Optimer Remains Neutral - Analyst Blog

We have maintained our Neutral recommendation on Optimer Pharmaceuticals Inc. (OPTR) with a target price of $13.00 after announcement of fourth quarter and fiscal year 2010 financial results.

Optimer Pharma’s fourth quarter 2010 loss of 31 cents per share exceeded the year-ago loss of 28 cents per share. The Zacks Consensus Estimate was a loss of 33 cents. The wider loss resulted from increased costs incurred for pre-launch marketing efforts for its antibiotic fidaxomicin.

Optimer does not have any marketed product at present. We believe that investor focus is currently more on the development of the company’s pipeline rather than its financials.

Optimer focuses on discovering, developing and commercializing anti-infective products. Optimer’s most important pipeline candidate is fidaxomicin, which is an antibiotic for the treatment of clostridium difficile infection (CDI), the most common nosocomial or hospital-acquired diarrhea.

Fidaxomicin is currently under US Food and Drug Administration (FDA) review with a decision expected in May 2011. Optimer expects to launch the drug in August 2011. The candidate is also under review in the EU.

Recently, Optimer has entered into an exclusive collaboration and license agreement with Astellas Pharma Europe Ltd. for the development and commercialization of fidaxomicin in Europe and certain other countries in the Middle East, Africa and Commonwealth of Independent States (CIS). We believe Astellas will be an ideal partner for Optimer in Europe because of prior experience in commercializing anti-infective drugs like Mycamine, Avelox and Vivotif.

We note that fidaxomicin has many advantages over metronidazole and oral vancomycin, the currently available therapies for CDI. Oral vancomycin is the only FDA approved antibiotic for the treatment of CDI. Fidaxomicin has shown superiority to oral vancomycin in preventing CDI recurrence in phase III trials.

Moreover, fidaxomicin has a low C. difficile resistance, minimal systemic exposure resulting in a favorable safety profile, limited disruption of normal gut flora resulting in a lower likelihood of inducement of CDI and convenient twice daily dosing regimen. We thus believe that approval of fidaxomicin will be a huge positive for Optimer.

Another important pipeline candidate at Optimer is Pruvel, an antibiotic particularly targeted for infectious diarrhea, including travelers’ diarrhea. For this candidate too, Optimer has reported positive top-line data from two phase III trials. However, the timing of NDA filing of the candidate is uncertain due to occurrence of mild or moderately severe cutaneous rash in a drug interaction study. The trial was subsequently terminated. We are concerned about the uncertainty surrounding the regulatory filing of Pruvel.

The antibacterial drug market, though huge, is crowded with fierce competition. The market includes big players like Pfizer (PFE), Bayer (BAYRY), Sanofi-Aventis (SNY), Roche (RHHBY), Johnson & Johnson (JNJ), ViroPharma (VPHM) and Salix Pharmaceuticals (SLXP). We are particularly concerned about the presence of generics in the market. Generic antibiotic therapies typically are sold at lower prices than branded antibiotics and are generally preferred by managed care providers of health services. Moreover, besides fidaxomicin and Pruvel, Optimer’s other pipeline candidates are in the initial stages of development and several years from commercialization. Hence, any hiccups in the developmental process of either fidaxomicin or Pruvel will weigh heavily on the stock.