Optimer Beats on One-Time Gain - Analyst Blog

Optimer Pharma’s (OPTR) first quarter 2011 earnings of $1.14 per share tellingly reversed the year-ago loss of 39 cents per share and exceeded the Zacks Consensus Estimate of 30 cents. The earnings beat was due to a huge increase in the top-line in the reported quarter.

In the first quarter, revenues were $69.3 million versus $0.30 million in the prior-year quarter. Optimer does not have any marketed products at present. The substantial year-over-year growth was due to the receipt of a one-time $69.2 million upfront payment from Astellas Pharma in exchange for development and commercialization rights for fidaxomicin in certain territories outside US. Fidaxomicin is Optimer’s primary drug candidate which is currently under review both in the US and Europe for the treatment of Clostridium difficile infection (CDI). Fidaxomicin will be sold as Dificid in the US. Revenue from research grants and collaborative agreements was $0.11 million in the first quarter versus $0.30 million in the prior-year quarter.

Marketing expenses surged 1169% to $3.4 million in the quarter. The sharp rise was primarily attributable to increased market research and pre-launch commercialization activities for Dificid. R&D expenses declined 25% to $8.5 million in the reported quarter. The decrease was primarily attributable to lower clinical trial expenses incurred during the quarter. We believe that investor focus is currently more tuned to the regulatory progress of Dificid rather than financials per se.

Dificid Update

In April 2011, an advisory panel of the US Food and Drug Administration (FDA) unanimously recommended approval of Dificid in the US for the treatment of CDI and for reducing the risk of recurrence when used for treatment of initial CDI. CDI is the most common nosocomial or hospital-acquired diarrhea.

The positive recommendation was based on combined data from two late-stage studies, which revealed that Dificid was superior to ViroPharma’s (VPHM) Vancocin (the only FDA approved antibiotic for the treatment of CDI) in reducing CDI recurrence by 47%. The data further revealed improved global cure (defined as cure without a recurrence after 4 weeks of therapy) rates for Dificid compared to Vancocin. Dificid was also shown to be non-inferior to and as safe as Vancocin. The FDA decision on Dificid is expected on May 30, 2011. The candidate is also under regulatory review in the EU.

In April 2011, Optimer entered into an exclusive two-year agreement with Cubist Pharmaceuticals Inc. (CBST) to co-promote Dificid in the US. We believe the deal is positive for Optimer as it will benefit from Cubist’s experience in marketing hospital based antibiotics.

Our Recommendation

We currently have a Neutral recommendation on Optimer, which is supported by a Zacks #3 Rank (short-term “Hold” rating).

Optimer has limited sources of revenue and is largely dependent on the success of its lead pipeline candidates – Dificid and Pruvel (infectious diarrhea). We are encouraged by the positive opinion of the advisory committee on Dificid as well as the Cubist deal. Although we are quite optimistic about Dificid approval, we remain concerned about the competitive scenario. On approval, Dificid will have to compete with many established pharma players. The market includes players like Pfizer (PFE), Bayer (BAYRY), Sanofi-Aventis (SNY), Roche (RHHBY), Johnson & Johnson (JNJ), ViroPharma and Salix Pharmaceuticals (SLXP). However, we are pleased to note that Dificid scores better than the current available treatment options on many parameters. We are also concerned about the uncertainty surrounding the regulatory filing of Pruvel.