Down! Up! Which Way Will Optimer Go Next?

Talk about selling the news. The Food and Drug Administration announced the approval of Optimer Pharmaceuticals' (Nasdaq: OPTR  ) antibiotic Dificid late on Friday, and the share price dropped 7%.

There was little doubt that the drug would be approved; an advisory panel unanimously recommended approval of the drug. But the label, including how the drug would be described in comparison to ViroPharma's (Nasdaq: VPHM  ) Vancocin was still in doubt.

From the looks of the drop, you'd think Optimer got a poor label, but it sure doesn't look that way. The label says, "The results for sustained clinical response at the end of the follow-up period, also shown in Table 5, indicate that Dificid is superior to [Vancocin] on this endpoint."

Superior to a drug that sold more than $250 million last year isn't too shabby. Dificid isn't likely to become a blockbuster, but it doesn't really need to hit the $1 billion mark to justify Otimer's $600 million market cap.

Today investors seem to have realized the overreaction. Shares are up substantially from Friday's close, although they're still lower than they were before the approval came over the wire.

While the label looks fine, investors may be justified in worrying about whether Optimer and marketing partner Cubist Pharmaceuticals (Nasdaq: CBST  ) will be able to sell Dificid. Launching a new antibiotic isn't easy; Astellas and Theravance's (Nasdaq: THRX  ) Vibativ managed just $3.5 million in the first quarter of the year.

Despite the superior rate of recurrent infection, some doctors might initially continue using Vancocin and reserve Dificid as a backup for the 43% or so that continue to see their infection present 25 days after the treatment.

In the long term, though, doctors will likely see the benefit of Dificid, and investors will be buying the earnings (or buyout) rumor soon enough.

Interested in keeping track of Optimer as it launches Dificid? Click here to add it to My Watchlist, which will help you keep track of all our Foolish analysis on Optimer.

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Read/Post Comments (16) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On May 31, 2011, at 1:01 PM, PRODOD wrote:

    The trading of OPTR late Friday was difficult to sort out, but my best guess is that a large position was liquidated on the fear that a secondary offering might follow the FDA approval. However, based on the facts, that 'fear' is not well founded.

    FIDAXOMICIAN (Dificid) may be a sleeping blockbuster. During the OPTR conference call this AM managment was estimating a potential market of $650 Million -- far in excess of the $250 Million you mention. And that $650 Million sales figure is mainly the US & EU: Managment went on to say that they have seen studies showing a worldwide market in excess of $3 Billion. The pricing OPTR has put on FIDAXO also makes it clear that --although managment was not at liberty to make predictions-- they expect to dominate the market for treatment of these infections within a short period of time. At $2,800 for a 10 day course of treatment, it is clear that OPTR feels no constraint to compete on 'price'.

  • Report this Comment On May 31, 2011, at 2:45 PM, altrue1090 wrote:

    $2800 for a 10 day course of treatment will be a strong disincentive to use a drug that is mainly for the elderly. Medicare and Medicaid will strongly resist this expense. If the company's sales figure is based on these prices, they are in for a rude surprise. Generic Vancomycin at $200-$400 for the same treatment will still dominate this market.

  • Report this Comment On May 31, 2011, at 3:14 PM, PRODOD wrote:

    If it were not for the FDA allowance of the 'recurrance' data in marketing, I would tend to ageee that Vancomycin would be stiff competition. But the fact is that OPTR now has the first line of defense against these infections and can market it as such. Fidaxomician should be an easy sell to both MD's and third party insurors, in that, the cost and risk in treating recurrent infection (especially in the elderly) far exceeds the cost difference in the drugs.

    Do you really think managment would price at $2,800 if there was real competition from Vancomycin?

  • Report this Comment On May 31, 2011, at 3:46 PM, PRODOD wrote:

    A close above the $14 Bolinger Band would be bullish -- and a close above the 52 week high at $14.70 would be very bullish ... moving the short term price target north of $17.

  • Report this Comment On May 31, 2011, at 3:51 PM, altrue1090 wrote:

    Most nursing home and hospital patients who get C.dif are going to be on Medicare A or Medicaid. There is no way that these plans will allow this cost for a first case of C. dif. There will be all kinds of barriers and hoops for doctors and RNP's to jump over and through before this expenditure will be approved. It will definitely be reserved for repeat cases. The company's price of $2800 must reflect competition with brand name Vancomycin prices, not the generic price. When Vancomycin was the clear choice in C.Dif, there was lots of pressure to use generic Flagyl instead because of cost.

  • Report this Comment On May 31, 2011, at 3:54 PM, ptish wrote:

    I'm sure there is way for medicaid to make exceptions in this case. You use one drug and you keep coming back with reinfections...well the expensive one time option might be best. Then again, it will be up to the doc.

  • Report this Comment On May 31, 2011, at 4:51 PM, PRODOD wrote:

    Altrue,

    I think the point about the cost of recurrent infection is simple: The cost of treating 10 C Dif patients with Vancomycin is $4,000 vs. $28,000 for the OPTR drug, but, if you treat with your generic, about 3 of those patients will have a recurrence of C Dif within 30 days and the estimated cost of treating recurrent C Dif infection is between $8,000 and $17,000. That is the model used by OPTR for pricing -- $24,000 plus $4,000 is the true cost of treatment with Vancomycin (including the cost of recurrence) and that equals --You guessed it!-- $28,000 (or the priced-out cost of the OPTR drug.

    Of course, it will not escape insurors notice that they could SAVE up to $27,000 in this model if the cost of treating those three recurrent C Dif infections runs on the high side. MD's will like the Fidaxo treatment too because some of those patients with recurrent infection have a bad habit of dying and becoming a big black mark on a hospitals metric for patients dying of 'hospital aquired infection' -- a closely watched metric that is just bad business for MD's or Hospitals or Nursing Homes.

    The people who sell, Rx and pay for these drugs are looking at a great deal more information than your 'dime store' analysis contemplates.

  • Report this Comment On May 31, 2011, at 5:04 PM, altrue1090 wrote:

    I am a geriatrics MD. MD's used to make decisions about drugs with the patient in mind. Now it is totally up to the insurer. Medicaid never makes common sense decisions about preventing future problems when the difference between treatments is so expensive. They always go with the cheapest option first. $2800 for ten days will be the luxury option for a few wealthy patients. For the vast majority, Fidaxo will be the second choice after the first choice fails, and then only with lots of time-consuming documentation. Also, I bet the price in Canada and the EU countries will be a lot less, which means less revenue for the company.

  • Report this Comment On May 31, 2011, at 6:08 PM, PRODOD wrote:

    Altrue,

    Well, you are right about one thing: Rx drugs are cheaper in Canada and the EU -- and I'll bet OPTR managment knows that too! As for your persistent case of "Medicaid won't pay for it..." itisis, you should go to the OPTR website and review the conference call of this AM.Your questions about reimbursment are addressed in several lines of questioning posed to managment and the 'take-away' from it all is that managment is not planning on marketing Fidaxo to only a handful of "wealthy patients".

    What sort of a business plan would be represented by that pricing structure? Do you think that these guys are idiots? Does that go for the managment of OPTR's marketing partner Cubist too? Do you think anyone would price at $2,800 if there was real competition at $400?

    Please review the call on the OPTR website and then let us know what you think about generic competition and pricing.

  • Report this Comment On June 02, 2011, at 9:17 AM, altrue1090 wrote:

    How did Lunesta do after Ambien went generic? How did Lipitor do after Pravachol went generic? How did Vancomycin do after flagyl went generic?

    How did Celexa do after Prozac went generic?

    How did Nexium do after Prilosec went generic?

    The better drugs in each class can't compete with the less effective, but far cheaper competitors because federal and state money for drugs is now quite limited. I think management is being overly optimistic if they think they can get this price for their somewhat better product.

    Their product will break the bank at most nursing homes and hospitals that only get a global payment based on diagnosis; the drug costs come out of their profits.

  • Report this Comment On June 02, 2011, at 11:33 AM, PRODOD wrote:

    Altrue,

    If Fidaxo had the same clinical outcomes as Vancomycin you would --as I already stated above-- have a point. But that is not what OPTR claims for Fidaxo and it is not what is stated in the FDA approval of this drug. You seem to be missing the point about recurrence data. Once again, I urge you to go to the OPTR website for the recent conference call. The generic drugs you mention are 'red herrings' in the debate about Fidaxo v. Vancomycin because according to the FDA approval Fidaxo can be marketed to prevent recurrence and Vancomycin cannot.

    The pricing of Fidaxo is based on the theory (FDA approved) that it will prevent recurrence and thereby hold the potential to save money and lives. And according to the OPTR conference call FIDAXO will be subject to M&M reimbursment.

    If you disagree with the FDA conclusion about recurrence --or think (wrongly) that recurrence is 'no big deal' in terms of patient outcomes, I would be interested in hearing your argument, but the entire marketing enterprise of OPTR and CUBIST is based on different facts which are 100% supported by the FDA approval. Facts which are also 100% different from the 'generic competition' argument which you seem stuck on restating.

    Your commet that 'better drugs can't compete with less effective but cheaper ones...' is only a half truth, in that, better drugs that have different clinical outcomes will always be able to compete -- and they will be reimbursed by M&M too.

  • Report this Comment On June 02, 2011, at 12:03 PM, altrue1090 wrote:

    I read the original NEJM published paper in January that got me to buy the stock in the first place. There was no difference in cure rates: 88 vs 85%. The difference in recurrence rates was 15% for Fidaxo and 25% for Vancomycin. Only a 10% absolute difference. It's not enough of a difference to get hospitals and nursing homes to use it as a first line drug when the difference in cost is $400 vs. $2800 per patient. Lipitor lowers cholesterol better than Pravachol, , but when Pravachol went generic, Lipitor was dropped from Medicaid. They will really need to drop their prices if they want to get significant market share. And based on the information you gave about the prices, I have sold my shares.

  • Report this Comment On June 02, 2011, at 3:17 PM, PRODOD wrote:

    I cannot disagree that if you are using a 10% nonrecurrence rate (rather than the 20% nonrecurrence that was 'vetted' by the FDA) the $2,800 price would be an issue. However, OPTR management is already expecting, per their conference call, some level of discounting based on promotional and market factors. They do not need to hold the $2,800 price in order to make a profit and are certainly ready to address competition from existing drugs. In my opinion, we will not know the true level of generic competion --or the issue or generic competition based on price-- until Fidaxo is used in a much larger patient population. Actual use of Fidaxo in a patient population of 100,000 will give us a much better idea about the % of nonrecurrence, but, even if the percentage is closer to your NEJM data, Fidaxo could be discounted and still be a reasonable earner.

    Don't get me wrong, I'm not pounding the table bullish on OPTR --I've sold 75% of my shares yesterday and today based on current market conditions-- but will continue to hold and follow OPTR for its potential to penetrate a Billion $ market.

  • Report this Comment On June 02, 2011, at 3:27 PM, altrue1090 wrote:

    The absolute difference was 10%. The relative difference was 20%. For that degree of benefit, the difference in price would have to be a lot closer.

    Also, the two drugs were compared straight up after a ten day course. But what if you gave cheap Vancomycin for twenty days? Maybe there would be no difference in recurrence. Someone is bound to do that study once Fidaxo is available.

  • Report this Comment On June 02, 2011, at 4:35 PM, PRODOD wrote:

    There are risks to any new drug based on its evolving use over time and the comparison to existing treatments but for the present OPTR will have a marketing advantage. Moreover, if you want to traffic in 'what ifs' I'll throw this into the conversation: What if, in broad clinical use, Fidaxo has a better nonrecurrence profile than the existing studies indicate? If Fidaxo's nonrecurrence numbers are 20% +, it becomes a clear winner.

  • Report this Comment On June 02, 2011, at 5:21 PM, altrue1090 wrote:

    Now that the drug is approved, OPTR will never again do a comparison study. They don't have to and what if the results aren't so good? The NEJM

    study from January will be the pivotal study that all insurers will base their decision on as to whether this drug will be frontline or second choice. I predict second choice status until 17 years from now when it too goes generic; then it will be the first choice.

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