Loss at Optimer Inches Up Slightly - Analyst Blog

Optimer Pharma's (OPTR) third quarter 2010 loss of 30 cents per share exceeded the Zacks Consensus Estimate by a penny and the year-ago loss by 2 cents. The wider loss was attributed to higher costs incurred by the company on research and development (R&D) and marketing purposes in the reported quarter.

Optimer does not have any marketed products at present. It earns revenues primarily from research grants and collaborative agreements. Revenues jumped 279% to $669,137 due to funds received from collaborative research agreements.

The company has two late-stage anti-infective pipeline candidates, fidaxomicin and Pruvel (prulifloxacin), which are being developed for the treatment of clostridium difficile-associated diarrhea (CDI) and travelers' diarrhea, respectively.

Operating expenses during the quarter climbed 34% to $12.9 million. R&D expenses climbed 12.5% to $8.1 million in the reported quarter.  The increase was primarily attributable to the expenses incurred to prepare for the regulatory filings of fidaxomicin. The increase was partially mitigated by lower clinical trial expenses incurred during the quarter.

Marketing expenses surged 441% to $2.1 million in the quarter. The sharp rise was primarily attributable to increased market research and pre-launch commercialization activities in relation to the fidaxomicin program. Optimer recently received a cash grant of $244,000 to advance the program. We believe that investor focus is currently more on the development of the company's portfolio rather than the financials.

In September 2010, Optimer submitted the first section of a rolling New Drug Application (NDA) to the US Food and Drug Administration (FDA) for its anti-infective candidate fidaxomicin. Optimer is seeking marketing approval of the candidate for treating patients suffering from CDI and to prevent the recurrence of the infection. The candidate is under review in Europe for the same indication.

We note that CDI is the most common nosocomial or hospital-acquired diarrhea. CDI is a serious illness caused by infection of the inner lining of the colon by C. difficile bacteria that produces toxins resulting in inflammation, severe diarrhea and sometimes death.

Our Take & Recommendation

Apart from fidaxomicin, Pruvel, an antibiotic currently in late-stage development for the treatment of travelers' diarrhea (a form of infectious diarrhea), is another interesting candidate at Optimer. The company intends to file a NDA with the FDA for Pruvel in the first quarter of 2011. Although we are optimistic about the prospect of both these drugs, we are very concerned about the competition in this area.

We believe the initial sales ramp for these products will be slow. Furthermore, the excessive dependence of the company on these two candidates also concerns us.

Given these headwinds, we believe that Optimer's current valuation adequately reflects its fairly balanced risk/reward profile. Consequently, we see limited upside from current levels. This forms the basis for our long-term neutral stance on the stock, which is supported by the Zacks #3 Rank (short-term Hold recommendation) carried by the company.