XNAS:CBST Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Table of Contents

 

 

 

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, 2012

 

OR

 

o

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

 

Commission file number:  0-21379

 

CUBIST PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

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, $0.001 par value, outstanding on July 23, 2012: 63,837,982.

 

 

 



Table of Contents

 

Cubist Pharmaceuticals, Inc.
Form 10-Q
For the Quarter Ended June 30, 2012

 

Table of Contents

 

Item

 

Page

 

 

 

 

PART I. Financial information

 

 

 

 

 

 

1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011

 

3

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011

 

4

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011

 

5

 

Notes to the Condensed Consolidated Financial Statements

 

6

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

3.

Quantitative and Qualitative Disclosures About Market Risk

 

34

4.

Controls and Procedures

 

34

 

 

 

 

PART II. Other Information

 

 

 

 

 

 

1.

Legal Proceedings

 

35

1A.

Risk Factors

 

35

2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

58

3.

Defaults Upon Senior Securities

 

58

4.

Mine Safety Disclosures

 

58

5.

Other Information

 

58

6.

Exhibits

 

58

 

Signatures

 

59

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

(in thousands, except share data)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

134,665

 

$

197,618

 

Short-term investments

 

676,546

 

670,077

 

Accounts receivable, net

 

90,126

 

87,800

 

Inventory

 

38,941

 

34,890

 

Deferred tax assets, net

 

14,384

 

16,189

 

Prepaid expenses and other current assets

 

36,882

 

36,700

 

Total current assets

 

991,544

 

1,043,274

 

Property and equipment, net

 

168,763

 

168,425

 

In-process research and development

 

311,400

 

311,400

 

Goodwill

 

122,133

 

122,133

 

Other intangible assets, net

 

164,543

 

174,980

 

Long-term investments

 

43,207

 

 

Other assets

 

59,068

 

67,243

 

Total assets

 

$

1,860,658

 

$

1,887,455

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

23,013

 

$

32,584

 

Accrued liabilities

 

133,608

 

144,794

 

Short-term deferred revenue

 

4,997

 

4,008

 

Short-term contingent consideration

 

38,981

 

67,999

 

Short-term debt, net

 

32,621

 

 

Other current liabilities

 

3,000

 

3,000

 

Total current liabilities

 

236,220

 

252,385

 

Long-term deferred revenue

 

32,245

 

27,516

 

Long-term deferred tax liabilities, net

 

132,226

 

143,177

 

Long-term contingent consideration

 

184,776

 

180,235

 

Long-term debt, net

 

360,782

 

454,246

 

Other long-term liabilities

 

28,161

 

30,039

 

Total liabilities

 

974,410

 

1,087,598

 

Commitments and contingencies (Notes C, D, G, L and M)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, non-cumulative; convertible, $.001 par value; authorized 5,000,000 shares; no shares issued and outstanding

 

 

 

Common stock, $.001 par value; authorized 150,000,000 shares; 63,751,433 and 62,640,902 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively

 

64

 

63

 

Additional paid-in capital

 

914,744

 

904,281

 

Accumulated other comprehensive loss

 

(175

)

(185

)

Accumulated deficit

 

(28,385

)

(104,302

)

Total stockholders’ equity

 

886,248

 

799,857

 

Total liabilities and stockholders’ equity

 

$

1,860,658

 

$

1,887,455

 

 

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

 

3



Table of Contents

 

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Revenues:

 

 

 

 

 

 

 

 

 

U.S. product revenues, net

 

$

209,886

 

$

168,575

 

$

404,035

 

$

322,291

 

International product revenues

 

11,363

 

7,747

 

24,017

 

16,047

 

Service revenues

 

8,665

 

 

12,329

 

 

Other revenues

 

653

 

516

 

1,878

 

1,031

 

Total revenues, net

 

230,567

 

176,838

 

442,259

 

339,369

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

58,891

 

38,976

 

112,843

 

75,553

 

Research and development

 

67,206

 

41,871

 

118,378

 

82,287

 

Contingent consideration

 

2,694

 

81,816

 

5,523

 

82,914

 

Selling, general and administrative

 

40,255

 

38,341

 

84,035

 

78,505

 

Total costs and expenses

 

169,046

 

201,004

 

320,779

 

319,259

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

61,521

 

(24,166

)

121,480

 

20,110

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

742

 

631

 

1,416

 

1,404

 

Interest expense

 

(8,902

)

(7,754

)

(17,909

)

(15,707

)

Other income (expense)

 

(3,113

)

162

 

(3,293

)

535

 

Total other income (expense), net

 

(11,273

)

(6,961

)

(19,786

)

(13,768

)

Income (loss) before income taxes

 

50,248

 

(31,127

)

101,694

 

6,342

 

Provision (benefit) for income taxes

 

7,125

 

(10,512

)

25,777

 

4,372

 

Net income (loss)

 

$

43,123

 

$

(20,615

)

$

75,917

 

$

1,970

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

$

0.68

 

$

(0.34

)

$

1.20

 

$

0.03

 

Diluted net income (loss) per common share

 

$

0.58

 

$

(0.34

)

$

1.04

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

Shares used in calculating:

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

63,498,953

 

60,517,553

 

63,250,165

 

59,991,068

 

Diluted net income (loss) per common share

 

81,166,329

 

60,517,553

 

81,001,476

 

61,828,807

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

43,102

 

$

(20,774

)

$

75,927

 

$

1,828

 

 

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

 

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Table of Contents

 

CUBIST PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

75,917

 

$

1,970

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Loss on debt repurchase, including write-off of debt issuance costs

 

3,542

 

 

Depreciation and amortization

 

16,548

 

6,046

 

Amortization of premiums and accretion of discounts on investments

 

3,791

 

3,590

 

Amortization of debt discount and debt issuance costs, excluding write-off of debt issuance costs

 

10,379

 

9,968

 

Deferred income taxes

 

(7,993

)

(736

)

Stock-based compensation

 

12,492

 

8,494

 

Contingent consideration expense

 

5,523

 

82,914

 

Payment of contingent consideration

 

(17,408

)

 

Premium paid for convertible subordinated debt repurchase

 

(26,945

)

 

Inventory write-off

 

4,386

 

 

Other non-cash

 

2,232

 

1,580

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(2,326

)

(8,817

)

Inventory

 

(6,684

)

306

 

Prepaid expenses and other current assets

 

(182

)

(20,981

)

Other assets

 

5,449

 

(3,761

)

Accounts payable and accrued liabilities

 

(14,922

)

6,770

 

Deferred revenue and other long-term liabilities

 

3,296

 

4,911

 

Total adjustments

 

(8,822

)

90,284

 

Net cash provided by operating activities

 

67,095

 

92,254

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(12,093

)

(25,747

)

Purchases of investments

 

(718,738

)

(682,580

)

Proceeds from investments

 

665,249

 

575,203

 

Net cash used in investing activities

 

(65,582

)

(133,124

)

Cash flows from financing activities:

 

 

 

 

 

Payment of contingent consideration

 

(12,592

)

 

Issuance of common stock, net

 

17,348

 

25,794

 

Excess tax benefit on stock-based awards

 

5,482

 

12,018

 

Repurchase of convertible subordinated debt

 

(74,704

)

 

Net cash (used in) provided by financing activities

 

(64,466

)

37,812

 

Net decrease in cash and cash equivalents

 

(62,953

)

(3,058

)

Effect of changes in foreign exchange rates on cash balances

 

 

511

 

Cash and cash equivalents at beginning of period

 

197,618

 

372,969

 

Cash and cash equivalents at end of period

 

$

134,665

 

$

370,422

 

 

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

 

5



Table of Contents

 

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. (“Cubist” or the “Company”) in accordance with accounting principles generally accepted in the United States of America, or GAAP, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted. The condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

 

The year-end condensed consolidated financial statements were derived from audited financial statements, but do not include all disclosures required by GAAP. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the entire fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011, which are contained in Cubist’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 27, 2012.

 

The accompanying condensed consolidated financial statements include the accounts of Cubist and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company’s results of operations for the three and six months ended June 30, 2012, include the results of Adolor Corporation, or Adolor, which Cubist acquired in December 2011.

 

Use of Estimates

 

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

 

Fair Value Measurements

 

On January 1, 2012, the Company adopted amended guidance for fair value measurement and disclosure, which requires Cubist to disclose quantitative information about unobservable inputs used in the fair value measurement within Level 3 of the fair value hierarchy. See Note D., “Fair Value Measurements,” for additional information.

 

The accounting standard for fair value measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires detailed disclosures about fair value measurements. Under this standard, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. This standard classifies these inputs into the following hierarchy:

 

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

 

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

 

Level 3 Inputs—Instruments with primarily unobservable value drivers.

 

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Table of Contents

 

The fair value hierarchy level is determined by asset class based on the lowest level of significant input. In periods of market inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified between Level 1 and Level 2 or between Level 2 and Level 3. During the six months ended June 30, 2012, there were no transfers between Level 1, Level 2 or Level 3.

 

The carrying amounts of Cubist’s cash and cash equivalents, accounts receivable, net, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these amounts. Short-term and long-term investments primarily consist of available-for-sale securities as of June 30, 2012 and December 31, 2011, and are carried at fair value.

 

Concentration of Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, investments and accounts receivable. The Company’s cash and cash equivalents are held primarily with five financial institutions in the United States, or U.S. Investments are restricted, in accordance with the Company’s investment policy, to a concentration limit per institution.

 

Cubist’s accounts receivable at June 30, 2012 and December 31, 2011, primarily represent amounts due to the Company from wholesalers, including AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation. Cubist performs ongoing credit evaluations of its key wholesalers, distributors and other customers and generally does not require collateral. For the three and six months ended June 30, 2012 and 2011, Cubist did not have any significant write-offs of accounts receivable, and its days sales outstanding has not significantly changed since December 31, 2011.

 

 

 

Percentage of Total Accounts
Receivable Balance as of

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

AmerisourceBergen Drug Corporation

 

21

%

22

%

Cardinal Health, Inc.

 

20

%

22

%

McKesson Corporation

 

19

%

19

%

 

 

 

Percentage of Total
Net Revenues for
the Three Months Ended
June 30,

 

Percentage of Total
Net Revenues for
the Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

AmerisourceBergen Drug Corporation

 

19

%

23

%

19

%

24

%

Cardinal Health, Inc.

 

19

%

22

%

19

%

22

%

McKesson Corporation

 

17

%

17

%

17

%

18

%

 

IPR&D

 

IPR&D acquired in a business combination is capitalized on the Company’s condensed consolidated balance sheets at its acquisition-date fair value. 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, in the fourth quarter, or more frequently if impairment indicators are present, using projected discounted cash flow models. 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 the Company’s programs, Cubist 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. The use of different valuation techniques or different assumptions could result in materially different fair value estimates.

 

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Table of Contents

 

Revenue Recognition

 

Principal sources of revenue are: (i) sales of CUBICIN® (daptomycin for injection) and ENTEREG® (alvimopan) in the U.S.; (ii) revenues derived from sales of CUBICIN by Cubist’s international distribution partners; and (iii) service revenues derived from Cubist’s agreement with Optimer Pharmaceuticals, Inc., or Optimer, for the promotion and support of DIFICID® (fidaxomicin) in the U.S. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered and collectibility of the resulting receivable is reasonably assured.

 

U.S. Product Revenues, net

 

Cubist maintains a drop-ship program under which orders are processed through wholesalers, but shipments are sent directly to the end users, who are generally hospitals and acute care settings. The Company generally does not allow wholesalers to stock CUBICIN or ENTEREG. All revenues from product sales are recorded net of applicable provisions for returns, chargebacks, Medicaid rebates, Medicare coverage gap discount program rebates, wholesaler management fees and pricing discounts in the same period the related sales are recorded.

 

Gross U.S. product revenues are offset by provisions for the three and six months ended June 30, 2012 and 2011, as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(in thousands)

 

Gross U.S. product revenues

 

$

241,900

 

$

192,911

 

$

466,024

 

$

367,352

 

Provisions offsetting U.S. product revenues:

 

 

 

 

 

 

 

 

 

Contractual adjustments

 

(14,085

)

(11,362

)

(26,980

)

(20,834

)

Governmental rebates

 

(17,929

)

(12,974

)

(35,009

)

(24,227

)

Total provisions offsetting product revenues

 

(32,014

)

(24,336

)

(61,989

)

(45,061

)

U.S. product revenues, net

 

$

209,886

 

$

168,575

 

$

404,035

 

$

322,291

 

 

Certain product sales qualify for rebates or discounts from standard list pricing due to government-sponsored programs or other contractual agreements. Contractual adjustments in the table above include pricing and early payment discounts extended to the Company’s external customers, as well as provisions for returns and wholesaler distribution fees. Governmental rebates in the table above represent estimated amounts for Medicaid rebates, Medicare coverage gap discount program rebates and chargebacks related to 340B/Public Health Service and Federal Supply Schedule drug pricing programs. Estimates and assumptions for reserves are analyzed quarterly.

 

Service Revenues

 

Service revenues for the three and six months ended June 30, 2012, represent (i) the ratable recognition of the quarterly service fee earned in accordance with the co-promotion agreement with Optimer, which was entered into in April 2011 to promote and provide medical affairs support for DIFICID in the U.S.; and (ii) an additional $5.0 million recognized in June 2012 upon achieving an annual sales target under the terms of the co-promotion agreement with Optimer. Cubist is also eligible to receive, under the terms of the co-promotion agreement, a portion of Optimer’s gross profits on net sales of DIFICID above the annual sales targets, if any, in 2012 and 2013, as well as an additional $12.5 million in 2013 if a specified sales target is achieved. The initial two-year term of the co-promotion agreement ends in July 2013.

 

Basic and Diluted Net Income (Loss) Per Share

 

Basic net income (loss) per common share has been computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share has been computed by dividing diluted net income (loss) by the diluted number of shares outstanding during the period. Except where the result would be antidilutive to income from continuing operations, diluted net income (loss) per share has been computed assuming the conversion of convertible obligations and the elimination of the interest expense related to the Company’s 2.25% convertible subordinated notes, or 2.25% Notes, and 2.50% convertible senior notes, or 2.50% Notes, the elimination of the loss on the partial repurchase of the Company’s 2.25% Notes, discussed below, the exercise of stock options and the vesting of restricted stock units, or RSUs, as well as their related income tax effects.

 

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Table of Contents

 

In June 2012, Cubist repurchased $74.7 million of its 2.25% Notes, in privately-negotiated transactions, which reduced Cubist’s fully-diluted shares of common stock outstanding by 2,427,738 shares. See Note G., “Debt,” for additional information.

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(in thousands, expect share and per share amounts)

 

Net income (loss), basic

 

$

43,123

 

$

(20,615

)

$

75,917

 

$

1,970

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Interest on 2.50% Notes, net of tax

 

1,808

 

 

3,610

 

 

Debt issuance costs related to 2.50% Notes, net of tax

 

239

 

 

477

 

 

Debt discount amortization related to 2.50% Notes, net of tax

 

2,201

 

 

4,358

 

 

Net income (loss), diluted

 

$

47,371

 

$

(20,615

)

$

84,362

 

$

1,970

 

 

 

 

 

 

 

 

 

 

 

Shares used in calculating basic net income (loss) per common share

 

63,498,953

 

60,517,553

 

63,250,165

 

59,991,068

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Options to purchase shares of common stock and RSUs

 

2,243,221

 

 

2,327,156

 

1,837,739

 

2.50% Notes convertible into shares of common stock

 

15,424,155

 

 

15,424,155

 

 

Shares used in calculating diluted net income (loss) per common share

 

81,166,329

 

60,517,553

 

81,001,476

 

61,828,807

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic

 

$

0.68

 

$

(0.34

)

$

1.20

 

$

0.03

 

Net income (loss) per share, diluted

 

$

0.58

 

$

(0.34

)

$

1.04

 

$

0.03

 

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Options to purchase shares of common stock and RSUs

 

3,091,164

 

1,215,120

 

2,775,786

 

2,137,434

 

2.25% Notes convertible into shares of common stock

 

2,909,940

 

3,549,377

 

3,229,658

 

3,549,377

 

2.50% Notes convertible into shares of common stock

 

 

15,424,155

 

 

15,424,155

 

 

Subsequent Events

 

Cubist considers events or transactions that have occurred after the balance sheet date of June 30, 2012, but prior to the filing of the financial statements with the SEC on this Quarterly Report on Form 10-Q to provide additional evidence relative to certain estimates or to identify matters that require additional recognition or disclosure. Subsequent events have been evaluated through the date of the filing with the SEC of this Quarterly Report on Form 10-Q. There were no subsequent events that occurred after June 30, 2012.

 

Recent Accounting Pronouncements

 

In July 2012, the Financial Accounting Standards Board issued amended accounting guidance for testing indefinite-lived intangible assets for impairment. The amendments permit a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, a company concludes it is more likely than not that the fair value of the indefinite-lived intangible asset exceeds its carrying value, then the company is not required to take further action. A company also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. A company will be able to resume performing the qualitative assessment in any subsequent

 

9



Table of Contents

 

period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public company’s financial statements for the most recent annual or interim period have not yet been issued. The Company does not expect the adoption to have any impact on its consolidated financial statements.

 

B.            INVESTMENTS

 

The following table summarizes the amortized cost and estimated fair values of the Company’s available-for-sale investments:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

(in thousands)

 

Balance at June 30, 2012:

 

 

 

 

 

 

 

 

 

Bank deposits

 

$

60,000

 

$

 

$

 

$

60,000

 

U.S. Treasury securities

 

100,002

 

2

 

(12

)

99,992

 

Corporate and municipal notes

 

499,924

 

82

 

(245

)

499,761

 

Total

 

$

659,926

 

$

84

 

$

(257

)

$

659,753

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011:

 

 

 

 

 

 

 

 

 

Bank deposits

 

$

92,001

 

$

 

$

 

$

92,001

 

U.S. Treasury securities

 

114,061

 

39

 

(7

)

114,093

 

Federal agencies

 

39,408

 

1

 

(6

)

39,403

 

Corporate and municipal notes

 

364,752

 

1

 

(173

)

364,580

 

Total

 

$

610,222

 

$

41

 

$

(186

)

$

610,077

 

 

The following table contains information regarding the range of contractual maturities of the Company’s short-term and long-term investments:

 

 

 

June 30, 2012

 

December 31, 2011

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

 

 

(in thousands)

 

Within 1 year

 

$

616,754

 

$

616,546

 

$

610,222

 

$

610,077

 

1-2 years

 

43,172

 

43,207

 

 

 

Total

 

$

659,926

 

$

659,753

 

$

610,222

 

$

610,077

 

 

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, a $60.0 million certificate of deposit included within short-term investments was not deemed an available-for-sale security and is not included in the tables above.

 

C. BUSINESS COMBINATIONS AND ACQUISITIONS

 

Acquisition of Adolor

 

On December 12, 2011, Cubist acquired 100% of the outstanding shares of common stock of Adolor for $4.25 in cash for each share owned by Adolor’s former stockholders, plus, contingent payment rights, or CPRs, as described below, upon which Adolor became a wholly-owned subsidiary of Cubist. The Company’s acquisition of Adolor provided an existing commercialized product, ENTEREG, as well as rights to an additional late-stage product candidate, CB-5945, among other assets. CB-5945 is an oral, peripherally-acting mu-opioid receptor antagonist currently in development for the treatment of chronic opioid-induced constipation.

 

10



Table of Contents

 

The following table summarizes the fair value of total consideration at December 12, 2011:

 

 

 

Total
Acquisition-
Date
Fair Value

 

 

 

(in thousands)

 

Cash

 

$

220,838

 

Contingent consideration

 

110,200

 

Total consideration

 

$

331,038

 

 

The contingent consideration relates to the achievement of certain regulatory milestones, sales milestones or a combination of both, with respect to CB-5945, and in which Cubist granted non-transferable CPRs to the former stockholders of Adolor. The CPRs represent the right to receive additional payments above the upfront purchase price, up to a maximum of $4.50 for each share owned by Adolor’s former stockholders upon achievement of such milestones. The CPRs may not be sold, assigned, transferred, pledged, encumbered or disposed of, subject to limited exceptions. See Note D., “Fair Value Measurements,” for additional information.

 

The acquisition was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible assets and identifiable intangible assets acquired and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill.

 

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

 

 

 

December 12,
2011

 

 

 

(in thousands)

 

Cash

 

$

20,179

 

Investments

 

2,000

 

Inventory

 

40,800

 

IPR&D

 

117,400

 

ENTEREG intangible asset

 

164,600

 

Deferred tax assets

 

56,031

 

Goodwill

 

60,674

 

Other assets acquired

 

7,351

 

Total assets acquired

 

469,035

 

Deferred tax liabilities

 

(108,078

)

Payable to Glaxo Group Limited

 

(18,900

)

Other liabilities assumed

 

(11,019

)

Total liabilities assumed

 

(137,997

)

Total net assets acquired

 

$

331,038

 

 

The allocation of the purchase price to acquired assets and liabilities has been prepared on a preliminary basis and is subject to change as additional information becomes available, including the finalization of the fair value of acquired assets and certain tax matters. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from December 12, 2011, the acquisition date.

 

The difference between the purchase price and the fair value of the assets acquired and liabilities assumed of $60.7 million was allocated to goodwill. None of this goodwill is expected to be deductible for income tax purposes.

 

The Company recorded $40.8 million of ENTEREG inventory that was acquired from Adolor. See Note I., “Inventory,” for additional information.

 

11



Table of Contents

XNAS:CBST Quarterly Report 10-Q Filling

XNAS:CBST Stock - Get Quarterly Report SEC Filing of XNAS:CBST stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:CBST Quarterly Report 10-Q Filing - 6/30/2012
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