Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Optimer Pharmaceuticals (NASDAQ:OPTR)

Q4 2012 Earnings Call

February 28, 2013 5:00 pm ET

Executives

David A. Walsey - Vice President of Investor Relations & Corporate Communications

Henry A. McKinnell - Chairman, Chief Executive Officer, Chairman of Strategy and Science Committee and Member of Nominating and Corporate Governance Committee

Stephen W. Webster - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Hemal Shah - Senior Vice President of Medical Affairs, Health Economics & Outcome Research

Analysts

Marko K. Kozul - Leerink Swann LLC, Research Division

Alan Carr - Needham & Company, LLC, Research Division

Ritu Baral - Canaccord Genuity, Research Division

Eun K. Yang - Jefferies & Company, Inc., Research Division

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

Steve Byrne - BofA Merrill Lynch, Research Division

Liisa A. Bayko - JMP Securities LLC, Research Division

Angad S. Verma - Oppenheimer & Co. Inc., Research Division

Operator

Good day, ladies and gentlemen, and thank you for your patience. You've joined the Optimer Pharmaceuticals Fourth Quarter and 2012 Financial Results Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Vice President of Investor Relations and Corporate Communications, Mr. David Walsey. Sir, you may begin.

David A. Walsey

Thank you. Welcome to the Optimer Pharmaceuticals fourth quarter and 2012 conference call. With me today from the company is our Chief Executive Officer and Chairman of the Board of Directors, Hank McKinnell; our Chief Financial Officer, Stephen Webster; and Hemal Shah, our Senior Vice President, Medical Affairs, Health Economics, Quality and Outcomes.

Please note that this conference call will include forward-looking statements regarding future events and the future financial performance of Optimer; the expected impact of Optimer's recent personnel changes; Optimer's review of strategic alternatives, including a possible sale of the company; future sales and adoption of businesses, including plans and initiatives to facilitate patient access; Optimer's co-promotion agreement with Cubist Pharmaceuticals Inc.; life cycle management initiatives and commercial efforts; commercialization of DIFICLIR by Astellas Pharma Europe; Optimer's plans for additional international commercialization of businesses; future financial results and expenses; and the expected impact of Optimer's internal investigation and previously disclosed cooperation with relevant U.S. authorities. Because such statements deal with future events and are subject to many risks and uncertainties, actual results may differ materially from those projected in the forward-looking statements. Examples of such risks and uncertainties include risks relating to Optimer's ability to continue to increase the adoption and use of DIFICID; the implementation and success of DIFICID growth initiatives and entry into new markets; whether or not health care professionals will prescribe DIFICID; the extent to which DIFICID receives reimbursement coverage from hospital -- excuse me, from health care payors and government agencies; the extent to which DIFICID will be accepted on additional hospital formularies and the timing of hospital formulary decisions; Optimer's ability to successfully coordinate commercialization efforts with Cubist under its co-promotion agreement, whether Optimer will be able to realize the expected benefits under its co-promotion agreement with Cubist and its collaboration agreements with other partners; the possibility of alternative means of preventing or treating CDAD, impacting adoption and sales of DIFICID; Optimer's ability through its third-party manufacturers and logistics providers to maintain a sufficient supply of DIFICID to meet demand; the effects of changes in Optimer's management; the outcome of Optimer's review of strategic alternatives, including a possible sale of the company; the potential for lawsuits and enforcement proceedings related to the previously disclosed investigations by U.S. authorities.

For a full discussion of these risks and uncertainties, please review Optimer's annual report on Forms 10-K and the subsequent quarterly reports on Form 10-Q as filed with the U.S. Securities and Exchange Commission.

Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 28, 2013. Optimer undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. This conference call is also being webcast and will be archived on our website for 30 days after today.

Earlier this afternoon, we released financial results for the fourth quarter and year ended December 31, 2012. If you have not received this news or if you would like to be added to the company's distribution list, please visit the Investor Section of our website at www.optimerpharma.com. I would now like to turn the call over to Dr. McKinnell, our CEO and Chairman.

Henry A. McKinnell

Thank you, David, and good afternoon, everyone. The Optimer Board of Directors this week approved several actions based on additional findings from our ongoing internal investigations and the recommendations of our Independent Directors. We accepted the resignation of our now former CEO and now former General Counsel. The board announced my appointment as Optimer's Chief Executive Officer in addition to my current role as Chairman of the Board. We also announced the appointment of Meredith Schaum as Optimer's General Counsel and Chief Compliance Officer.

Further, we announced the board's decision to commence the process to explore a full range of strategic alternatives. We have engaged JPMorgan and Centerview Partners as our financial advisers to help manage this process. Sullivan & Cromwell has been retained as our legal adviser. We cannot predict or speculate on the outcome of this process or how long it might last. We will not be able to comment further until the process is completed.

In discussions with analysts and our investors after yesterday's announcements, we were asked several questions that I would like to try to address. While I'll provide some clarification hopefully around these questions, I'm unable to provide new information beyond what appears in the press release and SEC filings, including the information contained in the current report being filed today on Form 8-K.

As a result of the management changes announced yesterday and process and procedures in connection with those changes, we have determined that the filing of our 10-K will be delayed. In light of this, we wanted to provide a brief overview of the status of our internal investigation.

Almost a year ago, we became aware of an attempted grant in September 2011 to Dr. Michael Chang of 1.5 million technical shares of Optimer Biotechnology, Inc. We engaged outside counsel to assist us in an internal review and determine that the grant may have violated certain applicable laws, including the Foreign Corrupt Practices Act. We self-reported the results of our preliminary findings to the SEC and the DOJ, which included the grant and certain related matters, including a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual who was also associated with the OBI share grant, and we continued our internal investigation.

At that time, we terminated our then Chief Financial Officer and our then Vice President of Clinical Development. We also removed Dr. Michael Chang as the Chairman of our Board and requested that he resign from the board, which he has not. Since that time, we've continued our internal investigation and cooperated with the SEC and the DOJ.

This month, our internal directors determined that additional remedial action should be taken in light of prior compliance, record-keeping and conflict of interest issues surrounding the potentially improper payment to the research lab and certain related matters. Yesterday, we announced that our CEO and our General Counsel had resigned at the request of the Independent Directors. Over the past year, we've revised our compliance policies, strengthened our procedures and implemented training and internal audit procedures to make our compliance and monitoring more comprehensive. As the SEC and DOJ investigations are continuing, we will not be able to provide any additional information at this time.

In addition to requests for additional information about the pending investigation, as described above, we've also been asked why consider strategic alternatives now? We continue to support Optimer's DIFICID strategy. But with new management having just been appointed, now is the time to explore additional strategic alternatives. A third question frequently asked was whether or not the departures had to do with execution around the commercialization of DIFICID. As we stated in yesterday's announcement and my comments above, the management changes were appropriate following the board's review of prior compliance record-keeping and conflict of interest issues observed during the review, including issues arising from the conduct of Optimer personnel who were the subject of the changes in management and leadership announced in April 2012. We recently released fourth quarter and year-end 2012 financial results. And as you can see, they were generally in line with expectations. Stephen will go through those details shortly.

While there have been challenges in commercializing DIFICID, I think we understand those challenges and we're addressing them with a series of previously announced strategic initiatives, which I'll review shortly in my 2012 overview. The board supports the strategies we've put in place. We have a team in place to successfully execute these strategies.

I will now turn to a brief overview of the highlights of 2012 and speak of some of the challenges we addressed. Then, Stephen will discuss our unaudited 2012 financial results, after which I'll make some brief closing comments, and we'll then take your questions.

DIFICID net product sales for 2012 were $62.4 million. Cumulative net product sales since launch were $83.9 million, which we believe places DIFICID among the top-performing product launches for a hospital-based antibiotic. We built a 100-person commercial sales force, as well as a Medical Affairs Team and a Health Economics & Outcomes Research team.

In August, DIFICID became the first and only oral drug to be granted a new technology add-on payment by the Centers for Medicare & Medicaid Services, CMS. The CMS special add-on payment is designed to improve reimbursement to hospitals for utilizing breakthrough medical technology and is only available to new technologies that are inadequately paid for under the existing MS-DRG, or Medical Severity-Diagnosis Related Groups system, and that represent a substantial clinical improvement over existing treatments. We put substantial efforts into commercializing fidaxomicin globally. In June 2012, Optimer Canada launched DIFICID for the treatment of Clostridium difficile infection, or CDI, following regulatory approval by Health Canada. In the second quarter, our European partner, Astellas Europe, launched DIFICLIR in several European countries. As of year-end, Astellas Europe has launched DIFICLIR in approximately 10 countries, including the U.K., Spain and France. In March of 2012, we entered into a collaboration with Astellas Pharma, Inc., or Astellas Japan, for the commercialization of fidaxomicin in Japan. In June of 2012, we entered into a distribution and license agreement with Specialised Therapeutics Australia, or STA, to register and commercialize fidaxomicin in Australia and New Zealand. Lastly, in the fourth quarter of 2012, we entered into an exclusive agreement with AstraZeneca to commercialize fidaxomicin in Latin America, including Brazil, Central America, Mexico and the Caribbean.

So as you can see, there's been great global interest and activity in the commercialization of fidaxomicin. We're fortunate to have established collaborations with some of the strongest pharmaceutical companies in each of the regions that we partnered. Aggregate contract revenue from partners totaled $39.1 million in 2012.

Despite these successes in 2012, however, we did see a slowing of DIFICID growth in the U.S. in the third quarter, which prompted reevaluation of our commercial strategy. During 2012, we recognized certain barriers to patient access and hurdles to product adoption. In response, we quickly implemented several initiatives in the fourth quarter to help break down those barriers. These programs included a hospital contracting initiative for a discount designed to address cost as a barrier to prescribing DIFICID, for hospital inpatients; DIFICID RxAssist, to facilitate continuity of care and reduce prescription abandonment in the retail channel; and a co-pay assistance program to help reduce prescription abandonment rate for commercial patients in the retail setting. While still too early to fully quantify the impact of these programs, we have seen evidence that these programs are gaining traction: A 15% increase in U.S. DIFICID shipments in the fourth quarter, a large number of hospital P&T committees are re-reviewing DIFICID's formulary status; awareness of our programs is associated with an increased intent to prescribed by physicians; and DIFICID RxAssist, while still a small component of overall sales, is growing, helping more patients and reducing prescription abandonment rates.

Additionally, our data on the CDI burden and hospital readmission rates in the inpatient Medicare population have been presented to hundreds of hospitals, alerting them to the challenges CDI presents not only nationally, but in their individual institutes and networks.

Now, I'll turn the call over to Stephen Webster to discuss our 2012 financial results. Stephen?

Stephen W. Webster

Thank you, Hank. DIFICID net product sales in the U.S. and Canada were $62.4 million and $16.8 million for the year and fourth quarter 2012, respectively. We recognize product sales of DIFICID upon delivery of the product to our wholesalers. Total revenues for 2012 were $101.5 million compared to $145 million for 2011. Total revenues for the fourth quarter 2012 were $19.5 million compared with $64.6 million for the fourth quarter of 2011.

We recognized $39.1 million in contract revenue in 2012 under our collaborations with Astellas Europe, Astellas Pharma or Astellas Japan, Specialised Therapeutics in Australia and AstraZeneca in Latin America. Inventory levels at wholesalers remain within the range of 14 to 28 days of demand. For 2012, Optimer reported a net loss of $37 million, or $0.78 per share, on both a basic and diluted basis, as compared to net income for 2011 of $7.8 million, or $0.17 a share, on both a basic and diluted basis. Net income in the fourth quarter of 2012, which includes a gain of $31.5 million from the sale of our equity interest in Optimer Biotechnology Inc., or OBI, was $1 million or $0.02 a share on a basic and fully diluted basis compared to a net income in the fourth quarter of 2011 of $13 million, or $0.29 and $0.28 per share on a basic and diluted basis. Net income in 2011 was favorably impacted by $122.7 million in contract revenue from collaborators.

Research and development expense for 2012 was $45.2 million compared to $43.1 million for 2011. Research and development expense in the fourth quarter of 2012 was $11.9 million compared to $14 million in the fourth quarter of 2011. Selling, general and administrative expense for 2012 was $112 million compared to $80.6 million for 2011. SG&A expense in the fourth quarter of 2012 was $31.2 million compared to $30 million in the fourth quarter of 2011. The increase was due to a full year of commercialization efforts on DIFICID, as well as increases in the fourth quarter related to the launching of the strategic initiatives that Hank discussed earlier. Co-promotion expenses with Cubist for 2012 were $23.2 million compared to $6.6 million in 2011. The increase represented certain bonus and profit-sharing provisions earned by Cubist under our April 2011 DIFICID co-promotion agreement. As of December 31, 2012, Optimer held cash, cash equivalents and short-term investments of $124 million. This includes the proceeds from the sale of our stake in OBI. We had 47.8 million shares outstanding on December 31, 2012. And now, I'd like to turn the call back over to Hank.

Henry A. McKinnell

Thank you, Stephen. Our new organization accomplished a lot in 2012. But as I used to say in a previous company, you ain't seen anything yet. Doctors around the world ask the same question: What's new? We're dedicated to answering that question. In 2012, we initiated a Phase IIIb clinical trial evaluating DIFICID for the prophylaxis of Clostridium difficile-associated diarrhea in patients undergoing hematopoietic stem cell transplant, often referred to as bone marrow transplant. We believe that the potential use of DIFICID as a preventative treatment for CDAD has considerable commercial potential. Under our obligations and commitments to the FDA, we are evaluating DIFICID in a Phase II Pediatric PK trial and plan to initiate a study in patients suffering from multiple recurrence of CDAD later this year. As part of our life cycle strategy, we're also looking into other areas for continued clinical evaluation of DIFICID, including studies to demonstrate superiority and cure for CDI in key patient subpopulations.

With DIFICID, we have a powerful product for a disease representing a major problem in hospitals and in a health care environment, with decreasing tolerance for infections. The CDC stated in 2012 that while most health care associated infections are declining, CDI remains at historic high levels. We believe DIFICID in the company are well positioned within the evolving healthcare landscape.

That concludes our formal remarks. I'll now turn the call over to our operator for your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Marko Kozul of Leerink Swann.

Marko K. Kozul - Leerink Swann LLC, Research Division

Is the answer to the question of the rationale for seeking strategic options now purely driven by management changes or are there other alternatives, such as possibly you're having a bid in hand?

Henry A. McKinnell

Well, as we stated, the review is of all strategic alternatives. So it's not just evaluation of a bid or one alternative. It's all strategic alternatives, driven primarily by timing, that at some point, every company has to do a thorough review of the alternatives before them. We are satisfied with the opportunity we have with DIFICID. That's certainly our major priority. But we thought this was the best time for a review of what else might be out there.

Marko K. Kozul - Leerink Swann LLC, Research Division

All right, terrific. And just as a follow-up. Given our KOL suggests that positive bone marrow transplant trial readout would quickly lead to broad formulary updates that would include possibly all autoimmune patients, can you talk to us or talk through how important of a milestone your second half of this year bone marrow transplant trial interim readout might be to exploring some of these strategic options and discussions?

Henry A. McKinnell

Let me ask Stephen to answer that, and I'll come back at the end.

Stephen W. Webster

Thanks, Marko. Yes, we're really excited about the prophylactic opportunity as we've discussed in the past. And think the way this drug works, it makes sense, and that's why we initiated the trial. Initially, if this trial is successful, we would seek labeling expansions, specifically for BMT, and then it's our plans to conduct a second Phase III in another prophylactic indication so we could then seek a broader prophylactic label for the drug. Certainly, not our practice to answer your questions speak to off-label usage, so I'll leave that to you and your network to see what people might say about that.

Henry A. McKinnell

And just to maybe to put that into a little different context, I've been down this road before in a different role and I think the Diflucan development program in transplant units is a pretty good parallel that physicians in those units didn't think there was a problem. It turns out once you do the study, there is a problem. So I think we'll see that. At least I hope we'll see the same effect here, and that it's kind of untested waters. Nobody has a real good idea of what the impact of the C-diff is on these patients, and we're about to find out.

Marko K. Kozul - Leerink Swann LLC, Research Division

It's very helpful. I was just trying to home in on how you think about that interim and the final data reporting as a potential inflection point in your potential revenues and how you think about this in the context of strategic discussions and options that you have right now, because your value post a positive readout might be very different than prior.

Operator

Our next question comes from Alan Carr of Needham & Company.

Alan Carr - Needham & Company, LLC, Research Division

I'm wondering if there's any changes that you're contemplating here in terms of commercial operations or strategy around DIFICID, with the change here in management?

Henry A. McKinnell

Well, Alan, as you might imagine, in addition to the strategic review under way, I have an operations review under way. I am very impressed with the team we have. We have some exceptionally talented folks in the organization. And I guess the one thing that is clear already is that we clearly need to focus on jumpstarting formulary status and utilization at this important message. Not to say that hasn't been done before, but we are at a point of time when we have some tools we maybe didn't have previously. The data around individual hospital, individual network infection rates and recurrent rates allows us to do business plans within those institutions and also to convince doctors that maybe they have more of a problem here than they think they do. On the access side, we also have a new contracting program, which should remove some of those barriers, maybe not all but some of them. And we have an RxAssist program, which should allow us to ensure that the prescriptions which were written are filled, which, of course, is in the pharmaceutical business, a major loss of revenue.

So I think we have a number of opportunities here to really jumpstart the utilization of this important medicine.

Alan Carr - Needham & Company, LLC, Research Division

And then a quick follow-up on those lines. Is there -- can you guys put some numbers around abandonment rate here? And you mentioned the Patient Assistance Program and NTAP are helping.

Henry A. McKinnell

Yes, those numbers are helping. Hemal Shah, who does our pharmacoeconomic work within the company, is looking through some papers here. So she'll have the numbers here in a second. Hemal, can you find those numbers? Just hang on one second here.

Hemal Shah

So Alan, historically, the abandonment rate has been approximately 45%. With the implementation of the RxAssist program, we've been able to bring that down to approximately 42%. And what we are seeing is that with the RxAssist program, we're seeing an increase in the number of Rx prescription referrals that result in a fill in the prescription. It's gone up quite significantly. And the program is in early stages, so we will continue to see the benefits of the program. As far as RxAssist fills from January through February 15, we've seen approximately 312 fills from the RxAssist program or transfers to the retail pharmacy. Also, in terms of referrals during that same time period, we've seen referrals from the RxAssist programs initiate benefit investigations of approximately 422.

Stephen W. Webster

Alan, this is Stephen Webster. I should just add, antibiotics historically have a little bit higher abandon rate than many drugs because like all of us, you'd feel better and you might not fill the rest of your script. We believe VANCOCIN had about a 35% abandonment rate in the middle of its run there. And so our 45% is a little higher than we want to be. We're working on it. We've got several tools, including the RxAssist, as well as the co-pay assistance program for commercial users that we implemented in January. So again, RxAssist is wildly successful when we can get patients into it. It's still at the nascent stage of referring patients, but we'll report that progress to you guys as we have it.

Alan Carr - Needham & Company, LLC, Research Division

Okay. Is that 45% to 42% over a 3-month period?

Stephen W. Webster

It's really since launch was sort of late Q3, and that was a number we were reporting at year end for through December.

Henry A. McKinnell

Okay. Now and there's really 2 factors here. One is the abandonment rate represents loss in revenue. You're not selling product. But I think more fundamentally, the fact that a physician writes the script and knows that a number of patients won't fill it or won't be able to afford it becomes an obstacle to prescribing this particular medicine. So I think the knowledge that there is an RxAssist program available in addition to reducing the abandonment rate, I think, should provide more confidence to physicians in prescribing DIFICID.

Operator

Our next question comes from Ritu Baral of Canaccord.

Ritu Baral - Canaccord Genuity, Research Division

Hank, what are your current thoughts of structuring the sales force given the Cubist partnership that's ending imminently? And also, what has the team seen as far as NTAP utilization and sort of shifting of the decision-making within the hospital setting for DIFICID use?

Henry A. McKinnell

Okay, the Cubist agreement ends in July. We are planning to transition that over to our own organization. And Hemal, you wanted to add to that or Stephen, you want to add to that?

Stephen W. Webster

I'll do that. Yes, we've been looking at this, as most of you know, we have 100 reps in the field now and a vast majority of our target hospitals are covered by both the Cubist rep and an Optimer rep. And I got to say, they've been a great partner, wonderful to work with and very additive in the early parts of the launch. They have some reps that call on some smaller hospitals where we do not have feet on the ground. And what we're currently contemplating is it that with about 40 or 50 reps, we could pick up the vast majority of the customers that are covered by Cubist only. And given the economics of the arrangement, that would be a little bit cheaper to implement ourselves than to pay the base fees under the Cubist agreement. So current best thinking is we'll say thank you to Cubist and put our own feet on the ground in July. The other, Ritu, about the NTAP, it's really, really hard for us to gauge the utilization of that. The NTAP payments are between the government and the hospital. We're not privy to them. I'm guessing at some point in time, CMS will have to report how much was used under it. But it might take us 1 year or 2 before we're actually able to quantify the utility of the program. That said, we have feedback from doctors. When physicians are aware of the NTAP in DIFICID, about 76% of the ones we've surveyed had indicated that they intend to prescribe more DIFICID given the endorsement by CMS on the drug through the NTAP.

Ritu Baral - Canaccord Genuity, Research Division

Great. And one quick follow-up. Given that we're in C-diff high season right now on the back of a strong flu season, can you tease out the impact of seasonality on the scripts that we're seeing now in the middle of what's essentially still a launch certainly?

Stephen W. Webster

No. We get that question a lot, and unfortunately we can't. We won't really be able to quantify any increases in the incidence of CDI till the data come out later. And it's further muddled a little bit, Ritu, because we have these initiatives we launched in the Q4. So it's really hard to tell which of these things is contributing to the strong U.S. unit growth we saw in the fourth quarter. Is it discounting? Is it NTAP? Is it a seasonal effect from a high cold and flu season? We just don't know how much each of those specific things contributes. But as Hank suggested, we're early optimistic that things are moving in the right direction.

Operator

Our next question comes from Eun Yang with Jefferies.

Eun K. Yang - Jefferies & Company, Inc., Research Division

In this process of strategic -- exploring strategic alternatives, I'm just still wondering how you would manage your sales -- how you managed to retain your sales reps and have them focused on selling DIFICID?

Henry A. McKinnell

Well, sales reps are interestingly a pretty easy group to motivate. They're competitive. They're in front of doctors all the time. They enjoy what they do. I don't think retention is a concern in a growing organization here. People obviously have somewhat anxiety about what the future might hold. But we have in place programs that provide significant benefits and protections to people in the event of the change of control. But it's not entirely clear that a change of control is going to be the only alternative we'll be evaluating. I believe we'll be facing a whole array of alternatives, and the board will take the one that generates the greatest shareholder value over the long term for our shareholders.

Eun K. Yang - Jefferies & Company, Inc., Research Division

Do you think that in the event that you decided to hire additional 40 to 50 sales reps, wouldn't it be an issue during the process hiring those talented people during the process?

Henry A. McKinnell

Well, there's lots of really talented sales reps available in the industry today. Unfortunately, from my perspective, but there's a lot of really experienced good people, and we have 100 of them. We could probably hire that many again pretty quickly, but we're very satisfied that we have the right people and we can obtain the people we do need. There are contract sales forces available. But quite frankly, I find them not as productive as our own sales force.

Eun K. Yang - Jefferies & Company, Inc., Research Division

And maybe a quick question to Steve. When do you expect to see some meaningful royalty revenue in excess of sales?

Stephen W. Webster

It's hard to predict, Eun. We did start booking royalties in the third quarter from APEL with the launch. The number increased in the fourth quarter and we got royalties in there. And it's just coming online on a country by country basis for APEL. You guys know we have high teens royalties. So I guess I'll leave it to you when you would think it would be significant. But it started and it's starting to build, and we're supporting APEL over there in whatever we can do to help them out. We're optimistic.

Eun K. Yang - Jefferies & Company, Inc., Research Division

What was the royalty on EU sales in the fourth quarter?

Stephen W. Webster

We don't break out the royalty on sales in the fourth quarter, but it's embedded within the contract revenue line, which in the fourth quarter was $2.7 million, including a portion of the upfront from AstraZeneca, as well as some product sales in the royalties from our other collaborators.

Operator

Our next question comes from Brian Skorney of R. W. Baird.

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

I guess maybe if you could kind of give us a feel for how management's committing time to kind of the strategic alternative process versus managing the day-to-day operations? I know Greg was terminated last quarter. And with Pedro stepping down this week, it seems like there's a lot of shoes to fill in terms of kind of the day-to-day marketing effort. So maybe if you could just kind of quantify how much time you guys will be spending on trying to run the company as opposed to evaluating the strategic alternatives?

Henry A. McKinnell

Well, the strategic alternative process is mainly in the hands of the Board of Directors and the outside advisers. That obviously will be supported by management, and there will be some effort devoted to that area. But certainly, when it comes to sales and marketing and the revenue-generating part of the business, their #1, #2, #3 priorities are access and increasing utilization of DIFICID. I think we've got that pretty well covered with the addition of both Centerview and JPMorgan. But that -- those decisions will be evaluated and eventually reach -- taken to a decision by the board itself.

Brian P. Skorney - Robert W. Baird & Co. Incorporated, Research Division

Great. And I know Pedro had previously expressed a goal of breaking cash flow even by 3 years post launch. I'm just wondering if the company does remain an ongoing entity, are you guys committed to that same goal or is that guidance no longer in effect? And is there any comment in terms of spend guidance for 2013?

Henry A. McKinnell

We don't really have guidance for 2013, but we are committed to being cash flow positive by 2014. And that will require improving formulary acceptance and driving utilization of the product. That's what we're focused on.

Operator

Our next question comes from Steve Byrne of Bank of America.

Steve Byrne - BofA Merrill Lynch, Research Division

Stephen, is the RxAssist cost flow through SG&A and is that what attributed to the sequential increase in that line item in the fourth quarter?

Stephen W. Webster

Yes and no, Steve. The RxAssist costs do go through SG&A. We contribute to a nonprofit there to help people in need fund the co-pay for when they're under the Medicare Part D. But I think it's because you've heard us say the RxAssist program is still quite small, so in and of itself did not increase to the -- did not contribute significantly to the increase in SG&A in the fourth quarter. I think you can attribute that, as we said, largely to the rollout of the initiatives. Remember, we kicked them all off in Q1. Our field force appropriately was jacked and juiced and went out full speed ahead. We had a lot of speaker programs, we had a lot of medical meetings. So we've put a lot of effort in there in the fourth quarter to get the word out on these things, and that's what largely drove the Q4 increase.

Steve Byrne - BofA Merrill Lynch, Research Division

Is that a reasonable run rate going forward until you bring along the additional 40 to 50 reps?

Stephen W. Webster

Yes. We don't give guidance on that. So I'll let you guys play with the numbers. You now have a Q1, Q2, Q3 and a Q4, which, again, was impacted by the launching of the initiatives. And again, as far as the Cubist transition, we pay our friends $3.75 million a quarter, or about $15 million a year. And a good sort of yardstick for the cost for a rep is about $250,000 all in. So if we added 40 reps, that would cost us $10 million. Again, vis–à–vis us paying Cubist $15 million in the base part of the agreement. So I think there'll be about a cost push if we put our own reps on the ground.

Steve Byrne - BofA Merrill Lynch, Research Division

And any outlook for the gross to net ratio for the near term?

Stephen W. Webster

Yes. What you can see is that in the fourth quarter, if you look at the press release, we went from running at about a 15% gross to net generally in Q2 and Q3 up to about $21.33 million in the fourth quarter. What you'll see with the price increase we implemented in January, as well as the incremental discount to the hospitals to keep them at $2,100 WAC, you'll see the -- you'd probably see the gross to net creep up a little bit in Q1 because of that higher discount, but it'll generally stay in the range it is plus maybe 1 point or 1.5 points.

Steve Byrne - BofA Merrill Lynch, Research Division

And can you comment on your NOLs at the end of the year and any near-term milestones from your partners?

Stephen W. Webster

Yes and no. And I'm sorry I've been so busy yesterday, and today I didn't get to answer your e-mail on the NOLs. You'll see full disclosure in there when we file the K, Steve. And I can talk to you offline. But there is a full NOL kind of description in the 10-K. And then the second half of your question, I'm sorry?

Steve Byrne - BofA Merrill Lynch, Research Division

Was just any expected milestone from your various partners?

Stephen W. Webster

No. We've got clinical milestones with Astellas Japan. So as their trials progress, we might hit one of those. And then most of the European milestones are commercial-based, so it'll take us a little while for them to get sales up to the level where we'll be in the realm of commercial milestones. Latin America does have some approval milestones, and we've started the -- or AstraZeneca had started the registration process down there. So that would probably be the next one that kicks in. But those kinds of events are in our partners' hands, not our own. So it's hard to predict.

Operator

[Operator Instructions] Our next question comes from Liisa Bayko of JMP Securities.

Liisa A. Bayko - JMP Securities LLC, Research Division

I just wanted to drill down something that was alluded to earlier, and that is breadth of management. Are you going to be seeking, as you're going through this strategic review process, to maybe fill out some of the management positions at the commercial organization in particular?

Henry A. McKinnell

Not in the short term. We have a couple of positions open. We don't have a Commercial Director, Head of U.S. Operations, for example. But I'm quite comfortable with sales, marketing, pharmacoeconomics, the individual pieces reporting to me in the short term because we've got some really good people. I find that area interesting. Obviously, an area I have some experience in. And it's kind of fun working here with a new team. And I must say, I'm very impressed with the people we have in this organization. The real opportunity in the short term, and I'll kind of come back to a previous question here, is that we know that when physicians are aware of the NTAP program, the RxAssist program, some of the individual institution incidence data, they're much more likely to prescribe. Problem is the awareness is very low. So it's not that we need new data or new strategies. We just need to go out and execute. I'm meeting the sales force, half of it next week and half of the sales force the following week. And meetings with sales forces are always fun. If you don't have an optimistic sales force, you've got a real problem. We have a very optimistic sales force. So I think it's just a matter of execution. The strategies are in place. These changes in management, to kind of come back to a question I've heard asked, don't really have much to do with the execution around the DIFICID launch. They had a lot to do with what we announced in the press release. But we've got a major opportunity here, and the data is moving in the right direction and we're pretty optimistic about the future. And we're going to have some fun doing it.

Liisa A. Bayko - JMP Securities LLC, Research Division

Well, you sound pretty excited to be back at the helm. Are you thinking of this as a long-term position for yourself if that's the way the company goes, to remain independent or what's...

Henry A. McKinnell

With the last 3 0s, it kind of looks like may previous company. Thank you for the question.

Liisa A. Bayko - JMP Securities LLC, Research Division

I have more questions actually. Can I ask a couple more questions?

Henry A. McKinnell

Yes, sure. By all means.

Liisa A. Bayko - JMP Securities LLC, Research Division

Okay, great. Just wanted you to comment on recent trends, prescribing trends. It looks to me like January is up on volume, maybe offset by price. What are you seeing as we're getting into February? I mean, what are the trends telling you? Are things picking up as you expected, as you're rolling out this new marketing campaign? Or do you think there's a lot of more heavy-lifting to do and maybe it's below expectations or where are things kind of tracking?

Henry A. McKinnell

Well, up 15% last quarter, which is pretty good. I, frankly, am a little suspect of weekly script data. That data is kind of volatile, and I haven't frankly had the time to really analyze not so much share data, which I used to focus on. But actually here, we're talking about individual models. I haven't really had a chance to analyze those data, and I'm just not comfortable making comments on weekly data. I'd rather do that on a quarterly basis.

Liisa A. Bayko - JMP Securities LLC, Research Division

Okay, fair enough. You alluded to having an internal sales force maybe being more optimal than one that's outsourced. And that makes me think of your relationship with Cubist. Are they -- is there any way to break out kind of the sales that are being contributed by your own sales force versus those by Cubist or things like that?

Henry A. McKinnell

Well, no, we can't do that. But what I will say is having a partner makes things about 4 times more difficult. Not twice as difficult, but 4 times more difficult. It's always better to do it yourself. And the way we operate in large institutions, since most of this is hospital-based, is a combination of account managers, medical education people, pharmacoeconomic folks, contracting folks. We really do put a team together at the local region account by account. So the purposes of the meetings I'll be attending next week, which were prescheduled, is really to develop business plans for each account in each area and it's multi-functional. So it's complicated enough doing it within your own organization. When you try to do across 2 organizations, while it's helpful initially, in the end you're better off doing it yourself, in my judgment and experience.

Liisa A. Bayko - JMP Securities LLC, Research Division

I see, okay. And then finally, I just wanted to ask about cash. What's your cash runway now in going into maybe sort of having to hire more reps? I know that's kind of a plush in a way, but those revenues -- I mean, that push will come before Cubist comes off. So I'm just wondering if you're cash positioned there? And then as we look in 2014, just to get more granular as we're getting closer to it, is that profitable by the end, the middle, or the beginning of 2014?

Henry A. McKinnell

I'll turn this over to Stephen. But we did announce $124 million in cash at the end of the year. You will see the cash, the quarterly cash from the Qs and Ks. We're not projecting for 2013. And it depends on what sales are, what the sales run rate is frankly on profitability and other actions we might take. But the goal is to be profitable by the first quarter of 2014, if we can. Now certainly, by 2014, we want to be profitable. At this point, I can't tell you which quarter it is. But the first quarter would be a good goal. But we haven't announced that yet. That's not guidance.

Operator

Our next question comes from Angad Verma of Oppenheimer.

Angad S. Verma - Oppenheimer & Co. Inc., Research Division

I just had a quick question regarding the pipeline, the development pipeline from DIFICID. Just where do you stand with enrollment in the prophylactic study? I believe target enrollment was around 340 patients. And I also have a follow-up question.

Henry A. McKinnell

Yes, I don't think we have that data here. It's very early days. We have the sites -- some of the sites enrolled. It's just starting. That's going to enroll pretty quickly, I believe, because it's a pretty concentrated study. But I'm not sure we have the enrollment to date numbers.

Stephen W. Webster

But it is progressing as planned. I mean, we're -- it's not something we disclosed, but we're not behind or wildly ahead. We're pretty much on track with that study.

Henry A. McKinnell

The key here is signing up the sites. That is going very well. And then, of course, it's based on enrollment but that should be pretty quick. The gating factor are the number of sites. And I think we have 30 enrolled already, so this is a comprehensive study. And of course, we have the 30 most important sites from a commercial and scientific role as well. I understand that's the last question. Thank you all for joining.

Angad S. Verma - Oppenheimer & Co. Inc., Research Division

Actually, I just have some -- would it be possible for another follow-up regarding the, I guess, I believe there's a EUR 40 million payment that's due in 2013 upon -- that's tied to EU commercialization launches. I was just curious if you could provide timing with regards to the recognition of that.

Stephen W. Webster

No. I think you might be talking about future potential commercial milestones, and I'd have to look at my agreement. I believe there's 3 commercial milestones attainable at various levels of commercial sales in Europe. It's not a big one chunk EUR 40 million, but it does have several commercial milestones that they owe us when they cross some sales threshold.

Henry A. McKinnell

Thank you. That's our last question. Thank you for joining us today. I look forward to updating you throughout the year on how we do in future. Thank you all.

Operator

Thank you, sir, and thank you, ladies and gentlemen, for your participation. This does conclude your program. You may disconnect your lines at this time. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Optimer Pharmaceuticals Management Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts