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Cubist Reports Third Quarter 2014 Financial Results

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Cubist Pharmaceuticals, Inc. (NASDAQ:CBST) today announced results for the third quarter ended September 30, 2014. The Company will host a conference call and webcast today at 5:00 p.m. ET (details below).

Financial highlights for the third quarter of 2014 (unaudited)

  • Q3 2014 total net revenues were $309.2 million, up 16% compared to $266.0 million in Q3 2013.
  • U.S. CUBICIN(R) (daptomycin for injection) net product revenues increased 12% to $256.7 million from $229.9 million in Q3 2013, the first quarter with U.S. net revenue representing an annualized run rate of greater than $1 billion.
  • International product revenues were $16.6 million compared to $13.0 million in Q3 2013.
  • Non-GAAP adjusted operating income was $99.1 million compared to $52.5 million in the third quarter of 2013. GAAP operating income was $67.8 million compared to $4.1 million in the third quarter of 2013.
  • Non-GAAP diluted earnings per share (EPS) was $0.58 compared to $0.41 in the third quarter of 2013. GAAP diluted EPS was $0.29 compared to $(0.50) in the third quarter of 2013.

“This was a strong quarter for Cubist in which we made significant progress against our 2014 financial and business objectives, driven by CUBICIN and meaningful contributions across our portfolio,” said Mike Bonney, CEO of Cubist. “We are pleased with the early interest in our new antibiotic for the treatment of adult acute bacterial skin and skin structure infections, SIVEXTRO, as well as the traction we are seeing in our re-launch of DIFICID and with sales of ENTEREG. Third quarter results reflect important momentum across our portfolio and complement our continued launch preparation leading up to the December FDA action date of our potential blockbuster ceftolozane/tazobactam, now known as ZERBAXA.”

As of September 30, 2014, Cubist had $687.0 million in cash, cash equivalents and investments. The total number of Cubist’s common shares outstanding as of September 30, 2014, was 76,012,863.

Recent Corporate Highlights

  • On October 20, Cubist announced that current President and Chief Operating Officer Rob Perez will become the Company’s Chief Executive Officer, effective January 1, 2015. At that time, Mr. Bonney will retire from his role as CEO and become non-executive Chair of Cubist’s Board of Directors and current Board Chair, Kenneth M. Bate, will become Lead Independent Director.
  • On September 18, Cubist announced the official opening of its international headquarters in Zurich, Switzerland, reinforcing its commitment to global public health. Located in a growing biopharmaceutical hub in Switzerland, the Company’s international operations complement Cubist’s corporate headquarters in Lexington, Massachusetts, in the United States.

Recent Product and Pipeline Highlights

  • On August 22, the European Medicines Agency (EMA) announced that it accepted for review the Company’s Marketing Authorization Application (MAA) for its investigational antibiotic ZERBAXATM (ceftolozane/tazobactam for injection). Cubist is seeking approval of ZERBAXA for the treatment of complicated urinary tract infections and complicated intra-abdominal infections, with a decision from the European Commission (EC) expected during the second half of 2015. Prior to the MAA acceptance, the U.S. Food and Drug Administration (FDA) accepted the Company’s New Drug Application (NDA) for ZERBAXA with Priority Review and assigned an action date of December 21, 2014.
  • On August 5, Cubist announced that SIVEXTRO(R) (tedizolid phosphate), indicated for the treatment of adult acute bacterial skin and skin structure infections (ABSSSI), is now available in the U.S. in once-daily I.V. and oral formulations. Approved by the FDA on June 20, 2014, SIVEXTRO addresses ABSSSI caused by susceptible Gram-positive bacteria, including methicillin-resistant Staphylococcus aureus – which has been categorized by the U.S. Centers for Disease Control and Prevention as a serious public health threat.

Use of Non-GAAP Financial Measures

Cubist has presented certain non-GAAP financial measures, including non-GAAP adjusted operating income, non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP cost of product revenues, non-GAAP R&D expenses, non-GAAP SG&A expenses, non-GAAP other income (expense) and non-GAAP provision for income taxes. These non-GAAP financial measures exclude certain amounts, expenses or income, from the corresponding financial measures determined in accordance with accounting principles generally accepted in the U.S. (GAAP). Management believes this non-GAAP information is useful for investors, taken in conjunction with Cubist’s GAAP financial statements, because it provides greater transparency regarding Cubist’s operating performance. Management uses these measures, among other factors, to assess and analyze operational results and trends and to make financial and operational decisions. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of Cubist’s operating results as reported under GAAP, not as a substitute for GAAP. In addition, these non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. The determination of the amounts that are excluded from non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts. Reconciliations between these non-GAAP financial measures and the most comparable GAAP financial measures are included in the tables accompanying this press release after the unaudited condensed consolidated financial statements.

***********************CONFERENCE CALL & WEBCAST INFORMATION***********************

CUBIST Q3 2014 FINANCIAL RESULTS
Tuesday, October 21, 2014 at 5:00 pm ET

U.S./Canada Attendee Dial-in: (855) 319-7654
International Attendee Dial-in: (484) 756-4327
Conference ID: 11866394

24-HOUR REPLAY U.S./CANADA: (855) 859-2056
24-HOUR REPLAY INTERNATIONAL: (404) 537-3406
Conference ID: 11866394

CALL WILL ALSO BE BROADCAST LIVE, LISTEN ONLY, VIA THE WEB AT:
https://cubist.webex.com/cubist/onstage/g.php?t=a&d=294736098
Attendee Password: 10212014

Replay will be available for 90 days at www.cubist.com

*********************************************************************************

About Cubist

Cubist Pharmaceuticals, Inc. is a biopharmaceutical company focused on the research, development, and commercialization of pharmaceutical products that address significant unmet medical needs in the acute care environment. Cubist is headquartered in Lexington, Mass. Additional information can be found at Cubist’s web site at www.cubist.com.

Forward Looking Statements

This press release contains forward-looking statements. Any statements contained herein which do not describe historical facts, including but not limited to, statements regarding: our expected third quarter 2014 financial results; our progress against our 2014 financial and business objectives; the projected CUBICIN U.S. revenue annualized run rate of greater than $1 billion; our belief that ZERBAXA has the potential to achieve blockbuster status; the Prescription Drug User Fee Act (PDUFA) action date for our NDA with the FDA for ZERBAXA, including our launch preparation actions; the expected timing for a decision from the EC on our MAA with the EMA for ZERBAXA; the therapeutic and commercial potential of SIVEXTRO, including the level of interest in SIVEXTRO; our progress in our re-launch of DIFICID(R) and sales of ENTEREG(R); the expected retirement of our current CEO and the expected appointment of our new CEO, our new non-executive Chair of the Board and our new Lead Independent Director; and our commitment to global public health, are forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from those discussed in such forward-looking statements. Such risks and uncertainties include, among others: the risk that our final third quarter 2014 financial results will differ materially from our expected results disclosed in this release; regulatory developments, including the risk that the FDA and EC may not agree with our interpretation of the results from the clinical studies of ZERBAXA, may not approve on a timely basis or at all our NDA and/or MAA for ZERBAXA or may require additional data, analysis, information or further studies that may not be clinically feasible or financially practicable; the review of our NDA and/or MAA for ZERBAXA may take longer than anticipated, including as a result of internal regulatory authority constraints; our ability to achieve our financial and business objectives, including as a result of our ability to continue to grow revenues from the sale of our commercial products, generic and other competition, manufacturing issues, our ability to successfully develop, gain marketing approval for and commercially launch our product candidates for their planned indications and on their expected timelines, and our ability to discover, in-license or acquire new products and product candidates; any marketing approval for ZERBAXA may impose significant limitations on its use and additional post-marketing requirements; our ability to obtain adequate pricing and reimbursement levels for our products; our ability to successfully commercialize our products; the acceptance of and demand for new pharmaceutical products; competitive risks from current and future therapeutic alternatives to our products; our ability to obtain, maintain and enforce intellectual property for our products and product candidates; additional clinical trials of SIVEXTRO and/or ZERBAXA may produce negative or inconclusive results or may not be initiated or conducted in a timely manner; technical difficulties, excessive costs or other issues relating to the manufacture or supply of our products and product candidates, including our ability to work with our third party contract manufacturers that manufacture and supply our product and product candidates on our behalf; our ability to work with, and the performance of our third party contract research organizations that help us conduct our clinical trials; the risk that the planned leadership transition does not occur in the manner or on the time frame that we currently expect; we may encounter other unanticipated or unexpected risks with respect to the development, manufacture or commercialization of our products and product candidates; and those additional factors discussed in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. We caution investors not to place considerable reliance on the forward-looking statements contained in this press release. These forward-looking statements speak only as of the date of this document, and we undertake no obligation to update or revise any of these statements.

Tables to follow

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

(in thousands)

September 30, 2014 December 31, 2013
ASSETS
Cash, cash equivalents and investments $ 686,982 $ 578,558
Accounts receivable, net 115,125 123,155
Inventory 120,552 116,829
Property and equipment, net 182,532 177,544
Deferred tax assets, net 46,877 52,507
In-process research and development 237,400 896,400
Goodwill 381,930 381,930
Other intangible assets, net 1,322,382 721,066
Other assets 89,492 97,143
Total assets $ 3,183,272 $ 3,145,132
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities $ 198,101 $ 276,955
Deferred tax liabilities, net 363,772 357,113
Deferred revenue 34,519 37,421
Contingent consideration 167,454 223,322
Debt and other liabilities, net 879,779 856,590
Total liabilities 1,643,625 1,751,401
Total stockholders’ equity 1,539,647 1,393,731
Total liabilities and stockholders’ equity $ 3,183,272 $ 3,145,132

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

(in thousands, except share and per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Revenues:
U.S. CUBICIN product revenues, net $ 256,694 $ 229,920 $ 703,601 $ 659,082
U.S. DIFICID product revenues, net 17,440 47,723
U.S. ENTEREG product revenues, net 15,315 13,676 43,842 37,265
U.S. SIVEXTRO product revenues, net 2,434 2,434
Total U.S. product revenues, net 291,883 243,596 797,600 696,347
International product revenues 16,619 12,987 51,131 40,349
Other revenues 653 9,410 16,055 18,005
Total revenues, net 309,155 265,993 864,786 754,701
Costs and expenses:
Cost of product revenues 94,959 60,989 257,113 179,705
Research and development expense 66,032 123,423 291,497 352,822
Contingent consideration expense (income) 2,224 2,641 (55,868 ) 7,280
Selling, general and administrative expense 77,791 73,855 227,510 171,945
Restructuring charges 340 1,029 6,248 1,029
Total costs and expenses 241,346 261,937 726,500 712,781
Operating income 67,809 4,056 138,286 41,920
Total other (income) expense, net 14,031 43,171 42,253 56,051
Income (loss) before income taxes 53,778 (39,115 ) 96,033 (14,131 )
Provision (benefit) for income taxes 30,949 (5,220 ) 24,943 (1,566 )
Net income (loss) $ 22,829 $ (33,895 ) $ 71,090 $ (12,565 )
Basic net income (loss) per common share $ 0.30 $ (0.50 ) $ 0.94 $ (0.19 )
Diluted net income (loss) per common share $ 0.29 $ (0.50 ) $ 0.90 $ (0.19 )
Shares used in calculating:
Basic net income (loss) per common share 75,834,443 67,841,665 75,400,064 66,122,521
Diluted net income (loss) per common share 85,995,727 67,841,665 85,901,660 66,122,521

CUBIST PHARMACEUTICALS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

UNAUDITED

(in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Operating income reconciliation: 1
GAAP operating income $ 67,809 $ 4,056 $ 138,286 $ 41,920
Cost of product revenues adjustments 1 27,762 5,620 60,903 16,619
Research and development expense adjustments 1 927 12,305 7,482 52,305
Contingent consideration expense (income) 2,224 2,641 (55,868 ) 7,280
Selling, general and administrative expense adjustments 1 26,875 2,158 26,875
Restructuring charges 340 1,029 6,248 1,029
Non-GAAP adjusted operating income $ 99,062 $ 52,526 $ 159,209 $ 146,028
Non-GAAP other (income) expense 2 5,338 3,828 16,579 9,431
Non-GAAP provision for income taxes 2 41,311 15,965 63,372 44,670
Non-GAAP net income $ 52,413 $ 32,733 $ 79,258 $ 91,927

1 Detail on the adjustments included herein is provided in the tables below.

2 A reconciliation to the most comparable GAAP financial measure is included in the tables below.

CUBIST PHARMACEUTICALS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

UNAUDITED

(in thousands, except percentages)

Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Cost of product revenues reconciliation:
GAAP cost of product revenues $ 94,959 $ 60,989 $ 257,113 $ 179,705
Intangible asset amortization (26,554 ) (4,552 ) (57,344 ) (13,529 )
Inventory fair value step-up (1,208 ) (1,068 ) (3,559 ) (3,090 )
Non-GAAP cost of product revenues $ 67,197 $ 55,369 $ 196,210 $ 163,086
Product gross margin reconciliation:
GAAP product gross margin 69.2 % 76.2 % 69.7 % 75.6 %
Intangible asset amortization 8.6 % 1.8 % 6.8 % 1.8 %
Inventory fair value step-up 0.4 % 0.4 % 0.4 % 0.4 %
Non-GAAP product gross margin 78.2 % 78.4 % 76.9 % 77.8 %
Research and development expenses reconciliation:
GAAP research and development expenses $ 66,032 $ 123,423 $ 291,497 $ 352,822
Acquisition-related expenses (110 ) (12,305 ) (5,032 ) (12,305 )
Intangible asset amortization (817 ) (2,450 )
Upfront license fees (40,000 )
Non-GAAP research and development expenses $ 65,105 $ 111,118 $ 284,015 $ 300,517
Selling, general and administrative expenses reconciliation:
GAAP selling, general and administrative expenses $ 77,791 $ 73,855 $ 227,510 $ 171,945
Acquisition-related expenses (26,875 ) (2,158 ) (26,875 )
Non-GAAP selling, general and administrative expenses $ 77,791 $ 46,980 $ 225,352 $ 145,070
Other (income) expense reconciliation:
GAAP other (income) expense $ 14,031 $ 43,171 $ 42,253 $ 56,051
Non-cash debt discount amortization (8,693 ) (4,765 ) (25,674 ) (12,042 )
Loss on extinguishment of convertible notes (34,578 ) (34,578 )
Non-GAAP other (income) expense $ 5,338 $ 3,828 $ 16,579 $ 9,431
Provision (benefit) for income taxes reconciliation:
GAAP provision (benefit) for income taxes $ 30,949 $ (5,220 ) $ 24,943 $ (1,566 )
Tax adjustment 10,362 21,185 38,429 46,236
Non-GAAP provision for income taxes $ 41,311 $ 15,965 $ 63,372 $ 44,670

CUBIST PHARMACEUTICALS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

UNAUDITED

(in thousands, except share and per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Non-GAAP net income reconciliation:
GAAP net income (loss) $ 22,829 $ (33,895 ) $ 71,090 $ (12,565 )
Non-cash debt discount amortization 8,693 4,765 25,674 12,042
Loss on extinguishment of convertible notes 34,578 34,578
Intangible asset amortization 27,371 4,552 59,794 13,529
Inventory fair value step-up 1,208 1,068 3,559 3,090
Restructuring charges 340 1,029 6,248 1,029
Acquisition-related expenses 110 39,180 7,190 39,180
Upfront license fees 40,000
Contingent consideration expense (income) 2,224 2,641 (55,868 ) 7,280
Tax adjustment (10,362 ) (21,185 ) (38,429 ) (46,236 )
Non-GAAP net income $ 52,413 $ 32,733 $ 79,258 $ 91,927
Diluted earnings per common share reconciliation:
GAAP diluted earnings (loss) per common share $ 0.29 $ (0.50 ) $ 0.90 $ (0.19 )
Non-GAAP dilutive adjustments 0.29 1 0.91 1 0.03 1 1.36 1
Non-GAAP diluted earnings per common share $ 0.58 $ 0.41 $ 0.93 $ 1.17
Shares used in diluted per common share calculation reconciliation:
GAAP shares used in diluted earnings (loss) per common share 85,995,727 67,841,665 85,901,660 66,122,521
Non-GAAP dilutive share adjustments 9,705,442 2 18,644,465 3 9,705,442 2 17,925,826 3
Non-GAAP shares used in diluted earnings per common share 95,701,169 86,486,130 95,607,102 84,048,347

1 Includes impact of non-GAAP adjustments from GAAP net income to non-GAAP net income and add back of interest expense and debt issuance costs on Cubist’s outstanding convertible notes, net of tax effect

2 Additional dilutive weighted average shares issuable upon conversion of Cubist’s outstanding convertible notes

3 Additional dilutive weighted average shares issuable upon conversion of Cubist’s outstanding convertible notes and exercise or vesting of Cubist’s outstanding equity awards

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