Table of Contents

 

 

 

**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, 2009**

 

**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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**OPTIMER PHARMACEUTICALS, INC.**

(Exact name of registrantas specified in its charter)

 

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| **Delaware**                     |   | **33-0830300**      |
|----------------------------------|--------|---------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer    |
| incorporation or  organization)  |   | Identification No.) |

 

**10110Sorrento Valley Road, Suite CSan Diego, CA 92121**(Address of principal executive offices, including zip code)

 

**(858) 909-0736**(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days:    Yes x   No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporatewebsite, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and postsuch files):    Yes  o   No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company. See the definitions of “large accelerated filer”, “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 
| Large  accelerated filer o                     |   | Accelerated  filer x         |   |
|------------------------------------------------|--------|------------------------------|--------|
|                                           |   |                         |   |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |   |
| (Do not  check if a smaller reporting company) |   |                         |   |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act):   Yeso    No x

 

The number of shares of the registrant’s Common Stock,no par value, outstanding as of May 1, 2009 was 33,070,903 shares.

 

 

 

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Table of Contents

 

**OPTIMERPHARMACEUTICALS, INC.FORM 10-QFor the Quarterly Period Ended March 31, 2009**

**TABLE OFCONTENTS**

 
| ** **                                                                                               | ** ** | **Page** |
|----------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I —  FINANCIAL INFORMATION**                                                            |       |     |
|                                                                                                     |       |     |
| Item 1. Financial Statements (unaudited)                                                            |       |     |
|                                                                                                     |       |     |
| Consolidated  Balance Sheets — March 31, 2009 and December 31, 2008                       |       | 3        |
|                                                                                                     |       |     |
| Consolidated  Statements of Operations — Three months ended March 31, 2009 and 2008            |       | 4        |
|                                                                                                     |       |     |
| Consolidated  Statements of Cash Flows — Three months ended March 31, 2009 and 2008            |       | 5        |
|                                                                                                     |       |     |
| Notes to Consolidated Financial Statements                                                               |       | 6        |
|                                                                                                     |       |     |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       | 19       |
|                                                                                                     |       |     |
| Item 3. Quantitative and Qualitative Disclosures  about Market Risk                                 |       | 26       |
|                                                                                                     |       |     |
| Item 4. Controls and Procedures                                                                     |       | 26       |
|                                                                                                     |       |     |
| **PART II  — OTHER INFORMATION**                                                               |       |     |
|                                                                                                     |       |     |
| Item 1A. Risk Factors                                                                               |       | 27       |
|                                                                                                     |       |     |
| Item 6. Exhibits                                                                                    |       | 58       |
|                                                                                                     |       |     |
| SIGNATURE                                                                                                |       |     |

 

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Table of Contents

 

**PART I — FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**Optimer Pharmaceuticals, Inc.**

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                                                    | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                    | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ** **                                                                                                                                                                                    | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| **ASSETS**                                                                                                                                                                                    | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                                               |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                     |       | $                  | 46,788,899 |                  | $          | 16,778,880 |   |
| Short-term investments                                                                                                                                                                        |       | 15,794,624         |       | 22,547,515            |       |
| Research grant and contract receivables                                                                                                                                                       |       | 83,012             |       | 211,299               |       |
| Prepaid expenses and other current assets                                                                                                                                                     |       | 599,407            |       | 533,371               |       |
| Total current assets                                                                                                                                                                          |       | 63,265,942         |       | 40,071,065            |       |
| Restricted cash                                                                                                                                                                               |       | 170,000            |       | 170,000               |       |
| Property and equipment, net                                                                                                                                                                   |       | 667,100            |       | 694,183               |       |
| Long-term investments                                                                                                                                                                         |       | 982,000            |       | 1,032,000             |       |
| Other assets                                                                                                                                                                                  |       | 327,197            |       | 328,250               |       |
| Total assets                                                                                                                                                                                  |       | $                  | 65,412,239 |                  | $          | 42,295,498 |   |
|                                                                                                                                                                                          |       |               |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                 |       |               |       |                  |       |
| Current liabilities:                                                                                                                                                                          |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                              |       | $                  | 4,049,160  |                  | $          | 3,767,831 |   |
| Accrued expenses                                                                                                                                                                              |       | 4,152,398          |       | 4,045,660             |       |
| Total current liabilities                                                                                                                                                                     |       | 8,201,558          |       | 7,813,491             |       |
| Deferred rent                                                                                                                                                                                 |       | 268,166            |       | 251,504               |       |
| Commitments and contingencies                                                                                                                                                                 |       |               |       |                  |       |
| Stockholders’ equity:                                                                                                                                                                    |       |               |       |                  |       |
| Preferred stock, par value $0.001, 10,000,000 shares authorized, no  shares issued and oustanding at March 31, 2009 and December 31,  2008, respectively                            |       | —             |       | —                |       |
| Common stock, $0.001 par value, 75,000,000 shares authorized,  33,050,751 shares and 29,716,751 shares issued and outstanding at  March 31, 2009 and December 31, 2008 respectively |       | 33,051             |       | 29,717                |       |
| Additional paid-in capital                                                                                                                                                                    |       | 201,134,990        |       | 167,544,806           |       |
| Accumulated other comprehensive income                                                                                                                                                        |       | 43,970             |       | 38,088                |       |
| Accumulated deficit                                                                                                                                                                           |       | (144,269,496       | )          | (133,382,108          | )          |
| Total stockholders’ equity                                                                                                                                                               |       | 56,942,515         |       | 34,230,503            |       |
|                                                                                                                                                                                          |       |               |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                               |       | $                  | 65,412,239 |                  | $          | 42,295,498 |   |

 

See accompanying notes.

 

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**Optimer Pharmaceuticals, Inc.**

**ConsolidatedStatements of Operations**

**(unaudited)**

 
| ** **                                                  | ** ** | **Three Months Ended** | ** **  |
|-------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                  | ** ** | **March 31,**               | ** **  |
| ** **                                                  | ** ** | **2009**                         | ** **  | **2008** | ** ** |
| ** **                                                  | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Revenues:                                                   |       |                             |        |   |   |
| Research grants                                             |       | $                                | 83,012      |   | $ | 486,666 |   |
| Operating expenses:                                         |       |                             |        |   |   |
| Research and development                                    |       | 8,798,582                        |        | 6,905,376 |   |
| Marketing                                                   |       | 310,286                          |        | 365,568 |   |
| General and administrative                                  |       | 2,048,500                        |        | 1,737,051 |   |
| Total operating expenses                                    |       | 11,157,368                       |        | 9,007,995 |   |
| Loss from operations                                        |       | (11,074,356                      | )           | (8,521,329 | ) |
| Interest income and other, net                              |       | 186,968                          |        | 581,284 |   |
| Net loss                                                    |       | $                                | (10,887,388 | ) | $ | (7,940,045 | ) |
|                                                        |       |                             |        |   |   |
| Basic and diluted net loss per share                        |       | $                                | (0.36       | ) | $ | (0.28 | ) |
| Shares used to compute basic and diluted net loss per share |       | 30,535,577                       |        | 27,869,675 |   |

 

See accompanying notes.

 

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**Optimer Pharmaceuticals, Inc.**

**Consolidated Statements of CashFlows**

**(unaudited)**

 
| ** **                                                                   | ** ** | **Three Months Ended March 31,** | ** **  |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|
| ** **                                                                   | ** ** | **2009**                                             | ** **  | **2008** | ** ** |
| ** **                                                                   | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| **Operating activities**                                                     |       |                                                 |        |   |   |
| Net loss                                                                     |       | $                                                    | (10,887,388 | ) | $ | (7,940,045 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |       |                                                 |        |   |   |
| Depreciation and amortization                                                |       | 60,296                                               |        | 54,892 |   |
| Stock based compensation                                                     |       | 638,155                                              |        | 429,678 |   |
| Deferred rent                                                                |       | 16,662                                               |        | (8,171 | ) |
| Changes in operating assets and liabilities:                                 |       |                                                 |        |   |   |
| Prepaids expenses and other current assets                                   |       | (66,036                                              | )           | (409,820 | ) |
| Research grant and contract receivables                                      |       | 128,287                                              |        | (391,482 | ) |
| Other assets                                                                 |       | 1,053                                                |        | (1,896 | ) |
| Accounts payable and accrued expenses                                        |       | 388,067                                              |        | 330,078 |   |
| Net cash used in operating activities                                        |       | (9,720,904                                           | )           | (7,936,766 | ) |
|                                                                         |       |                                                 |        |   |   |
| **Investing activities**                                                     |       |                                                 |        |   |   |
| Purchases of short-term investments                                          |       | (5,456,593                                           | )           | (13,001,529 | ) |
| Sales or maturity of short-term investments                                  |       | 12,272,000                                           |        | 36,475,000 |   |
| Purchases of property and equipment                                          |       | (33,213                                              | )           | (30,594 | ) |
| Net cash provided by investing activities                                    |       | 6,782,194                                            |        | 23,442,877 |   |
|                                                                         |       |                                                 |        |   |   |
| **Financing activities**                                                     |       |                                                 |        |   |   |
| Proceeds from sale of common stock                                           |       | 32,955,363                                           |        | 21,396 |   |
| Net cash provided by financing activities                                    |       | 32,955,363                                           |        | 21,396 |   |
| Effect of exchange rate changes on cash and cash equivalents                 |       | (6,634                                               | )           | 9,229 |   |
| Net increase in cash and cash equivalents                                    |       | 30,010,019                                           |        | 15,536,736 |   |
| Cash and cash equivalents at beginning of period                             |       | 16,778,880                                           |        | 3,191,814 |   |
| Cash and cash equivalents at end of period                                   |       | $                                                    | 46,788,899  |   | $ | 18,728,550 |   |

 

Seeaccompanying notes.

 

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**Tableof Contents**

 

**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated Financial Statements**

**(unaudited)**

 

**1.     Interim Financial Information**

** **

***Organizationand Business Activities***

** **

OptimerPharmaceuticals, Inc. (“Optimer” or the “Company”) was incorporated inDelaware on November 18, 1998. The Company has one wholly ownedsubsidiary, Optimer Biotechnology, Inc., which is incorporated and locatedin Taiwan.

 

Optimer is abiopharmaceutical company focused on discovering, developing andcommercializing anti-infective products. The Company currently has two anti-infective product candidates,fidaxomicin, for the treatment of *Clostridiumdifficile*-infection, and prulifloxacin, for the treatment ofinfectious diarrhea. The Company is developing additional product candidatesusing its proprietary technology, including its OPopSTM drug discovery platform.

 

*Basisof Presentation*

* *

The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with generally acceptedaccounting principles for interim financial information and Article 10 ofRegulation S-X. Accordingly, they do not include all of the informationand footnotes required by generally accepted accounting principles for completefinancial statements. In the opinion of management, all adjustments, consistingof normal recurring accruals, considered necessary for a fair presentation ofthe results of these interim periods have been included. The results ofoperations for the three months ended March 31, 2009 are not necessarilyindicative of the results that may be expected for the full year. Theseunaudited consolidated financial statements should be read in conjunction withthe audited financial statements and related notes thereto included in theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31,2008, which was filed with the Securities and Exchange Commission (“SEC”) on March 12,2009.

 

The preparation of consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the amounts reported in the consolidated financial statements andaccompanying notes. Actual results could differ materially from thoseestimates.

 

**2.     Summary of Significant Accounting Policies**

 

*Cash, Cash Equivalents andInvestments*

* *

Investments with original maturities of less than 90days at the date of purchase are considered to be cash equivalents.  All other investments are classified asshort-term investments which are deemed by management to be available-for-saleand are reported at fair value with net unrealized gains or losses reportedwithin other comprehensive loss in the consolidated statement of stockholders’equity.  Realized gains and losses, anddeclines in value judged to be other than temporary, are included in investmentincome or interest expense.  The cost ofsecurities sold is computed using the specific identification method.

 

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**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated Financial Statements (continued)**

**(unaudited)**

 

Auction rate preferred securities areclassified as noncurrent available-for-sale securities in the consolidatedbalance sheet because of the Company’s intent and ability to hold thesesecurities until the market for auction rate preferred securities returns oruntil the issuer refinances the underlying security.

 

*Revenue Recognition*

* *

The Company’s license and collaborationagreements contain multiple elements, including non-refundable upfront fees,payments for reimbursement of third-party research costs, payments for ongoingresearch, payments associated with achieving specific development milestonesand royalties based on specified percentages of net product sales, if any.  The Company applies the revenue recognitioncriteria outlined in Staff Accounting Bulletin (“SAB”), No. 104, *Revenue Recognition* and Emerging Issues Task Force (“EITF”)Issue 00-21, *Revenue Arrangements with MultipleDeliverables* (“EITF 00-21”). In applying these revenue recognition criteria, the Company considers avariety of factors in determining the appropriate method of revenue recognitionunder these arrangements, such as whether the elements are separable, whetherthere are determinable fair values and whether there is a unique earningsprocess associated with each element of a contract.

 

Cash received in advance of services beingperformed is recorded as deferred revenue and recognized as revenue as servicesare performed over the applicable term of the agreement.

 

When a payment is specifically tied to aseparate earnings process, revenues are recognized when the specificperformance obligation associated with the payment is completed.  Performance obligations typically consist ofsignificant and substantive milestones pursuant to the related agreement.  Revenues from milestone payments may beconsidered separable from funding for research services because of the uncertaintysurrounding the achievement of milestones for products in early stages ofdevelopment.  Accordingly, these paymentsare allowed to be recognized as revenue if and when the performance milestoneis achieved if they represent a separate earnings process as described inEITF 00-21.

 

In connection with certain researchcollaboration agreements, revenues are recognized from non-refundable upfrontfees, which the Company does not believe are specifically tied to a separateearnings process, ratably over the term of the agreement.  Research fees are recognized as revenue asthe related research activities are performed.

 

Revenues derived from reimbursement of directout-of-pocket expenses for research costs associated with grants are recordedin compliance with EITF Issue 99-19, *Reporting Revenue Gross asa Principal Versus Net as an Agent*, and EITF Issue 01-14, *Income Statement Characterization of Reimbursements Received for “Out-of-Pocket”Expenses Incurred*.  Accordingto the criteria established by these EITF Issues, in transactions where the Companyacts as a principal, with discretion to choose suppliers, bears credit risk andperforms part of the services required in the transaction, the Company recordsrevenue for the gross amount of the reimbursement.  The costs associated with these reimbursementsare reflected as a component of research and development expense in theconsolidated statements of operations.

 

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**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated Financial Statements (continued)**

**(unaudited)**

 

None of the payments that the Company hasreceived from collaborators to date, whether recognized as revenue or deferred,are refundable even if the related program is not successful.

 

*Research and DevelopmentExpenses*

* *

The Company accounts for research anddevelopment costs in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 2, *Accounting for Researchand Development Costs* (“SFAS No. 2”).  SFAS No. 2 specifies that research anddevelopment costs should be charged to expense until technological feasibilityhas been established for the product. Once technological feasibility is established, all product costs shouldbe capitalized until the product is available for general release tocustomers.  The Company has determinedthat technological feasibility for its product candidates will be reached whenthe requisite regulatory approvals are obtained to make the product availablefor sale, which, in the United States, generally occurs upon the approval ofthe new drug application (“NDA”) for such product.  The Company’s research and developmentexpenses consist primarily of license fees, salaries and related employeebenefits, costs associated with clinical trials managed by the Company’scontract research organizations and costs associated with non-clinicalactivities and regulatory approvals.  TheCompany uses external service providers and vendors to conduct clinical trials,to manufacture supplies of product candidates to be used in clinical trials andto provide various other research and development-related products andservices.

 

When nonrefundable payments for goods or services tobe received in the future for use in research and development activities aremade, the Company applies the criteria outlined in EITF Issue 07-3, *Accounting for Non-Refundable Advance Payments forGoods or Services to be Used in Future Research and Development Activities*(“EITF07-3”)*.*In accordance with EITF07-3, these types of payments are deferred and capitalized. The capitalizedamounts are expensed when the related goods are delivered or the services areperformed.

 

*Comprehensive Income (Loss)*

* *

The Company has applied SFAS No. 130, *Reporting Comprehensive Income*, which requires that allcomponents of comprehensive income (loss), including net income (loss), bereported in the financial statements in the period in which they arerecognized.  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 Company’s comprehensive loss was $10.9million and $7.8 million for the three months ended March 31, 2009 and2008, respectively.

 

*Net Loss Per Share*

* *

The Company computes net loss per share inaccordance with SFAS No. 128, *Earningsper Share*(“SFAS No.128”). Under the provisions of SFAS No.128,basic net 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 

 

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**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated Financial Statements (continued)**

**(unaudited)**

 

weighted-average number of common shares anddilutive common share equivalents then outstanding. Common equivalent sharesconsist of common shares issuable upon the exercise of stock options andwarrants. Since the Company has a net loss for all periods presented, theeffect of all potentially dilutive securities is anti-dilutive. Accordingly,basic and diluted net loss per share is the same for all periods presented.

 

As of March 31, 2009 and 2008, commonshares issuable upon the exercise of stock options and warrants totaling2,401,807 and 1,992,272 shares, respectively, were excluded from thecalculation, as their effect would have been antidilutive.

 

*Income Taxes*

 

The Company adoptedFASB issued Financial Interpretation No. 48 (“FIN 48”), *Accounting for Uncertainty in Income Taxes — An Interpretation of FASBStatement No. 109*on January 1, 2007 which**clarifies the accounting for uncertainty in income taxesrecognized in an entity’s financial statements in accordance with SFAS No. 109,*Accounting for Income Taxes*, andprescribes a recognition threshold and measurement attributes for financialstatement disclosure of tax positions taken or expected to be taken on a taxreturn. The impact of an uncertain income tax position on the income tax returnmust be recognized at the largest amount that is more-likely-than-not to besustained upon audit by the relevant taxing authority. An uncertain income taxposition will not be recognized if it has less than a 50% likelihood of beingsustained. Additionally, FIN 48 provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.

 

*Recently Issued Accounting Pronouncements*

 

In April 2009, theFinancial Accounting Standards Board (“FASB”) issued the following newaccounting standards:

 

FASB Staff PositionFAS 157-4, *Determining Whether a MarketIs Not Active and a Transaction Is Not Distressed* (“FSPFAS 157-4”) provides guidelines for making fair value measurements moreconsistent with the principles presented in SFAS 157. FSP FAS 157-4provides additional authoritative guidance in determining whether a market isactive or inactive, and whether a transaction is distressed, is applicable toall assets and liabilities (i.e. financial and nonfinancial) and will requireenhanced disclosures.

 

FASB Staff PositionsFAS 115-2, FAS 124-2, and EITF 99-20-2, *Recognition and Presentation of Other-Than-TemporaryImpairments* (“FSP FAS 115-2, FAS 124-2, andEITF 99-20-2”), provides additional guidance regarding the credit andnoncredit components of an other-than-temporary impairment event, and how tomore effectively communicate when an other-than-temporary impairment event hasoccurred. FSP FAS 115-2, FAS 124-2 and EITF 99-20-2 applies to debt securities.

 

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**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated Financial Statements (continued)**

**(unaudited)**

 

FASB Staff PositionFAS 107-1 and APB 28-1, *InterimDisclosures about Fair Value of Financial Instruments* (“FSPFAS 107-1 and APB 28-1”) amends FASB Statement No. 107, *Disclosures about Fair Value of Financial Instruments*,to require disclosures about the fair value of financial instruments in interimas well as annual financial statements. FSP FAS 107-1 and APB 28-1 also amendsAPB Opinion No. 28, *Interim FinancialReporting*, to require those disclosures in all interim financialstatements.

 

These standards areeffective for periods ending after June 15, 2009. We are evaluating theimpact that these standards will have on our financial statements, if any.

 

*RecentlyAdopted Accounting Pronouncements*

* *

Effective January 1, 2009, the Company adoptedthe following FASB accounting standards:

 

SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements — AnAmendment of ARB No. 51* (“SFAS No. 160”).  SFAS No. 160 requires therecognition of a noncontrolling interest, sometimes called a minority interest,as equity in the consolidated financial statements and separate from the parent’sequity. The amount of net income attributable to the noncontrolling interest isincluded in consolidated net income on the face of the income statement.SFAS No. 160 clarifies that changes in a parent’s ownership interestin a subsidiary that do not result in deconsolidation are equity transactionsif the parent retains its controlling financial interest. In addition, this statementrequires that a parent recognize a gain or loss in net income when a subsidiaryis deconsolidated. Such gain or loss is measured using the fair value of thenoncontrolling equity investment on the deconsolidation date. SFAS No. 160also includes expanded disclosure requirements regarding the interests of theparent and its noncontrolling interest. The adoption of this standard did nothave a material impact on the Company’s financial position, cash flows, orresults of operations.

 

FASB Statement 141 (revised 2007), “BusinessCombinations” (“SFAS 141(R)”) and FAS 141(R)-1 which amendsand clarifies SFAS 141(R). SFAS 141(R) establishes principles and requirements for how anacquirer recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, any noncontrolling interest in theacquiree and the goodwill acquired in connection with business combinations.SFAS 141(R) also establishes disclosure requirements to enable theevaluation of the nature and financial effects of the business combination. Theadoption of this standard did not have a material impact on the Company’sfinancial position, cash flows, or results of operations.

 

SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133*.This new standard requires enhanced disclosures for derivative instruments,including those used in hedging activities. The adoption of this standard did not have a materialimpact on the Company’s financial position, cash flows, or results ofoperations.

 

FASB Staff PositionFAS 142-3, *Determination of the UsefulLife of Intangible Assets*(“FSP FAS 142-3”). FSP FAS 142-3 amendsthe factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB Statement No. 142, *Goodwilland Other Intangible Assets*. The adoption of this standard did not have a materialimpact on the Company’s financial position, cash flows, or results ofoperations.

 

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**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated Financial Statements (continued)**

**(unaudited)**

 

**3.   FairValue of Financial Instruments**

 

The following table summarizes the Company’s assetsmeasured at fair value on a recurring basis subject to the disclosurerequirements of SFAS 157 as of March 31, 2009:

 
| ** **                 | ** ** | **Quoted Prices in  Active Markets********(Level 1)** | ** ** | **Other  Observable  Inputs********(Level 2)** | ** ** | **Unobservable  Inputs********(Level 3)** | ** ** | **Total**  | ** ** |
|----------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------|------------|------------|------------|
| Cash and  cash equivalents |       | $                                                                         | 46,788,899 |                                                | $          | —                                         |       | $          | —     |   | $ | 46,788,899 |   |
| Marketable  securities     |       | 15,794,624                                                                |       | —                                              |       | —                                         |       | 15,794,624 |       |
| Auction  rate securities   |       | —                                                                    |       | —                                              |       | 982,000                                        |       | 982,000    |       |
|                            |            |                                                                           |            |                                                     |            |                                                |            |            |            |  |  |  |  |

 
| Level 1: |   | Quoted prices in active markets for  identical assets and liabilities; or                                                                                                                                 |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                      |
| Level 2: |   | Quoted prices for identical or similar  assets and liabilities in markets that are not active, or observable inputs  other than quoted prices in active markets for identical assets and  liabilities; or |
|     |   |                                                                                                                                                                                                      |
| Level 3: |   | Unobservable inputs.                                                                                                                                                                                      |

 

A reconciliation of the beginning and endingbalances of assets measured at fair value on a recurring basis using Level 3inputs is as follows:

 
| ** **                                                                               | ** ** | **Auction Rate  Preferred  Securities** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| Beginning balance at January 1, 2009                                                |       | $                                            | 1,032,000  |   |
| Total gains and losses:                                                                  |       |                                         |       |
| Realized net income                                                                      |       | —                                       |       |
| Unrealized in accumulated other comprehensive income                                     |       | —                                       |       |
| Purchases, sales, issuances and settlements                                              |       | —                                       |       |
| Transfers in (out) of Level 3                                                            |       | (50,000                                      | )          |
| Ending balance at March 31, 2009                                                    |       | $                                            | 982,000    |   |
| 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, 2009, theCompany held two auction rate preferred securities valued at $982,000 in theaggregate with perpetual maturity dates that reset every 28 days.  Since February 2008, the auctions forthese securities have failed.  Althoughthese auction rate preferred securities continue to pay interest according totheir stated terms, the market in such securities continues to be illiquid andthe decline in value was judged to be other than temporary. Based on valuationmodels on the individual securities, the Company has previously recognized inthe consolidated statement of operations an unrealized loss of approximately$118,000 in investment income. These securities have been classified aslong-term investments on the consolidated balance sheets as the Company doesnot believe it could liquidate the securities in the near term.

 

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**Optimer Pharmaceuticals, Inc.**

**Notes to Consolidated Financial Statements (continued)**

**(unaudited)**

** **

**4.     Short-Term Investments**

 

The following is asummary of the Company’s investment securities, all of which are classified asavailable-for-sale. Determination of estimated fair value is based upon quotedmarket prices as of the dates presented.

 
| ** **                                       | ** ** | **March 31, 2009** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **Gross  Amortized  Cost**   | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Market Value** | ** ** |
| Commercial paper                                 |       | $                            | 2,495,848  |   | $ | 938 |   | $ | — |   | $ | 2,496,786 |   |
| Corporate debt securities                        |       | 3,646,928                    |       | 2,988 |   | (10,379 | ) | 3,639,537 |   |
| U.S. securities and other government obligations |       | 9,644,707                    |       | 15,297 |   | (1,703 | ) | 9,658,301 |   |
| Total                                            |       | $                            | 15,787,483 |   | $ | 19,223 |   | $ | (12,082 | ) | $ | 15,794,624 |   |

 
| ** **                 | ** ** | **December 31, 2008** | ** ** |
|----------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **Gross  Amortized  Cost**      | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Market  Value** | ** ** |
| Corporate debt securities  |       | $                               | 13,464,268 |   | $ | 3,089 |   | $ | (49,257 | ) | $ | 13,418,100 |   |
| Foreign debt securities    |       | 1,503,901                       |       | 5,824 |   | — |   | 1,509,725 |   |
| Government debt securities |       | 7,584,720                       |       | 37,106 |   | (2,136 | ) | 7,619,690 |   |
| Total                      |       | $                               | 22,552,889 |   | $ | 46,019 |   | $ | (51,393 | ) | $ | 22,547,515 |   |

 

Investments in net unrealized loss positionsas of March 31, 2009 are 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** | ** ** |
| Corporate debt securities                        |       | 3                               |       | $                                                                         | 1,828,413  |                                                                         | $          | (10,379                              | )          | $ | — |   | $ | — |   | $ | 1,828,413 |   | $ | (10,379 | ) |
| U.S. securities and other government obligations |       | 3                               |       | 2,495,493                                                                 |       | (1,703                                                                       | )          | —                               |       | — |   | 2,495,493 |   | (1,703 | ) |
| Total                                            |       | 6                               |       | $                                                                         | 4,323,906  |                                                                         | $          | (12,082                              | )          | $ | — |   | $ | — |   | $ | 4,323,906 |   | $ | (12,082 | ) |

 

The Company considered a number of factors todetermine whether the decline in value in its investments is other thantemporary, including the length of time and the extent to which the marketvalue has been less than cost, the financial condition of the issuer and theCompany’s intent to hold and ability to retain these short-terminvestments.  Based on these factors, theCompany believes that the decline in value is temporary and primarily relatedto the change in market interest rates since purchase.  The Company anticipates that it will fullyrecover the amortized cost with respect to these securities at maturity orsooner in the event of a change in the market interest rate environment.

 

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**OptimerPharmaceuticals, Inc.**

**Notes toConsolidated Financial Statements (continued)**

**(unaudited)**

 

**5.****             ****StockBased Compensation**

 

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.  The following table shows the assumptionsused to compute stock-based compensation expense for the stock options grantedduring the three months ended March 31, 2009 and 2008, using theBlack-Scholes option pricing model:

 
| ** **                       | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|
| ** **                       | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| Risk-free interest rate          |       | 2.00                                             | %          | 2.96 | % |
| Dividend yield                   |       | 0.00                                             | %          | 0.00 | % |
| Expected life of options (years) |       | 5.27-6.08                                        |       | 6.02-6.08 |   |
| Volatility                       |       | 69.93                                            | %          | 64.95 | % |

 

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 the Company’s expectation of notpaying dividends in the foreseeable future. The weighted-average expected life of options was calculated using thesimplified method as prescribed SAB No. 107, *Share-BasedPayment* (“SAB No. 107”). This decision was based on the lack of relevant historical data due tothe Company’s limited history.  Inaddition, due to the Company’s limited historical data, the estimatedvolatility also reflects the application of SAB No. 107,incorporating the historical volatility of comparable companies whose shareprices are publicly available.

 

Basedon these assumptions, the weighted-average grant-date fair value of stockoptions granted during the****three monthsended March 31, 2009 was $6.82****per share.

 

Asof March 31, 2009, the total unrecognized compensation expense related tounvested stock options was approximately $5,762,017 and the relatedweighted-average period over which it is expected to be recognized isapproximately 3.0 years.

 

Totalstock-based compensation expense, related to all of the Company’s stockoptions, stock awards and employee stock purchases, recognized for the threemonths ended March 31, 2009 and 2008 was comprised as follows:

 
| ** **                       | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|
| ** **                       | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| Research and development         |       | $                                                | 226,847    |   | $ | 110,547 |   |
| Marketing                        |       | 93,175                                           |       | 78,484 |   |
| General and administrative       |       | 318,133                                          |       | 240,647 |   |
| Stock-based compensation expense |       | $                                                | 638,155    |   | $ | 429,678 |   |

 

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**OptimerPharmaceuticals, Inc.**

**Notes toConsolidated Financial Statements (continued)**

**(unaudited)**

 

**6.     Stockholders’ Equity**

** **

*Stock Options*

* *

InNovember 1998, the Company adopted the 1998 Stock Plan (“1998 Plan”).  The Company terminated and ceased grantingoptions under the 1998 Plan upon the effectiveness of the Company’s initialpublic offering in February 2007.

 

InDecember 2006, the Company’s board of directors approved the 2006 EquityIncentive Plan (“2006 Plan”).  The 2006Plan became effective upon the effectiveness of the Company’s initial publicoffering. The Company initially reserved a total of 2,000,000 shares of itscommon stock for issuance pursuant to the 2006 Plan.  The 2006 Plan provides for annual increasesin the number of shares available for issuance thereunder on the first day ofeach fiscal year, beginning with the Company’s 2008 fiscal year, equal to thelesser of (i) 5% of the outstanding shares of the Company’s common stockon the last day of the immediately preceding fiscal year; (ii) 750,000shares; or (iii) such other amount as the board of directors maydetermine.  As of March 31, 2009, a total of 3,500,000 sharesof the Company’s common stock had been reserved for issuance under the 2006Plan.

 

Optionsgranted under both the 1998 Plan and the 2006 Plan generally expire no laterthan ten years from the date of grant (five years for a 10% stockholder) andvest over a period of four years. The exercise price of options granted must atleast be equal to the fair market value of the Company’s common stock on thedate of grant.  The 2006 Plan isadministered by the Compensation Committee of the Company’s Board of Directors.In September 2008, the Company’s board of directors established a New HireStock Option Committee consisting of the Chief Executive Officer and the ChiefFinancial Officer, with authority to grant options to newly-hired non-executiveemployees within pre-determined limits.

 

Followingis a summary of stock option activity for the three months ended March 31,2009:

 
| ** **                           | ** ** | **Options** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|--------------------------------------|------------|-------------|------------|---------------------------------------------|------------|
| Balance as of December 31, 2008 |       | 1,979,660   |       | $                                           | 3.64       |   |
| Granted                              |       | 518,250     |       | $                                           | 10.78      |   |
| Exercised                            |       | (81,633     | )          | $                                           | 1.02       |   |
| Canceled                             |       | (14,470     | )          | $                                           | 8.50       |   |
| Balance as of March 31, 2009    |       | 2,401,807   |       | $                                           | 5.24       |   |

 

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** **

**OptimerPharmaceuticals, Inc.**

**Notes toConsolidated Financial Statements (continued)**

**(unaudited)**

 

As of March 31, 2009, options were outstanding under the 1998 Planand the 2006 Plan as follows:

 
| ** **              | ** ** | **March 31, 2009** | ** ** |
|-------------------------|------------|------------------------------|------------|
| ** **              | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| **Exercise Price** | ** ** | **Number  Outstanding**      | ** ** | **Weighted-  Average  Remaining  Contractual  Life (in years)** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| $0.22 - $1.08           |       | 851,380                      |       | 4.66 |   | $ | 0.90 |   | 835,836 |   | $ | 0.89 |   |
| $2.17 - $6.90           |       | 708,927                      |       | 8.13 |   | $ | 4.68 |   | 318,314 |   | $ | 3.67 |   |
| $7.10 - $10.75          |       | 678,000                      |       | 9.07 |   | $ | 9.92 |   | 146,286 |   | $ | 9.20 |   |
| $10.78 - $10.86         |       | 163,500                      |       | 9.90 |   | $ | 10.85 |   | 1,117 |   | $ | 10.85 |   |
| $0.22 - $10.86          |       | 2,401,807                    |       | 7.28 |   | $ | 5.24 |   | 1,301,553 |   | $ | 2.51 |   |

 

Ofthe options outstanding, options to purchase 1,301,553 shares were vested as ofMarch 31, 2009, with a weighted-average remaining contractual life of 5.8years and a weighted-average exercise price of $2.51 per share, while optionsto purchase 1,100,254 shares were unvested.

 

*Employee Stock Purchase Plan*

* *

Concurrentwith the Company’s initial public offering in February 2007, the Company’sboard of directors adopted the employee stock purchase plan (“ESPP”) in December 2006,and the stockholders approved the plan in January 2007.  A total of 200,000 shares of the Company’scommon stock were initially made available for sale under the plan.  The ESPP provides for annual increases in thenumber of shares available for issuance on the first day of each fiscal year,beginning with the Company’s 2008 fiscal year, equal to the lesser of (i) 3%of the outstanding shares of the Company’s common stock on the last day of theimmediately preceding fiscal year; (ii) 300,000 shares; or (iii) suchother amount as may be determined by the Company’s board of directors. As of March 31, 2009, a total of500,000 shares of the Company’s common stock had been reserved for issuanceunder the ESPP.

 

Offering periods under the ESPP commence on the first trading day on orafter May 15 and November 15 of each year. As of March 31,2009, 70,409 shares of Company’s common stock had been issued and 429,591shares were available for issuance under the ESPP.

 

During the three months ended March 31, 2009,the Company recorded stock-based compensation expense of approximately $42,975related to the ESPP.

 

*Warrants*

 

Inconnection with the registered direct offering which occurred in March 2009,the Company sold a total of 3.3 million shares of its common stock and warrantsto purchase up to an aggregate of 91,533 shares of its common stock. Thewarrants are exercisable six months after March 9, 2009, the date ofissuance, and will expire five years from March 9, 2009.

 

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**OptimerPharmaceuticals, Inc.**

**Notes toConsolidated Financial Statements (continued)**

**(unaudited)**

 

**7.     Revenue and OtherCollaborative Agreements**

 

*Revenuesfrom Research Grants*

 

The Company has received several research grants fromU.S. government agencies since 2003, all of which except for one were completedon or prior to March 31, 2009. The active grant was awarded from NationalInstitute of Allergy and Infectious Diseases (“NIAID”) in September 2007.This grant is renewable for $1 million each year until August 2010, up toa 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, 2009 and 2008, the Companyrecognized revenues related to research grants of $83,012, and $486,666,respectively.

 

*Other Collaborative Agreements*

 

The Company holds worldwide rights tofidaxomicin.  In February 2007, theCompany repurchased the rights to develop and commercialize fidaxomicin inNorth America and Israel from Par Pharmaceuticals, Inc. (“Par”) under aprospective buy-back agreement.  TheCompany is also obligated to pay Par a one-time $5.0 million milestone payment,a potential $3.0 million prepayment to Biocon Limited (“Biocon”), subject tofuture set-offs, a 5% royalty on net sales by the Company, its affiliates orits licensees of fidaxomicin in North America and Israel, and a 1.5% royalty onnet sales by the Company or its affiliates of fidaxomicin in the rest of theworld.  The one-time $5.0 millionmilestone payment is required to be paid after the earliest to occur of (i) thesuccessful completion by the Company of its second pivotal Phase 3 trialfor fidaxomicin, (ii) the Company’s grant to a third party of the rightsto fidaxomicin or (iii) the submission to the FDA of an NDA forfidaxomicin.  In addition, in the eventthe Company licenses its right to market fidaxomicin in the rest of the world,the Company will be required to pay Par a 6.25% royalty on net revenuesreceived 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 applicable commerciallaunch in each such country.

 

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, the Company’s patent and know-how related to the Company’smacrolide and ketolide antibacterial program. As partial consideration for granting Cempra the licenses, the Companyobtained equity of Cempra and the Company assigned no value to suchequity.  The Company may receivemilestone payments as product candidates are developed and/or co-developed byCempra, in addition to milestone payments based on certain sublicenserevenue.  The aggregate potential amountof such milestone payments is not capped and, based in part on the number ofproducts developed under the agreement, may exceed $24.5 

 

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**OptimerPharmaceuticals, Inc.**

**Notes toConsolidated Financial Statements (continued)**

**(unaudited)**

 

million.  TheCompany will also receive royalty payments based on a percentage of net salesof licensed products.  The milestone paymentswill be triggered upon the completion of certain clinical developmentmilestones and in certain instances, regulatory approval of products.  In consideration of the foregoing, Cempra mayreceive milestone payments from the Company in the amount of $1.0 million foreach of the first two products the Company develops which receive regulatoryapproval in ASEAN countries, as well as royalty payments on the net sales ofsuch products.  The research term of theagreement was completed in March 2008. Subject to certain exceptions, on a country-by-country basis, thegeneral terms of this agreement continue until the later of: (i) theexpiration of the last to expire patent rights of a covered product in theapplicable country or (ii) ten years from the first commercial sale of acovered product in the applicable country. Either party may terminate the agreement in the event of a materialbreach by the other party, subject to prior notice and the opportunity to cure.  Either party may also terminate the agreementfor any reason upon 30 days’ prior written notice provided that all licensesgranted by the terminating party to the non-terminating party will survive uponthe express election of the non-terminating party.

 

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 prulifloxacin, 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 prulifloxacin. 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 filing, if any, its first NDA forprulifloxacin in the United States. Under the agreement, the Company pays Nippon Shinyaku for certainmaterials.  If Nippon Shinyaku is unableto supply the Company with the contracted amount of prulifloxacin, then NipponShinyaku is obligated to grant the Company a non-exclusive, worldwide licenseto make or have made prulifloxacin, in which event the Company will owe NipponShinyaku a royalty based on the amount of net sales of prulifloxacin generatedby the Company and the Company’s subsidiary. Additionally, the Company will owe Nippon Shinyaku certain royaltiesbased on the amount of net sales of prulifloxacin less the amount ofprulifloxacin 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 prulifloxacin in the United States or the dateon which the last valid patent claim relating to prulifloxacin expires in theUnited States.

 

In July 2002, the Company entered into a licenseagreement with Sloan-Kettering Institute (“SKI”) to acquire, together withcertain nonexclusive licenses, exclusive, worldwide licensing and sublicensingrights to certain patented and patent-pending carbohydrate-based cancerimmunotherapies.  As partial considerationfor the licensing rights, the Company paid to SKI a one-time fee consisting ofboth cash and 55,383 shares of its common stock.  Under the agreement, which was amended in June 2005,the Company owes SKI milestone payments in the following amounts for eachlicensed product: (i) $500,000 upon the commencement of Phase 3clinical studies, (ii) $750,000 upon the filing of the first NDA, (iii) $1.5million upon obtaining 

 

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**OptimerPharmaceuticals, Inc.**

**Notes toConsolidated Financial Statements (continued)**

**(unaudited)**

 

marketing approval in the United States and (iv) $1.0million upon obtaining marketing approval in each and any of Japan and certainEuropean countries, but only to the extent that the Company, and not asublicensee, achieves such milestones. The Company may also owe SKI royalties based on net sales generated fromthe licensed products and income the Company receives from its sublicensingactivities, which royalty payments are credited against a minimum annualroyalty payment the Company may owe to SKI during the term of theagreement.  The term of the agreementcontinues until the later of July 31, 2017, or the expiration of the lastto expire of the patents licensed under this agreement, unless the agreement isearlier terminated.  The agreement can beterminated by SKI for a variety of reasons, including (i) upon 60 days’notice in the event the Company fails to meet a development milestone specifiedin the agreement or (ii) upon 30 days’ notice, in the event the Companyfails to pay any licensing fees, royalties or patent expenses due under theagreement within 30 days of the due date and thereafter fails to pay suchdeficit in-full within the 30-day notice period.

 

In July 1999, the Company acquired exclusive,worldwide rights to its OPopS technology from the Scripps Research Institute (“TSRI”).  This agreement includes the license to theCompany of patents, patent applications and copyrights related to OPopStechnology.  The Company also acquired,pursuant to three separate license agreements with TSRI, exclusive, worldwiderights to over 20 TSRI patents and patent applications related to other potentialdrug compounds and technologies, including HIV/FIV protease inhibitors,aminoglycoside antibiotics, polysialytransferase, selectin inhibitors, nucleicacid binders, carbohydrate mimetics and osteoarthritis.  Under the four agreements, the Company paidTSRI license fees consisting of an aggregate of 239,996 shares of its commonstock with a deemed aggregate fair market value of $46,400, as determined onthe dates of each such payment. Additionally, under each agreement, the Company may owe TSRI royaltiesbased on net sales by the Company, its affiliates and sublicensees of thecovered products and royalties based on revenue the Company generates fromsublicenses granted pursuant to the agreements. For the first licensed product under each of the four agreements, theCompany will also owe TSRI payments upon achievement of certainmilestones.  In three of the four TSRIagreements, the milestones are the initiation of a Phase 2 trial or itsforeign equivalent, the filing of an NDA or its foreign equivalent andgovernment marketing and distribution approval. In the remaining TSRI agreement, the milestones are the successfulcompletion of a Phase 3 trial or its foreign equivalent, the filing of anNDA or its foreign equivalent and government marketing and distributionapproval.  The aggregate potential amountof milestone payments the Company may be required to pay TSRI under all fourTSRI agreements is approximately $14.0 million. Each TSRI agreement terminates in part as follows: (i) with respectto each product which utilizes patent rights licensed under the agreement, on acountry-by-country basis concurrently with the expiration of the last to expireof the applicable patent rights, (ii) with respect to each product whichutilizes technology licensed under the agreement but which does not utilizepatent rights also licensed thereunder, 15 years after the date of the firstcommercial sale of the product in each country and (iii) with respect tosoftware licensed under the 1999 OPopS agreement, 75 years after the date theapplicable copyright is filed in the United States.

 

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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 31,2008, as filed with the Securities and Exchange Commission, or SEC.  This discussion and other parts of thisreport may contain forward-looking statements based upon current expectationsthat involve risks and uncertainties. Our actual results and the timing of selected events could differmaterially from those anticipated in these forward-looking statements as aresult of several factors, including those set forth under “Risk Factors” andelsewhere in this report.*

 

**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-stage anti-infectiveproduct candidates, fidaxomicin and prulifloxacin.

 

Fidaxomicin, our lead product candidate, is anantibiotic currently in its second Phase 3 registration trial for the treatmentof *Clostridium difficile*-infection,or CDI, the most common nosocomial, or hospital acquired, diarrhea. In November 2008,we reported positive data from the first fidaxomicin Phase 3 trial, the largestsingle comparative study ever conducted against Vancocin. The top-line analysisof data from this trial showed that fidaxomicin achieved the primary endpointof clinical cure and demonstrated a significantly lower recurrence ratecompared to Vancocin, the only FDA-approved antibiotic for the treatment ofCDI.  Fidaxomicin was also well-toleratedin the trial.  The second fidaxomicinPhase 3 trial is on-going and we anticipate completing enrollment and reportingdata from this trial in 2009.  Wecurrently hold worldwide rights to fidaxomicin.

 

Prulifloxacin is a prodrug in the fluoroquinoloneclass of antibiotics, a widely-used class of broad-spectrum antibiotics. We aredeveloping prulifloxacin as a treatment for infectious diarrhea intravelers.  In July 2008, wereported positive top-line data from the first Phase 3 trial conducted inMexico and Peru and in February 2009, we reported positive top-line datafrom the second Phase 3 trial conducted in India, Guatemala and Mexico.  The top-line analysis of data from thesestudies showed that prulifloxacin met the primary endpoint of TLUS compared toplacebo. We intend to conduct a Phase 4 trial of prulifloxacin subsequentto the NDA submission to compare prulifloxacin to ciprofloxacin for thetreatment of infectious diarrhea.  Weplan to initially seek approval for prulifloxacin for the treatment ofinfectious diarrhea in travelers.

 

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We are developingadditional product candidates using our proprietary technology, including ourOptimer One-Pot Synthesis, or OPopSTM drug discovery platform. OPopS is a computer-aidedtechnology that enables the rapid and low-cost synthesis of a wide array ofcarbohydrate-based compounds.  Twocomponents of the OPopS technology that allow us to synthesize new compoundsare GlycoOptimization and De Novo Glycosylation.  These technologies are capable of rapidlygenerating drug candidates for broad therapeutic application.  One of the more advanced OPopS productcandidates is OPT-88, a disease-modifying intra-articular, or within the cavityof a joint, therapy for osteoarthritis.  We plan tosubmit an Investigational New Drug application in 2009 and subsequently to,either ourselves or with a partner, initiate a Phase 1 study to assess safetyof repetitive intra-articular injections of OPT-88 in patients with kneeosteoarthritis.

 

Wealso acquired exclusive rights from Memorial Sloan-Kettering Cancer Center todevelop and commercialize OPT-822, a novel carbohydrate-based cancerimmunotherapy. We plan to seek a partner and initiate Phase 2/3 clinical trialsfor the treatment of metastatic breast cancer in Asia in 2009.

 

We were incorporated in November 1998.  Since inception, we have focused ondeveloping our product candidates, including fidaxomicin andprulifloxacin.  We have never beenprofitable and have incurred significant net losses since our inception.  As of March 31, 2009, we had anaccumulated deficit of $144.3 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 and commercialization of ourproduct candidates, as well as acquire or in-license additional products orproduct candidates, technologies or businesses that are complementary to ourown.

 

**Critical Accounting 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.

 

*Revenue Recognition*

* *

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.  We apply therevenue recognition criteria outlined in Staff Accounting Bulletin, or SAB, No. 104,*Revenue Recognition* and Emerging IssuesTask Force, or EITF, Issue 00-21, *Revenue Arrangements withMultiple Deliverables*, or EITF 00-21.  In applying these revenue recognitioncriteria, we consider a variety of factors in determining the appropriatemethod of revenue recognition under these arrangements, such as whether theelements are separable, whether there are determinable fair values and whetherthere is a unique earnings process associated with each element of a contract.

 

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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 as described in EITF 00-21.

 

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.

 

Revenuesderived from reimbursement of direct out-of-pocket expenses for research costsassociated with grants are recorded in compliance with EITF Issue 99-19, *Reporting Revenue Gross as a Principal Versus Net as an Agent*,and EITF Issue 01-14, *Income StatementCharacterization of Reimbursements Received for “Out-of-Pocket” ExpensesIncurred*.  According to thecriteria established by these EITF Issues, in transactions where we act as aprincipal, with discretion to choose suppliers, bear credit risk and performpart of the services required in the transaction, we record revenue for thegross amount of the reimbursement.  Thecosts associated with these reimbursements are reflected as a component ofresearch and development expense in the consolidated statements 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.

 

When nonrefundable payments for goods or services tobe received in the future for use in research and development activities aremade, we apply the criteria outlined in EITF Issue 07-3, or EITF 07-3,  *Accountingfor Non-Refundable Advance Payments for Goods or Services to be Used in FutureResearch and Development Activities .*In accordance with EITF 07-3,these types of payments are deferred and capitalized. The capitalized amountsare expensed when the related goods are delivered or the services areperformed.

 

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* *

*Accrued Clinical 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.  We expectto expand the level of research and development activity to be performed byexternal service providers and as a result, we expect our estimates of accrualswill become more significant to our future operations.  Subsequent changes in estimates may result ina material change in our accruals, which could also materially affect ourresults of operations.

 

*Stock-Based Compensation*

* *

We apply Statement of Financial Accounting Standards,or SFAS, No. 123(R), *Share-BasedPayment*, which revises SFAS No. 123, *Accounting for Stock-Based Compensation* and supersedes AccountingPrinciples Board Opinion No. 25, *Accountingfor Stock Issued to Employees*torecognize share-based compensation expenses.  SFAS No. 123(R) requires thatshare-based payment transactions with employees be recognized in the financialstatements based on their fair value and recognized as compensation expenseover the vesting period.  We used themodified prospective method when we adopted SFAS No. 123(R) andaccordingly we did not restate the results of operations for the prior periods.Compensation expense of $638,000 and $430,000 was recognized in the quartersended March 31, 2009 and 2008, 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 the fair value for stock options requiresjudgment, including estimating stock-price volatility, expected term, expecteddividends and risk-free interest rates. The expected volatility rates are basedon the historical fluctuation in the stock price since inception. The averageexpected term is calculated using SAB No. 107, *Simplified Method for Estimating the Expected Term*.  Expected dividends are estimated based on ourdividend history as well as our current projections. The risk-free interest ratefor periods approximating the expected terms of the options is based on theU.S. Treasury yield curve in effect at the time of grant. 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 as determined in accordance with SFAS No. 123(R)and EITF Issue 96-18, *Accounting for EquityInstruments That are Issued to Other Than Employees for Acquiring, or inConjunction with Selling Goods and Services*, and are periodicallyrevalued as the equity instruments vest and are recognized as expense over therelated service period.

 

**Results of Operations**

** **

***Comparison of***Three Months Ended March 31,2009 and 2008

*** ***

*GrantRevenues*.  Grantrevenues for the three months ended March 31, 2009 and 2008 were $83,000and $487,000, respectively. The decrease of $404,000, or 83%, was primarily dueto the conclusion of one of two National Institutes of Health grants.

 

*Researchand Development Expense*. Research and development expense for the three months ended March 31,2009 and 2008 was $8.8 million and $6.9 million, respectively, an increase of$1.9 million, or 27%.   The increase wasprimarily due to an increase in development and regulatory expenses related tofidaxomicin and prulifloxacin.

 

*MarketingExpense*. * *Marketingexpense of $310,000 for the three months ended March 31, 2009 wasrelatively consistent with the $365,568 for the three months ended March 31,2008.

 

*Generaland Administrative Expense*.  General and administrative expense for thethree months ended March 31, 2009 and 2008 was $2.0 million and $1.7million, respectively.  The increase of$311,000, or 18%, was due to higher compensation expenses, including $318,000of stock compensation expense, an increase of $77,000 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, 2009 and2008 was $187,000 and $581,000, respectively. The decrease was primarily due to lower average balances as well aslower interest rates on cash, cash equivalents and investments.

 

**Liquidity and CapitalResources**

** **

*Sources of Liquidity*

* *

Since inception, our operations have been financed primarily throughthe sale of equity securities.  Through March 31,2009, we received gross proceeds of approximately $202.4 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; and

 

·                  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.

 

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 ourinvestments to preserve principal and maintain liquidity.

 

*Cash Flows*

* *

Asof March 31, 2009, cash, cash equivalents and short-term investmentstotaled approximately $62.6 million as compared to $39.3 million as of December 31,2008, an increase of approximately $23.3 million.  The increase in our cash, cash equivalentsand short-term investments was primarily due to the $32.9 million raised in aregistered direct offering of our common stock in March 2009.

 

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, we regained worldwide rights tofidaxomicin from Par under a prospective buy-back agreement.  We are obligated to pay Par a one-time $5.0million milestone payment, a 5% royalty on net sales by us or our affiliates offidaxomicin in North America and Israel, and a 1.5% royalty on net sales by usor 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. We may be obligated to pay a $3.0 millionprepayment to Biocon, subject to future set-offs.

 

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In June 2004, we entered into a license agreementwith Nippon Shinyaku Co., Ltd. to which we acquired the non-exclusive right toimport and purchase prulifloxacin , and the exclusive right (with the right tosublicense), within the United States, to develop, make, use, offer to sell,sell and license products suitable for consumption by humans containingprulifloxacin. Under the terms of the agreement, we will be required to payNippon Shinyaku a milestone payment in the amount of $1.0 million upon thefiling, if any, of a new drug application for prulifloxacin in the UnitedStates.

 

In October 2008, ourCompensation Committee adopted a Severance Benefit Plan covering certaineligible employees of the Company, including executive officers.  Pursuant to the plan, upon an involuntarytermination other than for cause, an eligible employee may be entitled toreceive specified severance benefits. The benefits may include cash severancepayments and acceleration of stock award vesting.  The level of benefits provided under the plandepends upon an eligible employee’s position and years of service, and whetherthe termination is related to a change in control.

 

*Funding Requirements*

* *

Our future capital uses and requirements depend on numerous factorsincluding, but not limited to, the following:

 

·                  the progress of our clinicaltrials, including expenses to support the trials and the milestone paymentsthat may become payable to Par and Nippon Shinyaku;

 

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

 

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

 

·                  the costs andtiming of regulatory approvals;

 

·                  the costs ofestablishing sales or distribution capabilities;

 

·                  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.

 

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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.  Recently, the credit markets and thefinancial services industry have been experiencing a period of unprecedentedturmoil and upheaval characterized by the government take-over, bankruptcy,failure, collapse or sale of various financial institutions.  These events have generally made equity anddebt financing more difficult to obtain, and may negatively impact our abilityto complete financing transactions. Having insufficient funds may require us to delay, scale-back oreliminate some or all of our development programs, relinquish some or even allof our rights to product candidates at an earlier stage of development orrenegotiate less favorable terms than we would otherwise choose.  Failure to obtain adequate financing also mayadversely affect our ability to operate as a going concern.  If we raise funds by issuing equitysecurities, substantial dilution to existing stockholders would likely result.  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**

 

Ourcash and cash equivalents and short-term investments as of March 31, 2009consisted primarily of money market funds, corporate debt securities, UnitedStates 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, 2009 would have resultedin approximately a $16,000 change in net loss. Accordingly, we would notexpect our operating results or cash flows to be affected to any significantdegree by a sudden change in market interest rates applicable to our securitiesportfolio.  In general, money marketfunds are not subject to market risk because the interest paid on such fundsfluctuates with the prevailing interest rate.

 

**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 such informationis accumulated and communicated to our management, including our chiefexecutive officer and chief financial officer, as appropriate, to allow fortimely decisions regarding required disclosure. In designing and evaluating thedisclosure 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.

 

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*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 is reasonablylikely to materially affect, our internal control over financial reporting.

 

**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, 2008, as filedwith the SEC.

 

**RisksRelated 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 prulifloxacin.**

 

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 and securing U.S.and/or foreign regulatory approvals for fidaxomicin and prulifloxacin and, to alesser extent, other product candidates;

 

·                  commercializing, alone orwith a partner, any product candidates for which we receive approval from theFDA; and/or comparable foreign regulatory authorities; and

 

·                  generating a pipeline ofinnovative product candidates utilizing our drug discovery platform or throughlicensing strategies.

 

Our product candidates willgenerally require extensive clinical study and evaluation, regulatory approvalin multiple jurisdictions, substantial investment and significant marketingefforts before 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 

 

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regulatory authorities.  We have not submitted an NDA, or receivedmarketing approval for either fidaxomicin or prulifloxacin, and we cannot becertain that either of these product candidates will be successful in on-goingor future clinical trials or receive regulatory approval.  If we do not receive regulatory approval forand successfully commercialize fidaxomicin and prulifloxacin, we will notgenerate any revenues from product sales for several years, if at all, and wemay not be able to continue our operations.

 

We believe our initialsuccess will be more dependent on fidaxomicin than prulifloxacin, because webelieve that the market for the treatment of CDI is larger than the market forthe treatment of infectious diarrhea. Even if we successfully obtain regulatory approval to market fidaxomicinor prulifloxacin, our revenues for either drug candidate will be dependent uponthe size of the markets in the territories for which we have commercialrights.  If the markets for the treatmentof CDI or infectious diarrhea are not as significant as we estimate, ourbusiness and prospects will be harmed.

 

**We have incurred significant operating losses sinceinception and anticipate that we will incur continued losses for theforeseeable future.***

 

We have experienced significant operating losses since our inception in1998.  As of March 31, 2009, we hadan accumulated deficit of approximately $144.3 million.  We have generated no revenues from productsales to date.  We have funded ouroperations through March 31, 2009 from the sale of approximately $202.4million 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 advance ourclinical trials and research and development initiatives, prepare submissionsfor regulatory approval of our lead product candidates and build our marketingand sales capabilities.  Because of thenumerous 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 prulifloxacin or develop and commercialize our other productcandidates, or continue our other research and development programs.**

 

We will require additionalcapital to commercialize our current lead product candidates, fidaxomicin andprulifloxacin.  We cannot be certain thatadditional funding will be available on acceptable terms, or at all.  Recently, the credit markets and thefinancial services industry have been experiencing a period of unprecedentedturmoil and upheaval characterized by the government take-over, bankruptcy,failure, collapse or sale of various financial institutions.  These events have generally made equity anddebt financing more difficult to obtain, and may negatively impact our abilityto complete financing transactions.  Tothe extent that we raise additional funds by issuing equity securities, ourstockholders may experience significant dilution.  Any debt financing, if available, may requireus to pledge our assets as collateral or involve restrictive covenants, such aslimitations on our ability to incur additional indebtedness, limitations on ourability to acquire or license intellectual property rights and other operating 

 

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restrictions that couldnegatively impact our ability to conduct our business.  If we are unable to raise additional capitalwhen required or on acceptable terms, we may have to significantly delay, scaleback or discontinue the development or commercialization of one or more of ourproduct candidates or one or more of our other research and developmentinitiatives.  We also could be requiredto:

 

·                  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 prulifloxacin on our own.If we are unable to raise additional capital or are unable to effectivelycollaborate with one or more partners for the commercialization of fidaxomicinor prulifloxacin, we will not generate significant revenues from sales of theseproducts and our business 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 North America andprulifloxacin in the United States, and we intend to seek one or more partnersfor the commercialization of fidaxomicin outside of North America.  With respect to our OPT-88 andOPT-822/OPT-821 product candidates, we currently plan to conduct a limitedamount of additional research and development before seeking a partner toadvance these product candidates. We cannot be certain that we would besuccessful in attracting any such partners. If we were not able to find appropriate partners for the continueddevelopment and commercialization of fidaxomicin, or our other productcandidates, we would either have to delay further development andcommercialization initiatives,  whichwould harm our business and prospects, or raise significant additional funds todevelop clinical and commercialization capabilities 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 interpretation of clinical data, the achievement ofmilestones, the interpretation of financial provisions or the ownership ofintellectual property developed during the collaboration.  If any such conflicts arise, a collaboratorcould act in its own self-interest, which may be adverse to our bestinterests.  Any such disagreement betweenus and a collaborator could result in one or more of the following, each ofwhich 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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·                  reductionsin the payment of royalties or other payments we believe are due pursuant tothe applicable collaboration arrangement or agreement;

 

·                  uncertaintiesregarding ownership of intellectual property rights arising from ourcollaborative activities, which could prevent us from entering into additionalcollaborations and commercializing such rights;

 

·                  actionstaken by a collaborator inside or outside our collaboration which couldnegatively impact our rights or benefits under our collaboration; or

 

·                  unwillingnesson the part of a collaborator to keep us informed regarding the progress of itsdevelopment and commercialization activities or to permit public disclosure ofthe results of those activities.

 

In addition, acollaborator may not have or devote sufficient resources to develop andcommercialize our product candidates, may elect to underfund, discontinue ormay not properly perform pre-clinical studies or clinical trials, or may divertresources to other programs that are potentially competitive with our productcandidates.

 

**Ifwe are unable to obtain FDA approval of our product candidates, we will not beable to commercialize them in the United States.**

 

We need FDAapproval prior to 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.

 

Thisregulatory review and approval process, which includes evaluation ofpre-clinical studies and clinical trials of our product candidates as well asthe evaluation of our manufacturing processes and our third-party contractmanufacturers’ facilities, is lengthy, expensive and uncertain.  To receive approval for a product candidate,we must, among other things, demonstrate with substantial evidence fromwell-controlled clinical trials that the product candidate is both safe andeffective for each indication for which approval is sought.  Satisfaction of the approval requirementstypically takes several years and the time needed to satisfy them may varysubstantially, based on the type, complexity and novelty of the pharmaceuticalproduct.  We cannot predict if or when wemight receive regulatory approvals for any of our product candidates currentlyunder development.  Moreover, anyapprovals that we obtain may not cover all of the clinical indications forwhich we are seeking approval, or could contain significant limitations in theform of narrow indications, warnings, precautions or contra-indications withrespect to conditions of use.  In such anevent, our ability to generate revenues from such products would be greatlyreduced and our business would be harmed.

 

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The FDA has substantial discretion in the approval process and mayeither refuse to consider our applications for substantive review or may formthe opinion after review of our data that our applications are insufficient toallow approval of our product candidates. If the FDA does not consider or approve an application that we submit,it may require that we conduct additional clinical, pre-clinical ormanufacturing validation studies and submit that data before it will reconsiderour application.  Depending on the extentof these or any other studies, approval of any applications that we submit maybe delayed by several years, or may require us to expend more resources than wehave available.  For example, we intendto rely in part on certain legacy data from a third party to support an NDA forprulifloxacin. If we are unable to obtain this data in a timely manner or theFDA deems this data to insufficient, it may delay our filing of a NDA forprulifloxacin and 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, which mightsignificantly harm our business and prospects.

 

It is possiblethat none of our existing product candidates or any product candidates we mayseek to develop in the future will ever obtain the appropriate regulatoryapprovals necessary 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 granted Fast Trackstatus to fidaxomicin and selected it for participation in a CMA Pilot 2Program, we cannot be certain that we will receive any benefits from thesedesignations or that the designations will expedite regulatory review or approvalof fidaxomicin.  Participation in theseprograms will not eliminate any phase of clinical development.  Moreover, our participation in the CMAPilot 2 Program will involve frequent scientific discussions and otherinteractions with the staff of the FDA during the investigational new drugphase of our development of fidaxomicin. These frequent discussions could subject fidaxomicin to a greater levelof scrutiny than it might otherwise have received or require us to make morefrequent submissions and endure other burdens that would have been avoided ifwe had not participated in the program. Therefore, despite any potential benefits of fidaxomicin’s Fast Trackand CMA Pilot 2 Program designations, significant uncertainty remainsregarding the clinical development and regulatory approval process forfidaxomicin.

 

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

 

Clinicaltesting is expensive 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. For example, results from the firstfidaxomicin Phase 3 trial, while positive, may not predict results from thesecond Phase 3 trial which is on-going. Product candidates in later stages of clinical trials may fail to showthe desired safety and efficacy traits despite having progressed throughpre-clinical studies and initial clinical testing.  In addition, the type and amount of clinicaldata necessary to gain regulatory approval for our product candidates maychange or we may inaccurately characterize such requirements.  For example, we intend to prepare a MarketingAuthorization Application, or MAA, for submission to the European MedicinesAgency, or EMEA, for fidaxomacin based on the results from our first Phase 3trial.  

 

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Although wecurrently believe that the EMEA will accept an MAA for fidaxomicin based ononly one completed Phase 3 trial, we may be incorrect in this belief and may berequired to resubmit our filing following the completion of our second Phase 3trial.  Such a resubmission would involveadditional delay and expense related to any approval of fidaxomicin in Europe.

 

Even after wecomplete our planned clinical trials, our product candidates could fail toreceive regulatory approval for many reasons, including the following:

 

·                  theresults of our clinical trials may not demonstrate to the satisfaction of ormeet the level of statistical significance required by the FDA or comparableforeign regulatory authorities that a product candidate is safe and effectivefor any indication;

 

·                  theFDA or comparable foreign regulatory authorities may disagree with the designor implementation of our clinical trials;

 

·                  the  results of our clinical trials may notdemonstrate that a product candidate’s clinical and other benefits outweigh itssafety risks;

 

·                  theresults of our clinical trials may not demonstrate that a product candidatepresents an advantage over existing therapies, or over placebo in anyindications for which the FDA requires a placebo-controlled trial;

 

·                  theFDA or comparable foreign regulatory authorities may disagree with ourinterpretation of data from pre-clinical studies or clinical trials;

 

·                  thedata collected from clinical trials of our product candidates may not besufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the UnitedStates or elsewhere; and

 

·                  theapproval policies or regulations of the FDA or comparable foreign regulatoryauthorities may significantly change in a manner rendering our clinical datainsufficient for approval.

 

**Delaysin clinical 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 mayexperience delays in clinical trials of our product candidates.  We reported positive top-line data from thefirst of two Phase 3 trials evaluating fidaxomicin for the treatment of CDI. Weanticipate completing enrollment and reporting data from the second trial in2009. If the second trial is also successful, we intend to file an NDA as soonas practicable thereafter. In addition, we are planning to conduct aregistration study for other formulations and proof-of-concept clinical trialsfor other indications of fidaxomicin.  Wereported positive top-line data from the two Phase 3 trials evaluatingprulifloxacin for the treatment of infectious diarrhea in travelers. We intendto conduct a Phase 4 trial of prulifloxacin subsequent to NDA submissionto compare prulifloxacin to ciprofloxacin for the treatment of infectiousdiarrhea.  We do not know whether planned

 

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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 couldencounter delays if prescribing physicians encounter unresolved ethical issuesassociated with enrolling patients in clinical trials of our product candidatesin lieu of prescribing existing antibiotics that have established safety andefficacy profiles or with administering placebo to patients in ourplacebo-controlled trials.  Further, aclinical trial may be suspended or terminated by us, our collaborators, the FDAor other regulatory authorities due to a number of factors, including failureto conduct the clinical trial in accordance with regulatory requirements or ourclinical protocols, inspection of the clinical trial operations or trial siteby the FDA or other regulatory authorities resulting in the imposition of aclinical hold, unforeseen safety issues or adverse side effects, failure todemonstrate a benefit from using a drug, changes in governmental regulations oradministrative actions or lack of adequate funding to continue the clinicaltrial.  If we experience delays in thecompletion of, or termination of, any clinical trial of our product candidates,the commercial prospects of our product candidates will be harmed, and ourability to generate product revenues from any of these product candidates willbe delayed.  In addition, any delays incompleting our clinical trials will increase our costs, slow down our product developmentand approval process and jeopardize our ability to commence product sales andgenerate revenues.  Any of theseoccurrences may significantly harm our business, financial condition andprospects.

 

**Wemay be required to suspend or discontinue clinical trials due to adverseevents, adverse side effects or other safety risks that could preclude approvalof our product candidates.**

 

Our clinicaltrials may be suspended at any time for a number of reasons.  We may voluntarily suspend or terminate our clinicaltrials if at any time we believe that they present an unacceptable risk toparticipants.  In addition, regulatoryagencies may order the temporary or permanent discontinuation of our clinicaltrials at any time if they believe that the clinical trials are not beingconducted in accordance with applicable regulatory requirements or that theypresent an unacceptable safety risk to participants.  In the first Phase 3 clinical trial offidaxomicin, the most common drug-related side effects reported were nausea,vomiting, constipation, anorexia, headache and dizziness.  Patients treated with prulifloxacin haveexperienced drug-related side effects including abdominal pain, diarrhea,nausea, renal toxicities, cardiac arrhythmias, photosensitivity, rash, excessiveflushing of the skin and central nervous system effects, such as seizures.  The FDA recommended that we conduct a studyto determine the effect, if any, of 

 

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prulifloxacinon the prolongation of the QT interval, a condition that is associated withpotentially life-threatening cardiac arrhythmias.  In response to the FDA’s recommendation, weinitiated such a QT interval study, which is currently ongoing and expected tobe completed in 2009.  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 on third parties to conduct ourclinical trials.  If these third partiesdo not successfully carry out their contractual duties or meet expecteddeadlines, we and our collaborators may not be able to obtain regulatoryapproval for or commercialize our product candidates.**

 

We have entered into agreements withthird-party CROs, such as INC Research, to provide monitors for and to managedata for our on-going clinical programs.

 

We and theCROs conducting clinical trials for our product candidates are required tocomply with current good clinical practices, or GCPs, regulations andguidelines enforced by the FDA for all of our products in clinicaldevelopment.  The FDA enforces GCPsthrough periodic inspections of trial sponsors, principal investigators andtrial sites.  If we or the CROsconducting clinical trials of our product candidates fail to comply withapplicable GCPs, the clinical data generated in the clinical trials may bedeemed unreliable and the FDA may require additional clinical trials beforeapproving any marketing applications.  Wecannot assure you that, upon inspection, the FDA will determine that anyclinical trials of our product candidates comply with GCPs.  In addition, our clinical trials must beconducted with product produced under cGMP regulations, and will require alarge number of test subjects.  Ourfailure to comply with these regulations may require us to repeat clinicaltrials, which would be costly and delay the regulatory approval process andcommercialization of our product candidates.

 

Typically, theCROs conducting 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 thebenefit of our creditors or if we are liquidated.  We have relied substantially on INC Researchto conduct the clinical trials for fidaxomicin and prulifloxacin.  INC Research has also subcontracted withother third-party CROs for various aspects of the clinical trials.  If any relationships with INC Research orthese other third-party CROs terminate, we or our collaborators may not be ableto enter into arrangements with alternative CROs or we may enter intoarrangements with alternative CROs that do not have the expertise orrelationships that INC Research has with government agencies.

 

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In addition,these third-party CROs are not our employees, and we cannot control whether ornot they devote sufficient time and resources to our on-going clinicalprograms.  These CROs may also haverelationships with other commercial entities, including our competitors, forwhom they may also be conducting clinical studies or other drug developmentactivities, which could harm our competitive position.  If CROs do not successfully carry out theircontractual duties or obligations or meet expected deadlines, if they need tobe replaced, or if the quality or accuracy of the clinical data they obtain iscompromised due to the failure to adhere to our clinical protocols, regulatoryrequirements, or for other reasons, our clinical trials may be extended,delayed or terminated, and we may not be able to obtain regulatory approval foror successfully 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.

 

**Ifwe fail to gain and/or maintain marketing approvals from regulatory authoritiesin international markets for****fidaxomicin and any future product candidates for whichwe have rights in international markets, our market opportunities will belimited.**

 

Sales of ourproduct candidates outside of the United States will be subject to foreignregulatory requirements 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 thosecountries.  This is important for thecommercialization of fidaxomicin for which we currently have exclusiveworldwide marketing rights.  Obtainingforeign regulatory approvals could result in significant delays, difficultiesand costs for us and require additional pre-clinical studies or clinical trialswhich would be costly and time consuming. Regulatory requirements can vary widely from country to country andcould delay the introduction 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 EMEA duringits review, a subsequent NDA submission for fidaxomicin could be negativelyimpacted. Other than prulifloxacin, which is sold by other parties in Japan,Italy and certain other European countries, none of our product candidates isapproved for sale in any international market for which we have rights. If wefail to comply with regulatory requirements in our international markets or toobtain and maintain required approvals, our target market will be reduced andour ability to generate revenues will be diminished, which would significantlyharm our business, results of operations and prospects.

 

**We currently have no sales organization andhave no experience as a company in marketing drug products.  If we are unable to expand our marketingcapabilities and establish sales capabilities or enter into agreements withthird parties to market and sell our product candidates, we may not be able togenerate product revenues.**

 

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We currentlyhave a limited marketing organization and do not have a sales organization formarketing, sales and distribution of pharmaceutical products. In order tocommercialize any products, we must build our marketing, sales, distribution,managerial and other non-technical capabilities or make arrangements with thirdparties to perform these services. We plan to build our own marketing and salesforce to commercialize fidaxomicin in North America and will seek third-partypartners outside North America. We own exclusive rights to commercializeprulifloxacin in the United States, and we contemplate establishing our ownsales force or seeking third-party partners to sell prulifloxacin in the UnitedStates. The establishment and development of our own sales force to market anyproducts we may develop will be expensive and time consuming and could delayany product launch, and we cannot be certain that we will be able tosuccessfully develop this capability. We do not currently have sufficient fundsto develop a sales force and other resources that we believe would be necessaryto adequately market fidaxomicin and prulifloxacin in the United States. Wewill also have to compete with other pharmaceutical and biotechnology companiesto recruit, hire, train and retain marketing and sales personnel. To the extentwe rely on third parties to commercialize our products, if any, we may receiveless revenues than if we commercialized these products ourselves. In addition,we may have little or no control over the sales efforts of any third partiesinvolved in commercializing our products. In the event we are unable to developour own marketing and sales force or collaborate with a third-party marketingand sales organization, we would not be able to commercialize our productcandidates which would negatively impact our ability to generate productrevenues.

 

**Wemay not be able to enter into acceptable agreements to market and commercialize****fidaxomicin outside of North America or if, needed,adequately build our own marketing and sales capabilities.**

 

If appropriateregulatory approvals are obtained, we intend to commercialize fidaxomicinoutside of North America through collaboration arrangements with thirdparties.  We may be unable to enter intocollaboration arrangements in international markets.  In addition, there can be no guarantee thatif we enter into these collaboration arrangements with other parties that theywill be successful or result in more revenues than we could obtain by marketingfidaxomicin on our own. If we are unable to enter into collaborationarrangements for our products or develop an effective international salesforce, our ability to generate product revenues would be limited, which wouldadversely affect our business, financial condition, results of operations andprospects. If we are unable to enter into such collaboration arrangements, wemay need to develop our own marketing and sales force to market fidaxomicin ina number of countries in Europe and Latin America to hospital-based andlong-term care physicians.  These effortsmay not be successful as we have no relationships among such hospital-based andlong-term care physicians and do not currently have sufficient funds to developan adequate sales force in these regions. There is no guarantee that we will be able to develop an effectiveinternational sales force to successfully commercialize our products in theseinternational markets.  If we cannotcommercialize fidaxomicin, we will have to rely solely on prulifloxacin andearlier stage product candidates for any future revenues, and our ability toachieve and sustain profitability will be materially and adversely harmed.

 

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**Ifour product candidates are unable to compete effectively with branded andgeneric antibiotics, our commercial opportunity would be reduced oreliminated.***

 

If approved,our lead product candidates will compete against both branded antibiotictherapies, such as Vancocin Pulvules with respect to fidaxomicin and Xifaxan®/rifazamin with respect toprulifloxacin, and generic antibiotics such as metronidazole and oralvancomycin with respect to fidaxomicin and ciprofloxacin with respect toprulifloxacin.  In addition, weanticipate that fidaxomicin will compete with other antibiotic andanti-infective product candidates currently in development for the treatment ofCDI, 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 anticipatethat, if approved, fidaxomicin and prulifloxacin will face increasingcompetition in the form of generic versions of branded products of competitorsthat will lose their patent exclusivity. For example, fidaxomicin, if approved, will immediately face steepcompetition from an inexpensive generic form of metronidazole.  Fidaxomicin would currently face generic oralvancomycin competition in Europe and in the future may face competition fromgeneric oral vancomycin in the United States as well.  Generic antibiotic therapies typically aresold at lower prices than branded antibiotics and are generally preferred bymanaged care providers of health services. For example, because metronidazole is sold at such a low price, webelieve it will be difficult to sell fidaxomicin as a first-line therapy forthe treatment of CDI.  If we are unableto demonstrate to physicians and patients that, based on experience, clinicaldata, side-effect profiles and other factors, our products are preferable tothese generic antibiotic therapies, we may never generate meaningful productrevenues.  In addition, many antibioticsexperience bacterial resistance over time because of their continued use.  There can be no guarantee that bacteria wouldnot develop resistance to fidaxomicin, prulifloxacin or any of our otherproduct candidates.  Our commercialopportunity would also be reduced or eliminated if our competitors develop andcommercialize generic or branded antibiotics that are safer, more effective,have fewer side effects or are less expensive than our product candidates.

 

**Wecurrently depend, and will in the future continue to depend, on third partiesto manufacture our product candidates, including****fidaxomicin andprulifloxacin.  If these manufacturersfail to provide us and our collaborators with adequate supplies of clinicaltrial materials and commercial product or fail to comply with the requirementsof regulatory authorities, we may be unable to develop or commercialize ourproducts.***

 

We outsourceall manufacturing 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.

 

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Our ability todevelop and commercialize fidaxomicin and prulifloxacin and any other productcandidates depends in part on our ability to arrange for collaborators or otherthird parties to manufacture our products at a competitive cost, in accordancewith strictly enforced regulatory requirements and in sufficient quantities forclinical testing and eventual commercialization.  We have not yet manufactured commercialbatches of fidaxomicin, prulifloxacin or any of our other product candidates.  Collaborators or third-party manufacturersthat we select to manufacture our product candidates for clinical testing or ona commercial scale may encounter difficulties with the small- and large-scaleformulation and manufacturing 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 theFDA must 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, our collaborators and other third-party manufacturers of our products mustcomply with strictly enforced current good manufacturing practices, or cGMP,requirements enforced by the FDA through its facilities inspectionprogram.  These requirements includequality control, quality assurance and the maintenance of records anddocumentation.  We currently rely onBiocon to manufacture fidaxomicin active pharmaceutical ingredient and rely onPatheon, Inc. to manufacture the drug product supplies.  As such, Biocon and Patheon will be subjectto ongoing periodic unannounced inspections by the FDA and other agencies forcompliance with current cGMP, and similar foreign standards. We also rely onNippon Shinyaku, which contracts with Juzen, as well as Angelini and Patheon,to manufacture prulifloxacin drug supplies. The manufacturing facilities of Biocon, Juzen and Patheon have beeninspected and approved by the FDA for other companies’ drug products; however,none of Biocon’s, Juzen’s nor Patheon’s facilities have yet been inspected bythe FDA for the manufacture of our drug supplies.  Angelini’s facilities have not been inspectedor approved by the FDA.  We or otherthird-party manufacturers of our products may be unable to comply with cGMPrequirements and with other FDA, state, local and foreign regulatoryrequirements.  We and our collaboratorshave little control over third-party manufacturers’ compliance with theseregulations and standards.  A failure tocomply with these requirements by our third-party manufacturers, includingBiocon, Juzen, Angelini, and Patheon could result in the issuance of untitledletters and/or warning letters from authorities, as well as sanctions beingimposed on us, including fines and civil penalties, suspension of production,suspension or delay in product approval, product seizure or recall orwithdrawal of product approval.  In addition,we have no control over these manufacturers’ ability to maintain adequatequality 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.

 

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**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 ourproduct candidates are approved by the appropriate regulatory authorities formarketing and sale, physicians may not prescribe our product candidates, whichwould prevent us from generating revenues or becoming profitable.  Market acceptance of fidaxomicin,prulifloxacin and any of our future product candidates by physicians, patientsand healthcare payors will depend on a number of factors, many of which arebeyond our control, including:

 

·                  theclinical indications for which the product candidate is approved;

 

·                  acceptanceby physicians and patients of each product candidate as a safe and effectivetreatment;

 

·                  perceivedadvantages over alternative treatments;

 

·                  thecost of treatment in relation to alternative treatments, including numerousgeneric antibiotics;

 

·                  theextent to which the product candidate is approved for inclusion on formulariesof hospitals and managed care organizations;

 

·                  theextent to which bacteria develops resistance to the product candidate, therebylimiting its efficacy in treating or managing infections;

 

·                  whetherthe product candidate is designated under physician treatment guidelines as afirst-line therapy or as a second- or third-line therapy for particularinfections;

 

·                  theavailability of adequate reimbursement by third parties, such as insurancecompanies and other healthcare payors;

 

·                  limitationsor warnings contained in a product’s FDA-approved labeling;

 

·                  relativeconvenience and ease of administration; and

 

·                  prevalenceand severity of adverse side effects.

 

Becausefidaxomicin is a differentiated antibiotic for the treatment of CDI, it mayencounter additional hurdles to market acceptance by physicians, who may beskeptical about its clinical benefits, or healthcare payors, who may resistreimbursing a premium-priced therapeutic particularly in light of theavailability of generic alternatives.

 

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We plan to target ourmarketing of prulifloxacin primarily to high-prescribing physicians ofantibiotics for travelers’ 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 prulifloxacin among these physicians.  We do not have experience in marketing tothis population of physicians and do not currently have the resources to beable to conduct such marketing efforts on our own.  As such, we may not be successful in any ofthese marketing efforts which would limit the commercial success ofprulifloxacin.

 

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 is a fluoroquinolone antibiotic it may be required to carry ablack box warning.  Although these riskshave been described for years on the product label of many fluoroquinolones theincreased awareness of this risk may impact the market potential for thefluoroquinolone class of antibiotics, including prulifloxacin.  Furthermore, because prulifloxacin hasalready been marketed by other companies outside the United States to treat awide range of bacterial infections, including infectious diarrhea, urinarytract infections  and respiratory tractinfections, patients may be able to obtain prulifloxacin from these othercompanies, and not from us, if prulifloxacin is approved in the market wherethe patient is located.  We have rightsto prulifloxacin only in the United States. These patients may obtain prulifloxacin in these other markets fromother companies even if these patients are from the United States.

 

**If we failto develop and commercialize other products or product candidates, we may beunable to grow our business.**

 

A key element of ourstrategy is to commercialize a portfolio of new anti-infective products inaddition to fidaxomicin and prulifloxacin. As a significant part of our growth strategy, we intend to develop andcommercialize additional products and product candidates through our discoveryresearch program using our proprietary technology, including OPopS.  The success of this strategy depends upon ourability to identify, select and acquire pharmaceutical product candidates andproducts that fit into our development plans on terms that are acceptable tous. To supplement this strategy, we may also obtain rights to additionalproduct candidates from third parties through acquisition or in-licensingtransactions.

 

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.

 

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A significant portion of theresearch that we are conducting involves new and unproven technologies.  Research programs to identify new disease targetsand product candidates require substantial technical, financial and humanresources whether or not we ultimately identify any candidates.  Our research programs may initially showpromise in identifying potential product candidates, yet fail to yield productcandidates for 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 are successful in completingclinical development and receiving regulatory approval for one commerciallyviable drug for the treatment of one disease using our technology platform andcarbohydrate chemistry focus, we cannot be certain that we will also be able todevelop and receive regulatory approval for other drug candidates for thetreatment of other forms of that disease or other diseases.  If we fail to develop and commercializeviable drugs using our platform and specialized focus, we will not besuccessful in developing a pipeline of potential product candidates to followfidaxomicin and prulifloxacin, and our business prospects would significantlybe harmed.

 

**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 prulifloxacin from Nippon Shinyaku who, along with Meiji-Seika KaishaLtd., 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 orin-licensing products, businesses or technologies that we believe are astrategic fit for our business.  Futurein-licenses or acquisitions, however, may entail numerous operational andfinancial risks, including:

 

·                  exposure to unknown liabilities;

 

·                  disruption of our business and diversion ofour management’s time and attention to develop acquired products ortechnologies;

 

·                  incurrence of substantial debt or dilutiveissuances of securities to pay for acquisitions;

 

·                  higher than expected acquisition andintegration costs;

 

·                  increased amortization expenses;

 

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·                  difficulty and cost in combining theoperations and personnel of any acquired businesses with our operations andpersonnel;

 

·                  impairment of relationships with keysuppliers or customers of any acquired businesses due to changes in managementand ownership; and

 

·                  inability to retain key employees of anyacquired 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 currentinfrastructure.  In particular, we maycompete with larger pharmaceutical companies and other competitors in ourefforts to establish new collaborations and in-licensing opportunities.  These competitors likely will have access togreater financial resources than us and may have greater expertise inidentifying and evaluating new opportunities. Moreover, we may devote resources to potential acquisitions orin-licensing opportunities that are never completed, or we may fail to realizethe anticipated benefits of such efforts.

 

**Our abilityto pursue the development and commercialization of prulifloxacin, our otherproduct candidates and our future product candidates depends upon thecontinuation of our licenses from third parties.**

 

Our license agreement withNippon Shinyaku provides us with an exclusive license to develop andcommercialize prulifloxacin for any indication in the United States, with aright to sublicense to third parties.  Inthe event Nippon Shinyaku is not able to supply us with prulifloxacin, thelicense agreement provides us with a non-exclusive, worldwide right and licenseto manufacture or have prulifloxacin manufactured for us.  Either we or Nippon Shinyaku may terminatethe license agreement immediately upon the bankruptcy or dissolution of theother party or upon a breach of any material provision of the agreement if thebreach is not cured within 60 days following written notice.  In addition, we are entitled to terminate theagreement in the event that the FDA compels us to cease sales of prulifloxacinin the United States.  If our licenseagreement with Nippon Shinyaku terminates, we will lose our rights to develop,manufacture and commercialize prulifloxacin and our potential revenues would belimited.  Similarly, if our agreementwith the Scripps Research Institute, or TSRI, for the license of our OPopStechnology is terminated, we will not be able to further develop future productcandidates using our OPopS technology.

 

**If productliability lawsuits are brought against us, we may incur substantial liabilitiesand may be required to limit commercialization 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:

 

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·                  decreased demand for our product candidates;

 

·                  injury to our reputation;

 

·                  termination of clinical trial sites or entireclinical trial programs;

 

·                  withdrawal of clinical trial participants;

 

·                  significant litigation costs;

 

·                  substantial monetary awards to or costlysettlement with patients;

 

·                  product recalls;

 

·                  loss of revenues; and

 

·                  the inability to commercialize our productcandidates.

 

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.

 

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 our insurancepremiums.  Because of the increasingcosts of insurance coverage, we may not be able to maintain insurance coverageat a reasonable cost or obtain insurance coverage that will be adequate tosatisfy 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 

 

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or our collaborators becomeaware of previously unknown problems with any of our product candidates in theUnited States or overseas or at our third-party manufacturers’ facilities, aregulatory agency may impose restrictions on our products, our third-partymanufacturers or on us, including requiring us to reformulate our products,conduct additional clinical trials, make changes in the labeling of ourproducts, 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 failto attract and retain senior management and key scientific personnel, we may beunable to successfully develop our product candidates, conduct our clinical trialsand commercialize our product candidates.***

 

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 dependentupon our senior management and scientific staff, particularly Michael N.Chang, Ph.D., our President and Chief Executive Officer, Tessie M. Che,Ph.D., our Senior Vice President, Corporate Affairs and Chief OperatingOfficer, Francois-Xavier Frapaise, M.D., our Senior Vice President and ChiefScientific Officer, Youe-Kong Shue, Ph.D., our Vice President, ClinicalDevelopment, Sherwood L. Gorbach, M.D., our Vice President, Medical Affairs andChief Medical Officer, and Kevin P. Poulos, our Vice President, Marketingand Sales and Chief Commercial Officer. The loss of services of any of Drs. Chang, Che, Frapaise, Shue,Gorbach or Shue or Mr. Poulos or one or more of our other members ofsenior management could delay or prevent the successful completion of ourplanned clinical trials or the commercialization of our productcandidates.  Replacing key employees maybe difficult and costly and may take an extended period of time because of thelimited number of individuals in our industry with the breadth of skills andexperience required to develop and commercialize products successfully.  We do not maintain “key person” insurancepolicies on the lives of these individuals or the lives of any of our otheremployees.  We employ these individualson an at-will basis and their employment can be terminated by us or them at anytime, for any reason and with or without notice.

 

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 

 

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accomplish our businessobjectives, we may experience constraints that will impede significantly theachievement of our research and development objectives, our ability to raiseadditional capital and our ability to implement our business strategy.  In particular, if we lose any members of oursenior management team, we may not be able to find suitable replacements, andour business and prospects may be harmed as a result.

 

**We willneed to increase the size of our organization, and we may experiencedifficulties in managing growth.***

 

We are a small company with61 employees as of May 1, 2009.  Tocontinue our clinical trials and commercialize our product candidates, we willneed to expand our employee base for managerial, operational, marketing, sales,financial and other resources.  Futuregrowth will impose significant added responsibilities on members of management,including the need to identify, recruit, maintain and integrate additionalemployees and may take time away from running other aspects of our business,including development and commercialization of our product candidates.  Our future financial performance and ourability to commercialize our product candidates and to compete effectively willdepend, in part, on our ability 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.

 

**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 Medicaid programs,and private payors, including health maintenance organizations, decide whichdrugs they will pay for and establish reimbursement levels for these drugs.Because third-party payors increasingly are challenging prices charged and thecost-effectiveness of medical products, significant uncertainty exists as tothe ability of our product candidates to receive adequate coverage andreimbursement.  We cannot be sure thatthird-party payors will place our product candidates on approved formularies orthat reimbursement will be available in whole or in part for any of our productcandidates.  Also, we cannot be sure thatinsufficient reimbursement amounts will not reduce the demand for, or the priceof, our products, if approved.

 

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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 actual costsincurred.  As a result, these healthcareproviders may choose only the least expensive therapies regardless ofefficacy.  We cannot guarantee that ourproduct candidates will be the least expensive alternative and thus providersmay 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 otherwisecomplies with the Federal Food, Drug and Cosmetic Act.  Further, several states and local governmentshave implemented importation schemes for their citizens, and, in the absence offederal action to curtail such activities, we expect other states and localgovernments to launch importation efforts. The importation of foreign products that compete with our own productcandidates could negatively impact our business and prospects.

 

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

 

In both the United Statesand certain foreign jurisdictions, there have been, and we anticipate therewill continue to be, a number of legislative and regulatory changes to thehealthcare system that could impact our ability to sell our products profitably.  We cannot be certain that fidaxomicin andprulifloxacin or other current or future drug candidates will successfully beplaced on the list of drugs covered by particular health plan formularies, norcan we predict the negotiated price for our drug candidates, which will bedetermined by market factors. Many states have also created preferred druglists and include drugs on those lists only when the manufacturers agree to paya supplemental rebate.  If fidaxomicinand prulifloxacin or other current or future drug candidates are not includedon these preferred drug lists, physicians may not be inclined to prescribe themto their Medicaid patients, thereby diminishing the potential market for ourproducts.

 

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As a result of legislativeproposals and the trend towards cost-effectiveness criteria and managedhealthcare in the United States, third-party payors are increasingly attemptingto contain healthcare costs by limiting both coverage and the level ofreimbursement of new drugs.  They mayalso refuse to provide any coverage of uses of approved products for medicalindications other than those for which the FDA has granted marketapprovals.  As a result, significantuncertainty exists as to whether and how much third-party payors will reimbursefor newly-approved drugs, which in turn will put pressure on the pricing of drugs.  Further, we do not have experience inensuring approval by applicable third-party payors outside of the United Statesfor reimbursement of our products.  Theavailability of numerous generic antibiotics at lower prices than brandedantibiotics can also be expected to substantially reduce the likelihood ofreimbursement for fidaxomicin and prulifloxacin.  We also anticipate pricing pressures inconnection with the sale of our products due to the trend toward managedhealthcare, the increasing influence of health maintenance organizations andadditional 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, includinganti-kickback laws, the False Claims Act, the Foreign Corrupt Practices Act andstate laws requiring reporting and certification under comprehensive complianceprograms governing 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.

 

**Ourbusiness involves the use of hazardous materials and we and our third-party manufacturersmust comply with environmental laws and regulations, which can be expensive andrestrict 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 

 

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damage claims arising fromcontamination on our property.  Theseamounts may not be sufficient to adequately protect us from liability fordamage claims relating to contamination. If we are subject to liability exceeding our insurance coverage amounts,our business and prospects would be harmed. In the event of an accident, state or federal authorities may alsocurtail our use of these materials and interrupt our business operations.

 

**Ourbusiness and operations would suffer in the event of computer, telecommunicationsor 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 causesinterruptions in our operations could result in a material disruption of ourdrug development programs.  For example,the loss of clinical trial information from completed or ongoing clinicaltrials for fidaxomicin or prulifloxacin, which is maintained by our third-partyCRO, could result in delays in our regulatory approval efforts andsignificantly increase our costs to recover or reproduce the data.  To the extent that any disruption or securitybreach results in a loss or damage to our data or applications, orinappropriate disclosure of confidential or proprietary information, we mayincur liability and the further development of our product candidates may bedelayed.

 

**Risks Relatedto 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.

 

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 situation 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:

 

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·                  others may be able to make compounds that aresimilar to our product candidates but that are not covered by the claims of ourpending patent applications or licensed patents, or for which we are notlicensed under our license agreements;

 

·                  others may be able to make competingpharmaceutical formulations containing our product candidates or components ofour product formulations that are either not covered by the claims of ourlicensed patents, not licensed to us under our license agreements or are subjectto patents that expire;

 

·                  we or our licensors might not have been thefirst to make the inventions covered by our pending patent applications or thepending patent applications and issued patents of our licensors;

 

·                  we or our licensors might not have been thefirst to file patent applications for these inventions;

 

·                  others may independently develop similar oralternative technologies or duplicate any of our technologies;

 

·                  it is possible that our pending patentapplications or our licensed patent applications will not result in issuedpatents;

 

·                  our pending patent applications or thepending patent applications and issued patents of our licensors may not provideus with any competitive advantages, may be designed around by our competitors,including generic drug companies, or may be held invalid or unenforceable as aresult of legal challenges by third parties;

 

·                  we may not develop additional proprietarytechnologies that are patentable; or

 

·                  the patents of others may have an adverseeffect on our business.

 

In addition, to the extentwe are unable to obtain and maintain patent protection for one of our leadproduct candidates or in the event such patent protection expires, it may nolonger be cost effective to extend our portfolio by pursuing additionaldevelopment of a product candidate for follow-on indications.

 

We have filed 9 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 U. S. PTO, and seven ofwhich are 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;

 

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·                  polymorphic forms (issued in U.S.);

 

·                  additional polymorphic form;

 

·                  composition comprising a polymorphic form;

 

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

 

·                  treatment of diseases;

 

·                  formulation; and

 

·                  fidaxomicin related compounds, including metabolites,e.g. OP-1118.

 

If we are unableto obtain a composition of matter patent, our competitors, including genericdrug companies, may be able to design other similar formulations of the activeingredient of fidaxomicin.  Furthermore,even when the process patent is issued and if the formulation patentapplications become issued patents, our competitors, including generic drugcompanies, may be able to design around our manufacturing processes orformulation for fidaxomicin.  As aresult, our competitors may be able to develop competing products.

 

In addition, we currently plan to submit an NDA forprulifloxacin for the treatment of infectious diarrhea in travelers in2009.  The composition of matter patentcovering prulifloxacin expired in February 2009. Although in some casesthe U.S. PTO will grant an extension of a patent term where the related productis subject to FDA approval, this extension was unavailable to us with respectto the prulifloxacin composition of matter patent because we did not submit anNDA for prulifloxacin prior to the expiration of this patent.  There are currently no other active issuedpatents which would prevent third parties from potentially marketingprulifloxacin in the United States. Therefore, we will likely rely on one or more regulatory marketingexclusivities for prulifloxacin in the United States.  Specifically, if our NDA for prulifloxacin 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 chemical entity, or NCE, thathas not previously been approved as an active ingredient under Section 505(b) ofthe Food Drug and Cosmetic Act, or FDCA. While we expect that the NCE exclusivity period will be available forprulifloxacin, if we or Nippon Shinyaku are unsuccessful in obtainingadditional patents related to prulifloxacin, we may face generic competition inthe United States five years after our NDA for prulifloxacin is approved by theFDA.  If we are unable to obtainmarketing exclusivity beyond five years from the approval of our NDA, ourpotential revenues from prulifloxacin sales in the U.S. will be limited.

 

We depend, in part, on our licensors and collaboratorsto protect a portion of our proprietary rights. In such cases, our licensors and collaborators may be primarily orwholly responsible for the maintenance of patents and prosecution of patentapplications relating to important areas of our business.  For example, Nippon Shinyaku, SKI, TSRI andCempra are responsible for the maintenance of patents and prosecution of patentapplications relating to prulifloxacin, OPT-822/OPT-821 combination therapy,our OPopS technology, and OP-1068 also known as CEM-101, respectively.  We may also be dependent on Par to providetechnical support for patent applications relating to fidaxomicin.  If any of these parties fail to adequatelyprotect these product candidates with issued patents, our business andprospects would be significantly harmed.

 

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Under our agreement with Nippon Shinyaku, in the eventNippon Shinyaku fails to take all steps necessary to seek extension of thepatents licensed to us in the United States 180 days after we request suchaction be taken, then we have the right to take all necessary actions to extendthe licensed patents.  Our agreementswith SKI, TSRI, Cempra and Par do not have explicit provisions regarding ourrights to take necessary action with respect to maintenance of patents andprosecution of patent applications nor do such agreements provide us with anylegal recourse in the event such parties do not so maintain and/orprosecute.  If any of these parties failsto adequately maintain patents and prosecute patent applications relating totechnology licensed to or from us, we may be required to take further action onour 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 trade secrets to protect ourtechnology, especially where we do not believe patent protection is appropriateor obtainable.  However, trade secretsare difficult to protect.  Although weuse reasonable efforts to protect our trade secrets, our employees,consultants, contractors, outside scientific collaborators and other advisorsmay unintentionally or willfully disclose our information to competitors.  Enforcing a claim that a third-party entityillegally obtained and is using any of our trade secrets is expensive and timeconsuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willingto protect trade secrets.  Moreover, ourcompetitors may independently develop equivalent knowledge, methods andknow-how.

 

If we or our licensors fail to obtain or maintainpatent protection or trade secret protection for our product candidates or ourtechnologies, third parties could use our proprietary information, which couldimpair our ability to compete in the market and adversely affect our ability togenerate revenues and attain profitability.

 

**We may incur substantial costs as aresult of litigation or other proceedings relating to our patent, trademark andother intellectual property rights, and we may be unable to protect our rightsto, or use, our technology.**

 

If we choose to go to court to stop someone else fromusing our inventions, that individual or company has the right to ask the courtto rule that the underlying patents are invalid and/or should not beenforced against that third party.  Theselawsuits are expensive and would consume time and other resources even if wewere successful in stopping the infringement of these patents.  There is also the risk that, even if thevalidity of these patents is upheld, the court will refuse to stop the otherparty on the ground that such other party’s activities do not infringe ourrights to these patents.

 

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Furthermore, a third party may claim that we or ourmanufacturing or commercialization partners are using inventions covered by thethird party’s patent rights and may go to court to stop us from engaging in ournormal operations and activities, including making, using or selling ourproduct candidates.  These lawsuits arecostly and could affect our results of operations and divert the attention ofmanagerial and technical personnel. There is a risk that a court would decide that we or ourcommercialization partners are infringing the third party’s patents and wouldorder us or our partners to stop the activities covered by the patents.  In addition, there is a risk that a courtwill order us or our partners to pay the other party damages for havingviolated the other party’s patents.  Wehave indemnified our commercial partners against patent infringement claims andthus would be responsible for any of their costs associated with such claimsand actions.  The biotechnology industryhas produced a proliferation of patents, and it is not always clear to industryparticipants, including us, which patents cover various types of products ormethods of use.  The coverage of patentsis subject to interpretation by the courts and the interpretation is not alwaysuniform.  If we are sued for patentinfringement, we would need to demonstrate that our products or methods of useeither do not infringe the patent claims of the relevant patent and/or that thepatent claims are invalid, and we may not be able to do this.  Proving invalidity, in particular, isdifficult since it requires a showing of clear and convincing evidence toovercome the presumption of validity enjoyed by issued patents.

 

Although we have conducted searches of third-partypatents with respect to fidaxomicin and prulifloxacin, these searches may nothave identified all third-party patents relevant to those products and we havenot conducted an extensive search of patents issued to third parties withrespect to our other product candidates. Consequently, no assurance can be given that third-party patentscontaining claims covering our products, technology or methods do not exist,have not been filed, or could not be filed or issued.  Because of the number of patents issued andpatent applications filed in our technical areas or fields, we believe there isa risk that third parties may allege they have patent rights encompassing ourproducts, technology or methods.  Inaddition, we have not conducted an extensive search of third-party trademarks,so no assurance can be given that such third-party trademarks do not exist,have not been filed, could not be filed or issued, or could not exist undercommon trademark law.  While we have fileda trademark application for the names “Optimer” and “Optimer Pharmaceuticals,”we are aware that the name “Optimer” has been registered as a trademark withthe U.S. PTO by more than one third party, including one in the biotechnologyspace.  As such, we believe there is asignificant risk that third parties may allege they have trademark rightsencompassing the names for which we have applied for protection.

 

Because some patent applications in the United Statesmay be maintained in secrecy until the patents are issued, because patentapplications in the United States and many foreign jurisdictions are typicallynot published until eighteen months after filing, and because publications inthe scientific literature often lag behind actual discoveries, we cannot becertain that others have not filed patent applications for technology coveredby our licensors’ issued patents or our pending applications or our licensors’pending applications, or that we or our licensors were the first to invent thetechnology.  Our competitors may havefiled, and may in the future file, patent applications covering technologysimilar to ours.  Any such patentapplication may have priority over our or our licensors’ patent applicationsand could further require us to obtain rights to issued patents covering suchtechnologies.  If another party has fileda U.S. patent application on inventions similar to ours, we may have toparticipate in an interference proceeding declared by the U.S. PTO, todetermine priority of invention in the United States.

 

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The costs of these proceedings could be substantial,and it is possible that such efforts would be unsuccessful, resulting in a lossof our U.S. patent position with respect to such inventions.

 

Some of our competitors may be able to sustain thecosts of complex patent litigation more effectively than we can because theyhave substantially greater resources.  Inaddition, any uncertainties resulting from the initiation and continuation ofany litigation could have a material adverse effect on our ability to raise thefunds necessary to continue our operations.

 

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

 

**Themarket price of our common stock may be highly volatile.**

 

Before our initialpublic offering in February 2007, there was no public market for ourcommon stock.  We cannot assure you thatan active trading market will exist for our common stock**.** You may not be able to sell your sharesquickly or at the market price if trading in our common stock is not active.

 

The trading price of our common stock is likely to behighly volatile and could be subject to wide fluctuations in price in responseto various factors, many of which are beyond our control, including:

 

·                  general economic and market conditions and otherfactors that may be unrelated to our operating performance or the operatingperformance of our competitors, including the current turmoil in the creditmarket and financial services industry;

 

·                  announcement of FDA or comparable foreign regulatoryagency approval or non-approval of our product candidates, or specific labelindications for their use, or delays in the FDA or comparable foreignregulatory agency review process;

 

·                  actions taken by the FDA or other regulatory agencieswith respect to our product candidates, clinical trials, manufacturing processor marketing and sales activities;

 

·                  changes in laws or regulations applicable to ourproducts, including but not limited to clinical trial requirements forapprovals;

 

·                  the success of our development efforts and clinicaltrials, particularly with respect to fidaxomicin and prulifloxacin;

 

·                  announcements by our collaborators with respect toclinical trial results and communications from the FDA or comparable foreignregulatory agencies;

 

·                  the success of our efforts to acquire or in-licenseadditional products or product candidates;

 

·                  developments concerning our collaborations andpartnerships, including but not limited to those with our sources ofmanufacturing supply and our commercialization partners;

 

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·                  actual or anticipated variations in our quarterlyoperating results;

 

·                  announcements of technological innovations by us, ourcollaborators or our competitors;

 

·                  new products or services introduced or announced by usor our commercialization partners, or our competitors and the timing of theseintroductions or announcements;

 

·                  third-party coverage or reimbursement policies;

 

·                  actual or anticipated changes in earnings estimates orrecommendations by securities analysts;

 

·                  conditions or trends in the biotechnology andbiopharmaceutical industries;

 

·                  announcements by us or our competitors of significantacquisitions, strategic partnerships, joint ventures or capital commitments;

 

·                  general economic and market conditions and otherfactors that may be unrelated to our operating performance or the operatingperformance of our competitors, including the turmoil on the credit markets andfinancial services industry;

 

·                  changes in the market valuations of similar companies;

 

·                  sales of common stock or other securities by us or ourstockholders in the future;

 

·                  additions or departures of key scientific ormanagement personnel;

 

·                  disputes or other developments relating tointellectual property, proprietary rights, including patents, litigationmatters and our ability to obtain patent protection for our technologies; and

 

·                  trading volume of our common stock.

 

In addition, the stock market in general and themarket for biotechnology and biopharmaceutical companies in particular haveexperienced extreme price and volume fluctuations that have often beenunrelated and/or disproportionate to the operating performance of thosecompanies.  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.

 

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**Future sales of our common stock inthe public market could cause our stock price to decline.**

 

Persons who were our stockholders prior to our initialpublic offering continue to hold a substantial number of shares of our commonstock. Many of these stockholders are able to sell their shares in the publicmarket. Significant portions of these shares are held by a small number ofstockholders. Sales by such stockholders of a substantial number of shares, orthe expectation that such sales may occur, could significantly reduce themarket price of our common stock. Moreover, the holders of a substantial number of shares of our commonstock have rights, subject to certain conditions, to require us to fileregistration statements to permit the resale of their shares in the publicmarket or to include their shares in registration statements that we may filefor ourselves or other stockholders.

 

We have also registered all common stock that we haveissued under our employee benefits plans. As a result, these shares can befreely sold in the public market upon issuance, subject to any applicablerestrictions under the securities laws. In addition, our directors andexecutive officers may in the future establish programmed selling plans under Rule 10b5-1of the Securities Exchange Act for the purpose of effecting sales of our commonstock. If any of these events cause a large number of our shares to be sold inthe public market, the sales could reduce the trading price of our common stockand impede our ability to raise future capital.

 

**Negative conditions in the globalcredit markets may impair the liquidity of a portion of our investmentportfolio.***

 

Our investment securities consist of high-gradeauction rate securities, money market funds, corporate debt securities andgovernment agency securities. As of March 31, 2009, we held two auctionrate preferred securities valued at $1.0 million with perpetual maturity datesthat reset every 28 days. The negative conditions in the global credit marketshave prevented some investors from liquidating their holdings, including theirholdings of auction rate securities. There was insufficient demand at auction for these two auction ratepreferred securities.  As a result, theseaffected securities are currently not liquid, and we could be required to holdthem until they are 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 these investments is successful, thesecurities are redeemed by the issuer or they mature. We have reduced thecarrying value of our auction rate securities by $118,000, from$1,150,000 to $1,032,000, to reflect an estimated change in fair marketvalue due primarily to a lack of liquidity. Although the auction ratesecurities continue to pay interest according to their 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 issuersdeteriorate or if uncertainties in these markets continue and any decline inmarket value is determined to be other-than-temporary, we would be required toadjust the carrying value of the investment through an impairment charge, whichcould negatively affect our financial condition, cash flow and reportedearnings.

 

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**We will continue to incur significantcosts as a result of operating as a public company, and our management will berequired to devote substantial time to new compliance initiatives.***

 

As a public company, we will continue to incursignificant legal, accounting and other expenses.  In addition, the Sarbanes-Oxley Act, as wellas rules subsequently implemented by the SEC and the Nasdaq Global Market,or Nasdaq, impose various requirements on public companies, including requiringestablishment and maintenance of effective disclosure and financial controlsand changes in corporate governance practices. Our management and other personnel need to devote a substantial amountof time to these compliance initiatives. Moreover, these rules and regulations will increase our legal andfinancial compliance costs and will make some activities more time-consumingand costly.  For example, these rules andregulations to make it more difficult and more expensive for us to maintaindirector and officer liability insurance, and we may be required to incursubstantial costs in the future to maintain the same or similar coverage.

 

TheSarbanes-Oxley Act of 2002 requires, among other things, that we maintaineffective internal controls for financial reporting and disclosure controls andprocedures. As a result, as of December 31, 2008, we were 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 December 31,2008, management and our independent auditors did not identify any materialweaknesses in our internal controls over financial reporting. Our efforts tocomply with Section 404 and related regulations has required, andcontinues to require, the commitment of significant financial and managerialresources. While we anticipate maintaining the integrity of our internalcontrols over financial reporting and all other aspects of Section 404, wecannot be certain that a material weakness will not be identified when we testthe effectiveness of our control systems in the future. If a material weaknessis identified, we could be subject to sanctions or investigations by Nasdaq,the SEC or other regulatory authorities, which would require additionalfinancial and management resources, costly litigation or a loss of publicconfidence in our internal controls, which could have an adverse effect on themarket 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 ouramended and restated certificate of incorporation and bylaws, as well asprovisions of Delaware law, could make it more difficult for a third party toacquire us, even if doing so would benefit our stockholders, or remove ourcurrent management.  These provisionsinclude:

 

·                  a board of directors divided into three classesserving staggered three-year terms, such that not all members of the board willbe elected at one time;

 

·                  authorizing the issuance of “blank check” preferredstock, the terms of which may be established and shares of which may be issuedwithout stockholder approval;

 

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·                  limiting the removal of directors by the stockholders;

 

·                  prohibiting stockholder action by written consent,thereby requiring all stockholder actions to be taken at a meeting of ourstockholders;

 

·                  a requirement of approval of not less than 66 2/3% ofall outstanding shares of our capital stock entitled to vote to amend anybylaws by stockholder action, or to amend specific provisions of ourcertificate of incorporation;

 

·                  eliminating the ability of stockholders to call aspecial meeting of stockholders; and

 

·                  establishing advance notice requirements fornominations for election to the board of directors or for proposing mattersthat can be acted upon at stockholder meetings.

 

These provisions may frustrate or prevent any attemptsby our stockholders to replace or remove our current management by making itmore difficult for stockholders to replace members of our board of directors,which is responsible for appointing the members of our management.  In addition, we are subject to Section 203of the Delaware General Corporation Law, which generally prohibits a Delawarecorporation from engaging in any of a broad range of business combinations witha stockholder owning 15% or more of our outstanding voting stock for a periodof three years following the date on which the stockholder became an interestedstockholder, unless such transactions are approved by our board ofdirectors.  This provision could have theeffect of delaying or preventing a change of control, whether or not it isdesired by or beneficial to our stockholders. Such a delay or prevention of a change of control transaction couldcause the market price 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(3)           |       | Bylaws of Optimer Pharmaceuticals, Inc., as  amended.                                                                                                                                                                                                              |
| 4.1(2)           |       | 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(4)           |       | 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 issued  on March 9, 2009.                                                                                                                                                                                            |
| 10.1(6)          |       | Summary of Optimer Pharmaceuticals, Inc. 2009  Incentive Compensation Plan.                                                                                                                                                                                        |
| 10.2(6)          |       | Form of Common Stock Purchase Agreement dated  March 4, 2009.                                                                                                                                                                                                 |
| 10.3(6)          |       | Form of Unit Purchase Agreement dated  March 4, 2009.                                                                                                                                                                                                         |
| 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 Amendment No. 3 to  Registration Statement on Form S-1 November 9, 2006.    |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Filed with Registrant’s Amendment No. 4 to  Registration Statement on Form S-1 on February 5, 2007. |
| (3) |   | Filed with Registrant’s Current Report on  Form 8-K on September 18, 2007.                               |
| (4) |   | Filed with Registrant’s Current Report on  Form 8-K on October 29, 2007.                                 |
| (5) |   | Filed with Registrant’s Current Report on  Form 8-K on January 13, 2009.                                 |
| (6) |   | Filed with Registrant’s Current Report on  Form 8-K on March 5, 2009.                                    |

 

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**SIGNATURE**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
| ** **              | ** **   | **OPTIMER PHARMACEUTICALS, INC.** |
|-------------------------|--------------|-----------------------------------|
|                    |         |                              |   |
| Dated: May 8, 2009 |         | 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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