Optimer Pharma Stays Neutral

Zacks

We are maintaining our Neutral recommendation on Optimer Pharmaceuticals (OPTR) with a target price of $16.00. Our long-term recommendation is in line with the Zacks #3 Rank (Hold rating) carried by the stock in the short run.

In May 2012, Optimer Pharma came out with disappointing first quarter 2012 numbers. The company suffered a loss of 73 cents per share on an adjusted basis as opposed to a profit of $1.04 in the first quarter of 2011. The Zacks Consensus Estimate hinted at a loss of 38 cents in the first quarter of 2012. Lower revenues and higher costs hurt results during the first quarter of 2012.

Revenues in the first quarter of 2012 came in at $14.4 million as opposed to $69.3 million in the year-ago quarter. We note that revenues in the year-ago quarter were boosted by the receipt of $69.2 million as upfront milestone payment from Optimer’s partner Astellas Pharma regarding Optimer’s sole marketed drug Dificid. Dificid sales increased 31% sequentially to $14.4 million in the first quarter of 2012 - its second full quarter in the market.

We remind investors that Dificid, an antibiotic, was approved in the US in May 2011 for treating patients suffering from clostridium difficile-associated diarrhea (:CDAD). CDAD refers to the most common form of nosocomial, or hospital acquired, diarrhea.

In December 2011, the drug was approved in the EU for CDAD under the trade name Dificlir. Dificlir has already been launched in the EU. The first European sale of the drug by partner Astellas triggered a €10 million milestone payment to Optimer Pharma.

Moreover, the drug was approved in Canada in July 2012. Approval in additional territories has boosted the sales potential of the drug. On the first quarter 2012 conference call, management stated it intends to make the drug available in additional markets, especially Japan.

Moreover, Optimer Pharma has an exclusive two-year agreement (through July 2013) with Cubist Pharmaceuticals (CBST) to co-promote Dificid in the US for the treatment of CDAD. We believe the deal is a positive for Optimer Pharma as it will benefit from Cubist Pharma’s experience in marketing hospital-based antibiotics. Optimer Pharma is also looking to expand Dificid’s label.

However, we remain concerned about Optimer Pharma’s over dependence on Dificid for growth. In the absence of a decent pipeline, Optimer Pharma has little to fall back on if Dificid performs below expectations. We see limited upside potential from current levels.

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