(OPTR) Optimer Pharmaceuticals Moved Down to Neutral

We recently downgraded our rating on Optimer Pharmaceuticals Inc. (OPTR) to Neutral from Outperform as we await more visibility on how the commercial launch of its sole marketed antibiotic Dificid (fidaxomicin) takes shape.

Optimer launched Dificid in July 2011 in the US for the treatment of clostridium difficile-associated diarrhea (CDAD). CDAD is the most common nosocomial or hospital-acquired diarrhea and is a significant malaise in hospitals and nursing home facilities.  Dificid (twice daily tablets) is the first drug to be approved in almost 30 years for the treatment of CDAD.

Dificid scores better than currently available treatment options on many parameters. Dificid has been shown to be non-inferior to ViroPharma’s (VPHM) Vancocin (the only other FDA approved antibiotic for the treatment of clostridium difficile infection) in late stage studies in achieving clinical response at the end of treatment. In addition, data showed the superiority of Dificid over Vancocin in sustaining clinical response through 25 days post treatment. Dificid thus becomes the only drug which has shown superiority over Vancocin in sustained clinical response for CDAD. The superior recurrence benefits of Dificid over Vancocin have been included in the label which we believe is of great importance for Dificid sales as it provides a clear differentiation from existing options.

Dificid did well in its first quarter generating revenue of $10.6 million in the third quarter of 2011, much above our expectations.

On the flip side, the huge up-tick in selling, general & administrative (SG&A) expenses concerns us. In the third quarter of 2011, SG&A expenses at Optimer skyrocketed 460.5% to $26.9 million. The sharp rise was primarily attributable to increased expenses on establishing a commercial infrastructure for the launch of Dificid and steeper marketing expenses. The rise in SG&A led to a wider than expected loss in the quarter which completely offset the huge jump in revenues.

Moreover, Optimer is highly dependent on Dificid for its success. Following termination of development of Pruvel for the treatment of traveler’s diarrhea (November 2011), the company hardly has anything in the pipeline. Consequently, if Dificid fails to impress, the company will have little to fall back on. We therefore prefer to remain on the sidelines.

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