such indebtedness, (b) all indebtedness of such person for the deferred purchase price of property or services represented by a note or other security, (c) all indebtedness of such person created or arising under any conditional sale or other title retention agreement (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of specific property), (d) all indebtedness of such person secured by a purchase money mortgage or other lien to secure all or part of the purchase price of property subject to such mortgage or other lien, (e) all other obligations of such person under leases that have been or must be, in accordance with generally accepted accounting principles, recorded as capital leases in respect of which such person is liable as lessee, (f) any liability of such person in respect of banker’s acceptances or letters of credit, (g) any and all negative cash balances and bank overdrafts and (h) all indebtedness referred to in clauses (a)-(g) hereof that is directly or indirectly guaranteed by such person or which such person has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which such person has otherwise assured a creditor against loss.

“Indemnified Parties” has the meaning set forth in Section 5.11(a).

“Information” means information and data specifically relating to the research, development, manufacture or use, of Target Products, including, but not limited to, test data including pharmacological, toxicological and clinical test data, analytical and quality control data, regulatory submissions, correspondence and communications.

“Initial Escrow Fund” means the Escrow Fund as it exists at any time and from time to time during the period commencing on the Closing Date and ending on the First Escrow Release Date.

“IP Rights” has the meaning set forth in Section 2.10(a)(i).

“IRS” shall mean the United States Internal Revenue Service.

“Knowledge” means that based on the actual knowledge of an executive officer of the applicable person, such officer is not aware of any facts that make the statement, to which such term is applied, materially untrue.

“Lease” has the meaning set forth in Section 2.15(a).

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

8

“Letter of Transmittal” has the meaning set forth in Section 1.10(b).

“Licensed IP Rights” has the meaning set forth in Section 2.10(a)(ii).

“MAA”means an application to the appropriate Regulatory Authority for approval to sell the Product (but excluding Pricing Approval) in any particular country or regulatory jurisdiction, including such application filed with the EMEA pursuant to the Centralized Procedure or with the applicable Regulatory Authority of a country in accordance with such country’s national approval procedure.

“Material Contract” has the meaning set forth in Section 2.12(c).

“Merger” has the meaning set forth in Paragraph A of the Recitals.

“Merger Consideration” means the sum of (a) the Upfront Payment plus, (b) the Contingent Payments, if any are payable pursuant to the terms of this Agreement.

“Merger Consideration Certificate” has the meaning set forth in Section 6.2(c)(iii).

“Merger Sub” has the meaning set forth in the introductory paragraph.

“Milestone Abandonment Notice” has the meaning set forth in Section 9.4(e).

“Milestones” mean the Completion of the Current Phase II Study Milestone, the Commencement of Pivotal Study - 1st Target Combo Product Indication Milestone, the Commencement of Pivotal Study - 1st Other Product Indication Milestone, the Commencement of Pivotal Study - 2nd Target Combo Product Indication Milestone, the Commencement of Pivotal Study - 2nd Other Product Indication Milestone, the Completion of Phase II Target Combo Product Pneumonia Study Milestone, the Completion of Phase II Other Product Pneumonia Study Milestone, the NDA Acceptance Target Combo Product Milestone, the NDA Acceptance Other Product Milestone, the First Commercial Sale U.S. Target Combo Product Milestone, the First Commercial Sale U.S. Other Product Milestone, the First Commercial Sale E.U. Target Combo Product Milestone, the First Commercial Sale E.U. Other Product Milestone, the First Sales Milestone or the Second Sales Milestone.

“Monthly Financials” has the meaning set forth in Section 5.19(a).

“NDA”means a New Drug Application in the U.S. for authorization for marketing of a pharmaceutical product, as defined in the Applicable Laws and regulations and filed with the FDA.

“NDA Acceptance Other Product Contingent Payment” means a payment in the amount of $[]*.

“NDA Acceptance Other Product Milestone” means the first granting by the FDA of Product Approval for an Other Product for any indication in the U.S.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

9

“NDA Acceptance Target Combo Product Contingent Payment” means a payment in the amount of $[]*.

“NDA Acceptance Target Combo Product Milestone” means the first granting by the FDA of Product Approval for a Target Combo Product for any indication in the U.S.

“Net Sales” means, with respect to the Products sold in the Territory, the gross amount invoiced by or on behalf of Acquiror, Surviving Corporation or any of their Affiliates, transferees, assignees, licensees or sublicensees for sales of Products to, except as set forth below, a third party less the following deductions []*.

For clarity, any of the items set forth above that would otherwise be deducted from the invoice price in the calculation of Net Sales but which are separately charged to, and paid by, third parties shall not be deducted from the invoice price in the calculation of Net Sales.

For purposes of determining Net Sales, Products shall be deemed to be sold when invoiced.  Upon any sale or other disposal of the Products that should be included in Net Sales, for any consideration other than exclusively monetary consideration on arm’s length terms, such as barter or counter-trade, then for purposes of calculating the Net Sales under this Agreement, Net Sales shall be determined by referencing Net Sales at which substantially similar quantities of the Products are sold in an arm’s-length transaction for cash during the applicable reporting period generally achieved for such Products in such country in which such sale or other disposal occurred.  Net Sales shall be determined in accordance with GAAP, consistently applied by Acquiror to other products sold by it under similar trade terms and conditions.

Notwithstanding anything in this Agreement to the contrary, (A) the following dispositions shall not be included in the calculation of Net Sales: disposition of Products for use in clinical trials, other scientific testing, or as samples, or as part of compassionate use, patient assistance, named patient or test marketing program or any similar program or study or other similar cases, in each case for which Acquiror or its Affiliates or their respective sublicensees receive no revenue and (B) the term “Net Sales” shall not include revenue received by Acquiror, Surviving Corporation or any of their Affiliates, transferees, assignees, licensees or sublicensees from transactions with any of their respective Affiliates.

If any Product is sold as part of a Combination Product, the Net Sales from the Combination Product, shall be determined by []*.

“Net Upfront Payment” means the Upfront Payment minus the Committee Reimbursement Amount and the Escrow Contribution Amount.

“Options Exercise Price” means the total sum, for all shares of Common Stock that are subject to all Target Options (whether vested or unvested) existing immediately prior to the Effective Time, of the exercise price per share of each such share of Common Stock subject to any such Target Option.

“Other Product” means a Product containing the Compound as the sole active pharmaceutical ingredient or containing the Compound in combination with another

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

10

pharmaceutical compound as the active pharmaceutical ingredients. Notwithstanding the foregoing, the term “Other Product” shall not include any Target Combo Product.

“Patents” has the meaning set forth in Section 2.10(a)(iii).

“Payment Agent” has the meaning set forth in Section 1.6.

“Payment Agent Agreement” has the meaning set forth in Section 1.6.

“Per Share Escrow Amount” means the quotient of (a) the Escrow Contribution Amount divided by (b) the Closing Target Share Number.

“Permitted Dividend” means the dividend to the holders of Target Capital Stock, each in their Pro Rata Portion of all available cash and cash equivalents of Target on a date that is not more than 2 Business Days prior to the Closing Date.

“Permitted Encumbrances” has the meaning set forth in Section 2.14.

“person” means any individual or entity.

“Phase II Study” means, with respect to a Product, any clinical trial that satisfies the requirements for a Phase II study as defined in 21 C.F.R. Part 312.21(b), or any successor regulation, or the equivalent human clinical trial outside the United States.

“Phase III Study” means, with respect to a Product, any clinical trial that satisfies the requirements for a Phase III study as defined in 21 C.F.R. Part 312.21(c), or any successor regulation, or the equivalent human clinical trial outside the United States.

“Pivotal Study” means any clinical trial that satisfies the requirements for []*.

“Post-Closing Tax Period” shall mean any Tax period beginning after the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period beginning after the Closing Date.

“Pre-Closing Period” has the meaning set forth in Section 4.1.

“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period ending on and including the Closing Date.

“Pricing Approval”means the approval, agreement, determination or decision from a Governmental Entity establishing the price and/or reimbursement for a Product for sale in a given country or regulatory jurisdiction, as required by applicable Law in such country or other regulatory jurisdiction prior to the sale of such Product in such country or regulatory jurisdiction.

“Product” means any pharmaceutical preparation containing the Compound as an active pharmaceutical ingredient, either alone or with any combination of one or more other active pharmaceutical ingredients[]*.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

11

“Product Approval” means, with respect to a Product, the approval of a Governmental Entity necessary for the marketing and sale of such Product in a given country or regulatory jurisdiction, which may include the approval of an NDA or an MAA (but shall not include any Pricing Approvals).

“Pro Rata Portion” means, with respect to any Former Holder, the fraction having:  (a) a numerator equal to the sum of (i) the number of shares of Target Capital Stock held by such person immediately prior to the Effective Time (including shares of Target Capital Stock that constitute, and have never lost their status as, Dissenting Shares, held by such person), (ii) the number of shares of Target Capital Stock subject to an outstanding Target Warrant held by such person immediately prior to the Effective Time, and (iii) the number of shares of Target Capital Stock subject to an outstanding Target Option held by such person immediately prior to the Effective Time, in each case, with all Series A Preferred Stock being measured on an as-converted basis, as applicable; and (b) a denominator equal to the Closing Target Share Number.

“Regulatory Approval”means, with respect to a Product, all approvals (including, without, limitation Product Approvals, Pricing Approvals and, in each case any supplements and amendments thereto), licenses, registrations or authorizations of any Governmental Entity necessary for the manufacture, distribution, use, promotion and sale of such Product in such given country or regulatory jurisdiction, including, without limitation, any NDA and any MAA.

“Regulatory Authority”means, in a particular country or regulatory jurisdiction, any applicable Governmental Entity involved in granting Regulatory Approval in such country or regulatory jurisdiction, including, without limiting the foregoing, (i) in the U.S., the FDA, and (ii) in the E.U., the EMEA, the European Commission and relevant national medicines regulatory authorities.

“Representation Termination Date” has the meaning set forth in Section 8.2(a).

“Required Stockholder Vote” has the meaning set forth in Section 2.2.

“Restricted Stock” has the meaning set forth in Section 1.14(c).

“Restricted Tax Claim” has the meaning set forth in Section 8.2(c)(iii).

“SEC” means the United States Securities and Exchange Commission.

“Second Sales Milestone” means the first time when aggregate Net Sales in the Territory of all Products equals or exceeds $[]*.

“Second Sales Contingent Payment” means a payment in the amount of $[]*.

“Series A Preferred Stock” means the Series A Preferred Stock (par value $0.0001 per share) of Target.

“Special Set Off Amount” has the meaning set forth in Section 9.3.

“Specified Tax Claim” has the meaning set forth in Section 8.2(b)(i).

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

12

“Specified Tax Claim Escrow Amount” means $[]*.

“Stockholders’ Committee” has the meaning set forth in Section 8.3(a).

“Stockholder Notice” has the meaning set forth in Section 5.5.

“Stockholder Representative” has the meaning set forth in Section 9.4(a).

“Subsidiary” means an entity for which an amount of the voting securities, other voting rights or voting partnership interests, which is sufficient to elect at least a majority of such entity’s board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which), is owned directly or indirectly by Target.

“Superior Proposal” has the meaning set forth in Section 5.12(d).

“Supporting Materials” has the meaning set forth in Section 5.19(e).

“Surviving Corporation” has the meaning set forth in Section 1.1.

“Takeover Proposal” has the meaning set forth in Section 5.12(b).

“Target” has the meaning set forth in the introductory paragraph.

“Target 401(k) Plans” has the meaning set forth in Section 5.9(d).

“Target Balance Sheet” has the meaning set forth in Section 2.5.

“Target Balance Sheet Date” means November 30, 2009.

“Target Capital Stock” means all shares of Common Stock (including all shares of Restricted Stock) and Series A Preferred Stock, issued and outstanding as of immediately prior to the Effective Time.

“Target Combo Product” means (a) []*.

“Target Completion Date” has the meaning set forth in Section 9.4(b).

“Target Determination” has the meaning set forth in Section 1.7(a)(viii)

“Target Disclosure Schedule” has the meaning set forth in Section 2.

“Target Employees” means all persons who were, immediately prior to the Effective Time, Employees of Target or any of its Subsidiaries.

“Target Financial Statements” has the meaning set forth in Section 2.5(a).

“Target IP Rights” has the meaning set forth in Section 2.10(a)(iv).

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

13

“Target Lease” means that certain Office Services Agreement dated June 11, 2009 by and between Target and Regus Management Group, LLC, as subsequently renewed October 23, 2009, relating to the premises subject thereto located at Metro Gateway Center, 1840 Gateway Dr., Suite 200, San Mateo, CA, USA.

“Target Lease Liabilities” means all of Target’s liabilities concerning Target Lease as of the Effective Time including, without limitation, all accrued but unpaid lease payments at the Effective Time.

“Target Material Adverse Effect” means any change, event, occurrence, or state of facts that has caused, or is likely to result in, a change or effect that is materially adverse to the Current Target Business, or the assets and liabilities of Target and its Subsidiaries, taken as a whole; or adversely affects in any material respect, the ability of Target to consummate the transactions contemplated hereby, provided, however, that none of the following shall be deemed, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Target Material Adverse Effect:  (a) any change, effect, event, occurrence, state of facts or development relating to the United States economy or securities markets in general, (b) any adverse change, effect, event, occurrence, state of facts or development reasonably attributable to conditions affecting the industry in which Target participates, to the extent that the effects do not disproportionately impact Target compared to other entities in the industry in which Target operates, (c) any change, effect, event, occurrence, state of facts or development that arises out of or results from the announcement or pendency of this Agreement or any of the transactions contemplated by this Agreement (including any change, effect, event, occurrence, state of facts or development resulting from or relating to any litigation or any departure or loss of Employees or Consultants that arises from or by virtue of such announcement or pendency of this Agreement or any of the transactions contemplated by this Agreement), (d) any change, effect, event, occurrence, state of facts or development resulting from or relating to any change in laws or regulations applicable to Target after the date hereof that does not adversely affect Target in a materially disproportionate manner as compared to others in the industry in which Target operates, (e) any change, effect, event, occurrence, state of facts or development resulting from or relating to any change in GAAP and (f) any change, effect, event, occurrence, state of facts or development that arises out of or results from (i) any action or failure to act on the part of Target or any of its Subsidiaries that is expressly approved by Acquiror in writing or that is permitted or required by this Agreement, (ii) any action or failure to act on the part of any person acting or failing to act at the request or direction in writing of Acquiror or any Affiliate of Acquiror or (iii) any action or failure to act on the part of Acquiror or any Affiliate of Acquiror, and (g) any change,  effect, event, occurrence, state of facts or development that arises out of or results from to the extent resulting from the introduction, commercial success or trial results of, or action by any Governmental Entity with respect to, any product or Product (in each case of a person other than Target or any of its Subsidiaries) similar to or potentially competitive with any of Target Products.

“Target Option” means an option granted under the 2008 Stock Plan.

“Target Products” has the meaning set forth in Section 2.21(a).

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

14

“Target Severance” means with respect to any Employee or Consultant terminated prior to the Effective Time, the following amounts: (a) any and all amounts of severance or termination pay and change in control payments and benefits to which such person is legally entitled by agreement or Target policy by virtue of the termination of his, her or its employment or consultancy at the Target, Acquiror or Merger Sub; (b) accrued vacation and sick time payments to which such person is legally entitled by virtue of the termination of his employment at Target, Acquiror or Merger Sub; (c) any and all amounts Target, Acquiror or Merger Sub is required to pay under COBRA benefits to which such individual is legally entitled by virtue of the termination of his employment at the Target, Acquiror or Merger Sub; (d) any 280G payments and (e) the employer portion of any and all Taxes paid or payable by any of Target, Acquiror or Merger Sub in respect of any amounts referred to in the foregoing clauses (a), (b), (c), (d) and (e) of this definition.

“Target Warrant” means a warrant to purchase Common Stock or Series A Preferred Stock.

“Tax” or “Taxes” (and, with correlative meaning “Taxable” and “Taxing”) shall mean taxes of any kind, levies or other like assessments, customs, duties, imposts, charges or fees, including income taxes, gross receipts, margin, profits, ad valorem, value added, excise, real or personal property, environmental, asset, sales, use, license, payroll, transaction, capital, net worth, alternative or add-on minimum, withholding, estimated, social security, utility, workers’ compensation, severance, production, unemployment compensation, occupation, premium, windfall profits, transfer, stamp, registration and gains taxes or other governmental taxes imposed or payable to the United States, or any state, county, local or foreign government or subdivision or agency thereof, together with any interest, penalties or additions with respect thereto and any interest in respect of such additions or penalties.

“Tax Basket Amount” has the meaning set forth in Section 8.2(c)(iii).

“Tax Claim” has the meaning set forth in Section 8.2(c)(ii).

“Tax Return” shall mean any report, return, document, statement, election, disclosure, schedule, form, declaration or other information or filing required to be supplied to any Taxing Authority with respect to Taxes, including information returns, amended returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, statement, election, disclosure, schedule, form, declaration or other information.

“Taxing Authority” means any Governmental Entity responsible for the imposition of a Tax.

“Territory” has the meaning set forth in that certain License Agreement dated November 1, 2007 between Astellas Pharma Inc. and the Target as in effect from time to time following the Closing.

“Third-Party Claims” has the meaning set forth in Section 8.2(d).

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

15

“Top Line Data” means the study data from a clean and locked data base that are available within 30 days of the date of a formally executed data-base lock memorandum.  Any such Top Line Data []*.

“Transactional Expenses” means all reasonable and documented fees and disbursements invoiced by legal counsel and other advisors to Target, its Subsidiaries, the Stockholder Committee and Target’s stockholders incurred by Target or any of its Subsidiaries in connection with the preparation, execution and consummation of this Agreement, the transactions contemplated hereby and the Closing.

“Upfront Payment” shall mean an amount, in cash, equal to:  (a) $92,500,000, plus the Estimated Closing Adjustment Amount.

“Upfront Per Share Price” means the quotient of (a) the sum of (i) the Net Upfront Payment plus (ii) the Option Exercise Price plus (iii) the Warrant Exercise Price divided by (b) the Closing Target Share Number.

“U.S.”means the United States of America and its possessions and territories.

“Warrant Exercise Price” means the total sum, for all shares of Target Capital Stock that are subject to all Target Warrants existing immediately prior to the Effective Time, of the exercise price per share of each such share of Target Capital Stock subject to any such Target Warrant.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

16

EX-10.31

Exhibit 10.31

[                    ]

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 between Cubist and Lindon M. Fellows, David W.J. McGirr, and Robert J. Perez are each dated October 9, 2007

The Retention Letter between Cubist and Steven C. Gilman is dated August 11, 2008

The Retention Letter between Cubist and Tamara L. Joseph is dated October 30, 2008

The Retention Letter between Cubist and Gregory Stea is dated February 12, 2009

The Retention Letter between Cubist and Santosh Vetticaden is dated July 17, 2009

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EX-10.33

Exhibit 10.33

CONFIDENTIAL TREATMENT

LICENSE AGREEMENT

This License Agreement (“Agreement”) made and entered into as of November 1st, 2007 (“Effective Date”) by and between Astellas Pharma Inc. having its principal office at 3-11, Nihonbashi-Honcho 2-chome, Chuo-ku, Tokyo 103-8411, Japan (“Astellas”) and Calixa Therapeutics, Inc. having its principal office at 12481 High Bluff Drive, San Diego, CA 92130 (“Calixa”).

WITNESSETH:

WHEREAS, Astellas has invented and developed a certain new antibiotic agent currently identified as FR264205;

WHEREAS, Astellas and Domain Associates L.L.C. (“Domain”), having its principal office at 12481 High Bluff Drive, San Diego, 92130 USA, have entered into the Confidentiality Agreement as of May 25, 2007 (“CDA”), and have been in discussions in order to evaluate a potential business relationship or collaboration relating to such antibiotic agent;

WHEREAS, Calixa is incorporated as of July 11, 2007 and Domain is a shareholder of Calixa; and

WHEREAS, Astellas wishes to grant to Calixa, and Calixa wishes to obtain, a license under the Patents (hereinafter defined) and the Know-How (hereinafter defined) of Astellas to develop, manufacture, have manufactured, use, import, market, promote, sell, offer to sell and distribute the Products in the Territory, subject to the terms and conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the Parties agree as follows:

1.DEFINITIONS

The following capitalized terms as used herein shall have the meanings set forth in this Article, and unless otherwise expressly set forth, the singular shall include the plural and vice versa:

1.1“Affiliate” shall mean, with respect to a Party, any corporation or other business entity that, directly or indirectly, owns or controls, is owned or controlled by or is under common ownership or controls with such Party. For purposes of this definition, an entity shall be deemed to control another entity if it owns (directly or indirectly) more

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

than fifty percent (50%) of the outstanding voting stock of such other entity, or otherwise has the actual ability to direct and manage the business and management of such other entity (by contract or otherwise).

1.2“Annual Net Sales” shall mean the Net Sales accrued during a particular twelve-month period commencing on the applicable January 1 in all countries within the Territory.

1.3“Calixa Trademark” shall mean any specific trademark(s) owned by Calixa (or its Affiliate or sublicensee) and used in association with marketing the Product in a country or jurisdiction in the Territory.

1.4“Compound” shall mean the pharmaceutical compound known as FR264205 having the chemical name of:

[]*.

1.5“Generic Competition” shall mean that one or more []* Third Parties is selling, []*, a generic version of a Product being sold by Calixa or any of its sublicensees in a particular country in the Territory, which generic version contains the Compound.

1.6“IND” shall mean an investigational new drug application for the FDA in the U.S. as defined in 21 C.F.R. 312 et seq., or any application equivalent thereto in another country or jurisdiction within the Territory.

1.7“Know-How” shall mean any and all information, processes, techniques, data, know-how and trade secrets with respect to the Compound and/or the Product, including without limitation toxicological, pharmacological, clinical and chemical data, specifications, medical uses, adverse reactions, manufacture and quality control methods of the Compound and/or the Product, existing as of the Effective Date or developed or acquired during the term of this Agreement.

1.8“NDA” shall mean an application seeking Regulatory Approval of any Product in the U.S. as defined in 21 C.F.R. 314 et seq., or any application equivalent thereto in another country or jurisdiction within the Territory.

1.9“Net Sales” shall mean the actual proceeds of sales of the Product sold by Calixa and/or its sublicensees to Third Parties (which shall not include Calixa’s []*), less (i) []*.

1.10“Party” shall mean Astellas or Calixa. Astellas and Calixa shall be collectively referred to as the “Parties”.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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1.11     “Patents” shall mean the Product Patents and the Related Patents, as defined below:

The term “Related Patents” shall mean all patents and patent applications (including patents issued thereon) in the Territory that are owned or controlled by Astellas or its Affiliate on the Effective Date and at any time during the term of the Agreement and claim or cover the Compound, the Product, or the manufacture or use of the Compound or Product (or any part thereof), other than the Product Patents.

The term “Product Patents” shall mean all patents and patent applications (and patents issuing thereon) listed in Exhibit A attached hereto as well as any continuations, continuations-in-part, substitutes, divisions, reissues, revisions, reexaminations or extensions thereof, and any foreign equivalents in the Territory of any of the foregoing, and any other patent and patent applications which the Parties subsequently agree to include in Exhibit A.

1.12“Product” shall mean any pharmaceutical preparation containing Compound as an active pharmaceutical ingredient, []* for administration to humans.

1.13     “Regulatory Approval” shall mean any and all approvals, licenses, registrations, or authorizations of any Regulatory Authority as required or needed for manufacture, marketing, sale, distribution and import of the Product in any country within the Territory, and including solely for countries outside the United States any pricing approvals needed to sell or obtain reimbursement for sales of the particular Product in such country.

1.14“Regulatory Authority” shall mean any federal, national, multinational, state, provincial or local regulatory agency, department, bureau, commission, council, court, tribunal, arbitrator, official or other instrumentality of a governmental entity in any country within the Territory.

1.15     “Territory” shall mean worldwide excluding Japan, Taiwan, South Korea, China, Thailand, Indonesia, the Philippines, Australia, New Zealand, India, Saudi Arabia, Kuwait, Oman, Qatar, United Arab Emirates, Bahrain and Yemen.

1.16“Third Party” shall mean a person or entity other than a Party or an Affiliate of a Party.

1.17“Valid Claim” shall mean a claim in any issued and unexpired patent within the Patents, which (a) has not been disclaimed, revoked or held invalid, unpatentable or unenforceable by a court or other governmental agency of competent jurisdiction from which no appeal can be further taken, and (b) has not been disclaimed, revoked, or held

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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or admitted to be invalid, unpatentable or unenforceable through abandonment, re-examination or disclaimer, opposition procedure, nullity suit or otherwise.

1.18     “[]*” shall mean []*, a Japanese company, having its principal office at []*.

2.GRANT OF LICENSE

2.1Astellas hereby grants to Calixa the exclusive license, with the full rights to grant sublicenses to its Affiliates and to Third Parties through multiple tiers (subject to Section 2.2), under the Product Patents and all the Know-How of Astellas and its Affiliates to develop, manufacture, have manufactured, use, import, market, promote, sell, offer to sell and distribute the Products in the Territory. Astellas hereby grants to Calixa the []* license, with the full rights to grant sublicenses to its Affiliates and to Third Parties through multiple tiers (subject to Section 2.2), under the Related Patents to develop, manufacture, have manufactured, use, import, market, promote, sell, offer to sell and distribute the Products in the Territory, provided that such []* license shall be effective as far as Astellas has the ability to grant such license. Astellas also hereby grants to Calixa the []* license, with the right to sublicense under the Know-How and any applicable patent rights of Astellas and its Affiliates to manufacture and have manufactured the Compound and the Product in any country outside the Territory solely for use and sale in the Territory.

2.2If Calixa intends to grant a sublicense to its Affiliate or any Third Party, it shall []* that the prospective sublicensee has the ability to perform the obligations of Calixa under this Agreement that would be sublicensed to such sublicensee. If Calixa grants a sublicense to such Affiliate or Third Party, it shall identify in writing to Astellas the Affiliate or the Third Party and the extent of the rights that Calixa has granted a sublicense under the license rights granted in Section 2.1 above. Calixa shall ensure that: (i) any sublicense granted by Calixa hereunder shall be fully consistent with and subject to the terms and conditions of this Agreement and shall be []* for any reason whatsoever; and (ii) Calixa shall remain responsible to Astellas for performance of all obligations of Calixa under this Agreement, even if Calixa has sublicensed some rights to sublicensees.

3.INFORMATION EXCHANGE

3.1Promptly after the execution of this Agreement, Astellas agrees to and shall provide to Calixa any and all the Know-How then in the possession of Astellas or its Affiliate that is []* for Calixa to exercise its rights and/or fulfill the purposes of this Agreement, if not in English, together with the English summary thereof. Any Know-How and

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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materials disclosed by Astellas to Domain under the CDA and further disclosed by Domain to Calixa subject to Astellas’ prior approval provided to Domain, if any, shall be deemed to have been disclosed hereunder. Thereafter during the term of the Agreement, Astellas shall promptly provide to Calixa any additional Know-How that is developed, identified or acquired by Astellas or its Affiliates and is []* for Calixa to exercise its rights and/or fulfill the purposes of this Agreement, if not in English, together with the English summary thereof.

Astellas shall make reasonably available to Calixa, during Astellas’ business hours and for reasonable amounts of time, such of Astellas’ employees as are appropriate (including key research, manufacturing and/or development personnel) for purposes of consulting with Calixa regarding the development, testing and manufacturing of Compound or Products, procuring of Regulatory Approval of Products, and to enable Calixa to understand and use the Know-How disclosed by Astellas and assure disclosure of such Know-How pursuant to first paragraph of this Section 3.1. Calixa shall reimburse Astellas for any out-of-pocket costs (if any) of providing any such consulting, but its internal costs shall be borne by Astellas.

3.2Calixa shall disclose to Astellas from time to time during the term of this Agreement any and all Know-How which Calixa has heretofore developed or acquired or which Calixa and/or its sublicensees may hereafter develop or acquire that is []* for Astellas to exercise its rights or fulfill the purposes of this Agreement (including Astellas confirming that Calixa is complying with its obligations under the applicable terms of this Agreement). The following information and documents, among others, shall be included in such Know-How to be disclosed by Calixa to Astellas:

(i)the reports which shall be submitted by Calixa pursuant to Section 4.4;

(ii)any information on adverse reactions or animal safety findings which shall be reported to Astellas by Calixa pursuant to Section 4.8;

(ii)Upon filing of the IND and the NDA in any country within the Territory, a copy of the documents so filed;

(iv)After filing of the IND and the NDA in any country within the Territory, a copy of the supplemental documents submitted after the filing of such IND and/or such NDA;

(v)Upon obtaining the Regulatory Approval in any country within the Territory, a copy of such Regulatory Approval; and

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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(vi)Upon request by Astellas, any other Know-How of Calixa and/or its sublicensees that is []* for Astellas to exercise its rights or fulfill the purposes of this Agreement.

Calixa shall provide Astellas with such Know-How developed or acquired by Calixa and/or its sublicensees hereunder, if not in English, together with the English summary thereof.

Astellas shall have a []* right and license to use all Know-How (including any patent claim obtained by Calixa that claims any such Know-How) developed or acquired by Calixa and/or its sublicensees that is []* for Astellas to exercise its rights or fulfill the purposes of this Agreement, solely for the development, manufacture, having manufactured, use, import, marketing, promotion, sales, offer for sale and distribution of the Product outside the Territory as well as for manufacture or having manufactured the Compound and/or the Product in the Territory solely for use and sale outside the Territory, and to disclose and sublicense the same to its Affiliates and its Third Party business partner(s) for the purpose mentioned above. In addition, Astellas shall have the right, []*, to refer to, or to make use of, the Regulatory Approval filed and/or obtained by Calixa or its sublicensees solely as needed for commercialization of the Product by Astellas, its Affiliates and/or its Third Party business partners outside the Territory.

Calixa hereby grants Astellas the right of negotiation to []*. If Astellas requests []*, the Parties shall negotiate in good faith and seek to reach agreement on []*, provided that []*. The foregoing shall not prevent Calixa from []*.

4.DEVELOPMENT

4.1In compliance with any and all applicable laws and regulations, Calixa shall []* perform and complete all pre-clinical and clinical studies and other development activities necessary to obtain and maintain the Regulatory Approval in each country within the Territory []*, at its sole expense and responsibilities. Calixa shall have the sole right and authority to conduct and control all such research and development activities as to the Compound or the Products throughout the Territory.

4.2Within ninety (90) days following the Effective Date, Calixa shall prepare and submit to Astellas for its review and comment a summary overview plan []* of []* (“Development Plan”). Astellas may give any comment on the Development Plan submitted to Astellas pursuant to this Section 4.2 and Calixa shall []* such Astellas’ comments []* and consistent with Calixa’s other obligations and rights under this Agreement. While Calixa shall []* Astellas’ []* comments, it is understood and agreed

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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that Calixa shall have the sole authority to prepare and control the Development Plan, and to amend and modify the Development Plan []* over the course of the Agreement. Calixa shall []* amendments or modifications to the Development Plan. It is further agreed that such initial Development Plan will necessarily be in summary form with respect to any development activities []*, and that the []* for any such development activities []* will necessarily be []*, given the early stage of research of the Compound as of the Effective Date.

Calixa shall []* carry out all of such development activities in compliance with the Development Plan, as such plan may be amended and modified, at its sole expense and responsibilities.

4.3Calixa shall []* file the NDA and obtain the Regulatory Approval []* at its sole expense and responsibilities in each country []* within the Territory. Calixa shall be responsible for preparation and submission of the NDA in each such country. If Calixa determines that it shall not seek Regulatory Approval of Products in a particular country within the Territory, then []*. In such case, []* (and all other rights of Calixa under the Agreement shall remain unaffected).

Calixa shall be responsible for and manage, and shall have the sole rights and authority for, all interactions and filings with each Regulatory Authority in the Territory. At the request of Astellas, and to the extent reasonable and not contrary to Calixa’s or its sublicensee’s regulatory strategy and relationships with the applicable Regulatory Authority, Calixa shall []* arrange that representatives of Astellas may participate in []* meetings with such Regulatory Authority. In addition, Calixa shall inform Astellas of any []* with such Regulatory Authority. In course of the foregoing processes, Calixa shall []* consider and accommodate the []* comments made by Astellas with respect thereto. Calixa (or its sublicensee, as applicable) shall own all regulatory filings made in the Territory with respect to the Compound or the Product, including INDs, NDAs and foreign equivalents thereof.

4.4For the purpose of this Section 4.4, within []* days after the end of each calendar year []*, Calixa shall submit to Astellas the reports disclosing in reasonable detail the progress, results, data and other important issues relating to Calixa’s or sublicensees’ development activities under this Article 4 with regard to the Compound and the Products, in such form as separately agreed upon between Astellas and Calixa.  Within []* days after the end of each calendar

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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quarter except the last calendar quarter in a calendar year, Calixa shall submit to Astellas the brief description of the progress of []* under this Article 4 with regard to the Compound and the Products.

4.5[]* after obtaining a Regulatory Approval in a country in the Territory, Calixa shall submit to Astellas a copy of such Regulatory Approval.

4.6Calixa shall []* maintain each Regulatory Approval obtained by Calixa in each country within the Territory at its sole expense and responsibilities.

4.7Within forty (40) days after the Effective Date of this Agreement (or such later date as mutually agreed by the Parties), Astellas shall provide all remaining Compound and Product then in the possession of Astellas or its Affiliate. All such materials shall meet the specifications specified in the certificate of analysis provided by Astellas together with the materials. With regard to any such Compound or Product to be used by Calixa for clinical studies, Astellas shall also provide any and all Good Manufacturing Practice documentation necessary or helpful to support an IND submission.  Calixa shall use the materials provided hereunder only for the purpose of development activities under this Article 4. Except as set forth above, Astellas shall not be obligated to manufacture or supply any additional materials of the Compound or the Product.

4.8During the term of this Agreement, both Parties shall report to each other any information on adverse reactions or animal safety findings associated with the use of the Compound and/or the Product in accordance with the procedure separately agreed upon between Astellas and Calixa.

5.PROCUREMENT OF COMPOUND AND PRODUCT

5.1Except for the materials provided by Astellas pursuant to Section 4.7 above, Calixa shall, at its sole expense and responsibilities, procure all its requirements of the Compound and/or the Product. Calixa shall []* ensure that any such amounts obtained shall be in compliance with (i) such specifications as established by Calixa (or if applicable as contained in the applicable Regulatory Approval); and (ii) any applicable laws and regulations (including, but not limited to, the Good Manufacturing Practice).

5.2If requested by Astellas, Calixa and Astellas shall negotiate and seek to enter into a supply agreement on commercially reasonable terms, under which Calixa would, upon request by Astellas, []* on commercially reasonable terms and conditions as agreed upon by the Parties.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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6.SALES AND PROMOTION

6.1Upon Calixa’s obtaining Regulatory Approval in a country in the Territory, Calixa shall []* market, promote, sell, offer to sell and distribute the Product in such country in the Territory under such Regulatory Approval in compliance with the applicable laws, regulations and rules. Calixa shall []* Astellas’ []* requests or comments with respect to such marketing efforts, but Calixa shall have sole rights and authority to determine and control the marketing strategy and plan to market the Product throughout the Territory.

6.2Calixa shall []*, at its sole expense and responsibilities and subject to its sole discretion to determine the appropriate marketing plans and strategies, to import, market, promote, sell, offer to sell and distribute the Product in the Territory with the general goal of maximizing the benefit []* from such sales of the Products in the Territory.

6.3On a country-by-country basis, Calixa shall launch the Product in the applicable country []* after obtaining the Regulatory Approval in such country, but no later than []* after such approval is obtained unless such launch is not []* by such date due to factors outside of Calixa’s control. Calixa shall promptly notify Astellas of the date of the launch of the Product in each country within the Territory. If Calixa determines that it cannot launch the Product in a particular country within the Territory within []* after Regulatory Approval is obtained in that country, then Calixa shall give Astellas written notice of such determination, and the reasons (if any) that it is not []* to launch the Product by such date due to []*. In such case, if Calixa []* (and all other rights of Calixa under the Agreement shall remain unaffected).

6.4Calixa shall promptly provide to Astellas, solely for reference of Astellas, copies of all packages and package inserts to be used by Calixa and its sublicensees for the Product in each country within the Territory each time they are first prepared or materially changed by Calixa and/or its sublicensees.

Upon the reasonable request of Astellas, Calixa shall provide Astellas, solely for reference of Astellas, with copies of any promotional materials for the Product.

6.5Within []* days after the close of each month, Calixa shall use reasonable efforts to provide Astellas with a monthly sales report for the Product for such month, which shall show the relevant []* by Calixa (to the level of accuracy that Calixa reasonably can determine in such period) indicating the []*, together with its comments thereon.  Calixa shall use reasonable efforts to include in such monthly report the []*, but it is understood that Calixa may not be able to obtain such data.

6.6In the Territory, Calixa shall []*. For clarity, it is understood and agreed that for []*.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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7.RIGHT OF FIRST REFUSAL FOR []*

7.1If Calixa or its sublicensee intends to enter into a []* (each such opportunity, a “Business Opportunity”), []*.

7.2If Astellas is interested in such Business Opportunity, it shall so notify Calixa within []* days of receiving such offer together with the material terms and conditions of such Business Opportunity and the necessary Know-How from Calixa pursuant to Section 7.1 above.  Upon such notice provided by Astellas and through the expiration of []* day period from Calixa’s receipt of such notice provided by Astellas (or such longer period of time as may be mutually agreed to by the Parties) (such period, the “Negotiation Period”), the Parties shall negotiate in good faith the terms under which they would collaborate on such Business Opportunity. During such Negotiation Period, []*.

7.3If either (i) Astellas fails to notify Calixa that Astellas is interested in such Business Opportunity within such []* day period, or (ii) the Parties fail to enter into an agreement within such Negotiation Period despite the good faith negotiations between the Parties, then []*, provided however, in the case of (ii) above, []*.

7.4[]*.

8.MILESTONE AND ROYALTY PAYMENT

8.1In consideration of the license granted by Astellas to Calixa hereunder, Calixa shall make the following one time, non-refundable and non-creditable milestone payments to Astellas upon first achievement of the applicable milestone event, as follows:

	Milestone Event	Milestone Payment
(i)	Upon entering into this Agreement.	$	1,500,000
(ii)	Upon commencing the first phase II clinical study for []* the Product.	$	1,500,000
(iii)	Upon commencing the first phase III clinical study for []* the Product.	$	[]	*
(iv)	Upon commencing a phase III clinical study []* different from that triggering milestone 8.1 (iii).	$	[]	*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

10

(v)	Upon submitting the first NDA for the []* for []* the Product.	$	[]	*
(vi)	Upon submitting the first NDA for the []* for []* different from that triggering milestone8.1 (v).	$	[]	*
(vii)	Upon obtaining the first Regulatory Approval in the []* for []* of the Product.	$	[]	*
(viii)	Upon obtaining the first Regulatory Approval in the []* for []* different from that triggering milestone 8.1 (vii).	$	[]	*
(ix)	Upon first achievement of Annual Net Sales of US$[]*.	$	[]	*
(x)	Upon first achievement of Annual Net Sales of US$[]*.	$	[]	*
(xi)	Upon first achievement of Annual Net Sales of US$[]*.	$	[]	*
	TOTAL	$	47,000,000

Calixa shall be obligated to make each milestone payment mentioned above only once.

Calixa shall []* and shall make payment of the milestone amounts specified above by wire transfer to a bank account to be designated by Astellas within thirty (30) days following the occurrence of each milestone event mentioned above.

8.2In further consideration of the license granted by Astellas to Calixa hereunder, Calixa shall pay, []* of the Products in the Territory, to Astellas a royalty as a percentage of Net Sales made by Calixa or its sublicensees in the Territory, where the percentage rate applicable to a particular sale shall depend on the aggregate amount of Annual Net Sales in the given calendar year through to the time of sale, in accordance with the following:

(i)[]* of the first []* US Dollars (US$ []*) of Annual Net Sales in the given calendar year;

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

11

(ii)[]* of the amount of Annual Net Sales in excess of the first []* US Dollars (US$ []*) of Annual Net Sales in such calendar year, and []* US Dollars (US$ []*) or less of Annual Net Sales in such calendar year;

(iii)[]* of the amount of Annual Net Sales in excess of the first []* US Dollars (US$ []*) of Annual Net Sales, and []* US Dollars (US$ []*) or less of Annual Net Sales; and

(iv)[]* of the amount of Annual Net Sales in excess of the first []* US Dollars (US$ []*) of Annual Net Sales.

The above royalties shall be payable on the Net Sales of the Product in each country within the Territory, on a country-by-country basis, until the later of: []*, the Net Sales occurred in such country shall not be included in the Annual Net Sales in determining the royalty rate of the Product under this Section 8.2.

Notwithstanding the foregoing, if Calixa, in its good faith judgment, determines that it is []* to obtain license rights in any country in the Territory from a Third Party (a “Third Party License”) under patent rights owned or controlled by such Third Party that []*, (“Third Party Patent Rights”), Calixa shall have the right to enter into such Third Party License. []*. Calixa may reduce the royalties owed to Astellas under the above provisions of this Section 8.2 based on sales of Product []* by a Third Party License by the following amounts, as applicable: (a) if the particular Third Party Patent Rights that are the subject of the such Third Party License []* of the Compound, an amount equal to []* of the amounts of royalties Calixa pays to such Third Party based on such sales of Product under such Third Party License during the applicable royalty period, but provided however that such reduction shall not reduce such royalties owed to Astellas based on such sales of the Product (in the applicable royalty period) by more than []* of the amounts otherwise owed by Calixa as a result of application of this subclause (a) of this provision; and (b) if the particular Third Party Patent Rights that are the subject of such Third Party License []* of the Compound, an amount equal to []* of the amounts of royalties Calixa pays to such Third Party based on such sales of Product under such Third Party License during the applicable royalty period, but provided however that such reduction shall not reduce such royalties owed to Astellas based on such sales of the Product (in the applicable royalty period) by more than []* of the amounts otherwise owed by Calixa as a result of application of this subclause (b) of this provision. In no event, the total amount of the reductions of the royalties as a result of Third Party License under subclauses (a) and (b) of this provision shall exceed the []* of the amounts of the royalties owed by Calixa to Astellas based on the sales of the Product during the applicable royalty period.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

12

8.3For a sale of Product in a country within the Territory at a time when (a) there does not exist any Valid Claim that claims or covers the Compound or the Product, []*, then the royalty rate applicable to such sale shall be the following, as applicable: (i) []* of the rate otherwise applicable to such sale based on the royalty rate schedule in subsections (i), (ii), (iii) or (iv) of Section 8.2 above, if at the time of such sale there is []* in that country; and (ii) []* of the rate otherwise applicable to such sale based on the royalty rate schedule in subsections (i), (ii), (iii) or (iv) of Section 8.2 above if there is at the time of such sale []* in that country.

8.4Calixa shall deliver to Astellas the royalty statements in such form as Astellas shall reasonably request, which reports generally shall list: []*. Such reports shall be given within []* days following the close of each calendar quarter (i.e. the quarterly period ending on 31st March, 30th June, 30th September or 31st December), and Calixa shall at the same time pay to Astellas, or to whomsoever Astellas shall otherwise direct in writing from time to time, the amount of such royalties shown to be due.

8.5All payments payable hereunder by Calixa to Astellas shall be made in US Dollar to a bank account designated by Astellas. Royalties earned shall be first determined in the currency of the country in which they are earned and then converted to its equivalent in US Dollar at the interbank rate quoted by the Wall Street Journal, on the last business day of the calendar quarter in question.

8.6Any income or other tax which Calixa is required to pay or withhold on behalf of Astellas with respect to the payments pursuant to this Article 8 shall be deducted from the amount of such payment due, provided, however, that in regard to any such deduction, Calixa shall give Astellas such assistance as may reasonably be necessary for Astellas to claim exemption therefrom and shall, upon request of Astellas, give Astellas proper evidence from time to time as to the payment of the tax.

8.7Late payments shall be subject to an interest charge at an annualized interest rate equal to the average (over one month) London Inter-Bank Offering Rate (LIBOR) []*, or maximum rate permitted by law, whichever is lower.

8.8Calixa shall keep true and accurate accounts of all royalties payable to Astellas under Article 8. Such records shall be retained and made available for reasonable review by Astellas or its Affiliates, unless Calixa has a reasonable basis for objecting to review thereby, or by an independent, nationally-recognized public accounting firm selected by Astellas, and to which Calixa has no reasonable objection, for the purpose of verifying the accuracy of the calculations and payments made or payable hereunder. Such review shall be conducted no more frequently than []* per year and shall not cover any period

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

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ending more than []* years prior to the date of such examination. All such reviews shall be scheduled during ordinary business hours and with reasonable notice to Calixa, such reviewing firm shall sign a typical and reasonable confidentiality agreement binding the firm to reasonable confidentiality provisions regarding the information it reviews. Such firm shall not disclose any information of Calixa gained in such review, except to confirm the accuracy of Calixa’s royalty payments or, if applicable, to disclose the extent of any inaccuracy.

9.TRADEMARKS

9.1Calixa and its sublicensees shall have the right to manufacture, import, use, promote, market, sell, offer to sell and distribute the Products throughout the Territory under the Calixa Trademark(s) or any other trademark (other than the trademarks owned by Astellas ) as may be selected by Calixa or its sublicensees.

10.CONFIDENTIALITY

10.1Except as specifically authorized by this Agreement, during the term of this Agreement and for a period of five (5) years thereafter, or fifteen (15) years from the Effective Date, whichever is longer, each of Astellas and Calixa shall keep in strict confidence any and all confidential information obtained from the other Party under this Agreement (the “Confidential Information” of the disclosing Party), including without limitation the Know-How obtained from the other Party pursuant to Section 3.1 or 3.2. Each Party shall not (i) use for any purpose other than as provided for in this Agreement and (ii) disclose to any Third Party, any Confidential Information of the other Party without first obtaining a written consent of the disclosing Party, except for such Confidential Information of the other Party that:

(i)is a part of the public domain prior to the disclosure;

(ii)becomes a part of the public domain after disclosure without any breach by the receiving Party;

(iv)is disclosed to the receiving Party by a Third Party who has the right to make such disclosure; or

(v)is independently developed by the receiving Party without any reference to any of the disclosing Party’s Confidential Information.

10.2     Calixa agrees to make Confidential Information of Astellas available only to those of its and its sublicensees’ directors, officers, employees, consultants and advisors who need to have access thereto for the purposes mentioned in this Agreement and who are bound by confidentiality and non-use obligations consistent with those provided herein. Astellas agrees to make Confidential Information of Calixa available only to those of its,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

14

its Affiliates’, []* and its Third Party business partner(s) (including its potential Third Party business partner(s))’ directors, officers, employees, consultants and advisors who need to have access thereto for the purposes permitted in this Agreement and who are bound by confidentiality and non-use obligations consistent with those provided herein.

10.3     Notwithstanding anything herein to the contrary, a Party may, to the extent necessary for the purposes permitted in this Agreement and/or for exercising its rights and/or performing its obligations under the Agreement, disclose certain Confidential Information of the other Party to: (i) governmental bodies, (ii) clinical organizations, (iii) clinical investigators, (iv) the Contract Research Organizations, and (v) other contractors as needed in assisting in performing research or development activities with respect to Compound or Product, as well as potential investors in Calixa provided that such entities are bound by appropriate confidentiality and non-use obligations.

10.4     Notwithstanding anything herein to the contrary, a Party may disclose specific Confidential Information of the other Party to the extent the disclosure is required by a valid order of a court or other governmental body having jurisdiction; provided that the disclosing Party shall provide the other Party with reasonable prior notice of such requirement, so that the other Party can file a motion for a protective order or otherwise seek whatever legal relief it deems desirable or appropriate to protect its interest in such Confidential Information.

10.5     Astellas and Calixa acknowledge that any breach or threatened breach of any term of this Article 10 may cause immediate and irreparable harm to the disclosing Party, which may not be adequately compensated by monetary damages. Astellas and Calixa therefore agree that the disclosing Party shall have the right to seek equitable relief in the form of injunctions, orders of specific performance or other equitable relief as a remedy, in addition to any other remedies that may be legally available.

11.INFRINGEMENT AND OTHER PATENT MATTERS

11.1Calixa shall promptly inform Astellas of all actual or threatened infringements of any Patent made by any Third Party in the Territory as soon as it becomes aware of the same. Calixa shall have the first option and right (but not the obligation) to bring any suit and/or defend any declaratory judgment of non-infringement action to enforce the Patent as it may deem necessary or appropriate to terminate or prevent such infringement in the Territory at its own expense. Calixa shall keep Astellas informed of the progress and the results of such action, and shall, upon Astellas’ request, provide Astellas with related information regarding such action, excluding privileged

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

15

documents. Astellas shall give all reasonable assistance except for financial assistance to Calixa in any such action. Astellas may join such suit with counsel at its expense and seek its own damages and other relief, provided that Calixa shall in any event control the prosecution of the suit or action. Calixa shall be entitled to keep and retain all amounts and recoveries from such suit or action prosecuted by Calixa, excluding any amounts of damages or relief directly awarded to Astellas in the event Astellas joined such suit or action, which Astellas may retain.  If Calixa does not institute any action for any of such infringement against said Third Party within []* days after written notice thereof, and Calixa does not provide to Astellas by such time a []*, then Astellas may institute any action for any of such infringement against said Third Party at its expense. In this event, Calixa shall give all reasonable assistance except for financial assistance to Astellas, and Calixa may join such suit with its own counsel at its own expense and seek its own damages and other relief. Astellas shall be entitled to keep and retain all amounts and recoveries from such suit or action prosecuted by Astellas, excluding any amounts of damages or relief directly awarded to Calixa in the event Calixa joined such suit or action, which Calixa may retain.

11.2Calixa will own all right, title and interest in and to all Know-How that are conceived, reduced to practice, made or developed solely by or on behalf of Calixa (whether or not patentable), and all intellectual property rights (including patent rights) appurtenant thereto, subject only to the limited license rights under the Know-How of Calixa granted to Astellas under Section 3.2 of this Agreement.

11.3Astellas shall []* conduct in good faith the preparation, filing, prosecution, issuance and maintenance (including, without limitation, interference, opposition and similar Third Party proceedings before the relevant patent office) of any and all patent applications or patents in the Patents throughout the Territory (“Prosecution”), at its expense and through patent counsel selected by Astellas. Astellas shall keep Calixa informed of all such Prosecution efforts and the results thereof, and shall provide Calixa reasonable opportunities to consult with Astellas regarding such Prosecution by Astellas. Calixa shall cooperate with and assist Astellas reasonably in such Prosecution of the Patents.

11.4During the Term, Astellas shall provide or have provided to Calixa copies of: (i) all material, substantive documents relating to Patents received by Astellas from any patent office in the Territory promptly after receipt from the patent office and (ii) all documents to be filed by Astellas, in sufficient advance notice so as to give Calixa []* days for review and comments or such lesser period as may be required by the patent office, respectively, including without limitation copies of each patent application, official action, response to official action, declaration, information disclosure statement,

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

16

request for terminal disclaimer, request for patent term extension, and request for reexamination.  Calixa shall have the right to comment on such documents, and Astellas shall reasonably consider in good faith any reasonable comments timely received from Calixa. If requested by Astellas in good faith, Calixa shall use good faith, diligent efforts to review and respond to Astellas with any comments on any of the above documents []*. Calixa shall have the right to request that Astellas file additional patent applications within the Patents in particular countries within the Territory, and Astellas shall []* accommodate such requests to the extent that such request made by Calixa is reasonable and practicable.

11.5Astellas shall not, without Calixa’s written consent, abandon or cease Prosecution of any of the Patents in the United States, Canada, United Kingdom, Germany, France, Italy or Spain (the “Major Countries”). Astellas shall notify Calixa in the event it for any reason elects to abandon, or shall otherwise not continue, the Prosecution of a particular patent application or maintenance of an issued patent within the Patents in any country in the Territory (other than in favor of a continuing application based on such parent application).  Such notification shall specify the application to be abandoned or patent that will no longer be maintained by Astellas and shall be given within a reasonable period (i.e., with sufficient time for Calixa to take action as may be necessary or desired) prior to the date on which such patent application(s) or patent(s) will lapse or go abandoned. Calixa shall then have the option, exercisable upon written notification to Astellas, to assume full responsibility, at its discretion and its cost and expense, for Prosecution of the affected patent application(s) or maintenance of any of the affected patent(s) in such country or countries in the Territory. If Calixa so elects to conduct Prosecution of a particular Patent in any country outside a Major Country as provided in the foregoing, Calixa may []*. If Calixa so elects to conduct Prosecution of a particular Patent in a Major Country as provided in the foregoing, Calixa may []*.

11.6If Calixa desires that Astellas file any or all applications and take actions necessary to obtain patent extension pursuant to 35 U.S.C. § 156 or similar foreign statutes for the Patents in the Territory, Calixa shall so notify Astellas promptly after obtaining Regulatory Approval in the U.S. or other countries where Calixa desires to file such patent extension. Astellas agrees to take all necessary actions, including filing all needed applications, to obtain the requested patent extensions at Astellas’ cost and expense. Calixa shall cooperate with and assist Astellas in such intended patent extension of the Patents, including without limitation providing all necessary documents to Astellas.  To the extent permitted under applicable law, Calixa may take

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

17

all steps and make all applicable filings and applications to obtain the requested patent extensions if and to the extent that Astellas fails to do so in a timely manner.

12.INDEMNIFICATION

12.1Calixa shall indemnify, defend and hold Astellas and its Affiliates, and their respective directors, officers and employees, and the successors and assigns of any of the foregoing, harmless from and against any and all liabilities, damages, losses, costs and expenses, including without limitation reasonable attorneys’ fees and other expenses of litigation resulting from any Third Party claim, action, suit or proceeding (any of the foregoing, a “Claim”) against any such indemnified party to the extent such Claim is based on or results from: (a) the exercise or practice by Calixa of the rights and licenses granted to Calixa under this Agreement, (b) the manufacture, use or sale of any Product or Compound used for development activities and/or distributed by or on behalf of Calixa and/or its sublicensees in the Territory or manufacture by or on behalf of Calixa and/or its sublicensees outside the Territory, (c) Calixa’s breach of any warranties, representations, or other obligations under this Agreement, or (d) any negligence or willful misconduct of Calixa and/or its sublicensees, but excluding from the foregoing obligations any Claims to the extent such Claims are based on or result from: (i) Astellas’s breach of any warranties, representations, or other obligations under this Agreement or (ii) any negligence or willful misconduct of Astellas or its Affiliate or Third Party business partner.

12.2Astellas shall indemnify, defend and hold Calixa and its Affiliates, and their respective directors, officers and employees, and the successor and assigns of any of the foregoing harmless from and against any and all Claims against any such indemnified party to the extent such Claim is based on or results from: (a) Astellas’s breach of any warranties, representations, or other obligations under this Agreement, or (b) any negligence or willful misconduct of Astellas or its Affiliate, or (c) the manufacture, use or sale of any Product or Compound used for development activities and/or distributed by or on behalf of Astellas and/or its Affiliate or Third Party business partners outside the Territory, or manufacture by or on behalf of Astellas and/or its Affiliate or Third Party business partners inside the Territory, except to the extent that such Claim is caused by (i) Calixa’s breach of any warranties, representations, or other obligations under this Agreement, or (ii) any negligence or willful misconduct of Calixa or its sublicensees.

12.3In the event that either Party intends to claim indemnification under this Article 12, it shall promptly notify the other Party in writing of such alleged Claim. The indemnifying Party shall have the right to control the defense thereof with counsel of its

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

18

choice; provided, however, that any indemnified Party shall have the right to retain its own counsel at its own expense. The indemnified Party shall cooperate with the indemnifying Party and its legal representatives in the investigation of any Claim covered by this Article 12. The indemnified Party shall not, except at its own cost, voluntarily make any payment or incur any expense with respect to any Claim or related suit without the prior written consent of the indemnifying Party, which such Party shall not be required to give.

13.WARRANTIES AND DISCLAIMER

13.1Astellas hereby represents and warrants to Calixa as of the Effective Date that:

(i)Astellas owns, or Astellas []*, the entire right, title and interests in and to all the Patents;

(ii)Astellas has the exclusive right and full legal authority to grant to Calixa the exclusive license throughout the Territory under all rights and interest in and to the Patents ([]*) and under the Know-How to make, have made, use, import, offer for sale and sell Products;

(iii)No Third Party, including []*, has any interest or rights in or under the Patents or Know-How to make, have made, use, import, offer for sale and/or sell Products in any country or jurisdiction in the Territory;

(iv)as far as Astellas is aware after certain internal patent searches in the normal course of its business, the manufacture, use and/or sale of the Compound and the Product does not infringe any patent owned or controlled by a Third Party anywhere in the Territory;

(v)Astellas is not aware of any prior art or facts or circumstances that would cause any of the Patents to be invalid, unenforceable or not patentable;

(vi)Astellas has no knowledge, and is not aware of any facts or circumstances that would lead it to believe, that any Third Party is infringing any of the Patents or misappropriating or using any Know-How in derogation of the rights granted to Calixa in this Agreement;

(vii)Astellas is not aware of any facts that indicate the existence of any material side effect, toxicity effect, carcinogenicity effect, adverse effect or any instances of deleterious physical effects or reactions resulting from, or alleged to result from, the Compound or Product, which have not been previously disclosed to Calixa by Astellas in writing;

(viii)Astellas is not aware that any of the written statements and other writings furnished by Astellas pursuant to or in connection with this Agreement or the transactions contemplated hereby are materially inaccurate or are untruthful, or

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

19

omit to disclose material facts of which Astellas is aware, where the failure to disclose such facts makes such written statements or other writings materially misleading; and

(ix)Astellas has provided to Calixa a true, correct and complete copy of the agreement between Astellas and []* pursuant to which []* has granted to Astellas the []*, and an English translation of the section(s) setting forth such Astella’s exclusive rights in the agreement.

13.2Calixa hereby represents and warrants to Astellas as of the Effective Date that:

(i)Calixa is not aware that any of the written statements and other writings furnished by Calixa pursuant to or in connection with this Agreement or the transactions contemplated hereby are materially inaccurate or are untruthful, or omit to disclose material facts of which Calixa is aware, where the failure to disclose such facts makes such written statements or other writings materially misleading; and

(ii)       Calixa has the ability to perform its obligations under this Agreement.

13.3Each Party hereby represents, warrants and covenants to the other Party as of the Effective Date that:

(i)such Party is a corporation or entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to execute and deliver this Agreement and to carry out the provisions hereof;

(ii)such Party is duly authorized, by all requisite corporate action, to execute and deliver this Agreement and to carry out the provisions hereof, and the person executing this Agreement on behalf of such Party is duly authorized to do so by all requisite corporate action;

(iii)no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of such Party in connection with the valid execution, delivery and performance of this Agreement, except where the failure to obtain any of the foregoing would not have a material adverse impact on the ability of such Party to meet its obligations hereunder;

(iv)this Agreement constitutes a legal and valid obligation binding upon such Party and enforceable in accordance with its terms; and

(v)the execution, delivery and performance by it of this Agreement and its compliance with the terms and provisions of this Agreement does not and will not conflict with or result in a material breach of any of the terms or provisions of (i) any other contractual or other obligations of such Party, (ii) the provisions of its charter, operating documents or bylaws, or (iii) any order, writ, injunction or decree of any court or governmental authority entered against it or by which it or

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

20

any of its property is bound except where such breach or conflict would not have a material adverse impact on the Party’s ability to meet its obligations hereunder.

13.4EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS NOR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF NON-INFRINGEMENT OF ANY THIRD PARTY INTELLECTUAL PROPERTY RIGHTS OR OTHER RIGHTS, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND VALIDITY WITH RESPECT TO THE PATENTS LICENSED HEREUNDER, NOR DOES ASTELLAS MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED BY CALIXA WITH RESPECT TO THE PATENTS LICENSED HEREUNDER.

14.DURATION

This Agreement becomes effective from the Effective Date and shall, unless sooner terminated pursuant to any other provision of this Agreement, be in effect, on a country by country basis, as long as Calixa or its sublicensee continues developing or selling the Product in such country within the Territory.

15.TERMINATION

15.1Material failure by a Party to comply with any of its respective material obligations or conditions contained in this Agreement shall entitle the other Party to give to the Party in default notice requiring it to cure such material default and specifying in detail the basis for the allegation of default. If such material default is not cured within []* days (or []* days with respect to material breach by Calixa of its payment obligation under Article 8) after receipt of such notice, the notifying Party shall be entitled (without prejudice to any of its other rights conferred on it by this Agreement) to terminate this Agreement by giving written notice of termination to take effect immediately, except as otherwise provided in Section 15.3 below.

15.2     In the event that one of the Parties goes into liquidation, or a receiver or a trustee is appointed over all or substantially all of the property or estate of that Party, or the Party makes an assignment for the benefit of creditors of all or substantially all of its assets, and whether any of the aforesaid events be the outcome of the voluntary act of that Party, or otherwise, the other Party shall be entitled to terminate this Agreement forthwith by giving a written notice to the first Party.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

21

15.3If Calixa, or its sublicensees, has []* and []*, then thereafter, so long as Calixa, or its sublicensees, continues to []* develop and/or commercialize Product in each country in the Territory in which it is []*, then notwithstanding the provisions of Section 15.1 Astellas shall not have the right to terminate the Agreement under Section 15.1 above unless the uncured material default by Calixa is of the following obligations: []*; in any such case Astellas may exercise the termination rights under Section 15.1 if such breach remains uncured; notwithstanding the foregoing, []*.

15.4In the event that: (a) there occurs either (i) a substantial change in control of Calixa (meaning that the shareholders of Calixa just prior to the transaction own less than 50% of the voting stock of Calixa after the transaction) pursuant to a merger with or an acquisition by a Third Party, or (ii) a sale by Calixa to a Third Party of all or substantially all of the assets of Calixa; (b) such Third Party is, at the time of the closing of the transaction under subsection (a) above, []*, then Astellas shall have the right to terminate this Agreement forthwith by written notice, solely in such countries where such Third Party []*.

15.5In the event Calixa contests or challenges in a legal proceeding the validity of the Patent, []*.

15.6Calixa shall have the right to terminate this Agreement in its entirety without cause, or for any cause, on []* written notice to Astellas, []*. In the alternative, Calixa shall have the right to terminate the Agreement solely as to particular countries, on []* prior written notice to Astellas, in which case such country or countries covered by such notice shall be removed from the Territory, and all rights granted by Astellas under this Agreement with respect to such countries shall automatically terminate and revert to Astellas upon such termination, but the Agreement shall remain in full force and effect, and all of Calixa’s rights and obligations shall remain, as to all other countries in the Territory.

16.RIGHTS AND OBLIGATIONS UPON EXPIRATION AND TERMINATION

16.1The termination or expiration of this Agreement for any reason shall be without prejudice to:

(i)Calixa’s obligations to disclose to Astellas any and all Know-How which Calixa and/or its sublicensees developed or acquired (with the right to disclose) prior to the date of such termination or expiration and has not yet disclosed to Astellas pursuant to Section 3.2;

(ii)Astellas’s right to receive all payments accrued hereunder prior to the date of such

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

22

termination or expiration;

(iii)Calixa’s obligation provided for in Sections 8.6, 8.7 and 8.8;

(iv)Astellas’s right provided in Section 8.8;

(v)Both Party’s confidentiality obligation provided for in Article 10;

(vi)Calixa’s indemnification obligation provided for in Section 12.1;

(vii)Astellas’s indemnification obligation provided for in Section 12.2;

(viii)Both Party’s agreements set forth in Article 17; and

(ix)Any other remedies which either Party may then or thereafter have hereunder or otherwise.

16.2In the event of termination or expiration of this Agreement in its entirety or with respect to any particular country pursuant to Section 4.3, 6.3 or 15.6, except for termination of this Agreement by Calixa pursuant to Section 15.1 or 15.2, on and after the date of such termination, Astellas shall have a []* right and license to use all Know-How (including any patent obtained thereon) developed or acquired by Calixa and/or its sublicensees, for the purpose of development, manufacture, import, marketing, promotion, sales, offer for sales and distribution of the Compound, the Product []* (a) in any country of the world, in the case of termination of the entire Agreement, or (b) in the particular country of termination, in the case of termination of the Agreement only as to such country (as applicable), and to disclose and sublicense the same to its Affiliates and its Third Party business partner(s) for the purpose mentioned above in this Section.

In the event of termination or expiration of this Agreement in its entirety or with respect to any particular country pursuant to Section 4.3, 6.3 or 15.6 except for termination of this Agreement by Calixa pursuant to Section 15.1 or 15.2, Astellas shall also have the right, []*, to refer to, or make use of, the Regulatory Approval filed and/or obtained by Calixa or its sublicensees for commercialization of the Product by itself, its Affiliates and/or its Third Party business partners (a) in any country of the world, in the case of termination of the entire Agreement, or (b) in the particular country of termination, in the case of termination of the Agreement only as to such country (as applicable).

16.3Upon termination or expiration of this Agreement for any reason whatsoever (other than termination by Calixa under Section 15.1 and 15.2), Calixa shall (except as needed for the limited rights set forth in Section 16.4) cease using or practicing the Patents and the Astellas Know-How disclosed by Astellas and return to Astellas or destroy, as requested by Astellas, all Confidential Information received from Astellas, including any copy, reproduction, summary and other physical embodiments thereof. In case of destruction of the Confidential Information, Calixa shall submit to Astellas the document which certifies said destruction without delay.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

23

16.4Upon termination of this Agreement by Calixa under Section 15.1 or 15.2, Astellas shall cease using or practicing the Know-How developed and acquired by Calixa or its sublicensees and return to Calixa or destroy, as requested by Calixa, all Confidential Information received from Calixa, including any copy, reproduction, summary and other physical embodiments thereof, provided that above provision shall not prevent Astellas to continue granting a non-exclusive license to use the Know-How developed or acquired by Calixa and/or its sublicensees granted under Section 3.2 to its Third Party business partner(s) which license was granted to said Third Party business partners prior to termination of this Agreement by Calixa under Section 15.1 or 15.2. In case of destruction of the Confidential Information, Astellas shall submit to Calixa the document which certifies said destruction without delay. Calixa shall have the right, in its sole discretion, to continue the licenses granted to it under Section 2.1, []*.

16.5Subject to Calixa’s rights under Section 16.4, upon termination or expiration of this Agreement for any reason whatsoever, Astellas shall grant Calixa (i) the right to sell in the Territory the Product then held by Calixa as a stock and (ii) the right to convert the remaining Compound into the Product and to sell the same in the Territory, for a period of []* or such a period to be agreed upon between the Parties; it being confirmed that, (i) in no event, Astellas is obligated to take over or purchase any stock of the Product or the Compound held by Calixa or its sublicensees and (ii) with respect to the Product sold by Calixa and/or its sublicensees pursuant to this Section 16.4, []*.

17.GENERAL

17.1Force Majeure: No failure, delay or omission by a Party in the performance of any of its obligations under this Agreement shall be deemed a breach of this Agreement nor create any liability if the same shall arise from any cause or causes beyond the control of such Party, including an act of God, acts or omissions of any government or any rules, regulations or orders of any Regulatory Authority or any officer, department, agency or instrument hereto; fire, storm, flood, earthquake, accident, acts of the public enemy, war, terrorism, rebellion, insurrection, riot, invasion, strikes, lockouts, epidemic or petroleum crisis, so long as such Party continues to use good faith, diligent efforts to avoid the effects of such cause or causes and perform its obligations.

17.2Notice: Any notice required or permitted to be given under this Agreement shall be deemed to have been duly given only if delivered personally, by facsimile with confirmation of receipt, by mail (first class, postage prepaid), or by express delivery using a globally recognized courier to the Party at its address stated below, or at such other address as may hereafter be furnished in writing to the notifying Party:

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

24

If to Astellas:

Astellas Pharma Inc.

3-11, Nihonbashi-Honcho 2-chome, Chuo-ku, Tokyo 103-8411, Japan

Attention: Vice President, Business Development

Facsimile: +81-3-3244-3245

With a copy to: Attention: Vice President, Legal

Facsimile: +81-3-3244-5811

If to Calixa: Calixa Therapeutics, Inc.

12481 High Bluff Drive, Suite 150, San Diego, CA 92130 USA

Attention: Chief Executive Officer

Facsimile: 858.480.2401

With a copy to:

Attention: Chief Financial Officer

Facsimile: 858.480.2401

Any such notice shall be deemed to have been received upon receipt of the addressee.

17.3Waiver: The failure on the part of Astellas or Calixa to exercise or enforce any rights conferred upon it hereunder shall not be deemed to be a waiver of any such rights nor operate to bar the exercise or enforcement thereof at any time or times thereafter.

17.4Severability: Nothing contained in this Agreement shall be construed as requiring the commission of any act contrary to law. Should any Section of this Agreement be or become legally ineffective, the validity of the Agreement as a whole shall not be affected. The parties hereto rather undertake to replace the ineffective Sections by legally effective ones which come as close as possible to the sense of such ineffective Sections and the purpose of this Agreement.

17.5Entire Agreement: This Agreement contains the entire understanding between the Parties with respect to the subject matter hereof, and it expressly supersedes any and all prior understandings or agreements of the Parties. This Agreement cannot be modified or amended, except by a writing agreed to and executed by both of the Parties.

17.6Independent Contractor: It is expressly agreed that Calixa and Astellas shall be independent contractors and that the relationship between the Parties shall not constitute a partnership or agency of any kind. Neither Calixa nor Astellas shall have

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

25

the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party.

17.7Non-Assignment: This Agreement, and all rights and obligations hereunder, shall not be assigned in whole or in part, whether by operation by law or otherwise, by either Party to any other person or company, except with the prior written consent of the other Party; provided that a Party may assign this Agreement without such consent to its Affiliate or to its successor in interest in connection with the merger or acquisition of such Party or sale of all or substantially all of such Party’s assets. Subject to Section 11.5, Astellas and its Affiliates shall not assign, grant or dispose of any right, title or interest in or to the Product Patents other than to the permitted assignee of all of Astellas’ rights in the Agreement (as permitted above). Further, if Astellas assigns the Agreement as permitted above, Astellas (and its Affiliate, as applicable) shall assign to such assignee in connection with such assignment all right, title and interest in and to the Product Patents.

17.8Headings: Headings included herein are for convenience only, do not form a part of this Agreement and shall not be used in any way to construe or interpret this Agreement.

17.9Compliance with Law: Each Party shall comply with all governmental requests directed to it in connection with this Agreement and will provide all information and assistance necessary to comply with said request, and failure to do so shall be considered a material breach of this Agreement.

17.10Governing Law: This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York, without regard to any rules of conflict of laws.

17.11Dispute Resolution: All disputes, issues or differences arising between the Parties, out of or in connection with this Agreement (a “Dispute”), whether based on contract, tort, or other legal theory, shall be discussed in good faith by appropriate senior executives of each Party, who shall attempt in good faith and diligently to find a mutually acceptable resolution to such Dispute for up to []* days. If the Parties are not able to resolve a Dispute by the end of such discussion period, such Dispute may be finally settled by arbitration as the Parties may agree, or by resort to any available legal remedies. Each Party consents to the jurisdiction and venue of the state and federal courts located in New York, New York regarding resolution of any unresolved Dispute under this Agreement. This Agreement has been prepared in the English language, which language shall govern the interpretation of and any Dispute regarding the terms

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

26

of or performance under or breach of this Agreement. The decisions of any arbitrator(s), if the Parties agree on binding arbitration of a Dispute, shall be final and binding on both Parties (except as they may otherwise agree in agreeing to such arbitration).

17.12Public Announcement or Disclosure of Agreement: Neither Party shall make any public announcements or other disclosure to any Third Party of the existence or terms of this Agreement without first obtaining the consent of the other Party to timing and content thereof, except to the extent that such disclosure is required by applicable law or regulation, such as to comply with securities laws or regulations or the regulations of a securities exchange.  The Parties agree to consult and agree reasonably on a joint press release, or two separate press releases, to be issued by the Parties promptly after the Effective Date. Further, a Party may disclose the existence and terms of this Agreement in confidence to its existing investors, directors, and professional advisors and to prospective investors, merger partners, or acquirers and their respective professional advisors provided that such recipients agree to be bound by confidentiality obligations preventing further disclosure of such information.

17.13Performance by Affiliates and Contractors.   Any of Calixa’s obligations under this Agreement may be satisfied by the performance of such obligation by a sublicensee of Calixa (which may include an Affiliate of Calixa that is a sublicensee), but Calixa shall remain obligated for the performance of all its obligations, even if it has undertaken to have a sublicensee perform such obligation.  Calixa shall have the right to engage its Affiliates and Third Party contractors (such as contract research organizations, clinical trial sites, and distributors) to perform specific services to assist Calixa in exercising its rights and in carrying out its respective activities or obligations under this Agreement, including for the purpose of development and commercialization of Products in the Territory.

17.14   Interpretation. The term “include” or “including” as used in this Agreement shall be exemplary and not limiting, and shall be interpreted to mean “including without limitation”.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

27

IN WITNESS WHEREOF, the Parties have caused their duly authorized representatives to execute this License Agreement.

Astellas Pharma Inc.
By:	/s/ Hirofumi Onosaka
Name:	Hirofumi Onosaka
Title:	Senior Corporate Officer
Date:	October 31, 2007
Calixa Therapeutics, Inc.
By:	/s/ Eckard Weber
Name:	Eckard Weber
Title:	President and CEO
Date:	Nov. 1, 2007

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

28

Exhibit A

Country	Appln.No.	Appln.Date	Pat.No.	Expiry Date
[]*	[]*	[]*	[]*	[]*
[]*	[]*	[]*	[]*	[]*
[]*	[]*	[]*	[]*	[]*
[]*	[]*	[]*	[]*	[]*
[]*	[]*	[]*	[]*	[]*
[]*	[]*	[]*	[]*	[]*
[]*	[]*	[]*	[]*	[]*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

29

EX-10.47

Exhibit 10.47

CONFIDENTIAL TREATMENT

FIRST AMENDMENT TO THE

COMMERCIAL SERVICES AGREEMENT

This First Amendment to the Commercial Services Agreement (this “First Amendment”) is made this 26th day of February, 2009, by and between ASTRAZENECA PHARMACEUTICALS LP, a Delaware limited partnership (“AstraZeneca”), and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Cubist”).

WHEREAS, AstraZeneca and Cubist previously entered into that certain Commercial Services Agreement between AstraZeneca and Cubist, dated as of July 1, 2008 (the “Agreement”);

WHEREAS, AstraZeneca and Cubist desire to adjust the Annual Baseline Sales for 2008, pursuant to Section 6.1(b) of the Agreement, to account for the occurrence of a Significant Market Event in 2008, namely, []* as contemplated by Section 1.1(rrrrr)(viii) (the “[]* Significant Market Event”), and to set forth the Annual Amount Due for 2008 based on such adjusted Annual Baseline Sales; and

WHEREAS, AstraZeneca and Cubist desire to change the definition of Critical Care Prescriber.

NOW THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.Annual Baselines Sales for 2008.  Exhibit A to the Agreement is hereby amended so that Annual Baseline Sales for Calendar Year 2008 equal []*, and Quarterly Baseline Sales for each Calendar Quarter of Calendar Year 2008 equal []*.  Section 6.1(a) of the Agreement is also hereby amended to delete the following language from the first sentence: “(which shall be prorated to reflect the portion of Calendar Year 2008 commencing on the Baseline Commencement Date through December 31, 2008)”.  The parties hereby acknowledge and agree that such adjustment to the Annual Baseline Sales and Quarterly Baseline Sales for Calendar Year 2008 is sufficient to take account of the entire impact that the []* Significant Market Event is reasonably likely to have on []* for Calendar Year 2008.

2.Annual Amount Due for 2008.  The Agreement is hereby amended so that the report due by AstraZeneca to Cubist pursuant to Section 3.11(b)(iv) for Calendar Year 2008 shall be in the form attached hereto as Attachment A(rather than the form set forth in Exhibit Q to the Agreement).  Further, Attachment A hereto is hereby deemed to constitute such report and satisfy AstraZeneca’s reporting obligation under Section 3.11(b)(iv) with respect to Calendar Year 2008.  The Annual Amount Due for Calendar

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

Year 2008 shall be as calculated in Attachment A hereto and shall not be modified or adjusted pursuant to Section 6.2(d) of the Agreement or otherwise for any reason.

3.Critical Care Prescriber.  The Agreement is hereby amended by removing the prior definition of Critical Care Prescriber in Section 1.1(gg) and replacing it with the following:

“Critical Care Prescriber” means a Person (including a non-prescriber) who is an intensivist, pulmonologist, critical care physician, or other healthcare practitioner who influences prescribing behavior (e.g. a nurse, pharmacist or physician assistant) who practices, is employed by or otherwise provides services in the critical care department of a Critical Care Target Account.

4.Definitions.  All terms used, but not defined, in this First Amendment shall have the respective meanings set forth in the Agreement.

5.Construction.  The principles set forth in Section 1.2 of the Agreement shall apply to this First Amendment.

6.Effective Date; Incorporation of Terms; Continuing Effect. This First Amendment shall be deemed effective for all purposes as of the Effective Date of the Agreement, except that Section 3 of this Amendment shall be deemed effective as of January 1, 2009.  All of the amendments set forth in this First Amendment shall be deemed to be incorporated in, and made a part of, the Agreement, and the Agreement, as amended by this First Amendment, shall be read, taken and construed as one and the same agreement (including with respect to the provisions set forth in Article XVI (Miscellaneous) of the Commercial Services Agreement which shall, as applicable, be deemed to apply to this First Amendment (including with respect to the governing law with respect to this First Amendment)).  Except as otherwise expressly amended by this Amendment, the Agreement shall remain in full force and effect in accordance with its terms and conditions.

7.Counterparts.  This First Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[The remainder of this page has been intentionally left blank.]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

IN WITNESS WHEREOF, the parties, intending to be bound, have caused this First Amendment  to be executed on their behalf by their duly authorized agent as of the day and year first above written.

ASTRAZENECA PHARMACEUTICALS LP		CUBIST PHARMACEUTICALS, INC.
By:	/s/ Rich Fante	By:	/s/ Michael W. Bonney
Name:	Rich Fante	Name:	Michael W. Bonney
Title:	President	Title:	President and CEO

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

Attachment A

Annual Amount Due for 2008

[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	[]		*
[]*				$	[]	*
[]*
[]*	[]		*
[]*	$	[]	*
[]*	[]		*
[]*				$	[]	*
[]*				$	[]	*
[]*				$	[]	*
[]*
[]*	$	[]	*
[]*	$	[]	*
[]*				$	[]	*
[]*				$	[]	*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

A-1

Calculation of []*

[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	$	[]	*
[]*	[]		*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

A-2

EX-10.51

Exhibit 10.51

TENTH AMENDMENT TO LEASE

THIS TENTH AMENDMENT TO LEASE (this “Tenth Amendment”) is made as of the 8th day of May, 2009 (the “Tenth 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, and by a Ninth Amendment to Lease (the “Ninth Amendment”) dated as of December 19, 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 151,129 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, 2800-45, 2100-45 and 2100-55; 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 5,528 rentable square feet of space, known as Suite 2700-45, on the second floor of the Building (the “AON 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 Tenth 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 Tenth 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 Tenth Amendment.

2.             Additional Terms and Definitions. (a) From and after the Tenth 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; (xii) Suite 2100-55 on the second floor of the 55 Hayden Avenue portion of the Building, and (xiii) Suite 2700-45 on the second floor of the 45 Hayden Avenue portion of the Building. All such spaces are shown on Exhibit A-10, attached hereto and incorporated herein.

2

RENTABLE FLOOR AREA OF THE PREMISES: Approximately 156,657 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 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; (xii) 12,908 rentable square feet on the second floor of the Building contained in Suite 2100-55; and (xiii) approximately 5,528 rentable square feet on the second floor of the Building contained in Suite 2700-45.

(b)           From after the Tenth Amendment Effective Date, the term “Annual Rent” for the Premises shall be as set on Schedule I to this Tenth 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 AON 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 AON Space shall be computed using the fiscal year ending June 30, 2009 as the base year.

3

5.             Effective Date; Delivery and Condition. (a) The “Tenth Amendment Effective Date” shall be the later to occur of (i) July 1, 2009 and (ii) the date on which Rath & Strong, Inc. (the “Existing Tenant”) vacates and surrenders the AON Space and Landlord delivers possession of the AON Space to Tenant.

(b)           Tenant acknowledges that, except as explicitly provided in this Tenth Amendment and the Lease, it is leasing the AON 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 AON 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 AON 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 AON Space to make the same more suitable for Tenant’s occupancy. Such alterations or improvements may include tenant improvements to the AON Space, installation of fixtures in the AON Space, and architectural and engineering expenses in connection therewith (collectively, the “AON Space Improvements”). All AON 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 AON Space Improvements shall be deemed substantially complete on that date on which the AON 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 AON Space, or any part thereof, without causing undue interference with Tenant’s use of the AON 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 AON 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 AON 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 Thirty-eight Thousand Two Hundred Dollars ($138,200.00), or $25.00 per square foot of Rentable Area in the AON Space (the “AON Space Improvements Allowance”). No portion of the AON Space Improvements Allowance may be applied to costs of purchasing or installing furniture or wiring/cabling for the AON Space. If the Existing Tenant vacates and surrenders possession of the AON Space prior to June 30, 2009,

4

Landlord shall grant Tenant reasonable access to the AON Space from and after such surrender (and the Existing Tenant vacating the AON Space) for the purpose of commencing the AON Space Improvements in the AON Space. To the extent that Tenant has not requested disbursement of any portion of the AON 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.

6.             Contingency.   Tenant acknowledges that the Tenth 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 AON Space on or before June 30, 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 May 15, 2009, then Landlord shall so advise Tenant and Landlord shall have the right to terminate this Tenth 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 Tenth Amendment shall be void and without further force or effect, and Landlord shall have no liability hereunder.

7.             Parking.  From and after the Tenth Amendment Effective Date, Section 10.19 of the Lease shall be amended by, in the first sentence thereto:

(a)           Replacing “five hundred three” with “five hundred twenty-one (521);” and

(b)Replacing “151,129” with “156,657.”

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 Tenth 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-10 attached hereto is hereby substituted for Exhibit A-8 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-10.

10.           Successors.  This Tenth 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

11.           Authority.  Each party represents and warrants to the other that each person executing this Tenth 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 Tenth 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 Tenth Amendment, is hereby ratified and confirmed.

13.           Tenant Representations. As a material inducement to Landlord entering into this Tenth 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 Tenth 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 Tenth 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 Tenth Amendment; and

6

(iv) Landlord has the right to lease the Tenth Amendment Expansion Space, as provided herein, to Tenant.

15.           Governing Law. The Lease, this Tenth 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 Tenth 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]

7

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/ Christopher J. Good
				Name: Christopher J. Good
				Title: Regional Director
	By: Realty Associates Fund VI Texas Corporation, a Texas corporation, general partner
	By:	/s/ Christopher J. Good
	Name: Christopher J. Good
	Title: 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-10

Plans of Premises

SECOND FLOOR	CUBIST SUITE 2200
45-55 HAYDEN AVENUE	6,150 RSF
LEXINGTON, MA

9

SECOND FLOOR	CUBIST SUITE 2201
45-55 HAYDEN AVENUE	6,755 RSF
LEXINGTON, MA

10

THIRD FLOOR	MOTOROLA SUITE 3000
45-55 HAYDEN AVENUE	30,019 RSF
LEXINGTON, MA

11

FOURTH FLOOR	CUBIST SUITE 4200
45-55 HAYDEN AVENUE	31,453 RSF
LEXINGTON, MA

12

FOURTH FLOOR	CUBIST SUITE 4201
45-55 HAYDEN AVENUE	8,720 RSF
LEXINGTON, MA

13

CUBIST SUITE 4600-45 25,405 RSF

14

CUBIST SUITE 1000-55 12,146 RSF

15

Cubist Suites 3200-55 and 3201-55 10,495 RSF

16

Cubist Suite 2800-45 2,805 RSF

17

Cubist Suites 2600-45 3,089 RSF

18

Cubist Suite 2100-45 1,184 RSF

19

Cubist Suite 2100-55 12,908 RSF

20

Cubist Suite 2700-45 5,528 RSF

21

SCHEDULE I TO TENTH 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

22

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

23

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

24

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

As to Suite 2700-45

RENTAL PERIOD	TOTAL ANNUAL RENT		MONTHLY PAYMENT		RENTAL RATE/SF
7/1/09 — 4/30/10	$	183,806.00	$	15,317.17	$	33.25
5/1/10 — 4/30/11	$	189,334.00	$	15,777.83	$	34.25
5/1/11 — 4/30/12	$	194,862.00	$	16,238.50	$	35.25
5/1/12 — 4/30/13	$	200,390.00	$	16,699.17	$	36.25
5/1/13 — 4/30/14	$	205,918.00	$	17,159.83	$	37.25
5/1/14 — 4/30/15	$	211,446.00	$	17,620.50	$	38.25
5/1/15 — 4/30/16	$	216,974.00	$	18,081.17	$	39.25

25

EX-10.52

Exhibit 10.52

CONFIDENTIAL TREATMENT

SECOND AMENDMENT TO THE

COMMERCIAL SERVICES AGREEMENT

This Second Amendment to the Commercial Services Agreement (this “Second Amendment”) is made this 20th day of May, 2009 (the “Amendment Effective Date”), by and between ASTRAZENECA PHARMACEUTICALS LP, a Delaware limited partnership (“AstraZeneca”), and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Cubist”).

WHEREAS, AstraZeneca and Cubist previously entered into that certain Commercial Services Agreement between AstraZeneca and Cubist, dated as of July 1, 2008 (as amended as of February 26, 2009, the “Agreement”); and

WHEREAS, AstraZeneca and Cubist desire to amend the Agreement to revise the Promotion Plan set forth in Exhibit M of the Agreement.

NOW THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.Critical Care Target Accounts.Exhibit M to the Agreement is hereby amended so that as of the Amendment Effective Date, the second sentence of Paragraph 1 of the Promotion Plan is hereby deleted and replaced with the following: “[]*.  For purposes of a Detail to []*, “Detail” shall mean a Representative of the Sales Force meeting with []* or providing an in-service for []* at which []* is in attendance, such that the relevant characteristics of the Product are described by the Representative consistent with the requirements of this Agreement and Applicable Law and in a manner that is customary in the industry for the purpose of promoting a prescription pharmaceutical product.”

2.Definitions.  All terms used, but not defined, in this Second Amendment shall have the respective meanings set forth in the Agreement.

3.Construction.  The principles set forth in Section 1.2 of the Agreement shall apply to this Second Amendment.

4.Effective Date; Incorporation of Terms; Continuing Effect.  This Second Amendment shall be deemed effective for all purposes as of the Amendment Effective Date.  The amendment set forth in this Second Amendment shall be deemed to be incorporated in, and made a part of, the Agreement, and the Agreement and this Second Amendment shall be read, taken and construed as one and the same agreement (including with respect to the provisions set forth in Article XVI (Miscellaneous) of the Agreement which shall, as applicable, be deemed to apply to this Second Amendment (including with respect to the governing law)).  Except as otherwise expressly amended by this Second Amendment, the Agreement shall remain in full force and effect in accordance with its terms and conditions.

5.Counterparts.  This Second Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

IN WITNESS WHEREOF, the parties, intending to be bound, have caused this Second Amendment to be executed on their behalf by their duly authorized agent as of the day and year first above written.

ASTRAZENECA PHARMACEUTICALS LP		CUBIST PHARMACEUTICALS, INC.
By:	/s/ Marion McCourt	By:	/s/ Michael W. Bonney
Name:	Marion McCourt	Name:	Michael W. Bonney
Title:	Vice President	Title:	President and CEO

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

EX-10.54

Exhibit 10.54

CONFIDENTIAL TREATMENT

THIRD AMENDMENT TO THE

COMMERCIAL SERVICES AGREEMENT

This Third Amendment to the Commercial Services Agreement (this “Third Amendment”) is made this 30th day of September, 2009 (the “Amendment Effective Date”), by and between ASTRAZENECA PHARMACEUTICALS LP, a Delaware limited partnership (“AstraZeneca”), and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Cubist”).

WHEREAS, AstraZeneca and Cubist previously entered into that certain Commercial Services Agreement between AstraZeneca and Cubist, dated as of July 1, 2008 (as amended as of February 26, 2009 and May 20, 2009, the “Agreement”); and

WHEREAS, AstraZeneca and Cubist desire to amend certain provisions of the Agreement relating to the Promotion Plan and Annual Baseline Sales, as set forth herein.

NOW THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.Promotion Plan.  The Agreement is hereby amended so that Section 3.1(b) is deleted in its entirety and replaced with the following:

“(b)         By October 16, 2009, for Calendar Year 2010, and at least three (3) months prior to the commencement of each Calendar Year thereafter, the parties shall update the Promotion Plan to specify []* to be conducted by Cubist with respect to the Critical Care Target Accounts and the Pediatric Target Accounts for such Calendar Year.  In addition to the foregoing annual updates, the parties may modify the Promotion Plan from time to time by written agreement.”

2.Annual Baseline Sales.  The Agreement is hereby amended so that Section 6.1(a) is deleted in its entirety and replaced with the following:

“(a)         Subject to modification pursuant to Section 6.1(b), the Annual Baseline Sales for Calendar Year 2008 and 2009 and the baseline Gross Sales for each Calendar Quarter (“Quarterly Baseline Sales”) in each such Calendar Year are set forth in Exhibit A.  For each Calendar Year thereafter, the []*.”

3.Definitions.  All terms used, but not defined, in this Third Amendment shall have the respective meanings set forth in the Agreement.

4.Construction.  The principles set forth in Section 1.2 of the Agreement shall apply to this Third Amendment.

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

1

5.Effective Date; Incorporation of Terms; Continuing Effect.  This Third Amendment shall be deemed effective for all purposes as of the Amendment Effective Date.  The amendment set forth in this Third Amendment shall be deemed to be incorporated in, and made a part of, the Agreement, and the Agreement and this Third Amendment shall be read, taken and construed as one and the same agreement (including with respect to the provisions set forth in Article XVI (Miscellaneous) of the Agreement which shall, as applicable, be deemed to apply to this Third Amendment (including with respect to the governing law)).  Except as otherwise expressly amended by this Third Amendment, the Agreement shall remain in full force and effect in accordance with its terms and conditions.

6.Counterparts.  This Third Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[The remainder of this page has been intentionally left blank.]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

IN WITNESS WHEREOF, the parties, intending to be bound, have caused this Third Amendment to be executed on their behalf by their duly authorized agent as of the day and year first above written.

ASTRAZENECA PHARMACEUTICALS LP		CUBIST PHARMACEUTICALS, INC.
By:	/s/ Marion E. McCourt	By:	/s/ David W. J. McGirr
Name:	Marion E. McCourt	Name:	David W. J. McGirr
Title:	VP, Cornerstone	Title:	SVP, CFO

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

EX-10.55

Exhibit 10.55

CONFIDENTIAL TREATMENT

FOURTH AMENDMENT TO THE

COMMERCIAL SERVICES AGREEMENT

This Fourth Amendment to the Commercial Services Agreement (this “Fourth Amendment”) is made this 15th day of October, 2009 (the “Amendment Effective Date”), by and between ASTRAZENECA PHARMACEUTICALS LP, a Delaware limited partnership (“AstraZeneca”), and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Cubist”).

WHEREAS, AstraZeneca and Cubist previously entered into that certain Commercial Services Agreement between AstraZeneca and Cubist, dated as of July 1, 2008 (as amended as of February 26, 2009, May 20, 2009 and September 30, 2009, the “Agreement”); and

WHEREAS, AstraZeneca and Cubist desire to amend certain provisions of the Agreement relating to the Detailing of the Product to Critical Care Target Accounts, as set forth herein.

NOW THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.Sales Force Obligations.  The Agreement is hereby amended so that the third sentence of Section 3.1(a) is hereby deleted and replaced with the following:

“Cubist shall ensure that (A) each Detail by a Representative to []* is a Primary Detail, and (B) each Detail by a Representative to []* is a Primary Detail or a Secondary Detail.”

2.Critical Care Target Accounts.  The Agreement is hereby amended so that Section 1 of the Promotion Plan (Critical Care Target Accounts) set forth in Exhibit M to the Agreement is hereby deleted in its entirety and replaced with the following:

“1.           Critical Care Target Accounts

[]*.  Notwithstanding anything contained in the Agreement, for purposes of a Detail to []*, “Detail” shall mean a Representative of the Sales Force meeting with []* or providing an in-service for []* at which []* is in attendance, such that the relevant characteristics of the Product are described by the Representative consistent with the requirements of this Agreement and Applicable Law and in a manner that is customary in the industry for the purpose of promoting a prescription pharmaceutical product.”

3.Exhibit J (Form of Detail Report).  The Agreement is hereby amended so that Exhibit J to the Agreement is hereby deleted and replaced with the Exhibit J attached hereto as Attachment I.

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

1

4.Definitions.  All terms used, but not defined, in this Fourth Amendment shall have the respective meanings set forth in the Agreement.

5.Construction.  The principles set forth in Section 1.2 of the Agreement shall apply to this Fourth Amendment.

6.Effective Date; Incorporation of Terms; Continuing Effect.  This Fourth Amendment shall be deemed effective for all purposes as of the Amendment Effective Date.  The amendments set forth in this Fourth Amendment shall be deemed to be incorporated in, and made a part of, the Agreement, and the Agreement and this Fourth Amendment shall be read, taken and construed as one and the same agreement (including with respect to the provisions set forth in Article XVI (Miscellaneous) of the Agreement which shall, as applicable, be deemed to apply to this Fourth Amendment (including with respect to the governing law)).  Except as otherwise expressly amended by this Fourth Amendment, the Agreement shall remain in full force and effect in accordance with its terms and conditions.

7.Counterparts.  This Fourth Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[The remainder of this page has been intentionally left blank.]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

IN WITNESS WHEREOF, the parties, intending to be bound, have caused this Fourth Amendment to be executed on their behalf by their duly authorized agent as of the Amendment Effective Date.

ASTRAZENECA PHARMACEUTICALS LP		CUBIST PHARMACEUTICALS, INC.
By:	/s/ Marion E. McCourt	By:	/s/ Michael Bonney
Name:	Marion E. McCourt	Name:	Michael Bonney
Title:	Vice President, Cornerstone	Title:	President and CEO

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

ATTACHMENT I

EXHIBIT J

FORM OF DETAIL REPORT

Monthly/Quarterly Report

Reporting Period:                              to                                    

Prescriber Level Reporting

[]*	[]*	[]*	[]*	[]*
[]*					[]*	[]*
[]*
[]*
[]*
[]*

[]*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

J-1

Monthly/Quarterly Report

Reporting Period:                              to                         

Account Level Reporting

[]*	[]*	[]*	[]*	[]*
[]*					[]*	[]*
[]*					[]*	[]*

[]*

Report Created:                  

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

J-2

EX-10.56

Exhibit 10.56

CONFIDENTIAL TREATMENT

FIFTH AMENDMENT TO THE

COMMERCIAL SERVICES AGREEMENT

This Fifth Amendment to the Commercial Services Agreement (this “Fifth Amendment”) is made this 16th day of October, 2009 (the “Amendment Effective Date”), by and between ASTRAZENECA PHARMACEUTICALS LP, a Delaware limited partnership (“AstraZeneca”), and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Cubist”).

WHEREAS, AstraZeneca and Cubist previously entered into that certain Commercial Services Agreement between AstraZeneca and Cubist, dated as of July 1, 2008 (as amended as of February 26, 2009, May 20, 2009, September 30, 2009 and October 15, 2009, the “Agreement”); and

WHEREAS, AstraZeneca and Cubist desire to amend certain provisions of the Agreement relating to the CSD Activities and to amend certain exhibits to the Agreement; and

NOW THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.Requests for Medical Information.  The Agreement is hereby amended so that Section 3.8(a) is deleted in its entirety and replaced with the following:

“Notwithstanding anything in this Agreement or the Business Policies to the contrary, no Program Employee may respond to or otherwise communicate with any Target Prescriber or other Third Party with respect to any Off-Label Information []*.”

2.Specific Cubist Business Policies.  Exhibit B-1 to the Agreement is hereby amended to add the following standard business procedure and coaching sheet:

[]*

3.CSD Activities.  Exhibit C to the Agreement is hereby amended so that the following language is added after the last sentence of Section 2 (“[]*”):

“[]*.”

4.Definitions.  All terms used, but not defined, in this Fifth Amendment shall have the respective meanings set forth in the Agreement.

5.Construction.  The principles set forth in Section 1.2 of the Agreement shall apply to this Fifth Amendment.

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

6.Effective Date; Incorporation of Terms; Continuing Effect.  This Fifth Amendment shall be deemed effective for all purposes as of the Amendment Effective Date.  The amendment set forth in this Fifth Amendment shall be deemed to be incorporated in, and made a part of, the Agreement, and the Agreement and this Fifth Amendment shall be read, taken and construed as one and the same agreement (including with respect to the provisions set forth in Article XVI (Miscellaneous) of the Agreement which shall, as applicable, be deemed to apply to this Fifth Amendment (including with respect to the governing law)).  Except as otherwise expressly amended by this Fifth Amendment, the Agreement shall remain in full force and effect in accordance with its terms and conditions.

7.Counterparts.  This Fifth Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[The remainder of this page has been intentionally left blank.]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

IN WITNESS WHEREOF, the parties, intending to be bound, have caused this Fifth Amendment to be executed on their behalf by their duly authorized agent as of the day and year first above written.

ASTRAZENECA PHARMACEUTICALS LP		CUBIST PHARMACEUTICALS, INC.
By:	/s/ Marion E. McCourt	By:	/s/ Michael Bonney
Name:	Marion E. McCourt	Name:	Michael Bonney
Title:	Vice President, Cornerstone	Title:	President and CEO

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

EX-10.57

Exhibit 10.57

CONFIDENTIAL TREATMENT

FIRST AMENDMENT TO

LICENSE AND COLLABORATION AGREEMENT

This First Amendment to License and Collaboration Agreement (this “Amendment”) is entered into as of November 2, 2009 (the “Amendment Effective Date”), by and between Alnylam Pharmaceuticals, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal office at 300 Third Street, Cambridge, Massachusetts 02142 (“Alnylam”), and Cubist Pharmaceuticals, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal office at 65 Hayden Avenue, Lexington, Massachusetts 02421 (“Cubist”).  Capitalized terms used, but not defined herein, shall have the meanings ascribed to such terms in the License and Collaboration Agreement (the “Agreement”) entered into as of the 9th day of January, 2009 (the “Agreement Effective Date”), by and between Alnylam and Cubist.

INTRODUCTION

WHEREAS, on the Agreement Effective Date, Alnylam and Cubist entered into the Agreement pursuant to which, inter alia, the Parties agreed to collaborate in the Development of RNAi Products targeting RSV, including the candidate RNAi Product known as ALN-RSV01;

WHEREAS, the JSC has designated a second candidate RNAi Product as ALN-RSV02 and the Parties have completed certain Development activities with respect to ALN-RSV01 and ALN-RSV02;

WHEREAS, the Parties now desire to focus their collaborative Development efforts on ALN-RSV02;

WHEREAS, Alnylam desires to continue the Development of ALN-RSV01 as an RNAi Product targeting RSV in adult lung transplant patients; and

WHEREAS, Cubist desires to grant Alnylam certain rights to continue the Development of ALN-RSV01 on the terms and conditions set forth in this Amendment.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:

1.             (a)  New Definitions.  Article I of the Agreement is amended by adding the following section as Section 1.113 thereto:

“Section 1.113  Amendment Definitions.  As used in this Agreement, each of the following additional terms shall have the meanings set forth below:

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

“Adult Transplant Field”.  Adult Transplant Field means the treatment or prophylaxis of RSV infection in human transplant patients eighteen (18) years old or greater.

“ALN-RSV01 Development Costs”.  ALN-RSV01 Development Costs means Development Costs []* Development of ALN-RSV01 in the Adult Transplant Field and shall not include any costs shared by the Parties under the Development Plan.  For purposes of clarity, costs up to a limit of []* associated with []*, to the extent incurred under the direction of the JSC, shall be costs shared by the Parties under the Development Plan and shall not be ALN-RSV01 Development Costs for purposes hereof.

“ALN-RSV01 Failure”.  ALN-RSV01 Failure means the earlier to occur of: (i) []*.

“ALN-RSV01 Phase IIb Clinical Study”.  ALN-RSV01 Phase IIb Clinical Study means a Phase II Clinical Study of ALN-RSV01 conducted by Alnylam, as described in Exhibit J.

“Amendment Effective Date”.  Amendment Effective Date means November 2, 2009.

“Interim Period”.  Interim Period means the period beginning on the Amendment Effective Date and continuing until the earliest of (a) Cubist’s exercise of its Opt-in Right pursuant to Section 4A.2(a), (b) the end of the Opt-in Period after Cubist’s receipt of a Study Completion Package, or (c) an ALN-RSV01 Failure.”

“Opt-in Fee”.  Opt-in Fee means, subject to the terms of Section 4A.2(a), the following:  If Alnylam has met the Success Criteria specified under clause (a) of Part B of Exhibit K, but not the Success Criteria specified under clause (b) of Part B of Exhibit K, the Opt-in Fee will mean []* percent ([]*%) of the ALN-RSV01 Development Costs incurred by Alnylam, payable in accordance with Section 4A.2(a), for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period.  If Alnylam has met the Success Criteria specified under clause (b) of Part B of Exhibit K, the Opt-in Fee will mean []* percent ([]*%) of the ALN-RSV01 Development Costs incurred by Alnylam, payable in accordance with Section 4A.2(a), for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period.

“Opt-in Right”.  Opt-in Right shall have the meaning set forth in Section 4A.2(a) of this Agreement.

“Opt-in Period”.  Opt-in Period shall have the meaning set forth in Section 4A.2(a) of this Agreement.

“Study Completion Package”.  Study Completion Package means a data package meeting the requirements set forth in Part A of Exhibit K.

“Success Criteria” shall have the meaning set forth in Part B of Exhibit K.

“Success Statement” means a written statement by Alnylam that the Success Criteria have been met.”“

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

(b)           Definition of RSV01 Product.  Section 1.101 is amended in its entirety to be and read as follows:

“Section 1.101 “RSV01 Product.”  RSV01 Product means any product containing as its sole active ingredient Alnylam’s proprietary composition known as ALN-RSV01.  ALN-RSV01 is described on Exhibit B.”

2.             Development of ALN-RSV01 by Alnylam; Cubist Opt-In Right. The following provisions are added as new Article IVA of the Agreement, immediately prior to Article 5 of the Agreement:

“ARTICLE IVA

DEVELOPMENT OF ALN-RSV01 BY ALNYLAM; CUBIST OPT-IN RIGHT

Section 4A.1         Interim Period Activities.  The Parties agree that, notwithstanding anything to the contrary in the Agreement, the following rights and obligations shall apply during the Interim Period:

(a)           Cubist shall not conduct Development of ALN-RSV01.

(b)           Subject to paragraph (c), the JSC shall have no authority with respect to ALN-RSV01, and Alnylam’s Development of ALN-RSV01 shall not be subject to the Development Plan or any related budget.

(c)           Alnylam may conduct, and shall have sole decision-making authority with respect to, any Development activities with respect to ALN-RSV01, in Alnylam’s discretion and at Alnylam’s sole expense, without input from the JSC or Cubist; provided, however, that:

(i) Alnylam’s rights to Develop ALN-RSV01 will be limited to the Adult Transplant Field;

(ii) Alnylam shall provide to the JSC copies of draft and final protocols for any clinical study to be conducted with ALN-RSV01, including, but not limited to, the protocol for the ALN-RSV01 Phase IIb Clinical Study.  Alnylam will provide drafts of such protocols at least []* days prior to initiation of the applicable clinical trial, and shall consider in good faith the JSC’s comments, []*;

(iii) Alnylam will provide the JSC with updates at quarterly JSC meetings regarding Alnylam’s Development activities with respect to ALN-RSV01;

(iv) Alnylam shall share with the JSC all data and know-how related to the Development of ALN-RSV01 as if such activities had been conducted under the Development Plan; and

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

(v) Alnylam will not Develop ALN-RSV01 in such a way []*; provided, however, that nothing contained in the concept sheet attached hereto as Exhibit J []* Cubist’s Development or potential Commercialization of ALN-RSV02;

provided further, however, that Alnylam shall not have any obligation to conduct any Development activities with respect to ALN-RSV01 and may discontinue any and all such Development at any time in Alnylam’s sole discretion.

In the event the Parties disagree as to whether Alnylam’s Development of ALN-RSV01 []*, the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within []* days.  Alnylam shall not proceed with further clinical Development of ALN-RSV01 until such matter has been resolved.

(d)           The licenses granted to Cubist under Section 3.1 shall continue to apply to ALN-RSV01 as a Licensed Product and the Adult Transplant Field as part of Field, provided, that Cubist shall not exercise any rights under the license granted to Cubist pursuant to Section 3.1 with respect to RSV01 Products, and Cubist shall not, during the Interim Period, sublicense any rights thereunder, nor shall Cubist grant any rights to, or enter any agreement with, any Third Party for the sale of any RSV01 Product.

(e)           Neither Cubist nor any of its Affiliates shall, directly or indirectly, []* or grant rights to a Third Party to do any of the foregoing, except that Cubist and the Affiliates shall be permitted to []*, and to allow Third Parties to []* under this Agreement to the extent that,  []*, subject to the resolution of any disagreement that the Parties may have regarding such opinion as set forth in the final sentence of this Section 4A.1(e), or, []*, and further provided that Cubist and its Affiliates do not, during the Interim Period, []* or []* or grant a Third Party the right to do so.  In the event the Parties disagree as to whether Cubist’s []* that the []*, the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within []* days.

(f)            Without limiting the scope of any other limitation under the Agreement, neither Alnylam nor any of its Affiliates shall, directly or indirectly, Develop, Manufacture or Commercialize ALN-RSV01 or any RSV01 Product for use in any indication other than in the Adult Transplant Field anywhere in the Territory or grant rights to a Third Party to do any of the foregoing.

(g)           The provisions of Sections 4.4 and 4.5 shall remain in effect with respect to any Development Costs incurred with respect to ALN-RSV01 on or before the Amendment Effective Date. The provisions of []* shall not apply to ALN-RSV01 unless and until []*, then upon such exercise by Cubist of its Opt-in Right, the Parties shall []* and the Parties hereby waive any failure to comply with []* prior to such time.

(h)           Alnylam shall have the right to incur ALN-RSV01 Development Costs in its sole discretion (and, notwithstanding the definition of Development Costs, without any requirement that such costs be incurred in accordance with the Development Plan or any related

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

4

budget); provided that, except for any reimbursement of ALN-RSV01 Development Costs that Alnylam may receive from Cubist through Cubist’s payment to Alnylam of the Opt-in Fee if Cubist exercises its Opt-in Right pursuant to Section 4A.2(a), Alnylam shall be solely responsible for such Development Costs.

(i)            Cubist shall not be responsible for ALN-RSV01 Development Costs incurred by Alnylam during the Interim Period unless Cubist exercises its Opt-in Right pursuant to Section 4A.2(a), in which case Cubist shall reimburse Alnylam for a portion of the ALN-RSV01 Development Costs incurred by Alnylam during the Interim Period through Cubist’s payment to Alnylam of the applicable Opt-in Fee.

(j)            Section 10.11(b) shall be modified to add a clause (iv) to read in its entirety as follows:  “(iv) the Development, Manufacture, Commercialization or use of ALN-RSV01 or RSV01 Products by Alnylam or any of its Related Parties during the Interim Period.”

(k)           Section 10.11(c)(ii) shall be modified to add the following after the word “Asia”:  “or of ALN-RSV01 or RSV01 Products during the Interim Period.”

Section 4A.2         Opt-In Right.

(a)           Following completion of the ALN-RSV01 Phase IIb Clinical Study (if Alnylam elects to conduct such study), if the results of such study meet the Success Criteria (as defined in Exhibit K), Alnylam shall promptly prepare and provide to Cubist the Study Completion Package, including the applicable Success Statement.  Alnylam shall also provide Cubist with the opportunity to discuss the information contained in the Study Completion Package with Alnylam in a face-to-face meeting to occur within []* of the written request of Cubist, which such request shall be delivered to Alnylam no later than []* after receipt of the Study Completion Package.  Cubist may elect to resume its participation in the Development of ALN-RSV01 (the “Opt-in Right”), by delivering written notice of Cubist’s exercise of such right to Alnylam and paying to Alnylam the applicable Opt-in Fee (or portion thereof)  within []* after Cubist’s receipt of the Study Completion Package (the “Opt-in Period”).  Except as otherwise set forth in this paragraph, the payment of the Opt-in Fee shall be made as follows: (1) an initial payment equal to []* of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period and (2) a subsequent payment, to be made in amount equal to (x) []* of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period, if []*, or (y) []* of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period if []*; provided, however, if the terms set forth in clauses (x) and (y) are not met, then no subsequent payment shall be due by Cubist with respect to the Opt-in Fee.  In addition, Cubist may, at its election, exercise its Opt-In Right at any time prior to the submission of a Study Completion Package by Alnylam.  In the event that Cubist exercises its Opt-in Right prior to receipt of the Study Completion Package, the Opt-in Fee will be equal to []* of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period; and Cubist will pay an additional Opt-in Fee of []* of

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

5

the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period if, []*.

(b)           Following completion of the ALN-RSV01 Phase IIb Clinical Study (if Alnylam elects to conduct such study), if the results of such study do not meet the Success Criteria (as defined in either clause (a) or clause (b) of Part B of Exhibit K) and Alnylam is not able to make a Success Statement, then, subject to Section 4A.5, the Interim Period shall continue and Alnylam shall have the right, but not the obligation, to conduct additional Development of ALN-RSV01 until such time, if any, as Alnylam is able to provide to Cubist a Study Completion Package that includes a Success Statement.

Section 4A.3         Effect of Opt-In.  Following Alnylam’s receipt of Cubist’s notice of exercise of its Opt-in Right pursuant to Section 4A.2(a), the Interim Period shall expire and the Agreement shall again apply in full to the Development, Manufacture and Commercialization of ALN-RSV01 and RSV01 Products; provided, however, that the Parties agree that in such circumstances, the milestone payments to be paid by Cubist with respect to the Development of ALN-RSV01 solely in the Adult Transplant Field in accordance with Sections 4.7 and 7.2 will be []* of those set forth in Section 4.7(a)(vi) or Section 7.2, as the case may be.

Following such exercise by Cubist of its Opt-in Right, the final sentence of Section 4.7(a)(vi) shall be deleted and the following shall be inserted in its place:

“The milestone payments set forth in this Section 4.7(a)(vi) shall be paid only once, upon the first achievement of the applicable milestone event by the first Licensed Product to achieve such milestone event; provided that if any such milestone event is first achieved by an RSV01 Product solely in the Adult Transplant Field following an exercise by Cubist of its Opt-in Right such that, in accordance with Section 4A.3, Cubist pays only []* of the amount set forth in the table above in connection with the achievement of such milestone, then an additional []* of such milestone amount shall be paid by Cubist if such milestone event is subsequently achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field.  For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of []* of the applicable amount set forth in the table above with respect to achievement(s) of the corresponding milestone amount.  Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

Following such exercise by Cubist of its Opt-in Right, the final sentence of Section 7.2 shall be deleted and the following shall be inserted in its place:

“The milestone payments set forth in this Section 7.2 shall be paid only once, upon the first achievement of the applicable milestone event by the first Licensed Product to achieve such milestone event; provided that if any such milestone event is first achieved by an RSV01 Product solely in the Adult Transplant Field following an exercise by Cubist of its Opt-in Right such that, in accordance with Section 4A.3, Cubist pays only []* of the amount set forth in the table above in connection with the achievement of such

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

6

milestone, then an additional []* of such milestone amount shall be paid by Cubist if such milestone event is subsequently achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field.  For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of []* of the applicable amount set forth in the table above with respect to achievement(s) of the corresponding milestone amount. Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

Section 4A.4         Failure to Opt-In.  If Alnylam provides a complete Study Completion Package under Section 4A.2(a) and has complied with the terms of this Article IVA, and Cubist does not exercise its Opt-in Right pursuant to Section 4A.2(a) within the Opt-in Period, then Cubist’s Opt-in Right pursuant to Section 4A.2(a) and the Interim Period shall both expire and the Parties’ respective rights and obligations with respect to ALN-RSV01 and RSV01 Products shall be modified as follows, subject to Section 4A.5:

(a)           RSV01 Products shall cease to be Licensed Products and, for the avoidance of doubt, Cubist’s licenses pursuant to Section 3.1 shall terminate with respect to RSV01 Products;

(b)           The definition of “Field” set forth in Section 1.46 shall be amended and restated in its entirety to read as follows:

“Section 1.46         “Field”.  Field means the treatment or prophylaxis of diseases in humans, but excluding []*.”

(c)           Neither Cubist nor any of its Affiliates shall, directly or indirectly, []* or grant rights to a Third Party to do any of the foregoing, except that Cubist and the Affiliates shall be permitted to []*, and to allow Third Parties to []* under this Agreement to the extent that,  []*, subject to the resolution of any disagreement that the Parties may have regarding such []* as set forth in the final sentence of this Section 4A.4(c), or, if []*, and further provided that Cubist and its Affiliates do not, following the failure of Cubist to exercise its Opt-in Right during the Opt-in Period, []* or grant a Third Party the right to do so.  In the event the Parties disagree as to whether Cubist’s []* that the []* of a []*, the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within []*.

(d)           Neither Alnylam nor its Affiliates shall, directly or indirectly develop, manufacture, or commercialize ALN-RSV01 or any RSV01 Product in any other indication other than in the Adult Transplant Field or grant rights to a Third Party to do any of the foregoing.  The limitations under the preceding sentence shall be deemed to prevent Alnylam or any of its Affiliates from publishing, presenting or discussing in any context use of ALN-RSV01 or RSV01 Products outside the Adult Transplant Field and from allowing a Third Party to do any of the foregoing; provided, however, that Alnylam and its Affiliates may publish the results of clinical trials of ALN-RSV01 in the Adult Transplant Field without limitation provided that Alnylam provide a draft of such publication to Cubist for informational purposes at least []*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

7

prior to dissemination.  Cubist and its Affiliates, on the one hand, and Alnylam and its Affiliates, on the other hand, shall []*.

(e)           RSV01 Products that are made, used, offered for sale, sold or imported for the Adult Transplant Field by Alnylam or any of its Affiliates or any Third Party to which Alnylam or any of its Affiliates grants rights shall be deemed not to be Directly Competitive Products except to the extent that Alnylam and its Affiliates and such Third Parties fail to be in compliance with paragraph (d) and, for the avoidance of doubt, the restrictions set forth in Section 10.1 shall not apply with respect to such RSV01 Products that are made, used, offered for sale, sold or imported for the Adult Transplant Field except to the extent that Alnylam and its Affiliates and such Third Parties fail to be in compliance with paragraph (d).

(f)            []* ALN-RSV01 or RSV01 Products, provided that:

(i) Alnylam shall share information and data with respect to worldwide development, manufacture and commercialization of ALN-RSV01 and RSV01 Products with Cubist and the JSC to the same extent as []*;

(ii) Alnylam shall provide to the JSC copies of draft and final protocols for any clinical study to be conducted with ALN-RSV01, and shall consider in good faith the JSC’s comments. Alnylam will provide drafts of such protocols at least []* prior to initiation of the applicable clinical trial, and shall consider in good faith the JSC’s comments;

(iii) Alnylam will provide the JSC with updates at quarterly JSC meetings regarding Alnylam’s Development, manufacturing and Commercialization activities with respect to ALN-RSV01; and

(iv) Alnylam will not Develop ALN-RSV01 in such a way []* Cubist’s Development or potential Commercialization of ALN-RSV02; provided, however, that nothing contained in the protocol attached hereto as Exhibit J []* Cubist’s Development or potential Commercialization of ALN-RSV02. In the event the Parties disagree as to whether Alnylam’s Development of ALN-RSV01 []* Cubist’s Development or potential Commercialization of ALN-RSV02, the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within []* days. Alnylam shall not proceed with further clinical Development of ALN-RSV01 until such matter has been resolved.

(g)           Cubist shall not be responsible for Development Costs incurred by Alnylam for the Development of ALN-RSV01 or RSV01 Products following the Interim Period.

(h)           Cubist shall, at Alnylam’s cost,  as promptly as practicable, transfer to Alnylam or Alnylam’s designee:  (i) possession and ownership of []* the Development or Manufacture of RSV01 Products and (ii) copies of []* the Development or Manufacture of RSV01 Products, including all []* RSV01 Products []*, in each case as requested by Alnylam and to the extent not

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

8

originally obtained by Cubist from Alnylam, and provided Cubist may maintain copies of each such document transferred to Alnylam under this Section.

(i)            Cubist shall, at Alnylam’s cost, execute all documents and take all such further actions as may be reasonably requested by Alnylam in order to give effect to the foregoing clauses (a) through (h) as soon as practicable.

Section 4A.5         Delays in Development and ALN-RSV01 Failure.

(a) If (x) Alnylam issues a Success Statement, (y) Cubist has not exercised its Opt-in Right and (z) Alnylam fails to either (i) []* or (ii) []*, as indicated in such Success Statement, then Alnylam shall provide Cubist with another Study Completion Package []*, and Cubist shall have the right to exercise its Opt-in Right at such time in accordance with the terms hereof; provided, however, that Alnylam may have []*.  In the event an ALN-RSV01 Failure occurs, then, if Cubist has not previously exercised its Opt-In Right, this Article 4A shall no longer have any force or effect and the Agreement shall again apply in full to the Development, Manufacture and Commercialization of ALN-RSV01 and RSV01 Products in the Field as defined on the Effective Date.

(b) The Parties agree that in the event that there is an ALN-RSV01 Failure in accordance with Section 4A.5(a), then the milestone payments to be paid by Cubist with respect to the Development of ALN-RSV01 solely in the Adult Transplant Field in accordance with Sections 4.7 and 7.2 will be []* of those set forth in Section 4.7(a)(vi) or Section 7.2, as the case may be.

Following such exercise by Cubist of its Opt-in Right, the final sentence of Section 4.7(a)(vi) shall be deleted and the following shall be inserted in its place:

“The milestone payments set forth in this Section 4.7(a)(vi) shall be paid only once, upon the first achievement of the applicable milestone event by the first Licensed Product to achieve such milestone event; provided that if any such milestone event is first achieved by an RSV01 Product solely in the Adult Transplant Field such that, in accordance with Section 4A.5(b), Cubist pays only []* of the amount set forth in the table above in connection with the achievement of such milestone, then an additional []* of such milestone amount shall be paid by Cubist if such milestone event is subsequently achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field.  For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of []* of the applicable amount set forth in the table above with respect to achievement(s) of the corresponding milestone amount.  Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

Following an ALN-RSV01 Failure, as described under Section 4.A.5(a), the final sentence of Section 7.2 shall be deleted and the following shall be inserted in its place:

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

9

“The milestone payments set forth in this Section 7.2 shall be paid only once, upon the first achievement of the applicable milestone event by the first Licensed Product to achieve such milestone event; provided that if any such milestone event is first achieved by an RSV01 Product solely in the Adult Transplant Field such that, in accordance with Section 4A.5(b), Cubist pays only []* of the amount set forth in the table above in connection with the achievement of such milestone, then an additional []* of such milestone amount shall be paid by Cubist if such milestone event is subsequently achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field .  For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of []* of the applicable amount set forth in the table above with respect to achievement(s) of the corresponding milestone amount. Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

4A.6  Cubist shall, at Alnylam’s request, grant to Alnylam a fully paid-up, non-royalty-bearing, perpetual, worldwide, exclusive right and license, with the right to grant sublicenses, under the Cubist Collaboration IP, to make, have made, use, offer for sale, sell and import RSV01 Products in the Adult Transplant Field.  If Alnylam elects to receive such license, (a) Alnylam will pay to Cubist a royalty on Net Sales of such products (such definition modified accordingly for this purpose) in the amount of []* of the royalty rate that would apply to a product for which Cubist’s termination takes effect after the First Opt-Out Milestone but prior to the Second Opt-Out Milestone in Section 11.4(d) (i.e., the first column of the table in Section 11.4(d)), and (b) the provisions of Sections 11(e) shall apply; provided, however, that the royalty payable to Cubist in respect of such license shall never be []* as a result of the grant of such license to Alnylam and Alnylam’s exercise of the rights thereunder.

3.             New Exhibits.  Exhibit J and Exhibit K attached to this Amendment are hereby appended to the Agreement immediately following Exhibit I to the Agreement.

4.             Miscellaneous.  The Parties hereby confirm and agree that, as amended hereby, the Agreement remains in full force and effect and is a binding obligation of the Parties hereto.  This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

[Remainder of page intentionally left blank]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

10

IN WITNESS WHEREOF, Alnylam and Cubist have caused this Agreement to be duly executed by their authorized representatives under seal, in duplicate on the dates written herein below.

ALNYLAM PHARMACEUTICALS, INC.
By:	/s/ John Maraganore
Title:	Chief Executive Officer
Date:	November 2, 2009
CUBIST PHARMACEUTICALS, INC.
By:	/s/ Steven Gilman
Title:	Chief Scientific Officer, Senior Vice President, Discovery and Non-Clinical Development
Date:	November 2, 2009

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

11

EXHIBIT J

ALN-RSV01 Phase IIb Clinical Study

ALN-RSV01-109 PROTOCOL SYNOPSIS

Protocol Title:	[]* in lung transplant patients infected with respiratory syncytial virus (RSV)
Indication:	Lung transplant patients with RSV infection
Protocol Number:	ALN-RSV01-109
Phase of Development:	Phase 2b
Design:	[]*
Study Sites:	[]*
Investigational Drug:	ALN-RSV01
Dosage, Route of Administration and Duration of Treatment of Investigational Drug:	[]*
Control Drug:	[]*
Dosage, Route of Administration and Duration of Treatment of Control Drug:	[]*
Time on Study:	[]*
Primary Objective:	[]*
Secondary Objectives:	[]*
Sample Size:	Up to 76 lung transplant patients infected with RSV.
Key Inclusion Criteria:	[]*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

ALN-RSV01
ALN-RSV01-109 Protocol Concept Sheet

Key Exclusion Criteria:	[]*
Safety Assessments:	[]*
Efficacy Assessments:	[]*
Resistance Monitoring	[]*
Committees for BOS Adjudication and Virologic Monitoring	[]*
Study Endpoints:	[]*
Statistical Methodology:	[]*

23 September 2009 Confidential

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

ALN-RSV01
ALN-RSV01-109

[]*

23 September 2009 Confidential

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

EXHIBIT K

A.            Study Completion Package

The Study Completion Package shall be comprised of the following:  []*

B.            Success Criteria

The Success Criteria will be deemed to have been met if the results of the ALN-RSV01 Phase IIb Clinical Trial achieve the following:

[]*

23 September 2009 Confidential

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

EX-10.58

Exhibit 10.58

CONFIDENTIAL TREATMENT

AMENDMENT NO. 5

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. 5 (“Amendment No. 5”), to that certain Manufacturing and Supply Agreement (as amended to date pursuant to Amendments Nos. 1, 2, 3 and 4, the “Agreement”) entered into as of September 30, 2001, is made this 17th day of November, 2009 (“Amendment No. 5 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. 5, including definitions in the preamble and recitals hereto.

WHEREAS, Cubist and ACSD desire to amend the Agreement as set forth in this Amendment No. 5;

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 3.3.  The Agreement is hereby amended by deleting the text of Section 3.3 thereof in its entirety and replacing it with the following text:

(a) Capacity Improvements. ACSD and Cubist have agreed on the project plan attached hereto at Exhibit G for the process and associated plant improvements to the Facility that are intended to increase the capacity of the Facility to produce Product (the “Capacity Improvements”).  The Parties shall work together diligently to implement the Capacity Improvements as rapidly as reasonably possible after the Amendment No. 5 Effective Date.  Cubist shall be responsible for the agreed-upon []* necessary to []* the Capacity Improvements; provided that, ACSD shall be prohibited from using such capital equipment for any other activities other than activities in support of Cubist, and such prohibition shall survive the expiration or termination of this Agreement.  ACSD shall purchase the capital equipment, and Cubist shall issue a purchase order to ACSD for capital expenditure contribution for []*.  ACSD shall be responsible for all other ACSD costs related to the Capacity Improvements, including without limitation the costs of []*.

(b) Additional Improvements.  Cubist and ACSD shall each have the right to propose additional process and associated plant improvements for the production of Product to be implemented at the Facility that are intended to improve the quality of, and the efficiency of the process for producing, Product (“Additional Improvements”); provided that, Cubist shall have final decision-making authority on what Additional Improvements are implemented.  ACSD shall agree to all reasonable Additional Improvement proposals by Cubist and shall implement the Additional Improvements as rapidly as possible; provided that, both Cubist and ACSD agree that

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

it is possible for the Additional Improvement to achieve regulatory approval, if necessary, and that Cubist and ACSD agree to a project implementation plan for such Additional Improvement. A failure by ACSD to agree to a reasonable Additional Improvement in accordance with all Italian regulations and law or to implement such Additional Improvement as rapidly as possible shall constitute a breach by ACSD of a material obligation under Section 12.2(a)(i) of this Agreement if the delay or the failure will cause relevant damage to Cubist.  Cubist shall be responsible for the agreed-upon []* necessary to []* the Additional Improvements; provided that, ACSD shall be prohibited from using such capital for any other activities other than activities in support of Cubist, and such prohibition shall survive the expiration or termination of this Agreement.  ACSD shall be responsible for all other ACSD costs related to the Additional Improvements, including without limitation the costs of []*.  ACSD shall not implement any process improvements for the production of Product on its own without the express prior written consent of Cubist.

2. Amendment of Section 5.1.  The Agreement is hereby amended by deleting the text of Section 5.1 thereof in its entirety and replacing it with the following:

Provided that ACSD maintains the staff appropriate to operate the Facility in order to satisfy Cubist’s purchase orders, including, but not limited to, at least []* full time employees (“FTEs”) dedicated to the manufacture and supply of Product to Cubist hereunder consistent with the organizational chart and parameters set forth in Exhibit F, Cubist shall order from ACSD at least []* percent ([]*%) of Cubist’s requirements of Product each calendar year during the Term; provided that, ACSD is fully committed to supply 100% of Cubist’s requirements.

3. Amendments of Section 5.6.  The Agreement is hereby amended by inserting the following two sentences at the beginning of Section 5.6(a) thereof:

ACSD shall be obligated to accept Cubist Purchase Forecasts and purchase orders for each calendar year up to the anticipated annual capacity of the Facility. A failure by ACSD to so accept a Cubist Purchase Forecast or purchase order shall constitute a breach by ACSD of a material obligation under Section 12.2(a)(i) of the Agreement.

The Agreement is hereby further amended by adding the following subsection (d) at the end of Section 5.6 of the Agreement:

(d) If ACSD fails to deliver any Product ordered by Cubist in any calendar year in accordance with Sections 5.1, 5.3 and 5.4 hereof, Cubist, at its sole discretion, may add the amount of the shortfall to the Product that it intends to order for the following calendar year, and the price that Cubist shall pay for Product the following year shall be the price pursuant to Section 6.1 based on the total volume ordered for that year, including the shortfall from the previous year. For the avoidance of doubt, Cubist shall pay for Product delivered in the calendar year in which the shortfall occurred using the price pursuant to Section 6.1 for the amount of Product ordered in such year, not the amount actually delivered.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

4. Amendment of Section 6.1.  The Agreement is hereby amended by deleting Section 6.1 thereof in its entirety and replacing it with the following Section 6.1:

6.1Product Price

Provided that ACSD maintains the staff appropriate to operate the Facility in order to satisfy Cubist’s purchase orders, including, but not limited to, at least []* FTEs dedicated to the manufacture and supply of Product to Cubist hereunder consistent with the organizational chart and parameters set forth in Exhibit F, Cubist shall pay the following amounts for Product hereunder:

(a) For all Product ordered by Cubist for delivery in 2009, Cubist shall pay to ACSD USD $[]* per kilogram.

(b) For all Product ordered by Cubist for delivery on or after January 1, 2010 and until implementation and validation of the first Additional Improvement, Cubist shall pay for Product in Euros according to the Product Price Schedule attached hereto at Exhibit H.

(c) In connection with the implementation of any Additional Improvement, Cubist and ACSD shall agree on a new Product Price Schedule, which shall be appended to the Agreement in replacement of the Product Price Schedule attached hereto at Exhibit H.  The prices on the new Product Price Schedule will be calculated []*, such calculation to be based on []*. The prices on the new Product Price Schedule will reflect []*.  For the avoidance of doubt, the prices on the new Product Price Schedule shall in no instance be higher than the prices on the Product Price Schedule attached at Exhibit H hereto.

(d) The appropriate price from the Product Price Schedule (including any new Product Price Schedule) shall be determined using the number of kgs of Product forecast by Cubist to be delivered during the relevant calendar year in accordance with Section 5.3.  At the end of each calendar year, if the actual number of kgs of Product ordered to be delivered during such calendar year would cause the price per kg according to the Product Price Schedule to be different than previously paid by Cubist, then, no later than March 31st of the following calendar year, Cubist shall pay to ACSD the additional amount if Cubist paid too little; or ACSD shall pay to Cubist the amount Cubist overpaid if Cubist paid too much.

5. Amendment of Section 6.2.  The Agreement is hereby amended by deleting the text of Section 6.2 thereof in its entirety and replacing it with, “[Reserved].”

6. Addition of Exhibits.  The Agreement is hereby amended by adding as exhibits thereto Exhibit G and Exhibit H attached hereto.

7. 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 considered Confidential Information of Cubist, as defined in the Agreement. The Agreement and this Amendment No. 5 shall be read and construed together as a single agreement and the term “Agreement” shall be deemed a reference to the Agreement as amended by this Amendment No. 5.  This Amendment No. 5 may be signed in any number of counterparts, each of which shall be deemed to be an original and all of

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

which together shall constitute but one and the same instrument.  In making proof of this Amendment No. 5 it shall not be necessary to produce or account for more than one such counterpart.

IN WITNESS WHEREOF, this Amendment No. 5 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/ Falciani Marco
Name: Falciani Marco
Title: President
Date: November 17, 2009
CUBIST PHARMACEUTICALS, INC.
By:	/s/ Lindon M. Fellows
Name: Lindon M. Fellows
Title: SVP, Technical Operations
Date: 17 November 2009

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

4

EXHIBIT G

ACSD Capacity Expansion Plan

[attached]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

ACSD Capacity Expansion Plan

November 11th, 2009

Cubist’s production requirements to meet demand are expected to increase to about []* kg annually. In order to meet expected future demand, ACSD and Cubist have agreed to expand the API capacity in Anagni. Cubist will be responsible for the agreed upon []*, and ACSD will be responsible for []* and any other agreed upon costs. ACSD and Cubist personnel will collaborate closely during all phases of the capacity expansion project. Cubist must agree to all significant decisions in writing, including equipment design and specifications, suppliers, key contractors including engineering companies and consultants, building layout, and any changes of the manufacturing process. Cubist shall have final say over any decisions for the project.

The key milestones for the capacity expansion project, and the projected time for completion for each milestone are described below.

Project Milestones

1. Agreement on conceptual design and project approach

· ACSD and Cubist shall agree conceptually to changes of the manufacturing process, and the manufacturing facility, including equipment changes, target date []*

2.  Long-lead-time items

· ACSD and Cubist shall identify long lead time items which are expected to have a delivery time of 4 months or longer, target date []*

· ACSD and Cubist shall agree on suppliers, design, and price of long lead time items, target date []*

· ACSD orders long lead time items, target date []*

· Cubist shall owe ACSD []*% of the total amount invoiced solely for such equipment by the third party vendor(s) to ACSD upon completion of such long lead time equipment orders, []*% upon delivery, and []*% after completion of installation and qualification

· Within 3 business days of the event triggering the payment owed, ACSD shall invoice Cubist for such amounts owed, and shall attach to such invoices copies of any third party invoices upon which ACSD’s invoice is based, and Cubist shall pay such invoice within 30 days of Cubist’s receipt thereof

3. Detailed Project Plan

· ACS and Cubist shall agree upon and sign a detailed project plan, including project scope, project team, equipment list, suppliers for key equipment, facility layout, basic design drawings and project schedule, target date []*

4. Third party contractors, engineering companies, consultants

· ACSD and Cubist shall agree upon third party contractors, engineering companies, and consultants, including scope of external services, documentation standards, price of services, target date []*

5. Detailed design review

· ACSD and Cubist shall agree and sign off on detailed design package, including facility layout, detailed design drawings of buildings, detailed specifications and drawings of new or changed equipment, detailed drawings of piping and instrumentation, description of automation, target date []*

· Cubist shall owe ACSD []*% of ACSD’s external costs invoiced by a third party directly related to completion of the detailed design package upon Cubist’s sign off

· Within 3 business days of Cubist’s sign off, ACSD shall invoice Cubist for such amounts owed, and shall attach to such invoice copies of any third party invoices upon which ACSD’s invoice is based, and Cubist shall pay such invoice within 30 days of Cubist’s receipt thereof

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

6. Process Equipment (other than long lead time items)

· ACSD and Cubist shall agree on suppliers, design, and price of all equipment, target date []*

· Cubist shall owe ACSD []*% of the total amount invoiced solely for such equipment by the third party vendor(s) to ACSD upon completion of such other equipment orders, []*% upon delivery, and []*% after completion of installation and qualification of all other equipment

· Within 3 business days of the event triggering the payment owed, ACSD shall invoice Cubist for such amounts owed, and shall attach to such invoices copies of the third party invoices upon which ACSD’s invoice is based, and Cubist shall pay such invoice within 30 days of Cubist’s receipt thereof

7. Process materials, i.e. resins

· ACSD and Cubist shall agree on suppliers, design, price, and the distribution of costs for process materials between ACSD and Cubist, target date []*

· Cubist shall owe ACSD []*% of the agreed upon Cubist share of the total amount invoiced solely for such process materials by the third party vendor(s) to ACSD upon completion of all process material orders, []*% upon delivery, and []*% after completion of installation and qualification of the process materials

· Within 3 business days of the event triggering the payment owed, ACSD shall invoice Cubist for such amounts owed, and shall attach to such invoices copies of any third party invoices upon which ACSD’s invoice is based, and Cubist shall pay such invoice within 30 days of Cubist’s receipt thereof

8. Utility Infrastructure

· ACSD and Cubist shall agree on changes to utilities and related equipment required to support the capacity expansion project, and the distribution of utility related costs between ACSD and Cubist, target date []*

9. Buildings and building modifications

· ACSD and Cubist shall agree on all building additions and modifications, including buildings design, materials, contractors, and prices, target date []*

· Cubist shall owe ACSD []*% of the total amount invoiced by the third party vendor(s) to ACSD for such agreed upon building additions and modifications after completion of such additions and modifications to Cubist’s satisfaction in accordance with the detailed project plan

10. Process changes and validation

· ACSD and Cubist shall agree on all process changes, including implementation schedules and validations protocols.

11. Final validation of equipment and processes at the increased capacity

· Upon successful completion of the final validation of a process in the modified facility which is capable of producing at an annual capacity of []* kg or higher, such capability determined by the number of kg produced and the time it takes to produce any 3 consecutive batches that are released for commercial use, Cubist shall owe half of the remaining []*% of project costs which Cubist is responsible for according to the agreement of amendment No. 5, this project plan, the detailed project plan referred to above, and any other agreements between ACSD and Cubist.  Within 3 business days of release for commercial use of the third such batch, ACSD shall invoice Cubist for such amounts owed, and shall attach to such invoice copies of any third party invoices upon which ACSD’s invoice is based, and Cubist shall pay such invoice within 30 days of Cubist’s receipt thereof

· Upon successful completion of the final validation of a process in the modified facility which is capable of producing at an annual capacity of []* kg or higher, such capability determined by the number of kg produced and the time it takes to produce any 3 consecutive batches that are released for commercial use, Cubist will pay the  remaining []*% of project costs which Cubist is responsible for according to the agreement of amendment No. 5, this project plan, the detailed project plan referred to above, and any other agreements between ACSD and Cubist.  Within 3 business days of release for commercial use of

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

the third such batch, ACSD shall invoice Cubist for such amounts owed, and shall attach to such invoice copies of any third party invoices upon which ACSD’s invoice is based, and Cubist shall pay such invoice within 30 days of Cubist’s receipt thereof

ACSD shall pay all third party vendors on a timely basis and shall use best efforts to ensure delivery and performance by such third party vendors. In addition to Cubist’s right to monitor under the Agreement, Cubist shall have the right to audit all original invoices from any third party vendor(s) and any other documents demonstrating delivery and performance by such third party vendors relating to the project. ACSD shall inform Cubist of any deviations from the agreed upon project plan, including but not limited to project costs and timelines.

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

EXHIBIT H

Product Price Schedule

Kgs Ordered/	Price
Calendar Year	(beginning 2010)
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*
[]*	€	[]	*

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

EX-10.59

Exhibit 10.59

CONFIDENTIAL TREATMENT

SIXTH AMENDMENT TO THE

COMMERCIAL SERVICES AGREEMENT

This Sixth Amendment to the Commercial Services Agreement (this “Sixth Amendment”) is made this 11th day of December, 2009 (the “Amendment Effective Date”), by and between ASTRAZENECA PHARMACEUTICALS LP, a Delaware limited partnership (“AstraZeneca”), and CUBIST PHARMACEUTICALS, INC., a Delaware corporation (“Cubist”).

WHEREAS, AstraZeneca and Cubist previously entered into that certain Commercial Services Agreement between AstraZeneca and Cubist, dated as of July 1, 2008 (as amended as of February 26, 2009, May 20, 2009, September 30, 2009, October 15, 2009 and October 16, 2009, the “Agreement”);

WHEREAS, Section 6.1(a) of the Agreement provides that the []*;

WHEREAS, the parties desire to amend the Agreement to establish []* Sales baselines and a manner of compensating Cubist for its activities under the Agreement for the period from January 1, 2010 through June 30, 2010 (the “Six Month Period”); and

WHEREAS, the parties desire for the Agreement to remain in effect until the end of the Six Month Period (or such alternate period as is mutually agreed by the parties in writing as set forth in this Sixth Amendment).

NOW THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

I.Annual Baseline Sales for the Six Month Period.  Exhibit A of the Agreement is hereby amended so that Annual Baseline Sales for the Six Month Period shall equal []*.  The Quarterly Baseline Sales for each Calendar Quarter therein shall equal []*.  For all purposes under Article 6 of the Agreement, the Six Month Period shall be treated as if it were a Calendar Year.  If the Term ends at the end of the Six Month Period, then the last sentence of Section 6.2(a) shall not apply.

II.Calculation of Annual Amount Due for the Six Month Period.  Exhibit A of the Agreement is hereby amended so that the Annual Amount Due for the Six Month Period shall equal the amount set forth in the chart below, determined based on the level of []* Sales achieved during the Six Month Period.  For clarity, without limiting any of Cubist’s rights under the Agreement (as amended by this Sixth Amendment), the Annual Amount Due calculations otherwise set forth in Exhibit A shall not apply and the maximum compensation due to Cubist under Section 6.2 of the Agreement for its activities during the Six Month Period shall in no event exceed Nine Million U.S. Dollars ($9,000,000).

*Confidential Treatment Requested.  Omitted portions filed with the Securities and Exchange Commission (the “Commission”).

Calculation of Annual Amount Due

for Six Month Period

(All figures in millions)

[]* Sales for Six Month Period	Amount Due
greater than or equal to $[]*	$	9
greater than or equal to $[]* and less than $[]*	$	[]	*
greater than or equal to $[]* and less than $[]*	$	[]	*
greater than or equal to $[]* and less than $[]*	$	[]	*
greater than or equal to $[]* and less than $[]*	$	[]	*
less than $[]*	$	4

III.Calculation of Quarterly Amount Due for the Six Month Period.  Exhibit A is hereby amended so that “Quarterly Amount Due” is defined, solely for purposes of the Calendar Quarters in the Six Month Period, as follows:

“Quarterly Amount Due” means, subject to Section 6.2(a) and (f), (a) for the first Calendar Quarter of Calendar Year 2010, []*, and (b) for the second Calendar Quarter of Calendar Year 2010, []*.  By way of illustration, []* Sales during the Six Month Period are []*, then Cubist shall receive []* for the first Calendar Quarter of 2010, and []* for the second Calendar Quarter of 2010, for a total payment to Cubist equal to []*.  For clarity, the invoicing and timing of the Quarterly Amount Due payments shall be in accordance with Section 6.2(b) of the Agreement.

IV.2009 Significant Market Events.  If Cubist desires an adjustment to Annual Baseline Sales for 2009 pursuant to Section 6.1(b) of the Agreement due to a Significant Market Event, Cubist shall request such adjustment in writing no later than January 31, 2010.  If Cubist so requests an adjustment to Annual Baseline Sales for 2009, then AstraZeneca may terminate the Agreement effective immediately by written notice of termination under this Paragraph IV to Cubist at any time on or after the date of such request, but no later than February 14, 2010.  In the event the Agreement is terminated pursuant to this Paragraph IV, []*.

V.Expiration of Agreement as of June 30, 2010.  Notwithstanding Section 6.1(a) and the fact that the []*, the Agreement shall not terminate pursuant to Section 6.1(a) []*.  Section 15.1 of the Agreement is hereby amended so that the language therein is replaced with the following language:  “The term of this Agreement shall commence on the Effective Date and shall continue through June 30, 2010, unless earlier terminated pursuant to Section 15.2 or any other applicable provision of this Agreement (the “Term”), provided that, beginning no later than []*, 2010, AstraZeneca and Cubist shall negotiate []* the manner in which Cubist is to be compensated for activities to be performed by Cubist during the period from July 1 through December 31, 2010, and if the parties reach agreement on such terms on or prior to May 1, 2010, the Term shall be

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

2

extended until December 31, 2010, unless further extended by mutual written agreement of AstraZeneca and Cubist.”

VI.Reporting and Audit Rights.  In light of the basis for calculating the Annual Amount Due for the Six Month Period, AstraZeneca shall have no obligation to report, and Cubist shall have no right to audit, the []* with respect to the Six Month Period; provided that, for the avoidance of doubt, AstraZeneca shall continue to have the obligation to report, and Cubist shall have the right to audit, the []* amounts and calculations provided by AstraZeneca for such periods.

VII.Definitions.  All terms used, but not defined, in this Sixth Amendment shall have the respective meanings set forth in the Agreement.

VIII.Construction.  The principles set forth in Section 1.2 of the Agreement shall apply to this Sixth Amendment.

IX.Effective Date; Incorporation of Terms; Continuing Effect.  This Sixth Amendment shall be deemed effective for all purposes as of the Amendment Effective Date.  The amendments set forth in this Sixth Amendment shall be deemed to be incorporated in, and made a part of, the Agreement, and the Agreement and this Sixth Amendment shall be read, taken and construed as one and the same agreement (including with respect to the provisions set forth in Article XVI (Miscellaneous) of the Agreement which shall, as applicable, be deemed to apply to this Sixth Amendment (including with respect to the governing law)).  Except as otherwise expressly amended by this Sixth Amendment, the Agreement shall remain in full force and effect in accordance with its terms and conditions.

X.Counterparts.  This Sixth Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[The remainder of this page has been intentionally left blank.]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

3

IN WITNESS WHEREOF, the parties, intending to be bound, have caused this Sixth Amendment to be executed on their behalf by their duly authorized agent as of the Amendment Effective Date.

ASTRAZENECA PHARMACEUTICALS LP		CUBIST PHARMACEUTICALS, INC.
By:	/s/ Rich Fante	By:	/s/ Robert J. Perez
Name:	Rich Fante	Name:	Robert J. Perez
Title:	President	Title:	Chief Operating Officer

[Sixth Amendment Signature Page]

*Confidential Treatment Requested.  Omitted portions filed with the Commission.

4

EX-10.60

Exhibit 10.60

CUBIST PHARMACEUTICALS, INC.

AMENDED AND RESTATED

1997 EMPLOYEE STOCK PURCHASE PLAN

1.Definitions.  As used in this Amended and Restated 1997 Employee Stock Purchase Plan of Cubist Pharmaceuticals, Inc., the following terms shall have the meanings respectively assigned to them below:

(a)Base Compensation means annual or annualized base compensation, exclusive of overtime, bonuses, contributions to employee benefit plans, or other fringe benefits.

(b)Beneficiary means the person designated as the Participating Employee’s beneficiary on the Participating Employee’s Membership Agreement or other form provided by the Human Resources department of the Company for such purpose or, if no such beneficiary is named, the person to whom the Option is transferred by will or under the applicable laws of descent and distribution.

(c)Board means the board of directors of the Company, except that, if and so long as the board of directors of the Company has delegated pursuant to Section 4 its authority with respect to the Plan to the Committee, then all references in this Plan to the Board shall refer to the Committee acting in such capacity.

(d)Code means the Internal Revenue Code of 1986, as amended.

(e)Committee means the Compensation Committee of the Board.

(f)Company means Cubist Pharmaceuticals, Inc., a Delaware corporation.

(g)Disability means, with respect to any Participating Employee, that an independent medical doctor (selected by the Company’s health or disability insurer) certifies that such Participating Employee has for four (4) months, consecutive or non-consecutive, in any twelve-month period been disabled in a manner which seriously interferes with the performance of his or her responsibilities for the Company or applicable Related Corporation.

(h)Eligible Employee means a person who is eligible under the provisions of Section 7 to receive an Option as of a particular Offering Commencement Date.

(i)Employer means, as to any particular Offering Period, the Company and any Related Corporation which is designated by the Board as a corporation whose Eligible Employees are to receive Options as of that Offering Period’s Offering Commencement Date.

(j)Market Value means, as of a particular date (i) if the Stock is listed on an exchange, the closing price of the Stock on such date on such exchange or, if no trades were reported on such date, the closing price on the most recent trading day preceding such date, and (ii) if the Stock is not quoted on an exchange, the price at which the Stock was purchased or sold in the most recent transaction in the Stock.

(k)Membership Agreement means an agreement or other similar electronic or hard copy document or form whereby a Participating Employee authorizes an Employer to withhold payroll deductions from his or her Base Compensation.

(l)Offering Commencement Date means the first business day of an Offering Period on which Options are granted to Eligible Employees.

(m)Offering Period means a semi-annual period, running from either January 1 to the next following June 30 or July 1 to the next following December 31, during which Options will be offered under the Plan pursuant to a

determination by the Board.

(n)Offering Termination Date means the last business day of an Offering Period, on which Options must, if ever, be exercised.

(o)Option means an option to purchase shares of Stock granted under the Plan.

(p)Option Shares means shares of Stock purchasable under an Option.

(q)Participating Employee means an Eligible Employee to whom an Option is granted.

(r)Plan means this Amended and Restated 1997 Employee Stock Purchase Plan of the Company, as amended from time to time.

(s)Related Corporation means any corporation which is or during the term of the Plan becomes a parent corporation of the Company, as defined in Section 424(e) of the Code, or a subsidiary corporation of the Company, as defined in Section 424(f) of the Code.

(t)Retires means termination of employment with the Company and all Related Corporations at or after attaining age 65.

(u)Stock means the common stock, par value $0.001 per share, of the Company.

2.Purpose of the Plan.  The Plan is intended to encourage ownership of Stock by employees of the Company and any Related Corporations and to provide an additional incentive for the employees to promote the success of the business of the Company and any Related Corporations.  It is intended that the Plan shall be an “employee stock purchase plan” within the meaning of Section 423 of the Code.

3.Term of the Plan.  The Plan shall become effective on December 1, 1997 (the “Effective Date”).  No Option shall be granted under the Plan after November 30, 2017.

4.Administration of the Plan.  The Plan shall be administered by the Board.  The Board shall determine semi-annually, on or before either December 15 and June 15, whether to grant options under the Plan with respect to the Offering Period which would otherwise begin as of January 1 and July 1, respectively.  The Board shall determine which (if any) Related Corporations shall be Employers as of each Offering Commencement Date.  Either such determination may in the discretion of the Board apply to all subsequent Offering Periods until modified or revoked by the Board.  The Board shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms of Options granted under the Plan, and to make all other determinations necessary or advisable for the administration of the Plan.  All determinations of the Board under the Plan shall be final and binding as to all persons having or claiming any interest in or arising out of the Plan.  The Board may delegate all or any portion of its authority with respect to the Plan to the Committee, and thereafter, until such delegation is revoked by the Board, all powers under the Plan delegated to the Committee shall be exercised by the Committee.

5.Termination and Amendment of Plan.  The Board may terminate or amend the Plan at any time; provided, however, that the Board may not, without approval by the holders of a majority of the outstanding shares of Stock, increase the maximum number of shares of Stock purchasable under the Plan, change the description of employees or classes of employees eligible to receive Options, or make any other amendment to the Plan that require approval of the holders of the outstanding shares of Stock under applicable law, regulation or standards.  Without limiting the generality of the foregoing but subject to the foregoing proviso, the Board may amend the Plan from time to time to increase or decrease the length of any future Offering Periods (e.g., to a nine month period) and to make all required conforming changes to the Plan; provided, however, that in no event will the Offering Period exceed 27 months.  No termination of or amendment to the Plan may adversely affect the rights of a Participating Employee with respect to any Option held by the Participating Employee as of the date of such termination or amendment without his or her consent.

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6.Shares of Stock Subject to the Plan.  No more than an aggregate of 1,250,000 shares of Stock may be issued or delivered pursuant to the exercise of Options granted under the Plan, subject to adjustments made in accordance with Section 9.7.  Shares of Stock to be delivered upon the exercise of Options may be either shares of Stock which are authorized but unissued or shares of Stock held by the Company in its treasury.  If an Option expires or terminates for any reason without having been exercised in full, the unpurchased shares of Stock subject to the Option shall become available for other Options granted under the Plan.  The Company shall, at all times during which Options are outstanding, reserve and keep available shares of Stock sufficient to satisfy such Options (or, if less, the maximum number still available for issuance under the foregoing limit), and shall pay all fees and expenses incurred by the Company in connection therewith.  In the event of any capital change in the outstanding Stock as contemplated by Section 9.7, the number of shares of Stock reserved and kept available by the Company shall be appropriately adjusted.

7.Persons Eligible to Receive Options.  Each employee of an Employer shall be granted an Option on each Offering Commencement Date on which such employee meets all of the following requirements:

(a)The employee is customarily employed by an Employer for more than twenty hours per week and for more than five months per calendar year and, in the case of any Offering Period after the first Offering Period under the Plan, has been employed by one or more of the Employers for at least one week prior to the applicable Offering Commencement Date.

(b)The employee will not, after grant of the Option, own Stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any Related Corporation.  For purposes of this paragraph (b), the rules of Section 424(d) of the Code shall apply in determining the Stock ownership of the employee, and Stock which the employee may purchase under outstanding options shall be treated as Stock owned by the employee.

(c)Upon grant of the Option, the employee’s rights to purchase Stock under all employee stock purchase plans (as defined in Section 423(b) of the Code) of the Company and its Related Corporations will not accrue at a rate which exceeds $25,000 of fair market value of the Stock (determined as of the grant date) for each calendar year in which such option is outstanding at any time.  The accrual of rights to purchase Stock shall be determined in accordance with Section 423(b)(8) of the Code.

8.Offering Commencement Dates.  Options shall be granted on the first business day of each semi-annual period, running from either January 1 to the next following June 30 or July 1 to the next following December 31, which is designated by the Board as an Offering Period.  Following designation by the Board of the initial Offering Period under the Plan, all succeeding semi-annual periods described above shall be deemed Offering Periods without need of further Board action unless and until contrary action shall have been taken by the Board prior to the beginning of what would otherwise be an Offering Period.

9.Terms and Conditions of Options.

9.1General.  All Options granted on a particular Offering Commencement Date shall comply with the terms and conditions set forth in Sections 9.2 through 9.11.  Subject to Sections 7(c) and 9.9, each Option granted on a particular Offering Commencement Date shall entitle the Participating Employee to purchase up to that number of shares of Stock equal to the result of $25,000 (or such lesser amount as is selected by the Board, prior to the applicable Offering Commencement Date, and applied uniformly during such Offering Period) divided by the Market Value of one such share on the Offering Commencement Date and then rounded down, if necessary, to the nearest whole number.

9.2Purchase Price.  The purchase price of Option Shares shall be 85% of the lesser of (a) the Market Value of the shares of Stock as of the Offering Commencement Date or (b) the Market Value of the shares of Stock as of the Offering Termination Date.

9.3Restrictions on Transfer.

(a)Options may not be transferred otherwise than by will or under the laws of descent and distribution.  An

3

Option may not be exercised by anyone other than the Participating Employee during the lifetime of the Participating Employee.

(b)The Participating Employee shall notify the Company of any transfer of Option Shares within two years of the Offering Commencement Date for such Option Shares.  The Company shall have the right to place a legend on all stock certificates representing Option Shares instructing the transfer agent to notify the Company of any transfer of such Option Shares.  The Company shall also have the right to place a legend on all stock certificates representing Option Shares setting forth or referring to the restriction on transferability of such Option Shares.

9.4Expiration.  Each Option shall expire at the close of business on the Offering Termination Date or on such earlier date as may result from the operation of Sections 9.5 and 9.6.

9.5Termination of Employment of Participating Employee.  If a Participating Employee ceases for any reason (other than death or Retirement) to be continuously employed by an Employer, whether due to voluntary severance, involuntary severance, transfer, or disaffiliation of a Related Corporation with the Company, his or her Option shall immediately expire, and the Participating Employee’s accumulated payroll deductions shall be returned to the Participating Employee.  For purposes of this Section 9.5, a Participating Employee shall be deemed to be employed throughout any leave of absence for military service, illness or other bona fide purpose which does not exceed the longer of ninety days or the period during which the Participating Employee’s reemployment rights are guaranteed by statute (including without limitation the Veterans Reemployment Rights Act or similar statute relating to military service) or by contract.  If the Participating Employee does not return to active employment prior to the termination of such period, his or her employment, for purposes of the Plan, shall be deemed to have ended on the ninety-first day of such leave of absence (or such longer period guaranteed by statute or by contract as provided above).

9.6Retirement or Death of Participating Employee.  If a Participating Employee Retires or dies, the Participating Employee or, in the case of death, his or her Beneficiary shall be entitled to withdraw the Participating Employee’s accumulated payroll deductions, or to purchase shares of Stock on the Offering Termination Date to the extent that the Participating Employee would be so entitled had he or she continued to be employed by an Employer.  The number of shares of Stock purchasable shall be limited by the amount of the Participating Employee’s accumulated payroll deductions as of the date of his or her Retirement or death.  Accumulated payroll deductions shall be applied by the Company toward the purchase of shares of Stock only if the Participating Employee or, in the case of death, his or her Beneficiary submits to the Employer not later than the Offering Termination Date a written request that the deductions be so applied.  Accumulated payroll deductions not withdrawn or applied to the purchase of shares of Stock shall be delivered by the Company to the Participating Employee or Beneficiary within a reasonable time after the Offering Termination Date.

9.7Capital Changes Affecting the Stock.  In the event that, between the Offering Commencement Date and the Offering Termination Date with respect to an Option, a stock dividend is paid or becomes payable in respect of the Stock or there occurs a split-up or contraction in the number of shares of Stock, the number of shares of Stock for which the Option may thereafter be exercised and the price to be paid for each such share shall be proportionately adjusted.  Subject to the provisions of the next sentence, in the event that, after the Offering Commencement Date, there occurs a reclassification or change of outstanding shares of Stock or a consolidation or merger of the Company with or into another corporation or a sale or conveyance, substantially as a whole, of the property of the Company (collectively, a “Corporate Transaction”), the Participating Employee shall be entitled on the Offering Termination Date to receive shares of Stock or other securities equivalent in kind and value to the shares of Stock he or she would have held if he or she had exercised the Option in full immediately prior to such Corporate Transaction and had continued to hold such shares of Stock (together with all other shares and securities thereafter issued in respect thereof) until the Offering Termination Date.  Alternatively, in the event of a Corporate Transaction, the Board may elect to shorten the Offering Period and set a new Offering Termination Date as of which date the Offering Period then in progress will terminate.  Such new Offering Period Termination Date shall be on or before the date of consummation of the Corporate Transaction and the Board shall notify each Participating Employee in writing at least 10 days prior to the new Offering Period Termination Date that his or her Option will be exercised automatically on such new Offering Termination Date, unless prior to such date, he or she has withdrawn from the Offering Period as provided herein.  In the event that there is to occur a recapitalization involving an increase in the par value of the Stock which would result in a par value exceeding the exercise price under an

4

outstanding Option, the Company shall notify the Participating Employee of such proposed recapitalization immediately upon its being recommended by the Board to the Company’s shareholders, after which the Participating Employee shall have the right to exercise his or her Option prior to such recapitalization; if the Participating Employee fails to exercise the Option prior to recapitalization, the exercise price under the Option shall be appropriately adjusted.  In the event that, after the Offering Commencement Date, there occurs a dissolution or liquidation of the Company, except pursuant to a transaction to which Section 424(a) of the Code applies, each Option shall terminate, but the Participating Employee shall have the right to exercise his or her Option prior to such dissolution or liquidation.

9.8Payroll Deductions.

(a)A Participating Employee may purchase shares of Stock under his or her Option during any particular Offering Period during the Company’s defined open enrollment periods by completing and returning, during the Company’s defined open enrollment periods, a Membership Agreement indicating a percentage (which shall be a full integer between one and fifteen) of his or her Base Compensation which is to be withheld each pay period. Open enrollment periods occur semi-annually and are communicated by Human Resources.  Participating Employees will not be allowed to enroll in the Plan with respect to a particular Offering Period once the Offering Period has begun.

(b)Unless the Board decides otherwise prior to the commencement of an Offering Period, all Participating Employees shall be permitted to take the following actions during an Offering Period:

(i) no more often than once per Offering Period, to decrease (but not increase) the percentage of Base Compensation withheld during an Offering Period by submitting an amended Membership Agreement to the Company’s Human Resources department indicating a different percentage of Base Compensation to be withheld; and

(ii) no more than once per Offering Period, cancel his or her Membership Agreement by submitting a written request to the Company’s Human Resources department, in which request the Participant must either elect to (x) withdraw all, but not less than all, of his or her accumulated payroll deductions or (y) apply all, but not less than all, accumulated payroll deductions to the purchase of Shares at the end of such Offering Period;

Provided, that, to be effective, the submissions to the Company’s Human Resources Department required by (i) and (ii) must be received by the Company’s Human Resources Department by no later than the close of business on the 15th day of the last month (or the next business day after the 15th of the month if the 15th day of the month is not a business day) of the Offering Period (i.e. December 15th and June 15th).

9.9Exercise of Options.  On the Offering Termination Date the Participating Employee may purchase the number of shares of Stock purchasable by his or her accumulated payroll deductions, or, if less, the maximum number of shares subject to the Option as provided in Section 9.1, provided that:

(a)If the total number of shares of Stock which all Participating Employees elect to purchase, together with any shares of Stock already purchased under the Plan, exceeds the total number of shares of Stock which may be purchased under the Plan pursuant to Section 6, the number of shares of Stock which each Participating Employee is permitted to purchase shall be decreased pro rata based on the Participating Employee’s accumulated payroll deductions in relation to all accumulated payroll deductions otherwise to be applied to the purchase of shares of Stock as of that Offering Termination Date.

(b)If the number of shares of Stock purchasable includes a fraction, such number shall be adjusted to the next smaller whole number and the purchase price shall be adjusted accordingly.

Accumulated payroll deductions not withdrawn in accordance with Section 9.8 shall be automatically applied by the Company toward the purchase of shares of Stock, except to the extent that the purchase of shares of Stock will result in the issuance of a fractional share of Stock, in which case the amount of the accumulated payroll deductions that would have been applied to the purchase of a fractional share of Stock will be refunded to the Participating Employee.  .

9.10Issuance of Stock.  Except as provided below, within a reasonable time after the Offering Termination

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Date, the Company shall deliver or issue to the Participating Employee the number of shares of Stock purchased by the Participating Employee either in the form of a stock certificate or, by causing a book entry in the Company’s stock records indicating that such Participating Employee owns such shares.   Shares of Stock will be issued in the participant’s name only, or if his or her Membership Agreement so specifies, in the name of the employee and another person of legal age as joint tenants with rights of survivorship.  If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require that the Company or the Participating Employee take any action in connection with the shares of Stock being purchased under the Option, issuance of such shares shall be postponed until the necessary action shall have been completed, which action shall be taken by the Company at its own expense, without unreasonable delay.  The Participating Employee shall have no rights as a shareholder in respect of shares of Stock which have not been issued to the Participating Employee.

9.11Return of Accumulated Payroll Deductions.  In the event that the Participating Employee or the Beneficiary is entitled to the return of accumulated payroll deductions, whether by reason of voluntary withdrawal, termination of employment, Retirement, death, or in the event that accumulated payroll deductions exceed the price of shares purchased, such amount shall be returned by the Company to the Participating Employee or the Beneficiary, as the case may be, not later than within a reasonable time following the Offering Termination Date applicable to the Option Period in which such deductions were taken.  Accumulated payroll deductions held by the Company shall not bear interest nor shall the Company be obligated to segregate the same from any of its other assets.

10.Notices and Other Communications.  Any notice, demand, request or other communication hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by first class, registered, certified or overnight mail, postage prepaid, or telecopied with a confirmation copy by regular certified or overnight mail, addressed or telecopied, as the case may be (i) if to a Participating Employee, at his or her residence address last filed with the Company and (ii) if to the Company, at its principal place of business, addressed to the attention of the General Counsel, or to such other address or telecopier number, as the case may be, as the addressee may have designated by notice to the addressor.  All such notices, requests, demands and other communications shall be deemed to have been received: (a) in the case of personal delivery, on the date of such delivery; (b) in the case of mailing, when received by the addressee; and (c) in the case of facsimile transmission, when confirmed by facsimile machine report.  In addition, the Company may, at its sole discretion, deliver any documents related to the Plan by electronic means or request that the Participating Employee communicate with the Company with respect to the Plan by electronic means.  By participating in the Plan, each Participating Employee will have consented to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designed by the Company, and any such consent shall remain in effect throughout the Participating Employee’s term of employee or service with the Company and thereafter until withdrawn in writing by the Participating Employee.

11.Governing Law.  The Plan and all Options and actions taken thereunder shall be governed, interpreted and enforced in accordance with the laws of the State of Delaware without regard to the conflict of law principles thereof.

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EX-10.61

Exhibit 10.61

Cubist Pharmaceuticals, Inc.

Director Compensation, Benefits, Programs

(Effective as of June 4, 2009)

Director Compensation

Element	Compensation
Retainer	Non-Executive Chair of the Board - $34,000 Lead Director - $28,000 Other Non-Employee Directors - $22,000 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 date of the prior calendar year’s Annual Meeting of Stockholders
Initial Option Grant	Non-Executive Chair of the Board: Stock options with a Black-Scholes value of $250,000 Lead Director:  Stock options with a Black-Scholes value of $200,000 Other Non-Employee Directors: Stock options with a Black-Scholes value of $150,000 Grant Date/vesting: Vests quarterly on a pro rata basis over 3 years from the grant date
Annual Option Grant	Non-Executive Chair of the Board: Stock options with a Black-Scholes value of $250,000 Lead Director:  Stock options with a Black-Scholes value of $200,000 Other Non-Employee Directors: Stock options with a Black-Scholes value of $150,000 Grant Date/vesting: Options will be granted (and valued) on the date of each Annual Meeting of Stockholders; vests 100% on the earlier of the first anniversary of the grant date or the date of the next calendar year’s Annual Meeting of Stockholders
Meeting Fee - Board Meetings	$4,000 per meeting attended (in person) (except for Non-Executive Chair of the Board and Lead Director, see below) $1,000 per meeting attended (by phone) (except for Non-Executive Chair of the Board and Lead Director, see below)
Meeting Fee - Committee Meetings (non-Chair members)	Audit Committee: $2,000 per meeting attended (in person or by phone) Other Committees (including Special Committees): $1,500 per meeting attended (in person or by phone)
Meeting Fee -	Audit Committee: $4,000 per meeting led (in person or by phone)

Committee Chairs	Other Committees (including Special Committees): $3,500 per meeting led (in person or by phone)
Meeting Fee — Board Meetings - Non-Executive Chair of the Board	$5,000 per Board Meeting led (in person) $2,000 per meeting led (by phone)
Meeting Fee — Board Meeting - Lead Director	$5,000 per Board Meeting led (in person) $2,000 per meeting led (by phone)
Meeting Fee — Non-Committee Members Attending Committee Meetings	Paid the same per meeting fee as a non-Chair member of the Committee

Director Benefits

Expense Reimbursement	Cubist shall reimburse the cost of all reasonable travel related expenses and meals incurred in connection with attending Board or Committee Meetings.  Directors should travel one class below first class. Exceptions will be handled on a case-by-case basis and should be submitted to the Chair (or, if there is no Chair, the Lead Director)
D & O Insurance	Cubist provides Director & Officer Insurance for all Board Members.
NACD Membership	Cubist provides a membership to the National Association of Corporate Directors for all Board Members
Director Education Programs	Cubist supports director education and will reimburse directors for reasonable expenses incurred in connection with participation in director education programs.  Directors are expected to report all such participation to the Secretary of the Corporation.  Cubist also provides in-house direction education and has a Director Orientation Program.

Administration

1.Cubist delivers a check at each regularly scheduled in-person Board Meeting that includes compensation for all Board and Committee meetings attended since the last regularly scheduled in-person Board Meeting.  Included with the check is an Attendance Report and Stock Option Report.  Directors are compensated for Board or Committee meetings designated by the Chairman of the Board, Lead Director, or Committee Chairs, as the case may be, for which minutes are prepared.

2.Board retainer is payable on an annual basis as of the date of the Annual Meeting of Stockholders

in either cash or stock, in recognition of the previous 12 months of service beginning on the date of the previous calendar year’s Annual Meeting of Stockholders. Stock or cash election will be made in March. The retainer shall be pro-rated based on the number of months served as a Director in the previous 12 months.

3.Receipts must be submitted to Cubist’s CEO within 60 days of each travel engagement.

4.A summary of Cubist Director & Officers Insurance Policy is included in the Director’s Handbook.

EX-21.1

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Exhibit 21.1

CUBIST PHARMACEUTICALS, INC.

        The following is a list of subsidiaries of the Company as of December 31, 2009:

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
Calixa Therapeutics Inc.	Delaware
Calixa U.K. Ltd.	England

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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-8 (Nos. 333-162764, 333-162763, 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 26, 2010, relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 2010

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Exhibit 23.1

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-8 (Nos. 333,162764, 333-162763, 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, 2009, 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 26, 2010

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Exhibit 23.2

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 26, 2010

/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 26, 2010

/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, 2009, 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 26, 2010

/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, 2009, 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 26, 2010

/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