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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

FORM 10-K

Commission file number: 0-21379

CUBIST PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

None
(Title of Each Class)

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, or the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, or the Exchange Act. Yes o    No ý

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

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

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

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

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

         The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of June 28, 2013, (without admitting that any person whose shares are not included in the calculation is an affiliate) was $3.2 billion computed based on a per share price of $48.29, the closing price of our common stock, as reported on the NASDAQ Global Select Market on June 28, 2013. The number of outstanding shares of common stock of Cubist on February 14, 2014, was 74,798,250.

DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS
ANNUAL MEETING OF STOCKHOLDERS, WHICH IS EXPECTED TO BE HELD ON JUNE 3, 2014,
ARE INCORPORATED BY REFERENCE INTO PART III.

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Cubist Pharmaceuticals, Inc.
Annual Report on Form 10-K
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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 under the heading "Risk Factors" in this Annual Report on Form 10-K. The information contained in this Annual Report on Form 10-K is provided by us as of the date of this Annual Report on Form 10-K, and, except as required by law, we do not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

        Forward-looking statements in this Annual Report on Form 10-K include, without limitation, statements regarding our expectations with respect to:

(i)

our future 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 and our expected available cash and use of cash and net operating loss, or 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) 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 strength of our intellectual property portfolio protecting CUBICIN, DIFICID, ENTEREG and our product candidates, and our ability to successfully enforce this intellectual property portfolio;



(v)

the development, regulatory filing and review, timing of commercial launches and commercial and therapeutic potential of our products and product candidates, such as tedizolid phosphate, ceftolozane/tazobactam, bevenopran and surotomycin, and the costs and expenses related thereto, including (a) the anticipated timing and results of our clinical trials, timing and results of our meetings with, and submissions to, regulatory authorities, including the timing of our planned marketing authorization applications seeking approval of ceftolozane/tazobactam for the treatment of complicated urinary tract infections, or cUTI, and complicated intra-abdominal infections, or cIAI, indications and (b) the expected benefits from the Qualified Infectious Disease Product, or QIDP, designations for tedizolid phosphate, ceftolozane/tazobactam and surotomycin;



(vi)

our plans to (a) continue adding products and product candidates through internal development, in-licensing and acquisition and (b) expand our international operations; and



(vii)

the expected benefits from our acquisitions of Trius Therapeutics, Inc., or Trius, and Optimer Pharmaceuticals, Inc., or Optimer.

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PART I

ITEM 1.    BUSINESS

Overview

        Cubist Pharmaceuticals, Inc., which we refer to as "we," "us," "our," "Cubist," or the "Company," is a biopharmaceutical company focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. Our products and product candidates are used, or are being developed to be used, in hospitals and other acute care settings, including home infusion and hospital outpatient clinics.

        We were incorporated as a Delaware corporation in 1992. Our shares are listed on the NASDAQ Global Select Market, where our trading symbol is CBST. Our principal offices are located at 65 Hayden Avenue, Lexington, Massachusetts 02421. Our telephone number is 781-860-8660, and our website address is www.cubist.com.

        For information regarding revenue and other information concerning our results of operations for our one reporting segment and geographic information for each of our last three fiscal years, refer to our consolidated financial statements and the accompanying notes to consolidated financial statements in Item 8 of Part II of this Annual Report on Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 7 of Part II of this Annual Report on Form 10-K.

Products and Product Candidates

        The success of our business is primarily dependent upon our ability to discover or acquire rights to products and product candidates, and to develop and commercialize our current and future products and product candidates. The following table summarizes important information about our products, including our clinical-stage product candidates:

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        Additional information about our products and product candidates is discussed below.

Marketed Products

CUBICIN

        We currently derive most of our revenues from CUBICIN, which we launched in the U.S. in November 2003 and commercialize on our own in the U.S. CUBICIN is a once-daily, bactericidal, I.V. antibiotic with activity against certain Gram-positive organisms, including MRSA. CUBICIN is approved in more than 50 countries including the U.S., EU, and Japan for the indications identified in the table above. The following is a breakdown of our revenues from CUBICIN:

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U.S. Market

        As of December 31, 2013, CUBICIN has been used in the treatment of an estimated two million patients in the U.S. We believe that CUBICIN provides important advantages, including:

•

its rapid bactericidal properties demonstrated in an artificial environment outside of a living organism, or in vitro;



•

its mechanism of action;



•

its established safety profile; and



•

its indication for S. aureus bloodstream infections, including RIE.

        We market CUBICIN to more than 2,000 U.S. institutions (hospitals and outpatient acute care settings) that account for approximately 80% of the total market opportunity for I.V. antibiotics to treat serious Gram-positive infections in the U.S. As of December 31, 2013, CUBICIN had an approximate 14% share of this market, based on days of therapy on a rolling 12-month basis. Our sales and marketing efforts are led by our in-house marketing team and our acute care sales force. See "Manufacturing and Supply" section of this Item 1 below for additional information regarding our methods of distribution.

ANDA Notification/Patent Litigation in U.S.

        In August 2013, we received a Paragraph IV Certification Notice Letter from Strides, Inc., on behalf of Agila Specialties Private Limited, collectively Strides, notifying us that Strides had submitted an Abbreviated New Drug Application, or ANDA, to the FDA seeking approval to market a generic version of CUBICIN. Strides' notice letter advised that it is seeking FDA approval to market daptomycin for injection. In October 2013, we filed patent infringement lawsuits against Strides in response to its ANDA filing. See the "Intellectual Property Portfolio" section of this Item 1 for additional information.

        In February 2012, we received a Paragraph IV Certification Notice Letter from Hospira, Inc., or Hospira, notifying us that it had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN, and in May 2012, we received a second Paragraph IV Certification Notice Letter from Hospira notifying us that it had submitted to the FDA an amendment to its ANDA. In August 2012, we received a third Paragraph IV Certification Notice Letter from Hospira notifying us that it had submitted an NDA, to the FDA seeking approval to market a generic version of CUBICIN. In March 2012, we filed a patent infringement lawsuit against Hospira in response to its ANDA filing, and in July 2012, we filed a new complaint against Hospira in response to Hospira's amendment to its ANDA filing. In September 2012, we filed a patent infringement complaint against Hospira in response to its NDA filing. Our patent infringement lawsuit against Hospira for trial in Delaware began in February 2014. See the "Intellectual Property Portfolio" section of this Item 1 for additional information.

        In April 2011, we entered into a settlement and license agreement, or settlement agreement, with Teva Parenteral Medicines Inc., or Teva, and its affiliates to resolve patent infringement litigation with respect to CUBICIN. We originally filed a patent infringement lawsuit against Teva in March 2009 in response to a February 2009 notification to us by Teva that it had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN. See the "Intellectual Property Portfolio" section of this Item 1 for additional information.

International Markets

        Following its U.S. launch, CUBICIN has received regulatory approvals in many markets outside the U.S., including the EU, and Japan, with indications generally similar to the approved indications in

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the U.S. As of December 31, 2013, CUBICIN was commercially available in more than 50 countries. We have established distribution agreements with other companies for commercialization of CUBICIN in these ex-U.S. countries.

        Outside of the U.S., where outpatient infusion is a less-established practice, the use of CUBICIN is primarily in the hospital setting. Our revenues from sales of CUBICIN by our international partners were up 16% in 2013 compared to 2012. Our total international revenues are primarily based on sales of CUBICIN by Novartis AG, or Novartis, our alliance partner in the EU. In addition to the EU, Novartis has rights to develop, market and sell CUBICIN in Australia, New Zealand, India, and certain Central American, South American and Middle Eastern countries. Unless terminated earlier, in accordance with its terms, our license agreement with Novartis' subsidiary expires on the later of: (a) expiration of the last-to-expire of the CUBICIN patents owned by us or jointly-owned by us and Novartis' subsidiary; (b) the date on which there no longer exists a claim of a pending CUBICIN patent application owned by us or jointly-owned by us and Novartis' subsidiary; and (c) the earlier of: (i) generic daptomycin sales reaching 30% of the total market share for all daptomycin sales in Novartis' territory, and (ii) June 30, 2020. AstraZeneca AB has rights to develop, market and sell CUBICIN in China as well as more than 100 additional countries around the world, and Merck & Co., Inc., or Merck, through its wholly-owned subsidiary, MSD Japan, has rights to develop, market and sell CUBICIN in Japan. Other international partners for CUBICIN include Medison Pharma, Ltd. for Israel, Sunovion Pharmaceuticals, Inc. for Canada, TTY BioPharm for Taiwan, and Kuhnil Pharma Co., Ltd. for South Korea. Each distribution partner is responsible for seeking regulatory approvals to market CUBICIN and for selling and marketing CUBICIN in its territory. We are responsible for manufacturing and supplying CUBICIN to our partners in exchange for a transfer price and, for most of our partners, a possible additional royalty.

Medical Need

        The growth in prevalence of drug-resistant bacterial pathogens has led to increased mortality rates, prolonged hospitalizations, and increased health care costs. The resistant organisms have emerged from both the Gram-positive and Gram-negative classes of bacteria. Gram-positive bacteria are differentiated from Gram-negative bacteria by the differences in the structure of the bacterial cell wall. These differing cellular structures greatly affect the ability of an antibiotic to penetrate the bacterium and reach its target site.

        CUBICIN's spectrum includes activity against strains of Gram-positive pathogens that are both susceptible and resistant to other antibiotic therapies. In particular, CUBICIN is potent and rapidly bactericidal in vitro against isolates of S. aureus that are both susceptible and resistant to other antibiotics. According to the most recent surveillance study, more than 99.9% of strains of S. aureus were susceptible to daptomycin, consistent with surveillance studies conducted since daptomycin was launched in 2003.

Clinical Development

        We continue to undertake research and development in seeking to add to the medical knowledge regarding CUBICIN. We also conduct post-marketing research agreed to with the FDA, such as a study of CUBICIN in renally-compromised patients and pediatric studies in cSSSI and bacteremia that are part of a commitment under the Pediatric Research Equity Act. In addition, we are conducting pediatric studies that may be sufficient to obtain an additional six months of U.S. market exclusivity for CUBICIN. If such exclusivity is obtained, the non-exclusive, royalty-free license to sell a generic daptomycin for injection product in the U.S. that we granted to Teva as part of our settlement of our patent litigation with Teva, will begin on June 24, 2018, rather than December 24, 2017. See the "Intellectual Property Portfolio" section of this Item 1 for additional information.

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Source of Rights

        We have acquired and exclusively licensed certain patent rights and other know-how and technology from Eli Lilly related to the composition, manufacture, and/or use of daptomycin. To date, under our agreements with Eli Lilly through which we acquired these rights, we have made payments to Eli Lilly of $1.2 million for milestones, which were paid in our common stock. In addition, we have issued to Eli Lilly an aggregate $28.0 million of our common stock in consideration for certain low single-digit reductions in the royalty rates payable to Eli Lilly. As of December 31, 2013 we have paid Eli Lilly $588.6 million for royalties on sales of CUBICIN, which were paid in cash. Unless terminated earlier, our license agreement with Eli Lilly expires on the later of: (a) the expiration of the last-to-expire of the patents acquired or licensed under the agreement; and (b) the end of the tenth year from the date of first sale of CUBICIN in any of the U.S., Canada, Japan, the United Kingdom, or UK, Germany, France, Italy, Spain, Switzerland, Netherlands or Belgium in which know-how royalties are due under the agreement.

DIFICID

        DIFICID is a macrolide antibiotic for the treatment of CDAD. We acquired rights to DIFICID in connection with our acquisition of Optimer in October 2013. Optimer launched DIFICID in the U.S. in July 2011. We co-promoted DIFICID with Optimer from the product's launch until completion of our acquisition of Optimer. We began direct marketing of DIFICID in the U.S. and Canada following completion of the acquisition. See Note D., "Business Combinations and Acquisitions," in the accompanying notes to consolidated financial statements for additional information.

U.S. Markets

        DIFICID is approved in the U.S. for the treatment of CDAD. CDAD represents a large, growing market opportunity. In the U.S. Clostridium difficile, or C. difficile, has been linked to more than 14,000 deaths per year. In addition, deaths related to Clostridium difficile in the U.S. increased 400% from 1999 to 2010, resulting in the U.S. Center for Disease Control listing Clostridium difficile as one of three pathogens that represent an "immediate public health threat that requires urgent and aggressive action." Our sales and marketing efforts are led by our in-house marketing team and our acute care sales force.

International Markets

        DIFICID is approved in Europe (where it has the trade name DIFICLIR®), Australia and Canada, for the treatment of adults suffering from Clostridium difficile-infection, or CDI. Our acute care hospital sales organization in Canada promotes DIFICID. Outside of the U.S. and Canada and prior to our acquisition, Optimer entered into exclusive agreements for the development and commercialization of fidaxomicin in various international markets, including with Astellas Pharma Europe Ltd., or Astellas Pharma Europe, for Europe, Astellas for Japan, AstraZeneca UK Limited for Latin America, and Specialised Therapeutics Australia Pty. Ltd. for Australia and New Zealand.

Medical Need

        CDAD is a serious illness resulting from infection of the inner lining of the colon by C. difficile bacteria that produce toxins causing inflammation of the colon, severe diarrhea and, in the most serious cases, death. Patients typically develop CDAD after the use of broad-spectrum antibiotics that disrupt normal GI flora, thus allowing C. difficile bacteria to flourish and produce toxins. C. difficile is a spore-forming bacterium, creating spores excreted in the environment of the patients that can survive for months on dry surfaces in hospital rooms such as beds and doors, and can contaminate other patients

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by fecal-oral transmission through the hands of healthcare workers. The risk of CDAD recurrence is 20% after an initial episode, and doubles to 40% after a first recurrence.

Clinical Development

        In 2012, Optimer initiated two new clinical studies of DIFICID. The first is a Phase 2a open-label, uncontrolled, safety, tolerability and pharmacokinetic study in pediatric subjects with CDAD. This study is intended to recruit 32 subjects ranging in age from six months to 18 years. The second study initiated in October 2012 is a Phase 3b, multicenter, randomized, double-blind, controlled clinical trial comparing fidaxomicin to a placebo in the prevention of CDAD in subjects undergoing hematopoietic stem cell transplantation and receiving fluoroquinolone prophylaxis.

Source of Rights

        Optimer repurchased certain rights from Par Pharmaceutical, Inc., or Par, related to the development and commercialization of fidaxomicin under a prospective buy-back agreement. Under the buy-back agreement, we are obligated to pay Par a single-digit royalty on certain worldwide net sales of fidaxomicin and on certain net revenues received from third parties in countries outside of the U.S., Canada and Israel. We are obligated to pay the net sales royalties on a country-by-country basis for seven years following the applicable commercial launch in each such country and to pay the net revenues royalties for seven years following the first commercial launch in any such country. See Note C., "Business Agreements," in the accompanying notes to consolidated financial statements for additional information.

ENTEREG

        ENTEREG is an oral, peripherally-acting mu opioid receptor antagonist. We acquired rights to ENTEREG in connection with our acquisition of Adolor in December 2011. ENTEREG is indicated in the U.S. to accelerate upper and lower GI recovery following surgeries that include partial bowel resections with primary anastomosis. Adolor launched ENTEREG in the U.S. in June 2008 in collaboration with Glaxo. Adolor reacquired all commercialization rights to ENTEREG from Glaxo in September 2011. See the "Source of Rights" section of this Item 1 for additional information. ENTEREG is not approved for sale outside the U.S.

U.S. Markets

        There are more than 4,000 hospitals in the U.S. that perform bowel resection surgeries, with approximately 1,600 hospitals collectively performing approximately 80% of such surgeries. Our U.S. acute care hospital sales organization promotes ENTEREG. ENTEREG was approved by the FDA subject to a Risk Evaluation and Mitigation Strategy, or REMS, and the product labeling currently carries a boxed warning restricting ENTEREG to only short-term (15 doses) use in hospitalized patients. The REMS is designed to maintain the benefits associated with short-term use in the bowel resection population and prevent long-term, outpatient use. Under the REMS, ENTEREG is available only to hospitals that perform bowel resection surgeries and that are enrolled in the ENTEREG Access Support and Education, or E.A.S.E.®, program.

Medical Need

        The impairment of GI motility after intra-abdominal surgery can be associated with abdominal distension and bloating, persistent abdominal pain, nausea and vomiting, delayed passage of a stool or an inability to pass flatus (gas) and an inability to intake a solid food diet. Delayed GI recovery following bowel resection surgery can postpone hospital discharge until its resolution, resulting in an increased cost burden on hospitals.

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Clinical Development

        The FDA recently completed a post-marketing drug safety evaluation, or PDSE, of ENTEREG to identify any new serious adverse events not previously observed during the development of ENTEREG, highlight any known side effects reported in unusual numbers or report potential new safety concerns now that ENTEREG is being used in the general population. The FDA concluded that the PDSE did not require any changes to the ENTEREG label.

        Adolor began a Phase 4 clinical trial in 2009 to satisfy an FDA post-approval requirement to evaluate the safety and efficacy of ENTEREG in patients undergoing radical cystectomy. Radical cystectomy involves extensive resection of abdominal and pelvic structures, including the bowel, resulting in patients being at high risk of delayed GI recovery. In April 2012, we announced that this clinical study met its primary endpoint of time to achieve recovery of both upper and lower GI function. In October 2013, we received a label expansion for the use of ENTEREG to accelerate the time to upper and lower GI recovery following surgeries that include partial bowel resections with primary anastomosis (i.e., re-connection of the bowel following removal of the resected segment). In addition, consistent with FDA regulations and the ENTEREG approval letter, two pediatric Phase 4 clinical trials are required. We expect the first of these studies to be initiated during 2014; however, we expect to have further discussions with the FDA with respect to this program prior to its initiation.

Source of Rights

        In November 1996, Roberts Laboratories Inc., or Roberts, licensed from Eli Lilly worldwide intellectual property rights relating to ENTEREG. Adolor entered into an option and license agreement with Roberts in June 1998 under which Adolor sublicensed these rights from Roberts. In December 2000, Shire became the successor-in-interest to Roberts. We assumed the obligations to pay, in the aggregate, single-digit royalties on net sales of ENTEREG to Shire and Eli Lilly under the respective agreements as a result of our acquisition of Adolor. The option and license agreement with Shire and the license agreement with Eli Lilly remain in effect through the last to expire of the licensed Eli Lilly patents. See Note C., "Business Agreements," in the accompanying notes to consolidated financial statements for additional information.

        In April 2002, Adolor entered into a collaboration agreement with Glaxo, in which Glaxo received exclusive, worldwide rights to develop and commercialize ENTEREG for certain indications. In June 2011, Glaxo and Adolor entered into a termination agreement whereby Adolor reacquired Glaxo's rights to ENTEREG in exchange for Adolor's agreement to pay Glaxo: i) $25.0 million, of which $2.5 million was paid by Adolor prior to being acquired by us; ii) tiered, single-digit royalties on annual net sales of ENTEREG in the U.S., subject to reductions based upon certain conditions; and iii) a one-time milestone of $15.0 million upon achievement of a predetermined level of sales in the U.S. in a given year. Effective September 1, 2011, Adolor assumed all responsibilities related to the commercialization of ENTEREG. In December 2011, we assumed the obligations owed to Glaxo and all responsibilities related to the commercialization of ENTEREG as a result of the acquisition of Adolor. We have made total payments of $6.5 million of the $22.5 million payment due to Glaxo, and the remaining $16.0 million is payable in four installments over the next four years.

Late-Stage Product Candidates

Tedizolid phosphate

        Tedizolid phosphate is a novel antibiotic product candidate for the potential treatment of certain serious Gram-positive bacterial infections, including those caused by MRSA. We acquired rights to tedizolid phosphate in connection with our acquisition of Trius in September 2013. In October 2013, we submitted an NDA to the FDA seeking approval of tedizolid phosphate for the treatment of ABSSSI. In December 2013, the FDA accepted our NDA with Priority Review and assigned a PDUFA action

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date in June 2014. We plan to file an MAA with the EMA in the first half of 2014. We are also developing tedizolid phosphate as a potential treatment for HABP and VABP and expect to begin a Phase 3 clinical trial to assess the safety and efficacy of tedizolid phosphate in HABP/VABP in the first half of 2014. The FDA previously designated tedizolid phosphate as a QIDP for its potential ABSSSI, HABP, and VABP indications in each of the I.V. and oral dosage forms. As a result of this designation, tedizolid phosphate is eligible for certain incentives, including, if tedizolid phosphate is ultimately approved by the FDA, a five-year extension of Hatch-Waxman exclusivity, which is described in more detail below under the "Intellectual Property Portfolio" and "Government Regulation" sections of this Item 1. See Note C., "Business Agreements," and Note F., "Fair Value Measurements," in the accompanying notes to consolidated financial statements for additional information.

Source of Rights

        Trius licensed exclusive worldwide rights, excluding North and South Korea, to develop, manufacture, and market tedizolid phosphate from Dong-A under a January 2007 license agreement. As a result of acquiring Trius, we acquired these rights and assumed obligations under the license agreement to pay Dong-A remaining milestone payments of up to $11.5 million if certain development and regulatory approval milestones are achieved. As of December 31, 2013, we have an obligation to make remaining milestone payments to Dong-A of up to $8.5 million. In addition, we are obligated to pay Dong-A tiered single-digit royalties on worldwide net sales of tedizolid phosphate on a country-by-country basis, excluding North and South Korea, until the later of: (i) 12 years after the date of the first commercial sale of tedizolid phosphate in such country; and (ii) the expiration of the last to expire patent covering tedizolid phosphate in such country. The license agreement terminates upon the expiration of all of the royalty obligations under the agreement. We may terminate the license agreement if we decide to discontinue development or commercialization of licensed products and Dong-A may terminate the license agreement if we fail to meet certain specified development and commercialization obligations within specified time periods. See Note C., "Business Agreements," in the accompanying notes to consolidated financial statements for additional information.

Ceftolozane/tazobactam

        Ceftolozane/tazobactam is an I.V. antibacterial product candidate consisting of ceftolozane, a novel anti-pseudomonal cephalosporin, with tazobactam, a well-established beta-lactamase inhibitor. We acquired rights to ceftolozane/tazobactam in connection with our acquisition of Calixa in December 2009. We are developing ceftolozane/tazobactam as a potential therapy for the treatment of certain serious Gram-negative bacterial infections in the hospital, including those caused by multi-drug-resistant Pseudomonas aeruginosa and extended-spectrum beta-lactamase producing strains of bacteria such as Escherichia coli and Klebsiella. 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. We plan to file an NDA with the FDA for the cUTI and cIAI indications in the first half of 2014, and subsequently file an MAA with the EMA for both indications in the second half of 2014. We are also developing ceftolozane/tazobactam as a potential treatment for HABP and VABP and expect to begin a pivotal, Phase 3 clinical trial to assess the safety and efficacy of ceftolozane/tazobactam in HABP/VABP in 2014. See Note C., "Business Agreements," and Note F., "Fair Value Measurements," in the accompanying notes to consolidated financial statements for additional information.

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Source of Rights

        Under our license agreement with Astellas, as amended, we have exclusive, worldwide rights to develop, manufacture and commercialize any products that incorporate ceftolozane, including ceftolozane/tazobactam. Under the agreement, we are obligated to make remaining milestone payments to Astellas that could total up to $40.0 million if certain specified development, regulatory and sales events are achieved with respect to such products. In addition, if ceftolozane/tazobactam is successfully developed and commercialized, we are obligated to pay Astellas tiered single-digit royalties on net sales of such products.

Surotomycin

        Surotomycin is an oral lipopeptide product candidate with rapid in vitro bactericidal activity against C. difficile. We initiated Phase 3 clinical trials of surotomycin in July 2012. Current therapeutic options for treating CDAD, which include our marketed product, DIFICID, are limited. The risk of CDAD recurrence is 20% after an initial episode, and doubles to 40% after a first recurrence. Although DIFICID offers an improvement in sustained clinical response, we believe that alternative agents are needed.

Source of Rights

        We internally discovered surotomycin. As a result, we are not obligated to make milestone payments or pay sales-based royalties in the event surotomycin is successfully developed or commercialized.

Bevenopran

        Bevenopran is an oral, peripherally-acting mu opioid receptor antagonist product candidate. We acquired rights to bevenopran in connection with our acquisition of Adolor in December 2011. It is currently in development for the treatment of OIC in patients with chronic, non-cancer pain, for which there is currently only one FDA-approved therapy. Mu opioid receptors in the GI tract (characterized as peripheral mu opioid receptors as they reside outside the central nervous system) regulate functions such as motility, secretion and absorption. Stimulation of these GI mu opioid receptors by morphine, or other opioid analgesics, disrupts normal gut motility resulting in non-propulsive contractions of the bowel wall, ultimately delaying transit time of intestinal contents. This is the primary mechanism underlying OIC. We initiated Phase 3 efficacy trials in patients with OIC and chronic non-cancer pain in July 2013. During the fourth quarter of 2013, we decided to stop these 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. Based upon the outcome of the Advisory Committee meeting, we may reevaluate whether to proceed with any new Phase 3 efficacy trials, and the design of such trials. Enrollment in the Phase 3 long-term safety study we initiated in October 2012 was completed in February 2014. We expect to complete the study in the first half of 2015.

Source of Rights

        Adolor acquired exclusive worldwide rights to bevenopran from Eli Lilly for an upfront payment, milestone payments that are contingent upon achievement of pre-defined, late-stage clinical and regulatory events and achievement of certain sales targets, and single-digit royalties on net sales of the product. We assumed the obligation to pay these milestones and royalties upon our acquisition of Adolor. See Note C., "Business Agreements," in the accompanying notes to consolidated financial statements for additional information.

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Research and Development Expenditures

        Our research and development expenditures, which include research and development related to our marketed products and product candidates, were $477.7 million, $277.7 million and $184.5 million in 2013, 2012 and 2011, respectively.

Significant Customers

        The following table sets forth our net revenues from our three largest customers as a percentage of total net revenues for the periods presented:

Competition

CUBICIN

        Competition in the market for therapeutic products that address serious Gram-positive bacterial infections is intense. CUBICIN faces competition in the U.S. from other commercially-available drugs such as: vancomycin, marketed generically by Abbott Laboratories, or Abbott, Shionogi & Co., Ltd., or Shionogi, and others; Zyvox®, or Zyvox, marketed by Pfizer, Inc., or Pfizer; Synercid®, or Synercid, marketed by King Pharmaceuticals, Inc., or King, a wholly-owned subsidiary of Pfizer; Tygacil®, or Tygacil, marketed by Wyeth Pharmaceuticals, Inc., or Wyeth, also a wholly-owned subsidiary of Pfizer; VIBATIV™ (telavancin), or VIBATIV, which is being marketed in the U.S. by Theravance, Inc., or Theravance; and Teflaro®, or Teflaro, which is marketed by Forest Laboratories, Inc., or Forest. In particular, vancomycin has been a widely-used and well-known antibiotic for more than 50 years and is sold in a relatively inexpensive generic form. Vancomycin sales account for 70% of sales in this market, based on days of therapy.

        In addition, CUBICIN is expected to face competition in the U.S. from a generic version of CUBICIN, marketed by 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 the ANDA or NDA of Hospira or the NDA of Strides is ultimately approved or their generic versions of CUBICIN otherwise come to market or a third party files an ANDA or NDA that is ultimately approved or its generic version of CUBICIN otherwise comes to market. See the "Intellectual Property Portfolio" section of this Item 1 for additional information.

        CUBICIN may also face competition in the future from several product candidates currently in clinical development as treatments for cSSSI, or ABSSSI, as this indication is now referred to by the FDA.

DIFICID

        DIFICID faces competition in the U.S. from other commercially available drugs for the treatment of CDAD, such as Vancocin® (oral vancomycin), marketed by ViroPharma Incorporated, which is also available in an inexpensive generic form, as well as Flagyl® (metronidazole), marketed by Pfizer and Sanofi-Aventis, which is also available in an inexpensive generic form. DIFICID may also face competition from fecal microbiota transplantation, or FMT, an experimental CDAD treatment that is becoming increasingly used.

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ENTEREG

        Currently, ENTEREG is the only FDA-approved product indicated for the acceleration of 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.

Intellectual Property Portfolio

        We seek to protect our novel compounds, cloned targets, expressed proteins, assays, organic synthetic processes, screening technology and other technologies by, among other things, filing, or causing to be filed on our behalf, patent applications. Except as specifically noted below, the patent rights described below may be subject to potential patent term extensions and/or supplemental protection certificates extending patent rights in countries where such extensions may become available. For example, in the U.S. under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which is described in more detail below under the "Government Regulation" section of this Item 1, a portion of the patent term lost during product development and FDA review of an NDA or an application under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FD&C Act, is restored if approval of the application is the first permitted commercial marketing of a drug containing the active ingredient. The patent term extension period is generally one-half the time between the effective date of the Investigational New Drug Application, or IND, and the date of submission of the NDA, plus the time between the date of submission of the NDA and the date of FDA approval of the product. The maximum period of patent term extension is five years, and the patent cannot be extended to more than 14 years from the date of FDA approval of the product. Only one patent claiming each approved product is eligible for the patent term extension.

        As of January 31, 2014, we and our subsidiaries owned or co-owned 54 issued U.S. patents, 88 pending U.S. patent applications, 237 issued foreign patents and 270 pending foreign patent applications. Not included in these totals are the patents and patent applications that we exclusively license. Additional patent filings relating to our product and product candidates described below may be made in the future.

        Our trademarks, CUBICIN, DIFICID, ENTEREG and Cubist, are covered by registrations or pending applications for registration in the U.S. Patent and Trademark Office, or PTO, and in other countries.

CUBICIN

        We have acquired exclusive rights from Eli Lilly related to the composition, manufacture, and/or use of daptomycin, the active ingredient in CUBICIN. The primary composition of matter patent covering daptomycin in the U.S. has expired; however, currently there are seven issued U.S. patents that we own that cover the drug product, manufacture, and/or administration or use of daptomycin. These patents and their expiration dates are as follows:

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        We have additional patents related to the composition, manufacture and/or use of daptomycin in Europe, which expire at various times through January 2021. In addition, we have filed a number of patent applications relating to the composition, manufacture, administration and/or use of daptomycin and/or other lipopeptides.

        In August 2013, we received 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. Strides' notice letter advised that it is seeking FDA approval to market daptomycin for injection, 500 mg/vial, prior to the expiration of U.S. Patent Nos. 6,468,967; 6,852,689; 8,058,238; 8,129,342; and 8,003,673, which expire on the periods described above and are each listed in the FDA's list of "Approved Drug Products with Therapeutic Equivalence Evaluations" (commonly referred to as the Orange Book). The notice letter further stated that Strides is asserting that each claim in the respectively referenced patents is invalid, and/or unenforceable and/or will not be infringed by the commercial manufacture, use, sale, offer to sell in the U.S., or importation into the U.S. of the drug product described by Strides' ANDA. In response to Strides' ANDA filing, we filed patent infringement lawsuits against Strides in October 2013 in the U.S. District Court for the District of Delaware and the U.S. District Court for the District of New Jersey. We later filed a notice of dismissal of the complaint we filed in the District of New Jersey and the case was subsequently terminated. The remaining complaint we filed in the District of Delaware alleges infringement of U.S. Patent Nos. 6,468,967; 6,852,689; 8,058,238; and 8,129,342. The complaint seeks: (i) an order preventing the effective date of the FDA's approval of Strides' ANDA until the expiration of the patents in the respective lawsuits; (ii) an order preventing Strides from making, using, selling, offering for sale, marketing, distributing or importing Strides' generic version of CUBICIN until the expiration of the patents in the respective lawsuits; and (iii) an award of attorney's fees. By statute, the FDA is automatically prohibited from approving Strides' ANDA for 30 months from our receipt of Strides' Paragraph IV notification letter, unless the court enters a judgment finding the patents invalid, unenforceable or not infringed before the expiration of the 30-month period or otherwise shortens the 30-month period. Although we are confident in our intellectual property portfolio protecting CUBICIN, including the patents listed in the Orange Book, we cannot predict the outcome of this matter. Any final, unappealable adverse result in this litigation would likely have a material adverse effect on our results of operations and financial condition.

        In February 2012, we received a Paragraph IV Certification Notice Letter from Hospira, notifying us that Hospira had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN. Hospira's notice letter advised that it is seeking FDA approval to market daptomycin for injection, 500 mg/vial, prior to the expiration of U.S. Patent Nos. 6,468,967; 6,852,689; RE39,071; 8,058,238; and 8,003,673, which expire on the periods described above and are each listed in the Orange Book. In May 2012, we received a second Paragraph IV Certification Notice Letter from Hospira notifying us that Hospira had submitted to the FDA an amendment to its ANDA. Hospira's second notice letter advised that it is seeking FDA approval to market daptomycin for injection, 500 mg/vial, prior to the expiration of U.S. Patent No. 8,129,342, which expires on the date described above and is listed in the Orange Book. In August 2012, we received a third Paragraph IV Certification Notice Letter from Hospira notifying us that Hospira had submitted to the FDA an NDA, under Section 505(b)(2) of the FD&C Act, seeking approval to market a generic version of CUBICIN. Hospira's third notice letter advised that it is seeking FDA approval to market daptomycin for injection, 350 mg/vial, prior to the expiration of U.S. Patent Nos. 6,468,967; 6,852,689; RE39,071; 8,058,238; 8,003,673; and 8,129,342, which are listed in the Orange Book. Each of the notice letters further stated that Hospira is asserting that each claim in the respectively referenced patents is invalid, and/or unenforceable and/or will not be infringed by the commercial manufacture, use or sale of the drug product respectively described by Hospira's ANDA, as amended, and NDA. In March 2012, we filed a patent infringement lawsuit against Hospira in response to its initial ANDA filing. In July 2012, we filed a new complaint against Hospira to allege infringement of U.S. Patent No. 8,129,342 in

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response to Hospira's amendment to its ANDA. In September 2012, we filed a patent infringement lawsuit against Hospira in response to its NDA filing. The complaints, which were each filed in the U.S. District Court for the District of Delaware, respectively allege infringement of U.S. Patent Nos. 6,468,967; 6,852,689; RE39,071; 8,058,238; and 8,129,342. The complaints seek: (i) an order preventing the effective date of the FDA's approval of Hospira's ANDA and NDA until the expiration of the patents in the respective lawsuits; (ii) an order preventing Hospira from making, using, selling, offering for sale, marketing, distributing or importing Hospira's generic versions of CUBICIN until the expiration of the patents in the respective lawsuits; and (iii) an award of attorney's fees. By statute, the FDA is automatically prohibited from approving Hospira's ANDA for 30 months from our receipt of Hospira's first Paragraph IV notification letter for such ANDA and from finally approving Hospira's NDA for 30 months from our receipt of Hospira's first Paragraph IV notification letter for such NDA, as respectively applicable, unless the court enters a judgment finding the patents invalid, unenforceable or not infringed before the expiration of the respective 30-month period or otherwise shortens the respective 30-month period. In July 2013, the court endorsed the parties' stipulation that Hospira's ANDA and NDA products infringed certain claims of each the asserted patents. The trial in these related actions began on February 18, 2014. Although we are confident in our intellectual property portfolio protecting CUBICIN, including the patents listed in the Orange Book, we cannot predict the outcome of these litigations. Any final, unappealable adverse result in these litigations would likely have a material adverse effect on our results of operations and financial condition.

        In April 2011, we entered into a settlement agreement with Teva and its affiliates to resolve our patent infringement litigation with respect to CUBICIN that we filed in response to Teva's notification that it had submitted an ANDA to the FDA seeking approval to market a generic version of CUBICIN. The settlement agreement provides for a full settlement and release by both us and Teva of all claims that were or could have been asserted in the patent infringement litigation and all resulting damages or other remedies. Under the settlement agreement, we granted Teva a non-exclusive, royalty-free license to sell a generic daptomycin for injection product in the U.S. beginning on the later of: (i) December 24, 2017; and (ii) if our daptomycin for injection product receives pediatric exclusivity, June 24, 2018. The license we granted to Teva would become effective prior to the later of these two dates if the patents that were the subject of the patent litigation with Teva are held invalid, unenforceable or not infringed with respect to a third party's generic version of daptomycin for injection, if a third party sells a generic version of daptomycin for injection under a license or other authorization from us, or if there are no longer any unexpired patents listed in the Orange Book as applying to our NDA covering CUBICIN. The license is granted under the patents that were the subject of the litigation, any other patents listed in the Orange Book as applying to our NDA covering CUBICIN, and any other U.S. patents that we have the right to license and that cover Teva's generic version of daptomycin for injection. The license terminates upon the expiration, or an unappealed or unappealable determination of invalidity or unenforceability, of all the licensed patents, including any pediatric or other exclusivity relating to the licensed patents or CUBICIN. Two of the three patents that were the subject of the litigation are currently due to expire on September 24, 2019, and the third is due to expire on June 15, 2016. In September 2011, we listed U.S. Patent 8,003,673, which was granted on August 23, 2011, and expires on September 4, 2028, in the Orange Book under our NDA covering CUBICIN. In December 2011, we listed U.S. Patent 8,058,238, which was granted on November 15, 2011, and expires on November 28, 2020, in the Orange Book under our NDA covering CUBICIN. Teva may also sell the generic daptomycin for injection supplied by us at an earlier date upon certain specified types of "at risk" launches of a generic daptomycin for injection product by a third party.

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        The settlement agreement also provides that, for the period that our license to Teva is in effect, Teva will purchase its U.S. requirements of daptomycin for injection exclusively from us. We are required to use commercially reasonable efforts to satisfy Teva's requirements. The supply terms provide that we will receive payments from Teva for product supplied by us reflecting two components: one based on the cost of product revenues plus a margin, and the other based on a specified percentage of gross margin (referred to as net profit in the supply terms) from Teva's sales of daptomycin supplied by us. The supply terms also provide for a forecasting and ordering mechanism, and that Teva will determine the price at which any such daptomycin for injection will be resold and the trademark and name under which it is sold, which may not be confusingly similar to our trademarks. In addition, under the supply terms, Teva may instead supply on its own or from a third party and sell its generic daptomycin for injection product in the event of specified Cubist supply failures or if the arrangement is terminated due to our uncured breach or bankruptcy.

        The settlement agreement will remain in effect until the expiration of the term of the license granted by us to Teva and the expiration of a non-exclusive, royalty-free license granted by Teva to us under any Teva U.S. patent rights that Teva has the right to license and that may be applicable to CUBICIN and the daptomycin for injection product to be supplied by us to Teva. Each of us and Teva may terminate the settlement agreement in the event of a material breach by the other party. In addition, each party may terminate the license granted by it to the other party in the event of a challenge of the licensed patents by the other party. The Federal Trade Commission, or FTC, or the Department of Justice, or DOJ, could seek to challenge our settlement with Teva, or a competitor, customer or other third-party could initiate a private action under antitrust or other laws challenging our settlement with Teva.

DIFICID

        Through our acquisition of Optimer, we have acquired exclusive rights related to the composition, manufacture, and/or use of fidaxomicin, the active ingredient in DIFICID. Currently there are five issued U.S. patents that we own that cover the drug product, manufacture, and/or administration or use of fidaxomicin. These patents and their expiration dates are as follows:

ENTEREG

        Through our acquisition of Adolor, we have acquired exclusive rights from Eli Lilly related to the composition, manufacture, administration and/or use of alvimopan, the active ingredient in ENTEREG. Currently, there are four issued U.S. patents that cover the drug product, manufacture, and/or administration or use of alvimopan. These patents and their expiration dates are as follows:

        In addition to the patents related to ENTEREG, alvimopan is classified as a new chemical entity, or NCE, under the Hatch-Waxman Act.

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Other Patents

        We own or have exclusively licensed the following issued U.S. patents, which cover our late-stage product candidates and expire as follows:

Manufacturing and Supply

        We currently rely on a global network of third party contract manufacturers to manufacture our starting materials, active pharmaceutical ingredients, or APIs, and finished drug products for commercial sale. We also rely on third parties to manufacture our product candidates for clinical trials. Establishing and managing this global supply chain for each of our products and product candidates requires a significant financial commitment, regulatory approvals and the creation and maintenance of numerous third-party contractual relationships. We expect that we will continue for the foreseeable future to rely on third parties, including certain sole source suppliers, to meet all of our commercial and clinical supply needs.

        We have developed systems and processes to track, monitor and oversee our contract manufacturers' activities, including a quality assurance program intended to ensure that our third-party manufacturers comply with current Good Manufacturing Practices, or cGMP. Manufacturing facilities, both foreign and domestic, are subject to inspections by or under the authority of the FDA and other U.S. and foreign government authorities. We regularly evaluate the performance of our third-party manufacturers with the objective of confirming their continuing capabilities to meet our needs efficiently and economically. Important factors that could adversely affect our manufacturing operations are discussed in the "Risk Factors" in Item 1A of Part I of this Annual Report on Form 10-K.

CUBICIN

        We have an exclusive manufacturing and supply agreement with ACS Dobfar SpA, or ACSD, pursuant to which ACSD manufactures and supplies us API for CUBICIN. Under the agreement, we

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are required to purchase a certain percentage of our requirements for CUBICIN API from ACSD, and we pay ACSD for CUBICIN API based upon a volume-based pricing schedule. Our agreement with ACSD is currently set to expire on December 31, 2015, but will extend for an additional two-year term, provided that we negotiate in good faith a revision to the prices charged for CUBICIN API based on ACSD's then current costs to manufacture CUBICIN API unless: (a) the agreement is earlier terminated in accordance with its terms; or (b) we notify ACSD by December 31, 2014, that we do not desire to extend the term. After the initial two-year extension, we may extend the term of the agreement, at our option, for additional two-year extension periods. We expect that ACSD could meet all of our anticipated needs for CUBICIN API for at least the next several years.

        We currently have agreements with two authorized contract manufacturers of the finished CUBICIN drug product to provide fill-finish services as well as an agreement with an additional contract manufacturer to provide packaging and labeling services for the finished CUBICIN drug product. We are currently in the process of establishing additional manufacturing sources of finished CUBICIN drug product, pending successful process validation and regulatory approvals. We and our contract manufacturers also have supply disruption mitigation strategies in place, which include holding inventory levels, qualifying additional vendors for some materials where possible and other contingency plans.

        We distribute CUBICIN in the U.S. in accordance with a drop-ship program under which the majority of our gross sales orders were processed through wholesalers for the year ended December 31, 2013, but shipped directly to our end users, while the remaining orders were processed directly with the customer. This provides us with greater visibility into end user ordering and reordering trends. We use a third-party logistics provider, which exclusively manages our CUBICIN warehousing and inventory program and distributes finished product to our customers. This third-party logistics provider also provides us with order processing, order fulfillment, shipping, collection and invoicing services in support of the drop-ship model. We utilize third party collaboration partners to distribute CUBICIN in various countries outside the U.S.

Other Commercial Products

        We have an exclusive supply agreement for the commercial manufacture of the API in DIFICID and a manufacturing and supply agreement with two third-party suppliers for the commercial manufacture of the API in ENTEREG. In addition, we have commercial manufacturing services agreements with each of the finished drug product manufacturers of DIFICID and ENTEREG. We and our contract manufacturers have supply disruption mitigation strategies in place, which include holding inventory levels and other contingency plans. We may also contract with other contract manufacturers for additional supply of drug substance and drug products for commercial sale, including supply for our partners. We also utilize third-party collaboration partners to distribute DIFICID in various countries outside the U.S.

        We utilize third-party logistics providers to manage our ENTEREG and DIFICID warehousing and inventory programs and distribute finished product to our customers. These third-party logistics providers also provide us with order processing, order fulfillment, shipping, collection and invoicing services in support of the wholesaler stocking model for DIFICID and in support of the drop-ship model for ENTEREG. Upon enrollment in the E.A.S.E. program, hospitals can order ENTEREG through wholesalers and on receipt and verification of the order, our third-party logistics provider will drop-ship ENTEREG directly to the hospital pharmacy.

Product Candidates

        We are currently using third-party suppliers to manufacture drug substance and drug product for clinical trials for all of our product candidates, including tedizolid phosphate, ceftolozane/tazobactam,

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surotomycin and bevenopran and we intend to use third-party suppliers to manufacture commercial supplies if any such product candidates are ultimately approved for commercial sale.

Government Regulation

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

U.S.—FDA Drug Approval Process

Pre-Clinical Testing

        Before beginning testing of any compounds with potential therapeutic value in human subjects in the U.S., stringent government requirements for pre-clinical data must be satisfied. Pre-clinical testing includes both in vitro, and in vivo, or within a living organism, laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. We are required to perform extensive pre-clinical testing on all of our product candidates before initiating human trials.

INDs

        Pre-clinical testing results obtained from in vivo studies in several animal species, as well as from in vitro studies, are submitted to the FDA, or an international equivalent, as part of an IND or equivalent, and are reviewed by the FDA, or an international equivalent, prior to the commencement of human clinical trials. Before we can commence human clinical trials, the pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial clinical studies in human volunteers.

Clinical Trials

        Clinical trials involve the administration of the drug to healthy human volunteers or to patients under the supervision of a qualified investigator pursuant to an FDA-reviewed protocol. Human clinical trials typically are conducted in three sequential phases prior to submitting applications for marketing approval, although the phases may overlap with one another. Clinical trials must be conducted under protocols that detail the objectives of the study, the parameters to be used to monitor safety, and the efficacy criteria, if any, to be evaluated. Each protocol must be submitted to the FDA as part of the IND.

•

Phase 1 clinical trials—test for safety, dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical pharmacology and, if possible, to gain early evidence regarding efficacy.



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



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Phase 3 clinical trials—consist of expanded, large-scale studies of patients with the target disease or disorder to obtain definitive statistical evidence of the efficacy and safety of the proposed product and dosing regimen.



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Phase 4 clinical trials—conducted after a product has been approved. These trials can be conducted for a number of purposes, including to collect long-term safety information or to collect additional data about a specific population. As part of a product approval, including the approvals of CUBICIN, DIFICID and ENTEREG, the FDA may require that certain Phase 4 studies, which are called post-marketing commitment studies, be conducted post-approval.

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Good Clinical Practices

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

NDA/BLA

        All data obtained from a comprehensive development program including research and product development, manufacturing, pre-clinical and clinical trials and related information are submitted in an NDA to the FDA and in similar regulatory filings with the corresponding agencies in other countries for review and approval. In certain circumstances, this information is submitted in a Biologics License Application, or BLA. In addition to reports of the trials conducted under the IND, the NDA or BLA includes information pertaining to the preparation of the new drug, analytical methods, details of the manufacture of finished products and proposed product packaging and labeling. The submission of an application is not a guarantee that the FDA will find the application complete and accept it for filing. The FDA may refuse to file the application and request additional information rather than accept the application for filing, in which case, the application must be resubmitted with the supplemental information. Once an application is accepted for filing, the FD&C Act requires the FDA to review the application within 180 days of its filing, although in practice, longer times may be required. In some cases, the FDA may decide to expedite the review of new drugs that are intended to treat serious or life threatening conditions and demonstrate the potential to address unmet medical needs. As part of its review, the FDA may refer the application to an advisory committee for evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee; however, historically, it has followed such recommendations. The FDA may determine that a REMS is necessary to ensure that the benefits of a new product outweigh its risks. If required, a REMS may include various elements, such as publication of a medication guide, patient package insert, a communication plan to educate health care providers of the drug's risks, limitations on who may prescribe or dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug, any of which could negatively impact the commercial success of a drug.

        In reviewing a BLA or NDA, the FDA may grant marketing approval, deny the application if it determines the application does not provide an adequate basis for approval or again request additional information. Even if such additional information and data are submitted, the FDA may ultimately decide that the BLA or NDA does not satisfy the criteria for approval. The receipt of regulatory approval often takes a number of years, involving the expenditure of substantial resources, and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. The FDA may require, as a condition of approval, restricted distribution and use, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials or restrictions on direct-to-consumer advertising, any of which could negatively impact the commercial success of a drug.

Adverse Event Reporting

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

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Hatch-Waxman Act

        In the U.S., the Hatch-Waxman Act made a complex set of changes to both patent and drug approval laws. In particular, the Hatch-Waxman Act authorizes the FDA to approve generic versions of innovative pharmaceuticals (excluding biologics) through ANDA filings. In an ANDA, the generic manufacturer must demonstrate only "bioequivalence" between the generic version and the NDA-approved drug, not safety and efficacy, thus eliminating the need for the ANDA applicant to conduct costly and lengthy clinical trials in humans.

        The Hatch-Waxman Act also amended the FD&C Act to provide five years of exclusivity for a drug that contains an NCE. This means that an ANDA applicant cannot submit an ANDA for a drug containing an NCE (such as CUBICIN or ENTEREG) until five years after approval of the NDA, unless there is a patent challenge. In addition, unless there is a patent challenge, the FDA cannot approve an ANDA for the same indication as the approved NCE until after the innovator's patents on the NCE and the approved indication expire.

        The Hatch-Waxman Act requires NDA applicants and NDA holders to provide certain information about patents related to the drug for listing in the Orange Book. ANDA applicants who seek to reference an innovative pharmaceutical product must then certify regarding each of the patents listed with the FDA for the reference product. A certification that a listed patent is invalid or will not be infringed by the marketing of the applicant's product is commonly called a "Paragraph IV certification."

        After the FDA receives an ANDA and determines that the ANDA is substantially complete, the FDA will send a letter informing the applicant that the ANDA has been "received by FDA." The ANDA applicant then has 20 days from the date of the FDA's letter to send a notification to the NDA holder and the owner of the Orange Book listed patents informing them that an ANDA has been submitted. That notification must provide a detailed factual and legal basis for the ANDA applicant's conclusion that the patents that are the subject of the paragraph IV certifications are invalid, unenforceable or not infringed. The NDA holder then has 45 days from receipt of this notification to file an action for patent infringement. If a patent lawsuit is filed within the 45-day period, the FDA may not approve the ANDA for a period of 30 to 42 months (depending on the submission date of the ANDA), unless the ANDA applicant prevails in the patent litigation sooner or the trial court judge extends or shortens this period. If the ANDA is submitted to the FDA between years four and five of the five-year exclusivity period, the 30-month stay of approval for patent litigation is extended by whatever additional period is necessary to equal seven and one-half years from the date of NDA approval.

        The Hatch-Waxman Act also provides a three-year exclusivity period for studies containing the results of new clinical investigations (other than bioavailability studies) that are essential to the FDA's approval of new uses of approved products, such as new indications, dosage forms, strengths, or conditions of use.

Pediatric Exclusivity

        Section 505A of the FD&C Act provides for six months of additional exclusivity or patent protection based on the submission of pediatric data subsequent to a written request from the FDA. The data does not need to show efficacy in the pediatric population studied; rather, if the trial is deemed to fairly respond to the request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, this period of exclusivity is added to whatever statutory or regulatory periods of exclusivity or Orange Book listed patent protection cover a pioneer drug. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve an ANDA or 505(b)(2) application owing to regulatory exclusivity or listed patents.

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Ex-U.S. Regulations

        We are also subject to regulations and oversight in countries outside of the U.S. with respect to: clinical studies; marketing; product manufacturing; advertising and promotion; pricing and reimbursement; distribution; and safety reporting of medicinal products, which vary from country to country. In general, our ability to market a product in other countries is dependent upon obtaining a marketing authorization from the country's regulatory authority. A marketing authorization is typically received if the regulatory agency is satisfied that we have presented sufficient evidence of safety, efficacy and quality in support of our product.

        For example, under EU regulatory approval schemes, we may submit a marketing authorization application under either a centralized, decentralized, mutual recognition or national procedure. The centralized procedure is mandatory for certain medicinal products, including orphan drug products and advanced therapy medicinal products and optional for other products, where a single MAA is reviewed by EMA. Authorization under the centralized procedure is recognized by all EU and European Economic Area member states. The decentralized procedure allows applicants to file applications to several EU member states in parallel and receive simultaneous authorizations based on recognition of an assessment by a reference member state. Under mutual recognition, EU member states may accept or reject the decision of a reference EU member state. The national procedure requires separate applications to each EU member state and authorization is only valid in that member state.

        Prior to submitting an MAA for a new medicinal product in the EU, a company must first obtain EMA agreement of a Pediatric Investigation Plan, or PIP. The PIP describes the pediatric development of a product and may impose certain quality, non-clinical and clinical activity requirements onto us. The PIP will also define the age ranges of the children for whom the product must be developed and the time lines to which we must adhere. The PIP can be modified as new information is obtained. The incentives for completing the PIP include a six month extension of the term of the supplementary protection certificate, the European equivalent of a patent term extension.

        In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use. A member state may approve a specific price or level of reimbursement for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market.

Good Manufacturing Practices

        We must adhere to cGMP and product-specific regulations enforced by the FDA, the European Commission, EMA, and the competent authorities of EU Member States following product approval. The FDA, the EMA, the competent authorities of the EU Member States and other regulatory agencies also conduct regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our equipment, facilities, or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal, or administrative sanctions and/or remedies against us, including the suspension of our manufacturing operations, the withdrawal of our product from the market or suspension of the marketing authorizations granted for our products.

Pricing and Reimbursement Regulation

        In the U.S. and internationally, sales of CUBICIN, DIFICID, ENTEREG and other products that we may market in the future, and our ability to generate revenues on such sales, are dependent, in significant part, on the availability and level of reimbursement from third-party payors such as state and

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federal governments, private insurance plans, and managed care organizations, or MCOs. The National Bureau of Economic Research estimates that more than 75% of privately insured individuals in the U.S. are enrolled in some type of managed care program. MCOs can include health-maintenance organizations, medical insurance companies, medical plan administrators, Medicare prescription drug plans, and hospital and physician groups. As these organizations continue to consolidate, their ability to negotiate larger discounts from manufacturers, including us, is strengthened.

        In addition, particularly in the U.S. and increasingly in other countries, we are required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities. Various provisions of the U.S. health care reform legislation enacted in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education reconciliation Act of 2010, collectively referred to as the Affordable Care Act or health care reform, increased the levels of rebates and discounts that we have to provide in connection with sales of our products that are paid for, or reimbursed by, certain state and federal government agencies and programs. It is possible that future legislation in the U.S. and other jurisdictions could be enacted, which could potentially impact the reimbursement rates for CUBICIN, DIFICID, ENTEREG and the products we are developing and may develop and/or market in the future and also could further impact the levels of discounts and rebates we are required to pay to federal and state government entities. The most significant governmental reimbursement and discount programs with respect to our marketing activities are described below.

Medicare Part A

        Medicare Part A pays for inpatient hospital services under a prospective payment system in which cases are grouped into Medicare Severity Diagnosis Related Groups, or MS-DRGs, and the amount of the single Medicare payment for an inpatient stay depends upon the applicable MS-DRG. Medicare Part A applies to inpatient episodes of care for CUBICIN, DIFICID and ENTEREG patients covered by Medicare and is responsible for reimbursement to hospitals of a large proportion of the annual sales volume of those products. The applicable MS-DRG can vary based on the condition of the patient. Most drugs, including CUBICIN, DIFICID and ENTEREG, are not subject to separate billing under Medicare Part A. For this reason, and because inpatient MS-DRG rates have generally been increased annually, the sensitivity of hospitals to drug prices has not been as great as it has for other providers. However, hospitals will be subject to cost pressures from scheduled and potential limitations to Medicare Part A reimbursement from provisions of health care reform. These provisions (and the year in which each became, or will become, effective) include: productivity adjustments to some providers' Medicare payment rates (2012); Medicare readmissions penalties (2012); Medicare bundled payment pilot project (2013); reduced Medicare payments to disproportionate share hospitals (2013); and reduced Medicare payments to some hospitals for hospital-acquired infections (2014).

Medicare Part B

        Medicare Part B pays physicians, hospital outpatient departments and other outpatient providers that furnish CUBICIN under a payment methodology using average sales price, or ASP, information. We, as a manufacturer under these rules, are required to provide ASP information to the Centers for Medicare and Medicaid Services, or CMS, on a quarterly basis. This information is used to compute Medicare payment rates, which are set at ASP plus six percent in the physician office setting, with ASP updated quarterly. This Medicare Part B payment rate for physicians can change only through legislation. However, the Part B payment rate for hospital outpatient departments, by law, is subject to annual reconfirmation or change by CMS; for 2013, that rate is ASP plus six percent. CMS could change this hospital outpatient rate in future years. If we were ever found to have made a misrepresentation in the reporting of ASP, the statute provides for civil monetary penalties of up to $10,000 for each misrepresentation for each day in which the misrepresentation was applied.

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Medicare Part D/Medicare Advantage

        CMS offers a voluntary drug benefit to Medicare beneficiaries who are eligible for Medicare Part A and/or enrolled in Medicare Part B. These drug benefits are available through two different programs, both of which are offered on an annual enrollment basis through private health plans that contract with CMS. The first program is Medicare Part D, under which beneficiaries may enroll in Prescription Drug Plans, or PDP's, that offer drug coverage only. The second program is Medicare Advantage, under which Medicare beneficiaries may enroll in health plans that cover a full range of medical services, and usually prescription drugs as well. Similar to pharmaceutical coverage through private health insurance, PDP and Medicare Advantage plans have been negotiating discounts from drug manufacturers and passing on some of those savings to Medicare beneficiaries. However, a number of changes to the Medicare Part D and Medicare Advantage programs are occurring as a result of health care reform. One of these changes will have the effect of significantly reducing the patient coverage gap (i.e., the so-called "doughnut hole"), by transitioning the patient responsibility in that coverage range from 100% in 2010 to 25% (i.e., equal to the patient coinsurance for the range preceding the coverage gap) in 2020. Drug manufacturers, including us with respect to CUBICIN and DIFICID, are obligated to provide quarterly discounts of 50% of the negotiated price (paid by each plan to the dispensing pharmacy) of branded drugs issued to Medicare Part D patients in the coverage gap. Another recent change as a result of the Affordable Care Act was the elimination of the Retiree Drug Subsidy, or RDS, on January 1, 2013. Under the RDS program, employers who offered a retiree prescription drug benefit plans received a tax-free subsidy for allowable drug costs. Beneficiaries covered under these retiree plans do not enter the coverage gap. However, once the RDS was eliminated, employers increasingly stopped offering retiree prescription drug benefits, thus moving a significant number of patients from private employer sponsored drug benefits plans to the Medicare Part D Employer Group Waiver Plans, or EGWP. Consequently, in 2013, drug manufacturers have seen an increase to their Medicare Part D Coverage Gap liability. As provisions such as these become effective, health plans will continue to develop cost-saving measures such as more restrictive drug formularies and increased patient cost-sharing.

Medicaid Rebate Program

        For CUBICIN and DIFICID, we also participate in the Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, and under multiple subsequent amendments of that law, including the Affordable Care Act. Under the Medicaid rebate program, we pay a rebate for each unit of product reimbursed by Medicaid. The Medicaid utilization subject to rebate previously had been limited to only those units paid for by Medicaid programs under fee-for-service arrangements but was expanded upon enactment of the Affordable Care Act to include units paid for under capitated managed care arrangements. The amount of the "basic" portion of the rebate for each product is set by law as the larger of: (i) 23.1% of quarterly average manufacturer price, or AMP, or (ii) the difference between quarterly AMP and the quarterly best price available from us to any commercial or non-governmental customer, or Best Price. AMP must be reported on a monthly and quarterly basis and Best Price is reported on a quarterly basis only. In addition, the rebate also includes the "additional" portion, which adjusts the overall rebate amount upward as an "inflation penalty" when the product's latest quarter's AMP exceeds the product's AMP from the first full quarter of sales after launch, adjusted for increases in the Consumer Price Index—Urban. The upward adjustment in the rebate amount per unit is equal to the excess amount of the current AMP over the inflation-adjusted AMP from the first full quarter of sales. The rebate amount is required to be recomputed each quarter based on our report to CMS of current quarterly AMP and Best Price for each of our products. The terms of our participation in the program impose a requirement for us to report revisions to AMP or Best Price within a period not to exceed 12 quarters from the quarter in which the data was originally due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision. In addition, if we were found to have knowingly

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submitted false information to the government, the statute provides for civil monetary penalties not to exceed $100,000 per item of false information in addition to other penalties available to the government. The Affordable Care Act, in combination with other federal legislation passed in August 2010, made changes to the definition of AMP, effective October 1, 2010. These and the other Affordable Care Act changes that still need to be clarified by final guidance and regulations from the federal government could impact the rebate liability for CUBICIN, DIFICID and the products we are developing and may develop and/or market in the future. ENTEREG is not currently part of the Medicaid rebate program.

340B/PHS Drug Pricing Program

        The availability of federal funds to pay for CUBICIN and DIFICID under the Medicaid and Medicare Part B programs requires that we extend discounts under the 340B/Public Health Service, or PHS, drug pricing program. The 340B/PHS drug pricing program requires participating manufacturers to charge no more than a statutorily-determined "ceiling" price to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as the outpatient departments of hospitals that serve a disproportionate share of Medicaid and poor Medicare beneficiaries. A product's ceiling price for a quarter reflects its Medicaid AMP from two quarters earlier less its Medicaid rebate amount from two quarters earlier. Therefore, the above-mentioned revisions to the Medicaid rebate formula and AMP definition enacted by the Affordable Care Act could cause the discount produced by the ceiling price to increase. Under the Affordable Care Act, four additional classes of entities were made eligible for these discounts, increasing the volume of sales for which we must now honor the 340B/PHS discounts.

Federal Supply Schedule

        We also make CUBICIN and ENTEREG available for purchase by authorized users of the Federal Supply Schedule, or FSS, of the General Services Administration pursuant to our FSS contract with the Department of Veterans Affairs, or VA. DIFICID is similarly available to authorized users of the FSS, however it is pursuant to a national contract instead of our FSS contract. Under the Veterans Health Care Act of 1992, or the VHC Act, we are required to offer deeply discounted FSS contract pricing to four federal agencies—the VA, the Department of Defense, or DoD, the Coast Guard and the PHS (including the Indian Health Service)—for federal funding to be made available for reimbursement of any of our products under the Medicaid program, Medicaid Part B and for our products to be eligible to be purchased by those four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the Federal Ceiling Price, or FCP, which is, at a minimum, 24% less than the Non-Federal Average Manufacturer Price, or Non-FAMP, for the prior fiscal year. In addition, if we are found to have knowingly submitted false information to the government, the VHC Act provides for civil monetary penalties of not to exceed $100,000 per item of false information in addition to other penalties available to the government. We are also required to pay rebates for DIFICID under the U.S. DoD TRICARE Retail Pharmacy Refund Program to enable DoD retail purchases at the FCP.

EU

        The sole legal instrument at the EU level governing the pricing and reimbursement of drugs is the Price Transparency Directive (Council Directive 89/105/EEC), or the Directive. The aim of this Directive is to ensure that pricing and reimbursement mechanisms established in EU Member States are transparent and objective, do not hinder the free movement and trade of drugs in the EU and do not hinder, prevent or distort competition on the market. The Directive does not provide any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made by individual EU Member States. It also does not have any direct consequence on pricing or

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reimbursement levels in individual EU Member States. As a result, the competent authorities of each of the 28 EU Member States have adopted individual strategies for regulating the pricing and reimbursement of drugs in their respective territory. These strategies often vary widely in nature, scope and application. However, a major element that they have in common is an increased move toward reduction in the reimbursement price of medicinal products, a reduction in the number and type of products selected for reimbursement and an increased preference for generic products over innovative products. These efforts have mostly been executed through these countries' existing price-control methodologies. In some EU Member States, notably Greece and Spain, prices paid by the national health services for both established and new drugs have been cut substantially as a part of comprehensive government austerity programs. It is increasingly common in many EU Member States for Marketing Authorization Holders to be required to demonstrate the pharmaco-economic superiority of their products as compared to products already subject to pricing and reimbursement in those countries. In order for drugs to be evaluated positively under such criteria, pharmaceutical companies, including us, may need to re-examine, and consider altering, a number of traditional functions relating to the selection, study, and management of drugs, whether currently marketed, under development, or being evaluated as candidates for research and/or development.

Other International Markets

        In addition to the EU, Japan is currently our only other major international market. We currently do not plan to have a direct commercial presence in Japan, but rather expect to collaborate with alliance partners for commercialization in Japan. Under current Japanese laws, branded drug reimbursement amounts by the country's National Health Insurance system are typically set at relatively high levels for new drugs. These amounts are subsequently reduced, but at multi-year intervals and, historically, by relatively small amounts. This system has generally provided a high level of stability for drug prices. The next round of reimbursement reductions is scheduled to take place in 2014. Since the Japanese government could seek and enact much larger decreases in the future than it customarily has, the Japanese pricing and reimbursement environment for 2014 and beyond is uncertain at this time.

Sales and Marketing Regulation

        The FDA regulates all advertising and promotional activities for products under its jurisdiction, including CUBICIN, DIFICID and ENTEREG. A company may not commercially promote a product prior to its approval, and after approval can make only those claims relating to safety and efficacy that are consistent with the labeling approved by the FDA. Physicians may, on their own choice and responsibility, prescribe drugs for uses that are not described in the drug's labeling and that differ from those tested by the product's manufacturer and approved by the FDA. Such off-label uses are common across medical specialties and may reflect a physician's belief that the off-label use is the best treatment for the patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers' promotions and communications regarding off-label uses. Generally speaking, a manufacturer may not promote a drug for off-label use, but may engage in non-promotional, balanced communication regarding off-label use under certain conditions. Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties available to the FDA and other government agencies, including those related to false claims, discussed below.

        Certain products approved by the FDA may be promoted only if the promotional materials advertising such products carry a so-called "boxed warning." ENTEREG has a boxed warning that alerts prescribers to the restriction on ENTEREG imposed by a REMS. Under the REMS, ENTEREG is available only for short-term use (15 doses) in hospitalized patients. Only hospitals that have registered in the E.A.S.E. program as part of the REMS may use ENTEREG. Registration in the

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E.A.S.E. program certifies that a hospital performs certain surgeries for which ENTEREG is indicated post-surgically and includes training on the E.A.S.E. program.

        In recent years, several states have also enacted legislation requiring pharmaceutical companies operating within the state to establish marketing and promotional compliance programs or codes of conduct and/or file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities. Similar legislation is being considered by additional states. In addition, as part of health care reform, the federal government has enacted the Physician Payment Sunshine Act provisions. Beginning in 2014, manufacturers of drugs, including us, will be required to publicly report gifts and payments made on or after August 1, 2013, to physicians and teaching hospitals. Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are not always clear.

        We also are subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations and very few court decisions addressing industry practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws.

        Similar restrictions are imposed on the promotion and marketing of medicinal products in the EU and other countries, including restrictions prohibiting the promotion of a compound prior to its approval. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have implications for us.

Other Regulations

        We are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including laws relating to the oversight activities of the Securities and Exchange Commission, or SEC, and the regulations of the NASDAQ Global Select Market, on which our shares are traded. In addition, the Financial Accounting Standards Board, or FASB, the SEC, and other bodies that have jurisdiction over the form and content of our financial statements and other public disclosures are issuing and amending proposed and existing pronouncements designed to ensure that companies best display relevant and transparent information relating to their respective businesses.

        We are subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. We also may be implicated under the FCPA by the activities of our partners, collaborators, contract research organizations, or CROs, vendors or other agents. The FCPA also requires us, as a public company, to make and keep books and records that accurately and fairly reflect all of our transactions and to devise and maintain an adequate system of internal accounting controls.

        We are also subject to compliance with the Bribery Act in the UK and similar laws in other countries. The Bribery Act applies to any company incorporated in or "carrying on business" in the

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UK, irrespective of where in the world the offending conduct occurs. The Bribery Act prohibits the provision of an "advantage" intended to induce or reward "improper performance" of the recipient's function. Offences under the Bribery Act include the offer, promise or provision of a bribe, as well as the request, acceptance or agreement to receive a bribe. The failure by a company to prevent third parties from providing a bribe on its behalf could also constitute an offence under the Bribery Act. This Act applies to bribery activities both in the public and private sector.

        Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights or acquisitions may be subject to national or supranational antitrust regulatory control, the effects of which cannot be predicted. The extent of government regulation which might result from future legislation or administrative action cannot accurately be predicted.

Our Employees

        As of February 1, 2014, we had approximately 873 employees. We consider our employee relations to be good.

WHERE YOU CAN FIND MORE INFORMATION

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

        Financial and other information about us is available on our website, http://www.cubist.com. We make available on our website, free of charge, copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Copies are available in print to any of our stockholders upon request in writing to "Investor Relations, Cubist Pharmaceuticals, Inc., 65 Hayden Ave., Lexington, MA 02421." Information appearing on our website is not a part of, and is not incorporated in, this Annual Report on Form 10-K.

ITEM 1A.    RISK FACTORS

        Our future operating results could differ materially from the results described in this report due to the risks and uncertainties related to our business, including those discussed below. Furthermore, these factors represent risks and uncertainties that could cause actual results to differ materially from those contained in or implied by the forward-looking statements contained in this report. We refer you to our "Cautionary Note Regarding Forward-Looking Statements," which identifies certain forward-looking statements contained in this report.

We depend heavily on the continued commercial success of CUBICIN.

        Our current ability to maintain and grow revenues depends significantly on the commercial success of CUBICIN in the U.S. CUBICIN's continued acceptance by the medical community and the future

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market demand and medical need for CUBICIN are critical factors in CUBICIN's continued success. Although we also generate revenues from our sales of DIFICID and ENTEREG, such revenues have been and are expected to be much lower than our CUBICIN revenues. Therefore, if we are unable to continue to maintain and grow revenues from sales of CUBICIN, our future operating results and financial condition could be materially adversely affected.

CUBICIN may not continue to be accepted by hospitals, physicians and other health care providers.

        CUBICIN may not continue to be accepted by hospitals, physicians and other health care providers for its approved indications in the U.S., particularly as the market into which CUBICIN is sold is growing only modestly, if at all, and economic problems persist. These factors have resulted in increased efforts by hospitals and others to minimize expenditures by encouraging the purchase of lower-cost alternative therapies, including generic products like vancomycin, patients electing lower-cost alternative therapies due to increased out-of-pocket costs, patients choosing to have fewer elective surgeries and other procedures, and lower overall admissions to hospitals.

        The degree of continued market acceptance of CUBICIN in the U.S. and other jurisdictions where CUBICIN is sold depends on a number of additional factors, including those set forth below and the other CUBICIN-related risk factors described in this "Risk Factors" section:

•

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



•

the possibility that target organisms develop resistance to CUBICIN;



•

our ability to maintain prescribing information, also known as a label, that is substantially consistent with current prescribing information for CUBICIN;



•

the rate of growth or contraction, if any, of the overall market into which CUBICIN is sold, including the market for products to treat MRSA skin and bloodstream infections;



•

our ability to effectively promote CUBICIN to those physicians who treat patients for whom CUBICIN would be appropriate, particularly in light of increasing restrictions on our sales force's access to physicians;



•

our ability to maintain and enforce U.S. and foreign patent protection for CUBICIN, particularly in light of efforts by companies such as Strides, Hospira and Teva to obtain approval to market generic versions of CUBICIN;



•

our ability to maintain and grow market share and vial sales as the price of CUBICIN increases in a market that has shown modest growth at best and in light of the cost containment efforts of hospitals;



•

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



•

the impact on physicians' perception and use of CUBICIN as a result of treatment guidelines that are published from time to time, including the treatment guidelines for MRSA infections published by the Infectious Diseases Society of America, or IDSA, in early 2011;



•

the reimbursement policies of government and third-party payors and the level and scope of rebates, discounts, fees and other payments that we are required to pay or provide under federal government programs in the U.S., such as Medicare, Medicaid and the 340B/PHS drug pricing program; and



•

future legislative and policy changes in the U.S. and other jurisdictions where CUBICIN is sold.

        Our ability to successfully sell DIFICID and ENTEREG depends on many of the same factors listed above that may impact our sales of CUBICIN.

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Our ability to grow revenues and execute on our long-term strategy depends heavily on our ability to acquire and/or discover, develop, and obtain marketing approval for additional products or product candidates, such as tedizolid phosphate and ceftolozane/tazobactam.

        In order for us to achieve our long-term business objectives, we will need to successfully discover, acquire and/or develop and commercialize additional products or product candidates, including tedizolid phosphate, ceftolozane/tazobactam and others. Although we have made, and expect to continue to make, significant investments in research and development, including by increasing our research and development personnel, we have had only a limited number of our internally-discovered product candidates even reach the clinical development stage. Drug discovery and development is a complex, time-consuming and expensive process that is fraught with risk and a high rate of failure. Failure by us to successfully discover, acquire and/or develop, obtain marketing approval for and commercialize additional products and product candidates, including tedizolid phosphate and ceftolozane/tazobactam, would likely have a material adverse effect on our ability to grow revenues and our financial condition.

        In addition, we may not be able to acquire, in-license or otherwise obtain rights to additional product candidates or marketed drug products on acceptable terms or at all. We have faced and will continue to face significant competition for these types of product candidates and marketed products from a variety of other companies with interest in the anti-infective and acute care marketplace, many of which have significantly more financial resources and experience in pharmaceutical development than we have. Because of the intense competition for these types of product candidates and marketed products, the cost of acquiring, in-licensing or otherwise obtaining rights to such candidates and products has grown dramatically in recent years and is often at levels that we cannot afford or that we believe are not justified by market potential. This competition is most intense for late-stage candidates and marketed products, which have the lowest risk and would have the most immediate impact on our financial performance.

We may not be able to obtain, maintain or protect proprietary rights necessary for the continued development and commercialization of our products, product candidates and research technologies, including as a result of challenges from companies like Strides, Hospira and Teva who seek to sell generic versions of CUBICIN.

        Our commercial success depends in large part on obtaining and maintaining U.S. and foreign patent protection for our products, product candidates and our research technologies and successfully enforcing and defending these patents against third-party challenges, including with respect to generic challenges. For our products and product candidates where we cooperate with a partner or other third party to enforce and defend the proprietary rights, such as DIFICID, ENTEREG, tedizolid phosphate, ceftolozane/tazobactam, and bevenopran, our commercial success will depend in part on such partners or other third parties cooperating with us or doing the same on their own. We have limited control over the amount and timing that such partners, collaborators or other third parties will dedicate to these efforts.

        We cannot be sure that our patents and patent applications, including our own and those that we have rights to under licenses from third parties, will adequately protect our intellectual property for a number of reasons, including, without limitation, the following: (i) the patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions; (ii) the actual protection afforded by a patent can vary from country to country and may depend upon the type of patent, the scope of its coverage and the availability of legal remedies in the country; (iii) the laws of foreign countries in which we market our products may afford little or no effective protection to our intellectual property, thereby easing our competitors' ability to compete with us in such countries; (iv) intellectual property laws and regulations and legal standards relating to the validity, scope and enforcement of patents covering pharmaceutical and biotechnological inventions are continually developing and changing, both in the U.S. and in other important markets outside the U.S.;

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(v) third parties may challenge, infringe, circumvent or seek to invalidate existing or future patents owned by or licensed to us; and (vi) the coverage claimed in a patent application can be significantly reduced before the patent is issued, and, as a consequence, our and our partners' patent applications may result in patents with narrower coverage than we desire or have planned for.

        Although we continue to own rights to a number of patents covering CUBICIN, certain patent rights covering CUBICIN in the U.S. have expired, including the primary composition of matter patent covering daptomycin. We cannot be sure that any patents covering CUBICIN will not be contested or invalidated or that any patent applications will be granted. Of particular concern is that third parties may seek approval to market generic versions of CUBICIN by filing applications with the FDA in which they claim that the patents protecting CUBICIN are invalid, unenforceable and/or not infringed. For example, until our patent infringement litigations with Hospira and Strides are finally resolved, the uncertainty of the outcomes may cause our stock price to decline. In addition, an adverse result in any of these litigations, whether appealable or not, would likely cause our stock price to decline. Any final, unappealable, adverse result in any of these litigations would likely have a material adverse effect on the continued commercialization of CUBICIN, our results of operations and financial condition and cause our stock price to decline.

        Under our April 2011 settlement agreement with Teva to resolve patent infringement litigation with respect to CUBICIN, we granted Teva a non-exclusive, royalty-free license to sell a generic daptomycin for injection product in the U.S. beginning on the later of: (i) December 24, 2017, and (ii) if our daptomycin for injection product receives pediatric exclusivity, June 24, 2018. The license we granted to Teva would become effective prior to the later of these two dates if: (i) the patents that were the subject of the patent litigation with Teva are held invalid, unenforceable or not infringed with respect to a third party's generic version of daptomycin for injection, which could occur if Strides and/or Hospira is successful in our patent litigations with Strides or Hospira, as respectively applicable, (ii) a third party sells a generic version of daptomycin for injection under a license or other authorization from us, or (iii) there are no longer any unexpired patents listed in the Orange Book as applying to our NDA covering CUBICIN. Teva may also sell generic daptomycin supplied by us at an earlier date upon certain specified types of "at risk" launches of a generic daptomycin for injection product by a third party. If this license becomes effective, or the license or settlement agreement terminates earlier than we anticipate, our business and results of operations could be materially impacted. In addition, the FTC or the DOJ could seek to challenge our settlement with Teva, or a competitor, customer or other third party could initiate a private action under antitrust or other laws challenging our settlement with Teva. While we believe our settlement is lawful, we may not prevail in any such challenges or litigation. We may incur significant costs in defending any such action, and our business and results of operations could be materially impacted if we fail to prevail against any such challenges.

We rely on third parties to manufacture CUBICIN and our other products and product candidates, and any difficulties, delays or disruptions in the manufacturing process or supply of any of our products or product candidates could have a material adverse effect on our business operations.

        The manufacture of pharmaceutical products is a highly complex process in which a variety of difficulties may arise from time to time including, but not limited to, product loss due to: material, equipment, vendor or operator errors; labor shortages; inability to obtain material, equipment or transportation; physical or electronic security breaches; natural disasters and many other factors. Problems with manufacturing processes could result in product defects or manufacturing failures, which could require us to delay shipment of products or recall products previously shipped, or could impair our ability to expand into new markets or supply products in existing markets. We may not be able to resolve any such problems in a timely fashion or at all.

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        We rely on third party contract manufacturing organizations, or CMOs, to manufacture API and finished drug product for all of our products, including CUBICIN. Any difficulties, delays or disruptions in the manufacturing process at such facilities for any of our products could result in a number of adverse consequences for our business, including but not limited to: a loss of inventory; our inability to supply sufficient quantities of drug product to meet U.S. demand; our inability to satisfy our contractual obligations to supply our international CUBICIN and DIFICID partners; and the incurrence of substantial additional costs to remediate or identify alternatives sources of supply. Any of these consequences could result in a material adverse effect on our results of operations, financial condition and long-term business plans.

        We also rely on CMOs to manufacture clinical trial materials for our product candidates, and we will rely on CMOs to manufacture commercial supplies, if any such product candidates are ultimately approved for commercial sale. Our product candidates, including ceftolozane/tazobactam and tedizolid phosphate, will not be approved for marketing by the FDA or other foreign regulatory authorities unless the FDA or their foreign equivalents also approve the facilities used by our CMOs to produce our product candidates for commercialization. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA's or foreign regulatory authorities' strict regulatory requirements, the FDA or their foreign counterparts will not approve their manufacturing facilities, which would result in significant delays in obtaining FDA or foreign marketing approvals for our product candidates. In order to successfully develop and commercialize our product candidates in a timely manner, we and our CMOs must be able to develop and execute on manufacturing processes, and reach agreement on contract terms, for each candidate that will:

•

be approved by the FDA and/or other regulatory authorities in the countries where such candidates are to be manufactured or sold;



•

provide sufficient quantities of API and drug product of such candidates to meet our clinical trial needs and ultimate market demand; and



•

provide such amounts at a cost that will allow us to make an adequate profit.

        There is no guarantee that we will be able to meet these manufacturing process requirements for any of our current product candidates, including tedizolid phosphate and ceftolozane/tazobactam, all of which have complex manufacturing processes, which make meeting these requirements even more challenging. If we are unable to develop manufacturing processes for our clinical product candidates that satisfy these requirements, we will not be able to supply sufficient quantities of test material to conduct our clinical trials in a timely or cost effective manner, and as a result, our development programs will be delayed, our financial performance will be adversely impacted and we will be unable to meet our long-term goals.

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 ACSD as our sole provider of our worldwide commercial supply of CUBICIN 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 CMOs, including Hospira Worldwide, Inc., or Hospira Worldwide, and Oso Biopharmaceuticals Manufacturing LLC, or 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

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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.

        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 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.

Our contract manufacturers may not be able to operate their manufacturing facilities in compliance with current good manufacturing practices and other applicable U.S., EU and equivalent foreign regulations, which could result in a suspension of our contract manufacturers' ability to manufacture our products and product candidates, the loss of our product inventory, an inability to manufacture sufficient quantities of our products to meet U.S. or foreign demand, or other unanticipated compliance costs.

        Our third-party contract manufacturing facilities are subject to cGMP regulations enforced by the FDA, the competent authorities of the EU, EU Member States and equivalent foreign regulatory agencies through initial and periodic inspections to confirm such compliance. We have limited control over our contract manufacturers' compliance with these regulatory requirements. We and our contract manufacturers must continually expend time, money and effort in production, record-keeping and quality assurance and control to ensure that these manufacturing facilities meet applicable regulatory requirements. Failure to maintain ongoing compliance with cGMP regulations and other applicable manufacturing requirements of various U.S., EU Member States, or foreign regulatory agencies could result in, among other things, the issuance of warning letters, fines, the withdrawal or recall of our products from the marketplace, suspension or withdrawal of approvals and marketing authorizations, total or partial suspension of production, the loss of product inventory, suspension of the review of applications for marketing authorization or applications for variations to existing marketing authorizations, any future supplemental New Drug Applications, or sNDAs, or equivalent foreign filings, termination or hold on a clinical study, sanctions being imposed on us, including enforcement actions, injunctions, fines, civil penalties, license revocations, operating restrictions or criminal prosecution. A government-mandated recall or a voluntary recall could divert managerial and financial resources, could be difficult and costly, could result in the suspension of sales of our products, and could have a severe adverse impact on our profitability and the future prospects of our business. In

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addition, if any U.S., EU Member State, or foreign regulatory agency inspects any of these manufacturing facilities and determines that they are not in compliance with cGMP regulations or we or our contract manufacturers otherwise determine that they are not in compliance with these regulations, we could experience an inability to manufacture sufficient quantities of our products to meet U.S. or foreign demand or incur unanticipated compliance expenditures, either of which could have an adverse impact on our product sales, results of operations, financial condition and our long-term business plans.

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, Shionogi and others; Zyvox, marketed by Pfizer; Synercid, marketed by King, a wholly-owned subsidiary of Pfizer; Tygacil, marketed by Wyeth., also a wholly-owned subsidiary of Pfizer; VIBATIV, marketed by Theravance; and Teflaro, marketed by Forest. In particular, vancomycin has been a widely used and well-known antibiotic for more than 50 years and is sold in a relatively inexpensive generic form. 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 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 ANDA or NDA, Strides' 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 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 FMT, an experimental CDAD treatment that is becoming increasingly used.

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        Although ENTEREG is currently the only FDA-approved product indicated for the acceleration of 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 tedizolid phosphate and ceftolozane/tazobactam, are approved by the FDA and foreign regulatory authorities, they will likewise face substantial competition from branded and generic products.

The commercial success of CUBICIN and DIFICID and, if approved, our product candidate tedizolid phosphate, in certain territories outside the U.S. is largely dependent on our third-party partners and other factors outside of our control.

        We do not market and sell CUBICIN directly outside of the U.S., but rely on third parties to do so. Our international partners may not be successful in launching or marketing CUBICIN in their markets, which includes countries in Europe, Asia (including Japan), and Latin America. To date, European sales have grown more slowly than U.S. sales did in the same period after launch due primarily to lower MRSA rates in some European countries, an additional glycopeptide competitor (teicoplanin), which is not approved in the U.S., the commercialization strategy and mix of resources that our European partner, Novartis, has been using to commercialize CUBICIN, as well as other factors. Even if our international partners are successful in commercializing CUBICIN, we only receive a portion of the revenues from ex-U.S. sales of CUBICIN.

        Pursuant to the terms of certain collaboration agreements entered into prior to our acquisition of Optimer, Optimer granted to third parties, including Astellas Pharma Europe, Astellas, Specialised Therapeutics and AstraZeneca UK, exclusive rights to develop and commercialize DIFICID in various territories outside the U.S. and Canada, including Europe, Japan, Australia and Latin America. Consequently, our ability to generate any revenues from DIFICID in territories outside the U.S. and Canada depends on our collaboration partners' ability to obtain marketing approvals for and successfully commercialize DIFICID in their respective territories. We have limited control over the amount and timing of resources that our collaboration partners will dedicate to these efforts. In addition, even if our international partners are successful in commercializing DIFICID, we only receive a portion of the revenues from sales of DIFICID outside of the U.S. and Canada.

        Pursuant to the terms of a collaboration and license agreement entered into prior to our acquisition of Trius, Trius granted to Bayer exclusive rights to develop and commercialize tedizolid phosphate in various territories outside the U.S., Canada, Europe and North and South Korea, including Japan, China and substantially all other countries in Asia, Africa, Latin America and the Middle East. As a result, our ability to generate any revenues from tedizolid phosphate in Bayer's territories depends on Bayer's ability to obtain marketing approvals for and successfully commercialize tedizolid phosphate in its respective territories. We have limited control over the amount and timing of resources that Bayer will dedicate to these efforts. In addition, even if Bayer is successful in obtaining marketing approvals and commercializing tedizolid phosphate, we only receive a portion of the revenues from sales of tedizolid phosphate in Bayer's territories.

We need to manage our growth effectively, and the increased breadth and complexity of our business may expose us to additional risk.

        We have expanded the scope of our business significantly in recent years. In 2010, we had one product, CUBICIN, which we were selling in the U.S. and no product candidates in Phase 3 clinical development. We are now selling three products on our own, expanding our international operations, and have four product candidates in Phase 3 clinical development. We also have grown our employee

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base substantially, particularly within our research and development and commercial organizations. We plan to continue adding products and product candidates through internal development, in-licensing and acquisition over the next several years and to continue developing our existing product candidates through clinical trials. Our ability to continue to successfully commercialize our existing products, achieve our research and development objectives, add and integrate new products and satisfy our commitments under our collaboration and acquisition agreements depends on our ability to effectively manage these increased demands on our organization and expand our organization and infrastructure. To manage the increasing breadth and complexity of our business, we will also need to continue making significant additional investments in personnel, infrastructure, information management systems and resources. If we are unable to effectively manage and progress some or all of these activities, our ability to maximize the value of one or more of our products or product candidates could suffer, which could materially adversely affect our business.

We rely on third parties, such as CROs to help us conduct our clinical trials, and if these third parties fail to fulfill their obligations to us or fail to conduct our clinical trials in compliance with applicable U.S., EU, and foreign regulations, including the FDA's current good clinical practices regulations, or cGCP, we may not be able to obtain regulatory approvals for our product candidates.

        As we advance our product candidates through development, the size and scope of the clinical trials we conduct increases significantly, including the number of patients and medical conditions being studied and the number of clinical sites and countries in which the trials are being conducted. We contract with third parties such as CROs, contract investigational drug labeling and distribution providers, and regional and central laboratories to assist with the conduct of our clinical trials. As a result, we have reduced control over many key operational aspects of our clinical trial process. Outsourcing this critical work to third parties also leaves us exposed to the risk that changes in their business or financial condition could cause them to no longer be able to support our business in a timely or satisfactory manner or at all, the impact of which could delay key projects and initiatives and therefore adversely impact the timing and achievement of our business goals.

        In addition, the FDA, the competent authorities in the EU Member States, and similar foreign regulatory authorities could determine that our clinical trials were not properly designed, were not conducted in accordance with applicable laws and regulations, or were otherwise not properly managed. For example, under the FDA's cGCP regulations we are responsible for conducting, recording and reporting the results of our clinical trials to ensure that the data and results are credible and accurate and that the trial participants are adequately protected. The FDA conducts periodic inspections of clinical investigator sites which are involved in our clinical development programs to ensure their compliance with cGCP regulations. Directive 2001/20/EC and the EU cGCP rules impose similar obligations and procedures with respect to the conduct of clinical trials in the EU. If the FDA, a competent authority of an EU Member State, or any similar foreign regulatory authority determines that we, our clinical research organizations or our study sites fail to comply with applicable cGCP or other applicable regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the European Commission, the EMA, the competent authorities of the EU Member States or equivalent foreign regulatory authority may disqualify certain data generated from those sites or require us to perform additional clinical trials before approving our marketing applications, which could adversely impact our ability to obtain regulatory approvals for our product candidates or additional approvals for our marketed products. Any such deficiency in the design, implementation or oversight of our clinical development programs under U.S. or EU or similar foreign regulations could cause us to incur significant additional costs, experience significant delays or prevent us from obtaining regulatory approval for our product candidates or for new indications for our marketed products. This would, in turn, materially adversely impact our ability to increase revenues, our results of operations and financial condition, and ability to meet our long-term goals.

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Our success is dependent upon our ability to attract and retain highly qualified personnel and limit turnover.

        Our ability to be successful in the highly competitive biotechnology and pharmaceutical industries depends in large part upon our ability to attract and retain highly qualified managerial, scientific, medical, sales and other personnel. In order to attract and retain highly qualified and high performing employees, we provide competitive compensation packages. We also have provided retention letters to our executive officers and certain other key employees. However, despite our efforts to retain highly qualified and performing employees, key employees have in the past and may in the future choose to terminate their employment with us. Any failure to attract and retain our executive officers or other key employees could potentially harm our business and financial results. Also, we market and sell CUBICIN and ENTEREG in the U.S. and DIFICID in the U.S. and Canada through our own sales force and marketing team. Significant turnover or changes in the experience level of our sales and marketing personnel, particularly our most senior sales and marketing personnel, could impact our ability to effectively sell and market CUBICIN and our other products.

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

        One of the ways we have grown our pipeline and business is through acquisitions, such as our recent acquisitions of Trius and Optimer. Acquisitions involve a number of risks, in particular when more than one major acquisition occurs at a time, including: diversion of management's attention from current operations; disruption of our ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel and assumption of disclosed and undisclosed liabilities. In addition, third party lawsuits challenging these acquisitions are common, and we may incur significant legal costs in defending these suits that are not covered by insurance. We may also acquire companies in which we are uncertain about the effectiveness of the acquired company's internal controls and procedures, as in the case of Optimer, which had identified a material weakness in its internal controls over financial reporting for 2012, its most recently completed fiscal year. Integration of existing businesses may also include additional legal risks. For example, an SEC/DOJ investigation of Optimer with respect to an attempted potentially improper share grant, potentially improper payment to a research laboratory and certain matters that may be related thereto remains ongoing, and the outcomes are uncertain. In addition, because certain of Trius' revenues have been derived through federal grants and government contracts, we may be subject to routine audit and investigations by the Department of Health and Human Services, or DHHS, and the Defense Contract Audit Agency, or the DCAA. Moreover, the integration costs of the companies we acquire may be higher than we anticipated. The individual or combined effect of these risks could have a material adverse effect on our business.

        Because the price paid for acquiring businesses often exceeds the book value of the acquired company, the successful realization of value from an acquisition typically derives from capitalizing on cost savings realized by combining the acquirer and target company. If we are unable to realize such cost savings, we may not be able to justify the price paid for such an acquisition. There is also the risk that our valuation of an acquired product or business may turn out to be erroneous and thereby cause us to have overvalued an acquisition target, which could have a material adverse effect on our results of operations. As a result, we cannot assure you that, following our acquisitions of Adolor, Trius or Optimer or any future acquisitions, we will achieve revenues that justify the acquisition or that the acquisition will result in increased earnings, or reduced losses, for the combined company in any future period.

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Drug discovery and development is a complex, time-consuming and expensive process that is fraught with risk and a high rate of failure.

        Product candidates are subject to extensive pre-clinical testing and clinical trials to demonstrate their safety and efficacy in humans. Conducting pre-clinical testing and clinical trials is a lengthy, time-consuming and expensive process that takes many years. We cannot be sure that pre-clinical testing or clinical trials of any of our product candidates will demonstrate the safety, efficacy and benefit-to-risk profile necessary to obtain marketing approvals. In addition, product candidates that experience success in pre-clinical testing and early-stage clinical trials will not necessarily experience the same success in late-stage clinical trials, which are required for marketing approval. The FDA and other countries' regulatory authorities will allow us to begin clinical trials under an IND, or similar document in other countries only if we demonstrate in our submission that the potential product candidate will not expose humans to unreasonable risks and that the compound has pharmacological activity that justifies clinical development. It takes significant time and expense to generate the requisite data to support an IND or similar document. In many cases, companies spend the time and resources only to discover that the data are not sufficient to support an IND or similar document and therefore are unable to enter human clinical trials. In the past, we have had pre-clinical product candidates for which we were not able to generate adequate data to proceed with clinical trials, and this likely will happen again in the future.

        Even if we are successful in advancing a product candidate into the clinical development stage, before obtaining regulatory and marketing approvals, we must demonstrate through extensive human clinical trials that the product candidate is safe and effective for its intended use. Human clinical trials must be carried out under protocols that are acceptable to regulatory authorities and to the independent committees responsible for the ethical review of clinical studies. There may be delays in preparing protocols or receiving approval for them that may delay the start or completion of the clinical trials. In addition, clinical practices vary globally, and there is a lack of harmonization among the guidance provided by various regulatory bodies of different regions and countries with respect to the data that is required to receive marketing approval, which makes designing global trials increasingly complex. There are a number of additional factors that may cause our clinical trials to be delayed, prematurely terminated or deemed inadequate to support regulatory approval, such as:

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the difficulties and complexity of testing our product candidates in clinical trials with pediatric patients as research subjects, particularly with respect to CUBICIN, for which we are pursuing a U.S. regulatory filing to gain an additional six months of exclusivity based on safety and efficacy in pediatric patients;



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unforeseen safety issues (including those arising with respect to trials by third parties for compounds in a similar class as our product or product candidate), inadequate efficacy, or an unacceptable risk-benefit profile observed at any point during or after completion of the trials;



•

slower than expected rates of patient enrollment, which could be due to any number of factors, including failure of our third-party vendors, including our CROs, to effectively perform their obligations to us, a lack of patients who meet the enrollment criteria or competition from clinical trials in similar product classes or patient populations;



•

the risk of failure of our clinical investigational sites and related facilities to maintain compliance with the FDA's cGMP regulations or similar regulations in countries outside of the U.S., including the risk that these sites fail to pass inspections by the appropriate governmental authority, which could invalidate the data collected at that site or place the entire clinical trial at risk;



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any inability to reach agreement or lengthy discussions with the FDA, equivalent regulatory authorities, or ethical review committees on trial design that we are able to execute;

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any refusal by the FDA to accept or approve an NDA for substantive review, which may result in additional clinical, preclinical or manufacturing validation studies, and significantly delay or prevent regulatory approval, which could happen, for example, in the case of our planned NDA for ceftolozane/tazobactam; and



•

changes in laws, regulations, regulatory policy or clinical practices, especially if they occur during ongoing clinical trials or shortly after completion of such trials.

        Any deficiency in the design, implementation or oversight of our development programs, including tedizolid phosphate and ceftolozane/tazobactam, could cause us to incur significant additional costs, experience significant delays, prevent us from obtaining marketing approval for any product candidate or abandon development of certain product candidates, any of which could harm our business and cause our stock price to decline.

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 tedizolid phosphate and 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, an FDA Advisory Committee is expected to convene in 2014 to provide additional guidance on requirements for cardiovascular studies for mu-opioid antagonists. Because bevenopran is a mu-opioid antagonist, the outcome of this Advisory Committee could have a significant impact on the design, timing and cost of our bevenopran program. As a result, we have decided to stop our bevenopran Phase 3 efficacy trials pending the outcome of this Advisory Committee.

        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 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, or 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

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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 planned NDA for ceftolozane/tazobactam and our recently submitted NDA for tedizolid phosphate, 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 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

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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.

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

        We have entered into, and anticipate that we will continue to enter into, collaborative and other types of contractual arrangements, which we refer to as collaborations, with third parties to discover, test, develop, manufacture, market and promote product candidates and drug products. For example, we have collaborative agreements with several pharmaceutical companies to develop and commercialize CUBICIN, DIFICID and tedizolid phosphate outside the U.S. and from time-to-time enter into collaborations with respect to pre-clinical programs. In order for existing and future collaborations to be successful, we need to be able to work effectively with our collaborators. Reliance on collaborations poses a number of risks to our business, including the following:

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our collaborators may not perform their contractual obligations, including complying with the required level of development or commercialization efforts and appropriate and timely reporting on adverse events in their territories, as expected;



•

we may be dependent upon other collaborators to manufacture and supply API and drug product in order to develop and/or commercialize the drug product that is the subject of the collaboration, and our collaborators may encounter unexpected issues or delays in manufacturing and/or supplying such drug product;



•

in situations where we and our collaborator share decision-making power with respect to development of the product, we and our collaborator may not agree on decisions that could adversely affect the development, regulatory approval, manufacture or commercial viability of the product or result in litigation or arbitration;



•

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



•

we may fail to satisfy our contractual obligations to our partners, which could subject us to claims for damages and other losses or rights to terminate the agreement;



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



•

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



•

our collaborators could merge with or be acquired by another company or experience financial or other setbacks unrelated to our collaboration that could cause them to de-prioritize their efforts on our collaboration.

        Collaborations with third parties are a critical part of our business strategy, and any inability on our part to establish and successfully maintain such arrangements on terms favorable to us or to work

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successfully with our collaborators could have an adverse effect on our operations and financial performance.

Our investments are subject to risks which could result in losses.

        We invest our cash in money market instruments, bank deposits, corporate and municipal notes, U.S. Treasury securities and federal agency securities. All of these investments are subject to credit, liquidity, market and interest rate risk. These risks have been heightened in today's tightened and fluctuating credit and financial markets. Such risks, including the risk of failure or severe financial distress of the financial institutions that hold our cash, cash equivalents and investments, may result in a loss of liquidity, impairment to our investments, realization of substantial future losses or a complete loss of our investments, which may have a material adverse effect on our business, results of operations, liquidity and financial condition.

We may require additional funds to execute on our long-term business strategy, and such funds may not be available to us on terms that we find acceptable or at all, particularly if the financial and credit markets are constrained at the time we require funding.

        Although we held $578.6 million of cash, cash equivalents and investments as of December 31, 2013 and have a revolving credit facility for up to $150.0 million with the option to increase the credit facility by up to an additional $150.0 million, we may be required to seek additional funds in the future to execute on our long-term business strategy. We expect capital outlays and operating expenditures to increase over the next several years as we continue our commercialization of CUBICIN, DIFICID and ENTEREG, develop our product candidates, seek to acquire companies, products and product candidates, expand our research and development activities and manufacturing and other infrastructure, including our international operations, and enforce our intellectual property rights. We may need to spend more money than currently expected because of circumstances unforeseen or beyond our control. In addition, we hold approximately $1.0 billion in convertible debt, of which $450.0 million becomes due in September 2020, $350.0 million becomes due in September 2018, and $228.8 million becomes due in November 2017. If holders of the notes do not convert and hold to maturity, we may need to raise additional capital in order to pay our debts as they become due. We may seek any additional needed funding through public or private financing or other arrangements with collaborators. If we raise additional funds by issuing equity securities or securities convertible into or exchangeable for equity securities, further dilution to existing stockholders could result. In addition, as a condition to providing additional funds to us, future investors or lenders may demand, and may be granted, rights superior to those of existing stockholders. If we issue additional debt securities in the future, our existing debt service obligations will increase further. If we are unable to generate sufficient cash to meet these obligations and need to use existing cash or liquidate investments in order to fund our debt service obligations or to repay our debt, we may be forced to delay or terminate certain currently planned activities or curtail operations. We cannot be certain, however, that additional financing will be available from any of these sources when needed or, if available, will be on acceptable terms, particularly if the credit and financial markets are constrained at the time we require funding. If we fail to obtain additional capital when we need it, we may not be able to execute our current long-term business plans successfully.

Changes in our effective income tax rate could adversely affect our results of operations.

        We are subject to federal and state income taxes in the U.S. Various factors may have favorable or unfavorable effects on our effective income tax rate (sometimes referred to as "book tax"). These factors include, but are not limited to: interpretations of existing tax laws; the accounting for stock-based compensation; the accounting for business combinations, including accounting for contingent consideration; changes in tax laws and rates; the tax impact of existing or future health care reform

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legislation; future levels of research and development spending; changes in accounting standards; changes in the mix of earnings in the various tax jurisdictions in which we operate; the outcome of examinations by the Internal Revenue Service, or IRS, and other jurisdictions; the accuracy of our estimates for unrecognized tax benefits; and realization of deferred tax assets and changes in overall levels of pre-tax earnings. The impact on our provision for income tax resulting from the above-mentioned factors may be significant and could adversely affect our results of operations, including our net income. The effect on our results of operations may impact, or be perceived to impact, our financial condition and may therefore cause our stock price to decline.

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 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 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. We may not be able to successfully redesign the product, product candidate, process or other technology to avoid infringement or obtain any such required licenses or rights on commercially acceptable terms or at all. The cost 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.

The U.S. federal budget sequestration process may have a significant impact on our business.

        On August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering mandatory reductions in federal spending by as much as $1.1 trillion from 2013 through 2021, referred to as sequestration. The Bipartisan Budget Act of 2013 provides billions in sequester relief over two years, but also extends the 2% reduction in Medicare payments, discussed below, for two years, until 2023. Sequestration-related spending reductions may have a significant adverse impact on our business.

        Sequestration spending reductions may adversely affect the FDA. While user fees can be used in the review of certain regulatory filings including NDAs, it is possible that sequestration spending reductions will result in additional backlogs in the approval process that could adversely affect the timing of FDA review of our regulatory filings for our products and product candidates, including tedizolid phosphate, for which we recently submitted an NDA to the FDA, and our planned NDA for ceftolozane/tazobactam. Sequestration also includes a 2% reduction in Medicare payments, which could also have a significant negative impact on our business. These reductions impact payments to hospitals, physicians, and Medicare managed care and prescription drug plans, under Medicare Parts A, B and D, and the Medicare Advantage program. The significant magnitude of the sequestration payment reductions places additional financial pressures on Medicare providers, including hospitals with high inpatient Medicare volume, which could force these providers to take new measures to address the shortfall in previously-expected reimbursements. It is possible that these measures could result in

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heightened scrutiny and/or reduced purchasing of branded pharmaceuticals, such as CUBICIN, DIFICID, ENTEREG, and any future drug product we may market.

Our revenues depend on the availability in the U.S. of adequate pricing and reimbursement from third-party payors for our current and future drug products, if any.

        In the U.S., sales of CUBICIN, DIFICID, ENTEREG, and any future drug product we may market are dependent, in part, on the availability of adequate reimbursement from third-party payors such as state and federal government programs, including Medicare and Medicaid, managed care providers and private insurance plans. Our future revenues and profitability will be adversely affected if these third-party payors do not sufficiently cover and reimburse the cost of our products and related procedures or services. If these entities do not provide sufficient coverage and reimbursement for CUBICIN, DIFICID, ENTEREG, or any future drug product we may market, these products may be too costly for general use, and physicians may prescribe them less frequently.

        The Medicare program and certain government pricing programs, including the Medicaid drug rebate program, the 340B/PHS drug pricing program and the VHC Act pricing program, impact the revenues that we derive from CUBICIN, DIFICID and ENTEREG. Any future legislation or regulatory actions altering these programs or imposing new ones could have a significant adverse effect on our business. There have been, and we expect there will continue to be, a number of legislative and regulatory actions and proposals to control and reduce health care costs. These measures may, among other things: negatively impact the level of reimbursement for pharmaceutical products; require higher levels of cost-sharing by beneficiaries; change the discounts required to be provided by pharmaceutical manufacturers to government payors and/or providers; extend government discounts to additional government programs and/or providers; or reduce the level of reimbursement for health care services and other non-drug items. Any such measures could indirectly impact demand for pharmaceutical products because they can cause payors and providers to apply heightened scrutiny and/or austerity actions to their entire operations, including pharmacy budgets.

        Also, the trend toward managed health care in the U.S., as well as the implementation of the Affordable Care Act, and the concurrent growth of organizations such as MCOs, accountable care organizations and integrated delivery networks, may result in increased pricing pressures for pharmaceutical products, including any products that may be offered by us in the future. Cost-cutting measures that health care providers are instituting, and the implementation of health care reform, could materially adversely affect our ability to sell any drug products that are successfully developed or acquired by us. In addition, third-party payors, in an effort to control costs, are increasingly making patients responsible for a higher percentage of the total cost of drugs in the outpatient setting. This can lower the demand for our products if the increased patient cost sharing obligations are more than they can afford. Individual states' responses to ongoing financial pressures could also result in measures designed to limit reimbursement, restrict access, or impose broader or deeper discounts on branded pharmaceutical products utilized for Medicaid patients, including CUBICIN, DIFICID, ENTEREG, or any future drug product we may market. We are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business.

Our revenues also depend on the availability outside the U.S. of adequate pricing and reimbursement from third-party payors for our current and future drug products, if any.

        Outside the U.S., certain countries, including a number of EU Member States, set prices and reimbursement for pharmaceutical products, or medicinal products as they are commonly referred to in the EU, with limited participation from the marketing authorization holders. We cannot be sure that such prices and reimbursement will be acceptable to us or our collaborators. If the regulatory authorities in these foreign jurisdictions set prices or reimbursement that are not commercially

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attractive for us or our collaborators, our revenues from sales by us or our collaborators, and the potential profitability of our drug products, in those countries would be negatively affected. An increasing number of countries are taking initiatives to attempt to reduce large budget deficits by focusing cost-cutting efforts on pharmaceuticals for their state-run health care systems. These international price control efforts have impacted all regions of the world, but have been most drastic in the EU.

        Reimbursement for medicinal products in the EU Member States is governed by complex mechanisms established on a national level in each country. These mechanisms vary widely among the EU Member States and are constantly evolving, reflecting the efforts of the EU Member States to reduce public spending on healthcare. The EU Member States have broad discretion to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and reimbursement levels for medicinal products. An EU Member State may approve a specific price or level of reimbursement for medicinal products, or alternatively adopt a system of direct or indirect controls on the profitability of the company marketing the medicinal product, including volume-based arrangements. Further, an increasing number of EU Member States and other foreign countries use prices for medicinal products established in other countries as "reference prices" to help determine the price of the product in their own territory. Consequently, a downward trend in prices of medicinal products in some countries could contribute to similar downward trends elsewhere.

        A Health Technology Assessment, or HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in a number of EU Member States, including France, Germany, Italy and the UK. HTA is the procedure according to which the competent authorities in a Member State assesses the public health, therapeutic, economic and societal impact resulting from the use of a drug product within the national healthcare system of the Member State. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost-effectiveness of a medicinal product and compares these elements with other marketed treatment options. The outcome of an HTA will often influence the pricing and reimbursement status granted to a medicinal product by the competent authorities of individual EU Member States. A negative HTA of any of our medicinal products by a leading and recognized HTA body could not only undermine our ability to obtain reimbursement for our medicinal product in the EU Member State in which such negative assessment was issued, but also in other EU Member States and elsewhere. For example, EU Member States that have not yet developed HTA mechanisms rely to some extent on the HTA performed in countries with a developed HTA framework when adopting decisions concerning the pricing and reimbursement of a specific medicinal product. Moreover, as part of the HTA process or in order to obtain reimbursement of our medicinal products in some countries, including some EU Member States, we may be required to conduct clinical trials that compare the cost-effectiveness of our products to other available therapies. There can be no assurance that our medicinal products will obtain favorable reimbursement status in any country. If our medicinal products fail to be reimbursed in any of the EU Member States or other foreign countries for these and other reasons, our future revenues and profitability would be adversely affected.

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

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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 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 four 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. Any such sanctions 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:

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warning letters;



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civil or criminal penalties;



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consent decrees;



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variation, suspension or withdrawal of regulatory approvals;



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



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



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changes to the package insert for our products;



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implementation of risk mitigation programs;



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



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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, results of operations, financial condition and cash flows.

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If we or our commercial partners market or distribute our products in a manner that violates U.S., EU, or other foreign healthcare fraud and abuse laws, marketing disclosure laws or other federal, state or foreign laws and regulations, we may be subject to civil or criminal penalties.

        In addition to FDA and related regulatory requirements in the U.S. and abroad, we are subject to extensive additional federal, state and foreign healthcare regulation, which includes but is not limited to, the Federal False Claims Act, the Federal Anti-Kickback Statute, the FCPA and similar laws in countries outside of the U.S. Similar laws and regulations exist in many other countries throughout the world in which we commercialize and intend to commercialize our products, including CUBICIN and DIFICID, either directly or through our commercial partners. We have developed and implemented a corporate compliance program based on what we believe are current best practices in the pharmaceutical industry, but we cannot guarantee that we, our employees, our consultants or our third-party contractors are or will be in compliance with all federal, state and foreign regulations. Moreover, our commercial partners for CUBICIN and DIFICID in other countries have developed pricing, distribution and contracting procedures that are independent of our compliance program and over which we have limited control. Our partners may have inadequate compliance programs or may fail to respect the laws and guidance of the territories in which they are promoting the product. Compliance violations by our distribution partners could have a negative effect on the revenues that we receive from sales of CUBICIN in these countries. Adolor and/or Glaxo commercialized ENTEREG from 2008 until our acquisition of Adolor in December 2011, under each company's own compliance program, which, prior to our acquisition of Adolor, we had no control over. Likewise, Optimer commercialized DIFICID from 2011 until our acquisition of Optimer in October 2013, under Optimer's own compliance program, which, prior to our acquisition of Optimer, we had no control over. If we, our representatives or our partners fail to comply with any of these laws or regulations, a range of fines, penalties and/or other sanctions could be imposed on us and/or our partners, including, but not limited to, restrictions on how we and/or our partners market and sell our products, significant fines, exclusions from government healthcare programs, including Medicare and Medicaid, litigation or other sanctions. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could also have an adverse effect on our business, financial condition and results of operations.

        In recent years, several U.S. states have also enacted legislation requiring pharmaceutical companies to establish marketing and promotional compliance programs or codes of conduct, restricting payments or transfers of value that pharmaceutical companies may give to prescribers and other health care providers, and/or requiring such companies to file public reports on sales, marketing, pricing, clinical trials and other activities. In addition, as part of health care reform, the federal government has enacted the Physician Payment Sunshine Act and related regulations. Beginning in 2014, manufacturers of drugs will be required to publicly report gifts and payments made to physicians and teaching hospitals. Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are not always clear.

        In the EU, the advertising and promotion of medicinal products are also subject to comparable laws governing promotion, interactions with physicians, misleading and comparative advertising and unfair commercial practices. The applicable laws at the EU level and in the individual EU Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of these rules could be penalized by administrative measures, fines, and imprisonment. Interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians' codes of professional conduct in the individual EU Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, order or use of medicinal products is prohibited in the EU. The provision of benefits or advantages to physicians is also governed by the national anti-bribery laws of the EU Member States. One example is the UK Bribery Act 2010, which could have

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implications for our interactions with physicians both in and outside the UK. Violation of these laws could result in substantial fines and imprisonment. Payments made to physicians in certain EU Member States must be publicly disclosed and agreements with physicians must often be the subject of prior notification and approval by the physician's employer, his/her competent professional organization, and/or the competent authorities of the individual EU Member States. Failure to comply with these requirements could result in significant reputational risk, public reprimands, administrative penalties, fines or imprisonment.

        Compliance with these laws is difficult, time consuming and costly, and if we are found to not be in full compliance with these laws, we may face enforcement actions, fines and other penalties, and we could receive adverse publicity which could have an adverse effect on our business, financial condition and results of operations. If we fail to comply with any of these laws or regulations governing our industry, we could be subject to a range of regulatory actions that could adversely affect our ability to commercialize our products, harm or prevent sales of our products, or substantially increase the costs and expenses of commercializing and marketing our products, all of which could have a material adverse effect on our business, financial condition and results of operations.

As a result of ongoing investigations by U.S. authorities related to certain events occurring at Optimer prior to our acquisition of Optimer, it is possible that we and certain of Optimer's former employees and directors or certain of our employees may be named as defendants in future civil or criminal enforcement proceedings that could result in substantial penalties and costs, adversely impact our reputation and divert management's attention and resources.

        Prior to our acquisition of Optimer, Optimer became aware of 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 FCPA. Optimer had engaged external counsel to assist it in an internal investigation to review these matters. In April 2012, Optimer self-reported the results of its preliminary findings to the SEC and the U.S. DOJ, and removed the Chairman of its Board of Directors. In February 2013, the independent members of Optimer's Board of Directors determined that additional remedial action should be taken in light of prior compliance, record keeping and conflict-of-interest issues surrounding the potentially improper payment to the research laboratory and certain related matters. On February 26, 2013, Optimer's then-President and Chief Executive Officer and its then-General Counsel and Chief Compliance Officer resigned at the request of the independent members of the Board of Directors.

        We are continuing to cooperate with the investigations by the relevant U.S. authorities in their review of these matters and Optimer has already taken remedial steps in response to its internal investigation. Nonetheless, these events potentially 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 them for any costs or losses they incur in connection with such proceedings. In the event any such lawsuit is filed or enforcement proceeding is initiated, there is no guarantee that we will be successful in defending it. Also, our insurance coverage may be insufficient or may not cover certain intentional or other actions, and we may have to pay penalties or damage awards or otherwise enter into settlement arrangements in connection with such claims. Any payments or settlement arrangements could have material adverse effects on our business, operating results and financial condition. Even if any claims against us are not successful, any related or collateral litigation or enforcement proceedings, as well as the costs of investigation, could result in substantial costs and significantly and adversely impact our reputation and divert management's attention and resources, which could have a material adverse effect on our business, operating results and financial condition. In addition, any such lawsuit, investigation or proceeding could result in collateral consequences for our business including, among

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other things, making it more difficult to finance our operations, obtain certain types of insurance (including directors' and officers' liability insurance), enter into collaboration agreements and attract and retain qualified executive officers, other employees and directors. If we are unable to effectively manage these risks, our business, operating results or financial condition may be adversely affected.

If we fail to comply with our reporting and payment obligations under U.S. governmental pricing and contracting programs, we could be required to reimburse government programs for underpayments and could pay penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition and results of operations.

        The issuance of regulations and coverage expansion by various governmental agencies relating to the Medicaid rebate program has and will continue to increase our costs and the complexity of compliance, has been and will be time-consuming, and could have a material adverse effect on our results of operations. Changes to the definition of AMP and the Medicaid rebate amount under the Affordable Care Act and CMS's issuance of final regulations implementing those changes also could affect our 340B ceiling price calculations and negatively impact our results of operations. Because we participate in the Medicaid rebate program, we are required to report ASP information to CMS for certain categories of drugs that are paid for under Part B of the Medicare program, including CUBICIN. Statutory or regulatory changes or CMS binding guidance could affect the ASP calculations for our products and the resulting Medicare payment rate, and could negatively impact our results of operations.

        Pricing and rebate calculations vary among products and programs, involve complex calculations and often subject to interpretation by us, governmental or regulatory agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current AMP and Best Price for the quarter. If we become aware that our reporting for a prior quarter was incorrect, or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision. Such restatements and recalculations increase our costs for complying with the laws and regulations governing the Medicaid rebate program. Price recalculations also may affect the ceiling price at which we are required to offer our products to certain covered entities, such as safety-net providers, under the 340B drug discount program.

        In addition to retroactive rebate liability and the potential for 340B program refunds, if we are found to have knowingly submitted false AMP, ASP, or Best Price information to the government, we may be liable for civil monetary penalties in the amount of $100,000 per item of false information. Our failure to submit monthly/quarterly AMP, ASP, and Best Price data on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the information is late beyond the due date. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we participate in the Medicaid program. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatient drugs. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot assure you that our submissions will not be found by CMS to be incomplete or incorrect.

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        We are required to calculate and report certain pricing data to the U.S. federal government in connection with federal drug pricing programs. Compliance with these federal drug pricing programs is a pre-condition to: (i) the availability of federal funds to pay for our products under Medicaid and Medicare Part B; and (ii) procurement of our products by the VA, and by covered entities under the 340B/PHS program. The pricing data reported are used as the basis for establishing FSS and 340B/PHS program contract pricing and payment and rebate rates under the Medicare Part B and Medicaid programs, respectively. Pharmaceutical manufacturers have been prosecuted under federal and state false claims laws for submitting inaccurate and/or incomplete pricing information to the government, which has resulted in overcharges or underpayments under these programs. The rules governing the calculation of certain reported prices are highly complex. Although we maintain and follow strict procedures to ensure the maximum possible integrity for our federal price calculations, the process for making the required calculations involves subjective judgments and the risk of errors always exists, which creates the potential for exposure under the false claims laws. If we become subject to investigations or other inquiries concerning our compliance with price reporting laws and regulations, and our methodologies for calculating federal prices are found to include flaws or to have been incorrectly applied, we could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a material adverse effect on our business, financial condition and results of operations.

        To be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs as well as to be purchased by certain federal agencies and certain federal grantees, we also must participate in the VA FSS, pricing program. To participate, we are required to enter into an FSS contract with the VA, under which we must make our innovator "covered drugs" available to the "Big Four" federal agencies—the VA, the DoD, the Public Health Service, and the Coast Guard—at pricing that is capped pursuant to a statutory federal ceiling price, or FCP, formula set forth in Section 603 of the Veterans Health Care Act of 1992, or VHCA. The FCP is based on a weighted average wholesaler price known as the Non-FAMP which manufacturers are required to report on a quarterly and annual basis to the VA. If we misstate Non-FAMPs or FCPs, we must restate these figures. Pursuant to the VHCA, knowing provision of false information in connection with a Non-FAMP filing can subject us to penalties of $100,000 for each item of false information. If we overcharge the government in connection with our FSS contract or Section 703 Agreement, whether due to a misstated FCP or otherwise, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We have limited experience operating internationally, are subject to a number of risks associated with our international activities and operations and may not be successful in our efforts to expand internationally.

        We currently have limited operations outside of the U.S. and only have a small number of international employees. However, we have manufacturing, collaboration, clinical trial and other relationships outside the U.S., and CUBICIN and DIFICID are marketed internationally through collaborations. Also, in order to meet our long-term goals, we will need to grow our international operations significantly over the next several years. Consequently, we are and will continue to be subject to additional risks related to operating in foreign countries, including:

•

the fact that we have limited experience operating our business internationally;



•

unexpected adverse events related to CUBICIN, DIFICID or our other products or product candidates that occur in foreign markets that we have not experienced in the U.S.;

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•

local, economic and political conditions, including geopolitical events, such as war and terrorism, foreign currency fluctuations, which could result in increased or unpredictable operating expenses and reduced revenues, and other obligations incidental to doing business in, or with a company located in, another country;



•

unexpected changes in reimbursement and pricing requirements, tariffs, trade barriers and regulatory requirements;



•

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



•

compliance with foreign or U.S. laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import, export and trade restrictions, anti-bribery/anti-corruption laws, including but not limited to the FCPA and the Bribery Act in the UK, regulations or rules, which could lead to actions by us or our licensees, distributors, manufacturers, CROs, other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could subject us to investigation or prosecution under such foreign or U.S. laws.

        These and other risks associated with our international operations may materially adversely affect our business and results of operations.

Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.

        EU Member States, Switzerland and other countries have adopted data protection laws and regulations, which impose significant compliance obligations. For example, the EU Data Protection Directive, as implemented into national laws by the EU Member States, imposes strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. Data protection authorities from the different EU Member States may interpret the EU Data Protection Directive and national laws differently, which adds to the complexity of processing personal data in the EU, and guidance on implementation and compliance practices are often updated or otherwise revised. Our failure to comply with these laws could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results. If the currently proposed revised draft EU Data Protection Regulation is adopted in its current form it may also increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms ensuring compliance with the new EU data protection rules.

Our business is subject to numerous U.S. and international environmental and safety laws and regulations, which increase our potential liability and require us to expend significant resources to ensure compliance.

        Our research, development and manufacturing efforts, and those of third parties that research, develop and manufacture our products and product candidates on our behalf or in collaboration with us, involve the controlled use of hazardous materials, including chemicals, viruses, bacteria and various radioactive compounds and are therefore subject to numerous U.S. and international environmental and safety laws and regulations and to periodic inspections for possible violations of these laws and regulations. In addition, we, and our collaborators and third-party manufacturers, also may become subject to laws and regulations related to climate change, including the impact of global warming. The costs of compliance with environmental and safety laws and regulations are significant, and the costs of complying with climate change laws also could be significant. Any violations, even if inadvertent or accidental, of current or future environmental, safety or climate change laws or regulations could subject us to substantial fines, penalties or environmental remediation costs, or cause us to lose permits or other authorizations to operate affected facilities, any of which could adversely affect our operations.

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Credit and financial market conditions may exacerbate certain risks affecting our business.

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

The way that we account for our operational and business activities is based on estimates and assumptions that may differ from actual results.

        The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, our management evaluates its critical estimates and judgments, including, among others: those related to revenue recognition, including product rebates, chargeback and return accruals; inventory; clinical research costs; investments; business combinations; intangible assets and impairment; income taxes; stock-based compensation; and contingent consideration. Those critical estimates and assumptions are based on our historical experience, future projections, our observance of trends in the industry, and various other factors that are believed to be reasonable under the circumstances, and they form the basis for making judgments about the carrying values and fair values of assets and liabilities that may not be readily apparent from other sources. If actual results differ from these estimates as a result of unexpected conditions or events occurring which cause us to have to reassess our assumptions, there could be a material adverse impact on our financial results and the performance of our stock.

We could incur substantial costs in connection with product liability claims relating to our pharmaceutical products.

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

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Significant disruptions of information technology systems or breaches of information security could adversely affect our business.

        We rely to a large extent upon sophisticated information technology systems to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personally identifiable information, and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have also outsourced significant elements of our information technology infrastructure, and as a result we are managing many independent vendor relationships with third parties who may or could have access to our confidential information. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract, make such systems potentially vulnerable both to service interruptions and to security breaches from inadvertent or intentional actions. We may be susceptible to third-party attacks on our information security systems, which attacks are of ever increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise. Service interruptions or security breaches could result in significant financial, legal, business or reputational harm.

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

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

•

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



•

actual or anticipated variations in our quarterly operating results;



•

an adverse result in our litigation against Strides or Hospira to defend and/or assert our patents in connection with their respective efforts to seek approval to market generic versions of CUBICIN;



•

whether additional third parties submit filings with the FDA seeking approval to market generic versions of our products and the results of any litigation that we file to defend and/or assert our patents against such third parties;



•

liabilities in excess of amounts that we have accrued or reserved on our balance sheet;



•

third-party reports of our sales figures or revenues;



•

changes in the market, medical need or demand for our products and product candidates;



•

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



•

announcements of clinical trial results, regulatory filings, acquisitions, strategic partnerships, collaborations, joint ventures or capital commitments by us or our competitors;



•

litigation, including stockholder or patent litigation; and



•

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

        In addition, the stock market in general and the NASDAQ Global Select Market and the stock of biotechnology and pharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market

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price of a company's securities, securities class action litigation has often been instituted against companies. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which could harm our business.

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

        Several aspects of our corporate governance might discourage an attempt to acquire us that could otherwise be viewed as beneficial to our stockholders. For example:

•

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



•

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



•

our directors are divided into three classes and are elected to staggered three-year terms, which prevents our entire Board of Directors from being replaced in any single year or in two consecutive years; and



•

advance notice is required for nomination of candidates for election as a director to our Board of Directors and for a stockholder proposal to be presented at an annual meeting of our stockholders.

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

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

•

responding to proxy contests and other actions by activist stockholders may be costly and time-consuming and may disrupt our operations and divert the attention of management and our employees;



•

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



•

if individuals are elected to our Board of Directors with a specific agenda different from ours, it may adversely affect our ability to effectively and timely execute on our strategic plans and create additional value for our stockholders.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        Our headquarters are located at 45, 55 and 65 Hayden Avenue in Lexington, Massachusetts, where we own approximately 402,000 square feet of commercial and laboratory space and 38 acres of land.

        We also lease offices and other facilities in Jersey City, New Jersey; San Diego, California; and Zurich, Switzerland.

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        We believe these facilities are adequate to meet our current needs and that additional space will be available on commercially reasonable terms as needed.

ITEM 3.    LEGAL PROCEEDINGS

        See Note M., "Commitments and Contingencies," in the accompanying notes to consolidated financial statements within Item 8 of Part II in this report, which is incorporated herein by reference.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

PART II

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

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

Market Information

        Our common stock is traded on the NASDAQ Global Select Market under the symbol "CBST." The following table shows the high and low sales price for our common stock as reported by the NASDAQ Global Select Market for each quarter in the periods presented:

Holders

        As of February 14, 2014, we had 117 stockholders of record. This figure does not reflect persons or entities that hold their stock in nominee or "street" name through various brokerage firms.

Dividends

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

Recent Sales of Unregistered Securities

        None.

Issuer Purchases of Equity Securities Registered pursuant to Section 12 of the Exchange Act

        None.

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Corporate Performance Graph

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

        The following graph compares the performance of our common stock to the NASDAQ Stock Market (U.S.), the NASDAQ Pharmaceutical Index and the NASDAQ Biotechnology Index from December 31, 2008, through December 31, 2013. The comparison assumes $100 was invested on December 31, 2008, in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The points on the graph are as of December 31^st of the year indicated.

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ITEM 6.    SELECTED FINANCIAL DATA

        The selected financial data presented below is derived from our audited consolidated financial statements. You should read the selected historical combined financial data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II to this Annual Report on Form 10-K.

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

        The following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this Annual Report on Form 10-K. See also "Cautionary Note Regarding Forward-Looking Statements" for additional information. Additionally, percentage changes from period over period may not recalculate due to rounding.

Introduction

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

•

Overview: This section provides a summary of our financial performance during the years ended December 31, 2013, 2012 and 2011, as well as an update on our late-stage clinical pipeline and significant business developments that occurred during the year.



•

Results of Operations: This section provides a review of our results of operations for the years ended December 31, 2013, 2012 and 2011.



•

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



•

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



•

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



•

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

Overview

        Our strategic intent is to become the leading global biopharmaceutical company focused on discovering, developing and commercializing therapies for acutely ill patients—those in treatment for serious acute illnesses for days or weeks in hospitals or outpatient acute care settings.

Product Revenue Growth

        We derive most of our revenues from sales of CUBICIN, DIFICID and ENTEREG in the U.S. Our worldwide net product revenues represent net U.S. product revenues of our three marketed products as well as international product revenues, which relate to the payments we receive from international distributors in connection with their commercialization of CUBICIN and DIFICID and our direct sales of DIFICID in Canada. The cash flow generated from sales of our products funds important investments to drive our future growth.

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        The following table is a summary of our net product revenues for the periods presented:

Late-Stage Clinical Pipeline

        During 2013, we advanced our clinical pipeline as we sought to leverage our acute care-focused business model. As of December 31, 2013, we have four product candidates in Phase 3 clinical trials. Three of these late-stage product candidates, assuming successful clinical trial results and receipt of required regulatory approvals, would be used to treat hospitalized patients with serious infections:

•

Tedizolid phosphate—an investigational therapy in development for the treatment of certain serious Gram-positive bacterial infections, including those caused by MRSA. In October 2013, we submitted an NDA to the FDA seeking approval of tedizolid phosphate for the treatment of ABSSSI. In December 2013, the FDA accepted this NDA with Priority Review and assigned a PDUFA action date in June 2014. We plan to file an MAA with the EMA in the first half of 2014. We expect to initiate a Phase 3 clinical trial to assess the safety and efficacy of tedizolid phosphate in HABP/VABP in the first half of 2014. The FDA previously designated tedizolid phosphate as a QIDP for its potential ABSSSI, HABP, and VABP indications in each of the I.V. and oral dosage forms. As a result of this designation, tedizolid phosphate is eligible for certain incentives, including an accelerated NDA review period, and if tedizolid phosphate is ultimately approved by the FDA, a five-year extension of Hatch-Waxman exclusivity.



•

Ceftolozane/tazobactam—an I.V. antibiotic candidate in development as a potential treatment for certain infections caused by Gram-negative bacteria including Pseudomonas aeruginosa and extended-spectrum beta-lactamase producing strains of bacteria such as Escherichia coli and Klebsiella in the following indications: cUTI, 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. We plan to file an NDA with the FDA for the cUTI and cIAI indications in the first half of 2014, and subsequently 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. Pseudomonas aeruginosa has been cited as a pathogen of concern by the U.S. Congress as well as the IDSA, due to the levels of multi-drug-resistance which exist in many hospitals. 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 the same incentives as tedizolid phosphate, as discussed above.



•

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

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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 designated surotomycin as a QIDP, and as a result, surotomycin is also eligible for the same incentives as tedizolid phosphate, as discussed above.

•

Bevenopran—an oral investigational therapy in development as a potential treatment for 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. We initiated Phase 3 efficacy trials in patients with OIC and chronic non-cancer pain in July 2013. During the fourth quarter of 2013, we decided to stop these 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. Based upon the outcome of the Advisory Committee meeting, we may reevaluate whether to proceed with any new Phase 3 efficacy trials, and the design of such trials. Enrollment in the Phase 3 long-term safety study we initiated in October 2012 was completed in February 2014. We expect to complete the study in the first half of 2015.

        See "Business" in Item 1 of Part I to this Annual Report on Form 10-K for a discussion of our products and product candidates.

Financial Highlights

        The following table is a summary of our selected financial results for the periods presented. See the "Results of Operations" and "Commitments and Contingencies" sections of this MD&A for additional information.

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        Changes to our liquidity position and financing capability during 2013 were as follows:

•

As of December 31, 2013, we had cash, cash equivalents and investments of $578.6 million, as compared to $979.4 million as of December 31, 2012.



•

In October 2013 and September 2013, we completed our acquisitions of Optimer and Trius. See "Business Developments" below for additional information.



•

In September 2013, certain holders of $221.2 million aggregate principal amount of our outstanding 2017 Notes converted their notes into 7,580,923 shares of our common stock in privately-negotiated transactions. As of December 31, 2013, the outstanding principal amount of our 2017 Notes was $228.8 million.



•

In September 2013, we issued $800.0 million aggregate principal convertible senior unsecured notes in two series, with one series consisting of $350.0 million aggregate principal amount of the 1.125% convertible senior notes due 2018, or 2018 Notes, and the other series consisting of $450.0 million aggregate principal amount of the 1.875% convertible senior notes due 2020, or 2020 Notes, resulting in net proceeds to us, after debt issuance costs, of $775.6 million. As of December 31, 2013, the outstanding principal amount of our 2018 Notes and 2020 Notes was $350.0 million and $450.0 million, respectively.



•

In connection with the issuance of the 2018 Notes and 2020 Notes, to minimize the impact of potential dilution to our common stock upon conversion of the 2018 Notes and 2020 Notes, we entered into convertible bond hedges covering 9,705,442 shares of our common stock, which have an exercise price of approximately $82.43 per share and are exercisable when and if the 2018 Notes and 2020 Notes are converted. We also 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. We paid approximately $179.4 million for the convertible bond hedge transactions and recorded this amount as a reduction to additional paid-in capital, net of tax. We received $121.7 million for the warrants and recorded this amount to additional paid-in capital. See Note K., "Debt," in the accompanying notes to consolidated financial statements for additional information.

Business Developments

        The following is a summary of certain significant business developments that occurred during the year ended December 31, 2013, or that impacted the period thereof:

Optimer Acquisition

        On October 24, 2013, we completed our acquisition of Optimer for upfront cash consideration of $550.5 million. Under the terms of the merger agreement, we purchased 100% of the issued and outstanding shares of Optimer common stock for $10.75 per share in cash, plus one transferable contingent value right, or CVR, for each outstanding share of Optimer common stock, which entitles the holder to receive a 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. See Note D., "Business Combinations and Acquisitions," in the accompanying notes to consolidated financial statements for additional information.

Trius Acquisition

        On September 11, 2013, we completed our acquisition of Trius for upfront cash consideration of $704.4 million. Under the terms of the merger agreement, we purchased 100% of the issued and outstanding shares of Trius common stock for $13.50 per share in cash, plus one non-transferable CVR for each outstanding share of Trius common stock, which entitles the holder to receive an additional

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cash payment up to $2.00 per CVR upon achievement of certain sales milestones for a maximum potential CVR payout of $108.4 million. See Note D., "Business Combinations and Acquisitions," in the accompanying notes to consolidated financial statements for additional information.

Results of Operations for the Years Ended December 31, 2013 and 2012

Revenues

        The following table sets forth revenues for the periods presented:

Product Revenues, net

        Our net U.S. product revenues included $908.0 million of sales of CUBICIN, $12.2 million of sales of DIFICID, as a result of our acquisition of Optimer in October 2013, and $51.0 million of sales of ENTEREG for the year ended December 31, 2013, as compared to $809.2 million of sales of CUBICIN and $40.2 million of sales of ENTEREG for the year ended December 31, 2012. Gross U.S. product revenues totaled $1.1 billion and $977.9 million for the years ended December 31, 2013 and 2012, respectively. The $139.0 million increase in gross U.S. product revenues was primarily due to: (i) price increases of 5.9% and 5.5% for CUBICIN in January 2013 and July 2013, respectively, which resulted in $109.5 million of additional gross CUBICIN U.S. product revenues; (ii) a $10.2 million increase in ENTEREG gross U.S. product revenues driven by an 11.0% increase in carton sales and a 11.9% price increase in January 2013; and (iii) the addition of DIFICID to our product portfolio in October 2013, which resulted in additional gross U.S. product revenues of $16.6 million.

        Gross U.S. product revenues are offset by provisions for the years ended December 31, 2013 and 2012, as follows:

        Contractual adjustments include provisions for returns, pricing and early payment discounts extended to our external customers, as well as wholesaler distribution fees, volume-based rebates and other commercial rebates. Governmental rebates represent estimated amounts for government-

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mandated rebates and discounts relating to federal and state programs, such as Medicaid, the VA and DoD programs, the Medicare Part D Coverage Gap Discount Program and certain other qualifying federal and state government programs. We reversed $18.0 million of revenue reserves during the year ended December 31, 2013, which includes $10.0 million related to Medicaid program rebate reserves that had been accrued since the enactment of the Affordable Care Act. The change in estimate for Medicaid rebates was based on receipt of claims information from certain state governments and other additional data during 2013, as a result of lower than estimated usage of CUBICIN by MCOs.

International Product Revenues

        International product revenues are primarily based on sales of CUBICIN by Novartis, our distribution partner in the EU. International product revenues for the year ended December 31, 2013, consisted of $58.7 million for CUBICIN and $2.5 million for DIFICID for a total of $61.2 million compared to $50.5 million for the year ended December 31, 2012. The increase in international product revenues primarily related to an increase in CUBICIN sold by Novartis in its territories as well as the addition of DIFICID.

Service Revenues

        Service revenues for the years ended December 31, 2013 and 2012, were $12.3 million and $23.2 million, respectively. Service revenues for the years ended December 31, 2013 and 2012, include the ratable recognition of the quarterly service fee earned in accordance with our co-promotion agreement with Optimer to promote DIFICID in the U.S. Also included in the year ended December 31, 2012, are revenues totaling $8.5 million related to a bonus payment received from Optimer for the achievement of an annual sales target and to our portion of Optimer's gross profits on net sales of DIFICID in the U.S. that exceeded the annual sales target for the first sales year, as stipulated in the co-promotion agreement.

        On July 30, 2013, we entered into an amendment to our co-promotion agreement with Optimer, which was due to expire on July 31, 2013. The amendment extended the term of the existing co-promotion agreement in substantially its current form through the completion of our acquisition of Optimer. On October 24, 2013, as a result of completing our acquisition of Optimer, we terminated the co-promotion agreement and began marketing DIFICID ourselves. See Note C., "Business Agreements," in the accompanying notes to consolidated financial statements for additional information.

Other Revenues

        Other revenues for the years ended December 31, 2013 and 2012, were $9.7 million and $3.3 million, respectively. The increase in other revenues for the year ended December 31, 2013, primarily relates to a $5.0 million sales milestone during the year ended December 31, 2013, as a result of Novartis achieving a predetermined level of aggregate sales of CUBICIN, which we recognized upon achievement.

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Costs and Expenses

        The following table sets forth costs and expenses for the periods presented:

Cost of Product Revenues

        Cost of product revenues were $260.3 million and $230.1 million for the years ended December 31, 2013 and 2012, respectively. Included in our cost of product revenues are costs to procure, manufacture and distribute our products, royalties owed on worldwide net sales of CUBICIN and U.S. net sales of ENTEREG under our license agreements with Eli Lilly, and the amortization of intangible assets. Our gross margin for the years ended December 31, 2013 and 2012, was 75% and 74%, respectively. We expect our gross margin percentage in 2014 to be lower than our gross margin percentage in 2013, primarily related to additional amortization expense related to acquired intangible assets.

Research and Development Expense

        The following table contains a breakdown of our research and development expense for the periods presented:

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        For each of our research and development programs, we incur both external and internal expenses. External expenses include clinical and non-clinical activities performed by CROs, lab services, purchases of drug product materials and manufacturing development costs. We track external research and development expenses by individual program, with the Phase 3 costs associated with development activities for our four current Phase 3 programs identified in the table above. Marketed product expenses include external expenses for post-marketing Phase 4 trials for CUBICIN, DIFICID and ENTEREG. Milestone and upfront payments included in research and development expense relate to the licensing or purchase of research and development assets that did not qualify as business combinations. Research and development employee-related expenses include salaries, benefits and stock-based compensation expense. Other unallocated internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities.