10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:  0-21379

CUBIST PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	22-3192085
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

65 Hayden Avenue, Lexington, MA 02421

(Address of Principal Executive Offices and Zip Code)

(781) 860-8660

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o

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

Number of shares of the registrant’s Common Stock, $.001 par value, outstanding on August 4, 2014: 75,733,323.

Cubist Pharmaceuticals, Inc.

Form 10-Q

For the Quarter Ended June 30, 2014

Table of Contents

Item		Page
PART I. Financial information
1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	5
	Notes to Condensed Consolidated Financial Statements	6
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
3.	Quantitative and Qualitative Disclosures About Market Risk	32
4.	Controls and Procedures	33
PART II. Other Information
1.	Legal Proceedings	33
1A.	Risk Factors	33
2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
3.	Defaults Upon Senior Securities	39
4.	Mine Safety Disclosures	39
5.	Other Information	39
6.	Exhibits	40
	Signature	41

2

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

(in thousands, except share and per share data)

	June 30, 2014		December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	221,838	$	91,058
Short-term investments	421,644		487,500
Accounts receivable, net	107,395		123,155
Inventory	60,079		57,663
Deferred tax assets, net	65,556		52,108
Prepaid expenses and other current assets	64,114		58,285
Total current assets	940,626		869,769
Property and equipment, net	179,584		177,544
In-process research and development	237,400		896,400
Goodwill	383,018		383,018
Other intangible assets, net	1,350,383		721,066
Other assets	89,961		98,024
Total assets	$	3,180,972	$	3,145,821
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	33,801	$	31,877
Accrued liabilities	222,956		245,078
Short-term deferred revenue	6,725		6,411
Short-term contingent consideration	62,858		20,428
Other current liabilities	5,959		7,034
Total current liabilities	332,299		310,828
Long-term deferred revenue	27,610		31,010
Long-term deferred tax liabilities, net	363,358		357,802
Long-term contingent consideration	102,372		202,894
Long-term debt, net	834,801		817,830
Other long-term liabilities	32,833		31,726
Total liabilities	1,693,273		1,752,090
Commitments and contingencies (Notes B, D, H, J, K and M)
Stockholders’ equity:
Preferred stock, non-cumulative; convertible, $.001 par value; authorized 5,000,000 shares; no shares issued and outstanding	—		—
Common stock, $.001 par value; authorized 300,000,000 shares; 75,570,915 and 74,428,087 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively	76		74
Additional paid-in capital	1,408,141		1,362,240
Accumulated other comprehensive income	19		215
Retained earnings	79,463		31,202
Total stockholders’ equity	1,487,699		1,393,731
Total liabilities and stockholders’ equity	$	3,180,972	$	3,145,821

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

3

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues:
U.S. product revenues, net	$	265,259		$	239,503		$	505,717		$	452,751
International product revenues	17,485			14,959			34,512			27,362
Service revenues	—			3,665			—			7,289
Other revenues	11,654			652			15,402			1,306
Total revenues, net	294,398			258,779			555,631			488,708
Costs and expenses:
Cost of product revenues	88,613			63,041			162,154			118,716
Research and development expense	104,862			115,190			225,465			229,399
Contingent consideration (income) expense	(24,774		)	2,586			(58,092		)	4,639
Selling, general and administrative expense	80,057			49,889			149,719			98,090
Restructuring charges	3,469			—			5,908			—
Total costs and expenses	252,227			230,706			485,154			450,844
Operating income	42,171			28,073			70,477			37,864
Other expense (income), net:
Interest income	(317		)	(718		)	(694		)	(1,460		)
Interest expense	14,508			7,250			28,903			14,434
Other expense (income)	(56		)	146			13			(94		)
Total other expense (income), net	14,135			6,678			28,222			12,880
Income before income taxes	28,036			21,395			42,255			24,984
Provision (benefit) for income taxes	4,008			6,153			(6,006		)	3,654
Net income	$	24,028		$	15,242		$	48,261		$	21,330
Basic net income per common share	$	0.32		$	0.23		$	0.64		$	0.33
Diluted net income per common share	$	0.30		$	0.23		$	0.61		$	0.32
Shares used in calculating:
Basic net income per common share	75,421,354			65,558,376			75,179,275			65,248,707
Diluted net income per common share	86,108,783			67,731,976			85,853,847			67,385,141
Total comprehensive income	$	23,791		$	14,775		$	48,065		$	20,887

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

4

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(in thousands)

	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Net income	$	48,261		$	21,330
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	42,386			17,164
Amortization and accretion of investments	4,069			6,230
Amortization of debt discount and debt issuance costs, excluding write-off of debt issuance costs	19,464			8,018
Deferred income taxes	(7,892		)	(12,748		)
Stock-based compensation	18,968			16,139
Contingent consideration	(58,092		)	4,639
Provision for inventory reserves	10,623			3,598
Other non-cash	7,905			(2,540		)
Changes in assets and liabilities:
Accounts receivable	15,760			(8,142		)
Inventory	(7,249		)	(10,339		)
Prepaid expenses and other assets	(7,457		)	1,387
Accounts payable and accrued liabilities	(21,867		)	(13,508		)
Deferred revenue and other liabilities	(2,334		)	(1,387		)
Net cash provided by operating activities	62,545			29,841
Cash flows from investing activities:
Purchases of property and equipment	(12,186		)	(10,030		)
Purchases of investments	(299,960		)	(716,455		)
Proceeds from maturities of investments	361,473			789,971
Payment for purchase option	—			(20,000		)
Increase in restricted cash	(2,153		)	—
Net cash provided by investing activities	47,174			43,486
Cash flows from financing activities:
Issuance of common stock, net	20,374			19,391
Excess tax benefit on stock-based awards	1,882			8,677
Other	(1,123		)	—
Net cash provided by financing activities	21,133			28,068
Net increase in cash and cash equivalents	130,852			101,395
Effect of changes in foreign exchange rates on cash balances	(72		)	—
Cash and cash equivalents at beginning of period	91,058			104,041
Cash and cash equivalents at end of period	$	221,838		$	205,436

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

5

CUBIST PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

A.BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Cubist Pharmaceuticals, Inc. (“we,” “our,” or “us”) in accordance with accounting principles generally accepted in the United States of America (GAAP) and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. The year-end condensed consolidated financial statements were derived from audited financial statements, but certain information and footnote disclosures required by GAAP normally included in our annual consolidated financial statements have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (SEC) on February 25, 2014. The condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of our financial position and results of operations. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Also, included in prepaid expenses and other current assets and other assets on our condensed consolidated balance sheet are $1.4 million and $0.8 million, respectively, of restricted cash as of June 30, 2014.

The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Our results of operations for the three and six months ended June 30, 2014, include the results of Optimer Pharmaceuticals, Inc. (Optimer), and Trius Therapeutics, Inc. (Trius), which we acquired in October 2013 and September 2013, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires extensive use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. The most significant assumptions are employed in estimates used in determining the values of: inventory; investments; acquisition-date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill, in-process research and development (IPR&D) and other intangible assets; accrued clinical research costs; contingent consideration; income taxes; stock-based compensation; product rebate, chargeback and return accruals; as well as in estimates used in accounting for contingencies and revenue recognition. Actual results could differ from these estimates.

Concentration of Risk

Our accounts receivable as of June 30, 2014 and December 31, 2013, primarily represent amounts due to us from wholesalers, including AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation. We perform ongoing credit evaluations of our key wholesalers, distributors and other customers, and generally do not require collateral. For the three and six months ended June 30, 2014 and 2013, we did not have any significant write-offs of accounts receivable, and our days sales outstanding has not significantly changed since December 31, 2013.

	Percentage of Total Accounts Receivable Balance as of
	June 30, 2014		December 31, 2013
AmerisourceBergen Drug Corporation	16	%	18	%
Cardinal Health, Inc.	18	%	17	%
McKesson Corporation	19	%	18	%

	Percentage of Total Net Revenues for the Three Months Ended June 30,				Percentage of Total Net Revenues for the Six Months Ended June 30,
	2014		2013		2014		2013
AmerisourceBergen Drug Corporation	17	%	20	%	17	%	20	%
Cardinal Health, Inc.	16	%	16	%	17	%	17	%
McKesson Corporation	18	%	17	%	19	%	18	%

6

IPR&D

IPR&D acquired in a business combination is capitalized on our condensed consolidated balance sheets at its acquisition-date fair value, net of any accumulated impairment losses. Until the underlying project is completed, these assets are accounted for as indefinite-lived intangible assets, subject to impairment testing. Once the project is completed, the carrying value of the IPR&D is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the acquired IPR&D are expensed as incurred.

IPR&D is tested for impairment on an annual basis, or more frequently if impairment indicators are present. If IPR&D 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 the asset becomes impaired as the result of unfavorable data from any ongoing or future clinical trial, changes in assumptions that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing or commercializing our product candidates, we could incur significant charges in the period in which the impairment occurs. The valuation techniques utilized in performing impairment tests incorporate significant assumptions and judgments to estimate the fair value, and the use of different valuation techniques or different assumptions could result in materially different fair value estimates.

Revenue Recognition

Our principal sources of revenue during the periods were: (i) product revenues of CUBICIN® (daptomycin for injection), DIFICID® (fidaxomicin) and ENTEREG® (alvimopan) in the United States (U.S.); (ii) revenues derived from sales of CUBICIN and DIFICID by our international distribution partners; (iii) license fees and milestone payments that are derived from collaboration, license and commercialization agreements with other biopharmaceutical companies; and (iv) prior to our acquisition of Optimer, service revenues derived from our co-promotion agreement with Optimer for the promotion and support of DIFICID in the U.S., which was terminated on October 24, 2013, as a result of our acquisition of Optimer. Product revenue amounts exclude sales of DIFICID prior to our acquisition of Optimer. The U.S. Food and Drug Administration (FDA) approved SIVEXTROTM (tedizolid phosphate) in the U.S. on June 20, 2014, for the treatment of adult acute bacterial skin and skin structure infections (ABSSSI). We commercially launched SIVEXTRO in the U.S. at the end of the second quarter of 2014. 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, and collectibility of the resulting receivable is reasonably assured.

U.S. Product Revenues, net

All revenues from product sales are recorded net of applicable provisions and allowances in the same period the related sales are recorded.

Gross U.S. product revenues were offset by provisions for the three and six months ended June 30, 2014 and 2013, as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Gross U.S. product revenues	$	318,603		$	272,271		$	604,115		$	518,218
Provisions offsetting U.S. product revenues:
Contractual adjustments	(21,866		)	(16,014		)	(41,819		)	(30,032		)
Governmental rebates	(31,478		)	(16,754		)	(56,579		)	(35,435		)
Total provisions offsetting product revenues	(53,344		)	(32,768		)	(98,398		)	(65,467		)
U.S. product revenues, net	$	265,259		$	239,503		$	505,717		$	452,751

Certain of our product sales qualify for rebates or discounts from standard list pricing due to contractual agreements or government-sponsored programs. Our contractual adjustments include provisions for returns, pricing and early payment discounts extended to our external customers, as well as wholesaler distribution fees, and other commercial rebates. Our governmental rebates represent estimated amounts for government-mandated rebates and discounts relating to federal and state programs, such as Medicaid, the Veterans’ Administration and Department of Defense (DoD) programs, the Medicare Part D Coverage Gap Discount Program and certain other qualifying federal and state government programs. Estimates and assumptions for reserves are analyzed quarterly. As a result of receiving claims information from certain state governments and additional data regarding the usage of CUBICIN by managed care organizations, we reversed approximately $6.6 million of previously reserved Medicaid program rebates during the three months ended June 30, 2013.

7

International Product Revenues

Sales with international distribution partners are based upon contractually predetermined transfer price arrangements. Once our distribution partner sells the product to a third party, we may also be owed an additional payment or royalty. Certain agreements with our distribution partners contain multiple elements in which we have continuing performance obligations. In arrangements for which we determine that the undelivered elements cannot be separated from the delivered elements, payments from distribution partners for product are recorded as deferred revenue and amortized to international product revenues over the remaining performance obligation.

Basic and Diluted Net Income Per 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 common 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 net income, diluted net income per common share has been computed assuming the conversion of obligations and the elimination of the interest expense related to our 2.50% convertible senior notes due 2017 (2017 Notes), 1.125% convertible senior notes due 2018 (2018 Notes), 1.875% convertible senior notes due 2020 (2020 Notes), the exercise of stock options, the exercise of warrants issued in connection with the convertible bond hedge transactions discussed below, and the vesting of restricted stock units (RSUs), as well as their related income tax effects.

In September 2013, in connection with the issuance of the 2018 Notes and 2020 Notes, we entered into convertible bond hedge transactions. The convertible bond hedges are not considered for purposes of calculating the number of diluted shares outstanding, as their effect would be antidilutive. The convertible bond hedges are generally expected, but not guaranteed, to reduce the potential dilution upon conversion of the 2018 Notes and 2020 Notes. See Note H., “Debt,” for additional information.

The following table sets forth the computation of basic and diluted net income per common share for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands, except share and per share data)
Net income, basic	$	24,028	$	15,242	$	48,261	$	21,330
Effect of dilutive securities:
Interest on 2017 Notes, net of tax	688		—		1,511		—
Debt issuance costs related to 2017 Notes, net of tax	94		—		203		—
Debt discount amortization related to 2017 Notes, net of tax	973		—		2,082		—
Net income, diluted	$	25,783	$	15,242	$	52,057	$	21,330
Shares used in calculating basic net income per common share	75,421,354		65,558,376		75,179,275		65,248,707
Effect of dilutive securities:
Options to purchase shares of common stock and RSUs	2,844,731		2,173,600		2,831,752		2,136,434
2017 Notes convertible into shares of common stock	7,842,698		—		7,842,820		—
Shares used in calculating diluted net income per common share	86,108,783		67,731,976		85,853,847		67,385,141
Basic net income per common share	$	0.32	$	0.23	$	0.64	$	0.33
Diluted net income per common share	$	0.30	$	0.23	$	0.61	$	0.32

8

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Options to purchase shares of common stock and RSUs	845,764	2,591,295	1,343,047	2,546,822
Warrants	9,705,442	—	9,705,442	—
2020 Notes convertible into shares of common stock	5,459,311	—	5,459,311	—
2018 Notes convertible into shares of common stock	4,246,131	—	4,246,131	—
2017 Notes convertible into shares of common stock	—	15,424,084	—	15,424,118

At our annual meeting of shareholders in June 2014, our stockholders approved an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 150.0 million to 300.0 million.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of unrealized gains or losses on available-for-sale securities and foreign currency translation adjustments. Amounts recorded to accumulated other comprehensive income for the three and six months ended June 30, 2014 and 2013, were not material. Additionally, there were no reclassifications out of accumulated other comprehensive income for the three and six months ended June 30, 2014 and 2013.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This ASU stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual and interim reporting periods beginning on or after December 15, 2016, and early adoption is not permitted. The ASU permits the use of two transition methods, either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. We have not yet selected a transition method, and are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

B.BUSINESS COMBINATIONS AND ACQUISITIONS

On October 24, 2013, we completed our acquisition of Optimer, then a publicly-held biopharmaceutical company, upon which Optimer became our wholly-owned subsidiary. The transaction provided us with an existing commercialized product, DIFICID. Under the terms of the merger agreement, we purchased 100% of the issued and outstanding shares of Optimer common stock for: (i) $10.75 per share in cash, plus (ii) one transferable contingent value right (CVR) per share, which entitles the holder to receive an additional cash payment of up to $5.00 per CVR upon achievement of certain sales milestones for a maximum, undiscounted potential CVR payout of $253.9 million. The CVRs are listed on the NASDAQ Global Select Market under the symbol “CBSTZ,” and this contingent consideration is recorded as a liability and measured at fair value based upon the market price of the CVR on the day of valuation. See Note D., “Fair Value Measurements,” for additional information.

On September 11, 2013, we completed our acquisition of Trius, then a publicly-held biopharmaceutical company, upon which Trius became our wholly-owned subsidiary. The transaction provided us with SIVEXTRO, which at that time was a late-stage product candidate. The FDA approved SIVEXTRO in the U.S. on June 20, 2014, and we commercially launched SIVEXTRO in the U.S. at the end of the second quarter of 2014. Under the terms of the merger agreement, we purchased 100% of the issued and outstanding shares of Trius common stock for: (i) $13.50 per share in cash, plus (ii) one non-transferable CVR per share, which entitles the holder to receive an additional cash payment of up to $2.00 per CVR upon achievement of certain sales milestones for a maximum, undiscounted potential CVR payout of $108.4 million. The CVRs may not be sold, assigned, transferred, pledged, encumbered or disposed of, subject to limited exceptions. Contingent consideration is recorded as a liability and measured at fair value based upon significant unobservable inputs. See Note D., “Fair Value Measurements,” for additional information.

9

The acquisition-date fair value of the consideration transferred for the Optimer and Trius acquisitions was as follows:

	Total Acquisition-Date Fair Value
	Optimer		Trius
	(in thousands)
Cash transferred	$	569,452	$	695,710
Contingent consideration	115,634		4,603
Total consideration transferred	$	685,086	$	700,313

The transactions were accounted for as business combinations under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the acquisition dates, with the difference between the acquisition-date fair value of the consideration transferred recorded as goodwill.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective dates of acquisition:

	Optimer			Trius
	October 24, 2013			September 11, 2013
	(in thousands)
Cash	$	31,466		$	22,697
Investments	42,067			39,513
Inventory	32,000			—
IPR&D	—			659,000
DIFICID intangible asset	561,000			—
Contract intangible asset	36,000			—
Deferred tax assets	116,199			92,567
Goodwill	108,631			160,257
Other assets acquired	15,942			5,522
Total assets acquired	943,305			979,556
Deferred tax liabilities	(224,110		)	(248,884		)
Other liabilities assumed	(34,109		)	(30,359		)
Total liabilities assumed	(258,219		)	(279,243		)
Total net assets acquired	$	685,086		$	700,313

The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any measurement period adjustments to the Optimer or Trius purchase price allocations will be made as soon as practicable but no later than one year from the respective date of acquisition.

Goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist.

10

C.INVESTMENTS

Marketable Securities

The following table summarizes the amortized cost and estimated fair value of our marketable securities, which are considered to be available-for-sale investments and included in short-term investments on the condensed consolidated balance sheets:

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Balance as of June 30, 2014
Bank deposits	$	50,000	$	—	$	—		$	50,000
U.S. Treasury securities	70,180		2		(4		)	70,178
Corporate and municipal notes	286,438		51		(32		)	286,457
Total	$	406,618	$	53	$	(36	)	$	406,635
Balance as of December 31, 2013
Bank deposits	$	40,000	$	—	$	—		$	40,000
U.S. Treasury securities	67,648		6		(4		)	67,650
Corporate and municipal notes	362,561		173		(36		)	362,698
Total	$	470,209	$	179	$	(40	)	$	470,348

Certain short-term debt securities with original maturities of less than 90 days are included in cash and cash equivalents on the condensed consolidated balance sheets and are not included in the tables above. In addition, certificates of deposit of $15.0 million and $17.2 million as of June 30, 2014 and December 31, 2013, respectively, were included within short-term investments in the condensed consolidated balance sheets but are excluded from the tables above as they were not deemed to be securities.

D.FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The following table sets forth our assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2014:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents: (1)
Corporate and municipal notes	—		2,499		—		2,499
Short-term investments: (2)
Bank deposits	—		50,000		—		50,000
U.S. Treasury securities	70,178		—		—		70,178
Corporate and municipal notes	—		286,457		—		286,457
Total assets	$	70,178	$	338,956	$	—	$	409,134
Liabilities
Contingent consideration - Optimer CVRs	$	6,094	$	—	$	—	$	6,094
Contingent consideration - other	—		—		159,136		159,136
Total liabilities	$	6,094	$	—	$	159,136	$	165,230

(1)Excludes $219.3 million of cash as of June 30, 2014.

(2)Excludes certificates of deposit of $15.0 million recorded at cost as of June 30, 2014.

We did not transfer any assets or liabilities between levels during the three and six months ended June 30, 2014.

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Marketable Securities

We classify our U.S. Treasury securities as Level 1 assets under the fair value hierarchy as these assets have been valued using quoted market prices in active markets without any valuation adjustment. We classify our bank deposits and corporate and municipal notes as Level 2 assets under the fair value hierarchy, as these assets have been valued using information obtained through a third-party pricing service at each balance sheet date, using observable market inputs that may include trade information, broker or dealer quotes, bids, offers, or a combination of these data sources.

Contingent Consideration

Level 1

In connection with the acquisition of Optimer, we issued one transferable CVR for each outstanding share of Optimer’s common stock. The fair value of the liability relating to the amount payable by us to the holders of the CVRs upon the achievement of certain sales milestones for DIFICID and other specified products was $6.1 million and $68.6 million as of June 30, 2014 and December 31, 2013, respectively. The fair value of the liability is based upon the market price of the security, which is traded in an active market. Changes in the fair value of the liability related to changes in the market price of the security are recognized within the condensed consolidated statements of comprehensive income. The undiscounted amount of contingent consideration that we could pay to the holders of the Optimer CVRs ranges from zero to $253.9 million.

Level 3

In connection with the acquisitions of Trius, Adolor Corporation (Adolor) and Calixa Therapeutics Inc. (Calixa), we recorded contingent consideration pertaining to the amounts potentially payable to the former stockholders of each company. Such contingent consideration is measured at fair value and based on significant inputs not observable in the market. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the condensed consolidated statements of comprehensive income.

Contingent consideration may change significantly as development progresses and additional data is obtained that will affect our assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

The following table provides quantitative information associated with the fair value measurement of our Level 3 contingent consideration:

	Fair Value as of			Unobservable Inputs
	June 30, 2014 (in thousands)		Valuation technique	Probability of success - range (weighted average)	Periods in which milestones are expected to be achieved	Discount rate
Trius	$	5,208	Probability-adjusted discounted cash flow	4.0% - 6.5% (5.8%)	2016	8.0%
Adolor	45,449		Probability-adjusted discounted cash flow	25.0% - 30.0% (27.0%)	2018 - 2022	5.3% / 13.0%
Calixa	108,479		Probability-adjusted discounted cash flow	40.0% - 86.0% (65.0%)	2014 - 2018	5.3%
Total	$	159,136

The significant unobservable inputs used in the fair value measurement of our contingent consideration are the probabilities of successful achievement of development, regulatory and sales milestones, the period in which these milestones are expected to be achieved and a discount rate. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant increases or decreases in the discount rate and/or the period in which the milestones will be achieved would result in a significantly lower or higher fair value measurement, respectively.

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Trius Therapeutics, Inc.—The fair value of contingent consideration payable by us to the former stockholders of Trius upon the achievement of certain sales milestones of SIVEXTRO and other specified products was estimated to be $5.2 million and $5.0 million as of June 30, 2014 and December 31, 2013, respectively. The change in the fair value of the contingent consideration liability during the three and six months ended June 30, 2014, is due to the time value of money. The undiscounted amount of contingent consideration that we could pay to the former stockholders of Trius under the merger agreement ranges from zero to $108.4 million. SIVEXTRO is a once daily oxazolidinone antibiotic intravenous and oral treatment for certain serious skin infections caused by susceptible Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA).

Adolor Corporation—The fair value of contingent consideration payable by us to the former stockholders of Adolor upon the achievement of certain regulatory milestones, sales milestones or a combination of both, with respect to bevenopran, was estimated to be $45.4 million and $44.2 million as of June 30, 2014 and December 31, 2013, respectively. The change in the fair value of the contingent consideration liability during the three and six months ended June 30, 2014, is due to the time value of money. The aggregate remaining, undiscounted amount of contingent consideration that we could pay to the former stockholders of Adolor under the merger agreement ranges from zero to $233.8 million. Bevenopran is in development for the potential treatment of opioid-induced constipation (OIC) in patients with chronic, non-cancer pain.

Calixa Therapeutics Inc.—The fair value of contingent consideration relating to amounts payable by us to the former stockholders of Calixa upon the achievement of certain regulatory and sales milestones with respect to ceftolozane/tazobactam was estimated to be $108.5 million and $105.6 million as of June 30, 2014 and December 31, 2013, respectively. The change in the fair value of the contingent consideration liability during the three and six months ended June 30, 2014, is due to the time value of money. The aggregate remaining, undiscounted amount of contingent consideration that we could pay to the former stockholders of Calixa under the merger agreement ranges from zero to $180.0 million. Ceftolozane/tazobactam is being developed as a potential treatment for complicated urinary tract infections (cUTI), complicated intra-abdominal infections (cIAI), hospital-acquired bacterial pneumonia (HABP) and ventilator-associated bacterial pneumonia (VABP).

Changes in the fair value of our Level 3 contingent consideration were as follows:

	Contingent Consideration
	(in thousands)
Beginning balance as of December 31, 2013	$	154,761
Contingent consideration expense	4,375
Ending balance as of June 30, 2014	$	159,136

Other Fair Value Measurements

Debt

We estimate the fair value of our 2020 Notes, 2018 Notes and 2017 Notes (Convertible Senior Notes) by using a quoted market rate in an inactive market, which is classified as a Level 2 input. The estimated fair values of the Convertible Senior Notes consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
2020 Notes	$	516,938	$	516,843
2018 Notes	392,070		403,473
2017 Notes	556,008		550,317
Total estimated fair value of Convertible Senior Notes	$	1,465,016	$	1,470,633

See Note H., “Debt,” for additional information.

Payable to Glaxo

In connection with the acquisition of Adolor in December 2011, we assumed the obligation to pay Glaxo Group Limited (Glaxo) six annual payments aggregating to $22.5 million as a result of Adolor’s termination of its collaboration agreement with Glaxo in September 2011. The amount payable to Glaxo was recorded at its estimated fair value at the time of acquisition and is allocated between current and non-current liabilities within the condensed consolidated balance sheets based on the contractual payment dates. The fair value estimate utilizes a discount rate, which is classified as a Level 3 input. As of June 30,

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2014, the $14.6 million carrying value of the remaining annual payments to Glaxo approximates its fair value. Imputed interest on the amount payable to Glaxo is recorded as interest expense within the condensed consolidated statements of comprehensive income.

E.INVENTORY

Inventory consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
Raw materials	$	30,767	$	17,904
Work-in-process	6,723		8,104
Finished goods	22,589		31,655
Inventory	60,079		57,663
Included in other assets:
Raw materials	52,801		57,284
Work-in-process	894		1,882
Total	$	113,774	$	116,829

Inventory included in other assets within the condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013, represents the amount of DIFICID and ENTEREG inventory held in excess of the amount expected to be sold within one year. In connection with the acquisitions of Optimer and Adolor, we recorded the acquired DIFICID and ENTEREG inventory, respectively, at fair value, which required a step-up adjustment to recognize the inventory at its expected net realizable value.

F.GOODWILL, IPR&D AND OTHER INTANGIBLE ASSETS, NET

Goodwill

Our goodwill balance as of June 30, 2014, remained unchanged from the balance as of December 31, 2013. As of June 30, 2014, there were no accumulated impairment losses. Goodwill has been assigned to our single reporting unit, which is the single operating segment by which the chief operating decision maker manages the business. See Note L., “Segment Information,” for additional information.

IPR&D

The carrying value of our IPR&D assets consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
Development and potential commercialization of:
SIVEXTRO	$	—	$	659,000
Bevenopran	43,400		43,400
Ceftolozane/tazobactam for HABP and VABP	174,000		174,000
Ceftolozane/tazobactam for cUTI and cIAI	20,000		20,000
Total IPR&D	$	237,400	$	896,400

Upon FDA approval of SIVEXTRO in the U.S. in June 2014, we reclassified the IPR&D related to SIVEXTRO to acquired technology rights within other intangible assets.

Other Intangible Assets

Other intangible assets, net consisted of the following at:

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	June 30, 2014			December 31, 2013
	(in thousands)
Patents	$	2,627		$	2,627
Acquired technology rights	1,451,800			788,800
Other intangible assets, gross	1,454,427			791,427
Less: accumulated amortization — patents	(2,523		)	(2,493		)
accumulated amortization — acquired technology rights	(101,521		)	(67,868		)
Other intangible assets, net	$	1,350,383		$	721,066

Amortization expense, which is primarily included within cost of product revenue, was $17.5 million and $5.2 million for the three months ended June 30, 2014 and 2013, respectively, and $33.7 million and $10.2 million for the six months ended June 30, 2014 and 2013, respectively. The increase in amortization expense was primarily due to amortization of the DIFICID intangible asset associated with our acquisition of Optimer in October 2013, which is included in acquired technology rights. The increase in acquired technology rights is due to the reclassification of SIVEXTRO from IPR&D, as discussed above. Additionally, we capitalized a $4.0 million milestone payment to Dong-A ST Co., Ltd in connection with the FDA approval of SIVEXTRO, which was included in acquired technology rights as of June 30, 2014.

The estimated aggregate amortization of intangible assets as of June 30, 2014, for each of the five succeeding years and thereafter is as follows:

	(in thousands)
Remainder of 2014	$	56,003
2015	112,004
2016	110,724
2017	109,484
2018	109,484
2019 and thereafter	852,684
Total	$	1,350,383

G.ACCRUED LIABILITIES

Accrued liabilities consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
Accrued royalties	$	77,036	$	83,591
Accrued clinical trials	52,839		44,830
Accrued bonus	11,113		24,540
Accrued restructuring	5,475		19,753
Accrued Medicaid, Medicare and commercial rebates	21,650		18,595
Accrued benefits and incentive compensation	14,655		18,183
Other accrued costs	40,188		35,586
Accrued liabilities	$	222,956	$	245,078

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H.          DEBT

Convertible Senior Notes

Long-term debt, net is comprised of our Convertible Senior Notes, as follows:

	June 30, 2014			December 31, 2013
	(in thousands)
2020 Convertible Senior Notes
Principal amount outstanding	$	450,000		$	450,000
Unamortized discount	(104,235		)	(111,015		)
Net carrying amount	345,765			338,985
2018 Convertible Senior Notes
Principal amount outstanding	350,000			350,000
Unamortized discount	(59,497		)	(65,733		)
Net carrying amount	290,503			284,267
2017 Convertible Senior Notes
Principal amount outstanding	228,810			228,822
Unamortized discount	(30,277		)	(34,244		)
Net carrying amount	198,533			194,578
Total Convertible Senior Notes
Principal amount outstanding	1,028,810			1,028,822
Unamortized discount	(194,009		)	(210,992		)
Net carrying amount	$	834,801		$	817,830

In accordance with accounting guidance for debt with conversion and other options, we separately accounted for the liability and equity components of the Convertible Senior Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to our ability to settle the Convertible Senior Notes in cash, common stock or a combination of cash and common stock upon conversion, at our option. The allocation was performed in a manner that reflected our non-convertible borrowing rate for similar debt. The equity component of the Convertible Senior Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the convertible notes and the fair value of the liability of the Convertible Senior Notes on their respective issuance dates. The debt discount is amortized to interest expense using the effective interest method over the expected life of a similar liability without an equity component.

2018 Convertible Senior Notes and 2020 Convertible Senior Notes

In September 2013, we issued $800.0 million aggregate principal amount of convertible senior unsecured notes in two series, with one series consisting of $350.0 million aggregate principal amount of the 2018 Notes, and the other series consisting of $450.0 million aggregate principal amount of the 2020 Notes, resulting in net proceeds to us, after debt issuance costs, of $775.6 million. The 2018 Notes and 2020 Notes are convertible into common stock at an initial conversion rate of 12.1318 shares of common stock per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which is equivalent to an initial conversion price of approximately $82.43 per share of common stock. Holders of the 2018 Notes and 2020 Notes may convert their notes at any time prior to the close of business on the business day immediately before March 1, 2018, or March 1, 2020, respectively, only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events.

The 2018 Notes and 2020 Notes will mature on September 1, 2018 and 2020, respectively, unless repurchased or converted in accordance with their terms prior to such date. The 2018 Notes and 2020 Notes bear cash interest at an annual rate of 1.125%

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and 1.875%, respectively, which is payable on March 1st and September 1st of each year, beginning on March 1, 2014. As of June 30, 2014, the “if-converted value” did not exceed the principal amount of the 2018 Notes and 2020 Notes.

2017 Convertible Senior Notes

In October 2010, we issued $450.0 million aggregate principal amount of the 2017 Notes, resulting in net proceeds to us, after debt issuance costs, of $436.0 million. In September 2013, holders of $221.2 million aggregate principal amount of the 2017 Notes converted their notes into common stock in privately negotiated transactions. The remaining 2017 Notes are convertible into common stock at an initial conversion rate of 34.2759 shares of common stock per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which is equivalent to an initial conversion price of approximately $29.18 per share of common stock. Holders of the 2017 Notes may convert the 2017 Notes at any time prior to the close of business on the business day immediately preceding May 1, 2017, only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events.

The remaining 2017 Notes will mature on November 1, 2017, unless repurchased or converted in accordance with their terms prior to such date. The 2017 Notes bear cash interest at an annual rate of 2.50%, which is payable on May 1st and November 1st of each year. As of June 30, 2014, the “if-converted value” exceeded the remaining principal amount of the 2017 Notes by $318.8 million.

Convertible Bond Hedge and Warrant Transactions

In September 2013, in connection with the issuance of the 2018 Notes and the 2020 Notes, to minimize the impact of potential dilution to our common stock upon conversion of such notes, we entered into convertible bond hedges covering 9,705,442 shares of our common stock. The convertible bond hedges have an exercise price of approximately $82.43 per share and are exercisable when and if the 2018 Notes and 2020 Notes are converted. If upon conversion of the 2018 Notes and 2020 Notes, the price of our common stock is above the exercise price of the convertible bond hedges, the counterparties will deliver shares of our common stock and/or cash with an aggregate value approximately equal to the difference between the price of our common stock at the conversion date and the exercise price, multiplied by the number of shares of our common stock related to the convertible bond hedge transaction being exercised. The convertible bond hedges are separate transactions entered into by us and are not part of the terms of the 2018 Notes, 2020 Notes or the warrants described below. Holders of the 2018 Notes, 2020 Notes and warrants will not have any rights with respect to the convertible bond hedges. We paid $179.4 million for these convertible bond hedges and recorded this amount as a reduction to additional paid-in capital, net of tax.

Concurrently with entering into the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants to acquire, subject to customary adjustments, 9,705,442 shares of our common stock with an exercise price of approximately $96.43 per share, also subject to adjustment. The warrants are exercisable over the 80 trading day period beginning on November 30, 2018, or November 30, 2020, as applicable. The warrants will have a dilutive effect to the extent that the market price per share of our common stock, as measured under the terms of the warrant transactions, exceeds the applicable exercise price of the warrants during the measurement period at the maturity of the warrants. We received $121.7 million for these warrants and recorded this amount to additional paid-in capital.

Credit Facility

In November 2012, we entered into a $150.0 million three-year senior secured, syndicated revolving credit facility (the credit facility) with a group of lenders, including Royal Bank of Canada (RBC), as administrative agent. In September 2013, we entered into an amendment to the credit facility. The credit facility was amended to: (i) permit the 2018 Notes, 2020 Notes and the convertible bond hedge and warrant transactions; (ii) adjust the definition of consolidated EBITDA to permit specific acquisitions; (iii) modify certain covenants related to investments, restricted payments and indebtedness; (iv) add additional financial covenants including a senior secured leverage ratio and minimum liquidity requirement; (v) increase the maximum permitted level of our total leverage ratio; and (vi) allow for the option to increase the credit facility by up to an additional $150.0 million, subject to pro forma compliance with financial covenants under the credit facility. In addition, the amendment added a new pricing tier based on our total leverage ratio. As a result, the applicable margin ranges from 2.25% to 3.00% for the Eurodollar rate and 1.25% to 2.00% for the base rate based on our total leverage ratio. The credit facility, which includes a

17

sublimit for letters of credit, is for general corporate purposes. There were no outstanding borrowings under the credit facility as of June 30, 2014, or December 31, 2013.

I.             EMPLOYEE STOCK BENEFIT PLANS

Summary of Stock-Based Compensation Plans

In June 2014, our stockholders approved our 2014 Omnibus Incentive Plan (2014 OIP), which replaced our 2012 Equity Incentive Plan (2012 EIP). The 2014 OIP is the only existing equity compensation plan from which we are authorized to make equity-based awards to our employees, directors, consultants and advisors. Under the 2014 OIP, we reserved 4,200,000 new shares of common stock plus 1,637,295 shares that remained available for grant under the 2012 EIP as of the effective date of the 2014 OIP for equity-based awards to our employees, officers, directors, consultants and advisors in the form of stock options, RSUs, performance-based restricted stock units (PRSUs), stock grants and stock appreciation rights. In addition, the number of shares of common stock available for grant under the 2014 OIP includes the number of shares of common stock subject to stock options and RSUs that were granted and outstanding under the 2012 EIP, 2010 Equity Incentive Plan (2010 EIP), the Amended and Restated 2002 Directors’ Equity Incentive Plan and the Amended and Restated 2000 Equity Incentive Plan (2000 EIP) as of the effective date of the 2014 OIP, and that may become available for grant upon the forfeiture, cancellation, expiration or termination of those awards. As of June 30, 2014, there were 5,711,640 shares remaining available for grant under the 2014 OIP. Additionally in June 2014, our stockholders approved our 2014 Employee Stock Purchase Plan (2014 ESPP). The maximum aggregate number of shares of our common stock that may be purchased under the 2014 ESPP is 2,000,000 shares, subject to adjustment as provided for in the plan.

Summary of Stock-Based Compensation Expense

Stock-based compensation expense recorded in the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2014 and 2013, is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Stock-based compensation expense allocation:
Cost of product revenues	$	131		$	129		$	269		$	254
Research and development expense	3,527			2,978			6,719			5,767
Selling, general and administrative expense	6,469			5,303			11,980			10,118
Total stock-based compensation	10,127			8,410			18,968			16,139
Income tax effect	(3,466		)	(2,640		)	(6,551		)	(5,093		)
After-tax effect of stock-based compensation expense	$	6,661		$	5,770		$	12,417		$	11,046

General Option Information

A summary of option activity for the six months ended June 30, 2014, is as follows:

	Number of shares			Weighted Average Exercise Price
Outstanding as of December 31, 2013	7,478,169			$	31.61
Granted	736,161			$	72.60
Exercised	(753,739		)	$	24.13
Canceled	(130,645		)	$	41.28
Outstanding as of June 30, 2014	7,329,946			$	36.32
Vested and exercisable as of June 30, 2014	4,716,807			$	28.66
Weighted average grant-date fair value of options granted during the period	$	19.39

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RSU Information

A summary of RSU activity, including PRSUs, for the six months ended June 30, 2014, is as follows:

	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2013	882,272		$	40.97
Granted	530,869		$	72.42
Vested	(276,251	)	$	37.07
Forfeited	(44,904	)	$	49.49
Nonvested as of June 30, 2014	1,091,986		$	56.89

J.            RESTRUCTURING

The following table summarizes the activity within the restructuring liability included in accrued liabilities and other long-term liabilities within the condensed consolidated balance sheets:

	Employee-Related Severance			Lease Restructuring			Total
				(in thousands)
Balance at December 31, 2013	$	19,173		$	4,495		$	23,668
Restructuring expense	5,011			897			5,908
Cash payments made	(20,344		)	(1,766		)	(22,110		)
Balance at June 30, 2014	$	3,840		$	3,626		$	7,466

In connection with our acquisitions of Trius and Optimer, we committed to a restructuring program in the fourth quarter of 2013, which included severance benefits primarily related to former Optimer employees and restructuring Optimer’s lease obligations related to its New Jersey and California facilities. Additionally, in the first quarter of 2014, we committed to a restructuring program for severance benefits related to former Trius employees. The restructuring liability associated with all severance benefits is expected to be paid during 2014.

In connection with our acquisition of Optimer, we vacated Optimer’s leased premises, as we do not intend to occupy or utilize this space for our operations. As a result, we recorded a lease restructuring liability, which represents the lease obligations associated with the vacated space in both the Optimer New Jersey and California facilities, net of expected sublease income. The restructuring liability associated with the leases is expected to be paid over the lease terms ending in 2018 and 2022 for the New Jersey and California facilities, respectively. Any future changes to our estimate of the liability will be recorded as additional restructuring expense or income.

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K.            INCOME TAXES

The following tables reconcile the federal statutory tax rate to the effective tax rates and the related impact to the provision (benefit) for income taxes for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013
	Amount			Rate		Amount				Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	9,813		35.0	%	$	7,488			35.0	%
Differential arising from:
State	66			0.2	%	364				1.7	%
Non-deductible expenses	932			3.3	%	392				1.8	%
Domestic manufacturing deduction	—			—	%	(689			)	(3.2	)%
Contingent consideration	(8,938		)	(31.9	)%	375				1.8	%
2013 Federal research credit	—			—	%	(1,188			)	(5.5	)%
Impact of reserve for uncertain tax positions	84			0.3	%	(805			)	(3.8	)%
Foreign rate differential	1,512			5.4	%	(18			)	(0.1	)%
Other	539			2.0	%	234				1.1	%
Total	$	4,008		14.3	%	$		6,153		28.8	%

	Six Months Ended June 30, 2014					Six Months Ended June 30, 2013
	Amount			Rate		Amount			Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	14,789		35.0	%	$	8,744		35.0	%
Differential arising from:
State	(206		)	(0.5	)%	442			1.8	%
Non-deductible expenses	(868		)	(2.0	)%	402			1.6	%
Domestic manufacturing deduction	—			—	%	(809		)	(3.2	)%
Contingent consideration	(22,215		)	(52.6	)%	418			1.7	%
2013 Federal research credit	—			—	%	(1,307		)	(5.2	)%
2012 Federal research credit	—			—	%	(4,041		)	(16.2	)%
Impact of reserve for uncertain tax positions	169			0.4	%	(409		)	(1.6	)%
Foreign rate differential	1,762			4.2	%	(20		)	(0.1	)%
Other	563			1.3	%	234			0.8	%
Total	$	(6,006	)	(14.2	)%	$	3,654		14.6	%

In the table above, permanent differences that increase the tax benefit for the six months ended June 30, 2014, are shown as decreases to the effective tax rate. Permanent differences that decrease the tax benefit for the six months ended June 30, 2014, are shown as increases to the effective tax rate.

The decrease in our effective rate for the three and six months ended June 30, 2014, is primarily due to the impact of non-taxable contingent consideration income recorded during the three and six months ended June 30, 2014, related to the change in market value of the Optimer CVRs, which is a discrete adjustment for which no tax expense was recorded. The effective tax for the three and six months ended June 30, 2013, included $1.2 million and $5.3 million, respectively, in benefits from federal research credits, which were not recorded during the three and six months ended June 30, 2014, due to the expiration of the federal research tax credit at the end of 2013. If the credit is extended, it could have an impact on our effective tax rate in future periods.

Contingent consideration will fluctuate as a result of any changes in the fair value assumptions based on any additional data received on our SIVEXTRO, ceftolozane/tazobactam and/or bevenopran programs, as well as based upon the market price of the CVRs issued in connection with the acquisition of Optimer. Any significant contingent consideration expense or income will result in a significantly higher or lower effective tax rate because contingent consideration expense is largely not deductible for tax purposes and contingent consideration income is not taxable.

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Our total uncertain tax positions were $52.7 million and $43.1 million as of June 30, 2014 and December 31, 2013, respectively. The increase in our uncertain tax positions was primarily related to the valuation of intellectual property rights for SIVEXTRO direct sales outside of the U.S., which were transferred to one of our foreign subsidiaries during the three months ended June 30, 2014. Of the total uncertain tax positions as of June 30, 2014, $17.6 million were included in other long-term liabilities within the condensed consolidated balance sheets and $35.1 million were offset against deferred tax assets. The Company’s 2011 and 2012 federal income tax returns are currently under audit by the Internal Revenue Service (IRS). Of the total uncertain tax positions at June 30, 2014, approximately $13.7 million relate to positions on the 2011 and 2012 tax returns. Based on the outcome of the audit, some or all of these positions may be effectively settled in the next 12 months.

L.         SEGMENT INFORMATION

We have one operating segment: the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Our entire business is managed by a single management team, which reports to our Chief Executive Officer. For the three months ended June 30, 2014 and 2013, we generated approximately 90% and 94% of revenues, respectively, within the U.S., and for the six months ended June 30, 2014 and 2013, we generated approximately 91% and 94% of revenues, within the U.S. As of June 30, 2014 and December 31, 2013, substantially all of our long-lived assets were held within the U.S.

M.        LEGAL PROCEEDINGS

CUBICIN Patent Infringement Litigation

In 2012, we filed patent infringement lawsuits in the U.S. District Court for the District of Delaware against Hospira, Inc. (Hospira) in response to certain Paragraph IV Certification Notice Letters from Hospira notifying us that Hospira had submitted an Abbreviated New Drug Application (ANDA) and New Drug Application (NDA) to the FDA seeking approval to market generic versions of CUBICIN. The trial in these related actions was held in the U.S. District Court for the District of Delaware in February 2014. In July 2014, we entered into an agreement with Hospira under which Hospira has agreed not to launch a daptomycin product in the U.S. until the earlier of December 1, 2014, or the court’s decision on the validity or infringement of the relevant patents in these actions.

In October 2013, we filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Strides, Inc., on behalf of Agila Specialties Private Limited (collectively, Strides), in response to a Paragraph IV Certification Notice Letter from Strides notifying us that Strides had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN.

In July 2014, we filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Fresenius Kabi USA, LLC (Fresenius) in response to a Paragraph IV Certification Notice Letter from Fresenius notifying us that Fresenius had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN.

We cannot predict the outcome of these CUBICIN patent infringement litigations, and any final, unappealable adverse result in any of these litigations would likely have material adverse effects on our business, results of operations and financial condition.

Optimer U.S. Governmental Investigations

We are continuing to cooperate with the investigations by the SEC and the U.S. Department of Justice in their review of potential violations by Optimer of certain applicable laws, which occurred prior to our acquisition of Optimer. The investigations relate to an attempted share grant by Optimer and certain related matters in 2011, including a potentially improper payment to a research laboratory involving an individual associated with the share grant, that may have violated certain applicable laws, including the Foreign Corrupt Practices Act (FCPA). Optimer had already taken remedial steps in response to its internal investigation of these matters; nonetheless, these events could result in lawsuits being filed against us or Optimer and certain of Optimer’s former employees and directors, or certain of our employees. Such persons could also be the subject of criminal or civil enforcement proceedings and we may be required to indemnify such persons for any costs or losses incurred in connection with such proceedings. We cannot predict the ultimate resolution of these matters, whether we or such persons will be charged with violations of applicable civil or criminal laws, or whether the scope of the investigations will be extended to new issues. We also cannot predict what potential penalties or other remedies, if any, the authorities may seek against us, any of our employees, or any of Optimer’s former employees and directors, or what the collateral consequences may be of any such government actions. We do not have any amounts accrued related to potential penalties or other remedies related to these matters as of June 30, 2014, and cannot estimate a reasonably possible range of loss. In the event any such lawsuit is

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filed or enforcement proceeding is initiated, we could be subject to a variety of risks and uncertainties that could have material adverse effects on our business, results of operations and financial condition.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains and incorporates by reference forward-looking statements. 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,” “believe,” “plan,” “intend,” “estimate,” or other similar words. You are cautioned that forward-looking statements are based on current expectations, and are inherently uncertain, and you should not place substantial reliance on such statements. 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 discussed in Item 1A of Part I under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 and in Item 1A of Part II under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. The information contained herein is provided by us as of the date of this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q include, without limitation, statements regarding our expectations with respect to:

(i) our financial performance, including both domestic and international revenues, expenses, including research and development and selling, general and administrative expenses, capital expenditures, gross margin and income taxes, including the availability of federal research tax credits, and our expected available cash and use of cash and net operating loss (NOL) carryforwards;

(ii) the future performance of our international alliance partners;

(iii) the manufacturing and commercialization, including pricing and reimbursement of CUBICIN® (daptomycin for injection), DIFICID® (fidaxomicin), ENTEREG® (alvimopan), SIVEXTROTM (tedizolid phosphate) and our product candidates, including sales forecasts, the rate at which we exhaust our existing inventory, and the timing of financial milestones related thereto;

(iv) the development, regulatory filing and review, timing of commercial launches and commercial potential of our products and product candidates, such as ceftolozane/tazobactam, bevenopran, and surotomycin, including (a) the anticipated timing and results of our clinical trials, timing and results of our meetings with, submissions to, and responses from regulatory authorities and (b) the expected benefits from the Qualified Infectious Disease Product (QIDP) designations for ceftolozane/tazobactam and surotomycin;

(v) our efforts to continue adding products and product candidates through internal development, in-licensing and acquisition;

(vi) the expected benefits from our acquisitions of Trius Therapeutics, Inc. (Trius) and Optimer Pharmaceuticals, Inc. (Optimer); and

(vii) the impact on our business related to our receipt of a Form 483 from the U.S. Food and Drug Administration (FDA) in July 2014.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the condensed consolidated financial statements and accompanying notes to assist readers in understanding our results of operations, financial condition and cash flows. We have organized the MD&A as follows:

·Overview—This section provides financial highlights, a summary of our product and product pipeline updates, and a business update for the three and six months ended June 30, 2014.

·Results of Operations—This section provides a review of our results of operations for the three and six months ended June 30, 2014 and 2013.

·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.

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·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 condensed consolidated financial statements.

·Recent Accounting Pronouncements—This section provides a summary of recently issued accounting pronouncements.

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. Our products and product candidates are used, or are being developed to be used, primarily in hospitals and other acute care settings, including home infusion and hospital outpatient clinics. We have four marketed products, three product candidates that have reached Phase 3 clinical trials, and several earlier-stage programs, each being developed to address areas of significant medical needs.

Financial Highlights

The following table is a summary of our selected financial results for the periods presented. See the “Results of Operations” section of this MD&A for additional information.

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(in millions, except per share data)
Total revenues, net	$	294.4	$	258.8	$	555.6	$	488.7
Operating income	$	42.2	$	28.1	$	70.5	$	37.9
Net income	$	24.0	$	15.2	$	48.3	$	21.3
Basic net income per common share	$	0.32	$	0.23	$	0.64	$	0.33
Diluted net income per common share	$	0.30	$	0.23	$	0.61	$	0.32

Marketed Products

Our four marketed products are as follows:

·CUBICIN—a once daily intravenous (I.V.) lipopeptide antibiotic approved in the United States (U.S.) for the treatment of certain serious skin and bloodstream infections caused by susceptible Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). CUBICIN is also approved in the European Union (EU), Japan and many other countries for similar indications.

·DIFICID—an oral macrolide antibiotic approved in the U.S. for the treatment of Clostridium difficile-associated diarrhea (CDAD). DIFICID is approved in a number of other countries outside of the U.S. for treatment of Clostridium difficile (C. difficile) infection (CDI).

·ENTEREG—an oral, peripherally-acting mu-opioid receptor antagonist. ENTEREG is approved in the U.S. to accelerate upper and lower gastrointestinal (GI) recovery following surgeries that include partial bowel resections with primary anastomosis. ENTEREG is not approved for marketing outside of the U.S.

·SIVEXTRO—a once daily I.V. and oral oxazolidinone antibiotic approved in the U.S. for the treatment of certain serious skin infections caused by susceptible Gram-positive bacteria, including MRSA. SIVEXTRO was approved in the U.S. on June 20, 2014 for the treatment of adult acute bacterial skin and skin structure infections (ABSSSI). We commercially launched SIVEXTRO in the U.S. at the end of the second quarter of 2014. We submitted a New Drug Submission to Health Canada in March 2014 seeking approval of tedizolid phosphate for the treatment of ABSSSI. In February 2014, the European Medicines Agency (EMA) accepted for review our marketing authorization application (MAA) seeking approval of SIVEXTRO for the treatment of certain complicated skin and soft tissue infections (cSSTI). Additionally, we initiated a Phase 3 clinical trial to assess the safety and efficacy of SIVEXTRO in hospital-

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acquired bacterial pneumonia (HABP)/ventilator-associated bacterial pneumonia (VABP) in June 2014. In 2013, the FDA designated SIVEXTRO as a QIDP for its now approved indication in ABSSSI, as well as for its potential indications in HABP and VABP, in each of the I.V. and oral dosage forms.

Product Pipeline Updates

As of June 30, 2014, we have three product candidates that completed or are in Phase 3 clinical trials, two of which, assuming successful clinical trial results and/or receipt of required regulatory approvals, could be used to treat hospitalized patients with serious infections. Our three product candidates that have reached Phase 3 clinical trials are as follows:

·Ceftolozane/tazobactam—an I.V. antibiotic candidate in development as a potential treatment for certain infections caused by susceptible Gram-negative bacteria including Pseudomonas aeruginosa and extended-spectrum beta-lactamase (ESBL) producing strains of bacteria such as Escherichia coli and Klebsiella pneumoniae in the following potential indications: complicated urinary tract infections (cUTI), complicated intra-abdominal infections (cIAI), and HABP/VABP. Phase 3 clinical trials for cUTI and cIAI commenced in 2011. In November 2013, we announced that ceftolozane/tazobactam met its primary endpoint of statistical non-inferiority compared to levofloxacin for cUTI, and in December 2013, we announced that ceftolozane/tazobactam met its primary endpoint of statistical non-inferiority compared to meropenem for cIAI. In June 2014, the FDA accepted, with Priority Review, the New Drug Application (NDA) we submitted in April 2014 seeking approval for ceftolozane/tazobactam for cUTI and cIAI. We plan to file an MAA with the EMA for both indications in the second half of 2014. We expect to initiate a Phase 3 clinical trial to assess the safety and efficacy of ceftolozane/tazobactam in HABP/VABP in 2014. The FDA has designated ceftolozane/tazobactam as a QIDP in all of the potential indications that we are currently developing, and as a result, ceftolozane/tazobactam is eligible for certain incentives, including an accelerated NDA review period, and if ceftolozane/tazobactam is ultimately approved by the FDA, a five-year extension of Hatch-Waxman exclusivity.

·Surotomycin—an oral antibiotic candidate in development as a potential treatment for CDAD. We began Phase 3 clinical trials of surotomycin in July 2012. CDAD is a serious disease in the U.S. and many parts of the world, with significant levels of recurrence associated with increasing risk of mortality. Data from our Phase 2 clinical trial, as announced in 2011, showed that treatment with surotomycin reduced recurrence in study subjects by more than 50% when compared with study subjects treated with the standard of care, oral vancomycin. The FDA has designated surotomycin as a QIDP, and as a result, surotomycin is also eligible for the same incentives as ceftolozane/tazobactam, as discussed above.

·Bevenopran—an oral investigational therapy in development as a potential treatment for opioid-induced constipation (OIC). OIC is the most common side effect for patients undergoing long-term treatment with opioids to relieve chronic pain, such as serious back pain. During the fourth quarter of 2013, we decided to stop our Phase 3 efficacy trials in light of the FDA’s planned 2014 Advisory Committee meeting to discuss the potential for elevated cardiovascular events related to mu-opioid antagonists and the enrollment challenges associated with the current design of these Phase 3 efficacy trials, which occurred in June 2014. Enrollment in the Phase 3 long-term safety study we initiated in October 2012 was completed in February 2014, and we now expect to complete the study in the second half of 2014. Based on our assessment of the outcome of the Advisory Committee meeting, insights from the FDA’s expected action on the naloxegol NDA in September 2014, and the results of our long-term safety study, we may re-evaluate whether to proceed with any new Phase 3 efficacy trials, and the design of such trials.

We continue to seek opportunities to build our pipeline of potential acute care therapies through our business development and internal discovery efforts.

Business Update

In July 2014, following a routine inspection of our facilities, we received a Form 483 from the FDA containing certain observations regarding our facilities. In connection with these observations, in August 2014 we voluntarily recalled certain lots of CUBICIN in two separate recalls due to, among other things, the potential presence of particulate matter, including glass particulate, in vials produced by certain of our contract manufacturers. While we have estimated the financial impact of these recalls to be immaterial, the costs associated with our efforts to address the observations contained in the Form 483 are uncertain.

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Results of Operations for the Three and Six Months Ended June 30, 2014 and 2013

Revenues

The components of our net revenues for the periods presented are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014		2013		% Change		2014		2013		% Change
	(in millions)						(in millions)
U.S. product revenues, net	$	265.2	$	239.5	11	%	$	505.7	$	452.8	12	%
International product revenues	17.5		15.0		17	%	34.5		27.4		26	%
Service revenues	—		3.7		(100	)%	—		7.3		(100	)%
Other revenues	11.7		0.6		1,687	%	15.4		1.2		1,079	%
Total revenues, net	$	294.4	$	258.8	14	%	$	555.6	$	488.7	14	%

U.S. Product Revenues, net

Our net U.S. product revenues consisted of the following for the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014		2013		% Change		2014		2013		% Change
	(in millions)						(in millions)
U.S. CUBICIN product revenues, net	$	234.7	$	227.1	3	%	$	446.9	$	429.2	4	%
U.S. DIFICID product revenues, net	15.9		—		N/A		30.3		—		N/A
U.S. ENTEREG product revenues, net	14.6		12.4		18	%	28.5		23.6		21	%
Total U.S. product revenues, net	$	265.2	$	239.5	11	%	$	505.7	$	452.8	12	%

Our net U.S. product revenues increased $25.7 million and $52.9 million for the three and six months ended June 30, 2014, respectively. The increase is primarily due to the addition of DIFICID to our product portfolio as a result of our acquisition of Optimer in October 2013, and an increase of $7.6 million and $17.7 million for the three and six months ended June 30, 2014, respectively, in net U.S. CUBICIN product revenues.

Our total gross U.S. product revenues are offset by provisions as follows for the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			% Change		2014			2013			% Change
	(in millions)									(in millions)
Gross U.S. product revenues	$	318.6		$	272.3		17	%	$	604.1		$	518.2		17	%
Provisions offsetting U.S. product revenues:
Contractual adjustments	(21.9		)	(16.0		)	37	%	(41.8		)	(30.0		)	39	%
Governmental rebates	(31.5		)	(16.8		)	88	%	(56.6		)	(35.4		)	60	%
Total provisions	(53.4		)	(32.8		)	63	%	(98.4		)	(65.4		)	50	%
U.S. product revenues, net	$	265.2		$	239.5		11	%	$	505.7		$	452.8		12	%

Our gross U.S. product revenues increased $46.3 million and $85.9 million for the three and six months ended June 30, 2014, respectively. The increase was primarily due to: (i) price increases of 5.5% for CUBICIN in July 2013 and January 2014, which resulted in $28.6 million and $53.8 million of additional gross CUBICIN U.S. product revenues for the three and six months ended June 30, 2014, respectively; and (ii) the addition of DIFICID to our product portfolio through the 2013 acquisition of Optimer, which resulted in additional gross U.S. product revenues of $21.5 million and $41.2 million for the three and six months ended June 30, 2014, respectively. These increases were partially offset by a decrease in CUBICIN vials sold in the U.S., which resulted in a decrease of $6.0 million and $14.1 million in gross CUBICIN U.S. product revenues for the three and six months ended June 30, 2014, respectively.

Certain of our product sales qualify for rebates or discounts from standard list pricing due to contractual agreements or government-sponsored programs. Our contractual adjustments include provisions for returns, pricing and early payment discounts extended to our external customers, as well as wholesaler distribution fees, and other commercial rebates. Our governmental rebates represent estimated amounts for government-mandated rebates and discounts relating to federal and state

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programs, such as Medicaid, the Veterans’ Administration and Department of Defense (DoD) programs, the Medicare Part D Coverage Gap Discount Program and certain other qualifying federal and state government programs. The increase in provisions against gross product revenue for the three and six months ended June 30, 2014, was primarily driven by (i)increased U.S. sales of CUBICIN; (ii) the addition of DIFICID and (iii) the reversal of approximately $6.6 million of previously reserved for Medicaid program rebates during the three months ended June 30, 2013, as a result of receiving claims information from certain state governments and additional data regarding the usage of CUBICN by managed care organizations.

International Product Revenues

Our international CUBICIN product revenues are primarily based on sales of CUBICIN by Novartis AG (Novartis), our distribution partner in the EU and certain other territories. The increase in international product revenues for the three and six months ended June 30, 2014 is primarily due to an increase in CUBICIN sold by Novartis in its territories.

Costs and Expenses

Our costs and expenses consisted of the following for the periods presented:

	Three Months Ended June 30,							Six Months Ended June 30,
	2014			2013		% Change		2014			2013		% Change
	(in millions)							(in millions)
Cost of product revenues	$	88.6		$	63.0	41	%	$	162.2		$	118.7	37	%
Research and development expense	104.9			115.2		(9	)%	225.5			229.4		(2	)%
Contingent consideration (income) expense	(24.8		)	2.6		(1,058	)%	(58.1		)	4.6		(1,352	)%
Selling, general and administrative expense	80.0			49.9		60	%	149.7			98.1		53	%
Restructuring charges	3.5			—		N/A		5.9			—		N/A
Total costs and expenses	$	252.2		$	230.7	9	%	$	485.2		$	450.8	8	%

Cost of Product Revenues

Our cost of product revenues are comprised primarily of royalties owed on worldwide net sales of CUBICIN and U.S. net sales of ENTEREG under our license agreements with Eli Lilly & Co. (Eli Lilly), costs to procure, manufacture and distribute CUBICIN, DIFICID, ENTEREG and SIVEXTRO, and the amortization of the ENTEREG, DIFICID and SIVEXTRO intangible assets. Our gross margin for the three and six months ended June 30, 2014, was 68.7% and 70.0%, respectively, compared to 75.2% and 75.3% for the three and six months ended June 30, 2013, respectively. The decrease in our gross margin is primarily due: (i) to $11.5 million and $21.7 million of intangible asset amortization resulting from the acquisitions of Optimer and Trius during the three and six months ended June 30, 2014, respectively; and (ii) a $6.3 million and $7.0 million increase in the provision for inventory reserves during the three and six months ended June 30, 2014, respectively.

Research and Development Expense

Our research and development expense consisted of the following for the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014		2013		% Change		2014		2013		% Change
	(in millions)						(in millions)
External expenses	$	52.8	$	61.6	(14	)%	$	120.4	$	114.4	5	%
Unallocated internal expenses	46.1		38.0		21	%	99.1		74.4		33	%
Milestone and upfront payments	6.0		15.6		(62	)%	6.0		40.6		(85	)%
Total research and development expenses	$	104.9	$	115.2	(9	)%	$	225.5	$	229.4	(2	)%

Our research and development expense decreased $10.3 million for the three months ended June 30, 2014. The decrease is primarily due to: (i) a one-time expense of $15.0 million related to the upfront fee paid to Hydra Biosciences, Inc. (Hydra) to amend our existing license and collaboration agreement during the three months ended June 30, 2013; and (ii) an $8.8 million decrease in external expenses, primarily related to a decrease in Phase 3 trial costs related to ceftolozane/tazobactam due to the completion of our cUTI and cIAI Phase 3 trials in 2013. These decreases were partially offset by: (i) an $8.1 million increase in unallocated internal research and development expenses, primarily related to employee-related expenses to support our clinical

27

and pre-clinical programs, including headcount associated with our acquisition of Trius; and (ii) a $6.0 million milestone expense incurred related to ceftolozane/tazobactam during the three months ended June 30, 2014.

Our research and development expense decreased $3.9 million for the six months ended June 30, 2014. The decrease is primarily due to the $15.0 million expense related to the upfront fee paid to Hydra described above, and $25.0 million related to the acquisition of expanded rights to develop and commercialize ceftolozane/tazobactam from Astellas Pharma Inc. (Astellas) incurred during the six months ended June 30, 2013. The decreases were partially offset by: (i) a $24.7 million increase in unallocated internal research and development expenses, primarily related to employee-related expenses to support our clinical and pre-clinical programs, including headcount associated with our acquisitions of Optimer and Trius; (ii) the $6.0 million milestone expense described above; and (iii) a $6.0 million increase in external expenses, primarily due to increases in external expenses associated with our SIVEXTRO and DIFICID products, which were acquired in 2013, primarily related to clinical trial costs, including our SIVEXTRO Phase 3 HABP/VABP trial, and an increase in manufacturing expenses associated with ceftolozane/tazobactam, partially offset by a decrease in Phase 3 clinical trial expenses for ceftolozane/tazobactam due to the completion of our cUTI and cIAI trials in 2013.

Contingent Consideration (Income) Expense

Our contingent consideration income was $24.8 million and $58.1 million for the three and six months ended June 30, 2014, respectively, compared to contingent consideration expense of $2.6 million and $4.6 million for the three and six months ended June 30, 2013, respectively. Contingent consideration income for the three and six months ended June 30, 2014, is primarily due to a decrease in the market price of the publicly-traded contingent value right (CVR) security issued in connection with our acquisition of Optimer.

Contingent consideration (income) expense may continue to fluctuate significantly in future periods depending on changes in estimates, including probabilities associated with achieving the milestones and the period in which we estimate these milestones will be achieved, and in the case of the Optimer CVR, the market price of the security. See Note D., “Fair Value Measurements,” in the accompanying notes to condensed consolidated financial statements for additional information.

Selling, General and Administrative Expense

Our selling, general and administrative expense increased $30.1 million and $51.6 million for the three and six months ended June 30, 2014, respectively. The increase in selling, general and administrative expense is primarily due to: (i) an increase of $9.6 million and $20.2 million in employee-related expenses for the three and six months ended June 30, 2014, respectively; (ii) an increase of $8.4 million and $12.4 million in marketing-related expenses for the three and six months ended June 30, 2014, respectively; and (iii) an increase of $5.5 million and $9.8 million in professional services, including legal fees, for the three and six months ended June 30, 2014, respectively, primarily related to our CUBICIN litigation and international expansion.

Other Expense (Income), net

The following table sets forth other expense (income), net, for the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			% Change		2014			2013			% Change
	(in millions)								(in millions)
Interest income	$	(0.3	)	$	(0.7	)	(56	)%	$	(0.7	)	$	(1.4	)	(52	)%
Interest expense	14.5			7.3			100	%	28.9			14.4			100	%
Other expense (income)	(0.1		)	0.1			(138	)%	0.0			(0.1		)	(114	)%
Total other expense (income), net	$	14.1		$	6.7		112	%	$	28.2		$	12.9		119	%

Our other expense (income), net increased $7.4 million and $15.3 million for the three and six months ended June 30, 2014, respectively. The increase is primarily due to increased interest expense in connection with the issuance of the 1.875% convertible senior notes due 2020 (2020 Notes) and 1.125% convertible senior notes due 2018 (2018 Notes) in September 2013.

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Provision (Benefit) for Income Taxes

Our effective tax rate was 14.3% and (14.2)% for the three and six months ended June 30, 2014, respectively, compared to 28.8% and 14.6% for the three and six months ended June 30, 2013, respectively. The decrease in our effective rate for the three and six months ended June 30, 2014, is primarily due to the impact of non-taxable contingent consideration income recorded during the three and six months ended June 30, 2014, related to the change in market value of the Optimer CVRs, which is a discrete adjustment for which no tax expense was recorded. The effective tax for the three and six months ended June 30, 2013, included $1.2 million and $5.3 million in benefits from federal research credits, respectively, which were not recorded during the three and six months ended June 30, 2014, due to the expiration of the federal research tax credit at the end of 2013. If the credit is extended, it could have an impact on our effective tax rate in future periods.

Contingent consideration will fluctuate as a result of any changes in the fair value assumptions based on any additional data received on our SIVEXTRO, ceftolozane/tazobactam and/or bevenopran programs, as well as based upon the market price of the CVRs issued in connection with the acquisition of Optimer. Any significant contingent consideration expense or income will result in a significantly higher or lower effective tax rate because contingent consideration expense is largely not deductible for tax purposes and contingent consideration income is not taxable.

Liquidity and Capital Resources

A summary of our cash, cash equivalents, investments and certain financial obligations as of the periods presented below is as follows:

	June 30, 2014		December 31, 2013
	(in millions)
Cash and cash equivalents	$	221.8	$	91.1
Short-term investments	421.6		487.5
Total	$	643.4	$	578.6
Outstanding principal on Convertible Senior Notes	$	1,028.8	$	1,028.8
Payable to Glaxo Group Limited (Glaxo)	16.0		16.0
Total	$	1,044.8	$	1,044.8

Based on our current business plan, we believe that our available cash, cash equivalents, investments and projected cash flows from revenues will be sufficient to fund our operating expenses, debt obligations, contingent payments under our license, collaboration and merger agreements, 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 are constrained at the time we require funding.

Investments

We primarily invest in bank deposits, corporate and municipal notes and U.S. Treasury securities. We also make strategic investments through various business development transactions that we believe complement our business. See Note C., “Investments,” in the accompanying notes to condensed consolidated financial statements for additional information.

Borrowings and Other Liabilities

Convertible Senior Notes

We have convertible debt outstanding as of June 30, 2014, related to our 2020 Notes, 2018 Notes and 2.50% convertible senior notes due 2017 (2017 Notes) (collectively, our Convertible Senior Notes). In September 2013, we issued $800.0 million aggregate principal amount of convertible senior unsecured notes in two series, with one series consisting of $350.0 million aggregate principal amount of the 2018 Notes, and the other series consisting of $450.0 million aggregate principal amount of the 2020 Notes. The 2018 Notes and 2020 Notes are convertible into common stock upon satisfaction of certain conditions. Interest is payable on the 2018 Notes and 2020 Notes on each March 1st and September 1st through September 1, 2018 and September 1, 2020, respectively.

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In October 2010, we issued $450.0 million aggregate principal amount of the 2017 Notes. In September 2013, holders of $221.2 million aggregate principal amount of the 2017 Notes converted their notes at a conversion rate of 34.2759 shares of common stock per $1,000 of principal amount, or approximately $29.18 per share of common stock, into 7,580,923 shares of our common stock in privately negotiated transactions. The remaining 2017 Notes are convertible into common stock upon satisfaction of certain conditions. Interest is payable on each May 1st and November 1st through November 1, 2017.

Credit Facility

In November 2012, we entered into a $150.0 million three-year senior secured, syndicated revolving credit facility (the credit facility) with a group of lenders, including Royal Bank of Canada (RBC), as administrative agent. In September 2013, we entered into an amendment to the credit facility, which among other changes, allows for the option to increase the credit facility by up to an additional $150.0 million, subject to pro forma compliance with financial covenants under the credit facility. There were no outstanding borrowings under the credit facility as of June 30, 2014, or December 31, 2013, and we were in compliance with all covenants.

See Note H., “Debt,” in the accompanying notes to condensed consolidated financial statements for additional information on both the Convertible Senior Notes and the credit facility.

Repurchases of Common Stock or Convertible Senior Notes Outstanding

From time to time, our Board of Directors may authorize us to repurchase shares of our common stock, repurchase, in cash or common stock, our outstanding Convertible Senior Notes, or make a cash payment to holders of our Convertible Senior Notes to induce a conversion of the notes pursuant to the terms of the Convertible Senior Notes, in each case, in privately negotiated transactions, publicly announced programs or otherwise. If and when our Board of Directors should determine to authorize any such action, it would be on terms and under market conditions that our Board of Directors determines are in the best interest of us and our stockholders. Any such actions could deplete significant amounts of our cash resources.

At our annual meeting of shareholders in June 2014, our stockholders approved an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 150.0 million to 300.0 million.

Cash Flows

Our net cash flows for the periods presented below are as follows:

	Six Months Ended June 30,
	2014		2013
	(in millions)
Net cash provided by operating activities	$	62.5	$	29.8
Net cash provided by investing activities	$	47.2	$	43.5
Net cash provided by financing activities	$	21.1	$	28.1

Operating Activities

Net cash provided by operating activities increased $32.7 million for the six months ended June 30, 2014. The increase is primarily due to the impact of a $25.0 million payment to Astellas as consideration for expanded rights to develop and commercialize ceftolozane/tazobactam and a $15.0 million upfront payment to Hydra to amend our existing license and collaboration agreement made during the six months ended June 30, 2013, partially offset by payments made in 2014 related to our restructuring programs.

Investing Activities

Net cash provided by investing activities increased $3.7 million for the six months ended June 30, 2014. The increase is primarily due to the $20.0 million payment we made during the six months ended June 30, 2013, in exchange for the exclusive option to acquire Adynxx, Inc., which we decided not to exercise in December 2013, partially offset by a $12.0 million decrease in net proceeds from maturities of investments during the six months ended June 30, 2014, compared to the six months ended June 30, 2013.

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Financing Activities

Net cash provided by financing activities decreased $7.0 million for the six months ended June 30, 2014. The decrease is primarily due to a $6.8 million decrease in the excess tax benefit on stock-based awards.

Commitments and Contingencies

Legal Proceedings

See Note M., “Legal Proceedings,” in the accompanying notes to condensed consolidated financial statements.

Contractual Obligations

Our contractual obligations have not materially changed since February 25, 2014, the date we filed our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K) with the Securities and Exchange Commission (SEC). For more information on our contractual obligations, refer to our 2013 Form 10-K.

Contingent Consideration

In connection with certain of our acquisitions, we agreed to make contingent cash payments to the former shareholders of the acquired companies. In accordance with accounting for business combinations guidance, these contingent cash payments are recorded as contingent consideration liabilities on our condensed consolidated balance sheets at fair value. The aggregate, undiscounted amount of contingent consideration potentially payable for all contingent consideration arrangements ranges from zero to $776.1 million.

As of June 30, 2014, the contingent consideration related to the Trius, Adolor Corporation (Adolor) and Calixa Therapeutics Inc. (Calixa) acquisitions are our only financial liabilities measured and recorded using Level 3 inputs in accordance with accounting guidance for fair value measurements, and represent 96% of the total liabilities measured at fair value. See Note D., “Fair Value Measurements,” in the accompanying notes to condensed consolidated financial statements for additional information.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements requires estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates. The accounting policies that we believe are most critical to fully understand our consolidated financial statements include those relating to: revenue recognition; inventories; clinical research costs; investments; business combinations; intangible assets and impairment; income taxes; accounting for stock-based compensation and contingent consideration.

Our critical accounting policies and the methodologies and assumptions we apply under them have not materially changed since February 25, 2014, the date we filed our 2013 Form 10-K with the SEC. For more information on our critical accounting policies, refer to our 2013 Form 10-K.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This ASU stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual and interim reporting periods beginning on or after December 15, 2016, and early adoption is not permitted. The ASU permits the use of two transition methods, either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. We have not yet selected a transition method, and are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from interest rates and equity prices which could affect our results of operations, financial condition and cash flows. We manage our exposure to these market risks through our regular operating and financing activities.

Interest Rate Risk

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 $1.4 million on our fixed-rate investments as of June 30, 2014. In addition to interest risk, we are subject to liquidity and credit risk related to these investments.

Equity Price Risk

Our Convertible Senior Notes include conversion and settlement provisions that are based on the price of our common stock at conversion or maturity of the notes. The amount of cash we may be required to pay is determined by the price of our common stock. The fair values of our Convertible Senior Notes are dependent on the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. The table below provides information about our Convertible Senior Notes which are potentially sensitive to changes in the fair value of our common stock:

	Initial Conversion	Initial Conversion			Annual Interest		Fair Value (3) at
	Rate (1)	Price		Maturity Date (1)	Rate (2)		June 30, 2014		December 31, 2013
							(in millions)
2020 Notes	12.1318	$	82.43	September 1, 2020	1.875	%	$	516.9	$	516.8
2018 Notes	12.1318	$	82.43	September 1, 2018	1.125	%	$	392.1	$	403.5
2017 Notes	34.2759	$	29.18	November 1, 2017	2.500	%	$	556.0	$	550.3
Total							$	1,465.0	$	1,470.6

(1)Initial conversion rate is the number of shares per $1,000 principal amount of convertible notes, subject to adjustment upon certain events. Maturity of the notes may occur prior to the dates disclosed above if they are repurchased earlier or converted in accordance with their respective terms. See Note H., “Debt,” in the accompanying notes to condensed consolidated financial statements for additional information.

(2)Interest is payable on March 1st and September 1st, beginning on March 1, 2014, for the 2018 Notes and 2020 Notes, and May 1st and November 1st for the 2017 Notes.

(3)We estimate the fair value of our Convertible Senior Notes by using a quoted market rate in an inactive market, which is classified as a Level 2 input. See Note D., “Fair Value Measurements,” in the accompanying notes to condensed consolidated financial statements for additional information.

Convertible Bond Hedge and Warrant Transactions

In September 2013, in connection with the issuance of the 2018 Notes and the 2020 Notes, to minimize the impact of potential dilution to our common stock upon conversion of such notes, we entered into convertible bond hedges covering 9,705,442 shares of our common stock. Concurrently with entering into the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants to acquire, subject to customary adjustments, 9,705,442 shares of our common stock with an exercise price of approximately $96.43 per share, also subject to adjustment. See Note H., “Debt,” in the accompanying notes to condensed consolidated financial statements for additional information.

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ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC and to process, summarize and disclose this information within the time periods specified in the rules and forms of the SEC. Based on the evaluation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) and 15d-15(e)) as of June 30, 2014, our Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

There has been no change in our internal control over financial reporting during the three months ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

ITEM 1.LEGAL PROCEEDINGS

See Note M., “Legal Proceedings,” in the accompanying notes to condensed consolidated financial statements within Item 1 of Part I in this report, which is incorporated herein by reference.

ITEM 1A.RISK FACTORS

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, as updated by the risk factors below, and the information under the heading “Cautionary Note Regarding Forward-Looking Statements” in Item 2 above.

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We rely on certain sole source contract manufacturers of our products and product candidates, exposing us to certain risks that, if realized, could have a material adverse effect on our business.

We contract with ACS Dobfar Spa (ACSD) as our sole provider of our worldwide commercial supply of CUBICIN Active Pharmaceutical Ingredient (API). Although we hold a supply of safety stock of API at another warehouse/distribution center in addition to what is stored at ACSD, any natural or other disaster, acts of war or terrorism, shipping embargoes, labor unrest or political instability or similar events at these facilities that causes a loss of this safety stock or manufacturing capacity would heighten the risk that we face. We contract with multiple Contract Manufacturing Organizations (CMOs), including Hospira Worldwide, Inc. (Hospira Worldwide) and Oso Biopharmaceuticals Manufacturing LLC (Oso) to manufacture and supply to us finished CUBICIN drug product for our worldwide needs. Hospira, which has submitted filings to the FDA seeking approval to market generic versions of CUBICIN, is an affiliate of Hospira Worldwide. For many of the ex-U.S. markets in which CUBICIN is sold, either Hospira Worldwide or Oso is the sole approved supplier of one or more of the vial sizes that are sold in such markets, which will make it difficult to switch to another supplier for such markets in a timely manner if we experience problems with one of our existing CMOs.

We are also sole sourced with respect to our commercial supply of fidaxomicin, the API in DIFICID, and our commercial supply of fidaxomicin finished drug product, including DIFICID. We maintain higher inventory levels to account for risk associated with having a single supplier of fidaxomicin API and drug product. In addition, if we do not order certain minimum quantities of fidaxomicin from our CMO because of insufficient demand, we could owe payments for failure to satisfy our minimum order obligations. We also use a single supplier for our commercial supply of SIVEXTRO API and finished drug product and therefore maintain higher inventory levels to account for risk associated with having single sources of supply.

ACSD, our sole supplier of CUBICIN API, is also expected to be a commercial supplier of drug substance and/or drug product for certain of our product candidates, including ceftolozane/tazobactam. As a result, we may have an even greater reliance on ACSD for supply of our products than we currently do, which could increase the potential adverse impact on our results of operations, financial condition and long-term business plans if there are any problems with ACSD’s operations, business or solvency. In addition, we plan on receiving a supply of certain of the key components of ceftolozane/tazobactam from CMOs in countries outside of the U.S., who would be our sole suppliers of such key components at the time of commercial launch. Sourcing supply of these key components adds risks to our supply chain and business, including risks to any intellectual property or proprietary processes related to such components.

The manufacture of our products and product candidates is highly exacting and complex and must meet stringent quality requirements. Due to the significant U.S. and international regulatory requirements that we would need to satisfy in

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order to qualify new suppliers, including, but not limited to, appropriate facility design to prevent cross-contamination and other controls, we could experience significant interruptions in supply if we needed to transfer the manufacture of any product or product candidate (including API and raw materials) to one or more other suppliers to address these risks or any other difficulties with our current suppliers.

We face significant competition from other biotechnology and pharmaceutical companies and will likely face additional competition in the future from third-party product candidates under development and from generic versions 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, including larger and more experienced global development staffs and sales and marketing organizations and greater manufacturing capabilities. Our competitors may develop, acquire or license technologies and drug products that are safer, easier to administer, more effective, or less costly than our products or product candidates, which could render our technology obsolete and noncompetitive.

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 (Abbott), Shionogi and others; Zyvox®, marketed by Pfizer, Inc. (Pfizer); Synercid®, marketed by King, a wholly-owned subsidiary of Pfizer; Tygacil®, marketed by Wyeth Pharmaceuticals, Inc. (Wyeth), also a wholly-owned subsidiary of Pfizer; VIBATIV®, marketed by Theravance, Inc. (Theravance); Teflaro®, marketed by Forest Laboratories, Inc. (Forest), and DALVANCE™, which was approved by the FDA in May 2014 and is expected to be marketed by Durata Therapeutics, Inc. later this year. In particular, vancomycin has been a widely used and well-known antibiotic for more than

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50 years and is sold in a relatively inexpensive generic form. Vancomycin sales account for approximately 70% of sales, based on days of therapy, in this market. In addition, CUBICIN is expected to face competition in the U.S. from a generic version of CUBICIN to be marketed by Teva Parenteral Medicines Inc. (Teva) under the terms of our settlement agreement with Teva. CUBICIN may also face competition in the U.S. from a generic version of CUBICIN if Hospira’s Abbreviated New Drug Application (ANDA) or NDA, Strides’ ANDA, Fresenius’ ANDA or a third party’s filing to the FDA for approval to market a generic version of CUBICIN, is ultimately approved or a generic version of CUBICIN otherwise comes to market. CUBICIN also may face competition in the future from several product candidates currently in clinical development as treatments for complicated skin and skin structure infections (cSSSI) (now referred to as ABSSSI). CUBICIN is also priced higher than some of its competitor products, which could inhibit the continued acceptance of CUBICIN or otherwise cause physicians to switch to new drug products or reserve CUBICIN for use in limited circumstances. Any inability on our part to compete with current or subsequently-introduced drug products, particularly with respect to CUBICIN, would have a material adverse impact on our results of operations.

With respect to DIFICID, we face competition in the U.S. from branded Vancocin Pulvules, generic vancomycin capsules, reconstituted I.V. vancomycin “slurry” for oral administration and metronidazole. In particular, we anticipate DIFICID will continue to face increasing competition in the form of generic versions of branded products. DIFICID faces competition in the U.S. from an inexpensive generic form of metronidazole and vancomycin capsules, and in the EU faces competition from generic oral vancomycin. Generic therapies typically are sold at lower prices than branded antibiotics and generally are preferred by managed care providers of health services. DIFICID may also face generic competition in the U.S. if a third party’s filing to the FDA for approval to market a generic version of DIFICID is ultimately approved or a generic version of DIFICID otherwise comes to market. DIFICID may also face competition from fecal microbiota transplantation, an experimental CDAD treatment that is becoming increasingly used.

Although ENTEREG is currently the only FDA-approved product indicated for the acceleration of gastrointestinal (GI) recovery following surgeries that include partial bowel resection with primary anastomosis, there are other products in various stages of clinical development for this condition that could compete with ENTEREG at some point in the future and ENTEREG may also face generic competition in the U.S. as described above for CUBICIN and DIFICID.

We expect that if our product candidates, including ceftolozane/tazobactam, are approved by the FDA and foreign regulatory authorities, they will likewise face substantial competition from branded and generic products.

The process of obtaining the necessary governmental approvals to market and sell drug products in the U.S., EU, and in foreign countries is complex, time consuming, expensive and subject to a number of risks that could result in a failure to obtain approval for any of our product candidates, including ceftolozane/tazobactam.

We must obtain government approvals before marketing or selling our product candidates in the U.S., the EU, the EU Member States and in foreign jurisdictions. The FDA, the European Commission, the EMA, the competent authorities of the EU Member States and other comparable regulatory agencies in foreign countries impose substantial and rigorous requirements for the development, production, marketing authorization and commercial introduction of drug products. These requirements 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, the European Commission, the EMA, and the competent authorities of the EU Member States, evolve in their staff, interpretations and practices and may impose more stringent or different requirements than currently in effect, which may adversely affect our planned and ongoing drug development and/or our sales and marketing efforts. For example, the FDA is evaluating whether to require pre-approval cardiovascular studies for mu-opioid antagonists. Because bevenopran is a mu-opioid antagonist, the outcome of this analysis could have a significant impact on the design, timing and cost of our bevenopran program. As a result, we previously decided to stop our bevenopran Phase 3 efficacy trials pending the outcome of the June 2014 FDA Advisory Committee meeting on this topic and the FDA’s determination with respect to requiring pre-approval cardiovascular studies. While the majority of the Advisory Committee panel members voted that a pre-approval cardiovascular outcomes study should not be required for mu-opioid antagonists in OIC, we continue to await additional information, including the results of our long-term safety study for bevenopran, additional regulatory discussions with the FDA on a feasible Phase 3 efficacy design for bevenopran, and the FDA’s review of the NDA for naloxegol(a mu-opioid antagonist drug candidate being developed by AstraZeneca with a Prescription Drug User Fee Act (PDUFA) date in September 2014), before making a decision on the future development of bevenopran.

Satisfaction of the requirements of the FDA, the relevant EU, and other foreign regulators typically takes a significant number of years and can vary substantially based upon the type, complexity and novelty of the product candidate. Differing regulatory approval requirements in different countries make it more difficult for us to conduct unified global trials, which can lead to increased development costs and marketing delays or non-viability of our clinical trials. The approval procedure and the

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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. In addition, the Phase 3 clinical trials of many product candidates requires health economics and outcomes research (HEOR), endpoints or protocols, which may result in trials being prolonged so that the requisite HEOR data can be gathered. In addition, if the HEOR data fails to provide convincing evidence of patient benefit over existing therapies, it could impact the product’s reimbursement or success in the marketplace.

Generally, no product can receive FDA approval, marketing authorization from the European Commission or the competent authorities of the EU Member States, or approval from comparable regulatory agencies in foreign countries unless data generated in human clinical trials demonstrates both safety and efficacy for each target indication in accordance with such authority’s standards. The large majority of product candidates that begin human clinical trials fail to demonstrate the required safety and efficacy characteristics necessary for marketing approval. Failure to demonstrate the safety and efficacy of any of our product 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 product candidates. 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 additional trials be conducted, any of which may not be clinically feasible or financially practicable, that the conduct of trials be suspended, or that a program be terminated. Clinical and other data are also often subject to varying interpretations, so even if we believe that the data from clinical trials that we conduct for a product candidate produced positive results, the FDA, the European Commission, the EMA, the competent authorities of the EU Member States, or other regulatory authorities may determine that the data we submit with any marketing approval application, including our NDA for ceftolozane/tazobactam, is not adequate for approval. Our ability to generate revenues from the commercialization and sale of additional drug products will be limited by any failure to obtain the necessary regulatory approvals for additional product candidates. Biotechnology and pharmaceutical company stock prices have declined significantly in certain instances where companies have failed to obtain FDA or foreign regulatory authority approval of a product candidate or if the timing of FDA or foreign regulatory authority 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 product candidates, our stock price could decline significantly.

Even if regulatory approval to market a drug product is granted, the marketing authorization may impose limitations on the indicated use for which the drug product may be marketed and involve obtaining additional post-approval requirements. The commercialization of a drug product is impacted by the design and results of the trials that we or others conducted for the drug because such design and results determine what will be included on the drug label approved by regulatory authorities, and the label governs how we are allowed to promote the drug. The FDA or an equivalent authority in the EU or of another country, may determine that measures to control potential risks, such as a risk evaluation and mitigation strategy (REMS) or post-marketing obligations, are necessary to ensure that the benefits of a new product continue to outweigh its risks once on the market. If required, a REMS or post-marketing obligation may include various elements, such as conducting post-marketing safety or efficacy studies, publication of a medication guide, patient package insert, a communication plan to educate health care providers of the drug’s risks, limitations on who may prescribe or dispense the drug or other measures deemed necessary to assure the safe use of the drug, any of which would make it more difficult to market the product, especially if competitor products are not subject to a similar REMS or post-marketing obligations. For example, ENTEREG was approved with a boxed warning on its label and subject to a REMS that imposes restrictions and requirements on the distribution of ENTEREG, which make it more difficult to market and sell. The REMS is subject to modification by the FDA at any time, and it is possible that the FDA could require changes to the REMS or other restrictions that would make it even more difficult, costly and time-consuming to market and sell ENTEREG.

Even if our drug products are approved for marketing and commercialization, we will need to satisfy post-approval clinical study commitments and/or requirements in order to maintain certain aspects of the approval of such products. For example, in connection with our U.S. marketing approvals for CUBICIN and DIFICID, we have made certain Phase 4 clinical study commitments to the FDA. In addition, we are required to conduct certain pediatric studies in connection with our U.S. marketing approval for ENTEREG. If we do not complete these studies or do not complete them within the time limits imposed by the FDA, the FDA could impose monetary fines or other sanctions on us, which could have a material adverse effect on our business. Also, in connection with the approval of DIFICID in the U.S., the FDA required a microbiological surveillance program to identify the potential for decreased susceptibility of C. difficile to DIFICID, as well as two post-marketing studies in pediatric patients and a randomized trial to evaluate the efficacy of DIFICID in the treatment of patients with multiple CDAD recurrences. Depending on the outcome of these DIFICID studies, we may be unable to expand the indications for DIFICID, or we may be required to include specific warnings or limitations on dosing this product, which could negatively impact our sales of DIFICID. In addition, certain of these DIFICID studies utilize a dosing regimen that differs from the approved dosing regimen for DIFICID, which could result in safety issues that also negatively impact DIFICID sales and/or our product labeling.

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Third-party patent litigation or other intellectual property proceedings brought against us relating to our products, product candidates, processes or other technologies could result in substantial liability for damages, or delay or stop our development and commercialization efforts for such products, product candidates, processes or other technologies.

An adverse outcome in any patent litigation or other intellectual property proceeding could subject us to significant liabilities to third parties and require us to redesign or cease using and delay or stop our development and commercialization efforts for the respective product, product candidate, process or other technology that is at issue or to obtain licenses or other rights from third parties. For example, we referenced certain tazobactam data owned by another pharmaceutical company in our NDA for ceftolozane/tazobactam. As required by applicable regulations, we provided a Paragraph IV Certification Notice Letter to the third party in July 2014 notifying them that certain patents held by them listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book) are not infringed by our NDA for ceftolozane/tazobactam. If the third party files a patent infringement lawsuit against us, the planned timing of our anticipated launch of ceftolozane/tazobactam could be adversely impacted.

In general, we may not be able to successfully redesign our product, product candidate, process or other technology to avoid infringement or obtain any required licenses or rights on commercially acceptable terms or at all. The cost or impact of any patent litigation or other proceeding, even if resolved in our favor, could be substantial and have a material adverse effect on our results of operations, and 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. 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 also have a material adverse effect on our ability to compete in the marketplace and our stock price.

We are subject to ongoing U.S. and foreign regulatory obligations and oversight of many critical aspects of our business, and any failure by us to maintain compliance with applicable regulations may result in several adverse consequences, including the potential suspension of the manufacturing, marketing and sale of our products, the incurrence of significant additional expense and other limitations on our ability to commercialize our products.

We and our commercial partners are subject to ongoing regulatory requirements and review in the U.S., the EU, and in foreign jurisdictions, pertaining to the manufacture, labeling, packaging, adverse event reporting, storage, marketing, promotion and record keeping related to our products. Problems may arise during manufacturing for a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures, defective raw materials and environmental factors. Failure to comply with such regulatory requirements or the later discovery of previously unknown problems with respect to our products and facilities or third-party manufacturing facilities may result in restrictions on our ability to manufacture, market or sell our products, or even the withdrawal of our products from the market. Additionally, manufacturing flaws, component failures, design defects, off-label uses or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. Such events could lead to a recall of, or issuance of a safety alert relating to, our products. We also may undertake voluntarily to recall products or temporarily shut down production based on safety and quality monitoring and testing data. For example, in August 2013 we announced a voluntary recall of certain lots of CUBICIN following an FDA inspection of our facilities from which we received and responded to certain observations contained in a Form 483 issued by the FDA. In July 2014, following another routine inspection of our facilities, we also received a Form 483 from the FDA containing certain observations regarding our facilities. In connection with these observations, in August 2014 we voluntarily recalled certain additional lots of CUBICIN in two separate recalls due to, among other things, the potential presence of particulate matter, including glass particulate, in vials produced by certain of our contract manufacturers. While we have estimated the financial impact of the recalls in 2014 to be immaterial, the costs associated with our efforts to address the observations contained in the July 2014 Form 483 are uncertain, and any inability on our part to address and remediate these observations in a satisfactory manner could result in a decrease in product sales, damage to our reputation or the initiation of lawsuits against us or our third-party manufacturers. We or our partners may also be subject to additional sanctions, such as:

·warning letters;

·civil or criminal penalties;

·consent decrees;

·variation, suspension or withdrawal of regulatory approvals;

·temporary or permanent closing of our facilities or those of our third-party manufacturers;

38

·requirements to communicate with physicians and other customers about concerns related to actual or potential safety, efficacy or other issues involving our products;

·changes to the package insert for our products;

·implementation of risk mitigation programs;

·restrictions on our continued manufacturing, marketing or sale of our products; or

·additional product recalls or a refusal by regulators to consider or approve applications for additional indications or new products.

Any of the above issues or sanctions could have a material adverse impact on our business and cause us to incur significant costs, including costs to replace products, lost revenue, damage to customer relationships, time and expense spent investigating the cause and costs of any possible settlements or judgments related thereto and potentially cause similar losses with respect to other products. Such challenges could also divert the attention of our management and employees from product development efforts. If we deliver products with defects, or if there is a perception that our products or the processes related thereto contain errors or defects, we could incur additional recall and product liability costs, and our credibility and the market acceptance and sales of our products could be materially adversely affected. Due to the strong name recognition of our brands, an adverse event involving one of our products could result in reduced market acceptance and demand for all of our products, and could harm our reputation and our ability to market our products in the future. Such challenges could have a material adverse effect on our business, manufacturing operations, results of operations, financial condition and cash flows.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

None.

39

ITEM 6.EXHIBITS

10.1	Form of Stock Option Agreement for Directors under Cubist’s 2014 Omnibus Incentive Plan (2014 OIP)
10.2	Form of Stock Option Agreement for U.S. Employees under 2014 OIP
10.3	Form of Stock Option Agreement for Non-U.S. Employees under 2014 OIP
10.4	Form of Restricted Stock Unit Agreement for Directors under 2014 OIP
10.5	Form of Restricted Stock Unit Agreement for U.S. Employees under 2014 OIP
10.6	Form of Restricted Stock Unit Agreement for Non-U.S. Employees under 2014 OIP
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 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from Cubist Pharmaceuticals, Inc.’s Form 10-Q for the quarter ended June 30, 2014, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (iv) Notes to Condensed Consolidated Financial Statements

40

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CUBIST PHARMACEUTICALS, INC.
August 11, 2014
By:
	/s/ Michael J. Tomsicek
	Michael J. Tomsicek
	Senior Vice President and Chief Financial Officer
	(Authorized Officer and Principal Financial and Accounting Officer)

41

EX-10.1

Exhibit 10.1

CUBIST PHARMACEUTICALS, INC.

2014 OMNIBUS INCENTIVE PLAN

STOCK OPTION AGREEMENT

FOR DIRECTORS

This Stock Option Agreement (the “Agreement”) governs an award (the “Award”) of stock options (“Stock Options”) to non-employee members of the Board of Directors of Cubist Pharmaceuticals, Inc. (the “Company”) who have been selected for participation (each such director, a “Participant”) under the Company’s 2014 Omnibus Incentive Plan (as amended from time to time, the “Plan”). The details of an Award made to a Participant will be set forth in a letter or other written communication from the Company (a “Notice”).

In consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.Relationship to the Plan.  The Participant specifically understands and agrees that the Award is being granted under the Plan, a copy of which the Participant acknowledges he or she has read and understands and by which Plan the Participant agrees to be bound.  The provisions of the Plan are incorporated into this Agreement by reference.

2.Grant of Award.  The Participant will be notified of his or her Award through a Notice.  The Notice will contain, among other things, the number of Stock Options granted, the grant date of the Award (such date, the “Grant Date”) and the exercise price of each Stock Option (the “Exercise Price”). The Award consists of a contingent entitlement of the Participant to purchase one share of Stock at the Exercise Price with respect to each Stock Option forming part of the Award, as set forth in the Notice, subject to the terms and conditions of this Agreement and the Plan.  This Stock Option is intended to be a nonstatutory stock option and is not intended to be an incentive stock option within the meaning of Section 422.  For the avoidance of doubt, the total number of Stock Options subject to the Award, as set forth in the Notice, is subject to adjustment pursuant to Section 7 of the Plan.  The Participant is required to acknowledge and accept the terms of this Agreement and the Plan in the manner set forth in Section 22 within the time period specified in the Notice.

3.Meaning of Certain Terms.  Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

4.Final Exercise Date.  The latest date on which the Stock Options or any portion thereof may be exercised will be the 10th anniversary of the Grant Date (the “Final Exercise Date”); provided, however, if at such time the Participant is prohibited by applicable law or written Company policy applicable to similarly situated persons from engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the Final Exercise Date will be automatically extended to thirty (30) days following the date the Participant is no longer prohibited from engaging in such open-market sales.  If not exercised by the Final Exercise Date, the Stock Options or any remaining portion thereof will thereupon immediately terminate.

5.Vesting.  Unless earlier terminated or forfeited, the Stock Options will vest according to the vesting schedule set forth in the Notice, provided that the Participant remains a member of the Board through the applicable vesting date.

6.Exercise.  No Stock Options may be exercised until such Stock Options vest.  Each election to exercise any vested Stock Options will be subject to the terms and conditions of the Plan and shall be in writing, signed by the Participant.  Each such written exercise election must be received by the Company at its principal office or by such other party as the Administrator may prescribe and be accompanied by payment in full as provided in the Plan.  The Exercise Price with respect to each Stock Option being exercised must be paid in cash or by check acceptable to the Administrator or, if permitted by the Administrator, by any of the following means (individually or in combination):

a.by the Administrator’s holding back of shares of Stock from the Stock Options having a fair market value equal to the aggregate Exercise Price of the Stock Options being exercised;

b.if the Stock is traded on an established market, the payment through and under the terms and conditions of a formal cashless exercise program, if any, authorized by the Company involving the sale of the shares of Stock received upon exercise of the Stock Options in a brokered transaction (other than to the Company); or

c.such other means, if any, as may be acceptable to the Administrator.

In the event that the Award is exercised by a person other than the Participant, the Company will be under no obligation to deliver shares of Stock hereunder unless and until it is satisfied as to the authority of the person attempting to exercise the Award and compliance with applicable securities laws.

7.Treatment of the Stock Options Upon Termination of Service.  If the Participant’s service on the Board ceases, the Stock Options, to the extent not already vested will be immediately forfeited, and any vested Stock Options that are then outstanding will be treated as follows:

a.Subject to clauses (b) and (c) below, the Stock Options to the extent vested immediately prior to the cessation of the Participant’s service on the Board, will remain exercisable until the earlier of (i) the third anniversary of the date such service ceased, or (ii) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 7(a) will thereupon immediately terminate.

b.The Stock Options (whether or not vested) will terminate and be forfeited immediately prior to the cessation of Participant’s service on the Board if the Administrator in its sole discretion determines that such cessation of services was for Cause or occurs in circumstances that that would have constituted grounds for terminating the Participant’s Board service for Cause.

c.In the event that the Participant holds any Stock Options on the date such Award ceases to be exercisable under (a) above, and the Participant is prohibited, on such date, by applicable law or a written policy of the Company applicable to similarly-situated persons from engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the time periods described in (a) above will be extended automatically until the thirtieth (30th) day following the date the Participant is no longer prohibited from engaging in such open market sales.

8.Prohibitions on Transfer and Sale.  Except as permitted by the Plan, the Award shall not be assigned, pledged or transferred in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or any similar process.  Any attempted transfer, assignment, pledge or other disposition of the Award, the Stock Options or of any rights granted under this Agreement that is contrary to the provisions of the Plan or this Section 8, or the levy of any attachment or similar process upon the Award, shall be null and void.  Except as permitted by the Plan, the shares of Stock to be issued pursuant to this Agreement shall be issued, during the Participant’s lifetime, only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant’s guardian or representative).

9.Securities Law Compliance.  The Participant specifically acknowledges and agrees that any sales of shares of Stock issued hereunder shall be sold in accordance with the requirements of the Securities Act of 1933, as amended.

10.Rights as a Stockholder.  The Participant shall have no right as a stockholder, including voting and dividend rights, until the Award is exercised in accordance with the Notice and Section 6 of this Agreement and shares of Stock are delivered to the Participant.

11.Tax Liability of the Participant and Payment of Taxes.  The Participant acknowledges and agrees that any income or other taxes with respect to the Award or the shares of Stock to be issued pursuant to this Agreement or otherwise sold shall be the Participant’s responsibility.  The Company shall have no liability or obligation related to the foregoing.

12.Data Authorization.  The Participant authorizes the Company to use and disclose to any agent administering the Plan or providing recordkeeping services with respect to the Plan such information and data as the Company shall request in order to facilitate the grant of the Award, the administration of the Award and the administration of the Plan, and the Participant waives any data privacy rights he or she may have with respect to such information or the sharing of such information.

13.Recovery of Compensation.  The Stock Options, any shares of Stock delivered hereunder and any gains or other amounts realized in respect of such Stock Options or shares of Stock shall be subject to recoupment by the Company to the extent required to comply with (a) applicable law or regulation or the rules of the stock exchange on which the Stock is traded or (b) any applicable Company clawback or recoupment policy as in effect from time to time.

14.Notices.  Notices required or permitted by the terms of this Agreement or the Plan shall be given by the Company and the Participant as set forth in the Plan.

15.Benefit of Agreement.  Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

16.Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware relating to the issuance of stock and the consideration received therefor, without giving effect to the conflict of laws principles thereof.  Except as prohibited by applicable law, provisions of this Agreement not relating the foregoing shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provisions or rule that would cause the application of the domestic substantive laws of any other jurisdiction.  Except as prohibited by applicable law, for the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to the exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Massachusetts or the federal courts of the United States for the District of Massachusetts.

17.Severability.  If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

18.Entire Agreement.  Unless otherwise provided in writing in a separate agreement between the Participant and the Company or an Affiliate, this Agreement, together with the Plan and the Notice, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

19.Modifications and Amendments; Waivers and Consents.  The terms and provisions of this Agreement may be modified or amended as provided in the Plan.  Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

20.Imposition of Other Requirements.  The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the Stock Options and on any shares of Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

21.Addendum for Non-U.S. Countries.  Notwithstanding any provisions in this Agreement, the Award shall be subject to the special terms and conditions set forth in any Addendum to this Agreement for the Participant’s country (the “Addendum”).  Moreover, if the Participant relocates to one of the countries included in the Addendum, the special terms and conditions for such country will apply to the Participant, to the extent the Administrator determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan.  The Addendum constitutes part of this Agreement.

22.Company Signature; Participant Electronic Acknowledgment.  An authorized representative has signed this Agreement below.  By acknowledging acceptance of the terms of this Agreement through an electronic acknowledgment system established by the Company or its designated broker, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  The Award will not become effective, and the Participant will therefore have no rights to or in the Award, until the Participant acknowledges his or her acceptance of the terms of this Agreement in the manner required by the Company.

CUBIST PHARMACEUTICALS, INC.

By:

Name:

Title:

THE PARTICIPANT

Name:

EX-10.2

Exhibit 10.2

CUBIST PHARMACEUTICALS, INC.

2014 OMNIBUS INCENTIVE PLAN

STOCK OPTION AGREEMENT

FOR U.S. PARTICIPANTS (EMPLOYEES)

This Stock Option Agreement (the “Agreement”) governs an award (the “Award”) of stock options (“Stock Options”) to employees (“Participants”) of Cubist Pharmaceuticals, Inc. (the “Company”) who have been selected for participation under the Company’s 2014 Omnibus Incentive Plan (as amended from time to time, the “Plan”). The details of an Award made to a Participant will be set forth in a letter from the Participant’s manager or other written communication from the Company (a “Notice”).

In consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.Relationship to the Plan.  The Participant specifically understands and agrees that the Award is being granted under the Plan, a copy of which the Participant acknowledges he or she has read and understands and by which Plan the Participant agrees to be bound.  The provisions of the Plan are incorporated into this Agreement by reference.

2.Grant of Award.  The Participant will be notified of his or her Award through a Notice.  The Notice will contain, among other things, the number of Stock Options granted, the grant date of the Award (such date, the “Grant Date”) and the exercise price of each Stock Option (the “Exercise Price”). The Award consists of a contingent entitlement of the Participant to purchase one share of Stock at the Exercise Price with respect to each Stock Option forming part of the Award, as set forth in the Notice, subject to the terms and conditions of this Agreement and the Plan.  This Stock Option is intended to be a nonstatutory stock option and is not intended to be an incentive stock option within the meaning of Section 422.  For the avoidance of doubt, the total number of Stock Options subject to the Award, as set forth in the Notice, is subject to adjustment pursuant to Section 7 of the Plan.  The Participant is required to acknowledge and accept the terms of this Agreement and the Plan in the manner set forth in Section 22 within the time period specified in the Notice.

3.Meaning of Certain Terms.  Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

4.Final Exercise Date.  The latest date on which the Stock Options or any portion thereof may be exercised will be the 10th anniversary of the Grant Date (the “Final Exercise Date”); provided, however, if at such time the Participant is prohibited by applicable law or written Company policy applicable to similarly situated persons from engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the Final Exercise Date will be automatically extended to thirty (30) days following the date the Participant is no longer prohibited from engaging in such open-market sales.  If not exercised by the Final Exercise Date, the Stock Options or any remaining portion thereof will thereupon immediately terminate.

5.Vesting.  Unless earlier terminated or forfeited, the Stock Options will vest according to the vesting schedule set forth in the Notice, provided that the Participant remains continuously Employed through the applicable vesting date.

6.Exercise.  No Stock Options may be exercised until such Stock Options vest.  Each election to exercise any vested Stock Options will be subject to the terms and conditions of the Plan and shall be in writing, signed by the Participant.  Each such written exercise election must be received by the Company at its principal office or by such other party as the Administrator may prescribe and be accompanied by payment in full as provided in the Plan.  The Exercise Price with respect to each Stock Option being exercised must be paid in cash or by check acceptable to the Administrator or, if permitted by the Administrator, by any of the following means (individually or in combination):

a.by the Administrator’s holding back of shares of Stock from the Stock Options having a fair market value equal to the aggregate Exercise Price of the Stock Options being exercised;

b.if the Stock is traded on an established market, the payment through and under the terms and conditions of a formal cashless exercise program, if any, authorized by the Company involving the sale of the shares of Stock received upon exercise of the Stock Options in a brokered transaction (other than to the Company); or

c.such other means, if any, as may be acceptable to the Administrator.

In the event that the Award is exercised by a person other than the Participant, the Company will be under no obligation to deliver shares of Stock hereunder unless and until it is satisfied as to the authority of the person attempting to exercise the Award and compliance with applicable securities laws.

7.Treatment of the Stock Options Upon Termination of Employment.  If the Participant’s Employment ceases, the Stock Options, to the extent not already vested will be immediately forfeited, and any vested Stock Options that are then outstanding will be treated as follows:

a.Subject to clauses (b), (c), and (d) below, the Stock Options to the extent vested immediately prior to the cessation of the Participant’s Employment, will remain exercisable until the earlier of (i) the 90th day following the date of such cessation of Employment, or (ii) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 7(a) will thereupon immediately terminate.

b.Subject to clauses (c) and (d) below, the Stock Options, to the extent vested immediately prior to Participant’s death or Retirement, will remain exercisable until the earlier of (i) the first anniversary of the Participant’s death or Retirement, as the case may be, or (ii) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 7(b) will thereupon immediately terminate.

c.The Stock Options (whether or not vested) will terminate and be forfeited immediately prior to the cessation of Participant’s Employment if the Administrator in its sole discretion determines that such cessation of Employment was for Cause or occurs in circumstances that that would have constituted grounds for the Participant’s Employment to be terminated for Cause.

d.In the event that the Participant holds any Stock Options on the date such Award ceases to be exercisable under (a) or (b) above, and the Participant is prohibited, on such date, by applicable law or a written policy of the Company applicable to similarly-situated persons from engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the time periods described in (a) and (b) above will be extended automatically until the thirtieth (30th) day following the date the Participant is no longer prohibited from engaging in such open market sales.

8.Prohibitions on Transfer and Sale.  Except as permitted by the Plan, the Award shall not be assigned, pledged or transferred in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or any similar process.  Any attempted transfer, assignment, pledge or other disposition of the Award, the Stock Options or of any rights granted under this Agreement that is contrary to the provisions of the Plan or this Section 8, or the levy of any attachment or similar process upon the Award, shall be null and void.  Except as permitted by the Plan, the shares of Stock to be issued pursuant to this Agreement shall be issued, during the Participant’s lifetime, only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant’s guardian or representative).

9.Securities Law Compliance.  The Participant specifically acknowledges and agrees that any sales of shares of Stock issued hereunder shall be sold in accordance with the requirements of the Securities Act of 1933, as amended.

10.Rights as a Stockholder.  The Participant shall have no right as a stockholder, including voting and dividend rights, until the Award is exercised in accordance with the Notice and Section 6 of this Agreement and shares of Stock are delivered to the Participant.

11.Tax Liability of the Participant and Payment of Taxes.

a.The Participant acknowledges and agrees that any income or other taxes with respect to the Award or the shares of Stock to be issued pursuant to this Agreement or otherwise sold shall be the Participant’s responsibility.

b.The Participant acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued shares of Stock upon the exercise of the Stock Options, are subject to the Participant’s promptly paying, or in respect of any later requirement of withholding being liable, promptly paying at such time as such withholdings are due, all taxes required to be withheld, if any.

c.The Participant is responsible for satisfying all applicable tax and withholding obligations with respect to the Award in cash or by such other means that are acceptable to the Administrator and no shares of Stock will be transferred unless and until all applicable tax and withholding obligations have been satisfied.

12.Data Authorization.  The Participant authorizes the Company to use and disclose to any agent administering the Plan or providing recordkeeping services with respect to the Plan such information and data as the Company shall request in order to facilitate the grant of the Award, the administration of the Award and the administration of the Plan, and the Participant waives any data privacy rights he or she may have with respect to such information or the sharing of such information.

13.Recovery of Compensation.  The Stock Options, any shares of Stock delivered hereunder and any gains or other amounts realized in respect of such Stock Options or shares of Stock shall be subject to recoupment by the Company to the extent required to comply with (a) applicable law or regulation or the rules of the stock exchange on which the Stock is traded or (b) any applicable Company clawback or recoupment policy as in effect from time to time.

14.Notices.  Notices required or permitted by the terms of this Agreement or the Plan shall be given by the Company and the Participant as set forth in the Plan.

15.Benefit of Agreement.  Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

16.Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware relating to the issuance of stock and the consideration received therefor, without giving effect to the conflict of laws principles thereof.  Except as prohibited by applicable law, provisions of this Agreement not relating the foregoing shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provisions or rule that would cause the application of the domestic substantive laws of any other jurisdiction.  Except as prohibited by applicable law, for the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to the exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Massachusetts or the federal courts of the United States for the District of Massachusetts.

17.Severability.  If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

18.Entire Agreement.  Unless otherwise provided in writing in a separate agreement between the Participant and the Company or an Affiliate, this Agreement, together with the Plan and the Notice, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

19.Modifications and Amendments; Waivers and Consents.  The terms and provisions of this Agreement may be modified or amended as provided in the Plan.  Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

20.Imposition of Other Requirements.  The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the Stock Options and on any shares of Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

21.Addendum for Non-U.S. Countries.  Notwithstanding any provisions in this Agreement, the Award shall be subject to the special terms and conditions set forth in any Addendum to this Agreement for the Participant’s country (the “Addendum”).  Moreover, if the Participant relocates to one of the countries included in the Addendum, the special terms and conditions for such country will apply to the Participant, to the extent the Administrator determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan.  The Addendum constitutes part of this Agreement.

22.Company Signature; Participant Electronic Acknowledgment.  An authorized representative has signed this Agreement below.  By acknowledging acceptance of the terms of this Agreement through an electronic acknowledgment system established by the Company or its designated broker, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  The Award will not become effective, and the Participant will therefore have no rights to or in the Award, until the Participant acknowledges his or her acceptance of the terms of this Agreement in the manner required by the Company.

CUBIST PHARMACEUTICALS, INC.

By:

Name:

Title:

THE PARTICIPANT

Name:

EX-10.3

Exhibit 10.3

CUBIST PHARMACEUTICALS, INC.

2014 OMNIBUS INCENTIVE PLAN

STOCK OPTION AGREEMENT

FOR NON-U.S. PARTICIPANTS (EMPLOYEES)

This Stock Option Agreement (the “Agreement”) governs an award (the “Award”) of stock options (“Stock Options”) to employees (“Participants”) of Cubist Pharmaceuticals, Inc. (the “Company”) who have been selected for participation under the Company’s 2014 Omnibus Incentive Plan (as amended from time to time, the “Plan”). The details of an Award made to a Participant will be set forth in a letter from the Participant’s manager or other written communication from the Company (a “Notice”).

In consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.Relationship to the Plan.  The Participant specifically understands and agrees that the Award is being granted under the Plan, a copy of which the Participant acknowledges he or she has read and understands and by which Plan the Participant agrees to be bound.  The provisions of the Plan are incorporated into this Agreement by reference.

2.Grant of Award.  The Participant will be notified of his or her Award through a Notice.  The Notice will contain, among other things, the number of Stock Options granted, the grant date of the Award (such date, the “Grant Date”) and the exercise price of each Stock Option (the “Exercise Price”). The Award consists of a contingent entitlement of the Participant to purchase one share of Stock at the Exercise Price with respect to each Stock Option forming part of the Award, as set forth in the Notice, subject to the terms and conditions of this Agreement and the Plan.  This Stock Option is intended to be a nonstatutory stock option and is not intended to be an incentive stock option within the meaning of Section 422.  For the avoidance of doubt, the total number of Stock Options subject to the Award, as set forth in the Notice, is subject to adjustment pursuant to Section 7 of the Plan.  The Participant is required to acknowledge and accept the terms of this Agreement and the Plan in the manner set forth in Section 23 within the time period specified in the Notice.

3.Meaning of Certain Terms.  Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

4.Final Exercise Date.  The latest date on which the Stock Options or any portion thereof may be exercised will be the 10th anniversary of the Grant Date (the “Final Exercise Date”); provided, however, if at such time the Participant is prohibited by applicable law or written Company policy applicable to similarly situated persons from engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the Final Exercise Date will be automatically extended to thirty (30) days following the date the Participant is no longer prohibited from engaging in such open-market sales.  If not exercised by the Final Exercise Date, the Stock Options or any remaining portion thereof will thereupon immediately terminate.

5.Vesting.  Unless earlier terminated or forfeited, the Stock Options will vest according to the vesting schedule set forth in the Notice, provided that the Participant remains continuously Employed through the applicable vesting date.

6.Exercise.  No Stock Options may be exercised until such Stock Options vest.  Each election to exercise any vested Stock Options will be subject to the terms and conditions of the Plan and shall be in writing, signed by the Participant.  Each such written exercise election must be received by the Company at its principal office or by such other party as the Administrator may prescribe and be accompanied by payment in full as provided in the Plan.  The Exercise Price with respect to each Stock Option being exercised must be paid in cash or by check acceptable to the Administrator or, if permitted by the Administrator, by any of the following means (individually or in combination):

a.by the Administrator’s holding back of shares of Stock from the Stock Options having a fair market value equal to the aggregate Exercise Price of the Stock Options being exercised;

b.if the Stock is traded on an established market, the payment through and under the terms and conditions of a formal cashless exercise program, if any, authorized by the Company involving the sale of the shares of Stock received upon exercise of the Stock Options in a brokered transaction (other than to the Company); or

c.such other means, if any, as may be acceptable to the Administrator.

In the event that the Award is exercised by a person other than the Participant, the Company will be under no obligation to deliver shares of Stock hereunder unless and until it is satisfied as to the authority of the person attempting to exercise the Award and compliance with applicable securities laws.

7.Treatment of the Stock Options Upon Termination of Employment.  If the Participant’s Employment ceases, the Stock Options, to the extent not already vested will be immediately forfeited, and any vested Stock Options that are then outstanding will be treated as follows:

a.Subject to clauses (b), (c), and (d) below, the Stock Options to the extent vested immediately prior to the cessation of the Participant’s Employment, will remain exercisable until the earlier of (i) the 90th day following the date of such cessation of Employment, or (ii) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 7(a) will thereupon immediately terminate.

b.Subject to clauses (c) and (d) below, the Stock Options, to the extent vested immediately prior to Participant’s death or Retirement, will remain exercisable until the earlier of (i) the first anniversary of the Participant’s death or Retirement, as the case may be, or (ii) the Final Exercise Date, and except to the extent previously exercised as permitted by this Section 7(b) will thereupon immediately terminate.

c.The Stock Options (whether or not vested) will terminate and be forfeited immediately prior to the cessation of Participant’s Employment if the Administrator in its sole discretion determines that such cessation of Employment was for Cause or occurs in circumstances that that would have constituted grounds for the Participant’s Employment to be terminated for Cause.

d.In the event that the Participant holds any Stock Options on the date such Award ceases to be exercisable under (a) or (b) above, and the Participant is prohibited, on such date, by applicable law or a written policy of the Company applicable to similarly-situated persons from engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the time periods described in (a) and (b) above will be extended automatically until the thirtieth (30th) day following the date the Participant is no longer prohibited from engaging in such open market sales.

8.Prohibitions on Transfer and Sale.  Except as permitted by the Plan, the Award shall not be assigned, pledged or transferred in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or any similar process.  Any attempted transfer, assignment, pledge or other disposition of the Award, the Stock Options or of any rights granted under this Agreement that is contrary to the provisions of the Plan or this Section 8, or the levy of any attachment or similar process upon the Award, shall be null and void.  Except as permitted by the Plan, the shares of Stock to be issued pursuant to this Agreement shall be issued, during the Participant’s lifetime, only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant’s guardian or representative).

9.Securities Law Compliance.  The Participant specifically acknowledges and agrees that any sales of shares of Stock issued hereunder shall be sold in accordance with the requirements of the Securities Act of 1933, as amended.

10.Rights as a Stockholder.  The Participant shall have no right as a stockholder, including voting and dividend rights, until the Award is exercised in accordance with the Notice and Section 6 of this Agreement and shares of Stock are delivered to the Participant.

11.Tax Liability of the Participant and Payment of Taxes.

a.The Participant acknowledges and agrees that, regardless of any action the Company or the Participant’s employer takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (the “Tax Related Items”), the ultimate liability for all Tax Related Items legally due by the Participant is and remains the Participant’s responsibility and may exceed the amount actually withheld by the Company or the Participant’s employer.  The Participant further agrees and acknowledges that the Company and the Participant’s employer (i) make no representations or undertakings regarding the treatment of any Tax Related Items in connection with any aspect of the Award, including the grant of the Award, the vesting or exercise of the Award, or the subsequent sale of any shares of Stock acquired upon exercise of the Award; and (ii) do not commit to and are under no obligation to structure the terms of the Award to reduce or eliminate the Participant’s liability for Tax Related Items or achieve any particular tax result.  Further, the Participant understands and acknowledges that if the Participant has become subject to

tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable event, the Company and/or the Participant’s employer (or former employer, as applicable) may be required to withhold or account for Tax Related Items in more than one jurisdiction.

b.At the time any portion of the Award becomes taxable to the Participant, the Participant will be required to pay to the Company any Tax Related Items due as a result of such taxable event.  The Company shall have the right to withhold from any payment made in respect of the Award, transfer of shares of Stock acquired upon exercise of the Award, or payment made to the Participant or to any person hereunder, whether such payment is to be made in cash or in shares of Stock, all Tax Related Items as shall be required, in the determination of the Company, pursuant to any statute or governmental regulation or ruling.  The Participant acknowledges and agrees that the Company, in its sole discretion, may satisfy such withholding obligation by any one or combination of the following methods:

i.by requiring the Participant to deliver a properly executed notice together with irrevocable instructions to a broker approved by the Company to sell shares of Stock and deliver promptly to the Company the amount of sale proceeds required to pay the amount required to be withheld;

ii.by requiring (or allowing) the Participant to pay such amount in cash or check;

iii.by deducting such amount from the Participant’s current compensation;

iv.by allowing the Participant to surrender other shares of Stock, which (A) in the case of shares of Stock initially acquired from the Company (upon the exercise of a stock option or otherwise), have been owned by the Participant for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (B) have a fair market value on the date of surrender equal to the amount required to be withheld;

v.by withholding a number of shares of Stock to be issued upon delivery of  shares of Stock under the Award which have a fair market value equal to the minimum statutory rate or other applicable withholding rate;

vi.by selling any shares of Stock to the extent required to satisfy the Company’s withholding obligations; and

vii.by such other means as the Administrator in its discretion and without notice deems appropriate, including withholding from salary or other amounts payable to the Participant, shares of Stock or cash having a value sufficient to satisfy the tax withholding obligation.

If the obligation for withholding taxes is satisfied by withholding shares of Stock, then the Participant will, for tax purposes, be deemed to have been issued the full number of shares of Stock subject to the Award or portion of the Award so exercised or other applicable portion of the Award, notwithstanding that a number of the shares of Stock are withheld solely for the purpose of paying the applicable withholding taxes.

12.Participant Acknowledgements and Authorizations.  The Participant acknowledges the following:

a.The Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

b.The Award is voluntary and occasional and does not create any contractual or other right to receive future Awards, or benefits in lieu of Awards, even if Awards have been granted in the past;

c.All decisions with respect to future Awards or other grants, if any, will be at the sole discretion of the Company;

d.The value of the Award is an extraordinary item of compensation outside of the scope of the Participant’s Employment.  As such, the Award is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-term service awards, pension or retirement benefits or similar payments.  The future value of the shares of Stock underlying the Award is unknown and cannot be predicted with certainty;

e.If the underlying shares of Stock do not increase in value, the Stock Option will have no value;

f.If Participant exercises the Award and acquires shares of Stock, the value of each share of Stock may increase or decrease in value, even below the Exercise Price;

g.The Award and Participant’s participation in the Plan shall not create a right to Employment or be interpreted as forming an employment or service contract with the Company, the Participant’s employer or any Affiliate and shall not interfere with the ability of the Company, the Participant’s employer or any Affiliate, as applicable, to terminate Participant’s Employment;

h.The Participant’s participation in the Plan is voluntary;

i.The Award, the Stock Options, and the shares of Stock received upon exercise of the Award, if any, are not intended to replace any pension rights or compensation;

j.No claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from termination of the Participant’s Employment (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), and in consideration of the Award to which the Participant is not otherwise entitled, the Participant irrevocably agrees never to institute any claim against the Company, the Participant’s employer or any Affiliate, waives the Participant’s ability, if any, to bring any such claim and releases the Company, the Participant’s employer and any Affiliate from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

k.Unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Award, the Stock Options, or the shares of Stock received upon exercise of the Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

13.Recovery of Compensation.  The Stock Options, any shares of Stock delivered hereunder and any gains or other amounts realized in respect of such Stock Options or shares of Stock shall be subject to recoupment by the Company to the extent required to comply with (a) applicable law or regulation or the rules of the stock exchange on which the Stock is traded or (b) any applicable Company clawback or recoupment policy as in effect from time to time.

14.Notices.  Notices required or permitted by the terms of this Agreement or the Plan shall be given by the Company and the Participant as set forth in the Plan.

15.Benefit of Agreement.  Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

16.Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware relating to the issuance of stock and the consideration received therefor, without giving effect to the conflict of laws principles thereof.  Except as prohibited by applicable law, provisions of this Agreement not relating the foregoing shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provisions or rule that would cause the application of the domestic substantive laws of any other jurisdiction.  Except as prohibited by applicable law, for the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to the exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Massachusetts or the federal courts of the United States for the District of Massachusetts.

17.Severability.  If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid

and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

18.Entire Agreement.  Unless otherwise provided in writing in a separate agreement between the Participant and the Company or an Affiliate, this Agreement, together with the Plan and the Notice, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

19.Modifications and Amendments; Waivers and Consents.  The terms and provisions of this Agreement may be modified or amended as provided in the Plan.  Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

20.Miscellaneous.

a.Successors and Assigns.  This Agreement shall bind and inure only to the benefit of the parties to hereto (the “Parties”) and their respective successors and assigns.

b.No Third-Party Beneficiaries.  Nothing in this Agreement is intended to confer any rights or remedies on any persons other than the Parties and their respective successors or assigns.  Nothing in this Agreement is intended to relieve or discharge the obligation or liability of third persons to either Party.  No provision of this Agreement shall give any third person any right of subrogation or action over or against either Party.

c.Termination or Amendment of the Award. The Administrator may amend the terms of the Award theretofore granted, prospectively or retroactively, provided that the Award as amended is consistent with the terms of the Plan.  Also within the limitations of the Plan, the Administrator may modify, extend or assume the Award.

d.Data Privacy.

i.The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this Agreement and any other grant materials by and among, as applicable, the Participant’s employer, the Company and any Affiliates for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan.

ii.The Participant understands that the Company and the Participant’s employer may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Stock Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

iii.The Participant understands that Data will be transferred to a third party stock plan service provider as may be selected by the Company to assist the Company with the implementation, administration and management of the Plan. The Participant understands that the recipients of the Data may be located in the United States, or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Participant’s country.  The Participant understands that if the Participant resides outside the United States, the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the Participant’s local human resources representative.  The Participant authorizes the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in

electronic or other form, for the sole purpose of implementing, administering and managing the Participant’s participation in the Plan.  The Participant understands that the Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan.  The Participant understands that if the Participant resides outside the United States, the Participant may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Participant’s local human resources representative.  Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis.  If the Participant does not consent, or if the Participant later revokes his or her consent, the Participant’s employment status or service and career with the Participant’s employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant’s consent is that the Company would not be able to grant the Participant Stock Options or other equity awards or administer or maintain such awards.  Therefore, the Participant understands that refusing or withdrawing the Participant’s consent may affect the Participant’s ability to participate in the Plan.  For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the Participant’s local human resources representative.

21.Imposition of Other Requirements.  The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the Stock Options and on any shares of Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

22.Addendum for Non-U.S. Countries.  Notwithstanding any provisions in this Agreement, the Award shall be subject to the special terms and conditions set forth in any Addendum to this Agreement for the Participant’s country (the “Addendum”).  Moreover, if the Participant relocates to one of the countries included in the Addendum, the special terms and conditions for such country will apply to the Participant, to the extent the Administrator determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan.  The Addendum constitutes part of this Agreement.

23.Company Signature; Participant Electronic Acknowledgment.  An authorized representative has signed this Agreement below.  By acknowledging acceptance of the terms of this Agreement through an electronic acknowledgment system established by the Company or its designated broker, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  The Award will not become effective, and the Participant will therefore have no rights to or in the Award, until the Participant acknowledges his or her acceptance of the terms of this Agreement in the manner required by the Company.

CUBIST PHARMACEUTICALS, INC.

By:

Name:

Title:

THE PARTICIPANT

Name:

EX-10.4

Exhibit 10.4

CUBIST PHARMACEUTICALS, INC.

2014 OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

FOR DIRECTORS

This Restricted Stock Unit Agreement (the “Agreement”) governs an award (the “Award”) of restricted stock units (“RSUs”) to non-employee members of the Board of Directors of Cubist Pharmaceuticals, Inc. (the “Company”) who have been selected for participation (each such director, a “Participant”) under the Company’s 2014 Omnibus Incentive Plan (as amended from time to time, the “Plan”).  The details of an Award made to a Participant will be set forth in a letter from the Participant’s manager or other written communication from the Company (a “Notice”).

In consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.Relationship to the Plan.  The Participant specifically understands and agrees that the Award is being issued under the Plan, a copy of which the Participant acknowledges he or she has read and understands and by which Plan the Participant agrees to be bound.  The provisions of the Plan are incorporated into this Agreement by reference.

2.Grant of Award.  The Participant will be notified of his or her Award through a Notice.  The Notice will contain, among other things, the number of RSUs subject to the Award and the grant date of the Award (such date, the “Grant Date”).  The Award consists of a contingent entitlement of the Participant to receive one share of Stock with respect to each RSU forming part of the Award, as set forth in the Notice, subject to the terms and conditions of this Agreement and the Plan.  For the avoidance of doubt, the total number of RSUs subject to the Award, as set forth in the Notice, is subject to adjustment pursuant to Section 7 of the Plan.  The Participant is required to acknowledge and accept the terms of this Agreement and the Plan in the manner set forth in Section 19 within the time period specified in the Notice.

3.Meaning of Certain Terms.  Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

4.Vesting and Settlement of Award.  Unless earlier terminated or forfeited, the Award will vest as to 100% of the RSUs on the earlier of the first anniversary of the Grant Date or the date of the next calendar year’s Annual Meeting of Stockholders (the “Vesting Date”), provided that the Participant remains a director of the Board through the Vesting Date.  The Company will be obligated to deliver to the Participant such number of shares of Stock equal to the number of RSUs that vest in accordance with this Section 4 as soon as practicable following the Vesting Date and in all events within sixty (60) days following the Vesting Date.

5.Termination of the Award.

a.If the Participant’s services cease for any reason prior to the Vesting Date, all unvested RSUs subject to the Award will be immediately forfeited upon such termination without any consideration due to the Participant.

b.The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Award or the RSUs at any time if the Participant breaches any agreement with the Company or an Affiliate with respect to non-competition, non-solicitation, or non-hire.

6.Prohibitions on Transfer and Sale.  Except as permitted by the Plan, the Award shall not be assigned, pledged or transferred in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or any similar process.  Any attempted transfer, assignment, pledge or other disposition of the Award, the RSUs or of any rights granted under this Agreement that is contrary to the provisions of the Plan or this Section 6, or the levy of any attachment or similar process upon the Award, shall be null and void.  Except as permitted by the Plan, the shares of Stock to be issued pursuant to this Agreement shall be issued, during the Participant’s lifetime, only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant’s guardian or representative).

7.Securities Law Compliance.  The Participant specifically acknowledges and agrees that any sales of shares of Stock issued hereunder shall be sold in accordance with the requirements of the Securities Act of 1933, as amended.

8.Rights as a Stockholder.  The Participant shall have no rights as a stockholder, including voting and dividend rights, until the shares of Stock (if any) are delivered to the Participant in accordance with Section 4 of this Agreement.

9.Tax Liability of the Participant and Payment of Taxes.  The Participant acknowledges and agrees that any income or other taxes with respect to the Award or the shares of Stock to be issued pursuant to this Agreement or otherwise sold shall be the Participant’s responsibility.  The Company shall have no liability or obligation related to the foregoing.

10.Data Authorization.  The Participant authorizes the Company to use and disclose to any agent administering the Plan or providing recordkeeping services with respect to the Plan such information and data as the Company shall request in order to facilitate the grant of the Award, the administration of the Award and the administration of the Plan, and the Participant waives any data privacy rights he or she may have with respect to such information or the sharing of such information.

11.Recovery of Compensation.  The RSUs, any shares of Stock delivered hereunder and any gains or other amounts realized in respect of such RSUs or shares of Stock shall be subject to recoupment by the Company to the extent required to comply with (a) applicable law or regulation or the rules of the stock exchange on which the Stock is traded or (b) any applicable Company clawback or recoupment policy as in effect from time to time.

12.Notices.  Notices required or permitted by the terms of this Agreement or the Plan shall be given by the Company and the Participant as set forth in the Plan.

13.Benefit of Agreement.  Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

14.Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware relating to the issuance of stock and the consideration received therefor, without giving effect to the conflict of laws principles thereof.  Except as prohibited by applicable law, provisions of this Agreement not relating the foregoing shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provisions or rule that would cause the application of the domestic substantive laws of any other jurisdiction.  Except as prohibited by applicable law, for the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to the exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Massachusetts or the federal courts of the United States for the District of Massachusetts.

15.Severability.  If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

16.Entire Agreement.  Unless otherwise provided in writing in a separate agreement between the Participant and the Company or an Affiliate, this Agreement, together with the Plan and the Notice, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

17.Modifications and Amendments; Waivers and Consents.  The terms and provisions of this Agreement may be modified or amended as provided in the Plan.  Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

18.Addendum for Non-U.S. Countries.  Notwithstanding any provisions in this Agreement, the Award shall be subject to the special terms and conditions set forth in any Addendum to this Agreement for the Participant’s country (the

“Addendum”).  Moreover, if the Participant relocates to one of the countries included in the Addendum, the special terms and conditions for such country will apply to the Participant, to the extent the Administrator determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan.  The Addendum constitutes part of this Agreement.

19.Company Signature; Participant Electronic Acknowledgment.  An authorized representative has signed this Agreement below.  By acknowledging acceptance of the terms of this Agreement through an electronic acknowledgment system established by the Company or its designated broker, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  The Award will not become effective, and the Participant will therefore have no rights to or in the Award, until the Participant acknowledges his or her acceptance of the terms of this Agreement in the manner required by the Company.

CUBIST PHARMACEUTICALS, INC.

By:

Name:

Title:

THE PARTICIPANT

Name:

EX-10.5

Exhibit 10.5

CUBIST PHARMACEUTICALS, INC.

2014 OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

FOR U.S. PARTICIPANTS (EMPLOYEES)

This Restricted Stock Unit Agreement (the “Agreement”) governs an award (the “Award”) of restricted stock units (“RSUs”) to employees of Cubist Pharmaceuticals, Inc. (the “Company”) who have been selected for participation (each such employee, a “Participant”) under the Company’s 2014 Omnibus Incentive Plan (as amended from time to time, the “Plan”).  The details of an Award made to a Participant will be set forth in a letter from the Participant’s manager or other written communication from the Company (a “Notice”).

In consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.Relationship to the Plan.  The Participant specifically understands and agrees that the Award is being issued under the Plan, a copy of which the Participant acknowledges he or she has read and understands and by which Plan the Participant agrees to be bound.  The provisions of the Plan are incorporated into this Agreement by reference.

2.Grant of Award.  The Participant will be notified of his or her Award through a Notice.  The Notice will contain, among other things, the number of RSUs subject to the Award and the grant date of the Award (such date, the “Grant Date”).  The Award consists of a contingent entitlement of the Participant to receive one share of Stock with respect to each RSU forming part of the Award, as set forth in the Notice, subject to the terms and conditions of this Agreement and the Plan.  For the avoidance of doubt, the total number of RSUs subject to the Award, as set forth in the Notice, is subject to adjustment pursuant to Section 7 of the Plan.  The Participant is required to acknowledge and accept the terms of this Agreement and the Plan in the manner set forth in Section 18 within the time period specified in the Notice.

3.Meaning of Certain Terms.  Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

4.Vesting and Settlement of Award.  Unless earlier terminated or forfeited, the Award will vest as to 25% of the RSUs on each of the first, second, third and fourth anniversaries of the Grant Date (each a “Vesting Date”), provided that the Participant remains continuously Employed through the applicable Vesting Date.  The Company will be obligated to deliver to the Participant such number of shares of Stock equal to the number of RSUs that vest in accordance with this Section 4 as soon as practicable following the Vesting Date and in all events within sixty (60) days following the Vesting Date.

5.Termination of the Award.

a.If the Participant’s Employment ceases for any reason prior to a Vesting Date, all unvested RSUs subject to the Award will be immediately forfeited upon such termination without any consideration due to the Participant.

b.The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Award or the RSUs at any time if the Participant breaches any agreement with the Company or an Affiliate with respect to non-competition, non-solicitation, or non-hire.

6.Prohibitions on Transfer and Sale.  Except as permitted by the Plan, the Award shall not be assigned, pledged or transferred in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or any similar process.  Any attempted transfer, assignment, pledge or other disposition of the Award, the RSUs or of any rights granted under this Agreement that is contrary to the provisions of the Plan or this Section 6, or the levy of any attachment or similar process upon the Award, shall be null and void.  Except as permitted by the Plan, the shares of Stock to be issued pursuant to this Agreement shall be issued, during the Participant’s lifetime, only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant’s guardian or representative).

7.Securities Law Compliance.  The Participant specifically acknowledges and agrees that any sales of shares of Stock issued hereunder shall be sold in accordance with the requirements of the Securities Act of 1933, as amended.

8.Rights as a Stockholder.  The Participant shall have no rights as a stockholder, including voting and dividend rights, until the shares of Stock (if any) are delivered to the Participant in accordance with Section 4 of this Agreement.

9.Tax Liability of the Participant and Payment of Taxes.

a.The Participant acknowledges and agrees that any income or other taxes with respect to the Award or the shares of Stock to be issued pursuant to this Agreement or otherwise sold shall be the Participant’s responsibility.

b.The Participant acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued shares of Stock upon the vesting and settlement of the RSUs (or any portion thereof), are subject to the Participant’s promptly paying, or in respect of any later requirement of withholding being liable, promptly paying at such time as such withholdings are due, all taxes required to be withheld, if any.

c.The Participant is responsible for satisfying all applicable tax and withholding obligations with respect to the Award in cash or by such other means that are acceptable to the Administrator and no shares of Stock will be transferred unless and until all applicable tax and withholding obligations have been satisfied.

10.Data Authorization.  The Participant authorizes the Company to use and disclose to any agent administering the Plan or providing recordkeeping services with respect to the Plan such information and data as the Company shall request in order to facilitate the grant of the Award, the administration of the Award and the administration of the Plan, and the Participant waives any data privacy rights he or she may have with respect to such information or the sharing of such information.

11.Recovery of Compensation.  The RSUs, any shares of Stock delivered hereunder and any gains or other amounts realized in respect of such RSUs or shares of Stock shall be subject to recoupment by the Company to the extent required to comply with (a) applicable law or regulation or the rules of the stock exchange on which the Stock is traded or (b) any applicable Company clawback or recoupment policy as in effect from time to time.

12.Notices.  Notices required or permitted by the terms of this Agreement or the Plan shall be given by the Company and the Participant as set forth in the Plan.

13.Benefit of Agreement.  Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

14.Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware relating to the issuance of stock and the consideration received therefor, without giving effect to the conflict of laws principles thereof.  Except as prohibited by applicable law, provisions of this Agreement not relating the foregoing shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provisions or rule that would cause the application of the domestic substantive laws of any other jurisdiction.  Except as prohibited by applicable law, for the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to the exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Massachusetts or the federal courts of the United States for the District of Massachusetts.

15.Severability.  If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

16.Entire Agreement.  Unless otherwise provided in writing in a separate agreement between the Participant and the Company or an Affiliate, this Agreement, together with the Plan and the Notice, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict

the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

17.Modifications and Amendments; Waivers and Consents.  The terms and provisions of this Agreement may be modified or amended as provided in the Plan.  Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

18.Company Signature; Participant Electronic Acknowledgment.  An authorized representative has signed this Agreement below.  By acknowledging acceptance of the terms of this Agreement through an electronic acknowledgment system established by the Company or its designated broker, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  The Award will not become effective, and the Participant will therefore have no rights to or in the Award, until the Participant acknowledges his or her acceptance of the terms of this Agreement in the manner required by the Company.

CUBIST PHARMACEUTICALS, INC.

By:

Name:

Title:

THE PARTICIPANT

Name:

EX-10.6

Exhibit 10.6

CUBIST PHARMACEUTICALS, INC.

2014 OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

FOR NON-U.S. PARTICIPANTS (EMPLOYEES)

This Restricted Stock Unit Agreement (the “Agreement”) governs an award (the “Award”) of restricted stock units (“RSUs”) to employees of Cubist Pharmaceuticals, Inc. (the “Company”) who have been selected for participation (each such employee, a “Participant”) under the Company’s 2014 Omnibus Incentive Plan (as amended from time to time, the “Plan”).  The details of an Award made to a Participant will be set forth in a letter from the Participant’s manager or other written communication from the Company (a “Notice”).

In consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.Relationship to the Plan.  The Participant specifically understands and agrees that the Award is being issued under the Plan, a copy of which the Participant acknowledges he or she has read and understands and by which Plan the Participant agrees to be bound.  The provisions of the Plan are incorporated into this Agreement by reference.

2.Grant of Award.  The Participant will be notified of his or her Award through a Notice.  The Notice will contain, among other things, the number of RSUs subject to the Award and the grant date of the Award (such date, the “Grant Date”).  The Award consists of a contingent entitlement of the Participant to receive one share of Stock with respect to each RSU forming part of the Award, as set forth in the Notice, subject to the terms and conditions of this Agreement and the Plan.  For the avoidance of doubt, the total number of RSUs subject to the Award, as set forth in the Notice, is subject to adjustment pursuant to Section 7 of the Plan.  The Participant is required to acknowledge and accept the terms of this Agreement and the Plan in the manner set forth in Section 21 within the time period specified in the Notice.

3.Meaning of Certain Terms.  Except as otherwise defined herein, all capitalized terms used herein have the same meaning as in the Plan.

4.Vesting and Settlement of Award.  Unless earlier terminated or forfeited, the Award will vest as to 25% of the RSUs on each of the first, second, third and fourth anniversaries of the Grant Date (each a “Vesting Date”), provided that the Participant remains continuously Employed through the applicable Vesting Date.  The Company will be obligated to deliver to the Participant such number of shares of Stock equal to the number of RSUs that vest in accordance with this Section 4 as soon as practicable following the Vesting Date and in all events within sixty (60) days following the Vesting Date.

5.Termination of the Award.

a.If the Participant’s Employment ceases for any reason prior to a Vesting Date, all unvested RSUs subject to the Award will be immediately forfeited upon such termination without any consideration due to the Participant.

b.The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Award or the RSUs at any time if the Participant breaches any agreement with the Company or an Affiliate with respect to non-competition, non-solicitation, or non-hire.

6.Prohibitions on Transfer and Sale.  Except as permitted by the Plan, the Award shall not be assigned, pledged or transferred in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or any similar process.  Any attempted transfer, assignment, pledge or other disposition of the Award, the RSUs or of any rights granted under this Agreement that is contrary to the provisions of the Plan or this Section 6, or the levy of any attachment or similar process upon the Award, shall be null and void.  Except as permitted by the Plan, the shares of Stock to be issued pursuant to this Agreement shall be issued, during the Participant’s lifetime, only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant’s guardian or representative).

7.Securities Law Compliance.  The Participant specifically acknowledges and agrees that any sales of shares of Stock issued hereunder shall be sold in accordance with the requirements of the Securities Act of 1933, as amended.

8.Rights as a Stockholder.  The Participant shall have no rights as a stockholder, including voting and dividend rights, until the shares of Stock (if any) are delivered to the Participant in accordance with Section 4 of this Agreement.

9.Tax Liability of the Participant and Payment of Taxes.

a.The Participant acknowledges and agrees that, regardless of any action the Company or the Participant’s employer takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (the “Tax Related Items”), the ultimate liability for all Tax Related Items legally due by the Participant is and remains the Participant’s responsibility and may exceed the amount actually withheld by the Company or the Participant’s employer.  The Participant further agrees and acknowledges that the Company and the Participant’s employer (i) make no representations or undertakings regarding the treatment of any Tax Related Items in connection with any aspect of the Award, including the grant of the Award, the vesting or settlement of the RSUs, or the subsequent sale of any shares of Stock acquired upon settlement of the Award; and (ii) do not commit to and are under no obligation to structure the terms of the Award to reduce or eliminate the Participant’s liability for Tax Related Items or achieve any particular tax result.  Further, the Participant understands and acknowledges that if the Participant has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable event, the Company and/or the Participant’s employer (or former employer, as applicable) may be required to withhold or account for Tax Related Items in more than one jurisdiction.

b.At the time any portion of the RSUs becomes taxable to the Participant, the Participant will be required to pay to the Company any Tax Related Items due as a result of such taxable event.  The Company shall have the right to withhold from any payment made in respect of the RSUs, transfer of shares of Stock acquired upon settlement of the Award, or payment made to the Participant or to any person hereunder, whether such payment is to be made in cash or in shares of Stock, all Tax Related Items as shall be required, in the determination of the Company, pursuant to any statute or governmental regulation or ruling.  The Participant acknowledges and agrees that the Company, in its sole discretion, may satisfy such withholding obligation by any one or combination of the following methods:

i.by requiring the Participant to deliver a properly executed notice together with irrevocable instructions to a broker approved by the Company to sell shares of Stock and deliver promptly to the Company the amount of sale proceeds required to pay the amount required to be withheld;

ii.by requiring (or allowing) the Participant to pay such amount in cash or check;

iii.by deducting such amount from the Participant’s current compensation;

iv.by allowing the Participant to surrender other shares of Stock, which (A) in the case of shares of Stock initially acquired from the Company (upon the exercise of a stock option or otherwise), have been owned by the Participant for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (B) have a fair market value on the date of surrender equal to the amount required to be withheld;

v.by withholding a number of shares of Stock to be issued upon delivery of shares of Stock under the Award which have a fair market value equal to the minimum statutory rate or other applicable withholding rate;

vi.by selling any shares of Stock to the extent required to satisfy the Company’s withholding obligations; and

vii.by such other means as the Administrator in its discretion and without notice deems appropriate, including withholding from salary or other amounts payable to the Participant, shares of Stock or cash having a value sufficient to satisfy the tax withholding obligation.

If the obligation for withholding taxes is satisfied by withholding shares of Stock, then the Participant will, for tax purposes, be deemed to have been issued the full number of shares of Stock subject to the vested Award, notwithstanding that a number of the shares of Stock are withheld solely for the purpose of paying the applicable withholding taxes.

10.Participant Acknowledgments and Authorizations.  The Participant acknowledges the following:

a.The Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

b.The Award is voluntary and occasional and does not create any contractual or other right to receive future Awards, or benefits in lieu of Awards, even if Awards have been granted in the past;

c.All decisions with respect to future Awards or other grants, if any, will be at the sole discretion of the Company;

d.The value of the Award is an extraordinary item of compensation outside of the scope of the Participant’s Employment.  As such, the Award is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-term service awards, pension or retirement benefits or similar payments.  The future value of the shares of Stock underlying the Award is unknown and cannot be predicted with certainty;

e.The Award and Participant’s participation in the Plan shall not create a right to Employment or be interpreted as forming an employment or service contract with the Company, the Participant’s employer or any Affiliate and shall not interfere with the ability of the Company, the Participant’s employer or any Affiliate, as applicable, to terminate Participant’s Employment;

f.The Participant’s participation in the Plan is voluntary;

g.The Award, the RSUs, and the shares of Stock received upon settlement of the Award, if any, are not intended to replace any pension rights or compensation;

h.No claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from termination of the Participant’s Employment (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), and in consideration of the Award to which the Participant is not otherwise entitled, the Participant irrevocably agrees never to institute any claim against the Company, the Participant’s employer or any Affiliate, waives the Participant’s ability, if any, to bring any such claim and releases the Company, the Participant’s employer and any Affiliate from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

i.Unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Award, the RSUs, or the shares of Stock received upon settlement of the Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

11.Recovery of Compensation.  The RSUs, any shares of Stock delivered hereunder and any gains or other amounts realized in respect of such RSUs or shares of Stock shall be subject to recoupment by the Company to the extent required to comply with (a) applicable law or regulation or the rules of the stock exchange on which the Stock is traded or (b) any applicable Company clawback or recoupment policy as in effect from time to time.

12.Notices.  Notices required or permitted by the terms of this Agreement or the Plan shall be given by the Company and the Participant as set forth in the Plan.

13.Benefit of Agreement.  Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

14.Governing Law.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware relating to the issuance of stock and the consideration received therefor, without giving effect to the conflict

of laws principles thereof.  Except as prohibited by applicable law, provisions of this Agreement not relating the foregoing shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provisions or rule that would cause the application of the domestic substantive laws of any other jurisdiction.  Except as prohibited by applicable law, for the purpose of litigating any dispute that arises under this Agreement, whether at law or in equity, the parties hereby consent to the exclusive jurisdiction in the Commonwealth of Massachusetts and agree that such litigation shall be conducted in the state courts of Massachusetts or the federal courts of the United States for the District of Massachusetts.

15.Severability.  If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability of the rest of this Agreement shall not be affected thereby.

16.Entire Agreement.  Unless otherwise provided in writing in a separate agreement between the Participant and the Company or an Affiliate, this Agreement, together with the Plan and the Notice, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

17.Modifications and Amendments; Waivers and Consents.  The terms and provisions of this Agreement may be modified or amended as provided in the Plan.  Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

18.Miscellaneous.

a.Successors and Assigns.  This Agreement shall bind and inure only to the benefit of the parties to hereto (the “Parties”) and their respective successors and assigns.

b.No Third-Party Beneficiaries.  Nothing in this Agreement is intended to confer any rights or remedies on any persons other than the Parties and their respective successors or assigns.  Nothing in this Agreement is intended to relieve or discharge the obligation or liability of third persons to either Party.  No provision of this Agreement shall give any third person any right of subrogation or action over or against either Party.

c.Termination or Amendment of the Award. The Administrator may amend the terms of the Award theretofore granted, prospectively or retroactively, provided that the Award as amended is consistent with the terms of the Plan.  Also within the limitations of the Plan, the Administrator may modify, extend or assume the Award or may accept the cancellation of the Award or the RSUs or other equity-based compensation awards granted by another issuer in return for the grant of new Awards for the same or a different number of shares of Stock and on the same or different terms and conditions.

d.Data Privacy.

i.The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this Agreement and any other grant materials by and among, as applicable, the Participant’s employer, the Company and any Affiliate for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan.

ii.The Participant understands that the Company and the Participant’s employer may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification

number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all RSUs or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

iii.The Participant understands that Data will be transferred to a third party stock plan service provider as may be selected by the Company to assist the Company with the implementation, administration and management of the Plan. The Participant understands that the recipients of the Data may be located in the United States, or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Participant’s country.  The Participant understands that if the Participant resides outside the United States, the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the Participant’s local human resources representative.  The Participant authorizes the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Participant’s participation in the Plan.  The Participant understands that the Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan.  The Participant understands that if the Participant resides outside the United States, the Participant may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Participant’s local human resources representative.  Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis.  If the Participant does not consent, or if the Participant later revokes his or her consent, the Participant’s employment status or service and career with the Participant’s employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Participant’s consent is that the Company would not be able to grant the Participant RSUs or other equity awards or administer or maintain such awards.  Therefore, the Participant understands that refusing or withdrawing the Participant’s consent may affect the Participant’s ability to participate in the Plan.  For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the Participant’s local human resources representative.

19.Imposition of Other Requirements.  The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the RSUs and on any shares of Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

20.Addendum for Non-U.S. Countries.  Notwithstanding any provisions in this Agreement, the Award shall be subject to the special terms and conditions set forth in any Addendum to this Agreement for the Participant’s country (the “Addendum”).  Moreover, if the Participant relocates to one of the countries included in the Addendum, the special terms and conditions for such country will apply to the Participant, to the extent the Administrator determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan.  The Addendum constitutes part of this Agreement.

21.Company Signature; Participant Electronic Acknowledgment.  An authorized representative has signed this Agreement below.  By acknowledging acceptance of the terms of this Agreement through an electronic acknowledgment system established by the Company or its designated broker, the Participant agrees to be bound by all of the terms of this Agreement and the Plan.  The Award will not become effective, and the Participant will therefore have no rights to or in the Award, until the Participant acknowledges his or her acceptance of the terms of this Agreement in the manner required by the Company.

CUBIST PHARMACEUTICALS, INC.

By:

Name:

Title:

THE PARTICIPANT

Name:

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael W. Bonney, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q 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;

(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:  August 11, 2014

/s/ Michael W. Bonney

Michael W. Bonney

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael J. Tomsicek, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q 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;

(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:  August 11, 2014

/s/ Michael J. Tomsicek

Michael J. Tomsicek

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

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 Quarterly Report of Cubist Pharmaceuticals, Inc. (“Cubist”) on Form 10-Q for the period ending June 30, 2014, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Michael W. Bonney, 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.

August 11, 2014

/s/ Michael W. Bonney

Michael W. Bonney*

Chief Executive Officer

This certification is being furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Cubist for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liability of that Section. This certification will not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Cubist specifically incorporates it by reference.

*A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Cubist and shall be furnished to the SEC or its staff upon request.

EX-32.2

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 Quarterly Report of Cubist Pharmaceuticals, Inc. (“Cubist”) on Form 10-Q for the period ending June 30, 2014, as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Michael J. Tomsicek, 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.

August 11, 2014

/s/ Michael J. Tomsicek

Michael J. Tomsicek*

Senior Vice President and Chief Financial Officer

This certification is being furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Cubist for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liability of that Section. This certification will not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Cubist specifically incorporates it by reference.

*A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Cubist and shall be furnished to the SEC or its staff upon request.

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INVESTMENTS (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Available-for-sale investments
Amortized Cost	$ 406,618	$ 470,209
Unrealized Gains	53	179
Unrealized Losses	(36)	(40)
Fair Value	406,635	470,348
Bank deposits
Available-for-sale investments
Amortized Cost	50,000	40,000
Fair Value	50,000	40,000
U.S. Treasury securities
Available-for-sale investments
Amortized Cost	70,180	67,648
Unrealized Gains	2	6
Unrealized Losses	(4)	(4)
Fair Value	70,178	67,650
Corporate and municipal notes
Available-for-sale investments
Amortized Cost	286,438	362,561
Unrealized Gains	51	173
Unrealized Losses	(32)	(36)
Fair Value	$ 286,457	$ 362,698

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INCOME TAXES (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Jun. 30, 2014 item	Dec. 31, 2013
INCOME TAXES
Uncertain tax positions	$ 52.7	$ 43.1
Number of foreign subsidiaries intellectual property rights transferred	1
Uncertain tax positions included in other long-term liabilities	17.6
Uncertain tax positions offset against deferred tax assets	35.1
Unrecognized tax benefits related to positions on 2011 and 2012 tax returns	$ 13.7

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DEBT (Details 2) (Senior secured revolving credit facility, USD $) In Millions, unless otherwise specified	1 Months Ended				6 Months Ended
	Nov. 30, 2012	Jun. 30, 2014	Dec. 31, 2013	Sep. 30, 2013 Maximum	Jun. 30, 2014 Eurodollar rate	Jun. 30, 2014 Eurodollar rate Minimum	Jun. 30, 2014 Eurodollar rate Maximum	Jun. 30, 2014 Base rate	Jun. 30, 2014 Base rate Minimum	Jun. 30, 2014 Base rate Maximum
Credit Facility
Maximum borrowing capacity under credit facility	$ 150.0
Term of credit facility	3 years
Additional borrowing allowed subject to pro forma compliance with financial covenants				150.0
Variable rate basis					Eurodollar rate			Base rate
Basis spread on variable rate (as a percent)						2.25%	3.00%		1.25%	2.00%
Outstanding credit facility		$ 0	$ 0

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SEGMENT INFORMATION (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 segment	Jun. 30, 2013
SEGMENT INFORMATION
Number of operating segments			1
Approximate percentage of revenues generated within the U. S.	90.00%	94.00%	91.00%	94.00%

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ACCRUED LIABILITIES (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
ACCRUED LIABILITIES
Accrued royalties	$ 77,036	$ 83,591
Accrued clinical trials	52,839	44,830
Accrued bonus	11,113	24,540
Accrued restructuring	5,475	19,753
Accrued Medicaid, Medicare and commercial rebates	21,650	18,595
Accrued benefits and incentive compensation	14,655	18,183
Other accrued costs	40,188	35,586
Accrued liabilities	$ 222,956	$ 245,078

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Details 3) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Gross U.S. product revenues offset by provisions
Gross U.S. product revenues	$ 318,603,000	$ 272,271,000	$ 604,115,000	$ 518,218,000
Provisions offsetting U.S. product revenues:
Contractual adjustments	(21,866,000)	(16,014,000)	(41,819,000)	(30,032,000)
Governmental rebates	(31,478,000)	(16,754,000)	(56,579,000)	(35,435,000)
Total provisions offsetting product revenues	(53,344,000)	(32,768,000)	(98,398,000)	(65,467,000)
U.S. product revenues, net	265,259,000	239,503,000	505,717,000	452,751,000
Reversal of revenue reserves related to Medicaid program		$ 6,600,000

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GOODWILL, IPR AND D AND OTHER INTANGIBLE ASSETS, NET (Tables)

6 Months Ended

Jun. 30, 2014

GOODWILL, IPR&D AND OTHER INTANGIBLE ASSETS, NET

Schedule of carrying value of the entity's IPR&D assets

	June 30, 2014		December 31, 2013
	(in thousands)
Development and potential commercialization of:
SIVEXTRO	$	—	$	659,000
Bevenopran	43,400		43,400
Ceftolozane/tazobactam for HABP and VABP	174,000		174,000
Ceftolozane/tazobactam for cUTI and cIAI	20,000		20,000
Total IPR&D	$	237,400	$	896,400

Schedule of other intangible assets, net

	June 30, 2014			December 31, 2013
	(in thousands)
Patents	$	2,627		$	2,627
Acquired technology rights	1,451,800			788,800
Other intangible assets, gross	1,454,427			791,427
Less: accumulated amortization — patents	(2,523		)	(2,493		)
accumulated amortization — acquired technology rights	(101,521		)	(67,868		)
Other intangible assets, net	$	1,350,383		$	721,066

Schedule of estimated aggregate amortization of intangible assets

	(in thousands)
Remainder of 2014	$	56,003
2015	112,004
2016	110,724
2017	109,484
2018	109,484
2019 and thereafter	852,684
Total	$	1,350,383

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EMPLOYEE STOCK BENEFIT PLANS (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Summary of Stock-based Compensation Expense
Total stock-based compensation	$ 10,127	$ 8,410	$ 18,968	$ 16,139
Income tax effect	(3,466)	(2,640)	(6,551)	(5,093)
After-tax effect of stock-based compensation expense	6,661	5,770	12,417	11,046
Cost of product revenues
Summary of Stock-based Compensation Expense
Total stock-based compensation	131	129	269	254
Research and development expense
Summary of Stock-based Compensation Expense
Total stock-based compensation	3,527	2,978	6,719	5,767
Selling, general and administrative expense
Summary of Stock-based Compensation Expense
Total stock-based compensation	$ 6,469	$ 5,303	$ 11,980	$ 10,118

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FAIR VALUE MEASUREMENTS (Details 2) (USD $)					6 Months Ended			6 Months Ended			1 Months Ended		6 Months Ended					6 Months Ended														6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014 Optimer Pharmaceuticals, Inc. right	Dec. 31, 2013 Optimer Pharmaceuticals, Inc.	Oct. 24, 2013 Optimer Pharmaceuticals, Inc. right	Jun. 30, 2014 Trius Therapeutics, Inc.	Dec. 31, 2013 Trius Therapeutics, Inc.	Sep. 11, 2013 Trius Therapeutics, Inc. right	Jun. 30, 2014 Trius Therapeutics, Inc. Minimum	Jun. 30, 2014 Trius Therapeutics, Inc. Maximum	Jun. 30, 2014 Trius Therapeutics, Inc. Weighted Average	Dec. 31, 2011 Adolor Corporation AnnualPayment	Jun. 30, 2014 Adolor Corporation	Jun. 30, 2014 Adolor Corporation Minimum	Jun. 30, 2014 Adolor Corporation Maximum	Jun. 30, 2014 Adolor Corporation Weighted Average	Jun. 30, 2014 Adolor Corporation Bevenopran (formerly known as CB-5945)	Dec. 31, 2013 Adolor Corporation Bevenopran (formerly known as CB-5945)	Jun. 30, 2014 Calixa Therapeutics Inc.	Jun. 30, 2014 Calixa Therapeutics Inc. Minimum	Jun. 30, 2014 Calixa Therapeutics Inc. Maximum	Jun. 30, 2014 Calixa Therapeutics Inc. Weighted Average	Jun. 30, 2014 Calixa Therapeutics Inc. Ceftolozane/tazobactam	Dec. 31, 2013 Calixa Therapeutics Inc. Ceftolozane/tazobactam	Jun. 30, 2014 Level 2	Dec. 31, 2013 Level 2	Jun. 30, 2014 Level 2 2020 Convertible Senior Notes	Dec. 31, 2013 Level 2 2020 Convertible Senior Notes	Jun. 30, 2014 Level 2 2018 Convertible Senior Notes	Dec. 31, 2013 Level 2 2018 Convertible Senior Notes	Jun. 30, 2014 Level 2 2017 Convertible Senior Notes	Dec. 31, 2013 Level 2 2017 Convertible Senior Notes	Jun. 30, 2014 Contingent Consideration Level 3
Contingent Consideration
Number of transferable CVRs received by stockholders of acquiree		1		1			1
Undiscounted contingent consideration, low range		$ 0			$ 0							$ 0						$ 0
Undiscounted contingent consideration, high range		253,900,000		253,900,000	108,400,000		108,400,000					233,800,000						180,000,000
Level 3 Disclosures
Contingent consideration	159,136,000	6,100,000	68,600,000		5,208,000	5,000,000										45,449,000	44,200,000					108,479,000	105,600,000
Probability of success (as a percent)								4.00%	6.50%	5.80%			25.00%	30.00%	27.00%				40.00%	86.00%	65.00%
Discount rate (as a percent)					8.00%								5.30%	13.00%				5.30%
Reconciliation of fair value using Level 3 inputs, liabilities
Balance at the beginning of the period																																154,761,000
Contingent consideration expense																																4,375,000
Balance at the end of the period																																159,136,000
Other Fair Value Measurements
Estimated fair value of Convertible Senior Notes																								1,465,016,000	1,470,633,000	516,938,000	516,843,000	392,070,000	403,473,000	556,008,000	550,317,000
Number of annual payments under termination agreement											6
Aggregate payments assumed											22,500,000
Net carrying amount of the total payable to Glaxo outstanding at the end of the period												$ 14,600,000

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BUSINESS COMBINATIONS AND ACQUISITIONS (Details 2) (USD $) In Thousands, unless otherwise specified	0 Months Ended
	Oct. 24, 2013 Optimer Pharmaceuticals, Inc.	Sep. 11, 2013 Trius Therapeutics, Inc.
Total Acquisition-Date Fair Value
Cash transferred	$ 569,452	$ 695,710
Contingent consideration	115,634	4,603
Total consideration transferred	$ 685,086	$ 700,313

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RESTRUCTURING (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Activity in the restructuring liability
Balance at the beginning of the period		$ 23,668
Restructuring expense	3,469	5,908
Cash payments made		(22,110)
Balance at the end of the period	7,466	7,466
Employee-Related Severance
Activity in the restructuring liability
Balance at the beginning of the period		19,173
Restructuring expense		5,011
Cash payments made		(20,344)
Balance at the end of the period	3,840	3,840
Lease Restructuring
Activity in the restructuring liability
Balance at the beginning of the period		4,495
Restructuring expense		897
Cash payments made		(1,766)
Balance at the end of the period	$ 3,626	$ 3,626

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DEBT (Details) (USD $)	1 Months Ended		6 Months Ended
	Sep. 30, 2013	Oct. 31, 2010	Jun. 30, 2014	Dec. 31, 2013
Debt
Principal amount outstanding			$ 1,028,810,000	$ 1,028,822,000
Unamortized discount			(194,009,000)	(210,992,000)
Net carrying amount			834,801,000	817,830,000
Convertible Bond Hedge
Common stock covered under convertible bond hedge (in shares)	9,705,442
Exercise price (in dollars per unit)	$ 82.43
Purchase of convertible bond hedge	179,400,000
Warrant Transactions
Number of common stock called by warrants (in shares)	9,705,442
Exercise price (in dollars per share)	$ 96.43
Number of trading days over which warrants are exercisable	80 days
Amount received on warrants sold	121,700,000
2018 Convertible Senior Notes and 2020 Convertible Senior Notes
Debt
Aggregate principal amount of notes issued	800,000,000
Number of note series	2
Net proceeds after debt issuance cost	775,600,000
Conversion rate of common stock	0.0121318
Initial conversion price of shares (in dollars per share)	$ 82.43
Number of consecutive trading days during which the closing price of the entity's common stock must exceed the conversion price for at least 20 days in order for the notes to be redeemable	30 days
Convertibility of debt, closing price of stock test, percentage of stock price to conversion price that must be exceeded	130.00%
Number of consecutive business days immediately after any five consecutive trading day period during the note measurement period	5 days
Number of consecutive trading days before five consecutive business days during the note measurement period	5 days
Conversion ratio, principal amount	1,000
2018 Convertible Senior Notes and 2020 Convertible Senior Notes | Minimum
Debt
Number of days within 30 consecutive trading days in which the closing price of the entity's common stock must exceed the conversion price for the notes to be redeemable	20
2018 Convertible Senior Notes and 2020 Convertible Senior Notes | Maximum
Debt
Convertibility of debt, trading price of debt test, percentage of closing price of stock used in calculation	98.00%
2020 Convertible Senior Notes
Debt
Principal amount outstanding			450,000,000	450,000,000
Unamortized discount			(104,235,000)	(111,015,000)
Net carrying amount			345,765,000	338,985,000
Aggregate principal amount of notes issued	450,000,000
Notes stated interest rate percentage			1.875%
2018 Convertible Senior Notes
Debt
Principal amount outstanding			350,000,000	350,000,000
Unamortized discount			(59,497,000)	(65,733,000)
Net carrying amount			290,503,000	284,267,000
Aggregate principal amount of notes issued	350,000,000
Number of note series	1
Notes stated interest rate percentage			1.125%
2017 Convertible Senior Notes
Debt
Principal amount outstanding			228,810,000	228,822,000
Unamortized discount			(30,277,000)	(34,244,000)
Net carrying amount			198,533,000	194,578,000
Aggregate principal amount of notes issued		450,000,000
Net proceeds after debt issuance cost		436,000,000
Principal amount of the 2017 Notes converted	221,200,000
Conversion rate of common stock		0.0342759
Initial conversion price of shares (in dollars per share)		$ 29.18
Number of consecutive trading days during which the closing price of the entity's common stock must exceed the conversion price for at least 20 days in order for the notes to be redeemable		30 days
Convertibility of debt, closing price of stock test, percentage of stock price to conversion price that must be exceeded		130.00%
Number of consecutive business days immediately after any five consecutive trading day period during the note measurement period		5 days
Number of consecutive trading days before five consecutive business days during the note measurement period		5 days
Conversion ratio, principal amount		1,000
Notes stated interest rate percentage			2.50%
If-converted value in excess of the principal amount of debt			$ 318,800,000
2017 Convertible Senior Notes | Minimum
Debt
Number of days within 30 consecutive trading days in which the closing price of the entity's common stock must exceed the conversion price for the notes to be redeemable		20
2017 Convertible Senior Notes | Maximum
Debt
Convertibility of debt, trading price of debt test, percentage of closing price of stock used in calculation		98.00%

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2014

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

D. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The following table sets forth our assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2014:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents: (1)
Corporate and municipal notes	—		2,499		—		2,499
Short-term investments: (2)
Bank deposits	—		50,000		—		50,000
U.S. Treasury securities	70,178		—		—		70,178
Corporate and municipal notes	—		286,457		—		286,457
Total assets	$	70,178	$	338,956	$	—	$	409,134
Liabilities
Contingent consideration - Optimer CVRs	$	6,094	$	—	$	—	$	6,094
Contingent consideration - other	—		—		159,136		159,136
Total liabilities	$	6,094	$	—	$	159,136	$	165,230

(1) Excludes $219.3 million of cash as of June 30, 2014.

(2) Excludes certificates of deposit of $15.0 million recorded at cost as of June 30, 2014.

We did not transfer any assets or liabilities between levels during the three and six months ended June 30, 2014.

Marketable Securities

We classify our U.S. Treasury securities as Level 1 assets under the fair value hierarchy as these assets have been valued using quoted market prices in active markets without any valuation adjustment. We classify our bank deposits and corporate and municipal notes as Level 2 assets under the fair value hierarchy, as these assets have been valued using information obtained through a third-party pricing service at each balance sheet date, using observable market inputs that may include trade information, broker or dealer quotes, bids, offers, or a combination of these data sources.

Contingent Consideration

Level 1

In connection with the acquisition of Optimer, we issued one transferable CVR for each outstanding share of Optimer’s common stock. The fair value of the liability relating to the amount payable by us to the holders of the CVRs upon the achievement of certain sales milestones for DIFICID and other specified products was $6.1 million and $68.6 million as of June 30, 2014 and December 31, 2013, respectively. The fair value of the liability is based upon the market price of the security, which is traded in an active market. Changes in the fair value of the liability related to changes in the market price of the security are recognized within the condensed consolidated statements of comprehensive income. The undiscounted amount of contingent consideration that we could pay to the holders of the Optimer CVRs ranges from zero to $253.9 million.

Level 3

In connection with the acquisitions of Trius, Adolor Corporation (Adolor) and Calixa Therapeutics Inc. (Calixa), we recorded contingent consideration pertaining to the amounts potentially payable to the former stockholders of each company. Such contingent consideration is measured at fair value and based on significant inputs not observable in the market. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the condensed consolidated statements of comprehensive income.

Contingent consideration may change significantly as development progresses and additional data is obtained that will affect our assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

The following table provides quantitative information associated with the fair value measurement of our Level 3 contingent consideration:

	Fair Value as of			Unobservable Inputs
	June 30, 2014 (in thousands)		Valuation technique	Probability of success - range (weighted average)	Periods in which milestones are expected to be achieved	Discount rate
Trius	$	5,208	Probability-adjusted discounted cash flow	4.0% - 6.5% (5.8%)	2016	8.0%
Adolor	45,449		Probability-adjusted discounted cash flow	25.0% - 30.0% (27.0%)	2018 - 2022	5.3% / 13.0%
Calixa	108,479		Probability-adjusted discounted cash flow	40.0% - 86.0% (65.0%)	2014 - 2018	5.3%
Total	$	159,136

The significant unobservable inputs used in the fair value measurement of our contingent consideration are the probabilities of successful achievement of development, regulatory and sales milestones, the period in which these milestones are expected to be achieved and a discount rate. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant increases or decreases in the discount rate and/or the period in which the milestones will be achieved would result in a significantly lower or higher fair value measurement, respectively.

Trius Therapeutics, Inc.—The fair value of contingent consideration payable by us to the former stockholders of Trius upon the achievement of certain sales milestones of SIVEXTRO and other specified products was estimated to be $5.2 million and $5.0 million as of June 30, 2014 and December 31, 2013, respectively. The change in the fair value of the contingent consideration liability during the three and six months ended June 30, 2014, is due to the time value of money. The undiscounted amount of contingent consideration that we could pay to the former stockholders of Trius under the merger agreement ranges from zero to $108.4 million. SIVEXTRO is a once daily oxazolidinone antibiotic intravenous and oral treatment for certain serious skin infections caused by susceptible Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA).

Adolor Corporation—The fair value of contingent consideration payable by us to the former stockholders of Adolor upon the achievement of certain regulatory milestones, sales milestones or a combination of both, with respect to bevenopran, was estimated to be $45.4 million and $44.2 million as of June 30, 2014 and December 31, 2013, respectively. The change in the fair value of the contingent consideration liability during the three and six months ended June 30, 2014, is due to the time value of money. The aggregate remaining, undiscounted amount of contingent consideration that we could pay to the former stockholders of Adolor under the merger agreement ranges from zero to $233.8 million. Bevenopran is in development for the potential treatment of opioid-induced constipation (OIC) in patients with chronic, non-cancer pain.

Calixa Therapeutics Inc.—The fair value of contingent consideration relating to amounts payable by us to the former stockholders of Calixa upon the achievement of certain regulatory and sales milestones with respect to ceftolozane/tazobactam was estimated to be $108.5 million and $105.6 million as of June 30, 2014 and December 31, 2013, respectively. The change in the fair value of the contingent consideration liability during the three and six months ended June 30, 2014, is due to the time value of money. The aggregate remaining, undiscounted amount of contingent consideration that we could pay to the former stockholders of Calixa under the merger agreement ranges from zero to $180.0 million. Ceftolozane/tazobactam is being developed as a potential treatment for complicated urinary tract infections (cUTI), complicated intra-abdominal infections (cIAI), hospital-acquired bacterial pneumonia (HABP) and ventilator-associated bacterial pneumonia (VABP).

Changes in the fair value of our Level 3 contingent consideration were as follows:

	Contingent Consideration
	(in thousands)
Beginning balance as of December 31, 2013	$	154,761
Contingent consideration expense	4,375
Ending balance as of June 30, 2014	$	159,136

Other Fair Value Measurements

Debt

We estimate the fair value of our 2020 Notes, 2018 Notes and 2017 Notes (Convertible Senior Notes) by using a quoted market rate in an inactive market, which is classified as a Level 2 input. The estimated fair values of the Convertible Senior Notes consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
2020 Notes	$	516,938	$	516,843
2018 Notes	392,070		403,473
2017 Notes	556,008		550,317
Total estimated fair value of Convertible Senior Notes	$	1,465,016	$	1,470,633

See Note H., “Debt,” for additional information.

Payable to Glaxo

In connection with the acquisition of Adolor in December 2011, we assumed the obligation to pay Glaxo Group Limited (Glaxo) six annual payments aggregating to $22.5 million as a result of Adolor’s termination of its collaboration agreement with Glaxo in September 2011. The amount payable to Glaxo was recorded at its estimated fair value at the time of acquisition and is allocated between current and non-current liabilities within the condensed consolidated balance sheets based on the contractual payment dates. The fair value estimate utilizes a discount rate, which is classified as a Level 3 input. As of June 30, 2014, the $14.6 million carrying value of the remaining annual payments to Glaxo approximates its fair value. Imputed interest on the amount payable to Glaxo is recorded as interest expense within the condensed consolidated statements of comprehensive income.

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INVENTORY (Details) (USD $) In Thousands, unless otherwise specified			6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 DIFICID	Jun. 30, 2014 ENTEREG
INVENTORY
Raw materials	$ 30,767	$ 17,904
Work-in-process	6,723	8,104
Finished goods	22,589	31,655
Inventory	60,079	57,663
Included in other assets:
Raw materials	52,801	57,284
Work-in-process	894	1,882
Total	$ 113,774	$ 116,829
INVENTORY
Period in which inventory is expected to be sold			1 year	1 year

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RESTRUCTURING (Tables)

6 Months Ended

Jun. 30, 2014

RESTRUCTURING

Schedule of activity in restructuring liability included in accrued liabilities and other long-term liabilities

	Employee-Related Severance			Lease Restructuring			Total
				(in thousands)
Balance at December 31, 2013	$	19,173		$	4,495		$	23,668
Restructuring expense	5,011			897			5,908
Cash payments made	(20,344		)	(1,766		)	(22,110		)
Balance at June 30, 2014	$	3,840		$	3,626		$	7,466

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EMPLOYEE STOCK BENEFIT PLANS (Tables)

6 Months Ended

Jun. 30, 2014

EMPLOYEE STOCK BENEFIT PLANS

Schedule of stock-based compensation expense

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Stock-based compensation expense allocation:
Cost of product revenues	$	131		$	129		$	269		$	254
Research and development expense	3,527			2,978			6,719			5,767
Selling, general and administrative expense	6,469			5,303			11,980			10,118
Total stock-based compensation	10,127			8,410			18,968			16,139
Income tax effect	(3,466		)	(2,640		)	(6,551		)	(5,093		)
After-tax effect of stock-based compensation expense	$	6,661		$	5,770		$	12,417		$	11,046

Schedule of option activity

	Number of shares			Weighted Average Exercise Price
Outstanding as of December 31, 2013	7,478,169			$	31.61
Granted	736,161			$	72.60
Exercised	(753,739		)	$	24.13
Canceled	(130,645		)	$	41.28
Outstanding as of June 30, 2014	7,329,946			$	36.32
Vested and exercisable as of June 30, 2014	4,716,807			$	28.66
Weighted average grant-date fair value of options granted during the period	$	19.39

Schedule of RSU activity, including PRSUs

	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2013	882,272		$	40.97
Granted	530,869		$	72.42
Vested	(276,251	)	$	37.07
Forfeited	(44,904	)	$	49.49
Nonvested as of June 30, 2014	1,091,986		$	56.89

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GOODWILL, IPR AND D AND OTHER INTANGIBLE ASSETS, NET (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Goodwill
Accumulated impairment losses	$ 0

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INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2014

INCOME TAXES

Schedule of the reconciliation of the federal statutory tax rate to the effective tax rates and the related impact to the provision (benefit) for income taxes

	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013
	Amount			Rate		Amount				Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	9,813		35.0	%	$	7,488			35.0	%
Differential arising from:
State	66			0.2	%	364				1.7	%
Non-deductible expenses	932			3.3	%	392				1.8	%
Domestic manufacturing deduction	—			—	%	(689			)	(3.2	)%
Contingent consideration	(8,938		)	(31.9	)%	375				1.8	%
2013 Federal research credit	—			—	%	(1,188			)	(5.5	)%
Impact of reserve for uncertain tax positions	84			0.3	%	(805			)	(3.8	)%
Foreign rate differential	1,512			5.4	%	(18			)	(0.1	)%
Other	539			2.0	%	234				1.1	%
Total	$	4,008		14.3	%	$		6,153		28.8	%

	Six Months Ended June 30, 2014					Six Months Ended June 30, 2013
	Amount			Rate		Amount			Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	14,789		35.0	%	$	8,744		35.0	%
Differential arising from:
State	(206		)	(0.5	)%	442			1.8	%
Non-deductible expenses	(868		)	(2.0	)%	402			1.6	%
Domestic manufacturing deduction	—			—	%	(809		)	(3.2	)%
Contingent consideration	(22,215		)	(52.6	)%	418			1.7	%
2013 Federal research credit	—			—	%	(1,307		)	(5.2	)%
2012 Federal research credit	—			—	%	(4,041		)	(16.2	)%
Impact of reserve for uncertain tax positions	169			0.4	%	(409		)	(1.6	)%
Foreign rate differential	1,762			4.2	%	(20		)	(0.1	)%
Other	563			1.3	%	234			0.8	%
Total	$	(6,006	)	(14.2	)%	$	3,654		14.6	%

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014
Prepaid expenses and other current assets
Restricted cash included in prepaid expenses and other current assets	$ 1.4
Other assets
Restricted cash included in other assets	$ 0.8

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INVESTMENTS

6 Months Ended

Jun. 30, 2014

INVESTMENTS

INVESTMENTS

C. INVESTMENTS

Marketable Securities

The following table summarizes the amortized cost and estimated fair value of our marketable securities, which are considered to be available-for-sale investments and included in short-term investments on the condensed consolidated balance sheets:

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Balance as of June 30, 2014
Bank deposits	$	50,000	$	—	$	—		$	50,000
U.S. Treasury securities	70,180		2		(4		)	70,178
Corporate and municipal notes	286,438		51		(32		)	286,457
Total	$	406,618	$	53	$	(36	)	$	406,635
Balance as of December 31, 2013
Bank deposits	$	40,000	$	—	$	—		$	40,000
U.S. Treasury securities	67,648		6		(4		)	67,650
Corporate and municipal notes	362,561		173		(36		)	362,698
Total	$	470,209	$	179	$	(40	)	$	470,348

Certain short-term debt securities with original maturities of less than 90 days are included in cash and cash equivalents on the condensed consolidated balance sheets and are not included in the tables above. In addition, certificates of deposit of $15.0 million and $17.2 million as of June 30, 2014 and December 31, 2013, respectively, were included within short-term investments in the condensed consolidated balance sheets but are excluded from the tables above as they were not deemed to be securities.

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Details 2)	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended
	Jun. 30, 2014 Accounts receivable AmerisourceBergen Drug Corporation	Dec. 31, 2013 Accounts receivable AmerisourceBergen Drug Corporation	Jun. 30, 2014 Accounts receivable Cardinal Health, Inc.	Dec. 31, 2013 Accounts receivable Cardinal Health, Inc.	Jun. 30, 2014 Accounts receivable McKesson Corporation	Dec. 31, 2013 Accounts receivable McKesson Corporation	Jun. 30, 2014 Revenues AmerisourceBergen Drug Corporation	Jun. 30, 2013 Revenues AmerisourceBergen Drug Corporation	Jun. 30, 2014 Revenues AmerisourceBergen Drug Corporation	Jun. 30, 2013 Revenues AmerisourceBergen Drug Corporation	Jun. 30, 2014 Revenues Cardinal Health, Inc.	Jun. 30, 2013 Revenues Cardinal Health, Inc.	Jun. 30, 2014 Revenues Cardinal Health, Inc.	Jun. 30, 2013 Revenues Cardinal Health, Inc.	Jun. 30, 2014 Revenues McKesson Corporation	Jun. 30, 2013 Revenues McKesson Corporation	Jun. 30, 2014 Revenues McKesson Corporation	Jun. 30, 2013 Revenues McKesson Corporation
Concentration of risk
Benchmark percentage Concentration of risk	16.00%	18.00%	18.00%	17.00%	19.00%	18.00%	17.00%	20.00%	17.00%	20.00%	16.00%	16.00%	17.00%	17.00%	18.00%	17.00%	19.00%	18.00%

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INVESTMENTS (Details 2) (Excluded portion, USD $) In Millions, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Excluded portion
Available-for-sale investments
Certificates of deposit	$ 15.0	$ 17.2

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INCOME TAXES (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Effective Tax Amount
Federal statutory tax rate applied to income before taxes	$ 9,813,000	$ 7,488,000	$ 14,789,000	$ 8,744,000
Differential arising from:
State	66,000	364,000	(206,000)	442,000
Non-deductible expenses	932,000	392,000	(868,000)	402,000
Domestic manufacturing deduction		(689,000)		(809,000)
Contingent consideration	(8,938,000)	375,000	(22,215,000)	418,000
2013 Federal research credit		(1,188,000)		(1,307,000)
2012 Federal research credit				(4,041,000)
Impact of reserve for uncertain tax positions	84,000	(805,000)	169,000	(409,000)
Foreign rate differential	1,512,000	(18,000)	1,762,000	(20,000)
Other	539,000	234,000	563,000	234,000
Total current and deferred income tax (benefit) expense	4,008,000	6,153,000	(6,006,000)	3,654,000
Federal statutory tax rate applied to (loss) income before taxes (as a percent)	35.00%	35.00%	35.00%	35.00%
Differential arising from:
State (as a percent)	0.20%	1.70%	(0.50%)	1.80%
Non-deductible expenses (as a percent)	3.30%	1.80%	(2.00%)	1.60%
Domestic manufacturing deduction (as a percent)		(3.20%)		(3.20%)
Contingent consideration (as a percent)	(31.90%)	1.80%	(52.60%)	1.70%
2013 Federal research credit (as a percent)		(5.50%)		(5.20%)
2012 Federal research credit (as a percent)				(16.20%)
Impact of reserve for uncertain tax positions (as a percent)	0.30%	(3.80%)	0.40%	(1.60%)
Foreign rate differential (as a percent)	5.40%	(0.10%)	4.20%	(0.10%)
Other (as a percent)	2.00%	1.10%	1.30%	0.80%
Total (as a percent)	14.30%	28.80%	(14.20%)	14.60%
Benefits from federal research credit		$ 1,200,000		$ 5,300,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 221,838	$ 91,058
Short-term investments	421,644	487,500
Accounts receivable, net	107,395	123,155
Inventory	60,079	57,663
Deferred tax assets, net	65,556	52,108
Prepaid expenses and other current assets	64,114	58,285
Total current assets	940,626	869,769
Property and equipment, net	179,584	177,544
In-process research and development	237,400	896,400
Goodwill	383,018	383,018
Other intangible assets, net	1,350,383	721,066
Other assets	89,961	98,024
Total assets	3,180,972	3,145,821
Current liabilities:
Accounts payable	33,801	31,877
Accrued liabilities	222,956	245,078
Short-term deferred revenue	6,725	6,411
Short-term contingent consideration	62,858	20,428
Other current liabilities	5,959	7,034
Total current liabilities	332,299	310,828
Long-term deferred revenue	27,610	31,010
Long-term deferred tax liabilities, net	363,358	357,802
Long-term contingent consideration	102,372	202,894
Long-term debt, net	834,801	817,830
Other long-term liabilities	32,833	31,726
Total liabilities	1,693,273	1,752,090
Commitments and contingencies (Notes B, D, H, J, K and M)
Stockholders' equity:
Preferred stock, non-cumulative; convertible, $.001 par value; authorized 5,000,000 shares; no shares issued and outstanding
Common stock, $.001 par value; authorized 300,000,000 shares; 75,570,915 and 74,428,087 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively	76	74
Additional paid-in capital	1,408,141	1,362,240
Accumulated other comprehensive income	19	215
Retained earnings	79,463	31,202
Total stockholders' equity	1,487,699	1,393,731
Total liabilities and stockholders' equity	$ 3,180,972	$ 3,145,821

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GOODWILL, IPR AND D AND OTHER INTANGIBLE ASSETS, NET (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Other intangible assets, net
Total IPR&D	$ 237,400,000		$ 237,400,000		$ 896,400,000
Finite-lived intangible assets
Other intangible assets, gross	1,454,427,000		1,454,427,000		791,427,000
Other intangible assets, net	1,350,383,000		1,350,383,000		721,066,000
Other intangible assets
Amortization expense	17,500,000	5,200,000	33,700,000	10,200,000
Estimated aggregate amortization of intangible assets
Remainder of 2014	56,003,000		56,003,000
2015	112,004,000		112,004,000
2016	110,724,000		110,724,000
2017	109,484,000		109,484,000
2018	109,484,000		109,484,000
2019 and thereafter	852,684,000		852,684,000
Total	1,350,383,000		1,350,383,000		721,066,000
Patents
Finite-lived intangible assets
Other intangible assets, gross	2,627,000		2,627,000		2,627,000
Less: accumulated amortization	(2,523,000)		(2,523,000)		(2,493,000)
Acquired technology rights
Finite-lived intangible assets
Other intangible assets, gross	1,451,800,000		1,451,800,000		788,800,000
Less: accumulated amortization	(101,521,000)		(101,521,000)		(67,868,000)
SIVEXTRO (tedizolid phosphate)
Other intangible assets, net
Total IPR&D					659,000,000
SIVEXTRO (tedizolid phosphate) | Acquired technology rights
Other intangible assets
Capitalized milestone payment	4,000,000		4,000,000
Bevenopran
Other intangible assets, net
Total IPR&D	43,400,000		43,400,000		43,400,000
Ceftolozane/tazobactam for HABP and VABP
Other intangible assets, net
Total IPR&D	174,000,000		174,000,000		174,000,000
Ceftolozane/tazobactam for cUTI and cIAI
Other intangible assets, net
Total IPR&D	$ 20,000,000		$ 20,000,000		$ 20,000,000

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2014

BASIS OF PRESENTATION AND ACCOUNTING POLICIES

BASIS OF PRESENTATION AND ACCOUNTING POLICIES

A. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Cubist Pharmaceuticals, Inc. (“we,” “our,” or “us”) in accordance with accounting principles generally accepted in the United States of America (GAAP) and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. The year-end condensed consolidated financial statements were derived from audited financial statements, but certain information and footnote disclosures required by GAAP normally included in our annual consolidated financial statements have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (SEC) on February 25, 2014. The condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of our financial position and results of operations. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Also, included in prepaid expenses and other current assets and other assets on our condensed consolidated balance sheet are $1.4 million and $0.8 million, respectively, of restricted cash as of June 30, 2014.

The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Our results of operations for the three and six months ended June 30, 2014, include the results of Optimer Pharmaceuticals, Inc. (Optimer), and Trius Therapeutics, Inc. (Trius), which we acquired in October 2013 and September 2013, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires extensive use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. The most significant assumptions are employed in estimates used in determining the values of: inventory; investments; acquisition-date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill, in-process research and development (IPR&D) and other intangible assets; accrued clinical research costs; contingent consideration; income taxes; stock-based compensation; product rebate, chargeback and return accruals; as well as in estimates used in accounting for contingencies and revenue recognition. Actual results could differ from these estimates.

Concentration of Risk

Our accounts receivable as of June 30, 2014 and December 31, 2013, primarily represent amounts due to us from wholesalers, including AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation. We perform ongoing credit evaluations of our key wholesalers, distributors and other customers, and generally do not require collateral. For the three and six months ended June 30, 2014 and 2013, we did not have any significant write-offs of accounts receivable, and our days sales outstanding has not significantly changed since December 31, 2013.

	Percentage of Total Accounts Receivable Balance as of
	June 30, 2014		December 31, 2013
AmerisourceBergen Drug Corporation	16	%	18	%
Cardinal Health, Inc.	18	%	17	%
McKesson Corporation	19	%	18	%

	Percentage of Total Net Revenues for the Three Months Ended June 30,				Percentage of Total Net Revenues for the Six Months Ended June 30,
	2014		2013		2014		2013
AmerisourceBergen Drug Corporation	17	%	20	%	17	%	20	%
Cardinal Health, Inc.	16	%	16	%	17	%	17	%
McKesson Corporation	18	%	17	%	19	%	18	%

IPR&D

IPR&D acquired in a business combination is capitalized on our condensed consolidated balance sheets at its acquisition-date fair value, net of any accumulated impairment losses. Until the underlying project is completed, these assets are accounted for as indefinite-lived intangible assets, subject to impairment testing. Once the project is completed, the carrying value of the IPR&D is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the acquired IPR&D are expensed as incurred.

IPR&D is tested for impairment on an annual basis, or more frequently if impairment indicators are present. If IPR&D 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 the asset becomes impaired as the result of unfavorable data from any ongoing or future clinical trial, changes in assumptions that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing or commercializing our product candidates, we could incur significant charges in the period in which the impairment occurs. The valuation techniques utilized in performing impairment tests incorporate significant assumptions and judgments to estimate the fair value, and the use of different valuation techniques or different assumptions could result in materially different fair value estimates.

Revenue Recognition

Our principal sources of revenue during the periods were: (i) product revenues of CUBICIN® (daptomycin for injection), DIFICID® (fidaxomicin) and ENTEREG® (alvimopan) in the United States (U.S.); (ii) revenues derived from sales of CUBICIN and DIFICID by our international distribution partners; (iii) license fees and milestone payments that are derived from collaboration, license and commercialization agreements with other biopharmaceutical companies; and (iv) prior to our acquisition of Optimer, service revenues derived from our co-promotion agreement with Optimer for the promotion and support of DIFICID in the U.S., which was terminated on October 24, 2013, as a result of our acquisition of Optimer. Product revenue amounts exclude sales of DIFICID prior to our acquisition of Optimer. The U.S. Food and Drug Administration (FDA) approved SIVEXTROTM (tedizolid phosphate) in the U.S. on June 20, 2014, for the treatment of adult acute bacterial skin and skin structure infections (ABSSSI). We commercially launched SIVEXTRO in the U.S. at the end of the second quarter of 2014. 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, and collectibility of the resulting receivable is reasonably assured.

U.S. Product Revenues, net

All revenues from product sales are recorded net of applicable provisions and allowances in the same period the related sales are recorded.

Gross U.S. product revenues were offset by provisions for the three and six months ended June 30, 2014 and 2013, as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Gross U.S. product revenues	$	318,603		$	272,271		$	604,115		$	518,218
Provisions offsetting U.S. product revenues:
Contractual adjustments	(21,866		)	(16,014		)	(41,819		)	(30,032		)
Governmental rebates	(31,478		)	(16,754		)	(56,579		)	(35,435		)
Total provisions offsetting product revenues	(53,344		)	(32,768		)	(98,398		)	(65,467		)
U.S. product revenues, net	$	265,259		$	239,503		$	505,717		$	452,751

Certain of our product sales qualify for rebates or discounts from standard list pricing due to contractual agreements or government-sponsored programs. Our contractual adjustments include provisions for returns, pricing and early payment discounts extended to our external customers, as well as wholesaler distribution fees, and other commercial rebates. Our governmental rebates represent estimated amounts for government-mandated rebates and discounts relating to federal and state programs, such as Medicaid, the Veterans’ Administration and Department of Defense (DoD) programs, the Medicare Part D Coverage Gap Discount Program and certain other qualifying federal and state government programs. Estimates and assumptions for reserves are analyzed quarterly. As a result of receiving claims information from certain state governments and additional data regarding the usage of CUBICIN by managed care organizations, we reversed approximately $6.6 million of previously reserved Medicaid program rebates during the three months ended June 30, 2013.

International Product Revenues

Sales with international distribution partners are based upon contractually predetermined transfer price arrangements. Once our distribution partner sells the product to a third party, we may also be owed an additional payment or royalty. Certain agreements with our distribution partners contain multiple elements in which we have continuing performance obligations. In arrangements for which we determine that the undelivered elements cannot be separated from the delivered elements, payments from distribution partners for product are recorded as deferred revenue and amortized to international product revenues over the remaining performance obligation.

Basic and Diluted Net Income Per 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 common 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 net income, diluted net income per common share has been computed assuming the conversion of obligations and the elimination of the interest expense related to our 2.50% convertible senior notes due 2017 (2017 Notes), 1.125% convertible senior notes due 2018 (2018 Notes), 1.875% convertible senior notes due 2020 (2020 Notes), the exercise of stock options, the exercise of warrants issued in connection with the convertible bond hedge transactions discussed below, and the vesting of restricted stock units (RSUs), as well as their related income tax effects.

In September 2013, in connection with the issuance of the 2018 Notes and 2020 Notes, we entered into convertible bond hedge transactions. The convertible bond hedges are not considered for purposes of calculating the number of diluted shares outstanding, as their effect would be antidilutive. The convertible bond hedges are generally expected, but not guaranteed, to reduce the potential dilution upon conversion of the 2018 Notes and 2020 Notes. See Note H., “Debt,” for additional information.

The following table sets forth the computation of basic and diluted net income per common share for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands, except share and per share data)
Net income, basic	$	24,028	$	15,242	$	48,261	$	21,330
Effect of dilutive securities:
Interest on 2017 Notes, net of tax	688		—		1,511		—
Debt issuance costs related to 2017 Notes, net of tax	94		—		203		—
Debt discount amortization related to 2017 Notes, net of tax	973		—		2,082		—
Net income, diluted	$	25,783	$	15,242	$	52,057	$	21,330
Shares used in calculating basic net income per common share	75,421,354		65,558,376		75,179,275		65,248,707
Effect of dilutive securities:
Options to purchase shares of common stock and RSUs	2,844,731		2,173,600		2,831,752		2,136,434
2017 Notes convertible into shares of common stock	7,842,698		—		7,842,820		—
Shares used in calculating diluted net income per common share	86,108,783		67,731,976		85,853,847		67,385,141
Basic net income per common share	$	0.32	$	0.23	$	0.64	$	0.33
Diluted net income per common share	$	0.30	$	0.23	$	0.61	$	0.32

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Options to purchase shares of common stock and RSUs	845,764	2,591,295	1,343,047	2,546,822
Warrants	9,705,442	—	9,705,442	—
2020 Notes convertible into shares of common stock	5,459,311	—	5,459,311	—
2018 Notes convertible into shares of common stock	4,246,131	—	4,246,131	—
2017 Notes convertible into shares of common stock	—	15,424,084	—	15,424,118

At our annual meeting of shareholders in June 2014, our stockholders approved an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 150.0 million to 300.0 million.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of unrealized gains or losses on available-for-sale securities and foreign currency translation adjustments. Amounts recorded to accumulated other comprehensive income for the three and six months ended June 30, 2014 and 2013, were not material. Additionally, there were no reclassifications out of accumulated other comprehensive income for the three and six months ended June 30, 2014 and 2013.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This ASU stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual and interim reporting periods beginning on or after December 15, 2016, and early adoption is not permitted. The ASU permits the use of two transition methods, either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. We have not yet selected a transition method, and are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Details 5) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	May 31, 2014
Number of authorized shares of common stock
Common stock, authorized shares	300,000,000		300,000,000		150,000,000
Reclassifications from accumulated other comprehensive income
Reclassifications out of accumulated other comprehensive income	$ 0	$ 0	$ 0	$ 0
Options to purchase shares of common stock and RSUs
Potential common shares excluded from the calculation of diluted net income per common share
Antidilutive securities related to potential shares excluded from calculation of net income per share (in shares)	845,764	2,591,295	1,343,047	2,546,822
Warrants
Potential common shares excluded from the calculation of diluted net income per common share
Antidilutive securities related to potential shares excluded from calculation of net income per share (in shares)	9,705,442		9,705,442
1.875% convertible senior notes due 2020 (2020 Notes)
Potential common shares excluded from the calculation of diluted net income per common share
Antidilutive securities related to potential shares excluded from calculation of net income per share (in shares)	5,459,311		5,459,311
1.125% convertible senior notes due 2018 (2018 Notes)
Potential common shares excluded from the calculation of diluted net income per common share
Antidilutive securities related to potential shares excluded from calculation of net income per share (in shares)	4,246,131		4,246,131
2.50% convertible senior notes due November 2017 (2017 Notes)
Potential common shares excluded from the calculation of diluted net income per common share
Antidilutive securities related to potential shares excluded from calculation of net income per share (in shares)		15,424,084		15,424,118

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INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2014

INVESTMENTS

Amortized cost and estimated fair value of marketable securities, which are considered to be available-for-sale investments

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Balance as of June 30, 2014
Bank deposits	$	50,000	$	—	$	—		$	50,000
U.S. Treasury securities	70,180		2		(4		)	70,178
Corporate and municipal notes	286,438		51		(32		)	286,457
Total	$	406,618	$	53	$	(36	)	$	406,635
Balance as of December 31, 2013
Bank deposits	$	40,000	$	—	$	—		$	40,000
U.S. Treasury securities	67,648		6		(4		)	67,650
Corporate and municipal notes	362,561		173		(36		)	362,698
Total	$	470,209	$	179	$	(40	)	$	470,348

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BUSINESS COMBINATIONS AND ACQUISITIONS (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	Jun. 30, 2014 Optimer Pharmaceuticals, Inc. right	Oct. 24, 2013 Optimer Pharmaceuticals, Inc. right	Jun. 30, 2014 Trius Therapeutics, Inc.	Sep. 11, 2013 Trius Therapeutics, Inc. right
BUSINESS COMBINATIONS AND ACQUISITIONS
Percentage of issued and outstanding shares purchased		100.00%		100.00%
Tender offer purchase price of outstanding common stock of acquiree (in dollars per share)		$ 10.75		$ 13.50
Number of contingent value rights receivable by stockholders of acquiree	1	1		1
Maximum additional cash payment per share (in dollars per share)		$ 5.00		$ 2.00
Undiscounted contingent consideration payout	$ 253.9	$ 253.9	$ 108.4	$ 108.4

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INVENTORY (Tables)

6 Months Ended

Jun. 30, 2014

INVENTORY

Schedule of inventory

	June 30, 2014		December 31, 2013
	(in thousands)
Raw materials	$	30,767	$	17,904
Work-in-process	6,723		8,104
Finished goods	22,589		31,655
Inventory	60,079		57,663
Included in other assets:
Raw materials	52,801		57,284
Work-in-process	894		1,882
Total	$	113,774	$	116,829

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BUSINESS COMBINATIONS AND ACQUISITIONS

6 Months Ended

Jun. 30, 2014

BUSINESS COMBINATIONS AND ACQUISITIONS

BUSINESS COMBINATIONS AND ACQUISITIONS

B. BUSINESS COMBINATIONS AND ACQUISITIONS

On October 24, 2013, we completed our acquisition of Optimer, then a publicly-held biopharmaceutical company, upon which Optimer became our wholly-owned subsidiary. The transaction provided us with an existing commercialized product, DIFICID. Under the terms of the merger agreement, we purchased 100% of the issued and outstanding shares of Optimer common stock for: (i) $10.75 per share in cash, plus (ii) one transferable contingent value right (CVR) per share, which entitles the holder to receive an additional cash payment of up to $5.00 per CVR upon achievement of certain sales milestones for a maximum, undiscounted potential CVR payout of $253.9 million. The CVRs are listed on the NASDAQ Global Select Market under the symbol “CBSTZ,” and this contingent consideration is recorded as a liability and measured at fair value based upon the market price of the CVR on the day of valuation. See Note D., “Fair Value Measurements,” for additional information.

On September 11, 2013, we completed our acquisition of Trius, then a publicly-held biopharmaceutical company, upon which Trius became our wholly-owned subsidiary. The transaction provided us with SIVEXTRO, which at that time was a late-stage product candidate. The FDA approved SIVEXTRO in the U.S. on June 20, 2014, and we commercially launched SIVEXTRO in the U.S. at the end of the second quarter of 2014. Under the terms of the merger agreement, we purchased 100% of the issued and outstanding shares of Trius common stock for: (i) $13.50 per share in cash, plus (ii) one non-transferable CVR per share, which entitles the holder to receive an additional cash payment of up to $2.00 per CVR upon achievement of certain sales milestones for a maximum, undiscounted potential CVR payout of $108.4 million. The CVRs may not be sold, assigned, transferred, pledged, encumbered or disposed of, subject to limited exceptions. Contingent consideration is recorded as a liability and measured at fair value based upon significant unobservable inputs. See Note D., “Fair Value Measurements,” for additional information.

The acquisition-date fair value of the consideration transferred for the Optimer and Trius acquisitions was as follows:

	Total Acquisition-Date Fair Value
	Optimer		Trius
	(in thousands)
Cash transferred	$	569,452	$	695,710
Contingent consideration	115,634		4,603
Total consideration transferred	$	685,086	$	700,313

The transactions were accounted for as business combinations under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the acquisition dates, with the difference between the acquisition-date fair value of the consideration transferred recorded as goodwill.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective dates of acquisition:

	Optimer			Trius
	October 24, 2013			September 11, 2013
	(in thousands)
Cash	$	31,466		$	22,697
Investments	42,067			39,513
Inventory	32,000			—
IPR&D	—			659,000
DIFICID intangible asset	561,000			—
Contract intangible asset	36,000			—
Deferred tax assets	116,199			92,567
Goodwill	108,631			160,257
Other assets acquired	15,942			5,522
Total assets acquired	943,305			979,556
Deferred tax liabilities	(224,110		)	(248,884		)
Other liabilities assumed	(34,109		)	(30,359		)
Total liabilities assumed	(258,219		)	(279,243		)
Total net assets acquired	$	685,086		$	700,313

The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any measurement period adjustments to the Optimer or Trius purchase price allocations will be made as soon as practicable but no later than one year from the respective date of acquisition.

Goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, non-cumulative; convertible, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, non-cumulative; convertible, authorized shares	5,000,000	5,000,000
Preferred stock, non-cumulative; convertible, shares issued	0	0
Preferred stock, non-cumulative; convertible, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized shares	300,000,000
Common stock, shares issued	75,570,915	74,428,087
Common stock, shares outstanding	75,570,915	74,428,087

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SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2014

SEGMENT INFORMATION

SEGMENT INFORMATION

L.         SEGMENT INFORMATION

We have one operating segment: the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Our entire business is managed by a single management team, which reports to our Chief Executive Officer. For the three months ended June 30, 2014 and 2013, we generated approximately 90% and 94% of revenues, respectively, within the U.S., and for the six months ended June 30, 2014 and 2013, we generated approximately 91% and 94% of revenues, within the U.S. As of June 30, 2014 and December 31, 2013, substantially all of our long-lived assets were held within the U.S.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 04, 2014
Document and Entity Information
Entity Registrant Name	CUBIST PHARMACEUTICALS INC
Entity Central Index Key	0000912183
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		75,733,323
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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LEGAL PROCEEDINGS

6 Months Ended

Jun. 30, 2014

LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

M.        LEGAL PROCEEDINGS

CUBICIN Patent Infringement Litigation

In 2012, we filed patent infringement lawsuits in the U.S. District Court for the District of Delaware against Hospira, Inc. (Hospira) in response to certain Paragraph IV Certification Notice Letters from Hospira notifying us that Hospira had submitted an Abbreviated New Drug Application (ANDA) and New Drug Application (NDA) to the FDA seeking approval to market generic versions of CUBICIN. The trial in these related actions was held in the U.S. District Court for the District of Delaware in February 2014. In July 2014, we entered into an agreement with Hospira under which Hospira has agreed not to launch a daptomycin product in the U.S. until the earlier of December 1, 2014, or the court’s decision on the validity or infringement of the relevant patents in these actions.

In October 2013, we filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Strides, Inc., on behalf of Agila Specialties Private Limited (collectively, Strides), in response to a Paragraph IV Certification Notice Letter from Strides notifying us that Strides had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN.

In July 2014, we filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Fresenius Kabi USA, LLC (Fresenius) in response to a Paragraph IV Certification Notice Letter from Fresenius notifying us that Fresenius had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN.

We cannot predict the outcome of these CUBICIN patent infringement litigations, and any final, unappealable adverse result in any of these litigations would likely have material adverse effects on our business, results of operations and financial condition.

Optimer U.S. Governmental Investigations

We are continuing to cooperate with the investigations by the SEC and the U.S. Department of Justice in their review of potential violations by Optimer of certain applicable laws, which occurred prior to our acquisition of Optimer. The investigations relate to an attempted share grant by Optimer and certain related matters in 2011, including a potentially improper payment to a research laboratory involving an individual associated with the share grant, that may have violated certain applicable laws, including the Foreign Corrupt Practices Act (FCPA). Optimer had already taken remedial steps in response to its internal investigation of these matters; nonetheless, these events could result in lawsuits being filed against us or Optimer and certain of Optimer’s former employees and directors, or certain of our employees. Such persons could also be the subject of criminal or civil enforcement proceedings and we may be required to indemnify such persons for any costs or losses incurred in connection with such proceedings. We cannot predict the ultimate resolution of these matters, whether we or such persons will be charged with violations of applicable civil or criminal laws, or whether the scope of the investigations will be extended to new issues. We also cannot predict what potential penalties or other remedies, if any, the authorities may seek against us, any of our employees, or any of Optimer’s former employees and directors, or what the collateral consequences may be of any such government actions. We do not have any amounts accrued related to potential penalties or other remedies related to these matters as of June 30, 2014, and cannot estimate a reasonably possible range of loss. In the event any such lawsuit is filed or enforcement proceeding is initiated, we could be subject to a variety of risks and uncertainties that could have material adverse effects on our business, results of operations and financial condition.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues:
U.S. product revenues, net	$ 265,259	$ 239,503	$ 505,717	$ 452,751
International product revenues	17,485	14,959	34,512	27,362
Service revenues		3,665		7,289
Other revenues	11,654	652	15,402	1,306
Total revenues, net	294,398	258,779	555,631	488,708
Costs and expenses:
Cost of product revenues	88,613	63,041	162,154	118,716
Research and development expense	104,862	115,190	225,465	229,399
Contingent consideration (income) expense	(24,774)	2,586	(58,092)	4,639
Selling, general and administrative expense	80,057	49,889	149,719	98,090
Restructuring charges	3,469		5,908
Total costs and expenses	252,227	230,706	485,154	450,844
Operating income	42,171	28,073	70,477	37,864
Other expense (income), net:
Interest income	(317)	(718)	(694)	(1,460)
Interest expense	14,508	7,250	28,903	14,434
Other expense (income)	(56)	146	13	(94)
Total other expense (income), net	14,135	6,678	28,222	12,880
Income before income taxes	28,036	21,395	42,255	24,984
Provision (benefit) for income taxes	4,008	6,153	(6,006)	3,654
Net income	24,028	15,242	48,261	21,330
Basic net income per common share (in dollars per share)	$ 0.32	$ 0.23	$ 0.64	$ 0.33
Diluted net income per common share (in dollars per share)	$ 0.30	$ 0.23	$ 0.61	$ 0.32
Shares used in calculating:
Basic net income per common share (in shares)	75,421,354	65,558,376	75,179,275	65,248,707
Diluted net income per common share (in shares)	86,108,783	67,731,976	85,853,847	67,385,141
Total comprehensive income	$ 23,791	$ 14,775	$ 48,065	$ 20,887

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ACCRUED LIABILITIES

6 Months Ended

Jun. 30, 2014

ACCRUED LIABILITIES

ACCRUED LIABILITIES

G. ACCRUED LIABILITIES

Accrued liabilities consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
Accrued royalties	$	77,036	$	83,591
Accrued clinical trials	52,839		44,830
Accrued bonus	11,113		24,540
Accrued restructuring	5,475		19,753
Accrued Medicaid, Medicare and commercial rebates	21,650		18,595
Accrued benefits and incentive compensation	14,655		18,183
Other accrued costs	40,188		35,586
Accrued liabilities	$	222,956	$	245,078

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GOODWILL, IPR AND D AND OTHER INTANGIBLE ASSETS, NET

6 Months Ended

Jun. 30, 2014

GOODWILL, IPR&D AND OTHER INTANGIBLE ASSETS, NET

GOODWILL, IPR&D AND OTHER INTANGIBLE ASSETS, NET

F. GOODWILL, IPR&D AND OTHER INTANGIBLE ASSETS, NET

Goodwill

Our goodwill balance as of June 30, 2014, remained unchanged from the balance as of December 31, 2013. As of June 30, 2014, there were no accumulated impairment losses. Goodwill has been assigned to our single reporting unit, which is the single operating segment by which the chief operating decision maker manages the business. See Note L., “Segment Information,” for additional information.

IPR&D

The carrying value of our IPR&D assets consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
Development and potential commercialization of:
SIVEXTRO	$	—	$	659,000
Bevenopran	43,400		43,400
Ceftolozane/tazobactam for HABP and VABP	174,000		174,000
Ceftolozane/tazobactam for cUTI and cIAI	20,000		20,000
Total IPR&D	$	237,400	$	896,400

Upon FDA approval of SIVEXTRO in the U.S. in June 2014, we reclassified the IPR&D related to SIVEXTRO to acquired technology rights within other intangible assets.

Other Intangible Assets

Other intangible assets, net consisted of the following at:

	June 30, 2014			December 31, 2013
	(in thousands)
Patents	$	2,627		$	2,627
Acquired technology rights	1,451,800			788,800
Other intangible assets, gross	1,454,427			791,427
Less: accumulated amortization — patents	(2,523		)	(2,493		)
accumulated amortization — acquired technology rights	(101,521		)	(67,868		)
Other intangible assets, net	$	1,350,383		$	721,066

Amortization expense, which is primarily included within cost of product revenue, was $17.5 million and $5.2 million for the three months ended June 30, 2014 and 2013, respectively, and $33.7 million and $10.2 million for the six months ended June 30, 2014 and 2013, respectively. The increase in amortization expense was primarily due to amortization of the DIFICID intangible asset associated with our acquisition of Optimer in October 2013, which is included in acquired technology rights. The increase in acquired technology rights is due to the reclassification of SIVEXTRO from IPR&D, as discussed above. Additionally, we capitalized a $4.0 million milestone payment to Dong-A ST Co., Ltd in connection with the FDA approval of SIVEXTRO, which was included in acquired technology rights as of June 30, 2014.

The estimated aggregate amortization of intangible assets as of June 30, 2014, for each of the five succeeding years and thereafter is as follows:

	(in thousands)
Remainder of 2014	$	56,003
2015	112,004
2016	110,724
2017	109,484
2018	109,484
2019 and thereafter	852,684
Total	$	1,350,383

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2014

FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents: (1)
Corporate and municipal notes	—		2,499		—		2,499
Short-term investments: (2)
Bank deposits	—		50,000		—		50,000
U.S. Treasury securities	70,178		—		—		70,178
Corporate and municipal notes	—		286,457		—		286,457
Total assets	$	70,178	$	338,956	$	—	$	409,134
Liabilities
Contingent consideration - Optimer CVRs	$	6,094	$	—	$	—	$	6,094
Contingent consideration - other	—		—		159,136		159,136
Total liabilities	$	6,094	$	—	$	159,136	$	165,230

(1) Excludes $219.3 million of cash as of June 30, 2014.

(2) Excludes certificates of deposit of $15.0 million recorded at cost as of June 30, 2014.

Quantitative information associated with fair value measurement of the entity's Level 3 contingent consideration

	Fair Value as of			Unobservable Inputs
	June 30, 2014 (in thousands)		Valuation technique	Probability of success - range (weighted average)	Periods in which milestones are expected to be achieved	Discount rate
Trius	$	5,208	Probability-adjusted discounted cash flow	4.0% - 6.5% (5.8%)	2016	8.0%
Adolor	45,449		Probability-adjusted discounted cash flow	25.0% - 30.0% (27.0%)	2018 - 2022	5.3% / 13.0%
Calixa	108,479		Probability-adjusted discounted cash flow	40.0% - 86.0% (65.0%)	2014 - 2018	5.3%
Total	$	159,136

Schedule of changes in the fair value of the entity's Level 3 contingent consideration

	Contingent Consideration
	(in thousands)
Beginning balance as of December 31, 2013	$	154,761
Contingent consideration expense	4,375
Ending balance as of June 30, 2014	$	159,136

Schedule of estimated fair values of the Convertible Senior Notes

	June 30, 2014		December 31, 2013
	(in thousands)
2020 Notes	$	516,938	$	516,843
2018 Notes	392,070		403,473
2017 Notes	556,008		550,317
Total estimated fair value of Convertible Senior Notes	$	1,465,016	$	1,470,633

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2014

BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Cubist Pharmaceuticals, Inc. (“we,” “our,” or “us”) in accordance with accounting principles generally accepted in the United States of America (GAAP) and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. The year-end condensed consolidated financial statements were derived from audited financial statements, but certain information and footnote disclosures required by GAAP normally included in our annual consolidated financial statements have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (SEC) on February 25, 2014. The condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of our financial position and results of operations. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Also, included in prepaid expenses and other current assets and other assets on our condensed consolidated balance sheet are $1.4 million and $0.8 million, respectively, of restricted cash as of June 30, 2014.

The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Our results of operations for the three and six months ended June 30, 2014, include the results of Optimer Pharmaceuticals, Inc. (Optimer), and Trius Therapeutics, Inc. (Trius), which we acquired in October 2013 and September 2013, respectively.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires extensive use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. The most significant assumptions are employed in estimates used in determining the values of: inventory; investments; acquisition-date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill, in-process research and development (IPR&D) and other intangible assets; accrued clinical research costs; contingent consideration; income taxes; stock-based compensation; product rebate, chargeback and return accruals; as well as in estimates used in accounting for contingencies and revenue recognition. Actual results could differ from these estimates.

Concentration of Risk

Concentration of Risk

Our accounts receivable as of June 30, 2014 and December 31, 2013, primarily represent amounts due to us from wholesalers, including AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation. We perform ongoing credit evaluations of our key wholesalers, distributors and other customers, and generally do not require collateral. For the three and six months ended June 30, 2014 and 2013, we did not have any significant write-offs of accounts receivable, and our days sales outstanding has not significantly changed since December 31, 2013.

	Percentage of Total Accounts Receivable Balance as of
	June 30, 2014		December 31, 2013
AmerisourceBergen Drug Corporation	16	%	18	%
Cardinal Health, Inc.	18	%	17	%
McKesson Corporation	19	%	18	%

	Percentage of Total Net Revenues for the Three Months Ended June 30,				Percentage of Total Net Revenues for the Six Months Ended June 30,
	2014		2013		2014		2013
AmerisourceBergen Drug Corporation	17	%	20	%	17	%	20	%
Cardinal Health, Inc.	16	%	16	%	17	%	17	%
McKesson Corporation	18	%	17	%	19	%	18	%

IPR&D

IPR&D

IPR&D acquired in a business combination is capitalized on our condensed consolidated balance sheets at its acquisition-date fair value, net of any accumulated impairment losses. Until the underlying project is completed, these assets are accounted for as indefinite-lived intangible assets, subject to impairment testing. Once the project is completed, the carrying value of the IPR&D is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the acquired IPR&D are expensed as incurred.

IPR&D is tested for impairment on an annual basis, or more frequently if impairment indicators are present. If IPR&D 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 the asset becomes impaired as the result of unfavorable data from any ongoing or future clinical trial, changes in assumptions that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing or commercializing our product candidates, we could incur significant charges in the period in which the impairment occurs. The valuation techniques utilized in performing impairment tests incorporate significant assumptions and judgments to estimate the fair value, and the use of different valuation techniques or different assumptions could result in materially different fair value estimates.

Revenue Recognition

Revenue Recognition

Our principal sources of revenue during the periods were: (i) product revenues of CUBICIN® (daptomycin for injection), DIFICID® (fidaxomicin) and ENTEREG® (alvimopan) in the United States (U.S.); (ii) revenues derived from sales of CUBICIN and DIFICID by our international distribution partners; (iii) license fees and milestone payments that are derived from collaboration, license and commercialization agreements with other biopharmaceutical companies; and (iv) prior to our acquisition of Optimer, service revenues derived from our co-promotion agreement with Optimer for the promotion and support of DIFICID in the U.S., which was terminated on October 24, 2013, as a result of our acquisition of Optimer. Product revenue amounts exclude sales of DIFICID prior to our acquisition of Optimer. The U.S. Food and Drug Administration (FDA) approved SIVEXTROTM (tedizolid phosphate) in the U.S. on June 20, 2014, for the treatment of adult acute bacterial skin and skin structure infections (ABSSSI). We commercially launched SIVEXTRO in the U.S. at the end of the second quarter of 2014. 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, and collectibility of the resulting receivable is reasonably assured.

U.S. Product Revenues, net

All revenues from product sales are recorded net of applicable provisions and allowances in the same period the related sales are recorded.

Gross U.S. product revenues were offset by provisions for the three and six months ended June 30, 2014 and 2013, as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Gross U.S. product revenues	$	318,603		$	272,271		$	604,115		$	518,218
Provisions offsetting U.S. product revenues:
Contractual adjustments	(21,866		)	(16,014		)	(41,819		)	(30,032		)
Governmental rebates	(31,478		)	(16,754		)	(56,579		)	(35,435		)
Total provisions offsetting product revenues	(53,344		)	(32,768		)	(98,398		)	(65,467		)
U.S. product revenues, net	$	265,259		$	239,503		$	505,717		$	452,751

Certain of our product sales qualify for rebates or discounts from standard list pricing due to contractual agreements or government-sponsored programs. Our contractual adjustments include provisions for returns, pricing and early payment discounts extended to our external customers, as well as wholesaler distribution fees, and other commercial rebates. Our governmental rebates represent estimated amounts for government-mandated rebates and discounts relating to federal and state programs, such as Medicaid, the Veterans’ Administration and Department of Defense (DoD) programs, the Medicare Part D Coverage Gap Discount Program and certain other qualifying federal and state government programs. Estimates and assumptions for reserves are analyzed quarterly. As a result of receiving claims information from certain state governments and additional data regarding the usage of CUBICIN by managed care organizations, we reversed approximately $6.6 million of previously reserved Medicaid program rebates during the three months ended June 30, 2013.

International Product Revenues

Sales with international distribution partners are based upon contractually predetermined transfer price arrangements. Once our distribution partner sells the product to a third party, we may also be owed an additional payment or royalty. Certain agreements with our distribution partners contain multiple elements in which we have continuing performance obligations. In arrangements for which we determine that the undelivered elements cannot be separated from the delivered elements, payments from distribution partners for product are recorded as deferred revenue and amortized to international product revenues over the remaining performance obligation.

Basic and Diluted Net Income Per Share

Basic and Diluted Net Income Per 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 common 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 net income, diluted net income per common share has been computed assuming the conversion of obligations and the elimination of the interest expense related to our 2.50% convertible senior notes due 2017 (2017 Notes), 1.125% convertible senior notes due 2018 (2018 Notes), 1.875% convertible senior notes due 2020 (2020 Notes), the exercise of stock options, the exercise of warrants issued in connection with the convertible bond hedge transactions discussed below, and the vesting of restricted stock units (RSUs), as well as their related income tax effects.

In September 2013, in connection with the issuance of the 2018 Notes and 2020 Notes, we entered into convertible bond hedge transactions. The convertible bond hedges are not considered for purposes of calculating the number of diluted shares outstanding, as their effect would be antidilutive. The convertible bond hedges are generally expected, but not guaranteed, to reduce the potential dilution upon conversion of the 2018 Notes and 2020 Notes. See Note H., “Debt,” for additional information.

The following table sets forth the computation of basic and diluted net income per common share for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands, except share and per share data)
Net income, basic	$	24,028	$	15,242	$	48,261	$	21,330
Effect of dilutive securities:
Interest on 2017 Notes, net of tax	688		—		1,511		—
Debt issuance costs related to 2017 Notes, net of tax	94		—		203		—
Debt discount amortization related to 2017 Notes, net of tax	973		—		2,082		—
Net income, diluted	$	25,783	$	15,242	$	52,057	$	21,330
Shares used in calculating basic net income per common share	75,421,354		65,558,376		75,179,275		65,248,707
Effect of dilutive securities:
Options to purchase shares of common stock and RSUs	2,844,731		2,173,600		2,831,752		2,136,434
2017 Notes convertible into shares of common stock	7,842,698		—		7,842,820		—
Shares used in calculating diluted net income per common share	86,108,783		67,731,976		85,853,847		67,385,141
Basic net income per common share	$	0.32	$	0.23	$	0.64	$	0.33
Diluted net income per common share	$	0.30	$	0.23	$	0.61	$	0.32

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Options to purchase shares of common stock and RSUs	845,764	2,591,295	1,343,047	2,546,822
Warrants	9,705,442	—	9,705,442	—
2020 Notes convertible into shares of common stock	5,459,311	—	5,459,311	—
2018 Notes convertible into shares of common stock	4,246,131	—	4,246,131	—
2017 Notes convertible into shares of common stock	—	15,424,084	—	15,424,118

At our annual meeting of shareholders in June 2014, our stockholders approved an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 150.0 million to 300.0 million.

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of unrealized gains or losses on available-for-sale securities and foreign currency translation adjustments. Amounts recorded to accumulated other comprehensive income for the three and six months ended June 30, 2014 and 2013, were not material. Additionally, there were no reclassifications out of accumulated other comprehensive income for the three and six months ended June 30, 2014 and 2013.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This ASU stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual and interim reporting periods beginning on or after December 15, 2016, and early adoption is not permitted. The ASU permits the use of two transition methods, either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. We have not yet selected a transition method, and are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

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RESTRUCTURING

6 Months Ended

Jun. 30, 2014

RESTRUCTURING

RESTRUCTURING

J.            RESTRUCTURING

The following table summarizes the activity within the restructuring liability included in accrued liabilities and other long-term liabilities within the condensed consolidated balance sheets:

	Employee-Related Severance			Lease Restructuring			Total
				(in thousands)
Balance at December 31, 2013	$	19,173		$	4,495		$	23,668
Restructuring expense	5,011			897			5,908
Cash payments made	(20,344		)	(1,766		)	(22,110		)
Balance at June 30, 2014	$	3,840		$	3,626		$	7,466

In connection with our acquisitions of Trius and Optimer, we committed to a restructuring program in the fourth quarter of 2013, which included severance benefits primarily related to former Optimer employees and restructuring Optimer’s lease obligations related to its New Jersey and California facilities. Additionally, in the first quarter of 2014, we committed to a restructuring program for severance benefits related to former Trius employees. The restructuring liability associated with all severance benefits is expected to be paid during 2014.

In connection with our acquisition of Optimer, we vacated Optimer’s leased premises, as we do not intend to occupy or utilize this space for our operations. As a result, we recorded a lease restructuring liability, which represents the lease obligations associated with the vacated space in both the Optimer New Jersey and California facilities, net of expected sublease income. The restructuring liability associated with the leases is expected to be paid over the lease terms ending in 2018 and 2022 for the New Jersey and California facilities, respectively. Any future changes to our estimate of the liability will be recorded as additional restructuring expense or income.

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DEBT

6 Months Ended

Jun. 30, 2014

DEBT

DEBT

H.          DEBT

Convertible Senior Notes

Long-term debt, net is comprised of our Convertible Senior Notes, as follows:

	June 30, 2014			December 31, 2013
	(in thousands)
2020 Convertible Senior Notes
Principal amount outstanding	$	450,000		$	450,000
Unamortized discount	(104,235		)	(111,015		)
Net carrying amount	345,765			338,985
2018 Convertible Senior Notes
Principal amount outstanding	350,000			350,000
Unamortized discount	(59,497		)	(65,733		)
Net carrying amount	290,503			284,267
2017 Convertible Senior Notes
Principal amount outstanding	228,810			228,822
Unamortized discount	(30,277		)	(34,244		)
Net carrying amount	198,533			194,578
Total Convertible Senior Notes
Principal amount outstanding	1,028,810			1,028,822
Unamortized discount	(194,009		)	(210,992		)
Net carrying amount	$	834,801		$	817,830

In accordance with accounting guidance for debt with conversion and other options, we separately accounted for the liability and equity components of the Convertible Senior Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to our ability to settle the Convertible Senior Notes in cash, common stock or a combination of cash and common stock upon conversion, at our option. The allocation was performed in a manner that reflected our non-convertible borrowing rate for similar debt. The equity component of the Convertible Senior Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the convertible notes and the fair value of the liability of the Convertible Senior Notes on their respective issuance dates. The debt discount is amortized to interest expense using the effective interest method over the expected life of a similar liability without an equity component.

2018 Convertible Senior Notes and 2020 Convertible Senior Notes

In September 2013, we issued $800.0 million aggregate principal amount of convertible senior unsecured notes in two series, with one series consisting of $350.0 million aggregate principal amount of the 2018 Notes, and the other series consisting of $450.0 million aggregate principal amount of the 2020 Notes, resulting in net proceeds to us, after debt issuance costs, of $775.6 million. The 2018 Notes and 2020 Notes are convertible into common stock at an initial conversion rate of 12.1318 shares of common stock per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which is equivalent to an initial conversion price of approximately $82.43 per share of common stock. Holders of the 2018 Notes and 2020 Notes may convert their notes at any time prior to the close of business on the business day immediately before March 1, 2018, or March 1, 2020, respectively, only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events.

The 2018 Notes and 2020 Notes will mature on September 1, 2018 and 2020, respectively, unless repurchased or converted in accordance with their terms prior to such date. The 2018 Notes and 2020 Notes bear cash interest at an annual rate of 1.125% and 1.875%, respectively, which is payable on March 1st and September 1st of each year, beginning on March 1, 2014. As of June 30, 2014, the “if-converted value” did not exceed the principal amount of the 2018 Notes and 2020 Notes.

2017 Convertible Senior Notes

In October 2010, we issued $450.0 million aggregate principal amount of the 2017 Notes, resulting in net proceeds to us, after debt issuance costs, of $436.0 million. In September 2013, holders of $221.2 million aggregate principal amount of the 2017 Notes converted their notes into common stock in privately negotiated transactions. The remaining 2017 Notes are convertible into common stock at an initial conversion rate of 34.2759 shares of common stock per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which is equivalent to an initial conversion price of approximately $29.18 per share of common stock. Holders of the 2017 Notes may convert the 2017 Notes at any time prior to the close of business on the business day immediately preceding May 1, 2017, only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events.

The remaining 2017 Notes will mature on November 1, 2017, unless repurchased or converted in accordance with their terms prior to such date. The 2017 Notes bear cash interest at an annual rate of 2.50%, which is payable on May 1st and November 1st of each year. As of June 30, 2014, the “if-converted value” exceeded the remaining principal amount of the 2017 Notes by $318.8 million.

Convertible Bond Hedge and Warrant Transactions

In September 2013, in connection with the issuance of the 2018 Notes and the 2020 Notes, to minimize the impact of potential dilution to our common stock upon conversion of such notes, we entered into convertible bond hedges covering 9,705,442 shares of our common stock. The convertible bond hedges have an exercise price of approximately $82.43 per share and are exercisable when and if the 2018 Notes and 2020 Notes are converted. If upon conversion of the 2018 Notes and 2020 Notes, the price of our common stock is above the exercise price of the convertible bond hedges, the counterparties will deliver shares of our common stock and/or cash with an aggregate value approximately equal to the difference between the price of our common stock at the conversion date and the exercise price, multiplied by the number of shares of our common stock related to the convertible bond hedge transaction being exercised. The convertible bond hedges are separate transactions entered into by us and are not part of the terms of the 2018 Notes, 2020 Notes or the warrants described below. Holders of the 2018 Notes, 2020 Notes and warrants will not have any rights with respect to the convertible bond hedges. We paid $179.4 million for these convertible bond hedges and recorded this amount as a reduction to additional paid-in capital, net of tax.

Concurrently with entering into the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants to acquire, subject to customary adjustments, 9,705,442 shares of our common stock with an exercise price of approximately $96.43 per share, also subject to adjustment. The warrants are exercisable over the 80 trading day period beginning on November 30, 2018, or November 30, 2020, as applicable. The warrants will have a dilutive effect to the extent that the market price per share of our common stock, as measured under the terms of the warrant transactions, exceeds the applicable exercise price of the warrants during the measurement period at the maturity of the warrants. We received $121.7 million for these warrants and recorded this amount to additional paid-in capital.

Credit Facility

In November 2012, we entered into a $150.0 million three-year senior secured, syndicated revolving credit facility (the credit facility) with a group of lenders, including Royal Bank of Canada (RBC), as administrative agent. In September 2013, we entered into an amendment to the credit facility. The credit facility was amended to: (i) permit the 2018 Notes, 2020 Notes and the convertible bond hedge and warrant transactions; (ii) adjust the definition of consolidated EBITDA to permit specific acquisitions; (iii) modify certain covenants related to investments, restricted payments and indebtedness; (iv) add additional financial covenants including a senior secured leverage ratio and minimum liquidity requirement; (v) increase the maximum permitted level of our total leverage ratio; and (vi) allow for the option to increase the credit facility by up to an additional $150.0 million, subject to pro forma compliance with financial covenants under the credit facility. In addition, the amendment added a new pricing tier based on our total leverage ratio. As a result, the applicable margin ranges from 2.25% to 3.00% for the Eurodollar rate and 1.25% to 2.00% for the base rate based on our total leverage ratio. The credit facility, which includes a sublimit for letters of credit, is for general corporate purposes. There were no outstanding borrowings under the credit facility as of June 30, 2014, or December 31, 2013.

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EMPLOYEE STOCK BENEFIT PLANS

6 Months Ended

Jun. 30, 2014

EMPLOYEE STOCK BENEFIT PLANS

EMPLOYEE STOCK BENEFIT PLANS

I.             EMPLOYEE STOCK BENEFIT PLANS

Summary of Stock-Based Compensation Plans

In June 2014, our stockholders approved our 2014 Omnibus Incentive Plan (2014 OIP), which replaced our 2012 Equity Incentive Plan (2012 EIP). The 2014 OIP is the only existing equity compensation plan from which we are authorized to make equity-based awards to our employees, directors, consultants and advisors. Under the 2014 OIP, we reserved 4,200,000 new shares of common stock plus 1,637,295 shares that remained available for grant under the 2012 EIP as of the effective date of the 2014 OIP for equity-based awards to our employees, officers, directors, consultants and advisors in the form of stock options, RSUs, performance-based restricted stock units (PRSUs), stock grants and stock appreciation rights. In addition, the number of shares of common stock available for grant under the 2014 OIP includes the number of shares of common stock subject to stock options and RSUs that were granted and outstanding under the 2012 EIP, 2010 Equity Incentive Plan (2010 EIP), the Amended and Restated 2002 Directors’ Equity Incentive Plan and the Amended and Restated 2000 Equity Incentive Plan (2000 EIP) as of the effective date of the 2014 OIP, and that may become available for grant upon the forfeiture, cancellation, expiration or termination of those awards. As of June 30, 2014, there were 5,711,640 shares remaining available for grant under the 2014 OIP. Additionally in June 2014, our stockholders approved our 2014 Employee Stock Purchase Plan (2014 ESPP). The maximum aggregate number of shares of our common stock that may be purchased under the 2014 ESPP is 2,000,000 shares, subject to adjustment as provided for in the plan.

Summary of Stock-Based Compensation Expense

Stock-based compensation expense recorded in the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2014 and 2013, is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Stock-based compensation expense allocation:
Cost of product revenues	$	131		$	129		$	269		$	254
Research and development expense	3,527			2,978			6,719			5,767
Selling, general and administrative expense	6,469			5,303			11,980			10,118
Total stock-based compensation	10,127			8,410			18,968			16,139
Income tax effect	(3,466		)	(2,640		)	(6,551		)	(5,093		)
After-tax effect of stock-based compensation expense	$	6,661		$	5,770		$	12,417		$	11,046

General Option Information

A summary of option activity for the six months ended June 30, 2014, is as follows:

	Number of shares			Weighted Average Exercise Price
Outstanding as of December 31, 2013	7,478,169			$	31.61
Granted	736,161			$	72.60
Exercised	(753,739		)	$	24.13
Canceled	(130,645		)	$	41.28
Outstanding as of June 30, 2014	7,329,946			$	36.32
Vested and exercisable as of June 30, 2014	4,716,807			$	28.66
Weighted average grant-date fair value of options granted during the period	$	19.39

RSU Information

A summary of RSU activity, including PRSUs, for the six months ended June 30, 2014, is as follows:

	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2013	882,272		$	40.97
Granted	530,869		$	72.42
Vested	(276,251	)	$	37.07
Forfeited	(44,904	)	$	49.49
Nonvested as of June 30, 2014	1,091,986		$	56.89

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INCOME TAXES

6 Months Ended

Jun. 30, 2014

INCOME TAXES

INCOME TAXES

K.            INCOME TAXES

The following tables reconcile the federal statutory tax rate to the effective tax rates and the related impact to the provision (benefit) for income taxes for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013
	Amount			Rate		Amount				Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	9,813		35.0	%	$	7,488			35.0	%
Differential arising from:
State	66			0.2	%	364				1.7	%
Non-deductible expenses	932			3.3	%	392				1.8	%
Domestic manufacturing deduction	—			—	%	(689			)	(3.2	)%
Contingent consideration	(8,938		)	(31.9	)%	375				1.8	%
2013 Federal research credit	—			—	%	(1,188			)	(5.5	)%
Impact of reserve for uncertain tax positions	84			0.3	%	(805			)	(3.8	)%
Foreign rate differential	1,512			5.4	%	(18			)	(0.1	)%
Other	539			2.0	%	234				1.1	%
Total	$	4,008		14.3	%	$		6,153		28.8	%

	Six Months Ended June 30, 2014					Six Months Ended June 30, 2013
	Amount			Rate		Amount			Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	14,789		35.0	%	$	8,744		35.0	%
Differential arising from:
State	(206		)	(0.5	)%	442			1.8	%
Non-deductible expenses	(868		)	(2.0	)%	402			1.6	%
Domestic manufacturing deduction	—			—	%	(809		)	(3.2	)%
Contingent consideration	(22,215		)	(52.6	)%	418			1.7	%
2013 Federal research credit	—			—	%	(1,307		)	(5.2	)%
2012 Federal research credit	—			—	%	(4,041		)	(16.2	)%
Impact of reserve for uncertain tax positions	169			0.4	%	(409		)	(1.6	)%
Foreign rate differential	1,762			4.2	%	(20		)	(0.1	)%
Other	563			1.3	%	234			0.8	%
Total	$	(6,006	)	(14.2	)%	$	3,654		14.6	%

In the table above, permanent differences that increase the tax benefit for the six months ended June 30, 2014, are shown as decreases to the effective tax rate. Permanent differences that decrease the tax benefit for the six months ended June 30, 2014, are shown as increases to the effective tax rate.

The decrease in our effective rate for the three and six months ended June 30, 2014, is primarily due to the impact of non-taxable contingent consideration income recorded during the three and six months ended June 30, 2014, related to the change in market value of the Optimer CVRs, which is a discrete adjustment for which no tax expense was recorded. The effective tax for the three and six months ended June 30, 2013, included $1.2 million and $5.3 million, respectively, in benefits from federal research credits, which were not recorded during the three and six months ended June 30, 2014, due to the expiration of the federal research tax credit at the end of 2013. If the credit is extended, it could have an impact on our effective tax rate in future periods.

Contingent consideration will fluctuate as a result of any changes in the fair value assumptions based on any additional data received on our SIVEXTRO, ceftolozane/tazobactam and/or bevenopran programs, as well as based upon the market price of the CVRs issued in connection with the acquisition of Optimer. Any significant contingent consideration expense or income will result in a significantly higher or lower effective tax rate because contingent consideration expense is largely not deductible for tax purposes and contingent consideration income is not taxable.

Our total uncertain tax positions were $52.7 million and $43.1 million as of June 30, 2014 and December 31, 2013, respectively. The increase in our uncertain tax positions was primarily related to the valuation of intellectual property rights for SIVEXTRO direct sales outside of the U.S., which were transferred to one of our foreign subsidiaries during the three months ended June 30, 2014. Of the total uncertain tax positions as of June 30, 2014, $17.6 million were included in other long-term liabilities within the condensed consolidated balance sheets and $35.1 million were offset against deferred tax assets. The Company’s 2011 and 2012 federal income tax returns are currently under audit by the Internal Revenue Service (IRS). Of the total uncertain tax positions at June 30, 2014, approximately $13.7 million relate to positions on the 2011 and 2012 tax returns. Based on the outcome of the audit, some or all of these positions may be effectively settled in the next 12 months.

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Details 4) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Basic and diluted net income per common share
Net income, basic	$ 24,028	$ 15,242	$ 48,261	$ 21,330
Effect of dilutive securities:
Net income, diluted	25,783	15,242	52,057	21,330
Reconciliation of basic and diluted shares
Shares used in calculating basic net income per common share	75,421,354	65,558,376	75,179,275	65,248,707
Effect of dilutive securities:
Options to purchase shares of common stock and RSUs (in shares)	2,844,731	2,173,600	2,831,752	2,136,434
Shares used in calculating diluted net income per common share	86,108,783	67,731,976	85,853,847	67,385,141
Basic net income per common share (in dollars per share)	$ 0.32	$ 0.23	$ 0.64	$ 0.33
Diluted net income per common share (in dollars per share)	$ 0.30	$ 0.23	$ 0.61	$ 0.32
2.50% convertible senior notes due November 2017 (2017 Notes)
Debt instrument interest rate
Notes stated interest rate percentage	2.50%		2.50%
Effect of dilutive securities:
Interest on convertible notes, net of tax	688		1,511
Debt issuance costs, net of tax	94		203
Debt discount amortization, net of tax	$ 973		$ 2,082
Effect of dilutive securities:
Notes payable convertible into common stock (in shares)	7,842,698		7,842,820
1.125% convertible senior notes due 2018 (2018 Notes)
Debt instrument interest rate
Notes stated interest rate percentage	1.125%		1.125%
1.875% convertible senior notes due 2020 (2020 Notes)
Debt instrument interest rate
Notes stated interest rate percentage	1.875%		1.875%

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EMPLOYEE STOCK BENEFIT PLANS (Details 3) (USD $)	6 Months Ended
	Jun. 30, 2014
Stock options
Number of options
Outstanding as of beginning of the period (in shares)	7,478,169
Granted (in shares)	736,161
Exercised (in shares)	(753,739)
Canceled (in shares)	(130,645)
Outstanding as of end of the period (in shares)	7,329,946
Vested and exercisable as of end of the period (in shares)	4,716,807
Weighted Average Exercise Price
Outstanding as of beginning of the period (in dollars per share)	$ 31.61
Granted (in dollars per share)	$ 72.60
Exercised (in dollars per share)	$ 24.13
Canceled (in dollars per share)	$ 41.28
Outstanding as of end of the period (in dollars per share)	$ 36.32
Vested and exercisable as of end of the period (in dollars per share)	$ 28.66
Weighted average grant-date fair value of options granted during the period (in dollars per share)	$ 19.39
Restricted stock units
Number of restricted stock units
Nonvested as of beginning of the period (in shares)	882,272
Granted (in shares)	530,869
Vested (in shares)	(276,251)
Forfeited (in shares)	(44,904)
Nonvested as of end of the period (in shares)	1,091,986
Weighted Average Grant Date Fair Value
Nonvested stock as of beginning of the period (in dollars per share)	$ 40.97
Granted (in dollars per share)	$ 72.42
Vested (in dollars per share)	$ 37.07
Forfeited (in dollars per share)	$ 49.49
Nonvested stock as of end of the period (in dollars per share)	$ 56.89

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BUSINESS COMBINATIONS AND ACQUISITIONS (Tables)

6 Months Ended

Jun. 30, 2014

BUSINESS COMBINATIONS AND ACQUISITIONS

Schedule of acquisition-date fair value of the consideration transferred

	Total Acquisition-Date Fair Value
	Optimer		Trius
	(in thousands)
Cash transferred	$	569,452	$	695,710
Contingent consideration	115,634		4,603
Total consideration transferred	$	685,086	$	700,313

Summary of estimated fair values of the assets acquired and liabilities assumed

	Optimer			Trius
	October 24, 2013			September 11, 2013
	(in thousands)
Cash	$	31,466		$	22,697
Investments	42,067			39,513
Inventory	32,000			—
IPR&D	—			659,000
DIFICID intangible asset	561,000			—
Contract intangible asset	36,000			—
Deferred tax assets	116,199			92,567
Goodwill	108,631			160,257
Other assets acquired	15,942			5,522
Total assets acquired	943,305			979,556
Deferred tax liabilities	(224,110		)	(248,884		)
Other liabilities assumed	(34,109		)	(30,359		)
Total liabilities assumed	(258,219		)	(279,243		)
Total net assets acquired	$	685,086		$	700,313

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ACCRUED LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2014

ACCRUED LIABILITIES

Schedule of accrued liabilities

	June 30, 2014		December 31, 2013
	(in thousands)
Accrued royalties	$	77,036	$	83,591
Accrued clinical trials	52,839		44,830
Accrued bonus	11,113		24,540
Accrued restructuring	5,475		19,753
Accrued Medicaid, Medicare and commercial rebates	21,650		18,595
Accrued benefits and incentive compensation	14,655		18,183
Other accrued costs	40,188		35,586
Accrued liabilities	$	222,956	$	245,078

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EMPLOYEE STOCK BENEFIT PLANS (Details)	Jun. 30, 2014
2014 Omnibus Incentive Plan
Summary of Stock-based Compensation Plans
Shares of common stock reserved for grant	4,200,000
Shares of common stock available for grant	5,711,640
2012 Equity Incentive Plan
Summary of Stock-based Compensation Plans
Shares of common stock available for grant	1,637,295
2014 Employee Stock Purchase Plan
Summary of Stock-based Compensation Plans
Shares of common stock reserved for grant	2,000,000

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FAIR VALUE MEASUREMENTS (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Assets
Short-term investments:	$ 406,635,000	$ 470,348,000
Liabilities
Contingent consideration	159,136,000
Optimer CVRs
Liabilities
Contingent consideration	6,100,000	68,600,000
Excluded portion
Assets
Cash	219,300,000
Certificate of deposit excluded and recorded at cost	15,000,000	17,200,000
Bank deposits
Assets
Short-term investments:	50,000,000	40,000,000
U.S. Treasury securities
Assets
Short-term investments:	70,178,000	67,650,000
Corporate and municipal notes
Assets
Short-term investments:	286,457,000	362,698,000
Recurring Basis | Level 1
Assets
Total assets	70,178,000
Liabilities
Total liabilities	6,094,000
Recurring Basis | Level 1 | Optimer CVRs
Liabilities
Contingent consideration	6,094,000
Recurring Basis | Level 1 | U.S. Treasury securities
Assets
Short-term investments:	70,178,000
Recurring Basis | Level 2
Assets
Total assets	338,956,000
Recurring Basis | Level 2 | Bank deposits
Assets
Short-term investments:	50,000,000
Recurring Basis | Level 2 | Corporate and municipal notes
Assets
Cash and cash equivalents:	2,499,000
Short-term investments:	286,457,000
Recurring Basis | Level 3
Liabilities
Total liabilities	159,136,000
Recurring Basis | Level 3 | Other
Liabilities
Contingent consideration	159,136,000
Recurring Basis | Total Fair Value
Assets
Total assets	409,134,000
Liabilities
Total liabilities	165,230,000
Recurring Basis | Total Fair Value | Optimer CVRs
Liabilities
Contingent consideration	6,094,000
Recurring Basis | Total Fair Value | Other
Liabilities
Contingent consideration	159,136,000
Recurring Basis | Total Fair Value | Bank deposits
Assets
Short-term investments:	50,000,000
Recurring Basis | Total Fair Value | U.S. Treasury securities
Assets
Short-term investments:	70,178,000
Recurring Basis | Total Fair Value | Corporate and municipal notes
Assets
Cash and cash equivalents:	2,499,000
Short-term investments:	$ 286,457,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net income	$ 48,261	$ 21,330
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	42,386	17,164
Amortization and accretion of investments	4,069	6,230
Amortization of debt discount and debt issuance costs, excluding write-off of debt issuance costs	19,464	8,018
Deferred income taxes	(7,892)	(12,748)
Stock-based compensation	18,968	16,139
Contingent consideration	(58,092)	4,639
Provision for inventory reserves	10,623	3,598
Other non-cash	7,905	(2,540)
Changes in assets and liabilities:
Accounts receivable	15,760	(8,142)
Inventory	(7,249)	(10,339)
Prepaid expenses and other assets	(7,457)	1,387
Accounts payable and accrued liabilities	(21,867)	(13,508)
Deferred revenue and other liabilities	(2,334)	(1,387)
Net cash provided by operating activities	62,545	29,841
Cash flows from investing activities:
Purchases of property and equipment	(12,186)	(10,030)
Purchases of investments	(299,960)	(716,455)
Proceeds from maturities of investments	361,473	789,971
Payment for purchase option		(20,000)
Increase in restricted cash	(2,153)
Net cash provided by investing activities	47,174	43,486
Cash flows from financing activities:
Issuance of common stock, net	20,374	19,391
Excess tax benefit on stock-based awards	1,882	8,677
Other	(1,123)
Net cash provided by financing activities	21,133	28,068
Net increase in cash and cash equivalents	130,852	101,395
Effect of changes in foreign exchange rates on cash balances	(72)
Cash and cash equivalents at beginning of period	91,058	104,041
Cash and cash equivalents at end of period	$ 221,838	$ 205,436

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INVENTORY

6 Months Ended

Jun. 30, 2014

INVENTORY

INVENTORY

E. INVENTORY

Inventory consisted of the following at:

	June 30, 2014		December 31, 2013
	(in thousands)
Raw materials	$	30,767	$	17,904
Work-in-process	6,723		8,104
Finished goods	22,589		31,655
Inventory	60,079		57,663
Included in other assets:
Raw materials	52,801		57,284
Work-in-process	894		1,882
Total	$	113,774	$	116,829

Inventory included in other assets within the condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013, represents the amount of DIFICID and ENTEREG inventory held in excess of the amount expected to be sold within one year. In connection with the acquisitions of Optimer and Adolor, we recorded the acquired DIFICID and ENTEREG inventory, respectively, at fair value, which required a step-up adjustment to recognize the inventory at its expected net realizable value.

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DEBT (Tables)

6 Months Ended

Jun. 30, 2014

DEBT

Schedule of components of the entity's Convertible Senior Notes

	June 30, 2014			December 31, 2013
	(in thousands)
2020 Convertible Senior Notes
Principal amount outstanding	$	450,000		$	450,000
Unamortized discount	(104,235		)	(111,015		)
Net carrying amount	345,765			338,985
2018 Convertible Senior Notes
Principal amount outstanding	350,000			350,000
Unamortized discount	(59,497		)	(65,733		)
Net carrying amount	290,503			284,267
2017 Convertible Senior Notes
Principal amount outstanding	228,810			228,822
Unamortized discount	(30,277		)	(34,244		)
Net carrying amount	198,533			194,578
Total Convertible Senior Notes
Principal amount outstanding	1,028,810			1,028,822
Unamortized discount	(194,009		)	(210,992		)
Net carrying amount	$	834,801		$	817,830

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BUSINESS COMBINATIONS AND ACQUISITIONS (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013	Oct. 24, 2013 Optimer Pharmaceuticals, Inc.	Oct. 24, 2013 Optimer Pharmaceuticals, Inc. Contract intangibles	Oct. 24, 2013 Optimer Pharmaceuticals, Inc. DIFICID	Sep. 11, 2013 Trius Therapeutics, Inc.
Estimated fair values of the assets acquired and liabilities assumed
Cash			$ 31,466			$ 22,697
Investments			42,067			39,513
Inventory			32,000
IPR&D						659,000
Intangible asset				36,000	561,000
Deferred tax assets			116,199			92,567
Goodwill	383,018	383,018	108,631			160,257
Other assets acquired			15,942			5,522
Total assets acquired			943,305			979,556
Deferred tax liabilities			(224,110)			(248,884)
Other liabilities assumed			(34,109)			(30,359)
Total liabilities assumed			(258,219)			(279,243)
Total net assets acquired			$ 685,086			$ 700,313

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BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2014

BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Concentration of risk

	Percentage of Total Accounts Receivable Balance as of
	June 30, 2014		December 31, 2013
AmerisourceBergen Drug Corporation	16	%	18	%
Cardinal Health, Inc.	18	%	17	%
McKesson Corporation	19	%	18	%

	Percentage of Total Net Revenues for the Three Months Ended June 30,				Percentage of Total Net Revenues for the Six Months Ended June 30,
	2014		2013		2014		2013
AmerisourceBergen Drug Corporation	17	%	20	%	17	%	20	%
Cardinal Health, Inc.	16	%	16	%	17	%	17	%
McKesson Corporation	18	%	17	%	19	%	18	%

Schedule of gross U.S. product revenues offset by provisions

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Gross U.S. product revenues	$	318,603		$	272,271		$	604,115		$	518,218
Provisions offsetting U.S. product revenues:
Contractual adjustments	(21,866		)	(16,014		)	(41,819		)	(30,032		)
Governmental rebates	(31,478		)	(16,754		)	(56,579		)	(35,435		)
Total provisions offsetting product revenues	(53,344		)	(32,768		)	(98,398		)	(65,467		)
U.S. product revenues, net	$	265,259		$	239,503		$	505,717		$	452,751

Computation of basic and diluted net income per common share

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands, except share and per share data)
Net income, basic	$	24,028	$	15,242	$	48,261	$	21,330
Effect of dilutive securities:
Interest on 2017 Notes, net of tax	688		—		1,511		—
Debt issuance costs related to 2017 Notes, net of tax	94		—		203		—
Debt discount amortization related to 2017 Notes, net of tax	973		—		2,082		—
Net income, diluted	$	25,783	$	15,242	$	52,057	$	21,330
Shares used in calculating basic net income per common share	75,421,354		65,558,376		75,179,275		65,248,707
Effect of dilutive securities:
Options to purchase shares of common stock and RSUs	2,844,731		2,173,600		2,831,752		2,136,434
2017 Notes convertible into shares of common stock	7,842,698		—		7,842,820		—
Shares used in calculating diluted net income per common share	86,108,783		67,731,976		85,853,847		67,385,141
Basic net income per common share	$	0.32	$	0.23	$	0.64	$	0.33
Diluted net income per common share	$	0.30	$	0.23	$	0.61	$	0.32

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Options to purchase shares of common stock and RSUs	845,764	2,591,295	1,343,047	2,546,822
Warrants	9,705,442	—	9,705,442	—
2020 Notes convertible into shares of common stock	5,459,311	—	5,459,311	—
2018 Notes convertible into shares of common stock	4,246,131	—	4,246,131	—
2017 Notes convertible into shares of common stock	—	15,424,084	—	15,424,118