Optimer Pharmaceuticals (OPTR) is quickly approaching its May 30 PDUFA as as heavy favourite to win a positive vote from the FDA to market its product, yet it seems that many investors are discounting the potential for a surprise negative outcome. The company is trying to obtain approval for its flagship product, fidaxomicin which could make it the first Clostridium defficile infection (CDI) treatment in more than 25 years. Currently, the infection only has two pharmacological options as treatments: metronidazole and oral vancomycin, both of which lack the ability to reduce recurrences, while improving global cure rates.
While the cure rates on fidaxomicin matched that of vancocin, the company has claimed that its real benefit lies in its ability to reducing the recurrence rate. In the two Phase 3 trials, among subjects who had experienced a prior CDI episode and recurred within three months of entering the study, treatment with fidaxomicin resulted in a 47% reduction in repeat CDI recurrence compared to Vancocin (p=0.045). The data also indicated that treatment with fidaxomicin significantly improved the recurrence rate and global cure rate in CDI patients requiring concomitant antibiotics compared to Vancocin. Fidaxomicin was well tolerated in both studies with no adverse side-effects (See safety data here) and safety data. Information courtesy of Optimer's fact sheet.
This hype has led to its stock gaining more than 40% within the last six months, helping its stock price rise from $9.50 to a new 52-week high of $14.20, yet despite the bubbly sentiment, serious problems are lurking beneath the surface. First and foremost is the fact that the product's only advantage is its ability to reduce the risk of recurrence among CDI patients. On April, 4, 2011 the FDA panel met to discuss a few issues and whether or not fidaxomicin was all it's cracked up to be. Unlike many other previous panels, this one was fairly straight forward with only two questions to be answered. First, "Has the applicant demonstrated the safety and effectiveness of fidaxomicin for the requested indication, treatment of Clostridium difficile-associated diarrhea (CDAD)?" The panel, as expected with no surprises voted very highly on this with a 13-0 vote in favour of the drug's approval, leading to many singing praises thereafter, yet, there was one more question to be answered, albeit the most important as well.
Negative FDA Panel Outcome of Recurrence Benefit
Perhaps the climax of the panel's session was the answer to, "Is the finding of lower recurrence of CDAD at Day 31 in the fidaxomicin-treated subjects of clinical significance?" An important thing to note, before even answering the question, some panel members were already discussing their interest in disregarding the recurrence data. The vote ended up being 6 yes, 7 no. Some of the comments for voting negatively on this question by the panel members were:
- Did not like recurrence endpoint because it was not a comparison of 2 randomized groups
- Swayed by statistical arguments of relative weakness of recurrence analyses conducted by FDA, while also encouraged by the results of the "30 day resolution rate” clearly favored with superiority fida.
- Given the study examined recurrence at 30 days, the information should be placed on the the label, a "30-day response” should be in the label
- One member stated that the design of the trial was not geared towards showing a recurrence benefit
- Lastly, the data only addresses recurrence but not treatment of patients with CDI recurrence. The study did not specifically address or enroll patients who experienced CDI relapse.
Now then, the real question becomes, "Will it matter from a marketing/commercial standpoint if the label includes a claim of 30-day disease recurrence rather than a broader claim about reduction in risk of recurrence?" Apparently the market seems to think so as the stock dropped immediately from $13.80 to $12.99, and as far as $11.98 a month later. Based on this, we can now assume that Optimer will in fact not obtain the indication that it wants in "prevention of recurrences" on its label, and more likely that of 30 day recurrence benefit. It is also important to acknowledge that Optimer only had 30-day post treatment results to showcase to the FDA, which further emphasizes that the drug may see labeling and script use that differs from that of the market's expectations.
From this we can safely assume that this panel's decision and Optimer's trial designs and results may not affect approval, but now do place a very important question mark on its recurrence benefit label. This is very important for commercial marketing purposes as the "superiority” of fidaxomicin over vanco is supposed to be lower CDI recurrence.
Rising Short Interest
Short interest has been rising heavily over the last three months, nearly doubling in value as institutions and large funds begin to hedge and bet against its approval. Short interest as a percentage of float now stands at 10.90%, or 4.07M shares out of a total 37.37M float.
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Double Top Technical Chart
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Another drawback comes from its "Double Top" at the $14 resistance, which the stock seems to be having a lot of trouble breaching and remaining above. Just like back in early December, the upper bollinger band has been pierced more than 4 times which has always led to a correction, and may also foreshadow negative price action to come. Relative strength index also dictates an overbought stock, with full stochastic and MACD divergence all about to turn negative. Volume has been light during the last two weeks of accumulation in anticipation of the binary event.
There is also the wild card possibility of a fast approaching generic vanco approval by ViroPharma (VPHM). In fact, Piper Jaffray said ViroPharma has been weaker on increased speculation regarding Vanococin competition, yet the firm recommends buying ViroPharma on any weakness from a generic vanco approval and they continue to expect strong growth. Shares are Overweight rated with a $23 price target.
In conclusion, Optimer is a company that could have up to $500M in sales annually should the recurrence benefit hold on its label, yet this scenario seems less and less probable the more closer we get to the decision date. Of course, there is also the drawback of its recently signed partnership with Astellas (ALPMF.PK), where it entered into an exclusive collaboration and licensing agreement thus lowering its potential revenue and profits. With shares trading at $14, the stock seems to be at full value with foolish investors discounting the possibility of a negative surprise outcome. Sure, approval is likely, but what kind of label fidaxomicin (Dificid) will get, on the other hand, is still a bit of a mystery.
Disclosure: I am short OPTR.