One of the buzzwords I keep hearing is that biotech investors want companies that are “de-risked.” This is kind of amusing, because the complex nature of biology makes biotech drug development one of the riskiest investments of all. But this craving for security is positive, at least for a while, if you are San Diego-based Optimer Pharmaceuticals.
Optimer (NASDAQ:OPTR) removed a lot (if not all) of the risk from its profile Thursday when its lead drug candidate passed a second pivotal clinical trial. The company showed its antibiotic for “C.difficile” bacterial infections, in 535 patients, was roughly equal to the gold standard antibiotic at curing people, and twice as good at preventing dangerous recurrences. That finding was consistent with another study of 629 patients reported in November 2008.
Not surprisingly, Optimer’s stock climbed as much as 15 percent Friday morning , before settling down to a modest 6 percent gain, closing at $12.54 a share.
The success of this pivotal clinical study means that Optimer is racing to send in an application to the FDA for clearance to start selling its first product, fidaxomicin. Optimer plans to file the FDA application by this summer, and it hopes to get a 6-month expedited review, which should make the drug available in early 2011, CEO Michael Chang says. Another application is being prepared for Europe.
If Optimer can get through the regulatory agencies, it will be in a unique position. There is no other antibiotic in development specifically for “C.diff” infections that’s within five years of reaching the market, Chang says, while incidence of this potentially deadly bug is growing. This is sure to spark plenty of speculation about who might form a partnership with Optimer to market this drug overseas, or who might want to buy the company altogether.
“We expect shares likely will continue to move higher ahead of potential lucrative partnership opportunity/take-out possibility,” said Eun Yang, an analyst with Jeffries & Co. in New York, in a note to clients on Friday. “We view regulatory risks as very low.”
When I met Chang a few weeks ago at the JP Morgan Healthcare Conference in San Francisco, he tried to pooh-pooh any speculation of an imminent partnership, or takeover. I asked him why pharma hadn’t yet written a big partnership check already, given that fidaxomicin had passed a major Phase 3 study in November 2008.
“Pharma thinks that small startup companies are desperate. So they are playing a wait-and-see game. They have become picky. They hold the money. They think small startups are begging them to get taken out,” Chang says. “My answer to that is we have always said to the investment community that we are not eager to be taken out. We want to continue to build value for investors.”
But he noted that the takeover speculation is sure to continue, partly because Optimer actually has another drug besides fidaxomicin that has passed a pivotal trial. The company plans to submit a new drug application to the FDA this year for its second drug, prulifloxacin, for traveler’s diarrhea. “We are one of the very few companies out there that has de-risked two late-stage compounds,” Chang says.
While no one I’ve talked with disputes that Optimer has removed the technology risk from fidaxomicin, there is still business risk to be dealt with. So here are some of the basics on how it plans to market the “C.diff” drug, based on my conversation with Chang and Kevin Poulos, the company’s chief commercial officer.
Optimer will seek to get the drug on hospital formulary lists as a designated treatment for “C.diff,” which can be a time-consuming process. It will sell the compound to major distributors like McKesson, which will then distribute it to hospitals, nursing homes and pharmacies. Optimer, a company with 65 employees now, plans to build a 100-person specialty sales force to concentrate on hospitals and nursing homes in the U.S. Whoever Optimer chooses as its Big Pharma partner, if it chooses a partner, will be responsible for marketing the drug overseas.
A handoff of sorts needs to occur smoothly for the Optimer drug to be commercialized. It’s an oral pill that needs to be taken twice daily for a 10-day course. Patients will typically get it for the first three or four days while they are hospitalized, and then get a prescription to buy more at a pharmacy, which they can take at home, Chang says.
Hard data on how many people really get “C.diff” is hard to come by, because hospitals don’t like to publicize when their patients get this dangerous infection. But about 30 to 40 cases were reported per 100,000 people discharged from hospitals in 2001, and that figure has climbed to about 100 cases per 100,000 discharges in 2005, according to data from the Centers for Disease Control and Prevention.
Based on an assumption that the Optimer drug is priced at $1,000 to $1,200 for a 10-day course, Yang, the Jeffries analyst, estimates worldwide fidaxomicin sales of $250 million in 2014.
To get there, Optimer will have to first convince hospitals they have a serious problem. That might be easier said than done. After all, surgeons don’t often like to admit that their patients get different types of infections in their operating rooms, Poulos notes. Major infectious disease societies have been nagging hospitals for years to do more to curb the spread of this bug and others, by using bleaches to clean every imaginable square inch of hard-to-reach surface areas in their buildings. “C.diff” hasn’t been in the headlines lately, either.
“It’s very difficult. People get on the bandwagon for a while, and get tired of it,” Poulos says. “We believe it’s going to be a fad. It will come and go.”
Another driving force for change in the “C.diff” market is beyond Optimer’s control—diagnosis. The “C.diff” infection is usually diagnosed through what’s known as an Elisa test, which can take 48 hours to produce a lab result, Chang says. In the meantime, patients are suffering from severe diarrhea and dehydration, and when the doctor is in doubt, the choice is often to go with vancomycin—an antibiotic that’s effective against a broad array of different types of bacteria.
To change that paradigm, and convince doctors they need to choose the Optimer drug right away, the company is rooting for Sunnyvale, CA-based Cepheid to have some early success with its molecular diagnostic instrument. This tool is supposed to help doctors diagnose “C.diff” infections in an hour or two, Chang says, which could clearly direct them to the first choice therapy for this bug.
Beyond that, I have to wonder if hospitals might balk at the price. Optimer isn’t saying what the price will be, but Poulos told me “it will be expensive.” He explained to analysts on a conference call on Thursday that the price will be based on health economic analyses that shows how the Optimer drug can save the system money by reducing hospital stays, and the expense that comes when people have to be re-hospitalized with recurrences.
And of course, building up the sales force is going to take money—and that’s something Optimer needs. The company reported about $48 million in cash and investments as of September 30, its last quarterly report. Optimer is burning through about $10 million a quarter now, Chang says. That means it will need to raise more money this year, either through a partnership or by raising capital from investors, Chang says.
So while the clinical trial results are unequivocally good news, that’s not the only risk investors have to consider. If Optimer has to raise money by selling more shares, that will dilute the value of existing shares. As Yang, a bull on the company with a $20 price target, noted dryly in her report, “additional financing risks” remain.
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