Optimer in Neutral Lane

We are maintaining our Neutral recommendation on Optimer Pharmaceuticals Inc. (OPTR) with a target price of $9.50.

Headquartered in San Diego, California and founded in 1998, Optimer Pharmaceuticals Inc. focuses on discovering, developing and commercializing anti-infective products. The company is currently engaged in the development of products that treat gastrointestinal (GI) infections and related diseases where current therapies have limitations such as diminished efficacy, serious adverse side effects, drug-to-drug interactions, difficult patient compliance and bacterial resistance.

Optimer Pharmaceuticals recently delivered a second quarter 2010 loss per share of $0.27. The loss per share was narrower than the Zacks Consensus Estimate by $0.03 and the year-ago loss by $0.10. The narrower loss was attributed to lower costs since the company cut its research & development (R&D) spending in the quarter.

Optimer does not have any marketed products at present. It earns revenues primarily from research grants and collaborative agreements. Revenue in the reported quarter declined 16% year over year to $357,436 due to the absence of funds from collaborative research agreements.

(Read our full coverage on this earnings report: “Lower Q2 Loss at Optimer“)

Optimer has two late-stage anti-infective product candidates, fidaxomicin and Pruvel (prulifloxacin). Recently, the Marketing Authorization Application (MAA) for fidaxomicin was accepted in Europe . While the submission of the New Drug Application (NDA) for fidaxomicin is planned for later this year, the same for Pruvel is planned for early 2011. We are pleased to note that both candidates score better than the currently available treatment options on many parameters.

Although we are quite optimistic regarding their approval, we remain concerned about the competitive scenario. On approval, these drugs will have to compete with many established pharma players. We are also concerned about the dependence of the company, which has limited resources, on its two lead pipeline candidates.

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.

We have a Zacks #3 Rank (short-term Hold recommendation) on the shares. This implies that the stock is expected to perform in line with the broader US equity market over the next 1 – 3 months. We are Neutral on Optimer in the long-term, which indicates that the shares are expected to replicate its short-term performance, but over 6+ months. Consequently, we advise investors to retain the stock over the time-period.

OPTIMER PHARMAC (OPTR): Free Stock Analysis Report

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