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

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

CUBIST PHARMACEUTICALS, INC.
65 Hayden Avenue
Lexington, MA 02421

NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS

TO THE STOCKHOLDERS OF CUBIST PHARMACEUTICALS, INC.:

        NOTICE IS HEREBY GIVEN that the 2008 Annual Meeting of Stockholders of Cubist Pharmaceuticals, Inc., or the 2008 Annual Meeting, will be held at our offices at 55 Hayden Avenue, Lexington, MA 02421, on Wednesday, June 11, 2008 at 8:30 A.M. local time, for the following purposes:

1.

To elect three (3) Class III directors to our Board of Directors, each to hold office for a three-year term and until his successor has been duly elected and qualified.



2.

To consider and vote upon a proposal to amend our Amended and Restated 2000 Equity Incentive Plan, which we refer to as the EIP, to increase the number of shares issuable under the EIP by 2,000,000 shares.



3.

To ratify the selection of PricewaterhouseCoopers, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.



4.

To transact such other business as may properly come before the 2008 Annual Meeting or any adjournments or postponements thereof.

        The Board of Directors has fixed April 14, 2008 as the record date for the determination of stockholders entitled to notice of, and to vote at, the 2008 Annual Meeting. Accordingly, only stockholders of record at the close of business on the record date will be entitled to notice of, and to vote at, the meeting or any adjournments thereof.

        We are pleased to take advantage of new Securities and Exchange Commission rules that allow us to furnish proxy materials, including this Notice, the Proxy Statement, our 2007 Annual Report and the proxy card for the 2008 Annual Meeting, to our stockholders via the Internet. Taking advantage of these new rules will allow us to lower the cost of delivering annual meeting materials to our stockholders and reduce the environmental impact of printing and mailing these materials.

        To ensure your representation at the 2008 Annual Meeting, you are urged to vote by proxy by one of the following steps as promptly as possible:

(a)

Vote via the Internet pursuant to the instructions provided in the Notice of Internet Availability of Proxy Materials, or Notice of Internet Availability, that we will mail no later than April 30, 2008 to all stockholders of record and beneficial owners as of the record date; or



(b)

Request printed copies of the proxy materials by mail pursuant to the instructions provided in the Notice of Internet Availability and either:

(i)

complete, date, sign and return the proxy card that you will receive in response to your request; or



(ii)

vote via telephone (toll-free) in the United States or Canada in accordance with the instructions on the proxy card.

        The Internet and telephone voting procedures are designed to authenticate stockholders' identities, to allow stockholders to vote their shares, and to confirm that stockholders' instructions have been properly recorded. Voting via the Internet or telephone must be completed by 2:00 a.m. Eastern Time on June 11, 2008. Your shares cannot be voted unless you vote by one of the methods described above or attend the 2008 Annual Meeting in person. Regardless of the number of shares you own, your careful consideration of, and vote on, the matters before the stockholders is important.

By Order of the Board of Directors,



CHRISTOPHER D.T. GUIFFRE
Secretary*

April 28, 2008

*

As previously announced, effective as of April 30, 2008, Mr. Guiffre will be resigning as Secretary and will be replaced by Tamara L. Joseph, the Company's incoming Senior Vice President, General Counsel and Secretary.

CUBIST PHARMACEUTICALS, INC.
65 Hayden Avenue
Lexington, MA 02421

PROXY STATEMENT

GENERAL INFORMATION

Proxy Solicitation

        This Proxy Statement is furnished to the holders of the common stock, $.001 par value per share, of Cubist Pharmaceuticals, Inc., which we refer to in this Proxy Statement as "Cubist" or the "Company," in connection with the solicitation of proxies on behalf of our Board of Directors, or Board, for use at the 2008 Annual Meeting of Stockholders, or the 2008 Annual Meeting, to be held at our offices at 55 Hayden Avenue, Lexington, Massachusetts on Wednesday, June 11, 2008 at 8:30 A.M. local time or at any adjournment or postponement of the meeting. The purposes of the 2008 Annual Meeting and the matters to be acted upon are set forth in the accompanying Notice of 2008 Annual Meeting of Stockholders, or the Notice. The Board knows of no other business that will come before the 2008 Annual Meeting.

        In accordance with rules and regulations recently adopted by the Securities and Exchange Commission, or SEC, instead of mailing a printed copy of our proxy materials to each stockholder of record, Cubist is now furnishing its proxy materials, including the Notice, this Proxy Statement, our 2007 Annual Report to Stockholders and the proxy card for the 2008 Annual Meeting, by providing access to such documents on the Internet. We will send a Notice of Internet Availability of Proxy Materials, or the Notice of Internet Availability, no later than April 30, 2008 to our stockholders of record and beneficial owners as of April 14, 2008, the record date for the 2008 Annual Meeting. The Notice of Internet Availability contains instructions for accessing and reviewing our proxy materials on the Internet and voting by proxy over the Internet. If you prefer to receive printed copies of our proxy materials, the Notice of Internet Availability contains instructions on how to request such materials by mail. You will not receive printed copies of the proxy materials unless you request them. If you elect to receive the materials by mail, you may also vote by proxy on a proxy card or via telephone. Viewing our proxy materials and voting by proxy electronically this year and in the future will save us the cost of printing and mailing documents to you and will reduce the impact on the environment.

        If you are a stockholder of record, you may vote in person at the 2008 Annual Meeting even if you have voted previously by proxy. We will give you a ballot when you arrive.

        We will pay the costs of soliciting proxies. Our Board members, officers and employees may solicit proxies on our behalf, without additional compensation, personally or by telephone. We will also solicit proxies by email from stockholders who are our employees or who previously requested to receive proxy materials electronically, and may utilize the assistance of third parties in connection with our proxy solicitation efforts.

Voting and Revocability of Proxy

        Stockholders of record can vote their shares (1) via the Internet, (2) via a toll-free telephone call from the U.S. or Canada, (3) by mailing a signed proxy card, or (4) in person at the 2008 Annual Meeting. The Internet and telephone voting procedures are designed to authenticate stockholders' identities, to allow stockholders to vote their shares, and to confirm that their instructions have been properly recorded.

        Stockholders may revoke the authority granted by their execution of proxies at any time before the effective exercise of such authority by filing with our Secretary a written revocation or a duly executed proxy bearing a later date or by voting in person at the 2008 Annual Meeting. Shares represented by executed and unrevoked proxies will be voted in accordance with the choice or instructions specified thereon. If no specifications are given, the proxies intend to vote the shares represented thereby to (i) approve Proposal No. 1 to elect the Class III nominees to the Board, (ii) approve Proposal No. 2 to amend our Amended and Restated 2000 Equity Incentive Plan, or EIP, to increase the number of shares issuable under the EIP by 2,000,000 shares, and (iii) approve Proposal No. 3 to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008, each as set forth in the accompanying Notice and in accordance with the proxies' best judgment on any other matters that may properly come before the 2008 Annual Meeting.

Record Date and Voting Rights

        Only stockholders of record at the close of business on April 14, 2008, the record date, are entitled to notice of, and to vote at, the 2008 Annual Meeting or any adjournment or postponement of the meeting. On the record date, we had outstanding 56,284,131 shares of common stock, each of which is entitled to one vote upon each of the matters to be presented at the 2008 Annual Meeting. The presence, in person or by proxy, of a majority of the issued and outstanding shares of common stock on the record date, will constitute a quorum for the transaction of business at the 2008 Annual Meeting. Votes withheld from any nominee, abstentions, and broker "non-votes" are counted as present or represented for purposes of determining the presence or absence of a quorum for the 2008 Annual Meeting. A broker "non-vote" occurs when a nominee holding shares for a beneficial owner does not vote on one or more proposals because the nominee does not have discretionary voting power and has not received instructions from the beneficial owner.

        In the election of directors, the affirmative vote of a plurality of the shares of common stock present or represented and entitled to vote at the 2008 Annual Meeting, in person or by proxy, is required for the election of each of the nominees. Abstentions and broker "non-votes" will have no effect on the voting outcome with respect to the election of directors. The proposals to increase the number of shares issuable under our EIP and to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008 require the affirmative vote of the holders of a majority of shares present in person or represented by proxy at the 2008 Annual Meeting and entitled to vote on such proposals. Abstentions have the practical effect of a vote against these proposals. Broker "non-votes" will have no effect on the voting outcome of these proposals.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth certain information with respect to each person known to us to be the beneficial owner of more than 5% of our issued and outstanding common stock as of April 14, 2008. On April 14, 2008, we had outstanding 56,284,131 shares of common stock.

(1)

We calculated the percentage of class based on the number of shares reported as beneficially owned in the SEC filings of the beneficial owners divided by the actual number of shares outstanding as of April 14, 2008. The percentages in the table may differ from the percentages reported in the beneficial owners' filings with the SEC because the beneficial owners may have used different denominators than the actual number of shares outstanding as of April 14, 2008.

(2)

The information reported is based on a Schedule 13G/A filed with the SEC on February 8, 2008 by Mazama Capital Management, Inc., or Mazama. Mazama, an investment adviser, reported that it had sole voting power with respect to 4,680,975 shares and sole dispositive power with respect to 7,839,102 shares as of December 31, 2007.

(3)

The information reported is based on a Schedule 13G filed with the SEC on April 9, 2008. Various persons, including FMR LLC, have the right or the power to direct the receipt of dividends from, or the proceeds from the sale of, such shares.

(4)

The information reported is based on a Schedule 13G/A filed with the SEC on February 1, 2008 by Unicredito Italiano, S.p.A., or Unicredito. Unicredito reported that it had sole voting and dispositive power with respect to these shares as of December 31, 2007. Unicredito previously made filings with the SEC as Pioneer Global Asset Management S.p.A.

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(5)

The information reported is based on a Schedule 13G filed with the SEC on February 14, 2008 jointly by Morgan Stanley and FrontPoint Partners, LLC, a wholly-owned subsidiary of Morgan Stanley. Morgan Stanley reported that it had sole voting and dispositive power with respect to 3,048,503 shares as of December 31, 2007, and FrontPoint reported that it had sole voting and dispositive power with respect to 3,038,132 of these shares as of December 31, 2007. The reporting persons state in the filing that, in accordance with SEC Release No. 34-39538 (January 12, 1998), the shares reported in the filing reflect the securities beneficially owned by certain operating units (collectively, the "Reporting Units") of Morgan Stanley and its subsidiaries and affiliates, and does not reflect securities, if any, beneficially owned by any operating units of Morgan Stanley and its subsidiaries and affiliates whose ownership of securities is disaggregated from that of the Reporting Units in accordance with such release. The shares being reported upon by Morgan Stanley as a parent holding company are owned, or may be deemed to be beneficially owned, by FrontPoint Partners LLC, an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E), as amended.

(6)

The information reported is based on a Schedule 13G filed with the SEC on February 5, 2008 by Barclays Global Investors, NA, or Barclays, and certain affiliated entities. Barclays reported that it holds the shares in trust accounts for the economic benefit of the beneficiaries of those accounts and that it had sole voting power with respect to 2,754,654 shares and sole dispositive power with respect to 2,931,351 shares as of December 31, 2007.

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MANAGEMENT STOCKHOLDERS

        The following table sets forth information as of April 14, 2008, as reported to us, with respect to the beneficial ownership of common stock by each member of our Board, who we refer to as our Directors, and each Named Executive Officer (as that term is defined in the Compensation Discussion and Analysis section of this Proxy Statement), and by all of our current Directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to stock options held by that person that are currently exercisable or exercisable within 60 days of April 14, 2008 are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated below and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. Shares included below in the column entitled "Right to Acquire" represent shares subject to outstanding stock options currently exercisable or exercisable within 60 days of April 14, 2008. On April 14, 2008, we had outstanding 56,284,131 shares of common stock.

*

Less than 1% of the issued and outstanding shares of common stock.

(1)

Mr. Bonney holds a portion of his shares with joint voting and investment power with Mrs. Alison G. Bonney.

(2)

Dr. Martin holds his shares with joint voting and investment power with Mrs. Kathleen M. Martin.

(3)

Mr. Maupay holds a portion of his shares with joint voting and investment power with Ms. Margaret Maupay.

(4)

This group does not include Dr. Fetzer, who left the Company in September 2007, and includes Stephen Gilman, PhD, our Senior Vice President, Discovery and Nonclinical Development and Chief Scientific Officer, who joined the Company in February 2008. Dr. Gilman owned 2,121 shares of our common stock as of April 14, 2008, but did not have the right to acquire any additional shares of our common stock within 60 days of April 14, 2008.

5

INFORMATION AS TO DIRECTORS AND NOMINEES FOR DIRECTOR

        The names of our Directors (including the nominees for re-election as Class III Directors at the 2008 Annual Meeting) and certain information regarding each Director are listed below.

(1)

Member of Audit Committee

(2)

Member of Compensation Committee

(3)

Member of Corporate Governance and Nominating Committee

(4)

Member of Scientific Affairs Committee

*

Committee Chairman

        Mr. Bate has served as one of our directors since June 2003 and became our lead director in June 2006. Since January 2007, Mr. Bate has been President and Chief Executive Officer and a director of Nitromed, Inc., a pharmaceutical company. From March 2006 until January 2007, Mr. Bate was Chief Operating Officer and Chief Financial Officer of Nitromed. From 2002 to January 2005, Mr. Bate was head of commercial operations and Chief Financial Officer at Millennium Pharmaceuticals, Inc. In 1999, Mr. Bate co-founded JSB Partners, an investment banking and transaction advisory firm serving the biopharmaceutical industry. He was a partner at JSB Partners through 2002. From 1997 to 1999, Mr. Bate served as Senior Managing Director and Chief Executive Officer of MPM Capital, LP, a venture capital company. He was also an advisor to BB Bioventures, a venture capital fund. Mr. Bate's life sciences industry experience also includes six years at Biogen, Inc.; from 1993 to 1996 as the company's vice president of sales and marketing, and as Chief Financial Officer from 1990 to 1993. Mr. Bate is a director of AVEO Pharmaceuticals, Inc., a biopharmaceutical company. Mr. Bate received his B.A. degree in Chemistry from Williams College, and an MBA from The Wharton School of the University of Pennsylvania.

        Mr. Bonney has served as our President and Chief Executive Officer and as one of our directors since June 2003. From January 2002 to June 2003, he served as our President and Chief Operating Officer. From 1995 to 2001, he held various positions of increasing responsibility at Biogen, Inc., including Vice President, Sales and Marketing from 1999 to 2001. While at Biogen, Mr. Bonney built the commercial infrastructure for the launch of Avonex®. Prior to that, Mr. Bonney held various positions of increasing responsibility in sales, marketing and strategic planning at Zeneca Pharmaceuticals, ending his eleven-year career there serving as National Business Director. Mr. Bonney

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received a B.A. in Economics from Bates College. Mr. Bonney is a director of NPS Pharmaceuticals, Inc., a biopharmaceutical company, and serves on the Boards of Trustees of the Beth Israel Deaconess Medical Center and Bates College. Mr. Bonney is also a member of the Biotechnology Industry Organization, or BIO, Health Section Governing Body.

        Dr. Grégoire has served as one of our directors since June 2006. Since 2007, Dr. Grégoire has served as President, Human Genetic Therapies division of Shire Pharmaceuticals Group plc, a pharmaceuticals company. From 2004 to 2005, Dr. Grégoire served as President and Chief Executive Officer of GlycoFi, Inc., a biotherapeutics company. From 2003 to 2004, Dr. Grégoire was a consultant to the biopharmaceuticals industry. From 2001 through 2003, Dr. Grégoire served as Executive Vice President, Technical Operations, of Biogen, Inc. and its successor Biogen Idec Inc., and from 1995 to 2001, she held various roles of increasing responsibility with Biogen. Prior to Biogen, Dr. Grégoire held clinical research and regulatory roles with Merck & Co., a pharmaceuticals company. She is a director of IDM-Pharma, a biopharmaceuticals company. She received her Pharm.D. degree from the State University of New York at Buffalo and her pharmacy graduate degree (Bachalaureat en Pharmacie) from the Université Laval, Quebec City.

        Dr. Martin has served as one of our directors since October 1997 and served as our lead director from October 2004 until June 2006. Since 2004, he has been the Chairman and Chief Executive Officer of AvidBiotics Corporation, a biotechnology company that he founded. In 2003, he was Chairman and Chief Executive Officer of GangaGen, Inc., a biotechnology company. From July 1997 until April 2003, Dr. Martin served as President and Chief Executive Officer of Eos Biotechnology, Inc., a biotechnology company that he founded. From 1995 to 1996, Dr. Martin was President and Chief Executive Officer of Lynx Therapeutics, Inc., a biotechnology company. During 1994 and through May 1995, Dr. Martin served as Senior Vice President of Chiron Corporation. From 1991 to 1994, Dr. Martin served as Executive Vice President of DuPont Merck Pharmaceutical Company. From 1983 to 1990, Dr. Martin was Vice President and then Senior Vice President of Research and Development at Genentech, Inc. Prior to 1983, Dr. Martin was a Professor of Medicine, Professor of Biochemistry and an Investigator of the Howard Hughes Medical Institute at the University of California, San Francisco. Dr. Martin is also Lead Director of Varian Medical Systems, Inc., a medical equipment and software supplier. Dr. Martin received an M.D. from Duke University.

        Mr. Maupay has served as one of our directors since June 1999. From January 1995 to June 1995, Mr. Maupay served as Group Executive of Calgon Vestal Laboratories, a division of Bristol-Myers Squibb Corporation. From 1988 to 1995, Mr. Maupay served as President of Calgon Vestal Laboratories, at that time, a subsidiary of Merck and Company. From 1984 to 1988, Mr. Maupay served as Vice President, Healthcare at Calgon Vestal Laboratories. Mr. Maupay is a director of SyntheMed, Inc., a biomaterials company. He is also a director and non-executive chair of Kensey Nash Corporation, a medical device company. Mr. Maupay received his B.S. in Pharmacy from Temple University and an MBA from Lehigh University.

        Dr. Rosenberg has served as one of our directors since March 2005. Since 2003, Dr. Rosenberg has been the Chief Scientific Officer of Promega Corporation, a biotechnology company. From 2001 to 2003, Dr. Rosenberg served as Vice President, Research and Development of Promega Corporation. From 2000 until 2001, Dr. Rosenberg was Senior Vice President, Anti-Infectives, Drug Discovery at GlaxoSmithKline, a pharmaceutical company. From 1996 until 2000, Dr. Rosenberg was Senior Vice President, Anti-Infectives at SmithKline Beecham Corporation, a predecessor company to

7

GlaxoSmithKline. Prior to 2000, Dr. Rosenberg held a variety of roles of increasing responsibility with SmithKline Beecham Corporation. Before joining SmithKline Beecham, Dr. Rosenberg spent 10 years at the National Institutes of Health and was a Section Chief at the National Cancer Institute. Dr. Rosenberg is a director of Promega Corporation, the Medical College of Wisconsin Research Foundation, and Scarab Genomics, a biotechnology company. He also serves as a member of the Advisory Council for the National Institutes of Allergy & Infectious Diseases at the National Institute of Health. Dr. Rosenberg participates on a variety of academic and industry Scientific Advisory Boards and holds an adjunct Professorship at the University of Wisconsin, Department of Bacteriology. He is Editor-in-Chief of Current Opinions in Biotechnology, a Senior Editor of the Journal of Bacteriology and a member of several other journal Editorial Boards. Dr. Rosenberg received a B.A. degree from the University of Rochester and a Ph.D. from Purdue University.

        Mr. Singleton has served as one of our directors since June 2003. From 2000 to the present, he has served as Executive Vice President and Chief Financial Officer of CitationShares, LLC, a majority-owned subsidiary of Cessna Aircraft Company and Textron Inc. From 1994 to 1997, Mr. Singleton served as a Managing Director, Executive Vice President and Chief Administrative Officer of CIBC World Markets, an investment banking firm. Previous to that, he served in a variety of roles from 1974 until 1994 at Arthur Andersen & Co., a public accounting firm, ending his tenure there as Partner-In-Charge of the Metro New York Audit and Business Advisory Practice. During 1980 and 1981, he served as a Practice Fellow at the Financial Accounting Standards Board. Mr. Singleton served as a director of Salomon Asset Reinvestment Company from 1998 to 2006. He received an A.B. in Economics from Princeton University and an MBA from New York University. Mr. Singleton is a Certified Public Accountant.

        Mr. Soeters has served as one of our directors since September 2006. Since 2007, Mr. Soeters has served as Senior Vice President of Novo Nordisk A/S. From 2000 to 2007, Mr. Soeters served as President of Novo Nordisk Inc. and Senior Vice President of Novo Nordisk Inc. in Princeton, NJ. From 1998 to 2000, he served as Senior Vice President, International Marketing at Novo Nordisk Denmark, and from 1994 to 1998, he served as Managing Director of Novo Nordisk France. From 1992 to 1995, Mr. Soeters was Managing Director at Novo Nordisk Belgium, and in 1991, he was International Marketing Director at Novo Nordisk Denmark. Prior to that time, he held various sales and marketing positions at Novo Nordisk in the Netherlands between 1980 and 1991. Mr. Soeters is currently a director of Pharmacopeia, Inc., a biopharmaceutical company. He is also a member of the Board of Overseers of the Joslin Diabetes Center. He was a Trustee of the HealthCare Institute of New Jersey, and from 2005 to 2007, was a member of the BIO Board of Directors. From 2004 to 2006, he served on the Board of Directors of the Pharmaceutical Research and Manufacturers of America (PhRMA) in Washington, D.C. Mr. Soeters studied meteorology, as well as sales, product and marketing management in the Netherlands, and he also attended the Stanford Executive Program.

        Dr. Wood has served as one of our directors since March 2005. Dr. Wood is currently an Orthopedic Surgeon and retired President-emeritus of the Mayo Foundation and Professor of Orthopedic Surgery, Mayo Clinic School of Medicine. He was previously Chief Executive Officer of the Mayo Foundation from 1999 until 2003. Prior to 1999, Dr. Wood held a variety of roles within the Mayo Clinic. Dr. Wood is a director of Steris Corporation, a medical sterilization company, and Assistive Technology Group, Inc., a rehabilitation and durable medical equipment company. Dr. Wood is also a director of SingHealth, an integrated health system in Singapore and a member of the board of overseers of the Baldrige National Quality Award. Dr. Wood received a B.A. degree from Franklin and Marshall College, an M.D., C.M. degree from McGill University and an M.S. degree from the University of Minnesota.

8

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

        The Company relies on certain core principles to guide its approach to its customers, employees and stockholders. Many of these core principles also apply to how the Company approaches executive compensation. With respect to executive compensation, the Company believes in results-oriented pay as evidenced by the Company's pay programs that award substantial pay for concrete results. The Compensation Committee and Chief Executive Officer, or CEO, believe in taking a leadership position in executive pay and have consistently demonstrated that leadership over the years by the CEO's moderate guaranteed pay (base salary) with an increasingly substantial portion of his pay based on performance-based incentives tied to the achievement of aggressive corporate goals.

        The Company also believes that its existing compensation programs have been effective in meeting the Company's goals of attracting, retaining and motivating key talent, which has helped validate the mix between short- and long-term compensation and the mix between at-risk and fixed compensation. Management and the Compensation Committee regularly reassess and review the Company's programs for areas of potential improvement and educates Board members on executive compensation matters. In addition, the Company focuses not just on what is paid but on the process for decision-making to ensure it has appropriate input from independent advisors and Board members, with the appropriate checks in place to ensure integrity in the process.

        We will use the term "Executive Officers" when referring to all of our executive officers, and we will use the term "Named Executive Officers" when referring to the six individuals named in the Summary Compensation Table in this Proxy Statement. When discussing compensation matters generally, we will provide such information with reference to all of our Executive Officers as a group. When we discuss specific matters with respect to the 2007 compensation figures and percentages described in the compensation tables contained herein, we will provide such information for our Named Executive Officers only.

Compensation Philosophy

        The Company maintains a written compensation philosophy that was developed by the CEO in collaboration with, and ultimately approved by, the Compensation Committee. This philosophy covers compensation objectives, elements of compensation, targeted market levels of compensation, stock ownership goals, and parameters around benchmarking executive compensation.

Compensation Objectives

        The objectives of the Company's executive compensation programs are as follows:

•

To provide competitive compensation that differentiates and rewards Executive Officers for their overall contribution to the Company.



•

To further the Company's short- and long-term strategic goals by aligning Executive Officer compensation with the achievement of individual and corporate objectives designed to promote the creation and protection of value for stockholders.

9

•

To design short- and long-term incentive compensation programs that attract and retain high-quality Executive Officers and motivate high performance at the individual and corporate levels.



•

To emphasize the alignment of Executive Officer pay with the Company's financial and stock performance.

Compensation Elements and Targeted Market Levels of Compensation

        The Company's philosophy provides that Executive Officer compensation can be above or below the identified compensation target for each pay element depending on a number of factors including retention considerations, individual and corporate performance, relative value of the position within the Company as compared to peer companies, and internal equity considerations.

        The Company provides the following key elements of compensation:

•

Base salaries are targeted at the median of the market for comparable positions at comparable companies, but can exceed the median over time based on performance and an increase in experience. Base salaries also can be set below the median for employees with less experience and above the median for employees with extensive experience.



•

Annual performance awards are generally targeted to allow total cash compensation to exceed the median of the market for comparable positions at comparable companies if the individual and the Company meet or exceed pre-agreed goals.



•

Long-term incentive awards (stock options) are generally targeted at or above the median of the market to provide comparable compensation with similar positions at comparable companies if the Company's stock price performs well.

        The Company allocates its compensation between short- and long-term compensation with significant emphasis on long-term incentives due to the Company's stage of growth and desire to focus on long-term results. For 2007, the CEO's total compensation was comprised of approximately 27% base salary, 22% performance award and 50% long-term incentives, all in the form of option awards (based on the value ascribed to such awards in the Summary Compensation Table of this Proxy Statement). The total compensation of other Named Executive Officers' who were employed by the Company for all of 2007 was comprised, on average, of 42% base salary, 19% performance award and 37% long-term incentives, all in the form of option awards (based on the value ascribed to such awards in the Summary Compensation Table of this Proxy Statement). The Company believes that each of its Executive Officers should be focused on the long-term, sustainable success of the Company, and should be held accountable for results. Therefore, the elements of total compensation are heavily weighted to long-term incentives, with the CEO's total compensation being the most heavily weighted toward long-term incentives.

Stock Ownership

        In 2005, the Company adopted stock ownership guidelines for Directors and Executive Officers. The guidelines are designed to align the interests of the Company's Directors and Executive Officers with those of its stockholders by ensuring that the Company's Directors and Executive Officers have a meaningful financial stake in the Company's success. The amount of stock required to be held to satisfy ownership requirements was established by the Compensation Committee after reviewing market

10

practices of peer companies and deliberating on what would constitute meaningful ownership to align executives and stockholders.

        In the event that an Executive Officer fails to meet the ownership guidelines within the time period specified above yet elects to dispose of shares of Cubist common stock, after each sale of stock, he or she must retain stock with a market value of at least 50% of the after tax proceeds from any sale.

Compensation Benchmarking

        As part of establishing the total compensation package for Executive Officers, the Compensation Committee reviewed compensation packages for comparable positions at comparable companies. In 2007, the Compensation Committee engaged Pearl Meyer & Partners, or PM&P, a nationally recognized executive compensation consulting firm, to assist with this comparable company analysis. The specific elements of compensation reviewed as part of this comparable company analysis included base salaries, annual performance awards and long-term incentives. In 2005, PM&P also analyzed the competitiveness of the Company's retention and change-in-control arrangements versus comparable companies.

        PM&P recommended a list of comparable companies for Executive Officer compensation comparisons primarily based on industry, revenue, and market capitalization similarity to the Company. The list of peer group companies was approved by the Compensation Committee. For 2007, the Company's peer group consisted of the following companies: Amylin Pharmaceuticals, Inc., Isis Pharmaceuticals, Inc., Ligand Pharmaceuticals, Inc., Myriad Genetics, Inc., Neurocrine Biosciences, Inc., OSI Pharmaceuticals, Inc., PDL BioPharma, Inc., Tanox, Inc., United Therapeutics Corporation and Vertex Pharmaceuticals Incorporated. The Compensation Committee utilizes the peer group to inform its compensation decision making. Once the peer companies are selected, the Compensation Committee compares the Company to the peer group on the basis of other financial factors, including growth, profitability, and stockholder return. The comparable companies are reviewed each year and may change from year-to-year depending on changes in the marketplace, acquisitions, divestitures and business focus of the Company or comparable companies.

        PM&P prepared and presented a report to the Compensation Committee summarizing the competitive data and comparisons of the Company's CEO and Executive Officers to the comparable competitive market data utilizing publicly available data from the comparable companies and broad survey data (reflecting companies of similar size in the pharmaceutical/biotech industry). For 2007, the CEO's base salary was at about the 25^th percentile, as compared to the benchmarking and other data, his combined base salary and performance award was at about the 50^th percentile, and his long-term incentive package was at about the 60^th percentile. The other Named Executive Officers (excluding the

11

CEO) were paid base salaries that were on average at about the 60^th percentile, with their combined base salaries and performance awards at about the 55^th percentile and long-term incentive compensation ranging between the 50^th and 75^th percentiles. These percentages reflect the Company's emphasis on long-term incentive compensation as the most significant component of total compensation.

Elements of Compensation

Base Salary

        Base salaries are included as part of the Company's compensation package to provide a competitive compensation package consistent with comparable company and industry practices. The Company targets starting base salaries at the median of the marketplace for the following reasons:

•

The Company has a pay-for-performance philosophy, which emphasizes incentive pay and differentiation among employees.



•

Median targeted base salaries ensure that the Company is competitive in paying for the base value of the position, yet still allows the Company to emphasize performance.

        In certain circumstances, starting base salaries higher than the median are offered for positions that require more complex work, have critical value to the Company, are in high demand in the marketplace and have fewer qualified candidates, or in situations where candidates enter the position with extraordinary relevant experience. Higher base salaries may also be paid over time to reflect superior individual performance. Base salaries are considered for increases annually.

Annual Performance Awards

        As part of its pay-for-performance philosophy, the Company provides for an annual cash performance award under its written Short Term Incentive Plan, or STIP, which is filed with the SEC. The Company targets annual cash awards that allow total cash compensation to exceed the median of the marketplace depending upon individual and corporate performance for the following reasons:

•

To encourage specific short-term Executive Officer behaviors that create and protect Company and stockholder value.



•

To focus Executive Officers on important short-term business objectives that are expected to have a positive long-term impact on the success of the Company.



•

To provide competitive cash compensation packages if goals are met or exceeded.

        The cash performance award program is designed to reward the accomplishment of specific corporate and individual goals during the year. Each Executive Officer has a target award as a percentage of base salary. The 2007 percentages are set forth below:

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        The target award percentages are designed to provide similar award opportunities to the Company's Executive Officers as the target award opportunity for executives at comparable companies. The Chief Operating Officer's and Chief Financial Officer's target awards are higher than the other Executive Officers because of the competitiveness in the marketplace for these roles, as well as the relative importance of their positions within the Company.

        The Company must achieve at least 70% of its corporate goals for any annual performance awards to be paid because the Company believes that this minimum level of performance should be achieved to justify the payment of any performance award. The Company also believes this 70% performance threshold is reasonable and consistent with industry practices. In addition, the Board maintains the discretion to reduce, increase or eliminate award payments in the event that the Company fails to substantially achieve its corporate goals, regardless of whether the Company has achieved at least 70% of its corporate goals. The maximum annual performance awards that can be paid are 200% of the target percentage. The annual performance award goals change year-to-year, but generally are focused on corporate as well as individual performance. Corporate goals are drafted by the CEO and the Compensation Committee and subsequently reviewed, modified if necessary, and approved by the full Board. For Executive Officers other than the CEO, individual goals are established by their respective managers. The following table summarizes the weighting of goals in 2007 as between corporate and individual goals for the Chief Executive Officer and other Executive Officers:

        Individual goals are designed to focus Executive Officers on individual behaviors that support the overall performance and success of the Company. The corporate and individual goals, which are discussed further below, are set with a reasonable level of difficulty that requires that the Company and the Executive Officers perform at a high level in order to meet the goals and the likelihood of attaining these goals is not assured.

        The Compensation Committee retains the discretion to adjust any Executive Officer's annual performance award up or down based on the Executive Officer's relative contributions to the Company's overall performance, factors that fall outside the parameters of the corporate goals and such Executive Officer's individual performance goals, and other factors.

Long-Term Incentive Compensation (Stock Option Awards)

        Executive Officers are eligible for performance stock option awards twice a year to tie a significant portion of the Executive Officers' compensation directly to Company performance. The Company targets option awards that are at or above the median of the marketplace for the following reasons:

•

To focus Executive Officers on multi-year results.



•

To provide Executive Officers with a financial interest in the appreciation of the value of the Company's common stock and focus them on long-term financial objectives.



•

To align Executive Officer interests with stockholder interests and to create motivation to increase stockholder value.

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•

To provide Executive Officers with a compensation package that is competitive with comparable companies.



•

To retain Executive Officers over the long-term through the use of vesting. Options vest 25% per year (6.25% per quarter) over 4 years and remain in effect for 10 years.

        In 2006 and 2007, the Company reconsidered its use of stock options as its sole long-term incentive vehicle and considered alternative equity instruments including restricted stock, restricted stock units, performance shares, stock appreciation rights, and cash long-term incentive plans. To date, the Company has elected to continue to grant only stock options for its long-term incentive compensation because the emphasis of the Company's long-term incentive strategy has been to only reward executives for increasing the value of the Company for stockholders. The Company will continue to review this approach to long-term incentives taking into account the financial statement impact of different long-term incentive instruments, tax considerations, executive retention, market competitiveness and the Company's overall compensation strategy and philosophy.

Perquisites

        The Company did not provide Executive Officers with any perquisites in 2007.

Retention Letters with Executive Officers

        The Company has entered into retention letters with all of its currently-employed Named Executive Officers, forms of which have been filed with the SEC. Dr. Steven Gilman, the Company's only current Executive Officer who is not a Named Executive Officer, joined the Company as our Senior Vice President, Discovery and Non-clinical Development and Chief Scientific Officer in February 2008. Dr. Gilman will be eligible to receive a retention letter once he is employed by the Company for at least 6 months. In addition, in the event that a change of control of the Company occurs within Dr. Gilman's first six months of employment with the Company, he will be entitled to receive the same benefits upon a change of control as the Named Executive Officers, other than the CEO, receive.

        Any benefits afforded to Executive Officers under retention letters are contingent upon the Company receiving an executed release of claims from the Named Executive Officer. The objectives of providing Executive Officers with these retention letters are to provide competitive executive severance arrangements, to assist the Company in attracting and retaining top executive talent, to encourage the Executive Officers' honest discourse with the CEO and Board without fear of adverse consequences, and to balance the need for an Executive Officer's personal financial security with the need to act in the best interest of our stockholders in a situation involving a potential change of control of the Company. To ensure that these agreements remain reasonable and competitive, the Compensation Committee periodically reviews competitive data provided by PM&P, as well as potential costs to the Company of the retention letters under various potential termination scenarios and updates its cost analysis prior to making any changes to the retention letters. The Compensation Committee reviews Executive Officer wealth accumulation on an annual basis. However, to date, wealth accumulation has not been a factor in the Compensation Committee's periodic review of the Company's retention arrangements with its Executive Officers.

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        The material terms of the Company's retention letters have not changed since 2005. However, in 2007, the letters were revised to ensure compliance with Section 409A of the Internal Revenue Code of 1986, as amended, or the Code.

        Further detail on the terms of the retention letters and the value of the retention letters under various termination scenarios can be found in the section of this proxy statement entitled "Termination of Employment and Change-in-Control Agreements."

Compensation Determinations

Corporate Goal Setting for Compensation Purposes

        In December 2006, the CEO proposed 2007 corporate goals to the Compensation Committee for use in connection with CEO and Executive Officer annual performance awards. The Compensation Committee discussed the proposed corporate goals with the CEO, incorporated appropriate modifications and made a recommendation to the full Board. The full Board discussed the recommendations of the Compensation Committee and approved the proposed corporate goals. The CEO discussed the Company's performance with other Directors on a regular basis throughout 2007.

        For 2007, the corporate goals were based 40% on generating total product revenues, 10% on generating pre-tax profit, 20% on building our clinical stage pipeline internally and through business development efforts, 20% on building our discovery stage pipeline internally and through business development efforts, and 10% on employee development. Corporate goals are set with a reasonable level of difficulty to achieve as evidenced by the Company achieving 96% of its corporate goals in 2007, 85% of its corporate goals in 2006, 105% of its corporate goals in 2005, and 95% of its corporate goals in 2004. In making its determination that the Company achieved 96% of its corporate goals in 2007, the Compensation Committee determined that the Company exceeded its total product revenue, pre-tax profit and employee development goals, met its discovery pipeline goals and partially achieved its clinical stage pipeline goals.

        The statements above are provided herein in the limited context of the STIP. These statements should not be interpreted as statements of the Company's expectations or any other guidance and should not be relied upon by investors or analysts in establishing future performance metrics. We specifically caution investors not to apply these statements to other contexts.

CEO Compensation Determination Process

        At the beginning of 2007, the Compensation Committee quantitatively evaluated the CEO's performance against the corporate goals and objectives set in the prior year. The Compensation Committee also solicited qualitative input on the CEO's performance from all Directors, many Company executives, and some external sources for use in connection with the CEO's performance evaluation. The Compensation Committee then made a recommendation to the independent Directors for the CEO's 2007 base salary increase, cash performance award attributable to 2006 performance and a stock option award, taking into account the following factors:

•

The Company's performance against predetermined corporate goals and the Company's overall performance.



•

The Company's compensation philosophy.

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•

The CEO's individual performance generally and historically.



•

The CEO's total cash compensation as compared to the second highest paid Executive Officer and the Company's lowest paid employee to determine whether the CEO's relative cash compensation is fair and reasonable in the context of internal equity.



•

A competitive analysis prepared by PM&P on CEO compensation at comparable companies.

        In February 2007, the Compensation Committee made its base salary recommendations for the CEO to the independent Directors without the CEO present, and, after discussion and requested adjustments, the independent Directors approved the CEO's base salary for 2007 based upon the factors above, with specific emphasis on the Company's overall performance, his individual performance, and PM&P's competitive analysis. The CEO's base salary for 2007 was set at $435,000, which represented a 4.8% increase from his 2006 base salary. The Compensation Committee continues to maintain the CEO's base salary below the median of the market due to the CEO's desire to demonstrate leadership in keeping CEO pay reasonable and consistent with the other Executive Officers. For 2007, the CEO's base salary was at the 25th percentile as compared to market data.

        A significant portion of the CEO's compensation is paid upon achieving results. For 2007, the CEO was awarded an annual performance award of 100% of his target award, or $348,000, which was paid in February 2008. This performance award was determined based on the Company achieving 96% of its predetermined 2007 corporate goals and the Board exercising its discretion to adjust the CEO's annual performance upward in recognition of his significant contribution to the Company's achievement of its corporate goals and his contribution to successfully dealing with unanticipated challenges that did not fit within the parameters of the corporate goals.

        After careful consideration of the performance of the CEO, the performance of the Company and the CEO's contribution to that performance, and comparable company CEO long-term incentive awards, the CEO was granted 125,000 stock options on February 15, 2007. For 2007, the CEO's total compensation was comprised of approximately 27% base salary, 22% performance award and 50% long-term incentives, all in the form of option awards (based on the value ascribed to such awards in the Summary Compensation Table of this Proxy Statement). At his election, the CEO did not receive any other option grants during 2007 even though he was eligible for an option grant together with the other Executive Officers at mid-year.

Executive Officer Compensation Determination Process (other than CEO)

        In the beginning of 2007, the CEO quantitatively evaluated each of the other Executive Officer's contribution to the level of achievement against corporate goals and performance against individual goals set in the prior year. The components of the Executive Officers' pre-determined individual goals were based on the achievement of department specific goals for the departments for which each Executive Officer was individually responsible. In 2007, Mr. Bonney and Dr. Fetzer were the only Executive Officers who played a role in determining non-CEO Executive Officer compensation. Mr. Bonney was involved in all such Executive Officer compensation decisions, and Dr. Fetzer was involved in Dr. William Pullman's compensation decisions. Dr. Pullman was our Senior Vice President and Chief Medical Officer until he left the Company in the fourth quarter of 2007. The CEO

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recommended to the Compensation Committee a base salary increase, cash performance award and option awards for each Executive Officer, taking into account:

•

The Company's compensation philosophy.



•

Each Executive Officer's individual performance against predetermined individual goals.



•

The Company's performance against predetermined corporate goals.



•

The appropriateness of each Executive Officer's compensation relative to other Executive Officers and the CEO.



•

PM&P's prepared analysis of competitive compensation of executive officers at comparable companies.



•

Retention considerations.



•

The Executive Officer's potential future contributions to the success of the Company.

        The Compensation Committee reviewed and discussed with the CEO the performance of each Executive Officer and the reasons for the CEO's recommendations for such Executive Officer. After incorporating the Compensation Committee's requested adjustments to the CEO's recommendations, the Compensation Committee approved the 2007 base salary, year-end option awards and cash performance awards for each Executive Officer. The base salaries and other compensation awards of Named Executive Officers can be found in the Summary Compensation Table and Grants of Plan-Based Awards in 2007 Fiscal Year table in this Proxy Statement.. The Compensation Committee emphasized individual performance and PM&Ps competitive analysis for base salary determinations. The Compensation Committee emphasized retention considerations and each Executive Officer's potential future contributions to the success of the Company in determining each Executive Officer's option awards.

        With the exception of the CEO, for 2007, each Executive Officer's performance award target was weighted 60% on achievement of predetermined corporate goals and 40% on achievement of predetermined individual goals. The CEO and Compensation Committee determined that this was appropriate to motivate the Executive Officers toward the achievement of corporate goals. As described above, the Company achieved 96% of its corporate goals in 2007. The Compensation Committee agreed with Mr. Bonney's determination that Messrs. Perez and Fellows exceeded their individual goals and Messrs. Guiffre and McGirr met their individual goals. As a result, the Compensation Committee determined that these Named Executive Officers achieved between 100% and 113% of their individual goals. For 2007, the Compensation Committee chose not to exercise its discretion to adjust these annual performance awards up or down. Details of the 2007 annual performance awards for these Named Executive Officers (which were paid in February 2008) can be found in the Summary Compensation Table in this Proxy Statement.

        The Company divides its annual grant of performance stock options into two grants per year (the value of both grants combined are compared to the market for an annual grant size). Individual option grant determinations were made after careful consideration of the performance of each Named Executive Officer, the performance of the Company and the Named Executive Officer's contribution to that performance, retention considerations, the Named Executive Officer's potential future contribution to the Company's success, and comparable company executive officer long-term incentive awards, with significant emphasis placed on retention considerations and the Named Executive Officer's potential

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future contributions. Details of the stock option grants made to the Named Executive Officers in 2007 can be found in the Summary Compensation Table and Grants of Plan-Based Awards in 2007 Table in this proxy statement.

Intrinsic Value of Unvested Stock Options

        The values of the option awards set forth in the Summary Compensation Table of this Proxy Statement were calculated using valuation methodologies under Statement of Financial Accounting Standard No. 123, or SFAS 123(R). These methods do not necessarily reflect the value to the Company in retaining our Named Executive Officers represented by the outstanding option awards to Named Executive Officers. Therefore, for further understanding of how the current outstanding option awards of Named Executive Officers help incentivize them to remain with the Company, the table set forth below provides the intrinsic value of in-the-money unvested stock options for each of our currently employed Named Executive Officers as of the end of 2006 using our closing stock price on December 29, 2006 of $18.11 and the intrinsic value of in-the-money unvested stock options as of the end of 2007 using our closing stock price on December 31, 2007 of $20.51.

Role of the Company's Management in the Compensation Determination Process

        Our Executive Officers, other than our CEO, play a very limited role in the determination of Executive Officer compensation. During 2007, Mr. Bonney and Dr. Fetzer were the only Executive Officers who played a role in the Executive Officer compensation process. The process was as follows:

•

The CEO presented Executive Officer performance ratings to the Compensation Committee and made recommendations relating to Executive Officer compensation, and in the case of Dr. Pullman with input from Dr. Fetzer.



•

The CEO developed proposed corporate goals for review by the Compensation Committee and approval by the Board.



•

The CEO, in consultation with the Vice President, Human Resources, developed proposals relating to potential changes in compensation programs for review and approval by the Compensation Committee.



•

The CEO, Vice President, Human Resources, and other employees, as appropriate, provided the Compensation Committee and other advisors with Company data necessary to evaluate and implement compensation proposals and programs.

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Role of the Compensation Consultant

        For 2007, the Compensation Committee retained PM&P as its compensation consultant. PM&P served as an independent advisor to the Compensation Committee on topics primarily related to Board and executive compensation. PM&P has served as a consultant to the Compensation Committee since 2005. PM&P reports to the Compensation Committee Chair, takes direction from the Committee, and does not provide any services to the Company other than the services provided at the request of the Compensation Committee.

        PM&P's general responsibilities to the Compensation Committee include working with management to acquire Company data necessary to complete work requested by the Compensation Committee, working with the Compensation Committee to help it understand compensation concepts, issues and the changing requirements of regulatory authorities, and assisting the Compensation Committee with reviews of management proposals relating to changes in compensation and related programs.

        Specific PM&P activities completed for the Compensation Committee in 2007 included the following:

•

Provided the Compensation Committee with a recommended updated list of comparable companies based on the criteria described above.



•

Provided the Compensation Committee with a competitive assessment of compensation for Executive Officers using PM&P's recommended (and Compensation Committee approved) comparable company compensation data, and size- and industry-appropriate broad survey data.



•

Prepared a dilution analysis of overall Company equity use compared to overall equity use by comparable companies.



•

Prepared a financial performance analysis comparing the Company's financial performance to the comparable companies.



•

Provided the Compensation Committee with a competitive assessment of compensation for members of the Board of Directors by comparing the Company's Director compensation programs to director compensation programs at comparable companies.



•

Assisted the Company with preparation of this Compensation Discussion and Analysis and the related compensation tables.



•

Attended all Compensation Committee meetings and executive sessions at the request of the Compensation Committee.



•

Provided the Compensation Committee with market-based compensation recommendations.



•

Educated the Compensation Committee on industry trends related to long-term equity incentive compensation.



•

Educated the Compensation Committee on the use of recoupment policies and assisted the Compensation Committee with the development of the recoupment policy described in this Compensation Discussion and Analysis.

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Impact of Accounting and Tax on the Form of Compensation

        The Compensation Committee has considered the impact of SFAS 123(R) on the Company's use of equity incentives as a key retention tool. The Compensation Committee has determined that the current estimated costs to the Company of continuing to use equity incentives relative to the benefits the Company believes these programs provide does not warrant any change to the Company's current equity incentive framework.

        Section 162(m) of the Code limits the tax deduction for compensation paid to Named Executive Officers to $1,000,000. This deduction limitation does not apply to compensation that constitutes "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and regulations promulgated thereunder, including certain performance-based compensation that has been approved by stockholders. Our stockholders have approved our employee equity incentive plan, which is designed to allow the deduction of income recognized in connection with stock options granted under such plan. We have in the past and may in the future award compensation that is not fully deductible under the Code when we view such compensation as consistent with our compensation policies and in the best interests of the Company and its stockholders. For 2007, the Company did not provide its Executive Officers with any compensation that was not deductible under Section 162(m).

        Under our retention letters, we do not compensate executives for any excise tax liability they may incur by reason of payments and benefits received pursuant to the letters. As a result, if a Named Executive Officer is assessed any excise tax liability under Section 280G of the Code as a result of payments and benefits received under a retention letter, that Named Executive Officer is responsible for the payment of such excise tax.

Option Granting Practices

        The Company issues stock option awards to its employees at various times throughout the year. All options are priced at the closing market price of the Company's common stock on the date of the grant. Generally, new employees receive a stock option that is granted and priced on the 15^th day of the month (or, if no trades were reported on such date, the closing price on the most recent trading day preceding the date of grant on which a trade occurred) following the month in which they join the Company. In addition, the Company issues stock options to employees who are promoted during the year. These options are also granted and priced on the 15^th day of the month following the month in which the employee's promotion is authorized (or, if no trades were reported on such date, the closing price on the most recent trading day preceding the 15^th day of the month on which a trade occurred). The Company also issues performance-related stock options twice each year, shortly after the beginning of the year, and shortly after mid-year, to employees who demonstrate superior performance and high potential.

        The Compensation Committee has authorized a pool of options which may be issued by the CEO from time to time during the year in recognition of extraordinary results. Following the release of the Company's financial results each quarter, the CEO and Vice President of Human Resources evaluate whether any grants should be made from this pool. Any such options are granted and priced on the 15^th day of the month following the release of the Company's financial results (or, if no trades were reported on such date, the closing price on the most recent trading day preceding the 15^th day of the month on which a trade occurred).

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        At the end of each calendar year, the Compensation Committee approves guidelines for both new hire stock option awards and for stock options to be granted in connection with promotions. In addition, at the beginning of the year and at mid-year, the Compensation Committee approves a pool of stock options for the performance-related grants described above. The CEO is required to further approve all individual grants issued in accordance with the foregoing pools and guidelines. The Compensation Committee must approve all stock option grants to Executive Officers.

        We have never had a program or policy in place to coordinate option grants with the release of material, non-public information.

Recoupment Policy

        In September 2007, the Board adopted a policy providing that, if the independent members of the Board determine, in their reasonable and sole discretion, that any fraud, gross negligence or intentional misconduct by the CEO or Chief Financial Officer caused or contributed to the Company having to restate all or a portion of its financial statements, then the independent Directors may take any action they deem necessary or appropriate to remedy the misconduct and prevent its recurrence. The policy further provides that, in connection with taking such action, the independent Directors, to the fullest extent permitted by law, in cases they deem appropriate, will require, on behalf of the Company, reimbursement of any bonus or incentive compensation awarded to the CEO or Chief Financial Officer, effect the cancellation of outstanding equity awards and seek reimbursement of any gains realized on the exercise or sale of any equity based awards if and to the extent that: (a) the amount of the bonus or equity compensation was calculated based upon the achievement of certain financial results that were subsequently reduced due to a restatement, (b) the CEO or Chief Financial Officer engaged in any fraud, gross negligence or intentional misconduct that caused or contributed to the need for the restatement, or (c) the amount of the bonus or equity compensation that would have been awarded to the CEO or Chief Financial Officer had the results been properly reported would have been lower than the amount actually awarded.

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EXECUTIVE COMPENSATION

        The following table summarizes aggregate amounts of compensation paid or accrued by the Company for the fiscal years ended December 31, 2006 and December 31, 2007 for services rendered in all capacities by our Named Executive Officers.

Summary Compensation Table

(1)

Represents the proportionate amount of the total fair value of option awards recognized by the Company as an expense in the covered fiscal year for financial accounting purposes, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions, for all option awards held by the Named Executive Officer as of the end of each covered fiscal year. The fair values of these awards and the amounts expensed were determined using the Black-Scholes option pricing model in accordance with SFAS 123(R). In calculating the grant date fair values of these awards, we used the assumptions set forth in the notes to the consolidated audited financial statements described in our Annual Reports on Form 10-K for the covered fiscal year, excluding assumptions related to forfeitures.

(2)

Reflects the awards earned in the covered fiscal year under the STIP, our plan-based non-equity incentive plan further described in the Compensation Discussion and Analysis section of this proxy statement. Payments for awards earned in each covered fiscal year were made in the first quarter of the immediately succeeding fiscal year.

(3)

We do not have either a pension plan or a non-qualified deferred compensation plan.

(4)

All Other Compensation for 2007 for Messrs. Bonney, McGirr and Perez primarily consists of 401(k) matching contributions of $10,125, and All Other Compensation for 2007 for Messrs. Guiffre and Fellows consists entirely of 401(k) matching contributions. For Dr. Fetzer, who left the Company in September 2007, All Other Compensation for 2007 almost entirely consists of $7,711 in 401(k) matching contributions and $595,000 in severance payments paid to Dr. Fetzer pursuant to his retention letter. The $595,000 in severance payments corresponds to 18 months of his 2007 salary of $390,000. Dr. Fetzer received $262,500 of these severance payments in 2007 and $332,500 in 2008.

(5)

The Salary for Dr. Fetzer consists of salary paid to him until he left the Company in September 2007.

(6)

As previously announced, Mr. Guiffre will resign as Cubist's SVP, General Counsel and Secretary effective as of April 30, 2008. Notwithstanding the terms of Mr. Guiffre's retention letter, Mr. Guiffre will be paid severance equal to eighteen months of his current base salary of $300,150, payable in twelve equal semi-monthly installments, and will have the right to continue to participate in the Company's medical and dental insurance programs for up to eighteen months. The aggregate cost to the Company of these benefits is estimated to be approximately $21,968.

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Grants of Plan-Based Awards in 2007 Fiscal Year

        The following table sets forth information concerning grants of awards pursuant to plans made to the Named Executive Officers during the year ended December 31, 2007.

(1)

The Grant Date column shows the grant dates of all non-qualified stock options granted in 2007. The options were approved by the Compensation Committee on 2/7/2007, 6/16/2007, and 8/24/2007, as set forth in the Date of Board or Committee Action column. The Committee approved a grant date of 2/15/2007 for options approved on 02/07/2007, a grant date of 08/15/2007 for options approved on 6/16/2007 and a grant date of 09/14/2007 for options approved on 8/24/2007. All awards have a term of 10 years and are exercisable in equal quarterly installments over a 4 year period.

(2)

Target reflects the pre-established target award for each of the Named Executive Officers under the STIP, as follows: the target award for Mr. Bonney in 2007 was 80% of his base salary, the target award for Messrs. McGirr and Perez in 2007 was 50% of base salary, and the target award for all other Named Executive Officers in 2007 was 40% of base salary. Maximum awards under the plan are capped at 200% of the target award and threshold awards are contingent upon the Company achieving 70% of its corporate goals—the requirement for executive officers to be eligible to receive any performance award. In addition, each Named Executive Officer other than Mr. Bonney must achieve at least 70% of his or her respective individual goals to be eligible to receive a performance award. Mr. Bonney's award was based on the Company's performance against corporate goals. All other Named Executive Officer awards were based 60% on the Company's performance and 40% on individual performance. The Compensation Committee retains the discretion to adjust an Executive Officer's annual performance award up or down based on the Executive Officer's relative contributions to the Company's overall performance and other factors. The Compensation Committee exercised its right to adjust Mr. Bonney's performance award upward due to his significant contributions to corporate performance and his contribution to successfully dealing with unanticipated challenges that did not fit within the parameters of the Company's corporate goals. The actual awards paid to the Named Executive Officers for 2007 performance are set forth in the Summary Compensation Table of this Proxy Statement. These awards were paid in February 2008. Dr. Fetzer left the Company in September 2007 and was therefore not eligible to receive an award for 2007 performance under the STIP.

(3)

The exercise prices reflect the closing price of our common stock on the grant date.

(4)

These values reflect the grant date fair value using the Black-Scholes model. Assumptions used in the Black-Scholes model are as follows: (1) Mr. Bonney—for stock options awarded on 02/15/2007, the Black-Scholes value is $8.9218 per share (using a volatility of 50.0%, a risk-free rate of 4.70%, a dividend yield of 0%, and an expected term of 4.30 years). (2) Messrs. Perez, Fellows, McGirr and Guiffre and Dr. Fetzer—for stock options awarded on 02/15/2007, the Black-Scholes value is $8.9218 per share (using a volatility of 50.0%, a risk-free rate of 4.70%, a dividend yield of 0%, and an expected term of 4.30 years) and for stock options awarded on 08/15/2007, the Black-Scholes value is $9.7253 per share (using a volatility of 45.0%, a risk-free rate of 4.40%, a dividend yield of 0%, and an expected term of 4.30 years). (3) Mr. Perez—for stock options awarded on 09/14/2007, the Black-Scholes value is $9.1545 per share (using a volatility of 45%, a risk-free rate of 4.20%, a dividend yield of 0%, and an expected term of 4.30 years).

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Outstanding Equity Awards at 2007 Fiscal Year-End

        The following tables set forth information concerning outstanding equity awards held by each Named Executive Officer as of December 31, 2007.

(1)

Under some circumstances, the vesting of unexercisable stock options may be accelerated in accordance with the terms of the Named Executive Officer's retention letters and the terms of the EIP. The acceleration events are set forth in the section of this Proxy Statement entitled "Termination of Employment and Change-in-Control Agreements" and "Proposal No. 2—Adoption and Approval of an Amendment to Our Amended and Restated 2000 Equity Incentive Plan".

(2)

All stock option grants have a 4-year vesting schedule, vest equally over 16 calendar quarters and have a 10-year term.

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(1)

Under some circumstances, the vesting of unexercisable stock options may be accelerated in accordance with the terms of the Named Executive Officer's retention letters and the terms of the EIP. The acceleration events are set forth in the section of this Proxy Statement entitled "Termination of Employment and Change-in-Control Agreements" and "Proposal No. 2—Adoption and Approval of an Amendment to Our Amended and Restated 2000 Equity Incentive Plan".

(2)

All stock option grants have a 4-year vesting schedule, vest equally over 16 calendar quarters and have a 10-year term.

(3)

In accordance with the terms of the EIP, Dr. Fetzer's options expired on December 16, 2007, 90 days after his last date of employment with the Company.

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(1)

Under certain circumstances, the vesting of unexercisable stock options may be accelerated in accordance with the terms of the Named Executive Officer's retention letters and the terms of the EIP. The acceleration events are set forth in the section of this Proxy Statement entitled "Termination of Employment and Change-in-Control Agreements" and "Proposal No. 2—Adoption and Approval of an Amendment to Our Amended and Restated 2000 Equity Incentive Plan".

(2)

All stock option grants have a 4-year vesting schedule, vest equally over 16 calendar quarters and have a 10-year term.

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Option Exercises and Stock Vested in Fiscal Year 2007

        The following table sets forth information concerning options exercised by each Named Executive Officer in 2007.

(1)

Computed by determining the difference between the market prices of our common stock upon exercise and the exercise prices of the exercised stock options.

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Termination of Employment and Change-in-Control Agreements

        The Company's Executive Officer retention letters provide certain protections to Executive Officers in the event of their termination as summarized in the following table.

(1)

Additional details and definitions can be found in the actual retention letters. Mr. Bonney's retention letter and a form of the retention letter with our other Named Executive Officers, other than Dr. Fetzer, are on file with the SEC. Dr. Fetzer had a retention letter with the Company with the same terms as those set forth in the "Executive Officers" column in the table on this page. Dr. Fetzer left the Company in September 2007 and became entitled to a severance payment equal to 18 months of his then-current annual salary of $390,000, resulting in an aggregate severance payment of $595,000. Dr. Steven Gilman, the Company's only current Executive Officer who is not a Named Executive Officer, joined the Company as our Senior Vice President, Discovery and Non-clinical Development, and Chief Scientific Officer in February 2008. Pursuant to his offer letter, Dr. Gilman will be eligible to receive the Company's standard form of retention letter with the same terms as those set forth in the "Executive Officers" column in the table on this page, once he is employed by the Company for at least 6 months. In addition, in the event a change-in-control of the Company occurs within Dr. Gilman's first 6 months of employment with the Company, he will be entitled to receive the same benefits upon a change-in-control as those set forth in the "Executive Officers" column in the table on this page.

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        Receipt of any severance and benefits is conditioned on the Executive Officer signing a release of claims. In addition, Executive Officers will continue to be bound by the obligations set forth in the Company's Form of Employee Confidentiality Agreement, which is on file with the SEC. No Executive Officers are entitled to gross-ups associated with taxes owed on change-in-control payments or taxes due pursuant to Code Section 280G.

        The remainder of this section summarizes quantitative disclosures for each Named Executive Officer regarding estimated payments and other benefits that would have been received by the Named Executive Officer or his estate if his employment terminated as of the last business day of the year, December 31, 2007, under the following circumstances:

•

Termination by the Company for cause.



•

Termination by the Company without cause not following a change-in-control.



•

Termination by the Company without cause or by the Named Executive Officer for good reason following a change in control.

Payments to Michael W. Bonney Assuming a December 31, 2007 Termination

(1)

All unvested equity is assumed to have accelerated as of 12/31/07. The amount shown here represents the spread of the accelerated options assuming a $20.51 fair market value of the Company's stock (the Company's closing stock price on 12/31/07).

(2)

See the Outstanding Equity Awards at 2007 Fiscal-Year End table for the vesting status of Mr. Bonney's equity awards as of 12/31/07.

(3)

Mr. Bonney's benefits are continued for 24 months. The benefits cost includes the employer cost of health and dental insurance only. Mr. Bonney's cost of benefits for months 19-24 of the benefit continuation period are assumed to be equal to the cost for months 1-18. In an actual termination situation, the cost of benefits may change in months 19-24 due to the expiration of COBRA benefits coverage as full group insurance rates may apply.

(4)

Represents the entire balance of Mr. Bonney's 401(k) account. The Company match is 75% of the first 6% of employee contributions (all employees of the Company are eligible for this match, not just Executive Officers).

(5)

The amount shown here is 100% of Mr. Bonney's annual target award opportunity for fiscal year 2007 because that amount is higher than Mr. Bonney's 2006 award.

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Payments to David W.J. McGirr Assuming a December 31, 2007 Termination

(1)

All unvested equity is assumed to have accelerated as of 12/31/07. The amount shown here represents the spread of the accelerated options assuming a $20.51 fair market value of the Company's stock (the Company's closing stock price on 12/31/07).

(2)

See the Outstanding Equity Awards at 2007 Fiscal-Year table for the vesting status of Mr. McGirr's equity awards as of 12/31/07.

(3)

Mr. McGirr's benefits are continued for 18 months. The benefits cost includes the Company's cost of health and dental insurance only.

(4)

Represents the entire balance of Mr. McGirr's 401(k) account. The Company match is 75% of the first 6% of employee contributions (all employees of the Company are eligible for this match, not just Executive Officers).

(5)

The amount shown here is 100% of Mr. McGirr's annual target award opportunity for fiscal year 2007 because that amount is higher than Mr. McGirr's 2006 award.

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Payments to Robert J. Perez Assuming a December 31, 2007 Termination

(1)

All unvested equity is assumed to have accelerated as of 12/31/07. The amount shown here represents the spread of the accelerated options assuming a $20.51 fair market value of the Company's stock (the Company's closing stock price on 12/31/07).

(2)

See the Outstanding Equity Awards at 2007 Fiscal-Year End table for the vesting status of Mr. Perez's equity awards as of 12/31/07.

(3)

Mr. Perez's benefits are continued for 18 months. The benefits cost includes the Company's cost of health and dental insurance only.

(4)

Represents the entire balance of Mr. Perez's 401(k) account. The Company match is 75% of the first 6% of employee contributions (all employees of the Company are eligible for this match, not just Executive Officers).

(5)

The amount shown here is 100% of Mr. Perez's annual target award opportunity for fiscal year 2007 because that amount is higher than Mr. Perez's 2006 award.

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Payments to Christopher D.T. Guiffre Assuming a December 31, 2007 Termination

(1)

As previously announced, Mr. Guiffre will resign as Cubist's SVP, General Counsel and Secretary as of April 30, 2008. Notwithstanding the terms of Mr. Guiffre's retention letter, Mr. Guiffre will be paid severance equal to eighteen months of his current base salary of $300,150, payable in twelve equal semi-monthly installments, and will have the right to continue to participate in the Company's medical and dental insurance programs for up to eighteen months. The aggregate cost to the Company of these benefits is estimated to be approximately $21,968.

(2)

All unvested equity is assumed to have accelerated as of 12/31/07. The amount shown here represents the spread of the accelerated options assuming a $20.51 fair market value of the Company's stock (the Company's stock price on 12/31/07).

(3)

See the Outstanding Equity Awards at 2007 Fiscal-Year End table for the vesting status of Mr. Guiffre's equity awards as of 12/31/07.

(4)

Mr. Guiffre's benefits are continued for 18 months. The benefits cost includes the Company's cost of health and dental insurance only.

(5)

Represents the entire balance of Mr. Guiffre's 401(k) account. The Company match is 75% of the first 6% of employee contributions (all employees of the Company are eligible for this match, not just Executive Officers).

(6)

The amount shown here is 100% of Mr. Guiffre's annual target award opportunity for fiscal year 2007 because that amount is higher than Mr. Guiffre's 2006 award.

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Payments to Lindon M. Fellows Assuming a December 31, 2007 Termination

(1)

All unvested equity is assumed to have accelerated as of 12/31/07. The amount shown here represents the spread of the accelerated options assuming a $20.51 fair market value of the Company's stock (the Company's stock price on 12/31/07).

(2)

See the Outstanding Equity Awards at 2007 Fiscal-Year End table for the vesting status of Mr. Fellows's equity awards as of 12/31/07.

(3)

Mr. Fellows's benefits are continued for 18 months. The benefits cost includes the Company's cost of health and dental insurance only.

(4)

Represents the entire balance of Mr. Fellows's 401(k) account. The Company match is 75% of the first 6% of employee contributions (all employees of the Company are eligible for this match, not just Executive Officers).

(5)

The amount shown here is 100% of Mr. Fellows's annual target award opportunity for fiscal year 2007 because that amount is higher than Mr. Fellows's 2006 award.

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DIRECTOR COMPENSATION

        Mr. Bonney is a Director and one of the Company's full-time executive officers. As a result, Mr. Bonney receives no additional compensation for serving on the Board. No other Director is an employee of the Company.

Retainers

        For the period from our 2006 Annual Meeting of Stockholders to our 2007 Annual Meeting of Stockholders, or 2007 Annual Meeting, our Lead Director received an annual retainer of $15,000 and all other non-employee Directors received an annual retainer of $10,000. These payments were payable quarterly in cash. We did not have a Chairman of the Board in 2007. If we had, he or she would have received an annual retainer of $20,000, payable quarterly in cash over this period.

        For the period from our 2007 Annual Meeting to our 2008 Annual Meeting, our Lead Director will receive an annual retainer of $18,000 and all other non-employee Directors will receive an annual retainer of $12,000. The retainer will be paid on the date of the 2008 Annual Meeting. The retainer is payable on a pro-rata basis based on the number of months that the Director was an active Director or Lead Director during the year and will be paid in cash or common stock, at the Director's election. We do not have a Chairman. If we did, he or she would be entitled to receive an annual retainer of $24,000, pro-rated based on the number of months that he or she served as Chairman during the year, payable in cash or common stock, at his or her election, at the 2008 Annual Meeting.

Meeting Fees

        In 2007, non-employee Directors received $3,000 for each meeting of the Board attended in person, $1,000 for each meeting of the Board attended by phone, and $1,000 for each committee meeting attended, whether in person or by phone. The Lead Director received an additional $1,000 per Board Meeting. Committee Chairs received an additional $2,000 per committee meeting led.

Option Grants

        Pursuant to the Amended and Restated 2002 Directors' Equity Plan, or the Directors' Plan, upon first joining the Board, each non-employee Director is automatically granted a stock option to purchase 10,000 shares of common stock which vests quarterly in equal installments over a three-year period beginning on the grant date. Because no new Directors joined the Board in 2007, we did not make any initial Director option grants in 2007. In addition, provided that they are serving as a Director on the close of business on the date of our Annual Meeting of Stockholders, our non-employee Directors are entitled to receive the following stock option awards as of each Annual Meeting: The Chairman of the Board, if any, is entitled to receive an option to purchase 30,000 shares of common stock, the Lead Director, if any, is entitled to receive an option to purchase 22,500 shares of common stock, and each of our other non-employee Directors are entitled to receive an option to purchase 15,000 shares of common stock. These annual option awards vest 100% on the first anniversary of the grant date. As a result, on June 7, 2007, all of our non-employee directors (other than the Lead Director) received an option to purchase 15,000 shares of common stock and our Lead Director received an option to purchase 22,500 shares of common stock, in each case with an exercise price of $21.88, the closing price of our common stock on June 7, 2007. We did not have a Chairman of the Board as of the 2007 Annual Meeting.

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Other

        The Company reimburses all Directors for expenses incurred in connection with their attendance at Board or committee meetings and for participation in Director education programs. The Company also provides director & officer insurance for all Directors.

Directors Compensation Table

        This table sets forth all compensation earned by Directors for fulfillment of their duties as Directors of the Company in 2007.