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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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| **x** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31, 2010**

 

**or**

 

| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

 

**For the transition period from                    to                    **

 

**CommissionFile Number 001-33291**

 

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**OPTIMERPHARMACEUTICALS, INC.**

(Exact name ofregistrant as specified in its charter)

 

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| **Delaware**                                                     |   | **33-0830300**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **10110  Sorrento Valley Road, Suite C  San Diego, CA**     |   | **92121**                             |
| (Address of  principal executive offices)                        |   | (zip code)                            |

 

**(858) 909-0736**

(Registrant’s telephonenumber, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days:  Yes x   No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files):  Yes o  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See the definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act:

 

| Large  Accelerated Filer o |   | Accelerated  Filer x         |
|---------------------------------|--------|-----------------------------------|
|                            |   |                              |
| Non-accelerated  Filer o   |   | Smaller  Reporting Company o |

 

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act):  Yes o  No x

 

The number of shares ofthe registrant’s common stock, par value $0.001 per share, outstanding as of April 30,2010 was 38,241,264 shares.

 

 

 

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**OPTIMERPHARMACEUTICALS, INC.FORM 10-QFor the Quarterly Period Ended March 31, 2010**

**TABLE OF CONTENTS**

 
| ** **                                                                                               | ** ** | **Page** |
|----------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I — FINANCIAL INFORMATION**                                                             |       |     |
|                                                                                                     |       |     |
| Item 1. Financial Statements (unaudited)                                                            |       |     |
|                                                                                                     |       |     |
| Consolidated Balance Sheets — March 31, 2010 and  December 31, 2009                       |       | 3        |
|                                                                                                     |       |     |
| Consolidated Statements of Operations — Three months  ended March 31, 2010 and 2009            |       | 4        |
|                                                                                                     |       |     |
| Consolidated Statements of Cash Flows — Three months  ended March 31, 2010 and 2009            |       | 5        |
|                                                                                                     |       |     |
| Notes to Consolidated Financial Statements                                                               |       | 6        |
|                                                                                                     |       |     |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       | 20       |
|                                                                                                     |       |     |
| Item 3.  Quantitative and Qualitative Disclosures about Market Risk                                 |       | 27       |
|                                                                                                     |       |     |
| Item 4.  Controls and Procedures                                                                    |       | 28       |
|                                                                                                     |       |     |
| **PART II  — OTHER INFORMATION**                                                               |       |     |
|                                                                                                     |       |     |
| Item 1A. Risk Factors                                                                               |       | 29       |
|                                                                                                     |       |     |
| Item 6. Exhibits                                                                                    |       | 61       |
|                                                                                                     |       |     |
| SIGNATURE                                                                                                |       |     |

 

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**PART I – FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**Optimer Pharmaceuticals, Inc.**

**ConsolidatedBalance Sheets**

 
| ** **                                                                                                                                                                                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                     | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                                                                                                                                                                     | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| **ASSETS**                                                                                                                                                                                     | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current  assets:                                                                                                                                                                               |       |               |       |                  |       |
| Cash  and cash equivalents                                                                                                                                                                     |       | $                  | 48,181,074 |                  | $          | 17,054,328 |   |
| Short-term  investments                                                                                                                                                                        |       | 33,024,013         |       | 21,131,145            |       |
| Research  grant and contract receivables                                                                                                                                                       |       | 334,144            |       | 84,164                |       |
| Prepaid  expenses and other current assets                                                                                                                                                     |       | 759,832            |       | 332,695               |       |
| Total  current assets                                                                                                                                                                          |       | 82,299,063         |       | 38,602,332            |       |
| Property  and equipment, net                                                                                                                                                                   |       | 727,303            |       | 672,896               |       |
| Long-term  investments                                                                                                                                                                         |       | 882,000            |       | 882,000               |       |
| Other  assets                                                                                                                                                                                  |       | 499,150            |       | 498,762               |       |
| Total  assets                                                                                                                                                                                  |       | $                  | 84,407,516 |                  | $          | 40,655,990 |   |
| ** **                                                                                                                                                                                     |       |               |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                  |       |               |       |                  |       |
| Current  liabilities:                                                                                                                                                                          |       |               |       |                  |       |
| Accounts  payable                                                                                                                                                                              |       | $                  | 5,019,592  |                  | $          | 2,625,240 |   |
| Accrued  expenses                                                                                                                                                                              |       | 7,541,375          |       | 5,025,669             |       |
| Total  current liabilities                                                                                                                                                                     |       | 12,560,967         |       | 7,650,909             |       |
| Deferred  rent                                                                                                                                                                                 |       | 226,143            |       | 253,474               |       |
| Commitments  and contingencies                                                                                                                                                                 |       | —             |       | —                |       |
| Stockholders’  equity:                                                                                                                                                                    |       |               |       |                  |       |
| Preferred  stock, par value $0.001, 10,000,000 shares authorized, no shares issued and oustanding  at March 31, 2010 and December 31, 2009, respectively                             |       | —             |       | —                |       |
| Common  stock, $0.001 par value, 75,000,000 shares authorized, 38,230,639 shares and  33,139,373 shares issued and outstanding at March 31, 2010 and December 31,  2009 respectively |       | 38,231             |       | 33,139                |       |
| Additional  paid-in capital                                                                                                                                                                    |       | 257,591,927        |       | 205,114,914           |       |
| Accumulated  other comprehensive income                                                                                                                                                        |       | 83,039             |       | 38,063                |       |
| Accumulated  deficit                                                                                                                                                                           |       | (188,970,420       | )          | (175,474,665          | )          |
| Total  Optimer Pharmaceuticals, Inc. stockholders’ equity                                                                                                                            |       | 68,742,777         |       | 29,711,451            |       |
| Noncontrolling  interest                                                                                                                                                                       |       | 2,877,629          |       | 3,040,156             |       |
| Total  stockholders’ equity                                                                                                                                                               |       | 71,620,406         |       | 32,751,607            |       |
| Total  liabilities and stockholders’ equity                                                                                                                                               |       | $                  | 84,407,516 |                  | $          | 40,655,990 |   |

 

See accompanyingnotes.

 

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**OptimerPharmaceuticals, Inc.**

**ConsolidatedStatements of Operations**

**(unaudited)**

 
| ** **                                                                                                    | ** ** | **Three Months Ended** | ** **  |
|---------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|
| ** **                                                                                                    | ** ** | **March 31,**     | ** **  |
| ** **                                                                                                    | ** ** | **2010**               | ** **  | **2009** | ** ** |
|                                                                                                          | ** ** | ** **             | ** **  | ** ** | ** ** |
| Revenues:                                                                                                     |       |                   |        |   |   |
| Research  grants                                                                                              |       | $                      | 297,437     |   | $ | 83,012 |   |
| Operating  expenses:                                                                                          |       |                   |        |   |   |
| Research  and development                                                                                     |       | 11,361,579             |        | 8,914,072 |   |
| Marketing                                                                                                     |       | 268,594                |        | 194,796 |   |
| General  and administrative                                                                                   |       | 2,388,712              |        | 2,048,500 |   |
| Total  operating expenses                                                                                     |       | 14,018,885             |        | 11,157,368 |   |
| Loss  from operations                                                                                         |       | (13,721,448            | )           | (11,074,356 | ) |
| Interest  income and other, net                                                                               |       | 24,778                 |        | 186,968 |   |
| Consolidated  net loss                                                                                        |       | $                      | (13,696,670 | ) | $ | (10,887,388 | ) |
| Net  loss attributable to noncontrolling interest                                                             |       | 200,915                |        | — |   |
| Net  loss attributable to Optimer Pharmaceuticals, Inc.                                                  |       | $                      | (13,495,755 | ) | $ | (10,887,388 | ) |
| Basic  and diluted net loss per share attributable to Optimer Pharmaceuticals, Inc.  common stockholders |       | $                      | (0.39       | ) | $ | (0.36 | ) |
| Shares  used to compute basic and diluted net loss per share attributable to common  stockholders             |       | 35,001,596             |        | 30,535,577 |   |

 

See accompanyingnotes.

 

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**Optimer Pharmaceuticals, Inc.**

**ConsolidatedStatements of Cash Flows**

**(unaudited)**

 
| ** **                                                                   | ** ** | **Three Months Ended March 31,** | ** **  |
|------------------------------------------------------------------------------|------------|---------------------------------------|-------------|
| ** **                                                                   | ** ** | **2010**                              | ** **  | **2009** | ** ** |
| ** **                                                                   | ** ** | ** **                            | ** **  | ** ** | ** ** |
| **Operating activities**                                                     |       |                                  |        |   |   |
| Net loss                                                                     |       | $                                     | (13,696,670 | ) | $ | (10,887,388 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                  |        |   |   |
| Depreciation and amortization                                                |       | 69,084                                |        | 60,296 |   |
| Stock based compensation                                                     |       | 984,448                               |        | 638,155 |   |
| Deferred rent                                                                |       | (27,331                               | )           | 16,662 |   |
| Changes in operating assets and liabilities:                                 |       |                                  |        |   |   |
| Prepaids expenses and other current assets                                   |       | (427,137                              | )           | (66,036 | ) |
| Research grant and contract receivables                                      |       | (249,980                              | )           | 128,287 |   |
| Other assets                                                                 |       | (388                                  | )           | 1,053 |   |
| Accounts payable and accrued expenses                                        |       | 4,910,058                             |        | 388,067 |   |
| Net cash used in operating activities                                        |       | (8,437,916                            | )           | (9,720,904 | ) |
| ** **                                                                   |       |                                  |        |   |   |
| **Investing activities**                                                     |       |                                  |        |   |   |
| Purchases of short-term investments                                          |       | (20,905,271                           | )           | (5,456,593 | ) |
| Sales or maturity of short-term investments                                  |       | 9,000,000                             |        | 12,272,000 |   |
| Purchases of property and equipment                                          |       | (123,491                              | )           | (33,213 | ) |
| Net cash (used) provided by investing activities                             |       | (12,028,762                           | )           | 6,782,194 |   |
| ** **                                                                   |       |                                  |        |   |   |
| **Financing activities**                                                     |       |                                  |        |   |   |
| Proceeds from sale of common stock                                           |       | 51,497,657                            |        | 32,955,363 |   |
| Net cash provided by financing activities                                    |       | 51,497,657                            |        | 32,955,363 |   |
| Effect of exchange rate changes on cash and cash  equivalents                |       | 95,767                                |        | (6,634 | ) |
| Net increase in cash and cash equivalents                                    |       | 31,126,746                            |        | 30,010,019 |   |
| Cash and cash equivalents at beginning of period                             |       | 17,054,328                            |        | 16,778,880 |   |
| Cash and cash equivalents at end of period                                   |       | $                                     | 48,181,074  |   | $ | 46,788,899 |   |

 

See accompanying notes.

 

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**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

**1.     Interim FinancialInformation**

** **

***Organizationand Business Activities***

** **

Optimer Pharmaceuticals, Inc. (“Optimer” or the “Company”)was incorporated in Delaware on November 18, 1998. The Company has onemajority-owned subsidiary, Optimer Biotechnology, Inc. (“OBI”), which isincorporated and located in Taiwan. In October 2009, Optimer sold 40% ofits equity interest in OBI. Prior to the sale, OBI was a wholly ownedsubsidiary of Optimer.

 

Optimer is a biopharmaceutical company focused ondiscovering, developing and commercializing anti-infective products.  The Company currently has two anti-infectiveproduct candidates, fidaxomicin, for the treatment of *Clostridium difficile*-infection (“CDI”),and PruvelTM (prulifloxacin), for the treatment of infectious diarrhea. TheCompany is developing additional product candidates using its proprietarytechnology, including its OPopSTM drug discovery platform.

 

*Basisof Presentation*

* *

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and Article 10 of Regulation S-X. Accordingly, they donot include all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements. In the opinion ofmanagement, all adjustments, consisting of normal recurring accruals,considered necessary for a fair presentation of the results of these interim periodshave been included. The results of operations for the three months ended March 31,2010 are not necessarily indicative of the results that may be expected for thefull year. These unaudited consolidated financial statements should be read inconjunction with the audited financial statements and related notes theretoincluded in the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2009, which was filed with the Securities and ExchangeCommission (“SEC”) on March 11, 2010.

 

Thepreparation of consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the amounts reportedin the consolidated financial statements and accompanying notes. Actual resultscould differ materially from those estimates.

 

Duringthe quarter ended March 31, 2010, the Company reclassified $115,000 ofmedical affairs department expense in the period ended March 31, 2009 toresearch and development to be consistent with the period ended March 31,2010 classification.

 

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**2.     Summary of SignificantAccounting Policies**

 

*Cash, Cash Equivalents andInvestments*

* *

Investments with original maturities of less than 90days at the date of purchase are considered to be cash equivalents.  Except for one auction rate preferredsecurity, all other investments are classified as short-term investments whichare deemed by management to be available-for-sale and are reported at fairvalue with net unrealized gains or losses reported within other comprehensiveloss in the consolidated statement of stockholders’ equity.  Realized gains and losses, and declines invalue judged to be other than temporary, are included in investment income orinterest expense.  The cost of securitiessold is computed using the specific identification method.

 

*Theauction rate preferred security (“ARPS”) is classified as a noncurrentavailable-for-sale security in the consolidated balance sheet because of theCompany’s intent and ability to hold this security until the market for ARPSreturns or until the issuer refinances the underlying security.*

 

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*Revenue Recognition*

* *

TheCompany’s license and collaboration agreements contain multiple elements,including non-refundable upfront fees, payments for reimbursement ofthird-party research costs, payments for research, payments associated withachieving specific development milestones and royalties based on specifiedpercentages of net product sales, if any. Agreements containing multiple elements are divided into separate unitsof accounting if certain criteria are met, including whether the deliveredelement has stand-alone value to the collaborator and whether there isobjective and reliable evidence of the fair value of the undeliveredobligation(s). The consideration received is allocated among the separate unitseither on the basis of each unit’s fair value or using the residual method, andthe applicable revenue recognition criteria are applied to each of the separateunits.

 

Whena payment is specifically tied to a separate earnings process, revenues arerecognized when the specific performance obligation associated with the paymentis completed.  Performance obligationstypically consist of significant and substantive milestones pursuant to therelated agreement.  Revenues frommilestone payments may be considered separable from funding for researchservices because of the uncertainty surrounding the achievement of milestonesfor products in early stages of development. Accordingly, these payments are allowed to be recognized as revenue ifand when the performance milestone is achieved if they represent separateearnings.

 

Inconnection with certain research collaboration agreements, revenues arerecognized from non-refundable upfront fees, which the Company does not believeare specifically tied to a separate earnings process, ratably over the term ofthe agreement.  Research fees arerecognized as revenue as the related research activities are performed.

 

Withrespect to revenues derived from reimbursement of direct out-of-pocket expensesfor research costs associated with grants, where the Company acts as aprincipal, with discretion to choose suppliers, bears credit risk and performspart of the services required in the transaction, the Company records revenuefor the gross amount of the reimbursement. The costs associated with thesereimbursements are reflected as a component of research and development expensein the consolidated statements of operations. None of the payments that theCompany has received from collaborators to date, whether recognized as revenueor deferred, are refundable even if the related program is not successful.

* *

*Research and DevelopmentExpenses*

* *

TheCompany expenses costs related to research and development until technologicalfeasibility has been established for the product.  Once technological feasibility isestablished, all product costs are generally capitalized until the product isavailable for general release to customers. The Company has determined that technological feasibility for itsproduct candidates will be reached when the requisite regulatory approvals areobtained to make the product available for sale, which, in the United States,generally occurs upon the approval of the new drug application (“NDA”) for suchproduct.  The Company’s research anddevelopment expenses consist 

 

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primarilyof license fees, salaries and related employee benefits, costs associated withclinical trials managed by the Company’s contract research organizations andcosts associated with non-clinical activities and regulatory approvals.  The Company uses external service providersand vendors to conduct clinical trials, to manufacture supplies of productcandidates to be used in clinical trials, to assist and consult on regulatoryfilings and to provide various other research and development-related productsand services.

 

When nonrefundable payments for goods or services tobe received in the future for use in research and development activities aremade, the Company defers and capitalizes these types of payments. Thecapitalized amounts are expensed when the related goods are delivered or theservices are performed.

 

*ComprehensiveIncome (Loss)*

 

Comprehensive income (loss)is defined as the change in equity during a period from transactions and otherevents and circumstances from non-owner sources.  Net income (loss) and other comprehensiveincome (loss), including foreign currency translation adjustments andunrealized gains and losses on investments, is required to be reported, net oftheir related tax effect, to arrive at comprehensive income (loss).  The consolidated comprehensive loss was $13.6million and $10.9 million for the three months ended March 31, 2010 and2009, respectively. Asof March 31, 2010, the cumulative unrealized gain on investments and thecumulative gain on foreign currency translation adjustment was $1,556 and$81,843, respectively. As of December 31, 2009, the cumulative unrealizedgain on investments and the cumulative loss on foreign currency adjustment was$13,959 and $52,022, respectively.

 

*Net Loss Per Share Attributableto Common Stockholders*

* *

Basicnet loss per common share is computed by dividing net loss by theweighted-average number of common shares outstanding. Diluted net loss percommon share is computed by dividing net loss by the weighted-average number ofcommon shares and dilutive common share equivalents then outstanding. Commonequivalent shares consist of common shares issuable upon the exercise of stockoptions and warrants. Since the Company has a net loss for all periodspresented, the effect of all potentially dilutive securities is anti-dilutive.Accordingly, basic and diluted net loss per share is the same for all periodspresented.

 

Asof March 31, 2010 and 2009, the Company’s common shares issuable upon theexercise of stock options and warrants totaling 2,868,963 and 2,401,807 shares,respectively, were excluded from the calculation, as their effect would havebeen antidilutive.

 

*IncomeTaxes*

 

Income taxes are accounted for under the asset andliability method.  Deferred tax assetsand liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss and taxcredit carryforwards.  Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled.  Theeffect on deferred tax assets

 

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and liabilities of a change in tax rates is recognizedas income in the period that includes the enactment date.  The Company provides a valuation allowanceagainst net deferred tax assets unless, based upon the available evidence, itis more likely than not that the deferred tax assets will be realized.

 

*RecentlyAdopted Accounting Pronouncements*

* *

Effective January 1, 2010, the Company adoptedthe following accounting standards issued by the Financial Accounting StandardsBoard (“FASB”):

 

The Company adopted a FASBupdate to the accounting and disclosure requirements for revenue recognition onrevenue arrangements with multipledeliverables*.*This updateeliminates the requirement to establish the fair value of undelivered productsand services and instead provides for separate revenue recognition based uponmanagement’s estimate of the selling price for an undelivered item when thereis no other means to determine the fair value of that undelivered item. Thisupdate is effective prospectively for revenue arrangements entered into ormaterially modified in fiscal years beginning on or after June 15, 2010. The adoption of this standard did nothave a material impact on the Company’s financial position, cash flows, orresults of operations.

 

The Company adopted a FASB update to the accounting and disclosurerequirements related to recurring and nonrecurring fair valuemeasurements.  This update requires newdisclosures on significant transfers of assets and liabilities between Level 1and Level 2 of the fair value hierarchy (including the reasons these transfers)and the reasons for any transfers in or out of Level 3.  This update also requires a reconciliation ofrecurring Level 3 measurements about purchases, sales and issuances andsettlements on a gross basis.  Inaddition to these new disclosure requirements, this update clarifies certainexisting disclosure requirements. For example, this update clarifies thatreporting entities are required to provide fair value measurement disclosuresfor each class of assets and liabilities rather than each major category ofassets and liabilities. This update also clarifies the requirement for entitiesto disclose information about both the valuation techniques and inputs used inestimating Level 2 and Level 3 fair value measurements. Since thisupdate only requires enhanced disclosure, the adoption of this standard did notimpact the Company’s financial position, cash flows or results ofoperations.  In addition, effective forthe interim and annual periods beginning December 15, 2010, this standardwill require additional disclosure and require the Company to presentdisaggregated information about activity in Level 3 fair value measurements ona gross basis, rather than as one net amount. The adoption of this standard didnot have a material impact on the Company’s financial position, cash flows, orresults of operations.

 

The Company adopted a FASBupdate on the accounting and disclosure requirements for the consolidation ofvariable interest entities (“VIE”)**. ****This update requires aquantitative approach to identifying a controlling financial interest in a VIE,and requires ongoing assessment of whether an entity is a VIE and whether aninterest in a VIE makes the holder the primary beneficiary of the VIE. **The adoption of this standard did nothave a material impact on the Company’s financial position, cash flows, orresults of operations.

 

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The Company adopted a FASBupdate on the accounting and disclosure requirements for transfers of financialassets.  This update is intended toimprove the relevance, representational faithfulness, and comparability of theinformation that a reporting entity provides in its financial statements abouta transfer of financial assets, the effects of a transfer on its financialposition, financial performance, and cash flows, and a transferor’s continuinginvolvement, if any, in transferred financial assets.  This update removes the concept of aqualifying special-purpose entity and the exception from applying *Consolidation of Variable Interest Entities*toqualifying special-purpose entities.  The adoption of this standard did nothave a material impact on the Company’s financial position, cash flows, orresults of operations.

 

**3.   Fair Value of Financial Instruments**

 

The followingtable summarizes the Company’s financial assets measured at fair value on arecurring basis subject to the disclosure requirements as of March 31,2010:

 
| ** **               | ** ** | **Quoted Prices in  Active Markets********(Level 1)** | ** ** | **Other  Observable  Inputs********(Level 2)** | ** ** | **Unobservable  Inputs********(Level 3)** | ** ** | **Total**  | ** ** |
|--------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------|------------|-------------------------------------------|------------|------------|------------|
| Cash equivalents         |       | $                                                     | 48,181,074 |                                           | $          | —                                    |       | $          | —     |   | $ | 48,181,074 |   |
| Marketable  securities   |       | 33,024,013                                            |       | —                                         |       | —                                    |       | 33,024,013 |       |
| Auction rate  securities |       | —                                                |       | —                                         |       | 882,000                                   |       | 882,000    |       |
|                          |            |                                                       |            |                                                |            |                                           |            |            |            |  |  |  |  |

 

Level 1:  Quoted prices in active markets for identicalassets and liabilities; or

 

Level 2:  Quoted prices for identicalor similar assets and liabilities in markets that are not active, or observableinputs other than quoted prices in active markets for identical assets andliabilities; or

 

Level 3:  Unobservable inputs.

 

Areconciliation of the beginning and ending balances of assets measured at fairvalue on a recurring basis using Level 3 inputs is as follows:

 
| ** **                                                                                | ** ** | **Auction  Rate  Preferred  Securities** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| Beginning balance at  January 1, 2010                                                |       | $                                        | 882,000    |   |
| Total  gains and losses:                                                                  |       |                                     |       |
| Realized net income                                                                       |       | —                                   |       |
| Unrealized in accumulated  other comprehensive income                                     |       | —                                   |       |
| Purchases,  sales, issuances and settlements                                              |       | —                                   |       |
| Transfers  in (out) of Level 3                                                            |       | —                                   |       |
| Ending  balance at March 31, 2010                                                    |       | $                                        | 882,000    |   |
| Change  in unrealized gains (losses) included in net income related to assets still  held |       | $                                        | —     |   |

 

Allof the Company’s investments in available-for-sale securities are recorded atfair value based on quoted market prices. As of March 31, 2010, theCompany held one ARPS valued at $882,000 with a perpetual maturity date thatresets every 28 days.  Although as of March 31,2010, this ARPS continued to pay interest according to its stated terms, themarket in these securities continues to be illiquid. Based on a discounted cashflow model used to determine the

 

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estimatedfair value of its investment in the ARPS, the Company has previously recognizedin the consolidated statement of operations an unrealized loss of approximately$118,000 in investment income since the Company had determined that the declinein value was other than temporary. The assumptions used for the discontinuedcash flow model include estimates for interest rates, timing and amount of cashflows and expected holding period of the ARPS. The Company’s ARPS is classified as a long-term investment on theconsolidated balance sheets, as the Company does not believe it could liquidateits security in the near term.

 

**4.     Short-Term Investments**

 

The following is a summary of the Company’s investmentsecurities, all of which are classified as available-for-sale. Determination ofestimated fair value is based upon quoted market prices as of the datespresented.

 
| ** **           | ** ** | **March 31, 2010**     | ** ** |
|----------------------|------------|----------------------------------|------------|
| ** **           | ** ** | **Gross  Amortized********Cost** | ** ** | **Gross  Unrealized********Gains** | ** ** | **Gross  Unrealized********Losses** | ** ** | **Market Value** | ** ** |
| Government  agencies |       | $                                | 33,022,457 |   | $ | 7,430 |   | $ | (5,874 | ) | $ | 33,024,013 |   |
|                      |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **           | ** ** | **December 31, 2009**  | ** ** |
|----------------------|------------|----------------------------------|------------|
| ** **           | ** ** | **Gross  Amortized********Cost** | ** ** | **Gross  Unrealized********Gains** | ** ** | **Gross  Unrealized********Losses** | ** ** | **Market Value** | ** ** |
| Government  agencies |       | $                                | 21,117,189 |   | $ | 14,235 |   | $ | (279 | ) | $ | 21,131,145 |   |
|                      |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

Investments in net unrealized loss positions as of March 31, 2010are as follows:

 
| ** **          | ** ** | ** **                      | ** ** | **Less Than 12 Months of  Temporary Impairment** | ** ** | **Greater Than 12 Months of  Temporary Impairment** | ** ** | **Total Temporary  Impairment** | ** ** |
|---------------------|------------|---------------------------------|------------|---------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **          | ** ** | **Number of  Investments** | ** ** | **Fair Value**                                                       | ** ** | **Unrealized  Losses**                                                       | ** ** | **Fair Value**                  | ** ** | **Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Unrealized  Losses** | ** ** |
| Government agencies |       | 9                               |       | $                                                                         | 14,745,728 |                                                                         | $          | (5,874                               | )          | $ | — |   | $ | — |   | $ | 14,745,728 |   | $ | (5,874 | ) |
|                     |            |                                 |            |                                                                           |            |                                                                              |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The amortized cost and estimated fair value ofsecurities available-for-sale at March 31, 2010, by contractual maturity,are as follows:

 
| ** **              | ** ** | **Amortized Cost** | ** ** | **Estimated Fair Value** | ** ** |
|-------------------------|------------|-------------------------|------------|------------------------------------|------------|
| Due in one year or less |       | $                       | 33,022,457 |                               | $          | 33,024,013 |   |
|                         |            |                         |            |                                    |            |  |  |

 

Theweighted-average maturity of our short-term investments as of March 31,2010 and 2009, was approximately seven months and three months, respectively.

 

The Company considered a number of factors todetermine whether the decline in value in its investments is other than temporary,including the length of time and the extent to which the market value has beenless than cost, the financial condition of the issuer and the Company’s intentto hold and ability to retain these short-term investments.  Based on these factors, the Company believesthat the decline in value is temporary and primarily related to the change inmarket interest rates since purchase. The Company anticipates full recovery of amortized cost with respect tothese securities at maturity or sooner in the event of a change in the marketinterest rate environment.

 

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**5.     Stockholders’ Equity**

** **

*NoncontrollingInterest*

 

**In October 2009, the Company sold 40% of its equityinterest in OBI.  Pursuant toauthoritative guidance, the Company accounts and reports for minorityinterests, the portion of OBI not owned by the Company, as noncontrolling interestsand classifies them as a component of stockholders’ equity on the consolidatedbalance sheets of the Company.  TheCompany includes the net loss attributable to noncontrolling interests as partof its consolidated net loss.**

** **

The following tablereconciles equity attributable to noncontrolling interest:

 
| ** **                                       | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------------------|------------|--------------------------------|------------|
| Noncontrolling interest, January 1, 2010    |       | $                              | 3,040,156  |   |
| Net loss attributable to noncontrolling interest |       | (200,916                       | )          |
| Translation adjustments                          |       | 38,389                         |       |
| Noncontrolling interest, March 31, 2010     |       | $                              | 2,877,629  |   |

 

*Follow-On Offering*

 

InMarch 2010, the Company completed the sale of 4,887,500 shares of itscommon stock in a public offering with the net proceeds of approximately $51.2million.

 

*Warrants*

 

Inconnection with a registered direct offering which occurred in March 2009,the Company sold warrants to purchase up to an aggregate of 91,533 shares ofits common stock. The warrants are exercisable at an exercise price of $10.93per share and will expire five years from March 9, 2009.

 

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**6.****             ****StockBased Compensation**

 

***OptimerPharmaceuticals, Inc.***

** **

*StockOptions*

 

Optimer has in effect the 2006 Equity Incentive Plan(“2006 Plan”) which became effective upon the effectiveness of the Optimer’sinitial public offering in 2007. Optimer also had the 1998 Stock Plan (“1998Plan”) which was terminated, and under which Optimer ceased granting options,upon the effectiveness of Optimer’s initial public offering. Options grantedunder both the 1998 Plan and the 2006 Plan generally expire no later than tenyears from the date of grant (five years for a 10% stockholder) and vest over aperiod of four years. The exercise price of options granted must at least beequal to the fair market value of Optimer’s common stock on the date ofgrant.  During the three months ended March 31,2010 and 2009, Optimer recorded stock-based compensation expense ofapproximately $909,201 and $595,180, respectively, related to the stockoptions.

 

*Employee Stock Purchase Plan*

* *

Optimeralso grants stock awards under its employee stock purchase plan (“ESPP”). Underthe terms of the ESPP, eligible employees may purchase shares of Optimer’scommon stock at the lesser of 85% of the fair marker value of Optimer’s commonstock on the offering date or the purchase date.

 

During the three months ended March 31, 2010and 2009, Optimer recorded stock-based compensation expense of approximately$35,352 and $42,975, respectively, related to the ESPP.

 

*Valuations*

 

TheBlack-Scholes option-pricing model was developed for use in estimating the fairvalue of traded options and stock awards, which have no vesting restrictionsand are fully transferable.  In addition,the Black-Scholes option-pricing model requires the input of subjectiveassumptions, including the expected stock price volatility of the underlyingstock.  The following table shows theassumptions used to compute stock-based compensation expense for the stock optionsand stock awards granted and ESPP during the three months ended March 31,2010 and 2009, using the Black-Scholes option pricing model:

 
| ** **                        | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| **Stock  Options**                | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Risk-free interest rate           |       | 2.70                                   | %          | 2.00 | % |
| Dividend yield                    |       | 0.00                                   | %          | 0.00 | % |
| Expected life of options  (years) |       | 5.02 - 6.08                            |       | 5.27-6.08 |   |
| Volatility                        |       | 71.36                                  | %          | 69.93 | % |

 
| ** **                        | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| **ESPP**                          | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Risk-free interest rate           |       | .17                                    | %          | 0.43 | % |
| Dividend yield                    |       | 0.00                                   | %          | 0.00 | % |
| Expected life of options  (years) |       | 6 months                               |       | 6 months |   |
| Volatility                        |       | 34.08                                  | %          | 74.94 | % |

 

Therisk-free interest rate assumption was based on the United States Treasury’srates for U.S. Treasury zero-coupon bonds with maturities similar to those ofthe expected term of the award being valued. The assumed dividend yield was based on Optimer’s expectation of notpaying dividends in the foreseeable future. The weighted-average expected life of options was calculated using thesimplified method.  This decision was basedon the lack of relevant historical data due to the Company’s limitedhistory.  In addition, due to the Company’slimited historical data, the Company used the historical volatility ofcomparable companies whose share prices are publicly available to estimate theCompany’s options volatility rate.

 

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Asof March 31, 2010, the total unrecognized compensation expense related tounvested stock options was approximately $7,322,913 and the relatedweighted-average period over which it is expected to be recognized isapproximately 2.8 years.

 

Totalstock-based compensation expense related to all of Optimer’s stock options,stock awards and employee stock purchases, recognized for the three monthsended March 31, 2010 and 2009, was comprised as follows:

 
| ** **                        | ** ** | **Three months ended********March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
| Research  and development         |       | $                                            | 383,998    |   | $ | 228,235 |   |
| Marketing                         |       | 93,310                                       |       | 91,787 |   |
| General  and administrative       |       | 467,245                                      |       | 318,133 |   |
| Stock-based  compensation expense |       | $                                            | 944,553    |   | $ | 638,155 |   |

 

*Optimer Biotechnology, Inc.*

 

*Stock Options*

 

InMarch 2010,  OBI’s board ofdirectors approved a Stock Option Plan and reserved 8.0 million shares of OBIcommon stock for issuance of equity awards thereunder. The Stock Option Planprovides for the issuance of stock options, restricted stock awards and stockappreciation rights to employees, directors and consultants of OBI. The optionsgenerally vest over four years and have a maximum contractual term of tenyears.

 

*Valuations*

 

TheBlack-Scholes option-pricing model was developed for use in estimating the fairvalue of traded options, which have no vesting restrictions and are fullytransferable.  In addition, theBlack-Scholes option-pricing model requires the input of subjectiveassumptions, including the expected stock price volatility of the underlyingstock.  The following table shows theassumptions used to compute stock-based compensation expense for the stockoptions granted during the three months ended March 31, 2010 and 2009,using the Black-Scholes option pricing model:

 
| ** **                       | ** ** | **Three months ended  March 31, 2010** | ** ** |
|----------------------------------|------------|---------------------------------------------|------------|
| Risk-free interest rate          |       | 1.25                                        | %          |
| Dividend yield                   |       | 0.00                                        | %          |
| Expected life of options (years) |       | 6.08                                        |       |
| Volatility                       |       | 71.36                                       | %          |

 

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Therisk-free interest rate assumption was based on the Central Bank of Chinainterest rates.  The assumed dividendyield was based on OBI’s expectation of not paying dividends in the foreseeablefuture.  The weighted-average expectedlife of options was calculated using the simplified method.  This decision was based on the lack ofrelevant historical data due to OBI’s limited history.  Due to OBI’s limited historical data, OBIused the historical volatility of Optimer Pharmaceuticals Inc’s peers whoseshare prices are publicly available to estimate the OBI’s options volatilityrate.

 

Thefollowing table summarizes the stock-based compensation expense for OBIincluded in each operating expense line item in Optimer’s consolidatedstatements of operations:

 
| ** **                        | ** ** | **Three months ended********March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| Research  and development         |       | $                                            | 7,434      |   |
| General  and administrative       |       | 32,461                                       |       |
| Stock-based  compensation expense |       | $                                            | 39,895     |   |

 

AtMarch 31, 2010, the total unrecognized stock-based compensation expenserelating to OBI’s unvested stock-based awards granted to employees, net offorfeitures, was $429,736, which OBI anticipates recognizing as a chargeagainst income over a weighted average period of 3.7 years.

 

**7.     Revenue and OtherCollaborative Agreements**

 

*Revenuesfrom Research Grants*

 

The Company has one active grant from the NationalInstitute of Allergy and Infectious Diseases (“NIAID”). This grant was awardedin September 2007 and is renewable for $1 million each year until August 2010,up to a maximum of $3 million. The award is being used to conduct supplementarystudies to the ongoing fidaxomicin trials to confirm narrow spectrum activityand potency of fidaxomicin against hypervirulent epidemic strains, to supportadditional toxicology and microbiological studies to demonstrate the safety andefficacy of the fidaxomicin compound and its major metabolite in CDI patientsand to support a surveillance study of *C.difficile* isolates across North America to compare activity offidaxomicin with existing CDI treatments. For the three months ended March 31, 2010 and 2009, the Companyrecognized revenues related to research grants of $297,437, and $83,012,respectively.

 

*Other Collaborative Agreements*

 

*Par Pharmaceutical, Inc.*

 

The Company holds worldwide rights tofidaxomicin.  In February 2007, theCompany repurchased the rights to develop and commercialize fidaxomicin inNorth America and Israel from Par Pharmaceutical, Inc. (“Par”) under aprospective buy-back agreement.  TheCompany is

 

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obligated to pay Par a one-time $5.0 million milestonepayment upon the successful completion by the Company of its second pivotalPhase 3 trial for fidaxomicin which the Company accrued in the quarterended March 31, 2010.  The Companymay be obligated to pay Par a 5% royalty on net sales by the Company, itsaffiliates or its licensees of fidaxomicin in North America and Israel, and a1.5% royalty on net sales by the Company or its affiliates of fidaxomicin inthe rest of the world.  In addition, inthe event the Company licenses its right to market fidaxomicin in the rest ofthe world, the Company will be required to pay Par a 6.25% royalty on netrevenues received by it related to fidaxomicin. The Company is obligated to pay each of these royalties, if any, on acountry-by-country basis for seven years commencing on the applicablecommercial launch in each such country.

 

*Nippon Shinyaku, Co., Ltd.*

 

In June 2004, the Company entered into a licenseagreement with Nippon Shinyaku, Co., Ltd. (“Nippon Shinyaku”).  Under the terms of the agreement, the Companyacquired the non-exclusive right to import and purchase Pruvel, and theexclusive right (with the right to sublicense), within the United States, todevelop, make, use, offer to sell, sell and license products suitable forconsumption by humans containing Pruvel. Under this agreement, the Company paid Nippon Shinyaku an up-front feein the amount of $1.0 million and will be required to make one future milestonepayment in the amount of $1.0 million upon submission, if any, of its first NDAfor Pruvel in the United States.  Underthe agreement, the Company pays Nippon Shinyaku for certain materials.  If Nippon Shinyaku is unable to supply theCompany with the contracted amount of Pruvel, then Nippon Shinyaku is obligatedto grant the Company a non-exclusive, worldwide license to make or have madePruvel, in which event the Company will owe Nippon Shinyaku a royalty based onthe amount of net sales of Pruvel generated by the Company and the Company’ssubsidiary.  Additionally, the Companywill owe Nippon Shinyaku certain royalties based on the amount of net sales ofPruvel less the amount of Pruvel the Company buys from Nippon Shinyaku.  Either party may terminate the agreement 60days after giving notice of a material breach which remains uncured 60 daysafter written notice.  If not terminatedearlier, the agreement will terminate upon the later of ten years from the dateof the first commercial sale of Pruvel in the United States or the date onwhich the last valid patent claim relating to Pruvel expires in the UnitedStates.

 

*Cempra Pharmaceuticals, Inc.*

 

In March 2006, the Company entered into acollaborative research and development and license agreement with CempraPharmaceuticals, Inc. (“Cempra”). The Company granted to Cempra an exclusive worldwide license, except inAssociation of Southeast Asian Nations (“ASEAN”) countries, with the right tosublicense, to the Company’s patent and know-how related to the Company’smacrolide and ketolide antibacterial program. As partial consideration for granting Cempra the license, the Companyobtained equity of Cempra and the Company assigned no value to such equity.  The Company may receive milestone payments asproduct candidates are developed and/or co-developed by Cempra, in addition tomilestone payments based on certain sublicense revenue.  The aggregate potential amount of such milestonepayments is not capped and, based in part on the number of products developedunder the agreement, may exceed $24.5 million. The Company will also receive royalty payments based on a percentage ofnet sales of 

 

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licensed products. The milestone payments will be triggered upon the completion of certainclinical development milestones and in certain instances, regulatory approvalof products.  In consideration of theforegoing, Cempra may receive milestone payments from the Company in the amountof $1.0 million for each of the first two products the Company develops whichreceive regulatory approval in ASEAN countries, as well as royalty payments onthe net sales of such products.  Theresearch term of the agreement was completed in March 2008.  Subject to certain exceptions, on acountry-by-country basis, the general terms of this agreement continue untilthe later of: (i) the expiration of the last to expire patent rights of acovered product in the applicable country or (ii) ten years from the firstcommercial sale of a covered product in the applicable country.  Either party may terminate the agreement inthe event of a material breach by the other party, subject to prior notice andthe opportunity to cure.  Either partymay also terminate the agreement for any reason upon 30 days’ prior writtennotice provided that all licenses granted by the terminating party to thenon-terminating party will survive upon the express election of thenon-terminating party.

 

*Memorial Sloan-Kettering CancerCenter*

 

In July 2002, the Company entered into a licenseagreement with Memorial Sloan-Kettering Cancer Center (“MSKCC”) to acquire,together with certain nonexclusive licenses, exclusive, worldwide licensing andsublicensing rights to certain patented and patent-pending carbohydrate-basedcancer immunotherapies.  As partialconsideration for the licensing rights, the Company paid to MSKCC a one-timefee consisting of both cash and 55,383 shares of its common stock.  In anticipation of the various transactionsinvolving OBI which the Company completed in October 2009, the Companyassigned its rights and obligations under this agreement with OBI. Under theagreement, which was amended in June 2005, OBI owes MSKCC milestonepayments in the following amounts for each licensed product: (i) $500,000upon the commencement of Phase 3 clinical studies, (ii) $750,000 uponthe filing of the first NDA, (iii) $1.5 million upon obtaining marketingapproval in the United States and (iv) $1.0 million upon obtainingmarketing approval in each and any of Japan and certain European countries, butonly to the extent that OBI, and not a sublicensee, achieves suchmilestones.  OBI may owe MSKCC royaltiesbased on net sales generated from the licensed products and income OBI sourcesfrom its sublicensing activities, which royalty payments are credited against aminimum annual royalty payment OBI owes to MSKCC during the term of the agreement.

 

*Scripps Research Institute*

 

**In July 1999,the Company acquired exclusive, worldwide rights to its OPopS technology fromthe Scripps Research Institute (“TSRI”). This agreement includes the license to the Company of patents, patentapplications and copyrights related to OPopS technology.  The Company also acquired, pursuant to threeseparate license agreements with TSRI, exclusive, worldwide rights to over 20TSRI patents and patent applications related to other potential drug compoundsand technologies, including HIV/FIV protease inhibitors, aminoglycosideantibiotics, polysialytransferase, selectin inhibitors, nucleic acid binders,carbohydrate mimetics and osteoarthritis. Under the four agreements with TSRI, the Company paid TSRI license fees consistingof an aggregate of 239,996 shares of its common stock with a deemed aggregatefair market value of $46,400, as determined on the dates of each suchpayment.  Additionally, under**

 

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**eachagreement, the Company may owe TSRI royalties based on net sales by theCompany, its affiliates and sublicensees of the covered products and royaltiesbased on revenue the Company generates from sublicenses granted pursuant to theagreements.  For the first licensedproduct under each of the four agreements, the Company will also owe TSRIpayments upon achievement of certain milestones.  In three of the four TSRI agreements, themilestones are the initiation of a Phase 2 trial or its foreignequivalent, the filing of an NDA or its foreign equivalent and governmentmarketing and distribution approval.  Inthe remaining TSRI agreement, the milestones are the successful completion of aPhase 3 trial or its foreign equivalent, the filing of an NDA or itsforeign equivalent and government marketing and distribution approval.  The aggregate potential amount of milestonepayments the Company may be required to pay TSRI under all four TSRI agreementsis approximately $14.0 million.  Inanticipation of the various transactions involving OBI which the Companycompleted in October 2009, the Company assigned its rights and obligationsunder one of these agreements related to osteoarthritis to OBI.**

** **

*Optimer Biotechnology, Inc.*

 

InOctober 2009, the Company entered into certain transactions involving OBI,then its wholly-owned subsidiary, to provide funding for the development of twoof its early-stage, non-core programs. The transactions with OBI included an Intellectual Property Assignmentand License Agreement, pursuant to which the Company assigned to OBI certainpatent rights, information and know-how related to OPT-88 and OPT-822/821.  In anticipation of these transactions, theCompany also assigned, and OBI assumed, its rights and obligations underrelated license agreements with MSKCC and TSRI. Under this agreement, the Company is eligible to receive up to $10million in milestone payments for each product developed under the developmentprograms and is also eligible to receive royalties on net sales of any productwhich is commercialized under the programs. The term of the Intellectual Property Assignment and License Agreementcontinues until the last to expire of the patents assigned by the Company toOBI and the patents licensed to OBI under the TSRI and MSKCC agreements.

 

Toprovide capital for OBI’s product development efforts, the Company and OBI alsoentered into a financing agreement with a group of new investors. Simultaneously, the Company sold 40 percent of its existing OBI shares to thesame group of new investors, and the Company and the new investors alsopurchased new OBI shares.  Also under the financing agreement, if OBIachieves certain development milestones in the future, the Company and the newinvestors will be obligated to invest approximately an additional $8.6 millionand $5.7 million, respectively, in exchange for new OBI shares.  Followingthe sale of its existing OBI shares and the initial investments in exchange fornew OBI shares, the Company currently maintains a 60 percent ownership interestin OBI

 

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**Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

*Thefollowing discussion and analysis should be read in conjunction with ourconsolidated financial statements and accompanying notes appearing elsewhere inthis report, as well as the audited financial statements and accompanying notesincluded in our annual report on Form 10-K for the fiscal year ended December 31,2009, as filed with the Securities and Exchange Commission, or SEC.  This discussion and other parts of this reportmay contain forward-looking statements based upon current expectations thatinvolve risks and uncertainties.  Ouractual results and the timing of selected events could differ materially fromthose anticipated in these forward-looking statements as a result of severalfactors, including those set forth under “Risk Factors” and elsewhere in thisreport.*

 

**Overview**

** **

We are a biopharmaceutical company focused ondiscovering, developing and commercializing innovative anti-infective products.Our current development efforts are focused on products that treatgastrointestinal infections****andrelated diseases where current therapies have limitations, including limitedefficacy, serious adverse side effects, drug-to-drug interactions, difficultpatient compliance and bacterial resistance. We currently have two late-stageanti-infective product candidates, fidaxomicin and PruvelTM (prulifloxacin).

 

Fidaxomicin, our leadproduct candidate, is a narrow spectrum antibiotic with minimal systemicabsorption. We are developing fidaxomicin for the treatment of CDI, the mostcommon nosocomial, or hospital acquired, diarrhea. In February 2010, wereported positive top-line data from the second of two fidaxomicin Phase 3trials. In April 2010, we reported additional data during the 20th Annual EuropeanCongress of Clinical Microbiology and Infectious Diseases (ECCMID) which showeda clinically meaningful reduction in recurrence rates and higher global curerates compared to Vancocin, the only FDA-approved antibiotic for the treatmentof CDI, in both the hyper-virulent BI/NAP1/027 and the non-BI strain typesubgroups. Clinical cure rates for fidaxomicin and Vancocin were similar inthese two strain type subgroups. We reported additional data in May 2010during Digestive Disease Week indicating that treatmentwith fidaxomicin significantly improved the recurrence rate and global curerate in CDI patients requiring concomitant antibiotics, compared to vancomycin. We expect to report additional datafrom our second fidaxomicin Phase 3 trial at scientific and medical conferencesthroughout 2010. In November 2008, we reported positive data from thefirst fidaxomicin Phase 3 trial, the largest single comparative study everconducted against Vancocin. The top-line analysis of data from these trialsshowed that fidaxomicin achieved the primary endpoint of clinical cure anddemonstrated a significantly lower recurrence rate compared to Vancocin.Fidaxomicin was also well-tolerated in the trials. We currently hold worldwiderights to fidaxomicin and intend to seek one or more partners for thecommercialization of fidaxomicin outside of the United States. We plan to submit a New Drug Application,or NDA, to the FDA in the second half of 2010 and are also preparing aMarketing Authorization Application, or MAA, for submission to the EuropeanMedicines Agency, or EMA.

 

Pruvel is a prodrug in the fluoroquinolone class ofantibiotics, a widely-used class of broad-spectrum antibiotics. We aredeveloping Pruvel as a treatment for infectious diarrhea.  In July 2008, we reported positivetop-line data from the first Phase 3 trial conducted in Mexico and Peru and in February 2009,we reported positive top-line data from the second Phase 3 trial conducted inIndia, Guatemala and Mexico. The top-line analysis of data from these studiesshowed that Pruvel met the primary endpoint of TLUS compared to placebo. Basedupon the results of these two Phase 3 trials we intend to submit an NDA forPruvel in 2010. We intend to conduct a Phase 4 trial of Pruvel subsequentto a NDA submission to compare Pruvel to ciprofloxacin for the treatment ofinfectious diarrhea. We plan to initially seek approval for Pruvel for thetreatment of infectious diarrhea.

 

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Weare developing additional product candidates using our proprietary technology,including our Optimer One-Pot Synthesis, or OPopSTM drug discovery platform.OPopS is a computer-aided technology that enables the rapid and low-costsynthesis of a wide array of carbohydrate-based compounds. Two components ofthe OPopS technology that allow us to synthesize new compounds areGlycoOptimization and De Novo Glycosylation. These technologies are capable ofrapidly generating drug candidates for broad therapeutic application.

 

Wepreviously acquired exclusive rights to two other product candidates: OPT-88, adisease-modifying intra-articular therapy for osteoarthritis which we licensedfrom TSRI and OPT-822/821, a novel carbohydrate-based cancer immunotherapywhich we licensed from MSKCC.  In October 2009, we entered into anumber of transactions involving OBI, our subsidiary in Taiwan,  in which we sold 40% of our existing equityin OBI to a group of new investors and, simultaneously, we and the group of newinvestors purchased new common shares of OBI.  In connection with thesetransactions, we assigned to OBI certain of our patent rights and know-howrelated to OPT-88 and OPT-822/821 and also assigned to OBI our rights andobligations under the TSRI and MSKCC agreements.  We anticipate that OBIwill use the proceeds from the sale of new common shares to fund the developmentof OPT-88 and OPT-822/821.  Following these transactions, we maintain a60% equity interest in OBI and have the right to receive up to $10 million infuture milestone payments for each product incorporating OPT-88 or OPT-822/821and royalties on net sales of any such products.

 

InMarch 2010, we completed the sale of 4,887,500 shares of our common stockin a public offering with the net proceeds of approximately $51.2 million.

 

We were incorporated in November 1998.  Since inception, we have focused on developingour product candidates, including fidaxomicin and Pruvel.  We have never been profitable and haveincurred significant net losses since our inception.  As of March 31, 2010, we had anaccumulated deficit of $189.0 million. These losses have resulted principally from costs incurred in connectionwith research and development activities, including the costs of clinical trialactivities associated with our current lead product candidates, license feesand general and administrative expenses. We expect to continue to incur operating losses for the next severalyears as we pursue the clinical development, regulatory approval andcommercialization of our product candidates, as well as acquire or in-licenseadditional products or product candidates, technologies or businesses that arecomplementary to our own.

 

**CriticalAccounting Policies**

** **

OurManagement’s Discussion and Analysis of our Financial Condition and Results ofOperations is based on our consolidated financial statements, which have beenprepared in conformity with generally accepted accounting principles in theUnited States.  The preparation of theseconsolidated financial statements requires us to make estimates and assumptionsthat affect the reported amounts of assets, liabilities, expenses and relateddisclosures.  Actual results could differfrom those estimates. While our significant accounting policies are describedin more detail in Note 2 of the Notes to Consolidated Financial Statementsappearing elsewhere in this report, we believe the following accountingpolicies to be critical to the judgments and estimates used in the preparationof our consolidated financial statements.

 

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*RevenueRecognition*

* *

Ourlicense and collaboration agreements contain multiple elements, includingnon-refundable upfront fees, payments for reimbursement of third-party researchcosts, payments for ongoing research, payments associated with achievingspecific development milestones and royalties based on specified percentages ofnet product sales, if any. Agreements containing multiple elements are dividedinto separate units of accounting if certain criteria are met, includingwhether the delivered element has stand-alone value to the collaborator andwhether there is objective and reliable evidence of the fair value of theundelivered obligation(s). The consideration received is allocated among theseparate units either on the basis of each unit’s fair value or using theresidual method, and the applicable revenue recognition criteria are applied toeach of the separate units.

 

Cashreceived in advance of services being performed is recorded as deferred revenueand recognized as revenue as services are performed over the applicable term ofthe agreement.

 

Whena payment is specifically tied to a separate earnings process, revenues arerecognized when the specific performance obligation associated with the paymentis completed.  Performance obligationstypically consist of significant and substantive milestones.  Revenues from milestone payments may beconsidered separable from funding for research services because of theuncertainty surrounding the achievement of milestones for products in earlystages of development.  Accordingly,these milestone payments are allowed to be recognized as revenue if and whenthe performance milestone is achieved if they represent a substantive earningsprocess.

 

Inconnection with certain research collaboration agreements, revenues arerecognized from non-refundable upfront fees, which we do not believe arespecifically tied to a separate earnings process, ratably over the term of theagreement or the period over which we have significant involvement or performservices.  Research fees are recognizedas revenue as the related research activities are performed.

 

Withrespect to revenues derived from reimbursement of direct out-of-pocket expensesfor research costs associated with grants, where we act as a principal, withdiscretion to choose suppliers, bear credit risk and perform part of theservices required in the transaction, we record revenue for the gross amount ofthe reimbursement. The costs associated with these reimbursements are reflectedas a component of research and development expense in the consolidatedstatements of operations.

 

Noneof the payments that we have received from collaborators to date, whetherrecognized as revenue or deferred, are refundable even if the related programis not successful.

 

*Research and Development*

 

Research and development costs are expensed asincurred and consist primarily of costs associated with clinical trials,compensation, including stock-based compensation, and other expenses related toresearch and development, including personnel costs, facilities costs anddepreciation.

 

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When nonrefundable payments for goods or services tobe received in the future for use in research and development activities aremade, we defer and capitalize these types of payments. The capitalized amountsare expensed when the related goods are delivered or the services areperformed.

 

*AccruedClinical Trial Costs*

* *

Asubstantial portion of our on-going research and development activities areperformed under agreements we enter into with external service providers,including clinical research organizations, or CROs, who conduct many of ourresearch and development activities.  Weaccrue the costs incurred under these contracts based on factors such asestimates of work performed, milestones achieved, patient enrollment and costshistorically incurred for similar contracts. As actual costs become known, we adjust our accruals.  To date, our accruals have been withinmanagement’s estimates, and no material adjustments to research and developmentexpenses have been recognized. Subsequent changes in estimates may result in a material change in ouraccruals, which could also materially affect our results of operations.

 

*Stock-BasedCompensation*

* *

The Financial Accounting Standards Board, or FASB,authoritative guidance requires that share-based payment transactions withemployees be recognized in the financial statements based on their fair valueand recognized as compensation expense over the vesting period.  We used the modified prospectivemethod and accordingly we did not restate the results of operations forthe prior periods.

 

In March 2010, the OBI Board of Directorsapproved a Stock Option Plan for equity awards. A total compensation expense of$984,000 and $638,000 was recognized in the three months ended March 31,2010 and 2009, respectively.

 

Stock-based compensation expense is estimated as ofthe grant date based on the fair value of the award and is recognized asexpense over the requisite service period, which generally represents thevesting period. We estimate the fair value of our stock options using theBlack-Scholes option-pricing model and the fair value of our stock awards basedon the quoted market price of our common stock.

 

Estimating thefair value for stock options requires judgment, including estimatingstock-price volatility, expected term, expected dividends and risk-freeinterest rates. Due to Optimer’s and OBI’s limited historical data, the expectedvolatility incorporates the historical volatility of comparable companies whoseshare prices are publicly available. The average expected term is calculatedusing the Simplified Method forEstimating the Expected Term. Expected dividends are estimated based on Optimer’s and OBI’s dividend history as well as Optimer’s and OBI’s current projections. Therisk-free interest rate for Optimer for periods approximating the expectedterms of the options is based on the U.S. Treasury yield curve in effectat the time of grant. The risk-free rate for OBI is based on the Central Bankof China interest rates.  Theseassumptions are updated on an annual basis or sooner if there is a significantchange in circumstances that could affect these assumptions.

 

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Equity instruments issued to non-employees arerecorded at their fair value and are periodically revalued as the equityinstruments vest and are recognized as expense over the related service period.

 

**Resultsof Operations**

 

***Comparison of***Three Months Ended March 31,2010 and 2009

 

*GrantRevenues*.  Grantrevenues for the three months ended March 31, 2010 and 2009 was $297,000and $83,000, respectively. The increase of $214,000, or 258%, was primarily dueto an increase in research efforts related to an NIH grant.

 

*Researchand Development Expense*.  Researchand development expense for the three months ended March 31, 2010 and 2009was $11.4 million and $8.9 million, respectively, an increase of $2.5 million,or 27%.   The increase is primarily dueto the accrual of a $5.0 million milestone due to Par for the successfulcompletion of the second fidaxomicin Phase 3 trial.  The increase is offset by the decrease inPruvel development related expenses.

 

*MarketingExpense*. * *Marketingexpense of $269,000 for the three months ended March 31, 2010 was relativelyconsistent with the $195,000 for the three months ended March 31, 2009.

 

*Generaland Administrative Expense*.  General and administrative expense for thethree months ended March 31, 2010 and 2009 was $2.4 million and $2.0million, respectively.  The increase of$340,000, or 17%, was due to higher compensation expenses, including $499,000of stock compensation expense, an increase of $182,000 over the same period inthe prior year, as well as higher consulting expenses.

 

*InterestIncome and Other, net*.  Netinterest income and other for the three months ended March 31, 2010 and2009 was $25,000 and $187,000, respectively. The decrease was primarily due to lower interest rates on cash, cashequivalents and investments.

 

**Liquidityand Capital Resources**

** **

*Sourcesof Liquidity*

* *

Sinceinception, our operations have been financed primarily through the sale ofequity securities.  Through March 31,2010, we received gross proceeds of approximately $256.2 million from the saleof shares of our preferred and common stock as follows:

 

·                  in May 2000, we sold atotal of 1.6 million shares of Series A preferred stock for proceeds of$3.4 million;

 

·                  from March 2001to December 2001, we sold a total of 4.1 million shares of Series Bpreferred stock for proceeds of $32.2 million;

 

·                  in April 2005,we sold a total of 1.5 million shares of Series C preferred stock forproceeds of $12.0 million;

 

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·                  from April 2005to November 2005, we sold a total of 2.9 million shares of Series Dpreferred stock for proceeds of $22.3 million;

 

·                  in February 2007,we sold a total of 7.0 million shares of our common stock in connection withour initial public offering for proceeds of $49.0 million;

 

·                  in October 2007,we sold a total of 4.6 million shares of our common stock in connection with aprivate placement offering for proceeds of $35.9 million;

 

·                  in July 2008,we sold a total of 1.7 million shares of our common stock in a registereddirect offering for proceeds of $14.7 million;

 

·                  in March 2009,we sold a total of 3.3 million shares of our common stock and warrants topurchase up to an aggregate of 91,533 shares of our common stock in aregistered direct offering for proceeds of $32.9 million; and

 

·                  in March 2010,we sold a total of 4.9 million shares of our common stock in a public offeringfor proceeds of $53.8 million.

 

Untilrequired for operations, we invest a substantial portion of our available fundsin money market funds, corporate debt securities, United States governmentinstruments and other readily marketable debt instruments, all of which areinvestment-grade quality.  We haveestablished guidelines relating to diversification and maturities of our investmentsto preserve principal and maintain liquidity.

 

*CashFlows*

* *

Asof March 31, 2010, cash, cash equivalents and short-term investmentstotaled approximately $81.2 million as compared to $38.2 million as of December 31,2009, an increase of approximately $43.0 million.  We raised net proceeds of $51.2 million in afollow-on offering of our common stock in March 2010.  Of the $81.2 million, $5.7 million was heldby OBI as of March 31, 2010.

 

Wecannot be certain if, when or to what extent we will receive cash inflows fromthe commercialization of our product candidates.  We expect our development expenses to besubstantial and to increase over the next few years as we advance thedevelopment of our product candidates and prepare for regulatory submissionsand commercialization.

 

In February 2007, weregained worldwide rights to fidaxomicin from Par under a prospective buy-backagreement.  We are obligated to pay Par aone-time $5.0 million milestone payment upon the completion of the second Phase3 trial of fidaxomicin which we accrued during the quarter-ended March 31,2010. We are also obligated to pay Par a 5% royalty on net sales by us or ouraffiliates of fidaxomicin in North America and Israel, and a 1.5% royalty onnet sales by us or our affiliates of fidaxomicin in the rest of the world.  In addition, in the event we license ourright to market fidaxomicin in the rest of the world, we will be required topay Par a 6.25% royalty on net revenues we receive related to fidaxomicin.  We are obligated to pay each of theseroyalties, if any, on a country-by-country basis for seven years commencing onthe applicable commercial launch in each such country.   In connection with theexercise of our rights under the prospective buy-back agreement, Par assignedto us a supply agreement with Biocon. Under this agreement, Biocon is obligatedto supply to us our requirements of the fidaxomicin active pharmaceuticalingredients for certain markets.

 

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In June 2004, we entered into a license agreementwith Nippon Shinyaku to which we acquired the non-exclusive right to import andpurchase Pruvel, and the exclusive right (with the right to sublicense), withinthe United States, to develop, make, use, offer to sell, sell and licenseproducts suitable for consumption by humans containing Pruvel.  Under the terms of the agreement, we will berequired to pay Nippon Shinyaku a milestone payment in the amount of $1.0million upon the submission, if any, of a NDA for Pruvel in the United States.

 

In October 2008, ourCompensation Committee adopted a Severance Benefit Plan covering certaineligible employees of the Company, including executive officers.  In May 2010, the Severance Benefit Planwas amended and restated.  Pursuant tothe plan, upon an involuntary termination other than for cause or aconstructive termination, an eligible employee may be entitled to receive specifiedseverance benefits. The benefits may include cash severance payments andacceleration of stock award vesting.  Thelevel of benefits provided under the plan depends upon an eligible employee’sposition and years of service, and whether the termination is related to achange in control.

 

In October 2009, weentered into certain transactions with our subsidiary, OBI, pursuant to whichwe assigned certain intellectual property rights and license agreements to OBIrelated to our OPT-88 and OPT-822/821 product candidates.  In connectionwith these transactions, we entered into a financing agreement with OBI and agroup of new investors.  Under the terms of the financing agreement, ifOBI achieves certain development milestones with respect to OPT-88 andOPT-822/821, we and the group of new investors may be required to purchaseapproximately an additional $8.6 million and $5.7 million,respectively, of new OBI common shares.  While we currently cannotanticipate when, if ever, OBI will achieve these development milestones, underthe terms of the financing agreement, our obligation to purchase the additionalOBI common shares will not be triggered prior to June 30, 2010.

 

*FundingRequirements*

* *

Ourfuture capital uses and requirements depend on numerous factors including, butnot limited to, the following:

 

·                  the costs of preparing applications forregulatory approvals and the timing of such approvals;

 

·                  the costs of establishing sales ordistribution capabilities and the timing of such efforts;

 

·                  the progress ofour clinical trials, including expenses to support the trials and the milestonepayments that may become payable to Par and Nippon Shinyaku;

 

·                  our ability toestablish and maintain strategic collaborations, including licensing and otherarrangements;

 

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·                  the costsinvolved in prosecuting, enforcing or defending patent claims or otherintellectual property rights;

 

·                  the success ofthe commercialization of our products; and

 

·                  the extent towhich we in-license, acquire or invest in other indications, products,technologies and businesses.

 

Webelieve that our existing cash and cash equivalents will be sufficient to meetour capital requirements for at least the next 15 months.

 

Untilwe can generate significant cash from our operations, we expect to continue tofund our operations with existing cash resources that were primarily generatedfrom the proceeds of offerings of our equity securities and collaborations andgovernment grants.  In addition, we mayfinance future cash needs through the sale of additional equity securities,strategic collaboration agreements and debt financing.  However, we may not be successful incompleting future equity financings, in entering into additional collaborationagreements, in receiving milestone or royalty payments under new or existingcollaboration agreements, in obtaining new government grants or in obtainingdebt financing.  In addition, we cannotbe sure that our existing cash and investment resources will be adequate, thatfinancing will be available when needed or that, if available, financing willbe obtained on terms favorable to us or our stockholders.  The credit markets and the financial servicesindustry have been experiencing a period of unprecedented turmoil which hasgenerally made equity and debt financing more difficult to obtain, and maynegatively impact our ability to complete financing transactions.  Having insufficient funds may require us todelay, scale-back or eliminate some or all of our development programs,relinquish some or even all of our rights to product candidates at an earlierstage of development or renegotiate less favorable terms than we wouldotherwise choose.  Failure to obtainadequate financing also may adversely affect our ability to operate as a goingconcern.  If we raise funds by issuingequity securities, substantial dilution to existing stockholders would likelyresult.  If we raise funds by incurring additionaldebt financing, the terms of the debt may involve significant cash paymentobligations as well as covenants and specific financial ratios that mayrestrict our ability to operate our business.

 

**Item 3. Quantitative andQualitative Disclosures about Market Risk**

 

*Cash Equivalents and Marketable Securities Risk*

 

Our cash and cash equivalents and short-terminvestments as of March 31, 2010 consisted primarily of money market fundsand United States government instruments and other readily marketable debtinstruments.  Our primary exposure tomarket risk is interest income sensitivity, which is affected by changes in thegeneral level of U.S. interest rates. The primary objective of our investment activities is to preserveprincipal while at the same time maximizing the income we receive from ourinvestments without significantly increasing risk.  A hypothetical ten percent change ininterest rates during the quarter ended March 31, 2010 would have resulted

 

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in approximately a $2,800 change in netloss. Accordingly, we would not expect our operating results or cash flowsto be affected to any significant degree by a sudden change in market interestrates applicable to our securities portfolio. In general, money market funds are not subject to market risk becausethe interest paid on such funds fluctuates with the prevailing interest rate.

 

*Fair Value Measurements*

 

Allof our investment securities are available-for-sale securities and are reportedon the consolidated balance sheet at market value except for one auction ratepreferred security, or ARPS, with a par value of approximately$1.0 million. As a result of the negative conditions in the global creditmarkets, our ARPS is currently not liquid. In the event we need to access the funds that are in an illiquid state,we will not be able to do so without a loss of principal, until the security isredeemed by the issuer or it matures.

 

*Foreign Currency Risk*

 

Wehave operated primarily in the United States of America and most transactionsduring the quarter ended March 31, 2010 have been made in U.S. dollars.Accordingly, we have not had any material exposure to foreign currency ratefluctuations. We do not have any foreign currency hedging instruments in place.

 

Wehave conducted clinical trials in Europe in conjunction with INC Research, ourCRO, where we have clinical sites being monitored by clinical research associates.While invoices relating to these clinical trials are generally denominated inU.S. dollars, our financial results could be affected by factors such asinflation in foreign currencies, in relation to the U.S. dollar, in marketswhere these vendors have assisted us in conducting these clinical trials.

 

Certaintransactions related to us and our subsidiary, OBI, are denominated primarilyin Taiwan dollars.  As a result, our financial results could be affectedby factors such as changes in foreign currency exchange rates or weak economicconditions in foreign markets where we conduct business, including the impactof the existing crisis in the global financial markets in such countries andthe impact on both the U.S. dollar and the Taiwan dollars.

 

Wedo not use derivative financial instruments for speculative purposes. We do notengage in exchange rate hedging or hold or issue foreign exchange contracts fortrading purposes. Currently, we do not expect the impact of fluctuations in therelative fair value of other currencies to be material.

 

**Item 4.Controls and Procedures**

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our reports under the SecuritiesExchange Act of 1934, as amended, or the Exchange Act, and the rules andregulations thereunder, is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms and that suchinformation is accumulated and communicated to our management, including ourchief 

 

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executiveofficer and chief financial officer, as appropriate, to allow for timelydecisions regarding required disclosure. In designing and evaluating ourdisclosure controls and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

*Evaluation of disclosure controls and procedures.*As required byExchange Act Rule 13a-15(b), we carried out an evaluation, under thesupervision and with the participation of our management, including our chiefexecutive officer and chief financial officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures as of the end ofthe period covered by this report. Based on the foregoing, our chief executiveofficer and chief financial officer concluded that our disclosure controls andprocedures were effective at the reasonable assurance level.

 

*Changes in internal control over financial reporting.* There was nochange in our internal control over financial reporting that occurred duringthe period covered by this report that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**PART II — OTHER INFORMATION**

 

**Item 1a.Risk Factors**

 

Therisk factors set forth below with an asterisk (*) next to the title are newrisk factors or risk factors containing changes, including any materialchanges, from the risk factors previously disclosed in Item 1A of our AnnualReport on Form 10-K for the year ended December 31, 2009, as filedwith the SEC.

 

**Risks Related to Our Business**

 

**We are acompany with limited sources of revenue, and we are largely dependent on thesuccess of our lead product candidate****fidaxomicin****and, to a lesser degree, our other lead product candidate Pruvel.**

 

We are a biopharmaceuticalcompany with no products approved for commercial sale and, to date, we have notgenerated any revenues from product sales. Our ability to generate future revenues depends heavily on our successin:

 

·                  developing andsecuring U.S. and/or foreign regulatory approvals for fidaxomicin and Pruveland, to a lesser extent, other product candidates;

 

·                  commercializing,alone or with a partner, any product candidates for which we receive approvalfrom the FDA and/or comparable foreign regulatory authorities; and

 

·                  generating apipeline of innovative product candidates utilizing our drug discovery platformor through licensing strategies.

 

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Our product candidates willgenerally require extensive clinical study and evaluation, regulatory approvalin multiple jurisdictions, substantial investment and significant marketing effortsbefore we generate any revenues from product sales.  We are not permitted to market or promote ourproduct candidates before we receive regulatory approval from the FDA orcomparable foreign regulatory authorities. We have not submitted an NDA, or received marketing approval for eitherfidaxomicin or Pruvel, and we cannot be certain that either of these productcandidates will receive regulatory approval or be successful in any futureclinical trials.  If we do not receiveregulatory approval for and successfully commercialize fidaxomicin and Pruvel,we will not generate any revenues from product sales for several years, if atall, and we may not be able to continue our operations.

 

We believe our initialsuccess will be more dependent on fidaxomicin than Pruvel, because we believethat the market for the treatment of CDI is larger than the market for thetreatment of infectious diarrhea.  Evenif we successfully obtain regulatory approval to market fidaxomicin or Pruvel,our revenues for either drug candidate will be dependent upon the size of themarkets in the territories for which we have commercial rights and our abilityto successfully commercialize our drug candidates in those markets, eitheralone or with a partner.  If the marketsfor the treatment of CDI or infectious diarrhea are not as significant as weestimate or we are otherwise unsuccessful in commercializing our drugcandidates, our business and prospects will be harmed.

 

**We haveincurred significant operating losses since inception and anticipate that wewill incur continued losses for the foreseeable future.***

 

We have experiencedsignificant operating losses since our inception in 1998.  As of March 31, 2010, we had anaccumulated deficit of approximately $189.0 million.  We have generated no revenues from productsales to date.  We have funded ouroperations through March 31, 2010 from the sale of approximately $256.2million of our securities and through research funding pursuant tocollaborations with partners or government grants.  We expect to continue to incur substantialadditional operating losses for the next several years as we preparesubmissions for regulatory approval of our lead product candidates, build ourmarketing and sales capabilities and continue our clinical trial and researchand development initiatives.  Because ofthe numerous risks and uncertainties associated with developing, obtainingregulatory approval for and commercializing our product candidates, we areunable to predict the extent of any future losses.  We may never successfully commercialize ourproduct candidates and thus may never have any significant future revenues orachieve and sustain profitability.

 

**If we failto obtain additional financing, we may be unable to commercialize****fidaxomicin****and Pruvel or develop and commercialize our other product candidates, orcontinue our other research and development programs.***

 

We will require additionalcapital to commercialize our current lead product candidates, fidaxomicin andPruvel.  We cannot be certain thatadditional funding will be available on acceptable terms, or at all.  Since 2008, the credit markets and thefinancial services industry have been experiencing a period of unprecedentedturmoil which has generally made equity and debt financing more difficult toobtain, and may negatively impact our ability to complete financingtransactions.  To the extent that weraise additional funds by issuing equity securities, our stockholders mayexperience significant dilution.  Anydebt financing, if available, may require us to pledge our assets as collateralor involve restrictive covenants, such as limitations on our ability to incuradditional indebtedness, limitations on our ability to acquire or license 

 

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intellectual property rightsand other operating restrictions that could negatively impact our ability toconduct our business.  If we are unableto raise additional capital when required or on acceptable terms, we may haveto significantly delay, scale back or discontinue the development orcommercialization of one or more of our product candidates or one or more ofour other research and development initiatives. We also could be required to:

 

·                  seek collaborators for oneor more of our current or future product candidates at an earlier stage thanotherwise would be desirable or on terms that are less favorable than mightotherwise be available; or

 

·                  relinquish or license onunfavorable terms our rights to technologies or product candidates that weotherwise would seek to develop or commercialize ourselves.

 

Any of the above eventscould significantly harm our business and prospects and could cause our stockprice to decline.

 

We do not currently havesufficient resources to commercialize fidaxomicin and Pruvel on our own. If weare unable to raise additional capital or are unable to effectively collaboratewith one or more partners for the commercialization of fidaxomicin or Pruvel,we will not generate significant revenues from sales of these products and ourbusiness will be materially harmed.

 

**We are dependent on third party collaborators and wemay be unable to enter into future collaboration agreements or we may havedisagreements with these collaborators.**

 

We currently plan to buildour own marketing and sales force for fidaxomicin in the United States and areevaluating our commercialization options for Pruvel in the United States, andwe are seeking one or more partners for the commercialization of fidaxomicinoutside of the United States.  We cannotbe certain that we will be successful in attracting any such partners.  If we were not able to find appropriatepartners for the continued development and commercialization of fidaxomicin, orour other product candidates, we would either have to delay further developmentand commercialization initiatives, which would harm our business and prospects,or raise significant additional funds to develop clinical and commercializationcapabilities internally.

 

We are subject to a numberof additional risks associated with our dependence on collaborations with thirdparties.** **Conflicts may arise between us and collaborators, such asconflicts concerning the payment or reimbursement of development andcommercialization costs, the strategies for developing and commercializingproduct candidates subject to the collaboration, the achievement of milestones,the interpretation of financial provisions, the ownership of intellectualproperty developed during the collaboration or the interpretation of clinicaldata.  If any such conflicts arise, acollaborator could act in its own self-interest, which may be adverse to ourbest interests.  Any such disagreementbetween us and a collaborator could result in one or more of the following,each of which could delay or prevent the development or commercialization offidaxomicin, and our other product candidates, and in turn prevent us fromgenerating sufficient revenues to achieve or maintain profitability:

 

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·                  reductions in the payment ofroyalties or other payments we believe are due pursuant to the applicablecollaboration arrangement or agreement;

 

·                  uncertainties regardingownership of intellectual property rights arising from our collaborativeactivities, which could prevent us from entering into additional collaborationsand commercializing such rights;

 

·                  delays in furtherdevelopment or commercialization activities by us or a collaborator if we and acollaborator are unable to agree on development or commercialization activitiesor the associated costs of these activities;

 

·                  actions taken by acollaborator inside or outside our collaboration which could negatively impactour rights or benefits under our collaboration; or

 

·                  unwillingness on the part ofa collaborator to keep us informed regarding the progress of its developmentand commercialization activities or to permit public disclosure of the resultsof those activities.

 

In addition, a collaboratormay not have or devote sufficient resources to develop and commercialize ourproduct candidates, may elect to underfund, discontinue or may not properlyperform pre-clinical studies or clinical trials, or may divert resources toother programs that are potentially competitive with our product candidates.

 

**If we areunable to obtain FDA approval of our product candidates, we will not be able tocommercialize them in the United States.**

 

We need FDA approval priorto marketing our product candidates in the United States.  If we fail to obtain FDA approval to marketour product candidates, we will be unable to sell our product candidates in theUnited States, which will significantly impair our ability to generate anyrevenues.

 

This regulatory review andapproval process, which includes evaluation of pre-clinical studies andclinical trials of our product candidates as well as the evaluation of ourmanufacturing processes and our third-party contract manufacturers’ facilities,is lengthy, expensive and uncertain.  Toreceive approval for a product candidate, we must, among other things,demonstrate with substantial evidence from well-controlled clinical trials thatthe product candidate is both safe and effective for each indication for whichapproval is sought.  Satisfaction of theapproval requirements typically takes several years and the time needed to satisfythem may vary substantially, based on the type, complexity and novelty of thepharmaceutical product.  We cannotpredict if or when we might receive regulatory approvals for any of our productcandidates currently under development.

 

We may also experience delays insubmitting NDAs to the FDA and/or delays in the FDA review of our NDAsubmissions.  If we experience difficultyor delays in acquiring and assembling the extensive information needed tosupport an NDA filing for fidaxomicin or Pruvel, our NDA submissions withrespect to these product candidates may be impaired or 

 

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delayed, which could negativelyimpact our or a collaborator’s ability to successfully commercialize theseproduct candidates.  After we submit anNDA filing with the FDA, we may also experience delays in the FDA’s reviewprocess.  As part of the PrescriptionDrug User Fee Act, or PDUFA, the FDA has a goal to review and act on a percentageof all submissions in a given time frame. The FDA has missed a portion of theirPDUFA goals, and it is unknown whether the review of an NDA filing forfidaxomicin or Pruvel, or for any of our other drug candidates, will becompleted within the FDA review goals or will be delayed. Moreover, theduration of the FDA’s review may depend on the number and type of other NDAsthat are filed with the FDA around the same time period.

 

Evenif our product candidates receive regulatory approval, any approvals that weobtain may not cover all of the clinical indications for which we are seekingapproval, or could contain significant limitations in the form of narrowindications, warnings, precautions or contra-indications with respect toconditions of use.  In such an event, ourability to generate revenues from such products would be greatly reduced andour business would be harmed.

 

TheFDA has substantial discretion in the approval process and may either refuse toconsider our applications for substantive review or may form the opinion afterreview of our data that our applications are insufficient to allow approval ofour product candidates.  If the FDA doesnot consider or approve an application that we submit, it may require that weconduct additional clinical, pre-clinical or manufacturing validation studiesand submit that data before it will reconsider our application.  Depending on the extent of these or any otherstudies, approval of any applications that we submit may be delayed by severalyears, or may require us to expend more resources than we have available.  For example, we intend to rely in part oncertain legacy data from a third party to support an NDA for Pruvel. If the FDAdeems this data to be insufficient, it may delay our filing of a NDA for Pruveland could require us to complete additional studies.  It is also possible that additional studies,if performed and completed, may not be successful or considered sufficient bythe FDA for approval or even to make our applications approvable.  If any of these outcomes occur, we may beforced to abandon one or more of our future applications for approval, whichmight significantly harm our business and prospects.

 

Even after we complete ourplanned clinical trials and other studies, our product candidates could fail toreceive regulatory approval for many reasons, including the following:

 

·                  the results of our clinicaltrials and other studies may not demonstrate to the satisfaction of or meet thelevel of statistical significance required by the FDA or comparable foreignregulatory authorities that a product candidate is safe and effective for anyindication;

 

·                  the FDA or comparableforeign regulatory authorities may disagree with the design or implementationof our clinical trials or other studies;

 

·                  the results of our clinicaltrials or other studies may not demonstrate that a product candidate’s clinicaland other benefits outweigh its safety risks;

 

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·                  the results of our clinicaltrials or other studies may not demonstrate that a product candidate presentsan advantage over existing therapies, or over placebo in any indications forwhich the FDA requires a placebo-controlled trial;

 

·                  the FDA or comparableforeign regulatory authorities may disagree with our interpretation of datafrom clinical trials or other studies;

 

·                  the data collected fromclinical trials and other studies of our product candidates may not besufficient to support the submission of an NDA or other submission or to obtainregulatory approval in the United States or elsewhere; and

 

·                  the approval policies orregulations of the FDA or comparable foreign regulatory authorities maysignificantly change in a manner rendering our clinical and other study datainsufficient for approval.

 

It is possible that none ofour existing product candidates or any product candidates we may seek todevelop in the future will ever obtain the appropriate regulatory approvalsnecessary for us or our collaborators to commence product sales.  Increased scrutiny by regulatory authoritiesmay result in significant delays in obtaining regulatory approvals, as well asmore stringent product labeling and post-marketing testing requirements.

 

Although the FDA has grantedFast Track status to fidaxomicin and selected it for participation in a CMAPilot 2 Program, we cannot be certain that we will receive any benefitsfrom these designations or that the designations will expedite regulatoryreview or approval of fidaxomicin. Participation in these programs has not eliminated any phase of clinicaldevelopment.  Moreover, our participationin the CMA Pilot 2 Program has involved and will continue to involvefrequent discussions and other interactions with the staff of the FDA.  These frequent discussions could subjectfidaxomicin to a greater level of scrutiny than it might otherwise havereceived or require us to make more frequent submissions and endure otherburdens that would have been avoided if we had not participated in the program.  Therefore, despite any potential benefits offidaxomicin’s Fast Track and CMA Pilot 2 Program designations, significantuncertainty remains regarding the clinical development and regulatory approvalprocess for fidaxomicin.

 

**Clinicaltrials involve a lengthy and expensive process with an uncertain outcome, andresults of earlier studies and trials may not be predictive of future trialresults.**

 

Clinical testing isexpensive and can take many years to complete, and its outcome isuncertain.  Failure can occur at any timeduring the clinical trial process. The results of pre-clinical studies andearly clinical trials of our product candidates may not be predictive of theresults of later-stage clinical trials. Product candidates in later stages ofclinical trials may fail to show the desired safety and efficacy traits despitehaving progressed through pre-clinical studies and initial clinicaltesting.  In addition, sub-analysis ofclinical trial data may reveal limitations of our product candidates eventhough top-line results are positive. The type and amount of clinical data necessary to gain regulatoryapproval for our product candidates may also change during or after completionof our clinical trials or we may inaccurately characterize such requirements.

 

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**Delays inclinical trials are common and have many causes, and any such delays couldresult in increased costs to us and jeopardize or delay our ability to achieveregulatory approval and commence product sales as currently contemplated.**

 

We have in the pastexperienced delays in clinical trials of our product candidates and we mayexperience delays in future clinical trials. For example, we are planning to conduct a registration study for otherformulations and proof-of-concept clinical trials for other indications offidaxomicin and intend to conduct a study subsequent to NDA submission tocompare fidaxomicin to metronidazole for the treatment of CDI.  We also intend to conduct a Phase 4trial of Pruvel subsequent to NDA submission to compare Pruvel to ciprofloxacinfor the treatment of infectious diarrhea. We do not know whether planned clinicaltrials will begin on time, will need to be redesigned or will be completed onschedule, if at all.  Clinical trials canbe delayed for a variety of reasons, including delays in obtaining regulatoryapproval to commence a trial, in reaching agreement on acceptable terms withprospective clinical research organizations, or CROs, and clinical trial sites,in obtaining institutional review board approval at each site, in recruitingsuitable patients to participate in a trial, in having patients complete atrial or return for post-treatment follow-up, in adding new sites or inobtaining sufficient supplies of clinical trial materials.  Many factors affect patient enrollment,including the size and nature of the patient population, the proximity ofpatients to clinical sites, the eligibility criteria for the trial, the designof the clinical trial, competing clinical trials, clinicians’ and patients’perceptions as to the potential advantages of the drug being studied inrelation to other available therapies, including any new drugs that may beapproved for the indications we are investigating and whether the clinicaltrial design involves comparison to placebo.

 

We could encounter delays ifprescribing physicians encounter unresolved ethical issues associated withenrolling patients in clinical trials of our product candidates in lieu ofprescribing existing antibiotics that have established safety and efficacyprofiles or with administering placebo to patients in our placebo-controlledtrials.  Further, a clinical trial may besuspended or terminated by us, our collaborators, the FDA or other regulatoryauthorities due to a number of factors, including failure to conduct theclinical trial in accordance with regulatory requirements or our clinicalprotocols, inspection of the clinical trial operations or trial site by the FDAor other regulatory authorities resulting in the imposition of a clinical hold,unforeseen safety issues or adverse side effects, failure to demonstrate abenefit from using a drug, changes in governmental regulations or administrativeactions or lack of adequate funding to continue the clinical trial.  If we experience delays in the completion of,or termination of, any clinical trial of our product candidates, the commercialprospects of our product candidates may be harmed, and our ability to generateproduct revenues from any of these product candidates will be delayed.  In addition, any delays in completing ourclinical trials will increase our costs, slow down our product development andapproval process and jeopardize our ability to commence product sales andgenerate revenues.  Any of theseoccurrences may significantly harm our business, financial condition andprospects.

 

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**We may berequired to suspend or discontinue clinical trials due to adverse events,adverse side effects or other safety risks that could preclude approval of ourproduct candidates.**

 

Our clinical trials may besuspended at any time for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at anytime we believe that they present an unacceptable risk to participants.  In addition, regulatory agencies may orderthe temporary or permanent discontinuation of our clinical trials at any timeif they believe that the clinical trials are not being conducted in accordancewith applicable regulatory requirements or that they present an unacceptablesafety risk to participants.  In ourPhase 3 clinical trials of fidaxomicin, the most common drug-related sideeffects reported were nausea, vomiting, constipation, anorexia, headache anddizziness.  Patients treated with Pruvelhave experienced drug-related side effects including abdominal pain, diarrhea,nausea, renal toxicities, cardiac arrhythmias, photosensitivity, rash,excessive flushing of the skin and central nervous system effects, such asseizures.  The FDA recommended that weconduct a study to determine the effect, if any, of Pruvel on the prolongationof the QT interval, a condition that is associated with potentiallylife-threatening cardiac arrhythmias.  Inresponse to the FDA’s recommendation, we have completed a QT interval study ofPruvel and we plan to include the data from such QT interval study in our NDAfiling to the FDA.  If adverse,drug-related events are encountered or suspected, our trials would beinterrupted, delayed or halted and the FDA or comparable foreign regulatoryauthorities could order us to cease further development of or deny approval ofour product candidates for any or all targeted indications.  Even if we believe our product candidates aresafe, our data is subject to review by the FDA, which may disagree with ourconclusions and delay or deny approval of our product candidates which wouldsignificantly harm the commercial prospects of such product candidates.  Moreover, we could be subject to significantliability if any volunteer or patient suffers, or appears to suffer, adverseside effects as a result of participating in our clinical trials.  Any of these occurrences may significantlyharm our business and prospects.

 

**We rely onthird parties to conduct our clinical trials. If these third parties do not successfully carry out their contractualduties or meet expected deadlines, we and our collaborators may not be able toobtain regulatory approval for or commercialize our product candidates.**

 

We have entered intoagreements with third-party CROs, such as INC Research, to provide monitors forand to manage data for our clinical programs.

 

We and the CROs conductingclinical trials for our product candidates are required to comply with currentgood clinical practices, or GCPs, regulations and guidelines enforced by theFDA for all of our products in clinical development.  The FDA enforces GCPs through periodicinspections of trial sponsors, principal investigators and trial sites.  If we or the CROs conducting clinical trialsof our product candidates fail to comply with applicable GCPs, the clinicaldata generated in the clinical trials may be deemed unreliable and the FDA mayrequire additional clinical trials before approving any marketingapplications.  We cannot assure you that,upon inspection, the FDA will determine that any clinical trials of our productcandidates comply with GCPs.  Inaddition, our clinical trials must be conducted with product produced undercGMP regulations, and will require a large number of test subjects.  Our failure to comply with these regulationsmay require us to repeat clinical trials, which would be costly and delay theregulatory approval process and commercialization of our product candidates.

 

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Typically, the CROsconducting clinical trials of our product candidates have the right toterminate their agreements with us or our collaborators upon notice in theevent of an uncured material breach.  Inaddition, some CROs have an ability to terminate their respective agreementswith us if we fail to perform our obligations, if it can be reasonablydemonstrated that the safety of the subjects participating in our clinicaltrials warrants such termination, if we make a general assignment for the benefitof our creditors or if we are liquidated. We have relied substantially on INC Research to conduct the clinicaltrials for fidaxomicin and Pruvel.  INCResearch has also subcontracted with other third-party CROs for various aspectsof the clinical trials.  If anyrelationships with INC Research or these other third-party CROs terminate, weor our collaborators may not be able to enter into arrangements withalternative CROs or we may enter into arrangements with alternative CROs thatdo not have the expertise or relationships that INC Research has withgovernment agencies.

 

In addition, thesethird-party CROs are not our employees, and we cannot control whether or notthey devote sufficient time and resources to our clinical programs.  These CROs may also have relationships withother commercial entities, including our competitors, for whom they may also beconducting clinical studies or other drug development activities, which couldharm our competitive position.  If CROsdo not successfully carry out their contractual duties or obligations or meetexpected deadlines, if they need to be replaced, or if the quality or accuracyof the clinical data they obtain is compromised due to the failure to adhere toour clinical protocols, regulatory requirements, or for other reasons, ourclinical trials may be extended, delayed or terminated or may have to berepeated, and we may not be able to obtain regulatory approval for orsuccessfully commercialize our product candidates.  As a result, our financial results and thecommercial prospects for our product candidates would be harmed, our costscould increase and our ability to generate revenues could be delayed.

 

**If we failto gain and/or maintain marketing approvals from regulatory authorities ininternational markets for****fidaxomicin****and any future product candidates for which we have rights ininternational markets, our market opportunities will be limited.**

 

Sales of our productcandidates outside of the United States will be subject to foreign regulatoryrequirements governing clinical trials and marketing approval.  Even if the FDA grants marketing approval fora product candidate, comparable regulatory authorities of foreign countriesmust also approve the marketing of the product candidate in those countries.  This is important for the commercialization offidaxomicin for which we currently have exclusive worldwide marketingrights.  Obtaining foreign regulatoryapprovals could result in significant delays, difficulties and costs for us andrequire additional pre-clinical studies or clinical trials which would becostly and time consuming.  Regulatoryrequirements can vary widely from country to country and could delay theintroduction of our products in those countries.  Clinical trials conducted in one country maynot be accepted by regulatory authorities in other countries, and regulatoryapproval in one country does not guarantee regulatory approval will be obtainedin any other country.  In addition, ourfailure to obtain regulatory approval in any country may delay or have negativeeffects on the process for regulatory approval in others.  For example, if our planned MAA forfidaxomicin is rejected or unanticipated concerns are raised by the EMA duringits review, a subsequent NDA submission for fidaxomicin could be negativelyimpacted. 

 

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Other than Pruvel, which issold by other parties in Japan, Italy and certain other European countries,none of our product candidates is approved for sale in any international marketfor which we have rights. If we fail to comply with regulatory requirements inour international markets or to obtain and maintain required approvals, ourtarget market will be reduced and our ability to generate revenues will bediminished, which would significantly harm our business, results of operationsand prospects.

 

**Wecurrently have no sales organization and have no experience as a company inmarketing drug products.  If we areunable to expand our marketing capabilities and establish sales capabilities orenter into agreements with third parties to market and sell our productcandidates, we may not be able to generate product revenues.**

 

We currently have a limitedmarketing organization and do not have a sales organization for marketing,sales and distribution of pharmaceutical products. In order to commercializeany products, we must build our marketing, sales, distribution, managerial andother non-technical capabilities or make arrangements with third parties toperform these services. We plan to build our own marketing and sales force tocommercialize fidaxomicin in the United States and are seeking third-partypartners outside of the United States. We own exclusive rights to commercializePruvel in the United States, and are evaluating our commercialization optionsfor Pruvel in the United States. The establishment and development of our ownsales force to market any products we may develop will be expensive and timeconsuming and could delay any product launch, and we cannot be certain that wewill be able to successfully develop this capability. We do not currently havesufficient funds to develop a sales force and other resources that we believewould be necessary to adequately market fidaxomicin and Pruvel in the UnitedStates. We will also have to compete with other pharmaceutical andbiotechnology companies to recruit, hire, train and retain marketing and salespersonnel. To the extent we rely on third parties to commercialize ourproducts, if any, we may receive less revenues than if we commercialized theseproducts ourselves. In addition, we may have little or no control over thesales efforts of any third parties involved in commercializing our products. Inthe event we are unable to develop our own marketing and sales force orcollaborate with a third-party marketing and sales organization, we would notbe able to commercialize our product candidates which would negatively impactour ability to generate product revenues.

** **

**We may notbe able to enter into acceptable agreements to commercialize****fidaxomicin****outside of the United States or if, needed, adequately build our ownmarketing and sales capabilities.**

 

If appropriate regulatoryapprovals are obtained, we intend to commercialize fidaxomicin outside of theUnited States through collaboration arrangements with third parties.  We may be unable to enter into collaborationarrangements in international markets. In addition, there can be no guarantee that if we enter into thesecollaboration arrangements with other parties that they will be successful orresult in more revenues than we could obtain by marketing fidaxomicin on ourown. If we are unable to enter into collaboration arrangements for our productsor develop an effective international sales force, our ability to generateproduct revenues would be limited,

 

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which would adversely affectour business, financial condition, results of operations and prospects. If weare unable to enter into such collaboration arrangements, we may need todevelop our own marketing and sales force to market fidaxomicin in a number ofcountries in Europe and Latin America to hospital-based and long-term carephysicians.  These efforts may not besuccessful as we have no relationships among such hospital-based and long-termcare physicians and do not currently have sufficient funds to develop anadequate sales force in these regions. There is no guarantee that we will be able to develop an effective internationalsales force to successfully commercialize our products in these internationalmarkets.  If we cannot commercializefidaxomicin, we will have to rely solely on Pruvel and earlier stage productcandidates for any future revenues, and our ability to achieve and sustainprofitability will be materially harmed.

 

**If our product candidates are unable to competeeffectively with branded and generic antibiotics, our commercial opportunitywould be reduced or eliminated.**

 

If approved, our leadproduct candidates will compete against both branded antibiotic therapies, suchas Vancocin Pulvules with respect to fidaxomicin and Xifaxan®/rifaxaminwith respect to Pruvel, and generic antibiotics such as metronidazole and oralvancomycin with respect to fidaxomicin and ciprofloxacin with respect to Pruvel.  In addition, we anticipate that fidaxomicinwill compete with other antibiotic and anti-infective product candidatescurrently in development for the treatment of CDI, such as Xifaxan®/rifaxamin.Many of these products have been or will be developed and marketed by majorpharmaceutical companies, who have significantly greater financial resourcesand expertise in research and development, pre-clinical testing, conductingclinical trials, obtaining regulatory approvals, manufacturing and marketingapproved products than we do.  As aresult, these companies may obtain regulatory approval more rapidly than we areable to and may be more effective in selling and marketing their products aswell.  Smaller or early-stage companiesmay also prove to be significant competitors, particularly throughcollaborative arrangements with large, established companies.

 

We anticipate that, ifapproved, fidaxomicin and Pruvel will face increasing competition in the formof generic versions of branded products of competitors that will lose theirpatent exclusivity.  For example,fidaxomicin, if approved, will immediately face steep competition from aninexpensive generic form of metronidazole. Fidaxomicin would currently face generic oral vancomycin competition inEurope and in the future may face competition from generic oral vancomycin inthe United States as well.  Genericantibiotic therapies typically are sold at lower prices than brandedantibiotics and are generally preferred by managed care providers of healthservices.  For example, becausemetronidazole is sold at such a low price, we believe it will be difficult tosell fidaxomicin as a first-line therapy for the treatment of CDI.  If we are unable to demonstrate to physiciansand patients that, based on experience, clinical data, side-effect profiles andother factors, our products are preferable to these generic antibiotictherapies, we may never generate meaningful product revenues.  In addition, many antibiotics experiencebacterial resistance over time because of their continued use.  There can be no guarantee that bacteria wouldnot develop resistance to fidaxomicin, Pruvel or any of our other productcandidates.  Our commercial opportunitywould also be reduced or eliminated if our competitors develop and commercializegeneric or branded antibiotics that are safer, more effective, have fewer sideeffects or are less expensive than our product candidates.

 

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**Wecurrently depend, and will in the future continue to depend, on third partiesto manufacture our product candidates, including****fidaxomicin****and Pruvel.  If thesemanufacturers fail to provide us and our collaborators with adequate suppliesof clinical trial materials and commercial product or fail to comply with therequirements of regulatory authorities, we may be unable to develop orcommercialize our products.**

 

We outsource allmanufacturing of clinical trial supplies of our product candidates to thirdparties.  We seek to establish long-termsupply arrangements with third-party contract manufacturers.  We intend to continue outsourcing themanufacture of our product candidates to third parties for any future clinicaltrials and large-scale commercialization of any product candidates that receiveregulatory approval and become commercial drugs.

 

Our ability to develop andcommercialize fidaxomicin and Pruvel and any other product candidates dependsin part on our ability to arrange for collaborators or other third parties tomanufacture our products at a competitive cost, in accordance with strictlyenforced regulatory requirements and in sufficient quantities for clinicaltesting and eventual commercialization.  Wehave not yet manufactured commercial batches of fidaxomicin, Pruvel or any ofour other product candidates. Collaborators or third-party manufacturers that we select to manufactureour product candidates for clinical testing or on a commercial scale mayencounter difficulties with the small- and large-scale formulation andmanufacturing processes required for such manufacture.  Such difficulties could result in delays inclinical trials, regulatory submissions and approvals, or commercialization ofour product candidates.  The inability ofus or our collaborators to enter into and maintain agreements with third-partymanufacturers on acceptable terms would cause shortages of clinical trialsupplies of our product candidates, thereby delaying or preventing regulatoryapproval and/or commercialization of the affected product candidate, andadversely affecting our ability to generate revenues.  Further, development of large-scalemanufacturing processes will require additional validation studies, which the FDAmust review and approve, and the time it will take us or a third partymanufacturer to develop such large-scale processes and capabilities may delayany product launch following regulatory approval.  Even if we are able to establish additionalor replacement manufacturers, identifying these sources and entering intodefinitive supply agreements and obtaining regulatory approvals may involve asubstantial amount of time and cost and such supply arrangements may not beavailable on acceptable economic terms.

 

In addition, we, ourcollaborators and other third-party manufacturers of our products must complywith strictly enforced current good manufacturing practices, or cGMP,requirements enforced by the FDA through its facilities inspection program.  These requirements include quality control,quality assurance and the maintenance of records and documentation.  We currently rely on Biocon to manufacturefidaxomicin active pharmaceutical ingredient and rely on Patheon, Inc. tomanufacture the drug product supplies. As such, Biocon and Patheon will be subject to ongoing periodicunannounced inspections by the FDA and other agencies for compliance withcurrent cGMP, and similar foreign standards. We also rely on Nippon Shinyaku,which contracts with Juzen, as well as Angelini and Patheon, to manufacturePruvel drug supplies.  The manufacturingfacilities of Biocon, Juzen and Patheon have been inspected and approved by theFDA for other companies’ drug products; however, none of Biocon’s, 

 

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Juzen’s nor Patheon’sfacilities have been inspected by the FDA for the manufacture of our drugsupplies.  Angelini’s facilities have notbeen inspected or approved by the FDA. We or other third-party manufacturers of our products may be unable tocomply with cGMP requirements and with other FDA, state, local and foreignregulatory requirements.  We and ourcollaborators have little control over third-party manufacturers’ compliancewith these regulations and standards.  Afailure to comply with these requirements by our third-party manufacturers,including Biocon, Juzen, Angelini, and Patheon could result in the issuance ofuntitled letters and/or warning letters from authorities, as well as sanctionsbeing imposed on us, including fines and civil penalties, suspension ofproduction, suspension or delay in product approval, product seizure or recallor withdrawal of product approval.  Inaddition, we have no control over these manufacturers’ ability to maintainadequate quality control, quality assurance and qualified personnel.  If the safety of any quantities supplied bythird parties is compromised due to their failure to adhere to applicable lawsor for other reasons, we may not be able to obtain or maintain regulatoryapproval for or successfully commercialize one or more of our productcandidates, which would significantly harm our business and prospects.

 

**Thecommercial success of our product candidates will depend upon attainingsignificant market acceptance of these product candidates among physicians,patients, healthcare payors and the medical community.**

 

Even if our productcandidates are approved by the appropriate regulatory authorities for marketingand sale, physicians may not prescribe our product candidates, which wouldprevent us from generating revenues or becoming profitable.  Market acceptance of fidaxomicin, Pruvel andany of our future product candidates by physicians, patients and healthcarepayors will depend on a number of factors, many of which are beyond ourcontrol, including:

 

·                  the clinical indications forwhich the product candidate is approved;

 

·                  acceptance by physicians andpatients of each product candidate as a safe and effective treatment;

 

·                  perceived advantages overalternative treatments;

 

·                  the cost of treatment in relationto alternative treatments, including numerous generic antibiotics;

 

·                  the extent to which theproduct candidate is approved for inclusion on formularies of hospitals andmanaged care organizations;

 

·                  the extent to which bacteriadevelops resistance to the product candidate, thereby limiting its efficacy intreating or managing infections;

 

·                  whether the productcandidate is designated under physician treatment guidelines as a first-linetherapy or as a second- or third-line therapy for particular infections;

 

·                  the availability of adequatereimbursement by third parties, such as insurance companies and otherhealthcare payors;

 

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·                  limitations or warningscontained in a product’s FDA-approved labeling;

 

·                  relative convenience andease of administration; and

 

·                  prevalence and severity ofadverse side effects.

 

Because fidaxomicin is adifferentiated antibiotic for the treatment of CDI, it may encounter additionalhurdles to market acceptance by physicians, who may be skeptical about itsclinical benefits, or healthcare payors, who may resist reimbursing apremium-priced therapeutic particularly in light of the availability of genericalternatives.

 

We plan to target ourmarketing of Pruvel primarily to high-prescribing physicians of antibiotics forinfectious diarrhea, including those at travel clinics.  Because of the number of these physicians inthe United States, we will be required to expend significant time and resourcesto obtain broad market acceptance of Pruvel among these physicians.  We do not have experience in marketing tothis population of physicians and do not currently have the resources to be ableto conduct such marketing efforts on our own. As such, we may not be successful in any of these marketing effortswhich would limit the commercial success of Pruvel.

 

In addition, in July 2008the FDA notified makers of fluoroquinolone antimicrobial drugs for systemic usethat a boxed warning is necessary for those products due to the risk oftendonitis and tendon rapture.  Asprulifloxacin, the generic name for Pruvel, is a fluoroquinolone antibiotic itmay be required to carry a black box warning. Although these risks have been described for years on the product labelof many fluoroquinolones, the increased awareness of this risk may impact themarket potential for the fluoroquinolone class of antibiotics, includingprulifloxacin.  Furthermore, becauseprulifloxacin has already been marketed by other companies outside the UnitedStates to treat a wide range of bacterial infections, including infectious diarrhea,urinary tract infections and respiratory tract infections, patients may be ableto obtain prulifloxacin from these other companies, and not from us, ifprulifloxacin is approved in the market where the patient is located.  We have rights to Pruvel only in the UnitedStates.  These patients may obtainprulifloxacin in these other markets from other companies even if thesepatients are from the United States.

 

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**If we fail to develop and commercialize other productsor product candidates, we may be unable to grow our business.**

 

A key element of our strategy is to commercialize a portfolio of newanti-infective products in addition to fidaxomicin and Pruvel.  As a significant part of our growth strategy,we intend to develop and commercialize, independently and/or throughcollaboration partners, additional products and product candidates through ourdiscovery research program using our proprietary technology, includingOPopS.  The success of this strategydepends upon our ability to identify, select and acquire pharmaceutical productcandidates and products that fit into our development plans on terms that areacceptable to us. To supplement this strategy, we may also obtain rights toadditional product candidates from third parties through acquisition orin-licensing transactions.

 

Any product candidate weidentify or to which we acquire rights will likely require additionaldevelopment efforts prior to commercial sale, including pre-clinical studies,extensive clinical testing and approval by the FDA and applicable foreignregulatory authorities.  All productcandidates are prone to the risks of failure that are inherent inpharmaceutical product development, including the possibility that the productcandidate will not be shown to be sufficiently safe and/or effective forapproval by regulatory authorities.  Inaddition, we cannot assure you that any such products that are approved will bemanufactured or produced economically, successfully commercialized or widelyaccepted in the marketplace or be more effective than other commerciallyavailable alternatives.

 

A significant portion of theresearch that we are conducting involves new and unproven technologies.  Research programs to identify new diseasetargets and product candidates require substantial technical, financial andhuman resources whether or not we ultimately identify any candidates.  Our research programs may initially showpromise in identifying potential product candidates, yet fail to yield product candidatesfor clinical development.

 

If we are unable to developsuitable potential product candidates through internal research programs or byobtaining rights to novel therapeutics from third parties, our business andprospects will suffer.

 

Our focus on drug discoveryand development using our technology platform, including our patentedproprietary OPopS drug discovery platform, is novel and unique.  As a result, we cannot be certain that ourproduct candidates will produce commercially viable drugs that safely andeffectively treat infectious diseases or other diseases.  To date, our technology platform has yieldedonly a small number of anti-infective product candidates.  In addition, we do not have significantclinical data with respect to any of these potential product candidates.  Even if we or our collaborators aresuccessful in completing clinical development and receiving regulatory approvalfor one commercially viable drug for the treatment of one disease using ourtechnology platform and carbohydrate chemistry focus, we cannot be certain thatwe or our collaborators will also be able to develop and receive regulatoryapproval for other drug candidates for the treatment of other forms of thatdisease or other diseases.  If we fail todevelop and commercialize, independently and/or through collaborators, viabledrugs using our platform and specialized focus, we will not be successful indeveloping a pipeline of potential product candidates to follow fidaxomicin andPruvel, and our business prospects would be significantly harmed.

 

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**Our futuregrowth depends on our ability to identify and acquire or in-licenseproducts.  If we do not successfullyidentify and acquire or in-license related product candidates or integrate theminto our operations, we may have limited growth opportunities.**

 

We in-licensed the U.S.rights to Pruvel from Nippon Shinyaku who, along with Meiji-Seika Kaisha Ltd.,conducted the initial development of this product candidate.  An important part of our business strategy isto continue to develop a pipeline of product candidates by acquiring or in-licensingproducts, businesses or technologies that we believe are a strategic fit forour business.  Future in-licenses oracquisitions, however, may entail numerous operational and financial risks,including:

 

·                  exposure to unknownliabilities;

 

·                  disruption of our businessand diversion of our management’s time and attention to develop acquiredproducts or technologies;

 

·                  incurrence of substantialdebt or dilutive issuances of securities to pay for acquisitions;

 

·                  higher than expectedacquisition and integration costs;

 

·                  increased amortization expenses;

 

·                  difficulty and cost incombining the operations and personnel of any acquired businesses with ouroperations and personnel;

 

·                  impairment of relationshipswith key suppliers or customers of any acquired businesses due to changes inmanagement and ownership; and

 

·                  inability to retain keyemployees of any acquired businesses.

 

We have limited resources toidentify and execute the acquisition or in-licensing of third-party products,businesses and technologies and integrate them into our current infrastructure.  In particular, we may compete with largerpharmaceutical companies and other competitors in our efforts to establish newcollaborations and in-licensing opportunities. These competitors likely will have access to greater financial resourcesthan us and may have greater expertise in identifying and evaluating newopportunities.  Moreover, we may devoteresources to potential acquisitions or in-licensing opportunities that arenever completed, or we may fail to realize the anticipated benefits of suchefforts.

 

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**Our abilityto pursue the development and commercialization of Pruvel, our other product candidatesand our future product candidates depends upon the continuation of our licensesfrom third parties.**

 

Our license agreement withNippon Shinyaku provides us with an exclusive license to develop andcommercialize Pruvel for any indication in the United States, with a right tosublicense to third parties.  In theevent Nippon Shinyaku is not able to supply us with Pruvel, the licenseagreement provides us with a non-exclusive, worldwide right and license to manufactureor have Pruvel manufactured for us. Either we or Nippon Shinyaku may terminate the license agreementimmediately upon the bankruptcy or dissolution of the other party or upon abreach of any material provision of the agreement if the breach is not curedwithin 60 days following written notice. In addition, we are entitled to terminate the agreement in the eventthat the FDA compels us to cease sales of Pruvel in the United States.  If our license agreement with Nippon Shinyakuterminates, we will lose our rights to develop, manufacture and commercializePruvel and our potential revenues would be limited.  Similarly, if our agreement with the ScrippsResearch Institute, or TSRI, for the license of our OPopS technology isterminated, we will not be able to further develop future product candidatesusing our OPopS technology, and our third party licensees may be unable tocontinue development of our existing out-licensed product candidates.

 

**We rely on our majority-ownedsubsidiary, OBI, for the development of certain of our product candidates.**

 

In October 2009, we completed a number oftransactions involving our subsidiary, OBI, including the sale of 40% of ourownership interest in OBI to various third party investors.  In connection with these transactions, weassigned to OBI, and OBI assumed from us, our rights and obligations under ourlicense agreement with MSKCC related to our OPT-88 product candidate and ourrights and obligations under one of our license agreements with TSRI related toour OPT-822/821 product candidate.  Wealso assigned to OBI certain of our intellectual property and know-how relatedto these two product candidates. In exchange for these assignments, we have theright to receive certain milestone or royalty payments relating to theseproduct candidates.

 

We cannot assure you that OBI will successfullyadvance the development of OPT-88 or OPT-822/821.  In addition, if OBI does not comply with itsobligations under the agreements with MSKCC and TSRI, these agreements may beterminated and we may not be able to re-assume our rights under them.  If the agreements with MSKCC and/or TSRI wereterminated and we were unable to re-assume our rights, we would not be able topursue further development of OPT-88 and/or OPT-822/821, respectively.  Moreover, the addition of third partyinvestors in OBI has also diminished our ability to control OBI, which is nowsubject in some respects to the rights of the third party minoritystockholders.  In the future, additionalequity financings or other issuances of equity securities or securitiesconvertible into equity by OBI may further reduce our ownership position in OBIand we may not maintain a controlling interest in OBI.  To the extent that we do not maintain acontrolling equity interest in OBI in the future, we would have to rely on OBI’scontractual obligations, including under our Intellectual Property Assignmentand License Agreement, to ensure that OBI continues development of OPT-88 and 

 

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OPT-822/821 and complies with its obligations underthe MSKCC and TSRI agreements.  Finally,OBI will need additional funds to further develop and commercialize, if ever,OPT-88 and OPT-822/821, and OBI may not be able to secure adequate funding atall or on terms you or we believe are favorable.  If OBI is unable to raise additional funds tocontinue operations, or otherwise fails to advance the development of OPT-88and OPT-822/821, we will not receive milestone or royalty payments with respectto these product candidates, and the value of our OBI equity position wouldlikely diminish.

 

**If product liability lawsuits are brought against us,we may incur substantial liabilities and may be required to limitcommercialization of our product candidates.**

 

We face an inherent risk ofproduct liability lawsuits related to the testing of our product candidates,and will face an even greater risk if product candidates are introducedcommercially.  An individual may bring aliability claim against us if one of our product candidates causes, or merelyappears to have caused, an injury.  If wecannot successfully defend ourselves against the product liability claim, wemay incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

·                  decreased demand for ourproduct candidates;

 

·                  injury to our reputation;

 

·                  termination of clinicaltrial sites or entire clinical trial programs;

 

·                  withdrawal of clinical trialparticipants;

 

·                  significant litigationcosts;

 

·                  substantial monetary awardsto or costly settlement with patients;

 

·                  product recalls;

 

·                  loss of revenues; and

 

·                  the inability tocommercialize our product candidates.

 

We may become dependent uponconsumer perceptions of us and the safety and quality of our productcandidates.  We could be adverselyaffected if we or our product candidates are subject to negativepublicity.  We could also be adverselyaffected if any of our potential products or any similar products distributedby other companies prove to be, or are asserted to be, harmful toconsumers.  Also, because of ourdependence upon consumer perceptions, any adverse publicity associated withillness or other adverse effects resulting from consumers’ use or misuse of ourpotential products or any similar products distributed by other companies couldhave a material adverse impact on our results of operations.

 

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We have global clinicaltrial liability insurance that covers our clinical trials up to a $10.0 millionannual aggregate limit.  Our current orfuture insurance coverage may prove insufficient to cover any liability claimsbrought against us.  We intend to expandour insurance coverage to include the sale of commercial products if marketingapproval is obtained for our product candidates, which would increase ourinsurance premiums.  Because of theincreasing costs of insurance coverage, we may not be able to maintaininsurance coverage at a reasonable cost or obtain insurance coverage that willbe adequate to satisfy any liability that may arise.

 

**Even if wereceive regulatory approval for our product candidates, we will be subject toongoing significant regulatory obligations and oversight.**

 

Even if we receiveregulatory approval to sell our product candidates, the FDA and foreignregulatory authorities will likely impose significant restrictions on theindicated uses or marketing of such products, or impose ongoing requirementsfor potentially costly post-approval studies. In addition, following any regulatory approval of our productcandidates, we and our collaborators will be subject to continuing regulatoryobligations, such as requirements for storage, recordkeeping and safetyreporting, and additional post-marketing obligations, including regulatoryoversight of the labeling, packaging, promotion and marketing of ourproducts.  If we or our collaboratorsbecome aware of previously unknown problems with any of our product candidatesin the United States or overseas or at our third-party manufacturers’facilities, a regulatory agency may impose restrictions on our products, ourthird-party manufacturers or on us, including requiring us to reformulate ourproducts, conduct additional clinical trials, make changes in the labeling ofour products, implement changes to, or obtain re-approvals of, our third-partymanufacturers’ facilities, or withdraw the product from the market.  In addition, we or our collaborators mayexperience a significant drop in the sales of the affected products and ourproduct revenues will be reduced, our reputation in the marketplace may sufferand we may become the target of lawsuits, including class action suits.  Moreover, if we or our collaborators orthird-party manufacturers fail to comply with applicable regulatoryrequirements, we may be subject to civil or criminal fines, suspension orwithdrawal of regulatory approvals, product recalls, seizure of products,operating restrictions, costly new manufacturing requirements and criminalprosecution.  Any of these events couldharm or prevent sales of the affected products and reduce our related revenuesor could substantially increase the costs and expenses of commercializing andmarketing these products, which would significantly harm our business,financial condition and prospects.

 

**If we fail to attract and retain senior management andkey scientific personnel, we may be unable to successfully develop our productcandidates, conduct our clinical trials and commercialize our productcandidates.**

 

Our success depends in parton our continued ability to attract, retain and motivate highly qualifiedmanagement, clinical and scientific personnel and on our ability to develop andmaintain important relationships with leading academic institutions, cliniciansand scientists.  We are highly dependenton our chief executive officer, and the other principal members of ourexecutive and scientific teams. The unexpected loss of the service of any ofthese persons may significantly delay or prevent the achievement of research,development, commercialization and other business objectives.  Replacing key employees may be difficult andcostly and may take an 

 

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extended period of timebecause of the limited number of individuals in our industry with the breadthof skills and experience required to develop and commercialize pharmaceuticalproducts successfully.  We do notmaintain “key person” insurance policies on the lives of these individuals orthe lives of any of our other employees. We employ these individuals on an at-will basis and their employment canbe terminated by us or them at any time, for any reason and with or withoutnotice.

 

We will need to hireadditional personnel as we expand our clinical development and commercialactivities.  We may not be able toattract or retain qualified management and scientific personnel on acceptableterms in the future due to the intense competition for qualified personnelamong biotechnology, pharmaceutical and other businesses, particularly in theSan Diego, California area.  If we arenot able to attract and retain the necessary personnel to accomplish ourbusiness objectives, we may experience constraints that will impedesignificantly the achievement of our research and development objectives, ourability to raise additional capital and our ability to implement our businessstrategy.  In particular, if we lose anymembers of our senior management team, we may not be able to find suitablereplacements, and our business and prospects may be harmed as a result.

 

**We will needto increase the size of our organization, and we may experience difficulties inmanaging growth.***

 

We are a small company with73 employees as of April 30, 2010. To commercialize our product candidates or commence new clinical trials,we will need to expand our employee base for managerial, operational,marketing, sales, financial and other resources.  Future growth will impose significant addedresponsibilities on members of management, including the need to identify,recruit, maintain and integrate additional employees and may take time awayfrom running other aspects of our business, including development andcommercialization of our product candidates. Our future financial performance and our ability to commercialize ourproduct candidates and to compete effectively will depend, in part, on ourability to manage any future growth effectively.  To that end, we must be able to:

 

·                  manage our developmentefforts effectively;

 

·                  manage our current clinicaltrials effectively;

 

·                  integrate additionalmanagement, administrative and manufacturing personnel;

 

·                  build a marketing and salesorganization; and

 

·                  maintain sufficient administrative,accounting and management information systems and controls.

 

We may not be able toaccomplish these tasks, and accordingly, may not achieve our research,development and commercialization goals. Our failure to accomplish any of these goals could harm our financialresults and prospects.

 

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**Third-partypayor coverage and reimbursement may be insufficient or unavailable altogetherfor our product candidates, which could diminish our sales or affect ourability to sell our products profitably.**

 

Market acceptance and salesof our product candidates will depend on reimbursement policies and may beaffected by future healthcare reform measures. Government third-party payors, such as the Medicare and Medicaidprograms, and private payors, including health maintenance organizations,decide which drugs they will pay for and establish reimbursement levels forthese drugs. Because third-party payors increasingly are challenging pricescharged and the cost-effectiveness of medical products, significant uncertaintyexists as to the ability of our product candidates to receive adequate coverageand reimbursement.  We cannot be surethat third-party payors will place our product candidates on approvedformularies or that reimbursement will be available in whole or in part for anyof our product candidates.  Also, wecannot be sure that insufficient reimbursement amounts will not reduce thedemand for, or the price of, our products, if approved.

 

Many healthcare providers,such as hospitals, receive a fixed reimbursement amount per procedure or othertreatment therapy, and these amounts are not necessarily based on the actualcosts incurred.  As a result, thesehealthcare providers may choose only the least expensive therapies regardlessof efficacy.  We cannot guarantee thatour product candidates will be the least expensive alternative and thusproviders may decide not to use them or buy them for treatment.

 

We have not commencedefforts to have our product candidates reimbursed by government or third-partypayors.  If reimbursement is notavailable or is available only to limited levels, we may not be able tocommercialize our products successfully or at all, which would harm ourbusiness and prospects.

 

**Recentproposed legislation may permit re-importation of drugs from foreign countriesinto the United States, including foreign countries where the drugs are sold atlower prices than in the United States, which could materially adversely affectour operating results and our overall financial condition.**

 

We may face competition forour products from lower priced products from foreign countries that have placedprice controls on pharmaceutical products. Imports from Canada and elsewhere may continue to increase due to marketand political forces, and the limited enforcement resources of the FDA, theU.S. Customs Service, and other government agencies.  For example, U.S. Customs Service generallydoes not prevent individuals from importing from Canada less than a 90-daysupply of a prescription drug for personal use, when the drug otherwise complieswith the Federal Food, Drug and Cosmetic Act. Further, several states and local governments have implementedimportation schemes for their citizens, and, in the absence of federal actionto curtail such activities, we expect other states and local governments tolaunch importation efforts.  Theimportation of foreign products that compete with our own product candidatescould negatively impact our business and prospects.

 

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**Currenthealthcare laws and regulations and future legislative or regulatory reforms tothe healthcare system may affect our ability to sell our product candidatesprofitably.**

 

In both the United States and certain foreign jurisdictions, there havebeen, and we anticipate there will continue to be, a number of legislative andregulatory changes to the healthcare system that could impact our ability tosell our products profitably.  In theUnited States, the Federal government recently passed healthcare reformlegislation.  Many of the detailsregarding the implementation of this legislation are yet to be determined andsuch implementation may ultimatelyadversely affect our business.  We alsocannot be certain that fidaxomicin and Pruvel or other current or future drugcandidates will successfully be placed on the list of drugs covered byparticular health plan formularies, nor can we predict the negotiated price forour drug candidates, which will be determined by market factors. Many stateshave also created preferred drug lists and include drugs on those lists onlywhen the manufacturers agree to pay a supplemental rebate.  If fidaxomicin and Pruvel or other current orfuture drug candidates are not included on these preferred drug lists,physicians may not be inclined to prescribe them to their Medicaid patients,thereby diminishing the potential market for our products.

 

As a result of therecently-passed healthcare reform legislation and the trend towardscost-effectiveness criteria and managed healthcare in the United States,third-party payors are increasingly attempting to contain healthcare costs bylimiting both coverage and the level of reimbursement of new drugs.  They may also refuse to provide any coverageof uses of approved products for medical indications other than those for whichthe FDA has granted market approvals.  Asa result, significant uncertainty exists as to whether and how much third-partypayors will reimburse for newly-approved drugs, which in turn will put pressureon the pricing of drugs.  Further, we donot have experience in ensuring approval by applicable third-party payorsoutside of the United States for reimbursement of our products.  The availability of numerous genericantibiotics at lower prices than branded antibiotics can also be expected tosubstantially reduce the likelihood of reimbursement for fidaxomicin andPruvel.  We also anticipate pricingpressures in connection with the sale of our products due to the trend towardmanaged healthcare, the increasing influence of health maintenanceorganizations and additional legislative proposals.

 

**We mustcomply with federal and state “fraud and abuse” laws, and, if we are unable tofully comply with such laws, we could face substantial penalties, which mayadversely affect our business, financial condition and results of operations.**

 

We are subject to variousfederal and state laws pertaining to healthcare fraud and abuse, including anti-kickbacklaws, the False Claims Act, the Foreign Corrupt Practices Act and state lawsrequiring reporting and certification under comprehensive compliance programsgoverning our financial relationships with healthcare providers.  Violations of these laws are punishable bycriminal and civil sanctions, including, in some instances, exclusion fromparticipation in federal and state healthcare programs, including Medicare andMedicaid, and the curtailment or restructuring of operations.  We believe that our operations are inmaterial compliance with such laws and we are aware of the need to increase ourcompliance resources if we begin marketing products.  However, because of the far-reaching natureof these laws, there can be no assurance that we would not be required to alterone or more of our practices to be in compliance with these laws.  In addition, there can be no assurance thatthe occurrence of one or more violations of these laws or regulations would notresult in a material adverse effect on our financial condition and results ofoperations.

 

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**Ourbusiness involves the use of hazardous materials and we and our third-partymanufacturers must comply with environmental laws and regulations, which can beexpensive and restrict how we do business.**

 

Our third-partymanufacturers’ activities and, to a lesser extent, our own activities involvethe controlled storage, use and disposal of hazardous materials, including thecomponents of our product candidates and other hazardous compounds.  We and our manufacturers are subject tofederal, state and local laws and regulations governing the use, manufacture,storage, handling and disposal of these hazardous materials.  Although we believe that the safetyprocedures for handling and disposing of these materials comply with thestandards prescribed by these laws and regulations, we cannot eliminate therisk of accidental contamination or injury from these materials.  We currently have insurance coverage in theamount of approximately $250,000 for damage claims arising from contaminationon our property.  These amounts may notbe sufficient to adequately protect us from liability for damage claimsrelating to contamination.  If we aresubject to liability exceeding our insurance coverage amounts, our business andprospects would be harmed.  In the eventof an accident, state or federal authorities may also curtail our use of thesematerials and interrupt our business operations.

 

**Ourbusiness and operations would suffer in the event of computer,telecommunications or other system failure.**

 

Despite the implementationof security measures, our internal computer systems are vulnerable to damagefrom computer viruses, unauthorized access, natural disasters, terrorism, warand telecommunication and electrical failures. Any system failure, accident or security breach that causes interruptionsin our operations could result in a material disruption of our drug developmentprograms.  For example, the loss ofclinical trial information from completed or ongoing clinical trials forfidaxomicin or Pruvel, which is maintained by our third-party CRO, could resultin delays in our regulatory approval efforts and significantly increase ourcosts to recover or reproduce the data. To the extent that any disruption or security breach results in a lossor damage to our data or applications, or inappropriate disclosure ofconfidential or proprietary information, we may incur liability and the furtherdevelopment of our product candidates may be delayed.

 

**RisksRelated to Our Intellectual Property**

 

**It isdifficult and costly to protect our intellectual property and our proprietarytechnologies, and we may not be able to ensure their protection.**

 

Our commercial success willdepend in part on obtaining and maintaining patent protection and trade secretprotection of the use, formulation and structure of our product candidates, andthe methods used to manufacture them, as well as successfully defending thesepatents against third-party challenges, including those from generic drugmanufacturers.  Our ability to protectour product candidates from unauthorized making, using, selling, offering tosell or importing by third parties is dependent upon the extent to which wehave rights under valid and enforceable patents or trade secrets that coverthese activities.

 

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The patent positions ofpharmaceutical and biotechnology companies can be highly uncertain and involvecomplex legal and factual questions for which important legal principles remainunresolved.  No consistent policyregarding the breadth of claims allowed in biotechnology patents has emerged todate in the United States.  Thebiotechnology patent environment outside the United States is even moreuncertain.  Changes in either the patentlaws or in interpretations of patent laws in the United States and othercountries may diminish the value of our intellectual property.  Accordingly, we cannot predict the breadth ofclaims that may be allowed or enforced in our licensed patents, our patents orin third-party patents.

 

The degree of futureprotection for our proprietary rights is uncertain, because legal means affordonly limited protection and may not adequately protect our rights or permit usto gain or keep our competitive advantage. For example:

 

·                  others may be able to makecompounds that are similar to our product candidates but that are not coveredby the claims of our issued patents and pending patent applications or licensedpatents and pending patent applications, or for which we are not licensed underour license agreements;

 

·                  others may be able to makecompeting pharmaceutical formulations containing our product candidates orcomponents of our product formulations that are either not covered by theclaims of our issued patents or licensed patents, not licensed to us under ourlicense agreements or are subject to patents that expire;

 

·                  we or our licensors mightnot have been the first to make the inventions covered by our issued patentsand pending patent applications or the pending patent applications and issuedpatents of our licensors;

 

·                  we or our licensors mightnot have been the first to file patent applications for these inventions;

 

·                  others may independentlydevelop similar or alternative technologies or duplicate any of our technologies;

 

·                  it is possible that ourpending patent applications or our licensed patent applications will not resultin issued patents;

 

·                  our issued patents andpending patent applications or the pending patent applications and issuedpatents of our licensors may not provide us with any competitive advantages,may be designed around by our competitors, including generic drug companies, ormay be held invalid or unenforceable as a result of legal challenges by thirdparties;

 

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·                  we may not developadditional proprietary technologies that are patentable; or

 

·                  the patents of others mayhave an adverse effect on our business.

 

In addition, to the extentwe are unable to obtain and maintain patent protection for our product candidatesor in the event such patent protection expires, it may no longer be costeffective to extend our portfolio by pursuing additional development of aproduct candidate for follow-on indications.

 

We have filed 12 patentapplications related to fidaxomicin, one of which has resulted in the issuanceof a polymorph patent and one of which has resulted in a manufacturing patent,from the United States Patent and Trademark Office, or US PTO, and ten of whichare pending.

 

These patent applicationsrelated to fidaxomicin encompass various topics relating to:

 

·                  composition of matter forfidaxomicin (issued in Taiwan);

 

·                  composition of matter forfidaxomicin related substances and use for CDI;

 

·                  polymorphic forms (issued inU.S. with respect to one polymorphic form);

 

·                  manufacturing processes(issued in U.S. and in Australia);

 

·                  treatment of diseases usingfidaxomicin;

 

·                  formulation; and

 

·                  fidaxomicin relatedcompounds, such as metabolites.

 

If we are unable to obtain acomposition of matter patent, our competitors, including generic drugcompanies, may be able to design other similar formulations of the activeingredient of fidaxomicin.  Furthermore,even though the manufacturing process patent has issued, and even if theformulation patent application results in an issued patent, our competitors,including generic drug companies, may be able to design around ourmanufacturing processes or formulation for fidaxomicin.  As a result, our competitors may be able todevelop competing products.

 

Inaddition, we currently plan to submit an NDA for Pruvel for the treatment ofinfectious diarrhea in 2010.  Thecomposition of matter patent covering Pruvel expired in February 2009.  In 2009, our licensor, Nippon Shinyakureceived a patent from the US PTO which covers the polymorphic form of a keyintermediate in the manufacturing process for Pruvel.  Despite its issuance, this patent may laterbe challenged by a third party or fail to prevent a third party from producingand marketing a generic form of Pruvel in the United States.   If we are unable to rely on therecently-issued polymorph patent, we will likely rely on one or more regulatorymarketing exclusivities for Pruvel in the United States.  Specifically, if our NDA for Pruvel isapproved, we expect to receive a five-year period of marketing exclusivityunder the Hatch-Waxman Act. This exclusivity period is available to the firstapplicant to gain approval of an NDA for a new 

 

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chemicalentity, or NCE, that has not previously been approved as an active ingredientunder Section 505(b) of the Food Drug and Cosmetic Act, or FDCA.  While we expect that the NCE exclusivityperiod will be available for Pruvel, if the recent polymorph patent isinsufficient to maintain exclusivity in the United States with respect toPruvel, we may face generic competition in the United States five years afterour NDA for Pruvel is approved by the FDA. If we are unable to obtain marketingexclusivity beyond five years from the approval of our NDA, our potentialrevenues from Pruvel sales in the U.S. will be limited.

 

We depend, in part, on ourlicensors and collaborators to protect a portion of our proprietaryrights.  In such cases, our licensors andcollaborators may be primarily or wholly responsible for the maintenance ofpatents and prosecution of patent applications relating to important areas ofour business.  For example, NipponShinyaku is responsible for the maintenance of patents and prosecution ofpatent applications relating to Pruvel. We may also be dependent on Par to provide technical support for patentapplications relating to fidaxomicin.  Ifany of these parties fail to adequately protect these product candidates withissued patents, our business and prospects would be significantly harmed.

 

Under our agreement withNippon Shinyaku, in the event Nippon Shinyaku fails to take all steps necessaryto seek extension of the patents licensed to us in the United States 180 daysafter we request such action be taken, then we have the right to take allnecessary actions to extend the licensed patents.  Our agreement with Par does not have explicitprovisions regarding our rights to take necessary action with respect tomaintenance of patents and prosecution of patent applications nor do suchagreements provide us with any legal recourse in the event such parties do notso maintain and/or prosecute.  If any ofthese parties or others on which we rely for patent maintenance and prosecutionfail to adequately maintain patents and prosecute patent applications relatingto technology licensed to or from us, we may be required to take further actionon our own to protect this technology. However, we may not be successful in maintaining such patents orprosecuting such patent applications and if so, our business and prospectswould be significantly harmed.

 

We also rely on tradesecrets to protect our technology, especially where we do not believe patentprotection is appropriate or obtainable. However, trade secrets are difficult to protect.  Although we use reasonable efforts to protectour trade secrets, our employees, consultants, contractors, outside scientificcollaborators and other advisors may unintentionally or willfully disclose ourinformation to competitors.  Enforcing aclaim that a third-party entity illegally obtained and is using any of ourtrade secrets is expensive and time consuming, and the outcome isunpredictable.  In addition, courtsoutside the United States are sometimes less willing to protect tradesecrets.  Moreover, our competitors mayindependently develop equivalent knowledge, methods and know-how.

 

If we or our licensors failto obtain or maintain patent protection or trade secret protection for ourproduct candidates or our technologies, third parties could use our proprietaryinformation, which could impair our ability to compete in the market andadversely affect our ability to generate revenues and attain profitability.

 

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**We mayincur substantial costs as a result of litigation or other proceedings relatingto our patent, trademark and other intellectual property rights, and we may beunable to protect our rights to, or use, our technology.**

 

If we choose to go to courtto stop someone else from using our inventions, that individual or company hasthe right to ask the court to rule that the underlying patents are invalidand/or should not be enforced against that third party.  These lawsuits are expensive and wouldconsume time and other resources even if we were successful in stopping theinfringement of these patents.  There isalso the risk that, even if the validity of these patents is upheld, the courtwill refuse to stop the other party on the ground that such other party’sactivities do not infringe our rights to these patents.

 

Furthermore, a third partymay claim that we or our manufacturing or commercialization partners are usinginventions covered by the third party’s patent rights and may go to court tostop us from engaging in our normal operations and activities, includingmaking, using or selling our product candidates.  These lawsuits are costly and could affectour results of operations and divert the attention of managerial and technicalpersonnel.  There is a risk that a courtwould decide that we or our commercialization partners are infringing the thirdparty’s patents and would order us or our partners to stop the activitiescovered by the patents.  In addition,there is a risk that a court will order us or our partners to pay the otherparty damages for having violated the other party’s patents.  We have indemnified our commercial partnersagainst patent infringement claims and thus would be responsible for any oftheir costs associated with such claims and actions.  The biotechnology industry has produced aproliferation of patents, and it is not always clear to industry participants,including us, which patents cover various types of products or methods ofuse.  The coverage of patents is subjectto interpretation by the courts and the interpretation is not always uniform.  If we are sued for patent infringement, wewould need to demonstrate that our products or methods of use either do notinfringe the patent claims of the relevant patent and/or that the patent claimsare invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires ashowing of clear and convincing evidence to overcome the presumption ofvalidity enjoyed by issued patents.

 

Although we have conductedsearches of third-party patents with respect to fidaxomicin and Pruvel, thesesearches may not have identified all third-party patents relevant to thoseproducts and we have not conducted an extensive search of patents issued tothird parties with respect to our other product candidates.  Consequently, no assurance can be given thatthird-party patents containing claims covering our products, technology ormethods do not exist, have not been filed, or could not be filed orissued.  Because of the number of patentsissued and patent applications filed in our technical areas or fields, webelieve there is a risk that third parties may allege they have patent rightsencompassing our products, technology or methods.  In addition, we have not conducted anextensive search of third-party trademarks, so no assurance can be given thatsuch third-party trademarks do not exist, have not been filed, could not befiled or issued, or could not exist under common trademark law.  While we have filed a trademark applicationfor the names “Optimer”, “Optimer Pharmaceuticals” and “Pruvel”, we are awarethat the name “Optimer” has been registered as a trademark with the U.S. PTO bymore than one third party, including one in the biotechnology space.  As such, we believe there is a significantrisk that third parties may allege they have trademark rights encompassing thenames for which we have applied for protection.

 

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Because some patentapplications in the United States may be maintained in secrecy until thepatents are issued, because patent applications in the United States and manyforeign jurisdictions are typically not published until eighteen months afterfiling, and because publications in the scientific literature often lag behindactual discoveries, we cannot be certain that others have not filed patentapplications for technology covered by our licensors’ issued patents or ourpending applications or our licensors’ pending applications, or that we or ourlicensors were the first to invent the technology.  Our competitors may have filed, and may inthe future file, patent applications covering technology similar to ours.  Any such patent application may have priorityover our or our licensors’ patent applications and could further require us toobtain rights to issued patents covering such technologies.  If another party has filed a U.S. patentapplication on inventions similar to ours, we may have to participate in aninterference proceeding declared by the U.S. PTO to determine priority ofinvention in the United States.  Thecosts of these proceedings could be substantial, and it is possible that suchefforts would be unsuccessful, resulting in a loss of our U.S. patent positionwith respect to such inventions.

 

Some of our competitors maybe able to sustain the costs of complex patent litigation more effectively thanwe can because they have substantially greater resources.  In addition, any uncertainties resulting fromthe initiation and continuation of any litigation could have a material adverseeffect on our ability to raise the funds necessary to continue our operations.

 

**RisksRelated to the Securities Market and Ownership of Our Common Stock**

 

**The marketprice of our common stock may be highly volatile.**

 

Before our initial publicoffering in February 2007, there was no public market for our commonstock.  We cannot assure you that anactive trading market will exist for our common stock. You may not be able to sell your shares quickly or at the marketprice if trading in our common stock is not active.

 

The trading price of ourcommon stock is likely to be highly volatile and could be subject to widefluctuations in price in response to various factors, many of which are beyondour control, including:

 

·                  general economic and marketconditions and other factors that may be unrelated to our operating performanceor the operating performance of our competitors;

 

·                  announcement of FDA orcomparable foreign regulatory agency approval or non-approval of our productcandidates, or specific label indications for their use, or delays in the FDAor comparable foreign regulatory agency review process;

 

·                  actions taken by the FDA orother regulatory agencies with respect to our product candidates, clinicaltrials, manufacturing process or marketing and sales activities;

 

·                  changes in laws orregulations applicable to our products, including but not limited to clinicaltrial requirements for approvals;

 

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·                  the success of ourdevelopment efforts and clinical trials, particularly with respect tofidaxomicin and Pruvel;

 

·                  announcements by ourcollaborators with respect to clinical trial results, regulatory submissionsand communications from the FDA or comparable foreign regulatory agencies;

 

·                  the success of our effortsto acquire or in-license additional products or product candidates;

 

·                  developments concerning ourcollaborations and partnerships, including but not limited to those with oursources of manufacturing supply and our development and commercializationpartners;

 

·                  actual or anticipatedvariations in our quarterly operating results;

 

·                  announcements oftechnological innovations by us, our collaborators or our competitors;

 

·                  new products or servicesintroduced or announced by us or our commercialization partners, or ourcompetitors and the timing of these introductions or announcements;

 

·                  third-party coverage orreimbursement policies;

 

·                  actual or anticipatedchanges in earnings estimates or recommendations by securities analysts;

 

·                  conditions or trends in thebiotechnology and biopharmaceutical industries;

 

·                  announcements by us or ourcompetitors of significant acquisitions, strategic partnerships, joint venturesor capital commitments;

 

·                  changes in the marketvaluations of similar companies;

 

·                  sales of common stock orother securities by us or our stockholders in the future;

 

·                  additions or departures ofkey scientific or management personnel;

 

·                  disputes or otherdevelopments relating to intellectual property, proprietary rights, includingpatents, litigation matters and our ability to obtain patent protection for ourtechnologies; and

 

·                  trading volume of our commonstock.

 

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In addition, the stockmarket in general and the market for biotechnology and biopharmaceutical companiesin particular have experienced extreme price and volume fluctuations that haveoften been unrelated and/or disproportionate to the operating performance ofthose companies.  These broad market andindustry factors may significantly harm the market price of our common stock,regardless of our operating performance. In the past, following periods of volatility in the market, securitiesclass-action litigation has often been instituted against companies.  Such litigation, if instituted against us,could result in substantial costs and diversion of management’s attention andresources, which could significantly harm our business, financial condition andprospects.

 

**Futuresales of our common stock in the public market could cause our stock price todecline.**

 

Persons who were ourstockholders prior to our initial public offering continue to hold asubstantial number of shares of our common stock. Many of these stockholdersare able to sell their shares in the public market. Significant portions ofthese shares are held by a small number of stockholders. Sales by suchstockholders of a substantial number of shares, or the expectation that suchsales may occur, could significantly reduce the market price of our commonstock.  Moreover, the holders of a substantialnumber of shares of our common stock have rights, subject to certainconditions, to require us to file registration statements to permit the resaleof their shares in the public market or to include their shares in registrationstatements that we may file for ourselves or other stockholders.

 

We have also registered allcommon stock that we have issued under our employee benefits plans. As aresult, these shares can be freely sold in the public market upon issuance,subject to any applicable restrictions under the securities laws. In addition,our directors and executive officers may in the future establish programmedselling plans under Rule 10b5-1 of the Securities Exchange Act for thepurpose of effecting sales of our common stock. If any of these events cause alarge number of our shares to be sold in the public market, the sales couldreduce the trading price of our common stock and impede our ability to raisefuture capital.

 

**We may notbe able to liquidate our holding in an auction rate security.***

 

Our investment securitiesconsist of money market funds, corporate debt securities and government agencysecurities. As of March 31, 2010, we held one auction rate preferredsecurity valued at $882,000 with perpetual maturity dates that reset every 28 days.  The negative conditions in the global creditmarkets have prevented some investors from liquidating their holdings,including their holdings of auction rate securities.  There was insufficient demand at auction forour auction rate preferred security.  Asa result, such security is currently not liquid, and we could be required tohold it until it is redeemed by the issuer or to maturity.  In the event we need to access the funds thatare in an illiquid state, we will not be able to do so without a loss ofprincipal, until a future auction on this investment is successful, thesecurity is redeemed by the issuer or it matures. We have reduced the carryingvalue of our auction rate security by $118,000 to reflect an estimated changein fair market value due primarily to a lack of liquidity. Although the auctionrate security continues to pay interest according to its stated terms, based onvaluation models, we have recorded an unrealized loss for another-than-temporary change in valuation of $118,000.  If the credit ratings of the security issuerdeteriorates or if uncertainties in 

 

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these markets continue andany decline in market value is determined to be other-than-temporary, we wouldbe required to adjust the carrying value of the investment through animpairment charge, which could negatively affect our financial condition, cashflow and reported earnings.

 

**We willcontinue to incur significant costs as a result of operating as a publiccompany, and our management will be required to devote substantial time to newcompliance initiatives.***

 

As a public company, we willcontinue to incur significant legal, accounting and other expenses.  In addition, the Sarbanes-Oxley Act of 2002,or the Sarbanes-Oxley Act, as well as rules subsequently implemented bythe SEC and the Nasdaq Stock Market, or Nasdaq, impose various requirements onpublic companies, including requiring establishment and maintenance ofeffective disclosure and financial controls and changes in corporate governancepractices.  Our management and otherpersonnel need to devote a substantial amount of time to these complianceinitiatives.  Moreover, these rules andregulations result in increased legal and financial compliance costs and willmake some activities more time-consuming and costly.  For example, these rules and regulationsmake it more difficult and more expensive for us to maintain director and officerliability insurance, and we may be required to incur substantial costs in thefuture to maintain the same or similar coverage.

 

The Sarbanes-Oxley Actrequires, among other things, that we maintain effective internal controls forfinancial reporting and disclosure controls and procedures. We are required toperform an evaluation of our internal controls over financial reporting toallow management to report on the effectiveness of those controls, as requiredby Section 404 of the Sarbanes-Oxley Act. Additionally, our independentauditors were required to perform a similar evaluation and report on theeffectiveness of our internal controls over financial reporting. At March 31,2010, management and our independent auditors did not identify any material weaknessesin our internal controls over financial reporting. Our efforts to comply with Section 404and related regulations has required, and continues to require, the commitmentof significant financial and managerial resources. While we anticipate maintainingthe integrity of our internal controls over financial reporting and all otheraspects of Section 404, we cannot be certain that a material weakness willnot be identified when we test the effectiveness of our control systems in thefuture. If a material weakness is identified, we could be subject to sanctionsor investigations by Nasdaq, the SEC or other regulatory authorities, whichwould require additional financial and management resources, costly litigationor a loss of public confidence in our internal controls, which could have anadverse effect on the market price of our stock.

 

**Someprovisions of our charter documents and Delaware law may have anti-takeovereffects that could discourage an acquisition of us by others, even if anacquisition would be beneficial to our stockholders and may prevent attempts byour stockholders to replace or remove our current management.**

 

Provisions in our amendedand restated certificate of incorporation and bylaws, as well as provisions ofDelaware law, could make it more difficult for a third party to acquire us,even if doing so would benefit our stockholders, or remove our currentmanagement.  These provisions include:

 

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·                  a board of directors dividedinto three classes serving staggered three-year terms, such that not allmembers of the board will be elected at one time;

 

·                  authorizing the issuance of “blankcheck” preferred stock, the terms of which may be established and shares ofwhich may be issued without stockholder approval;

 

·                  limiting the removal ofdirectors by the stockholders;

 

·                  prohibiting stockholderaction by written consent, thereby requiring all stockholder actions to betaken at a meeting of our stockholders;

 

·                  eliminating the ability ofstockholders to call a special meeting of stockholders; and

 

·                  establishing advance noticerequirements for nominations for election to the board of directors or forproposing matters that can be acted upon at stockholder meetings.

 

Theseprovisions may frustrate or prevent any attempts by our stockholders to replaceor remove our current management by making it more difficult for stockholdersto replace members of our board of directors, which is responsible for appointingthe members of our management.  Inaddition, we are subject to Section 203 of the Delaware GeneralCorporation Law, which generally prohibits a Delaware corporation from engagingin any of a broad range of business combinations with a stockholder owning 15%or more of our outstanding voting stock for a period of three years followingthe date on which the stockholder became an interested stockholder, unless suchtransactions are approved by our board of directors.  This provision could have the effect ofdelaying or preventing a change of control, whether or not it is desired by orbeneficial to our stockholders.  Such adelay or prevention of a change of control transaction could cause the marketprice of our stock to decline.

 

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**Item 6. Exhibits**

 
| **Exhibit  No.** | ** ** | **Description of Document**                                                                                                                                                                                                                                              |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              | (2)        | Certificate of  Incorporation of Optimer Pharmaceuticals, Inc., as amended and restated.                                                                                                                                                                            |
| 3.2              | (4)        | Bylaws  of Optimer Pharmaceuticals, Inc., as amended.                                                                                                                                                                                                               |
| 4.1              | (3)        | Common Stock Certificate  of Optimer Pharmaceuticals, Inc.                                                                                                                                                                                                          |
| 4.2              | (1)        | Investors’ Rights  Agreement by and among Optimer Pharmaceuticals, Inc. and certain  stockholders of Optimer Pharmaceuticals, Inc. dated November 30,  2005, as amended and restated.                                                                |
| 4.3              | (5)        | Registration Rights  Agreement, dated October 23, 2007, by and between Optimer  Pharmaceuticals, Inc. and the purchasers listed on the signature pages thereto.                                                                                           |
| 4.4              | (6)        | Form of Warrant to  Purchase Common Stock.                                                                                                                                                                                                                          |
| 10.1             | (7)        | Summary of Optimer  Pharmaceuticals, Inc. 2010 Incentive Compensation Plan.                                                                                                                                                                                         |
| 31.1             |       | Certification of principal  executive officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                                                                                                                              |
| 31.2             |       | Certification of principal  financial officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                                                                                                                              |
| 32               |       | Certification by the Chief  Executive Officer and the Chief Financial Officer of the Registrant, as  required by Rule 13a-14(b) or 15d-14(b) and Section 1350  of Chapter 63 of Title 18 of the United States Code (18 U.S.C.  1350). |

 

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(1)                                    Filed with Registrant’s RegistrationStatement on Form S-1 November 9, 2006.

(2)                                    Filed with Registrant’s Amendment No. 3to Registration Statement on Form S-1 January 22, 2007.

(3)                                    Filed with Registrant’s Amendment No. 4to Registration Statement on Form S-1 February 5, 2007.

(4)                                  Filed with Registrant’s Current Report onForm 8-K on September 18, 2007.

(5)                                    Filed with Registrant’s Current Report onForm 8-K on October 29, 2007.

(6)                                    Filed with Registrant’s Current Report onForm 8-K on March 5, 2009.

(7)                                    Filed with Registrant’s Current Report onForm 8-K on March 11, 2010.

 

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**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| ** **              | **OPTIMER PHARMACEUTICALS, INC.** |
|-------------------------|-----------------------------------|
|                    |                              |   |
| Dated: May 5, 2010 | By:                               | /s/ John  D. Prunty |
| ** **              | **Name:**                         | **John D. Prunty** |
| ** **              | **Title:**                        | ***Chief Financial Officer*** |
| *** ***            | *** ***                      | ***(Duly Authorized Officer and Principal Financial  and Accounting Officer)*** |

 

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