Optimer Pharma: 2 Potentially Potent Drugs In The Pipeline

The following stock was mentioned on Jim Cramer's last Mad Money show on CNBC by a caller recommending it. Let's see if the company has what it takes to be a long-term winner;

Optimer Pharmaceuticals (OPTR) is a biopharmaceutical company founded and registered as a Delaware Corporation in 1998. The company has its headquarters and R&D laboratory in San Diego, California. The company recently opened an east coast office in Jersey City, New Jersey, where the majority of the commercial operations resides. Optimer also has one subsidiary, Optimer Biotechnology, Inc. located in Taipei, Taiwan. Optimer has more than 115 employees worldwide.

2/13/12 pps: $13.60

52-week Range: $6.81 - $17.95
Volume: 317,568
Avg Vol (3m): 613,677
Market Cap: 634.37M

Lead drug currently marketed: Fidaxomicin. (as DIFICID™)

Fidaxomicin is the first in a new class of narrow spectrum macrocyclic antibiotic drugs. It is a fermentation product obtained from the actinomycete Dactylosporangium aurantiacum subspecies hamdenesis. Fidaxomicin is non-systemic, meaning it is minimally absorbed into the bloodstream, it is bactericidal, and it has demonstrated selective eradication of pathogenic Clostridium difficile with minimal disruption to the multiple species of bacteria that make up the normal, healthy intestinal flora. The maintenance of normal physiological conditions in the colon can reduce the probability of Clostridium difficile infection recurrence.

Translation; Fidaxomicin is indicated for the treatment of Clostridium difficile infection, a serious diarrheal illness associated with substantial morbidity and mortality.

Fidaxomicin was approved by The FDA on May 27, 2011, and has an orphan drug status. Fidaxomicin is the second such drug approved by the FDA for C difficile-associated diarrhea; the other approved drug is vancomycin. Vancomycin is now offered as a generic drug, losing its patent protection long ago, being approved by The FDA in 1958.

Vancomycin has the same properties as fidaxaomicin, but it also has a major effect on fecal flora, causing relapse when the drug is stopped. Vancomycin is said to both cause and cure C difficile diarrhea and colitis.

Fidaxomicin certainly appears to be superior to its older rival vancomycin, but costs more money because it is branded, and not a generic. Sales of fidaxomicin may reach $250 million by 2016, George Farmer, an analyst at Canaccord Adams Inc. said April 1, 2011, in a note to investors.

Optimer has another drug, OPT-822, combined with an adjuvant, OPT-821, which is a carbohydrate-based immunostimulant therapy comprising Globo H linked to a protein carrier. Globo H is a prominent antigen in breast cancer cells. Carbohydrate antigens are known to stimulate the immune response against cancer cells in the body. Optimer has applied its OPopS technology to manufacture complex carbohydrate cancer antigens, including Globo H and sialyl Lewis a, an antigen in BC and small lung cancer cells.

According to this trial report, OPT-822 is in earlier phase 2 clinical, and this Jan. 2012 initiated study will not complete until 2016. While it is promising Optimer might have a potential cure for breast cancer, having OPT-822 this far away from a possible FDA approval, anything can happen with this drug, including total failure. OPT-822 is just too much of a roll-of-the-dice prospect at this time.

Let's take a look at Optimer's current fundamentals;

Valuation Measures
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Market Cap (intraday): 634.37M
Enterprise Value (Feb 14, 2012): 502.21M
Trailing P/E (ttm, intraday): N/A
Forward P/E (fye Dec 31, 2012): N/A
PEG Ratio (5 yr expected): -27.69
Price/Sales (TTM): 7.84
Price/Book (mrq): 5.03
Enterprise Value/Revenue : 6.24
Enterprise Value/EBITDA : -20.79
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Financial Highlights
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Fiscal Year
Fiscal Year Ends: Dec 31
Most Recent Quarter (mrq): Sep 30, 2011
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Profit Margin : -21.71%
Operating Margin : -30.56%
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Management Effectiveness
Return on Assets : -14.72%
Return on Equity : -20.44%
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Income Statement
Revenue : 80.52M
Revenue Per Share : 1.84
Qtrly Revenue Growth (yoy): 1,551.70%
Gross Profit : 1.48M
EBITDA : -24.16M
Net Income Avl to Common : -17.48M
Diluted EPS : -0.40
Qtrly Earnings Growth (yoy): N/A
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Balance Sheet
Total Cash (mrq): 129.36M
Total Cash Per Share (mrq): 2.77
Total Debt (mrq): 0.00
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 9.48
Book Value Per Share (mrq): 2.69
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Cash Flow Statement
Operating Cash Flow : -10.65M
Levered Free Cash Flow : -7.70M
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As expected for a developmental bio-pharma, the balance sheet does not look good. However, it does appear the cash burn rate is reasonable and manageable, as it has an ample amount of cash on hand with $129.36 million. Quarterly growth was huge as revenue appears to be rolling in from fidaxomicin.

Share Statistics
Avg Vol (3 month): 613,677
Avg Vol (10 day): 400,067
Shares Outstanding: 46.64M
Float: 39.96M
% Held by Insiders: 32.42%
% Held by Institutions: 61.90%
Shares Short (as of Jan 31, 2012): 8.82M
Short Ratio (as of Jan 31, 2012): 18.20
Short % of Float (as of Jan 31, 2012): 23.60%
Shares Short (prior month): 8.51M
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The float is relatively small coming in at just under 40M, but the short interest is somewhat high at near 25%. I can see why this stock has a higher short interest, as it appears the company is being heavily speculated by longs for OPT-822.

Recent Insider Transactions:

Date Insider Shares Type Transaction Value*
Jan 1, 2012 CHE TESSIE MOfficer 5,000 Indirect Acquisition (Non Open Market) at $0 per share. N/A
Jan 1, 2012 CHANG MICHAEL NDirector 5,000 Direct Acquisition (Non Open Market) at $0 per share. N/A
Jan 1, 2012 GREBOW PETER EDirector 5,000 Direct Acquisition (Non Open Market) at $0 per share. N/A
Jan 1, 2012 ALTIG ANTHONY EDirector 5,000 Direct Acquisition (Non Open Market) at $0 per share. N/A
Jan 1, 2012 CHANG JOSEPH YDirector 5,000 Direct Acquisition (Non Open Market) at $0 per share. N/A
Jan 1, 2012 ZERBE ROBERT L MDDirector 5,000 Direct Acquisition (Non Open Market) at $0 per share. N/A
Jan 1, 2012 MCKINNELL HENRY ADirector 5,000 Direct Acquisition (Non Open Market) at $0 per share. N/A
Jan 1, 2012 AUERBACH MARKDirector 5,000 Direct Acquisition (Non Open Market) at $0 per share. N/A
Nov 15, 2011 PAPAZ GREGORY E.Officer 1,594 Direct Acquisition (Non Open Market) at $9.72 per share. 15,493
Nov 15, 2011 LICHTINGER PEDROOfficer 173 Direct Acquisition (Non Open Market) at $9.72 per share. 1,681
Nov 15, 2011 SHUE YOUE KONGOfficer 1,186 Direct Acquisition (Non Open Market) at $9.72 per share. 11,527
Nov 15, 2011 CHE TESSIE MOfficer 530 Direct Acquisition (Non Open Market) at $9.72 per share. 5,151
Nov 15, 2011 CHANG MICHAEL NDirector 530 Indirect Acquisition (Non Open Market) at $9.72 per share. 5,151
Nov 15, 2011 PRUNTY JOHN DOfficer 559 Direct Acquisition (Non Open Market) at $9.72 per share. 5,433
Aug 9, 2011 ALTIG ANTHONY EDirector 5,000 Direct Purchase at $7.44 per share. 37,200
Aug 4, 2011 LICHTINGER PEDROOfficer 25,000 Direct Purchase at $8.98 per share. 224,500
Jun 30, 2011 LICHTINGER PEDROOfficer 21,000 Direct Acquisition (Non Open Market) at $11.89 per share. 249,690
May 27, 2011 LICHTINGER PEDROOfficer 20,000 Direct Acquisition (Non Open Market) at $12.34 per share. 246,800
May 16, 2011 LICHTINGER PEDROOfficer 2,500 Direct Acquisition (Non Open Market) at $7.71 per share. 19,275
May 16, 2011 SHUE YOUE KONGOfficer 1,484 Direct Acquisition (Non Open Market) at $7.71 per share. 11,441
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So far in 2012, all stock option grants. From Spring 2011 to the end of the year, insider buying was bullish, but at price levels considerably lower than the current level.

Conclusion: I can think of several speculative bio-pharmas that should give you more bang for your buck. Ariad Pharma (NASDAQ:ARIA) in my opinon is one, with 2 drugs in phase clinical; ponatinib, a pan BCR-ABL inhibitor in phase 2 clinical trial for applications in various hematological cancers and solid tumors;

AP26113, an anaplastic lymphoma kinase inhibitor in preclinical studies for the treatment of various cancers, including non-small cell lung cancer, lymphoma, and neuroblastoma. Ariad also is partenered with Merck (NYSE:MRK) for ridaforolimus, a maintenance type drug to treat cancers, including metastatic sarcomas, breast cancer, endometrial cancer, prostate cancer, and non-small cell lung cancer.

Ariad also received a total of $50 million in milestone payments from Merck for the NDA filings of the drug in the U.S. and Europe. Ridaforolimus will most certainly bring more than $250 million a year in revenue by 2014 than fidaxomicin has been predicted to do by 2016.

Dendreon (NASDAQ:DNDN) already has provenge on the market, which is a very aggressive treatment for prostate cancer. Dendreon also has several other very promising drugs in the pipeline. I feel Dendreon and Ariad, are better speculative longer-term buys at this time.

For these reasons, I recommend investors take a pass on a long-term investment in Optimer until we see strong revenue numbers from fidaxomicin, and how effective the current management proves to be with this money.

I also want to see some results come in for OPT-822 as the current phase clinical study progresses.

According to the chart however, the signals show a bullish pennant accumulation going on with a strong wedge triangle formation, and a bullish MACD signal. A possible upside move to $14.50 in the short term looks likely in my opinion, so consider it for a very short swing trade.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.