UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-33291
OPTIMER PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
33-0830300 |
10110 Sorrento Valley Road, Suite C
San Diego, CA 92121
(Address of principal executive offices, including zip code)
(858) 909-0736
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 post such files): Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer o |
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Accelerated Filer x |
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Non-accelerated Filer o |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
The number of shares of the registrants common stock, par value $0.001 per share, outstanding as of October 31, 2011 was 46,645,252 shares.
OPTIMER PHARMACEUTICALS, INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2011
PART I FINANCIAL INFORMATION
Optimer Pharmaceuticals, Inc.
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September 30, |
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December 31, |
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2011 |
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2010 |
| ||
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|
(unaudited) |
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(unaudited) |
| ||
ASSETS |
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|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
47,269,197 |
|
$ |
19,861,924 |
|
Short-term investments |
|
82,095,782 |
|
29,553,506 |
| ||
Accounts Receivable, net |
|
7,995,785 |
|
|
| ||
Inventory |
|
2,245,162 |
|
|
| ||
Prepaid expenses and other current assets |
|
3,568,880 |
|
516,859 |
| ||
Total current assets |
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143,174,806 |
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49,932,289 |
| ||
Property and equipment, net |
|
2,066,965 |
|
697,683 |
| ||
Long-term investments |
|
882,000 |
|
882,000 |
| ||
Other assets |
|
1,389,727 |
|
508,190 |
| ||
Total assets |
|
$ |
147,513,498 |
|
$ |
52,020,162 |
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|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
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|
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Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
6,305,062 |
|
$ |
2,307,820 |
|
Accrued expenses |
|
8,800,182 |
|
2,385,046 |
| ||
Total current liabilities |
|
15,105,244 |
|
4,692,866 |
| ||
Deferred rent |
|
163,303 |
|
141,138 |
| ||
Stockholders equity: |
|
|
|
|
| ||
Preferred stock, par value $0.001, 10,000,000 shares authorized, no shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively |
|
|
|
|
| ||
Common stock, $0.001 par value, 75,000,000 shares authorized, 46,645,252 shares and 39,278,965 shares issued and outstanding at September 30, 2011 and December 31, 2010 respectively |
|
46,645 |
|
39,279 |
| ||
Additional paid-in capital |
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354,056,241 |
|
267,665,732 |
| ||
Accumulated other comprehensive income |
|
(252,608 |
) |
298,850 |
| ||
Accumulated deficit |
|
(228,347,054 |
) |
(222,814,407 |
) | ||
Total Optimer Pharmaceuticals, Inc. stockholders equity |
|
125,503,224 |
|
45,189,454 |
| ||
Noncontrolling interest |
|
6,741,727 |
|
1,996,704 |
| ||
Total stockholders equity |
|
132,244,951 |
|
47,186,158 |
| ||
Total liabilities and stockholders equity |
|
$ |
147,513,498 |
|
$ |
52,020,162 |
|
See accompanying notes.
Optimer Pharmaceuticals, Inc.
Consolidated Statements of Operations
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenues: |
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|
|
|
|
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Product revenue, net |
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$ |
10,551,820 |
|
$ |
|
|
$ |
10,551,820 |
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$ |
|
|
Licensing |
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|
|
|
|
69,165,000 |
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824,010 |
| ||||
Research grants and collaborative agreement |
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500,264 |
|
669,137 |
|
645,197 |
|
500,000 |
| ||||
Total revenues |
|
11,052,084 |
|
669,137 |
|
80,362,017 |
|
1,324,010 |
| ||||
Cost and expenses: |
|
|
|
|
|
|
|
|
| ||||
Cost of product sales |
|
615,955 |
|
|
|
615,955 |
|
|
| ||||
Cost of licensing |
|
|
|
|
|
4,273,532 |
|
|
| ||||
Research and development |
|
10,405,459 |
|
8,076,278 |
|
29,074,229 |
|
25,857,108 |
| ||||
Selling, general and administrative |
|
26,944,688 |
|
4,844,216 |
|
53,511,685 |
|
11,844,428 |
| ||||
Total operating expenses |
|
37,966,102 |
|
12,920,494 |
|
87,475,401 |
|
37,701,536 |
| ||||
Loss from operations |
|
$ |
(26,914,018 |
) |
$ |
(12,251,357 |
) |
$ |
(7,113,384 |
) |
$ |
(36,377,526 |
) |
Interest income and other, net |
|
108,431 |
|
22,894 |
|
227,533 |
|
101,391 |
| ||||
Consolidated net loss |
|
$ |
(26,805,587 |
) |
$ |
(12,228,463 |
) |
$ |
(6,885,851 |
) |
$ |
(36,276,135 |
) |
Net loss attributable to noncontrolling interest |
|
378,916 |
|
391,375 |
|
1,353,204 |
|
882,395 |
| ||||
Net loss attributable to Optimer Pharmaceuticals, Inc. |
|
$ |
(26,426,671 |
) |
$ |
(11,837,088 |
) |
$ |
(5,532,647 |
) |
$ |
(35,393,740 |
) |
Net loss per share - basic and diluted |
|
$ |
(0.57 |
) |
$ |
(0.30 |
) |
$ |
(0.12 |
) |
$ |
(0.95 |
) |
Weighted average number of shares used to compute net loss per share - basic and diluted |
|
46,624,390 |
|
38,816,782 |
|
45,269,621 |
|
37,389,070 |
|
See accompanying notes.
Optimer Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(unaudited)
|
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Nine Months Ended September 30, |
| ||||
|
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2011 |
|
2010 |
| ||
|
|
|
|
|
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Operating activities |
|
|
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|
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Net loss |
|
$ |
(6,885,851 |
) |
$ |
(36,276,135 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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|
|
|
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Depreciation and amortization |
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354,177 |
|
217,005 |
| ||
Stock based compensation |
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7,381,074 |
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4,231,152 |
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Issuance of common stock for consulting services |
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2,793,513 |
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2,440,137 |
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Deferred rent |
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22,165 |
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(80,272 |
) | ||
Changes in operating assets and liabilities: |
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|
|
|
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Prepaids expenses and other current assets |
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(3,052,021 |
) |
(267,554 |
) | ||
Accounts receivable, net |
|
(7,995,785 |
) |
29,292 |
| ||
Inventory |
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(2,245,162 |
) |
|
| ||
Other assets |
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(881,537 |
) |
(4,767 |
) | ||
Accounts payable and accrued expenses |
|
10,412,378 |
|
(1,418,139 |
) | ||
Net cash used in operating activities |
|
(97,049 |
) |
(31,129,281 |
) | ||
|
|
|
|
|
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Investing activities |
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|
|
|
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Purchases of short-term investments |
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(91,837,432 |
) |
(50,177,269 |
) | ||
Sales or maturity of short-term investments |
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39,165,000 |
|
39,685,000 |
| ||
Purchases of property and equipment |
|
(1,723,459 |
) |
(290,287 |
) | ||
Net cash used in investing activities |
|
(54,395,891 |
) |
(10,782,556 |
) | ||
|
|
|
|
|
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Financing activities |
|
|
|
|
| ||
Proceeds from sale of common stock |
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82,417,480 |
|
51,815,676 |
| ||
Net cash provided by financing activities |
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82,417,480 |
|
51,815,676 |
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
(517,267 |
) |
127,800 |
| ||
Net increase in cash and cash equivalents |
|
27,407,273 |
|
10,031,639 |
| ||
Cash and cash equivalents at beginning of period |
|
19,861,924 |
|
17,054,328 |
| ||
Cash and cash equivalents at end of period |
|
$ |
47,269,197 |
|
$ |
27,085,967 |
|
See accompanying notes.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Interim Financial Information
Organization and Business Activities
Optimer Pharmaceuticals, Inc. (Optimer or the Company) was incorporated in Delaware on November 18, 1998. The Company has a majority-owned subsidiary, Optimer Biotechnology, Inc. (OBI), which is incorporated and located in Taiwan. In October 2009, Optimer sold 40% of its equity interest in OBI. Prior to the sale, OBI was a wholly owned subsidiary of Optimer. Optimer also recently established a wholly-owned subsidiary, Optimer Pharmaceuticals Canada, Inc., which is incorporated and located in Canada.
Optimer is a biopharmaceutical company focused on discovering, developing and commercializing innovative hospital specialty products. The Company currently has one anti-infective product, DIFICID (fidaxomicin), which is approved in the United States for the treatment of Clostridium difficile-associated diarrhea (CDAD) and is developing additional product candidates using its proprietary technology, including its OPopS drug discovery platform.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the three months and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which was filed with the Securities and Exchange Commission (SEC) on March 10, 2011.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
2. Summary of Significant Accounting Policies
Cash, Cash Equivalents and Investments
Investments with original maturities of less than 90 days at the date of purchase are considered to be cash equivalents. Except for one auction rate preferred security (ARPS), all other investments are classified as short-term investments which are deemed by management to be available-for-sale and are reported at fair value with net unrealized gains or losses reported
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
within other comprehensive loss in the consolidated statement of stockholders equity. Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income or interest expense. The cost of securities sold is computed using the specific identification method.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined in a manner which approximates the first-in, first-out (FIFO) method. The Company capitalizes inventory produced in preparation for product launches upon FDA approval when costs are expected to be recoverable through the commercialization of the product. The Company reserves for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales. As of September 30, 2011, inventories consist of $954,455 in raw materials, $479,975 in work in progress and $810,732 in finished goods.
Reclassifications
The Company has reclassified certain prior period amounts to conform to the current period presentation. Specifically, it has consolidated its sales and marketing expense and its general and administrative expense into a single selling, general and administrative expense category. This reclassification has no impact on the net loss from operations or stockholders equity as previously reported.
Revenue Recognition
DIFICID is available through three major wholesalers, AmerisourceBergen Corporation, Cardinal Health, Inc., and McKesson Corporation, and regional wholesalers that provide the DIFICID to hospital and retail pharmacies, and long-term care facilities. The Company applies the revenue recognition guidance in Staff Accounting Bulletin (SAB) 104 and does not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, title has passed to the customer, the price is fixed and determinable, the buyer is obligated to pay the Company, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from the Company, the Company has no obligation to bring about the sale of the product, the amount of returns can be reasonably estimated and collectability is reasonably assured. The Company recognizes product sales of DIFICID upon delivery of product to the wholesalers.
The Companys net product revenues represent total product revenues less allowances for customer credits, including estimated rebates, discounts and returns. These allowances are established by management as its best estimate based on available information and will be adjusted to reflect
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
known changes in the factors that impact such allowances. Allowances for rebates, discounts and returns are established based on the contractual terms with customers, communications with customers as well as expectations about the market for the product and anticipated introduction of competitive products. Product shipping and handling costs are included in cost of sales.
Product Sales Allowances. The Company establishes reserves for prompt payment discounts, government rebates, product returns and other applicable allowances. Reserves established for these discounts and allowances are classified as a reduction of accounts receivable.
Allowances against receivable balances primarily relate to prompt payment discounts and fee for service arrangements with our contracted wholesalers and are recorded at the time of sale, resulting in a reduction in product sales revenue. Accruals related to government rebates, product returns and other applicable allowances are recognized at the time of sale, resulting in a reduction in product sales revenue and the recording of an increase in accrued expenses.
Prompt Payment Discounts. The Company offers a prompt payment discount to its contracted wholesalers. Since the Company expects its customers will take advantage of this discount, the Company accrues 100% of the prompt payment discount that is based on the gross amount of each invoice, at the time of sale. The accrual is adjusted quarterly to reflect actual earned discounts.
Government Rebates and Chargebacks. The Company estimates government mandated rebates and discounts relating to federal and state programs such as Medicaid, Veterans Administration (VA) and Department of Defense programs, the Medicare Part D Coverage Discount Program, as well as certain other qualifying federal and state government programs. The Company estimates the amount of these reductions based on DIFICID patient data, actual sales data and market research data related to payor mix. These allowances are adjusted each period based on actual experience.
Medicaid rebate reserves relate to the Companys estimated obligations to states under statutory best price obligations which may also include supplemental rebate agreements with certain states. Rebate accruals are recorded during the same period in which the related product sales are recognized. Actual rebate amounts are determined at the time of claim by the state, and the Company will generally make cash payments for such amounts after receiving billings from the state.
VA rebates or chargeback reserves represent the Companys estimated obligations resulting from contractual commitments to sell DIFICID to qualified healthcare providers at a price lower than the list price charged to the Companys distributor. The distributor will charge the Company for the difference between what the distributor pays for the product and the ultimate selling price to the qualified healthcare provider. Rebate accruals are established during the same period in which the related product sales are recognized. Actual chargeback amounts for Public Health Service are determined at the time of resale to the qualified healthcare provider from the distributor, and the Company will generally issue credits for such amounts after receiving notification from the distributor.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Although allowances and accruals are recorded at the time of product sale, certain rebates will generally be paid out, on average, up to six months or longer after the sale. Reserve estimates are evaluated quarterly and, if necessary, adjusted to reflect actual results. Any such adjustments will be reflected in the Companys operating results in the period of the adjustment.
Product Returns. The Companys policy is to accept returns of DIFICID for six months prior to and twelve months after the product expiration date. The Company also permits returns if the product is damaged or defective when received by its customers. The Company will provide a credit for such returns to customers with whom the Company has a direct relationship. Once product is dispensed, it cannot be returned, but the Company allows partial returns in states where such returns are mandated. The Company does not exchange product from inventory for the returned product.
Allowances for product returns are recorded during the period in which the related product sales are recognized, resulting in a reduction to product revenue. The Company estimates product returns based upon historical trends in the pharmaceutical industry and trends for similar products sold by others.
Collaborations, Milestones and Royalties
In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards (FASB) guidance on the milestone method of revenue recognition at the inception of a collaboration agreement.
Accounting Standard Codification (ASC) Topic 605-28, Revenue Recognition Milestone Method (ASC 605-28), established the milestone method as an acceptable method of revenue recognition for certain contingent event-based payments under research and development arrangements. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can be achieved based in whole or in part on either the Companys performance or on the occurrence of a specific outcome resulting from the Companys performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in additional payments being due to the Company. The determination that a milestone is substantive is judgmental and is made at the inception of the arrangement. Milestones are considered substantive when the consideration earned from the achievement of the milestone is (i) commensurate with either the Companys performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from the Companys performance to achieve the milestone, (ii) relates solely to past performance and (iii) is reasonable relative to all deliverables and payment terms in the arrangement.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Other contingent event-based payments received for which payment is either contingent solely upon the passage of time or the results of a collaborative partners performance are not considered milestones under ASC 605-28. In accordance with ASC Topic 605-25, Revenue Recognition Multiple-Element Arrangements, such payments will be recognized as revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; price is fixed or determinable; and collectability is reasonably assured.
Revenues recognized for royalty payments, if any, are recognized as earned in accordance with the terms of various research and collaboration agreements.
For collaboration agreements with multiple deliverables, the Company recognizes collaboration revenues and expenses by analyzing each element of the agreement to determine if it is to be accounted for as a separate element or single unit of accounting. If an element is to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue is to be recognized. If an element is not to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue is to be recognized.
Cash received in advance of services being performed is recorded as deferred revenue and recognized as revenue as services are performed over the applicable term of the agreement.
In connection with certain research collaboration agreements, revenues are recognized from non-refundable upfront fees, which the Company does not believe are specifically tied to a separate earnings process, ratably over the term of the agreement. Research fees are recognized as revenue as the related research activities are performed.
With respect to revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with grants, where the Company acts as a principal, with discretion to choose suppliers, bears credit risk and performs part of the services required in the transaction, the Company records revenue for the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in the consolidated statements of operations.
In February 2011, the Company entered into a collaboration and license agreement with Astellas Pharma Europe Ltd. (Astellas). Under the terms of the license agreement with Astellas, Astellas paid the Company an upfront fee of $69.2 million. The Company is also eligible to receive additional payments under the collaboration and license agreement upon the achievement of specified regulatory and commercial milestones and contingent events. The Company has assessed the revenue recognition method for the achievement of the milestones at the inception of the arrangement using the milestone method.
None of the payments that the Company has received from collaborators to date, whether recognized as revenue or deferred, are refundable even if the related program is not successful.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Research and Development Expenses
The Company expenses costs related to research and development until technological feasibility has been established for the product. Once technological feasibility is established, all product costs are generally capitalized until the product is available for general release to customers. The Company has determined that technological feasibility for its product candidates will be reached when the requisite regulatory approvals are obtained to make the product available for sale, which, in the United States, generally occurs upon the approval of the New Drug Application (NDA) for such product. In November 2010, the Company paid a $1.5 million filing fee to the FDA associated with the NDA for DIFICID. The filing fee is potentially refundable for companies that qualify as a small business which is defined by the Small Business Association (SBA) as a company with 250 employees or less. The Company asserted that it qualifies as a small business and submitted data to the SBA to support its assertion. As the small business determination was uncertain, the Company recorded the $1.5 million NDA fee as research and development expense. In March 2011, the Company received a letter from the SBA concurring with the Companys assessment that it was a small business. Consequently, the Company recorded the $1.5 million fee as a receivable and reduced the research and development expenses in March 2011. In June 2011, the Company was refunded the $1.5 million fee from the SBA.
The Companys research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by the Companys contract research organizations and costs associated with non-clinical activities and regulatory approvals. The Company uses external service providers and vendors to conduct clinical trials, to manufacture supplies of product candidates to be used in clinical trials and to provide various other research and development-related products and services.
When nonrefundable payments for goods or services to be received in the future for use in research and development activities are made, the Company defers and capitalizes these types of payments. The capitalized amounts are expensed when the related goods are delivered or the services are performed.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on investments, is required to be reported, net of their related tax effect, to arrive at comprehensive income (loss). Consolidated comprehensive loss was ($28.0) million and ($12.3) million for the three months ended September 30, 2011 and 2010, respectively. Consolidated comprehensive loss was ($7.5) million and ($36.2) million for the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011, the cumulative unrealized loss on investments and the cumulative loss on foreign currency translation adjustment was ($133,176) and ($119,432), respectively. As of December 31, 2010, the cumulative unrealized loss on investments and the cumulative gain on foreign currency translation adjustment was $3,020 and $301,870, respectively.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Net Income (Loss) Per Share Attributable to Common Stockholders
Basic net income (loss) per common share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing net loss by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Common equivalent shares consist of common shares issuable upon the exercise of stock options and warrants.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.
Recently Issued Accounting Pronouncements
In May 2011, the FASB issued an update to existing guidance on fair value measurement and disclosure requirements under U.S. GAAP and International Financial Reporting Standards. The amendments in this update change the wording used to describe many of the requirements under U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this update will be effective for interim and annual periods beginning after December 15, 2011 and should be applied retrospectively. The adoption of these amendments is not expected to have a material impact on the Companys financial position, cash flow or results of operations.
In June 2011, the FASB issued an update which amends the presentation of comprehensive income. The objective of this update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Under this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under either choice, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments in this update will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied prospectively. The adoption of these amendments is not expected to have a material impact on the Companys financial position, cash flow or results of operations.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
3. Fair Value of Financial Instruments
The following table summarizes the Companys financial assets measured at fair value on a recurring basis subject to the disclosure requirements as of September 30, 2011:
|
|
Quoted Prices in |
|
Other |
|
Unobservable |
|
Total |
| ||||
Cash equivalents |
|
$ |
47,269,197 |
|
$ |
|
|
$ |
|
|
$ |
47,269,197 |
|
Marketable securities |
|
82,095,782 |
|
|
|
|
|
82,095,782 |
| ||||
Auction rate securities |
|
|
|
|
|
882,000 |
|
882,000 |
| ||||
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 ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:
|
|
Auction Rate |
| |
Beginning balance at January 1, 2011 |
|
$ |
882,000 |
|
Total gains and losses: |
|
|
| |
Realized net income |
|
|
| |
Unrealized in accumulated other comprehensive income |
|
|
| |
Purchases, sales, issuances and settlements |
|
|
| |
Transfers in (out) of Level 3 |
|
|
| |
Ending balance at September 30, 2011 |
|
$ |
882,000 |
|
Change in unrealized gains (losses) included in net income related to assets still held |
|
$ |
|
|
All of the Companys investments in available-for-sale securities are recorded at fair value based on quoted market prices. As of September 30, 2011, the Company held one ARPS valued at $882,000 with a perpetual maturity date that resets every 28 days. Although as of September 30, 2011, this ARPS continued to pay interest according to its stated terms, the market in these securities continues to be illiquid. Based on a discounted cash flow model used to determine the estimated fair value of its investment in the ARPS, the Company has previously recognized in the consolidated statement of operations an unrealized loss of approximately $118,000 in investment income since the Company had determined that the decline in value was other than temporary. The assumptions used for the discontinued cash flow model include estimates for interest rates, timing and amount of cash flows and expected holding period of the ARPS. The Companys ARPS is classified as a long-term investment on the consolidated balance sheets, as the Company does not believe it could liquidate its security in the near term.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
4. Investment Securities
The following is a summary of the Companys consolidated investment securities, all of which are classified as available-for-sale. Determination of estimated fair value is based upon quoted market prices as of the dates presented.
|
|
September 30, 2011 |
| ||||||||||
|
|
Gross |
|
Gross |
|
Gross |
|
Market Value |
| ||||
Government agencies |
|
$ |
72,506,664 |
|
$ |
109,698 |
|
$ |
(1,945 |
) |
$ |
72,614,417 |
|
Corporate bonds |
|
9,475,291 |
|
7,203 |
|
(1,129 |
) |
9,481,365 |
| ||||
|
|
$ |
81,981,955 |
|
$ |
116,901 |
|
$ |
(3,074 |
) |
$ |
82,095,782 |
|
|
|
December 31, 2010 |
| ||||||||||
|
|
Gross |
|
Gross |
|
Gross |
|
Market Value |
| ||||
Government agencies |
|
$ |
26,542,210 |
|
$ |
2,311 |
|
$ |
(4,924 |
) |
$ |
26,539,597 |
|
Corporate bonds |
|
3,014,319 |
|
23 |
|
(433 |
) |
3,013,909 |
| ||||
|
|
$ |
29,556,529 |
|
$ |
2,334 |
|
$ |
(5,357 |
) |
29,553,506 |
| |
Investments in net unrealized loss positions as of September 30, 2011 are as follows:
|
|
|
|
Less Than 12 Months of |
|
Greater Than 12 Months |
|
Total Temporary |
| ||||||||||||
|
|
Number of |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
| ||||||
Government agencies |
|
1 |
|
$ |
1,418,066 |
|
$ |
(1,945 |
) |
$ |
|
|
$ |
|
|
$ |
1,418,066 |
|
$ |
(1,945 |
) |
Corporate bonds |
|
2 |
|
3,375,378 |
|
(1,129 |
) |
$ |
|
|
$ |
|
|
3,375,378 |
|
(1,129 |
) | ||||
|
|
|
|
$ |
4,793,444 |
|
$ |
(3,074 |
) |
$ |
|
|
$ |
|
|
$ |
4,793,444 |
|
$ |
(3,074 |
) |
The amortized cost and estimated fair value of securities available-for-sale at September 30, 2011, by contractual maturity, are as follows:
|
|
Amortized Cost |
|
Estimated Fair Value |
| ||
Due in one year or less |
|
$ |
58,988,920 |
|
$ |
59,039,098 |
|
Due in one year to two years |
|
22,993,035 |
|
23,056,684 |
| ||
|
|
$ |
81,981,955 |
|
$ |
82,095,782 |
|
The weighted-average maturity of our short-term investments as of September 30, 2011 and 2010 was approximately nine months and six months, respectively.
The Company considered a number of factors to determine whether the decline in value in its investments is other than temporary, including the length of time and the extent to which the market value has been less than cost, the financial condition of the issuer and the Companys
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
intent to hold and ability to retain these short-term investments. Based on these factors, the Company believes that the decline in value is temporary and primarily related to the change in market interest rates since purchase. The Company anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a change in the market interest rate environment.
5. Stockholders Equity
Noncontrolling Interest
In October 2009, the Company sold 40% of its equity interest in OBI and in February 2011, pursuant to an amendment to the October 2009 financing agreement, OBI sold newly-issued shares of its common stock for gross proceeds of approximately 462.0 million New Taiwan Dollars (approximately $15.5 million based on then-current exchange rates). The Company purchased 277.2 million New Taiwan Dollars (approximately $9.3 million based on then-current exchange rates) of the shares issued in the financing, such that the Company continued to maintain a 60% equity interest in OBI. Pursuant to authoritative guidance, the Company accounts and reports for minority interests, the portion of OBI not owned by the Company, as noncontrolling interests and classifies them as a component of stockholders equity on the consolidated balance sheets of the Company. The Company includes the net loss attributable to noncontrolling interests as part of its consolidated net loss.
The following table reconciles equity attributable to noncontrolling interest:
|
|
For the Nine Months Ended |
| |
Noncontrolling interest, January 1, 2011 |
|
$ |
1,996,704 |
|
Additional financing |
|
6,194,193 |
| |
Net loss attributable to noncontrolling interest |
|
(1,353,203 |
) | |
Translation adjustments |
|
(95,967 |
) | |
Noncontrolling interest, September 30, 2011 |
|
$ |
6,741,727 |
|
Warrants
In connection with a registered direct offering which occurred in March 2009, the Company sold warrants to purchase up to an aggregate of 91,533 shares of its common stock. These warrants had an exercise price of $10.93 per share and were exercised in June 2011.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
6. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net loss basic and diluted |
|
$ |
(26,426,671 |
) |
$ |
(11,837,088 |
) |
$ |
(5,532,647 |
) |
$ |
(35,393,740 |
) |
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Weighted average number of shares of common stock outstanding basic and diluted |
|
46,624,390 |
|
38,816,782 |
|
45,269,621 |
|
37,389,070 |
| ||||
Net loss per share - basic and diluted |
|
$ |
(0.57 |
) |
$ |
(0.30 |
) |
$ |
(0.12 |
) |
$ |
(0.95 |
) |
7. Stock Based Compensation
Optimer Pharmaceuticals, Inc.
Stock Options
In November 1998, the Company adopted the 1998 Stock Plan (the 1998 Plan). The Company terminated and ceased granting options under the 1998 Plan upon the closing of the Companys initial public offering in February 2007.
In December 2006, the Companys board of directors approved the 2006 Equity Incentive Plan (2006 Plan). The 2006 Plan became effective upon the closing of the Companys initial public offering. A total of 2,000,000 shares of the Companys common stock were initially made available for sale under the plan. The 2006 Plan provides for annual increases in the number of shares available for issuance thereunder on the first day of each fiscal year equal to the lesser of (i) 5% of the outstanding shares of the Companys common stock on the last day of the immediately preceding fiscal year; (ii) 750,000 shares; or (iii) such other amount as the board of directors may determine. Pursuant to this provision, 750,000 additional shares of the Companys common stock were reserved for issuance under the 2006 Plan on January 1, 2011, 2010 and 2009. Under the 2006 Plan, the exercise price of options granted must at least be equal to the fair market value of the Companys common stock on the date of grant.
In March and in June 2011, the Companys Board of Directors approved amendments to the 2006 Plan to provide for the reservation of an additional 1,750,000 shares and 1,000,000 shares, respectively, of the Companys common stock to be used exclusively for the grant of awards to individuals not previously an employee or non-employee director of the Company (or following a bona fide period of non-employment with the Company), as an inducement material to the individuals entry into employment with the Company within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules.
Options granted under both the 1998 Plan and the 2006 Plan generally expire 10 years from the date of grant (five years for a 10% or greater stockholder) and vest over a period of four years. The exercise price of options granted must at least be equal to the fair market value of the Companys common stock on the date of grant.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Performance-Based Stock Options, Performance-Based Restricted Stock Units, and Stock Awards
On May 5, 2010, the Companys Board of Directors appointed Pedro Lichtinger as its President and CEO and as a member of its Board of Directors. Pursuant to Mr. Lichtingers offer letter, he received performance-based stock options to purchase up to an aggregate of 480,000 shares of common stock and performance-based restricted stock units covering up to an aggregate of 120,000 shares of common stock, which vest over time beginning on the dates the Company achieves specified development and commercialization goals. In February 2011, one of the performance criteria was met, and, in May 2011, another one of the performance criteria was met. As a result of the accomplishment of these goals, 1/4th of the performance-based stock options and performance-based restricted stock units related to each goal will vest on the one-year anniversary of the achievement of such goal and the remaining shares will vest in 36 equal monthly installments thereafter.
Simultaneously with Mr. Lichtingers appointment, Michael Chang resigned as the Companys President and CEO. The Company entered into a consulting agreement with Dr. Chang to provide general consulting services. Pursuant to his consulting agreement and as part of his compensation, Dr. Chang received performance-based stock options to purchase up to an aggregate of 400,000 shares of common stock which vest over time beginning on the dates certain regulatory filings are accepted and approved. Dr. Chang has continued to serve as the Chairman of the Companys Board of Directors. In January 2011, one of the performance criteria was met, and, in May 2011, another one of the performance criteria was met. As a result of the accomplishment of these goals,1/4th of the option shares related to each goal vested upon the accomplishment of such goal. The remaining shares will vest in 24 equal monthly installments over the subsequent two-year period.
In September 2011, the Companys Board of Directors awarded performance-based restricted stock units covering an aggregate of 3,000,000 of the Companys shares of OBI common stock to certain executives of the Company and the Chairman of the Board of Directors. The OBI shares underlying the performance-based restricted stock units will be issued upon OBIs achievement of a specified corporate goal and will be subject to forfeiture to the extent the recipients service with the Company terminates prior to the three year anniversary of the share issuance date.
Employee Stock Purchase Plan
Optimer also grants stock awards under its employee stock purchase plan (ESPP). Under the terms of the ESPP, eligible employees may purchase shares of Optimers common stock at the lesser of 85% of the fair market value of Optimers common stock on the offering date or the purchase date.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Valuations
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options and stock awards, which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected stock price volatility of the underlying stock. The following table shows the assumptions used to compute stock-based compensation expense for the stock options, performance-based stock options, performance-based restricted stock units, and ESPP purchase rights during the three and nine months ended September 30, 2011 and 2010, using the Black-Scholes option pricing model:
|
|
Three months ended |
|
Nine months ended |
| ||||
Stock Options |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Risk-free interest rate |
|
1.98-3.00 |
% |
2.48-2.66 |
% |
1.98-3.46 |
% |
2.48-3.53 |
% |
Dividend yield |
|
0.00 |
% |
0.00 |
% |
0.00 |
% |
0.00 |
% |
Expected life of options (years) |
|
6.08-8.33 |
|
6.08-9.67 |
|
5.27-9.49 |
|
5.02-10.00 |
|
Volatility |
|
69.22-70.71 |
% |
69.03-78.27 |
% |
69.13-73.63 |
% |
69.03-79.07 |
% |
|
|
Three months ended |
|
Nine months ended |
| ||||
ESPP |
|
2011 |
|
2010 |
|
|
|
2010 |
|
Risk-free interest rate |
|
0.08 |
% |
0.20 |
% |
0.08-0.18 |
% |
0.17-0.20 |
% |
Dividend yield |
|
0.00 |
% |
0.00 |
% |
0.00 |
% |
0.00 |
% |
Expected life of options (years) |
|
0.5 |
|
0.5 |
|
0.5 |
|
0.5 |
|
Volatility |
|
61.65 |
% |
38.76 |
% |
40.01-61.65 |
% |
34.08-39.62 |
% |
The risk-free interest rate assumption was based on the United States Treasurys rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Companys expectation of not paying dividends in the foreseeable future. The weighted-average expected life of options was calculated using the simplified method. This decision was based on the lack of relevant historical data due to the Companys limited history. In addition, due to the Companys limited historical data, the Company used the historical volatility of comparable companies whose share prices are publicly available to estimate the Companys options volatility rate.
Total stock-based compensation expense related to all of the Companys stock options, restricted stock units, stock awards issued to employees and consultants, and employee stock purchases, recognized for the three months and nine months ended September 30, 2011 and 2010, was comprised as follows:
|
|
Three months ended |
|
Nine months ended |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Research and development |
|
$ |
863,650 |
|
$ |
429,277 |
|
$ |
2,176,547 |
|
$ |
1,219,419 |
|
Selling, general and administrative |
|
1,776,913 |
|
1,416,460 |
|
5,052,245 |
|
3,695,774 |
| ||||
Stock-based compensation expense |
|
$ |
2,640,563 |
|
$ |
1,845,737 |
|
$ |
7,228,792 |
|
$ |
4,915,193 |
|
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
At September 30, 2011, the total unrecognized compensation expense related to unvested stock options and restricted stock units issued to employees was approximately $24.6 million and the related weighted-average period over which such expense is expected to be recognized is approximately 3.3 years.
Optimer Biotechnology, Inc.
Stock Options
In March 2010, OBIs board of directors approved a Stock Option Plan and reserved 8.0 million shares of OBI common stock for issuance of equity awards thereunder. The Stock Option Plan provides for the issuance of stock options, restricted stock awards and stock appreciation rights to employees of OBI. The options generally vest over four years and have a maximum contractual term of ten years.
Valuations
The following table shows the assumptions used to compute stock-based compensation expense for the stock options granted by OBI during the three months and nine months ended September 30, 2011 and 2010, using the Black-Scholes option pricing model:
|
|
Three months ended |
|
Nine months ended |
| ||||
Stock Options |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Risk-free interest rate |
|
1.88 |
% |
1.38 |
% |
1.63-1.88 |
% |
1.25-1.38 |
% |
Dividend yield |
|
0.00 |
% |
0.00 |
% |
0.00 |
% |
0.00 |
% |
Expected life of options (years) |
|
6.08 |
|
6.08 |
|
6.08 |
|
6.08 |
|
Volatility |
|
88.68 |
% |
88.40 |
% |
88.12-88.68 |
% |
88.40-92.14 |
% |
The risk-free interest rate assumption was based on the Central Bank of China interest rates. The assumed dividend yield was based on OBIs expectation of not paying dividends in the foreseeable future. The weighted-average expected life of options was calculated using the simplified method. This decision was based on the lack of relevant historical data due to OBIs limited history. Due to OBIs limited historical data, OBI used the historical volatility of OBIs peers whose share prices are publicly available to estimate the volatility rate of OBI stock options.
The following table summarizes the stock-based compensation expense for OBI included in each operating expense line item in Optimers consolidated statements of operations for the three months and nine months ended September 30, 2011 and 2010:
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
|
|
Three months ended |
|
Nine months ended |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Research and development |
|
$ |
16,299 |
|
$ |
11,973 |
|
$ |
44,026 |
|
$ |
31,000 |
|
Selling, general and administrative |
|
36,531 |
|
24,274 |
|
108,256 |
|
87,059 |
| ||||
Stock-based compensation expense |
|
$ |
52,830 |
|
$ |
36,247 |
|
$ |
152,282 |
|
$ |
118,059 |
|
At September 30, 2011, the total unrecognized compensation expense related to unvested stock options issued to OBI employees was approximately $534,000 and the related weighted-average period over which this expense is expected to be recognized was approximately 2.6 years.
8. Other Collaborative Agreements
Revenues from Research Grants
The Company has one active grant from the National Institute of Allergy and Infectious Diseases. This $3.0 million grant was awarded in September 2007 for three years and was subsequently extended to August 2012. The award has been used to conduct supplementary studies to the DIFICID trials to confirm narrow spectrum activity and potency of DIFICID against hypervirulent epidemic strains and to support additional toxicology studies. The award is currently being used for microbiological studies to demonstrate the safety and efficacy of DIFICID and its major metabolite in CDAD patients and to support surveillance studies of C. difficile isolates across North America to compare the activity of DIFICID with existing CDAD treatments. For the three months ended September 30, 2011 and 2010, the Company recognized revenues related to research grants of $61,077, and $169,137, respectively. For the nine months ended September 30, 2011 and 2010, the Company recognized revenues related to research grants of $206,010, and $824,010, respectively.
OBI has one active grant from the Taiwan Ministry of Economic Affairs (MOEA). This grant was for an aggregate of $27.4 million New Taiwan Dollars and was awarded in January 1, 2011 for one year. The award has been used to obtain the first 45 patients safety report for the OPT-822/821 trials. In order to withdraw funds from the grant, OBI had to meet certain criteria and obtain a contract with the Taiwan Department of Economic Affairs. In June 2011, OBI was able to meet the criteria and received the executed contract from the Department of Economic Affairs. OBI submitted a reimbursement request to the MOEA for expenses incurred from January 2011 through September 2011. For the quarter ended September 30, 2011, OBI recognized revenues related to research grants of $12.5 million New Taiwan Dollars.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Other Collaborative Agreements
Cubist Pharmaceuticals, Inc.
On April 5, 2011, the Company entered into a co-promotion agreement with Cubist Pharmaceuticals, Inc. (Cubist) pursuant to which the Company engaged Cubist as its exclusive partner for the promotion of DIFICID in the United States. Under the terms of the agreement, the Company and Cubist have agreed to co-promote DIFICID to physicians, hospitals, long-term care facilities and other healthcare institutions as well as jointly provide medical affairs support for DIFICID. In conducting their respective co-promotion activities, each party is obligated under the agreement to commit minimum levels of personnel, and Cubist is obligated to tie a portion of the incentive compensation paid to its sales representatives to the promotion of DIFICID in the United States. Under the terms of the agreement, the Company is responsible for the distribution of DIFICID in the United States and for recording revenue from sales of DIFICID, and agreed to use commercially reasonable efforts to maintain adequate inventory and third party logistics support for the supply of DIFICID in the United States. In addition, Cubist agreed to not promote competing products in the United States during the term of the agreement and, subject to certain exceptions, for a specified period of time thereafter. The initial term of the agreement is two years from the date of first commercial sale of DIFICID in the United States, subject to renewal or early termination as described below.
In exchange for Cubists co-promotion activities and personnel commitments, the Company is obligated to pay a quarterly fee of approximately $3.75 million to Cubist ($15.0 million per year) beginning upon the commencement of the sales program of DIFICID in the United States. Cubist is also eligible to receive an additional $5.0 million in the first year after first commercial sale and $12.5 million in the second year after first commercial sale if mutually agreed upon annual sales targets are achieved, as well as a portion of the Companys gross profits derived from net sales above the specified annual targets, if any.
The agreement may be renewed by mutual agreement of the parties for additional, consecutive one-year terms. The Company and Cubist may terminate the agreement prior to expiration upon the uncured material breach of the agreement by the other party, upon the bankruptcy or insolvency of the other party, or in the event that actual net sales during the first year of commercial sales of DIFICID in the United States are below specified levels, subject to certain limitations. In addition, the Company may terminate the agreement, subject to certain limitations, if (i) the Company withdraws DIFICID from the market in the United States, (ii) Cubist fails to comply with applicable laws in performing its obligations, (iii) Cubist undergoes a change of control, (iv) certain market events occur related to Cubists product CUBICIN® (daptomycin for injection) in the United States, or (v) Cubist undertakes certain restructuring activities with respect to its sales force. In addition, Cubist may terminate the agreement, subject to certain limitations, if (i) the Company experiences certain supply failures in relation to the demand for DIFICID in the United States, (ii) the Company is acquired by certain types of entities, including competitors of Cubist, (iii) certain market events occur related to CUBICIN in the United States, or (iv) the Company fails to comply with applicable laws in performing its obligations.
In June 2011, the Company paid Cubist $3.75 million for the first quarterly payment which the Company started expensing as a selling, general and administrative expense in the third quarter of 2011 in connection with the launch of DIFICID.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Astellas Pharma Europe Ltd.
In February 2011, the Company entered into a collaboration and license agreement with Astellas pursuant to which the Company granted to Astellas an exclusive, royalty-bearing license under certain of the Companys know-how and intellectual property to develop and commercialize DIFICID in Europe, and certain other countries in the Middle East, Africa and the Commonwealth of Independent States (CIS). In March 2011, the parties amended the agreements to include certain additional countries in the CIS and all additional territories in Africa (all such countries and territories are referred to as the Astellas territories). Under the terms of the agreement, Astellas has agreed to use commercially reasonable efforts to develop and commercialize DIFICID in the Astellas territory at its expense, and to achieve certain additional regulatory and commercial diligence milestones with respect to DIFICID in the Astellas territory. The Company and Astellas may also agree to collaborate in, and share data resulting from, global development activities with respect to DIFICID, in which case the Company and Astellas will be obligated to co-fund such activities. In addition, under the terms of the agreement, Astellas granted the Company an exclusive, royalty-free license under know-how and intellectual property generated by Astellas and its sublicensees in the course of developing DIFICID and controlled by Astellas or its affiliates for use by the Company and any of the Companys sublicensees in the development and commercialization of DIFICID outside the Astellas territory and, following termination of the agreement and subject to payment by the Company of single-digit royalties, in the Astellas territory. In addition, under the terms of a supply agreement entered into between the Company and Astellas on the same date, the Company will be the exclusive supplier of DIFICID to Astellas for Astellas development and commercialization activities in the Astellas territory during the term of the supply agreement, and Astellas is obligated to pay the Company an amount equal to cost plus an agreed mark-up for such supply.
Under the terms of the license agreement with Astellas, in March 2011, Astellas paid the Company an upfront fee of $69.2 million. The Company is eligible to receive additional cash payments totaling up to 115.0 million Euros upon the achievement by Astellas of specified regulatory and commercial milestones and contingent events. Of this amount, 40 million Euros will become due 30 days subsequent to the earlier to occur of launch in two major countries or six months after EMA approval and 10 million Euros will become payable to the Company upon the launch in any country in the Astellas territory. When determining whether or not to account for the additional cash payments under the milestone method, the Company makes a determination of whether or not each milestone is considered substantive. During this assessment the Company considers if the milestone is achieved based in whole or in part on the Companys performance or on the occurrence of a separate outcome resulting from the Companys performance, if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and if achievement will result in additional payments being due. Based on the Companys assessment process it was determined that additional payments due related to regulatory approval and product launch will be accounted for under the milestone method as technological hurdles create uncertainty as to whether or not the milestones will be met and the achievement of the milestones is based in part on the occurrence of a separate outcome resulting from the Companys performance. In addition, the Company will be entitled to receive escalating double-
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
digit royalties ranging from the high teens to low twenties on net sales of DIFICID products in the Astellas territory, which royalties are subject to reduction in certain, limited circumstances. Such royalties will be payable by Astellas on a product-by-product and country-by-country basis until a generic product accounts for a specified market share of the applicable DIFICID product in the applicable country.
The Company assessed the deliverables under the authoritative guidance for multiple element arrangements. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. Once the Company identified the deliverables under the arrangement, the Company determined whether or not the deliverables can be accounted for as separate units of accounting, and the appropriate method of revenue recognition for each element. Based on the results of the Companys analysis, the Company determined that the upfront payment was earned upon the delivery of the license and related know-how, which occurred by March 31, 2011.
The agreements with Astellas will continue in effect on a product-by-product and country-by-country basis until expiration of Astellas obligation to pay royalties with respect to each DIFICID product in each country in the Astellas territory, unless terminated early by either party as more fully described below. Following expiration, Astellas license to develop and commercialize the applicable DIFICID product in the applicable country will become non-exclusive. The Company and Astellas may each terminate either of the agreements prior to expiration upon the material breach of such agreement by the other party, or upon the bankruptcy or insolvency of the other party. In addition, the Company may terminate the agreements prior to expiration in the event Astellas or any of its affiliates or sublicensees commences an interference or opposition proceeding with respect to, challenges the validity or enforceability of, or opposes any extension of or the grant of a supplementary protection certificate with respect to, any patent licensed to it, and Astellas may terminate the agreements prior to expiration for any reason on a product-by-product and country-by-country basis upon 180 days prior written notice to the Company. Upon any such termination, the license granted to Astellas (in total or with respect to the terminated product or terminated country, as applicable) will terminate and revert to the Company.
Par Pharmaceutical, Inc.
The Company holds worldwide rights to DIFICID. In February 2007, the Company repurchased the rights to develop and commercialize DIFICID in North America and Israel from Par Pharmaceutical, Inc. (Par) under a prospective buy-back agreement. The Company paid Par a one-time $5.0 million milestone payment in June 2010 for the successful completion by the Company of its second pivotal Phase 3 trial for DIFICID. The Company is obligated to pay Par a 5% royalty on any net sales by the Company, its affiliates or its licensees of DIFICID in North America and Israel, including Cubist, and a 1.5% royalty on any net sales by the Company or its affiliates of DIFICID in the rest of the world. In addition, in the event the Company licenses its right to market DIFICID in the rest of the world, such as the license granted to Astellas, the Company will be required to pay Par a 6.25% royalty on net revenues received by it related to
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
DIFICID. The Company is obligated to pay each of these royalties, if any, on a country-by-country basis for seven years commencing on the applicable commercial launch in each such country. In March 2011, the Company paid Par $4.3 million in royalties for net revenues received by the Company under the Astellas agreement.
Biocon Limited
In May 2010, the Company entered into a long-term supply agreement with Biocon for the commercial manufacture of DIFICIDs active pharmaceutical ingredient (API). Pursuant to the agreement, Biocon agreed to manufacture and supply to the Company, up to certain limits, DIFICID API and, subject to certain conditions, the Company agreed to purchase from Biocon at least a portion of its requirements for DIFICID API in the United States and Canada. The Company previously paid to Biocon $2.5 million for certain equipment purchases and manufacturing scale-up activities, and the Company may be entitled to recover up to $1.5 million of this amount under the supply agreement in the form of discounted prices for DIFICID API. The Company may be obligated to make additional payments to Biocon if it fails to meet the minimum purchase requirements after Biocon has dedicated certain manufacturing capacity to the production of DIFICID API and if Biocon is unable to manufacture alternative products with the dedicated capacity. Unless both the Company and Biocon agree to extend the term of the supply agreement, it will terminate seven and a half years from the date the Company obtained marketing authorization for DIFICID in the United States. In addition, the supply agreement may be earlier terminated (i) by either party by giving two and a half years notice after the fifth anniversary of the Effective Date or upon a material breach of the supply agreement by the other party, (ii) by the Company upon the occurrence of certain events, including Biocons failure to supply requested amounts of DIFICID API, or (iii) by Biocon upon the occurrence of certain events, including the Companys failure to purchase amounts of DIFICID API indicated in binding forecasts.
Patheon Inc.
In June 2011, the Company entered into a commercial manufacturing services agreement with Patheon Inc. (Patheon) to manufacture and supply fidaxomicin drug products, including DIFICID, in North America, Europe and other countries, subject to agreement by the parties to any additional fees for such countries. The Company has agreed to purchase a specified percentage of its fidaxomicin product requirements for North America and Europe from Patheon or its affiliates.
The term of the agreement extends through December 31, 2016 and will automatically renew for subsequent two year terms unless either party provides a timely notice of its intent not to renew or unless the Agreement is terminated early pursuant to its terms. The Company and Patheon may terminate the Agreement prior to expiration upon the uncured material breach of the agreement by the other party or upon the bankruptcy or insolvency of the other party. In addition, the agreement will terminate with respect to any fidaxomicin product if the Company provides notice to Patheon that it no longer requires manufacturing services for such product because the product has been discontinued. Additionally, the Company may terminate the agreement, subject
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
to certain limitations, (i) with respect to any fidaxomicin product, if any regulatory authority takes any action or raises any objection that prevents the Company from importing, exporting, purchasing or selling such product, or if the Company determines to discontinue development or commercialization of such product for safety or efficacy reasons, (ii) if any regulatory authority takes an enforcement action against Patheons manufacturing site that relates to fidaxomicin products or that could reasonably be expected to adversely affect Patheons ability to supply fidaxomicin products to the Company, (iii) if Patheon is unable to deliver or supply any firm orders for any two calendar quarters during any four consecutive calendar quarters, (iv) if Patheon uses any debarred or suspended person in the performance of its service obligations under the agreement, or (v) if Patheon fails to meet certain production yield requirements in relation to fidaxomicin API.
Cempra Pharmaceuticals, Inc.
In March 2006, the Company entered into a collaborative research and development and license agreement with Cempra Pharmaceuticals, Inc. (Cempra). The Company granted to Cempra an exclusive worldwide license, except in Association of Southeast Asian Nations (ASEAN) countries, with the right to sublicense, to the Companys patent and know-how related to the Companys macrolide and ketolide antibacterial program. As partial consideration for granting Cempra the license, the Company obtained equity of Cempra and the Company assigned no value to such equity. The Company may receive milestone payments as product candidates are developed and/or co-developed by Cempra, in addition to milestone payments based on certain sublicense revenue. The aggregate potential amount of such milestone payments is not capped and, based in part on the number of products developed under the agreement, may exceed $24.5 million. The Company may also receive royalty payments based on a percentage of net sales of licensed products. The milestone payments will be triggered upon the completion of certain clinical development milestones and in certain instances, regulatory approval of products. In consideration of the foregoing, Cempra may receive milestone payments from the Company in the amount of $1.0 million for each of the first two products the Company develops which receive regulatory approval in ASEAN countries, as well as royalty payments on the net sales of such products. The research term of the agreement was completed in March 2008. Subject to certain exceptions, on a country-by-country basis, the general terms of this agreement continue until the later of: (i) the expiration of the last to expire patent rights of a covered product in the applicable country or (ii) ten years from the first commercial sale of a covered product in the applicable country. Either party may terminate the agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure. Either party may also terminate the agreement for any reason upon 30 days prior written notice provided that all licenses granted by the terminating party to the non-terminating party will survive upon the express election of the non-terminating party.
Memorial Sloan-Kettering Cancer Center
In July 2002, the Company entered into a license agreement with Memorial Sloan-Kettering Cancer Center (MSKCC) to acquire, together with certain nonexclusive licenses, exclusive, worldwide licensing and sublicensing rights to certain patented and patent-pending carbohydrate-
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
based cancer immunotherapies. As partial consideration for the licensing rights, the Company paid to MSKCC a one-time fee consisting of both cash and 55,383 shares of its common stock. In anticipation of the various transactions involving OBI which the Company completed in October 2009, the Company assigned its rights and obligations under this agreement to OBI. Under the agreement, which was amended in June 2005, OBI owes MSKCC milestone payments in the following amounts for each licensed product: (i) $500,000 upon the commencement of Phase 3 clinical studies, (ii) $750,000 upon the filing of the first NDA, (iii) $1.5 million upon obtaining marketing approval in the United States and (iv) $1.0 million upon obtaining marketing approval in each and any of Japan and certain European countries, but only to the extent that OBI, and not a sublicensee, achieves such milestones. OBI may owe MSKCC royalties based on net sales generated from the licensed products and income OBI sources from its sublicensing activities, which royalty payments are credited against a minimum annual royalty payment OBI owes to MSKCC during the term of the agreement.
Scripps Research Institute
In July 1999, the Company acquired exclusive, worldwide rights to its OPopS technology from the Scripps Research Institute (TSRI). This agreement includes the license to the Company of patents, patent applications and copyrights related to OPopS technology. The Company also acquired, pursuant to three separate license agreements with TSRI, exclusive, worldwide rights to over 20 TSRI patents and patent applications related to other potential drug compounds and technologies, including HIV/FIV protease inhibitors, aminoglycoside antibiotics, polysialytransferase, selectin inhibitors, nucleic acid binders, carbohydrate mimetics and osteoarthritis. Under the four agreements with TSRI, the Company paid TSRI license fees consisting of an aggregate of 239,996 shares of its common stock with a deemed aggregate fair market value of $46,400, as determined on the dates of each such payment. In October 2009, the Company assigned to OBI one of the agreements with TSRI related to the Companys OPT-88 product candidate, which after further evaluation OBI decided not to pursue. In February 2011, the license agreement related to OPT-88 was terminated and OBI returned the patents related to OPT-88. Under each of the three remaining agreements, the Company owes TSRI royalties based on net sales by the Company, its affiliates and sublicensees of the covered products and royalties based on revenue the Company generates from sublicenses granted pursuant to the agreements. For the first licensed product under each of the three agreements, the Company also will owe TSRI payments upon achievement of certain milestones. In two of the three TSRI agreements, the milestones are the successful completion of a Phase 2 trial or its foreign equivalent, the submission of an NDA or its foreign equivalent and government marketing and distribution approval. In the remaining TSRI agreement, the milestones are the initiation of a Phase 3 trial or its foreign equivalent, the submission of an NDA or its foreign equivalent and government marketing and distribution approval. The aggregate potential amount of milestone payments the Company may be required to pay TSRI under the remaining TSRI agreements is approximately $11.1 million.
Optimer Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (continued)
(unaudited)
Optimer Biotechnology, Inc.
In October 2009, the Company entered into certain transactions involving OBI, then the Companys wholly-owned subsidiary, to provide funding for the development of two of the Companys early-stage, non-core programs. The transactions with OBI included an Intellectual Property Assignment and License Agreement, pursuant to which the Company assigned to OBI certain patent rights, information and know-how related to OPT-88 and OPT-822/821. In anticipation of these transactions, the Company also assigned, and OBI assumed, the Companys rights and obligations under related license agreements with MSKCC and TSRI. Under this agreement, the Company is eligible to receive up to $10 million in milestone payments for each product developed under the development programs and is also eligible to receive royalties on net sales of any product which is commercialized under the programs. The term of the Intellectual Property Assignment and License Agreement continues until the last to expire of the patents assigned by the Company to OBI and the patents licensed to OBI under the TSRI and MSKCC agreements. After further evaluation, OBI determined not to pursue additional development of OPT-88 and in February 2011, OBI and TSRI agreed to terminate the license agreement and OBI returned the related OPT-88 patents to TSRI. To provide capital for OBIs product development efforts, the Company and OBI also entered into a financing agreement with a group of new investors. Simultaneously, the Company sold 40 percent of its existing OBI shares to the group of new investors, and the Company and the new investors also purchased new OBI shares. The financing agreement also contemplated an additional financing pursuant to which the Company and the new investors would invest approximately an additional $184.8 million New Taiwan Dollars and $277.2 million New Taiwan Dollars, respectively, in exchange for new OBI shares. In February 2011, pursuant to an amendment to the October 2009 financing agreement, OBI completed the second financing and sold newly-issued shares of its common stock for gross proceeds of approximately 462.0 million New Taiwan Dollars (approximately $15.5 million based on then-current exchange rates). The Company purchased 277.2 million New Taiwan Dollars (approximately $9.3 million based on then-current exchange rates) of the shares issued in the second financing, such that the Company maintained its 60% equity interest in OBI.
9. Subsequent Events
In November 2011, the Company filed a new drug submission with the Therapeutic Products Directorate of Health Canada (Health Canada) for DIFICID for the treatment of CDAD. Health Canada awarded the Company priority review of the DIFICID new drug submission enabling an accelerated review process. In preparation for potentially commercializing DIFICID in Canada, the Company established a wholly-owned subsidiary, Optimer Pharmaceuticals Canada, Inc. located in Toronto, Canada.
On November 1, 2011, the Company made a strategic decision to discontinue the clinical development of Pruvel (prulifloxacin) as a treatment for travelers diarrhea. The Company notified Nippon Shinyaku, Co. Ltd. that it was terminating the related license agreement and the Company will return all rights to the compound to Nippon Shinyaku.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes appearing elsewhere in this report, as well as the audited financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission, or SEC. This discussion and other parts of this report may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Risk Factors and elsewhere in this report.
Overview
We are a biopharmaceuticals company currently focused on commercializing and further developing our antibiotic product DIFICID (fidaxomicin). DIFICID is the first antibacterial drug indicated for Clostridium difficile-associated diarrhea, or CDAD, to be approved in the United States in nearly 30 years. It is indicated for the treatment of CDAD in adults 18 years of age or older. We are currently marketing DIFICID in the United States through our own sales force and through our co-promotion agreement with Cubist Pharmaceuticals, Inc, or Cubist. In addition, we have filed a Marketing Authorization Application with the European Medicines Agency, or EMA, for approval of fidaxomicin, and the Committee for Medicinal Products for Human Use of the EMA recently expressed a positive opinion for fidaxomicin tablets for the treatment of adults suffering with Clostridium difficile infection, or CDI, also known as CDAD. If approved by the EMA, we expect that DIFICID will be marketed by Astellas under the name DIFICLIR in Europe.
In February 2011, we entered into an exclusive collaboration and license agreement with Astellas to develop and commercialize DIFICID in Europe, Africa and certain other countries in the Middle East and the Commonwealth of Independent States, or CIS, which we refer to as the Astellas territory. In return for an exclusive license to DIFICID in the Astellas territory, Astellas paid to us an upfront cash payment of $69.2 million and we are eligible to receive additional cash payments totaling up to 115 million Euros upon the achievement of certain regulatory and commercial milestones and contingent events. Furthermore, we will be entitled to receive escalating double-digit royalties ranging from the high teens to low twenties on net sales of DIFICID in the Astellas territory, if approved. Astellas is responsible for all future costs associated with the development and commercialization of DIFICID in the Astellas territory including the costs associated with the MAA for DIFICID in Europe. In connection with the collaboration and license agreement, we also entered into a supply agreement with Astellas pursuant to which we will be the exclusive supplier of DIFICID to Astellas in the Astellas territory and Astellas is obligated to pay us an amount equal to cost plus an agreed mark-up for such supply.
In April 2011, we entered into a co-promotion agreement with Cubist pursuant to which we engaged Cubist as our exclusive partner for the promotion of DIFICID in the United States. Under the terms of the agreement, we and Cubist have agreed to co-promote DIFICID to physicians, hospitals, long-term care facilities and other healthcare institutions as well as jointly
provide medical affairs support for DIFICID. Under the terms of the agreement, we will be responsible for the distribution of DIFICID in the United States and for recording revenue from sales of DIFICID, and we agreed to use commercially reasonable efforts to maintain adequate inventory and third party logistics support for the supply of DIFICID in the United States. The initial term of the agreement is two years from the date of first commercial sale of DIFICID in the United States, subject to renewal or early termination.
In exchange for Cubists co-promotion activities and personnel commitments, we are obligated to pay a quarterly fee of approximately $3.75 million to Cubist ($15.0 million per year) upon the commencement of the DIFICID sales program in the United States. Cubist is also eligible to receive an additional $5.0 million in the first year after first commercial sale and $12.5 million in the second year if mutually agreed upon annual sales targets are achieved, as well as a portion of our gross profits derived from net sales above the specified annual targets, if any.
We are developing additional product candidates using our proprietary technology, including our OPopS drug discovery platform. OPopS is a computer-aided technology that allows the development of potential drug candidates through carbohydrate mediated medicinal chemistry and enables the rapid synthesis of a wide variety of proprietary molecules. It includes GlycoOptimization, which enables the modification of a carbohydrate group on an existing drug to improve its properties, and De Novo Glycosylation, which introduces new carbohydrate groups on existing drugs to create new patentable compounds with improvement of pharmacokinetics.
We previously acquired exclusive rights to OPT-822/821, a combination of a novel carbohydrate-based cancer immunotherapy together with an adjuvant, which we licensed from Memorial Sloan-Kettering Cancer Center, or MSKCC. In October 2009, we assigned to OBI certain of our patent rights and know-how related to OPT-822/821 and also assigned to OBI our rights and obligations under a related license agreement with MSKCC. In April 2010, OBI filed an investigational new drug application, or IND, in Taiwan for OPT-822/821, and in January 2011, OBI initiated a Phase 2/3 clinical trial for the treatment of metastatic breast cancer and is currently conducting the clinical trial in Taiwan and Hong-Kong. We have the right to receive up to $10 million from OBI in future milestone payments related to the development of OPT-822/821 as well as royalties on net sales of this product candidate. In February 2011, pursuant to an amendment to an October 2009 financing agreement, OBI sold newly-issued shares of its common stock for gross proceeds of approximately 462.0 million New Taiwan Dollars (approximately $15.5 million based on then-current exchange rates). We purchased 277.2 million New Taiwan Dollars (approximately $9.3 million based on then-current exchange rates) of the shares issued in the financing, and we currently maintain a 60% equity interest in OBI.
We were incorporated in November 1998. Since inception, we have focused on developing and commercializing DIFICID. We have never been profitable in any fiscal year and have incurred significant net losses since our inception. As of September 30, 2011, we had an accumulated deficit of $228.3 million. These losses have resulted principally from costs incurred in connection with research and development activities, including the costs of clinical trial activities, license fees and general and administrative expenses. We expect to continue to incur
operating losses for the next several years as we pursue the commercialization of DIFICID, conduct post-marketing and Phase 4 studies and undertake life cycle management projects for DIFICID. We may also acquire or in-license additional products or product candidates, technologies or businesses that are complementary to our own.
Critical Accounting Policies
Our Managements Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could differ from those estimates. While our significant accounting policies are described in more detail in Note 2 of the Notes to Consolidated Financial Statements appearing elsewhere in this report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined in a manner which approximates the first-in, first-out (FIFO) method. We capitalize inventory produced in preparation for product launches upon FDA approval when costs are expected to be recoverable through the commercialization of the product. We reserve for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales. As of September 30, 2011, inventories consist of $954,455 in raw materials, $479,975 in work in progress and $810,732 in finished goods.
Revenue Recognition
DIFICID is available only through three major wholesalers, AmerisourceBergen Corporation, Cardinal Health, Inc., and McKesson Corporation, and regional wholesalers that provide the DIFICID to hospital and retail pharmacies, and long-term care facilities. We apply the revenue recognition guidance in Staff Accounting Bulletin (SAB) 104 and do not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, title has passed to the customer, the price is fixed and determinable, the buyer is obligated to pay us, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from us, we have no obligation to bring about the sale of the product, the amount of returns can be reasonably estimated and collectability is reasonably assured. We recognize product sales of DIFICID upon delivery of product to the wholesalers.
During the three months ended and nine months ended September 30, 2011, the $10.6 million in net product revenue to wholesalers reflected a total of 4,335 DIFICID treatments. 2,505 DIFICID treatments were shipped to hospitals, retail pharmacies and long-term care facilities. As of September 30, 2011, 535 hospitals had ordered DIFICID with 304 of those hospitals having placed DIFICID on their formularies.
Our net revenues represent total revenues less allowances for customer credits, including estimated rebates, discounts and returns. These allowances are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Allowances for rebates, discounts and returns are established based on the contractual terms with customers, communications with customers as well as expectations about the market for the product and anticipated introduction of competitive products. Product shipping and handling costs are included in cost of sales.
Product Sales Allowances. We establish reserves for prompt payment discounts and fee for service arrangements with our contracted wholesalers, government rebates, product returns and other applicable allowances. Reserves established for these discounts and allowances are classified as a reduction of accounts receivable.
Allowances against receivable balances primarily relate to prompt payment discounts and are recorded at the time of sale, resulting in a reduction in product sales revenue. Accruals related to government rebates, product returns and other applicable allowances are recognized at the time of sale, resulting in a reduction in product sales revenue and the recording of an increase in accrued expenses.
Prompt Payment Discounts. We offer a prompt payment discount to our contracted wholesalers. Since we expect our customers will take advantage of this discount, we accrue 100% of the prompt payment discount that is based on the gross amount of each invoice, at the time of sale. The accrual is adjusted quarterly to reflect actual earned discounts.
Government Rebates and Chargebacks. We estimate government mandated rebates and discounts relating to into federal and state programs such as Medicaid, Veterans Administration, or VA, and Department of Defense programs, the Medicare Part D Coverage Discount Program, as well as with respect to certain other qualifying federal and state government programs. We estimate the amount of these reductions based on historical trends for similar competitive products, until such time as DIFICID patient data, actual sales data and market research data related to payor mix has reached an established steady state. These allowances are adjusted each period based on actual experience.
Medicaid rebate reserves relate to our estimated obligations to states under statutory best price obligations which may also include supplemental rebate agreements with certain states. Rebate accruals are recorded during the same period in which the related product sales are recognized. Actual rebate amounts are determined at the time of claim by the state, and we will generally make cash payments for such amounts after receiving billings from the state.
VA rebates or chargeback reserves represent our estimated obligations resulting from contractual commitments to sell DIFICID to qualified healthcare providers at a price lower than the list price charged to our distributor. The distributor will charge us for the difference between what the distributor pays for the product and the ultimate selling price to the qualified healthcare provider. Rebate accruals are established during the same period in which the related product sales are recognized. Actual chargeback amounts for Public Health Service are determined at the time of resale to the qualified healthcare provider from the distributor, and we will generally issue credits for such amounts after receiving notification from the distributor.
Although allowances and accruals are recorded at the time of product sale, certain rebates will be generally paid out, on average, up to six months or longer after the sale. Reserve estimates are evaluated quarterly and, if necessary, adjusted to reflect actual results. Any such adjustments will be reflected in our operating results in the period of the adjustment.
Product Returns. Our policy is to accept returns of DIFICID for six months prior to and twelve months after the product expiration date. We also permit returns if the product is damaged or defective when received by its customers. We will provide a credit for such returns to customers with whom we have a direct relationship. Once product is dispensed it cannot be returned, but we allow partial returns in states where such returns are mandated. We do not exchange product from inventory for the returned product.
Allowances for product returns are recorded during the period in which the related product sales are recognized, resulting in a reduction to product revenue. We estimate product returns based upon historical trends in the pharmaceutical industry and trends for similar products sold by others.
Collaborations, Milestones and Royalties
In order to determine the revenue recognition for contingent milestones, we evaluate the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards, or FASB, guidance on the milestone method of revenue recognition at the inception of a collaboration agreement.
Accounting Standard Codification (ASC) Topic 605-28, Revenue Recognition Milestone Method (ASC 605-28), established the milestone method as an acceptable method of revenue recognition for certain contingent event-based payments under research and development arrangements. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in additional payments being due to us. The determination that a milestone is substantive is judgmental and is made at the inception of the arrangement. Milestones are considered substantive when the consideration earned from the achievement of the milestone is (i) commensurate with either our performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) relates solely to past performance and (iii) is reasonable relative to all deliverables and payment terms in the arrangement.
Other contingent event-based payments received for which payment is either contingent solely upon the passage of time or the results of a collaborative partners performance are not considered milestones under ASC 605-28. In accordance with ASC Topic 605-25, Revenue Recognition Multiple-Element Arrangements (ASC 605-25), such payments will be recognized as revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; price is fixed or determinable; and collectability is reasonably assured.
Revenues recognized for royalty payments, if any, are recognized as earned in accordance with the terms of various research and collaboration agreements.
For collaboration agreements with multiple deliverables, we recognize collaboration revenues and expenses by analyzing each element of the agreement to determine if it is to be accounted for as a separate element or single unit of accounting. If an element is to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue is to be recognized. If an element is not to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue is to be recognized.
Cash received in advance of services being performed is recorded as deferred revenue and recognized as revenue as services are performed over the applicable term of the agreement. In connection with certain research collaboration agreements, revenues are recognized from non-refundable upfront fees, which we do not believe are specifically tied to a separate earnings process, ratably over the term of the agreement. Research fees are recognized as revenue as the related research activities are performed.
With respect to revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with grants, where we act as a principal, with discretion to choose suppliers, bear credit risk and perform part of the services required in the transaction, we record revenue for the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in the consolidated statements of operations.
Research and Development
Research and development costs are expensed as incurred and consist primarily of costs associated with clinical trials, compensation, including stock-based compensation, and other expenses related to research and development, including personnel costs, facilities costs and depreciation.
When nonrefundable payments for goods or services to be received in the future for use in research and development activities are made, we defer and capitalize these types of payments. The capitalized amounts are expensed when the related goods are delivered or the services are performed.
Stock-Based Compensation
The FASB authoritative guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. We used the modified prospective method and accordingly we did not restate the results of operations for the prior periods.
Total consolidated stock-based compensation expense of $2.7 million and $1.9 million was recognized in the three months ended September 30, 2011 and 2010, respectively. Total consolidated stock-based compensation expense of $7.4 million and $5.0 million was recognized in the nine months ended September 30, 2011 and 2010, respectively. The stock-based compensation expense recognized during the three months and nine months ended September 30, 2011 included expense from performance-based stock options and restricted stock units.
Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period. We estimate the fair value of our stock options using the Black-Scholes option-pricing model and the fair value of our stock awards based on the quoted market price of our common stock.
Estimating the fair value for stock options requires judgment, including estimating stock-price volatility, expected term, expected dividends and risk-free interest rates. Due to Optimers and OBIs limited historical data, the expected volatility incorporates the historical volatility of comparable companies whose share prices are publicly available. The average expected term is calculated using the Simplified Method for Estimating the Expected Term. Expected dividends are estimated based on Optimers and OBIs dividend history as well as Optimers and OBIs current projections. The risk-free interest rate for Optimer is based on the United States Treasury rate for U.S. Treasury zero-coupon bonds with maturities similar to the periods approximating the expected terms of the options. The risk-free rate for OBI is based on the Central Bank of China interest rates. These assumptions are updated on an annual basis or sooner if there is a significant change in circumstances that could affect these assumptions.
Equity instruments issued to non-employees are recorded at their fair value and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period.
Income taxes
We estimate income taxes based on the jurisdictions where we conduct business. Significant judgment is required in determining our worldwide income tax provision. We estimate our current tax liability and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in net deferred tax assets and liabilities. We then assess the likelihood that deferred tax assets will be realized. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. We review the need for a valuation allowance each interim period to reflect uncertainties about whether we will be able to utilize deferred tax assets before they expire. The valuation allowance analysis is based on estimates of taxable income for the jurisdictions in which we operate and the periods over which our deferred tax assets may be realized. Changes in our valuation allowance could result in material increases or decreases in our income tax expense in the period such changes occur, which could have a material impact on our operating results.
We estimate that our federal and state taxable income for the current year will be fully offset by net operating losses and research and development credit carryovers. As such, no current tax provision has been recorded. We also have recorded a full valuation allowance for the remaining net deferred tax benefits.
We have completed a section 382/383 analysis regarding the limitation of the net operating losses and credit carryovers and have considered the annual limitation when determining the amount available for utilization in the current year.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken and expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not to be sustained upon audit, the second step is to measure the tax benefit as the largest amount that has more than a 50% chance of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis. The evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period such changes occur, which could have a material impact on our effective tax rate and operating results.
Results of Operations
Comparison of Three Months Ended September 30, 2011 and 2010
Revenues
Total revenues for the three months ended September 30, 2011 and 2010 were $11.1 million and $669,000, respectively. The increase was primarily due to recognition of $10.6 million of net product revenue from the sale of DIFICID. We launched DIFICID, our first commercial product, in July 2011.
Cost and expenses
Cost of product sales. Cost of product sales for the three months ended September 30, 2011 primarily represents the 5% royalty due to Par on net sales of DIFICID in the United States. A significant portion of the cost of DIFICID sold during the quarter was expensed when manufactured in the first quarter of 2011 since DIFICID had not been approved by the FDA at that time.
Research and development expense. Research and development expense for the three months ended September 30, 2011 and 2010 was $10.4 million and $8.1 million, respectively, an increase of $2.3 million. The increase was primarily due to higher health economics research, pharmacovigilance, medical affairs, and publication expenses. The increase was offset by a decrease in DIFICID and Pruvel development expenses.
Selling, general and administrative expense. Selling, general and administrative expense for the three months ended September 30, 2011 and 2010 was $26.9 million and $4.8 million respectively, an increase of $22.1 million. The increase was related to the build-up of our commercial infrastructure for the launch of DIFICID as well as a significant increase in related marketing expenses in 2011. We hired approximately 100 hospital account managers from May through July 2011 which significantly increased our compensation expenses and related personnel costs. In addition, we expensed $2.9 million related to the Cubist service fee as part of our co-promotion agreement.
Interest income and other, net. Interest income and other, net for the three months ended September 30, 2011 and 2010 was $108,000 and $23,000, respectively. The increase was primarily due to a higher cash balance over the same period in the prior year.
Comparison of Nine Months Ended September 30, 2011 and 2010
Revenues
Total revenues for the nine months ended September 30, 2011 and 2010 were $80.4 million and $1.3 million, respectively. The increase was due to recognition of $10.6 million of net product revenue from the sale of DIFICID. We launched DIFICID, our first commercial product, in July 2011. We also received a $69.2 upfront payment from Astellas under the DIFICID collaboration and license agreement during the nine months ended September 30, 2011. The payment was earned upon delivery of the license and related know-how which occurred in the quarter ended March 31, 2011.
Cost and expenses
Cost of product sales. Cost of product sales for the nine months ended September 30, 2011 primarily represents the 5% royalty due to Par on net sales of DIFICID in the United States. A significant portion of the cost of DIFICID sold during the nine months ended September 30, 2011 was expensed when manufactured in the first quarter of 2011, since DIFICID had not been approved by the FDA at that time.
Cost of licensing. Cost of licensing for the nine months ended September 30, 2011 was $4.3 million. This amount represents a 6.25% royalty payment we made to Par based on net revenue from the Astellas upfront payment. We did not have cost of licensing expense in the same period of the prior year.
Research and development expense. Research and development expense for the nine months ended September 30, 2011 and 2010 was $29.1 million and $25.9 million, respectively, an increase of approximately $3.2 million. The increase was primarily due to higher health economics research, pharmacovigilance, medical affairs, publication expenses as well as higher research and development expenses by OBI for its Phase 2/3 breast cancer clinical trial. The increase was partially offset by a $5.0 million milestone payment due to Par in the prior year period for the successful completion of the second DIFICID Phase 3 trial.
Selling, general and administrative expense. Selling, general and administrative expense for the nine months ended September 30, 2011 and 2010 was $53.5 million and $11.8 million respectively, an increase of $41.7 million. The increase was related to the build-up of our commercial infrastructure for the launch of DIFICID as well as a significant increase in related marketing expenses in 2011. We hired approximately 100 hospital account managers as well as sales support and marketing personnel and thus significantly increased our compensation expenses and related personnel costs. In addition, we expensed $2.9 million related to the Cubist service fee as part of our co-promotion agreement.
Interest income and other, net. Interest income and other, net for the nine months ended September 30, 2011 and 2010 was $228,000 and $101,000, respectively. The increase was primarily due to a higher cash balance over the same period in the prior year.
Liquidity and Capital Resources
Sources of Liquidity
Prior to our launch of DIFICID in July 2011, our operations have been financed primarily through the sale of equity securities. Through September 30, 2011, we received gross proceeds of approximately $333.8 million from the sale of shares of our preferred and common stock in various private and public financing transactions.
In March 2011, pursuant to our collaboration and license agreement with Astellas, we received approximately $69.2 million as an upfront payment from Astellas.
Until required for operations, we invest a substantial portion of our available funds in money market funds, U.S. government instruments and other readily marketable debt instruments, all of which are investment-grade quality. We have established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.
Cash Flows
As of September 30, 2011, our consolidated cash, cash equivalents and short-term investments totaled approximately $129.4 million as compared to $49.4 million as of December 31, 2010, an increase of approximately $80.0 million. The increase in our cash, cash equivalents and short-term investments was primarily due to our receipt of net proceeds of $73.1 million in February 2011 in a public common stock offering and a $69.2 million upfront payment from Astellas in March 2011 in connection with a collaboration and license agreement for DIFICID. Additionally, in February 2011 OBI raised approximately $15.5 million in gross proceeds in a private placement of common shares. Of our consolidated cash, cash equivalents and short-term investments, $15.0 million was held by OBI as of September 30, 2011.
Although we started selling DIFICID in July 2011, we cannot be certain if, when or to what extent we will receive meaningful cash inflows from our commercialization activities. We expect our commercialization expenses to be substantial and to increase over the next few years. We also expect to continue to incur development expenses as we pursue life cycle management opportunities and build our pipeline.
On April 5, 2011, we entered into a co-promotion agreement with Cubist pursuant to which we engaged Cubist as our exclusive partner for the promotion of DIFICID in the United States. Under the terms of the agreement, we and Cubist have agreed to co-promote DIFICID to physicians, hospitals, long-term care facilities and other healthcare institutions as well as jointly provide medical affairs support for DIFICID. In exchange for Cubists co-promotion activities and personnel commitments, we are obligated to pay a quarterly fee of approximately $3.75 million to Cubist ($15.0 million per year) which we began paying upon the commencement of the DIFICID sales program in the United States. Cubist is also eligible to receive an additional $5.0 million in the first year after first commercial sale and $12.5 million in the second year after first commercial sale if mutually agreed upon annual sales targets are achieved, as well as a portion of our gross profits derived from net sales above the specified annual targets, if any.
In February 2011, we entered into a collaboration and license agreement with Astellas pursuant to which we granted to Astellas an exclusive, royalty-bearing license under certain of our know-how and intellectual property to develop and commercialize DIFICID in the Astellas territory. Under the terms of the license agreement with Astellas, Astellas paid to us an upfront fee of $69.2 million.We are eligible to receive additional cash payments totaling up to 115.0 million Euros upon the achievement by Astellas of specified regulatory and commercial milestones with 40 million Euros of this amount due 30 days following the earlier to occur of launch of DIFICID in two major territories or six months after EMA approval and 10 million Euros payable to us upon launch of DIFICID in any Astellas territory. In addition, we will be entitled to receive escalating double-digit royalties ranging from the high teens to low twenties on net sales of DIFICID products in the Astellas territory, which royalties are subject to reduction in certain, limited circumstances. Such royalties will be payable by Astellas on a product-by-product and country-by-country basis until a generic product accounts for a specified market share of the applicable DIFICID product in the applicable country.
In May 2010, we entered into a long-term supply agreement with Biocon for the commercial manufacture of DIFICIDs active pharmaceutical ingredient, or API. Pursuant to the agreement, Biocon agreed to manufacture and supply to us, up to certain limits, DIFICID API and, subject to certain conditions, we agreed to purchase from Biocon at least a portion of our requirements for DIFICID API in the United States and Canada. We previously paid to Biocon $2.5 million for certain equipment purchases and manufacturing scale-up activities, and we may be entitled to recover up to $1.5 million of this amount under the supply agreement in the form of discounted prices for DIFICID API. We may be obligated to make additional payments to Biocon if we fail to meet minimum purchase requirements after Biocon has dedicated certain manufacturing capacity to the production of DIFICID API and if Biocon is unable to manufacture alternative products with the dedicated capacity.
In October 2008, our Compensation Committee adopted a Severance Benefit Plan covering certain eligible employees of the Company, including executive officers. In May 2010, the Severance Benefit Plan was amended and restated. Pursuant to the plan, upon an involuntary
termination other than for cause or a constructive termination, an eligible employee may be entitled to receive specified severance benefits. The benefits may include cash severance payments and acceleration of stock award vesting. The level of benefits provided under the plan depends upon an eligible employees position and years of service, and whether the termination is related to a change in control.
In February 2007, we regained worldwide rights to DIFICID from Par under a prospective buy-back agreement. We paid Par a one-time $5.0 million milestone payment in June 2010 for our successful completion of the second Phase 3 trial for DIFICID. We are obligated to pay Par a 5% royalty on net sales by us or our affiliates of DIFICID in North America and Israel, and a 1.5% royalty on net sales by us or our affiliates of DIFICID in the rest of the world. In addition, we are required to pay Par a 6.25% royalty on net revenues we receive from licensees of our right to market DIFICID in the rest of the world. We are obligated to pay each of these royalties, if any, on a country-by-country basis for seven years commencing on the applicable commercial launch in each such country. In March 2011, we paid Par a $4.3 million royalty payment associated with the upfront payment we received under the Astellas agreement.
Funding Requirements
Our future capital uses and requirements depend on numerous factors including, but not limited to, the following:
· our ability to successfully market and sell DIFICID;
· the costs of establishing, maintaining and managing our commercial infrastructure including our sales or distribution capabilities and the timing of such efforts;
· the amount and timing of payments we may receive or be required to make under strategic collaborations, including licensing, co-promotion and other arrangements;
· our decision to partner or license DIFICID or commercialize DIFICID ourselves in countries outside the United States and the Astellas territory;
· our decision to conduct future clinical trials, including the timing and progress of such clinical trials;
· our ability to establish and maintain strategic collaborations, including licensing and other arrangements;
· the costs of preparing and pursuing applications for regulatory approvals and the timing of such approvals;
· the costs involved in prosecuting, enforcing or defending patent claims or other intellectual property rights; and
· the extent to which we in-license, acquire or invest in other indications, products, technologies and businesses.
We believe that our existing cash and cash equivalents will be sufficient to meet our capital requirements for at least the next 12 months.
Until we can generate significant cash from our operations, we expect to continue to fund our operations with existing cash resources, revenues from sales of DIFICID in the United States and revenues from existing and future collaboration agreements. In addition, we may finance future cash needs through the sale of additional equity securities, strategic collaboration agreements and debt financing. However, we may not be successful in completing future equity financings, in entering into additional collaboration agreements, in receiving milestone or royalty payments under new or existing collaboration agreements, in obtaining new government grants or in obtaining debt financing. In addition, we cannot be sure that our existing cash and investment resources will be adequate, that financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our stockholders. The credit markets continue to be volatile which has generally made equity and debt financing more difficult to obtain, and may negatively impact our ability to complete financing transactions. Having insufficient funds may require us to delay, scale-back or eliminate some or all of our planned commercialization activities and development programs, relinquish some or even all of our rights to product candidates at an earlier stage of development or negotiate less favorable terms for rights to our products or product candidates than we would otherwise choose. Failure to obtain adequate financing also may adversely affect our ability to operate as a going concern. If we raise funds by issuing equity securities, substantial dilution to existing stockholders would likely result. If we raise funds by incurring debt, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Cash Equivalents and Marketable Securities Risk
Our cash and cash equivalents and short-term investments as of September 30, 2011 consisted primarily of money market funds and U.S. government instruments and other readily marketable debt instruments. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. A hypothetical ten percent change in interest rates during the quarter ended September 30, 2011 would have resulted in an approximately $14,000 change in net income. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates applicable to our securities portfolio. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.
Fair Value Measurements
All of our investment securities are available-for-sale securities and are reported on the consolidated balance sheet at market value except for one auction rate preferred security, or ARPS, with a par value of approximately $1.0 million. As a result of the negative conditions in the global credit markets, our ARPS is currently not liquid. In the event we need to access the funds that are in an illiquid state, we will not be able to do so without a loss of principal, until the security is redeemed by the issuer or it matures.
Foreign Currency Risk
While we operate primarily in the United States, we are exposed to foreign currency risk. Our agreement with Astellas includes milestone and royalty payments which are denominated in Euros. Our DIFICID API manufacturer, Biocon, is located in India and our manufacturer of DIFICID tablets, Patheon, is located in Canada. Although we pay Biocon and Patheon in U.S. dollars changes in the Rupee and the Canadian dollar may result in price adjustments and affect our operating results.
In addition, certain transactions related to us and our subsidiary, OBI, are denominated primarily in Taiwan dollars. We also recently established a subsidiary in Canada, Optimer Pharmaceuticals Canada, Inc. and we expect Optimer Canadas transactions to be denominated primarily in Canadian dollars. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets where we conduct business, including the impact of the existing conditions in the global financial markets in such countries and the impact on both the U.S. dollar , the New Taiwan dollar and the Canadian dollar.
We do not use derivative financial instruments for speculative purposes. We do not engage in exchange rate hedging or hold or issue foreign exchange contracts for trading purposes. Currently, we do not expect the impact of fluctuations in the relative fair value of other currencies to be material to our results of operations. However, we may, in the future, enter into forward foreign currency exchange contracts to reduce foreign currency risk.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Evaluation of disclosure controls and procedures. As required by Exchange Act Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting. In connection with entering the Astellas collaboration agreement in February 2011 and the commercial launch of DIFICID, we have developed and will continue developing additional internal controls over our revenue recognition process. In connection with the FDA approval of DIFICID in May 2011, we have developed and will continue developing internal controls over inventory processes. Except for the development of the additional internal controls over revenue recognition and inventory, there was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, including any material changes, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC.
Risks Related to Our Business
Our success largely depends on our ability to successfully commercialize our only product, DIFICID.*
Our success depends on our ability to effectively commercialize our only product, DIFICID, which was approved by the FDA in May 2011, for the treatment of CDAD in adults 18 years of age and older.
We launched DIFICID in July 2011, and our ability to effectively commercialize and generate revenues from DIFICID will depend on several factors, including:
· our ability to create market demand for DIFICID through our own marketing and sales activities as well as through our co-promotion agreement with Cubist;
· our ability to train, deploy and support a qualified sales force;
· our ability to secure formulary approvals for DIFICID at a substantial number of targeted hospitals and long-term care facilities;
· adequate coverage or reimbursement for DIFICID by government healthcare programs and third-party payors, including private health coverage insurers and health maintenance organizations;
· the performance of our third-party manufacturers and our ability to ensure that our supply chain for DIFICID efficiently and consistently delivers DIFICID to our customers;
· the ability to implement and maintain agreements with wholesalers and distributors on commercially reasonable terms; and
· our ability to maintain and defend our patent protection and regulatory exclusivity for DIFICID.
Any disruption in our ability to generate revenues from the sale of DIFICID or lack of success in its commercialization will have a substantial adverse impact on our results of operations.
The success of our efforts to commercialize DIFICID in the United States will be partially dependent on our co-promotion agreement with Cubist.*
Pursuant to our co-promotion agreement with Cubist, we engaged Cubist as our exclusive partner for the promotion of DIFICID in the United States. We have limited control over the amount and timing of resources that Cubist may devote to the co-promotion of DIFICID. If Cubist fails to adequately promote DIFICID, or if Cubists efforts are not effective for any other reason, our business may be negatively affected. In particular, we are relying on our co-promotion agreement with Cubist to reach a broader segment of the CDAD market than we could otherwise reach on our own. If Cubist is unsuccessful or the co-promotion agreement is terminated earlier than we expect, we may not be able to address these broader CDAD market segments, and the revenues we may generate from sales of DIFICID in the United States will be limited.
We are subject to a number of other risks associated with our dependence on our co-promotion agreement with Cubist, including:
· Cubist could fail to devote sufficient resources to the promotion of DIFICID, including by failing to maintain or train sufficient sales or medical affairs personnel to promote or provide information regarding DIFICID;
· Cubist may not comply with applicable regulatory guidelines with respect to the promotion of DIFICID, which could adversely impact sales of DIFICID in the United States;
· Cubist may not provide us with timely and accurate information regarding promotion and sales activities with respect to DIFICID, which could adversely impact our ability to manage our own inventory of DIFICID in the United States, as well as our ability to generate accurate financial forecasts;
· we and Cubist may not be successful in coordinating our respective sales and promotion activities under the co-promotion agreement, which could lead to inefficiencies, the failure to maximize DIFICID sales in the Unites States, and/or disagreements between us and Cubist; or
· business combinations or significant changes in Cubists business strategy, including the acquisition or development by Cubist of other products, may adversely affect Cubists ability or willingness to perform its obligations under our co-promotion agreement.
Our co-promotion agreement with Cubist is subject to early termination, including through Cubists right to terminate if we experience certain supply failures in relation to the demand for DIFICID in the United States or if we are acquired by certain types of entities, including competitors of Cubist. If the agreement is terminated early, we may not be able to find another partner to co-promote DIFICID in the United States on acceptable terms, or at all, and we may be unable to sufficiently promote and commercialize DIFICID in the United States on our own.
We are dependent on our collaboration agreement with Astellas to commercialize and further develop DIFICID in the Astellas territory. The failure to maintain this agreement or the failure of Astellas to perform its obligations under this agreement, could negatively impact our business.*
Pursuant to the terms of our collaboration agreement with Astellas, we granted to Astellas exclusive rights to develop and commercialize DIFICID in the Astellas territory, and pursuant to the terms of our supply agreement with Astellas, we are obligated to supply to Astellas all of its requirements of DIFICID for such development and commercialization activities. Consequently, our ability to generate any revenues from DIFICID in the Astellas territory depends on Astellas ability to obtain regulatory approvals for and successfully commercialize DIFICID in the Astellas territory. We have limited control over the amount and timing of resources that Astellas will dedicate to these efforts.
We are subject to a number of other risks associated with our dependence on our collaboration agreement with Astellas, including:
· Astellas may not comply with applicable regulatory guidelines with respect to developing or commercializing DIFICID, which could adversely impact sales or future development of DIFICID in the Astellas territory;
· we and Astellas could disagree as to future development plans and Astellas may delay future clinical trials or stop a future clinical trial;
· there may be disputes between us and Astellas, including disagreements regarding the collaboration agreement, that may result in (1) the delay of or failure to achieve regulatory and commercial objectives that would result in milestone or royalty payments, (2) the delay or termination of any future development or commercialization of DIFICID, and/or (3) costly litigation or arbitration that diverts our managements attention and resources;
· because the milestone and royalty payments in the collaboration agreement are stated in terms of Euros but paid to us in U.S. Dollars, the amounts of any milestone or royalty payments that may be paid to us under the collaboration agreement could be less than what we expect, depending on the applicable exchange rate at the time of such payments;
· Astellas may not provide us with timely and accurate information regarding sales and marketing activities and supply forecasts, which could adversely impact our ability to comply with our supply obligations to Astellas and manage our own inventory of DIFICID, as well as our ability to generate accurate financial forecasts;
· business combinations or significant changes in Astellas business strategy may adversely affect Astellas ability or willingness to perform its obligations under our collaboration and supply agreements;
· Astellas may not properly maintain or defend our intellectual property rights in the Astellas territory or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential litigation;
· the royalties we are eligible to receive from Astellas may be reduced or eliminated based upon Astellas and our ability to maintain or defend our intellectual property rights and the presence of generic competitors in the Astellas territory;
· limitations under the agreement on our or an acquirors ability to maintain or pursue development or commercialization of products that are competitive with DIFICID could deter a potential acquisition of us that our stockholders may otherwise view as beneficial; and
· if Astellas is unsuccessful in obtaining regulatory approvals for or commercializing DIFICID in the Astellas territory, we may not receive any additional milestone or royalty payments under the collaboration agreement and our business prospects and financial results may be materially harmed.
The collaboration and supply agreements are subject to early termination, including through Astellas right to terminate without cause upon advance notice to us. If the agreements are terminated early, we may not be able to find another collaborator for the commercialization and further development of DIFICID in the Astellas territory on acceptable terms, or at all, and we may be unable to pursue continued commercialization or development of DIFICID in the Astellas territory on our own.
We may enter into additional agreements for the commercialization of DIFICID or other of our drug candidates, and may be similarly dependent on the performance of third parties with similar risk.
Other than our collaboration agreement with Astellas, we may not be able to enter into acceptable agreements to commercialize DIFICID outside of the United States or if, needed, adequately build our own marketing and sales capabilities.*
We intend to pursue the development of and potentially commercialize DIFICID outside of the United States through collaboration arrangements with third parties, such as our collaboration with Astellas, or independently. We may be unable to enter into additional collaboration arrangements in international markets outside of the Astellas territory. In addition, there can be no guarantee that Astellas or any other parties that we may enter into collaboration arrangements with will be successful or result in more revenues than we could obtain by marketing DIFICID on our own. If we are unable to enter into additional collaboration arrangements for our products or develop an effective international sales force, our ability to generate product revenues would be limited, which would adversely affect our business, financial condition, results of operations and prospects. If we are unable to enter into such collaboration arrangements for development of DIFICID in countries outside of the United States and outside of the Astellas territory, or if we otherwise decide to market DIFICID ourselves in these countries, we will need to develop our own marketing and sales force to market DIFICID in these territories to hospital-based and long-term care physicians. These efforts, including our anticipated efforts in Canada through our recently established subsidiary, Optimer Canada, may not be successful as we have limited relationships among such hospital-based and long-term care physicians and may not currently have sufficient funds to develop an adequate sales force in each of these regions. There is no guarantee that we will be able to develop an effective international sales force to successfully commercialize our products in these international markets. If we cannot commercialize DIFICID, either through a collaboration or independently, in any territory that represents a significant market opportunity, our ability to achieve and sustain profitability will be substantially limited.
We have incurred significant operating losses since inception and anticipate that we will incur continued losses for the foreseeable future.*
We have experienced significant operating losses since our inception in 1998. As of September 30, 2011, we had an accumulated deficit of approximately $228.3 million. We have generated minimal revenues from product sales to date and we expect our expenses to increase substantially in the near term as we execute the commercial launch of DIFICID due to, among other things, increases to our headcount and on-going payments to Cubist pursuant to our co-promotion agreement, and as we pursue additional research and development activities, including potential additional indications for DIFICID. We have funded our operations through September 30, 2011 from the sale of approximately $333.8 million of our securities and through payments received under collaborations with partners or government grants. Because of the numerous risks and uncertainties associated with commercializing DIFICID and with developing, obtaining regulatory approval for and commercializing any future product candidates, we are unable to predict the extent of any future losses. We or our collaborators may never successfully commercialize our product candidates, including DIFICID outside of the United States, and thus we may never have any significant future revenues or achieve and sustain profitability.
If we and Cubist are unable to effectively train and equip our respective sales forces, our ability to successfully commercialize DIFICID in the U.S. will be harmed.*
As DIFICID is a newly marketed drug, none of the members of our or Cubists sales forces had ever promoted DIFICID prior to its launch in July 2011. As a result, we and Cubist are required to expend significant time and resources to train our respective sales forces to be credible and persuasive in convincing physicians, pharmacists, long-term care facilities and hospitals to use DIFICID. In addition, we and Cubist also must train our respective sales forces to ensure that a consistent and appropriate message about DIFICID is being delivered to our potential customers. We must also effectively collaborate and coordinate with Cubist sales force representatives in co-promoting DIFICID, including training efforts. If we or Cubist are unable to effectively train our respective sales forces and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers about the benefits of DIFICID and its proper administration, our efforts to successfully commercialize DIFICID could be put in jeopardy, which could have a material adverse effect on our financial condition, stock price and operations.
The commercial success of DIFICID and any other products we develop or acquire will depend upon attaining significant market acceptance among physicians, hospitals, patients, healthcare payors and the medical community.*
Even after approved by the appropriate regulatory authorities for marketing and sale, physicians may not prescribe any of our products, which would prevent us from generating revenues or becoming profitable. Market acceptance of our products by physicians, hospitals, patients and healthcare payors will generally depend on a number of factors, many of which are beyond our control, including:
· timing of market introduction of our products as well as of competitive drugs;
· the clinical indications for which the product is approved;
· acceptance by physicians and patients of each product as a safe and effective treatment;
· perceived advantages over alternative treatments;
· the cost of treatment in relation to alternative treatments, including numerous generic antibiotics;
· the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;
· the extent to which bacteria develops resistance to the product, thereby limiting its efficacy in treating or managing infections;
· whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;
· the availability of adequate reimbursement by third parties, such as insurance companies and other healthcare payors;
· limitations or warnings contained in a products FDA-approved labeling;
· relative convenience and ease of administration; and
prevalence and severity of adverse side effects.
With respect to DIFICID specifically, successful commercialization will depend on whether and to what extent physicians, pharmacists, long-term care facilities and hospital pharmacies, over whom we have no control, determine to utilize DIFICID. The sale of DIFICID to each hospital is to a large extent dependent upon the addition of DIFICID to that hospitals list of approved drugs, or formulary list, by the hospitals Pharmacies and Therapeutics, or P&T, committee. A hospitals P&T committee typically governs all matters pertaining to the use of medications within the institution, including review of medication formulary data and recommendations for the appropriate use of drugs within the institution to the medical staff. The frequency of P&T committee meetings at various hospitals varies considerably, and P&T committees often require additional information to aide in their decision-making process, so we may experience substantial delays in obtaining formulary approvals. Additionally, hospital pharmacists may be concerned that the cost of DIFICID will adversely impact their overall pharmacy budgets, which could cause pharmacists to resist adding DIFICID to the formulary, or to implement restrictions on the usage of the drug in order to control costs. We cannot guarantee that we will be successful in getting additional approvals from P&T committees in a timely manner or at all, and the failure to do so will limit our ability to optimize hospital sales of DIFICID.
Even if we obtain hospital formulary approval for DIFICID, physicians must still prescribe DIFICID for its commercialization to be successful. Because DIFICID is a new drug with a very limited track record of sales in the U.S., any inability to timely supply DIFICID to our customers, or any unexpected side effects that arise from the use of the drug, particularly early in the product launch, may lead physicians to not accept DIFICID as a viable treatment alternative.
Even after receipt of regulatory approval from the FDA, DIFICID is, and any other products we may develop or acquire in the future will be, subject to substantial, ongoing regulatory requirements.*
DIFICID is, and any future approved products will be, subject to ongoing FDA requirements with respect to manufacturing, labeling, packaging, storage, distribution, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. The FDA has the authority to regulate the claims we make in marketing any products, including DIFICID, to ensure that such claims are true, not misleading, supported by scientific evidence and consistent with the approved label for the drug. In addition, the discovery of previously unknown problems with DIFICID or any future approved product, such as adverse events of unanticipated severity or frequency, or problems with the facilities where active pharmaceutical ingredient, or API, or final drug product is manufactured, may result in the imposition of additional restrictions, including requiring us to reformulate the product, conduct additional clinical trials, make changes in the labeling of the product or withdraw the product from the market.
The FDA or foreign regulatory authorities may also impose ongoing requirements for potentially costly post-approval studies for any approved product. For example, as a condition of the FDAs approval of DIFICID, we are required to conduct a microbiological surveillance program to identify the potential for decreased susceptibility of C. difficile to DIFICID, as well as two post-marketing studies in pediatric patients. We also plan to conduct a randomized trial to evaluate the efficacy of DIFICID in the treatment of patients with multiple CDAD recurrences. Depending on the outcome of the studies, we may be unable to expand the indications for DIFICID or we may be required to include specific warnings or limitations on dosing this product, which could negatively impact our sales of DIFICID.
We have implemented a comprehensive compliance program and related infrastructure, but we cannot provide absolute assurance that we are or will be in compliance with all potentially applicable laws and regulations. If our operations in relation to DIFICID or any future approved product fail to comply with applicable regulatory requirements, the FDA or other regulatory agencies may:
· issue warning letters or untitled letters;
· impose consent decrees, which may include the imposition of various fines, reimbursement for inspection costs, due dates for specific actions and penalties for noncompliance;
· impose fines or other civil or criminal penalties;
· suspend regulatory approval;
· suspend any ongoing clinical trials;
· refuse to approve pending applications or supplements to approved applications filed by us;
· impose restrictions on operations, including costly new manufacturing requirements;
· exclude us from participating in U.S. federal healthcare programs, including Medicaid or Medicare; or
· seize or detain products or require a product recall.
Any of these regulatory actions due to our failure to comply with post-approval requirements could damage our reputation, limit our ability to market our products and adversely affect our operating results. In addition, the failure of our current or future collaborators to comply with these regulations and similar regulations in foreign jurisdictions would limit our ability to fully commercialize DIFICID and any other product we may develop or acquire in the future.
We must comply with federal and state fraud and abuse laws, and, if we are unable to fully comply with such laws, we could face substantial penalties, which may adversely affect our business, financial condition and results of operations.*
In the United States, in addition to FDA restrictions, we are subject to healthcare fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
· the federal healthcare programs Anti-Kickback Law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
· federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
· the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating to health care matters;
· federal sunshine laws that require transparency regarding financial arrangements with health care providers, such as the reporting and disclosure requirements imposed by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, PPACA, on drug manufacturers regarding any transfer of value made or distributed to prescribers and other health care providers; and
· state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.
Some states, such as California, Massachusetts and Vermont, mandate implementation of comprehensive compliance programs to ensure compliance with these laws.
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by applicable regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for
allegedly inflating drug prices they report to pricing services, which in turn are used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws.
Recent healthcare reform legislation has also strengthened these laws. For example, the recently enacted PPACA, among other things, amended the intent requirement of the federal anti-kickback and criminal health care fraud statutes such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. We also expect there will continue to be federal and state laws and/or regulations, proposed and implemented, that could impact our operations and business. The extent to which future legislation or regulations, if any, relating to healthcare fraud abuse laws and/or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain.
Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid, and the curtailment or restructuring of operations. We believe that our operations are in material compliance with these laws and we recently increased our compliance resources in connection with the commercial launch of DIFICID. However, because of the far-reaching nature of these laws, there can be no assurance that we will not be required to alter one or more of our practices to be in compliance with these laws. In addition, there can be no assurance that the occurrence of one or more violations of these laws or regulations would not result in a material adverse effect on our financial condition and results of operations.
Our product sales depend on adequate coverage and reimbursement from third-party payers.*
Our and our collaborators sales of DIFICID are, and sales of any future approved products will be, dependent on the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans. We and our collaborators rely in large part on the reimbursement coverage by federal and state sponsored government programs such as Medicare and Medicaid in the United States, which are increasingly challenging prices charged and the cost-effectiveness of medical products. These practices maybe further exacerbated by future healthcare reform measures. In addition, many healthcare providers, such as hospitals, receive a fixed reimbursement amount per procedure or other treatment therapy based on a prospective payment system, and these amounts are not necessarily based on the actual costs incurred. As a result, these healthcare providers may be inclined to choose the least expensive therapies. We cannot guarantee that our potential customers will find the reimbursement amounts sufficient to cover the costs of our products, including DIFICID.
We have licensed rights to develop and commercialize DIFICID in Europe and certain other countries to Astellas. In the event we or our collaborators, including Astellas, seek approvals to market DIFICID in other non-U.S. territories, we or our collaborators including Astellas, will need to work with the government-sponsored healthcare entities in Europe and each other foreign country, as applicable, that are the primary payers of healthcare costs in such regions. Certain government payers may regulate prices, reimbursement levels and/or access to DIFICID or any future products to control costs or to affect levels of use of the product.
We cannot predict the availability or level of coverage and reimbursement for DIFICID or any future approved product. If third-party coverage and reimbursement is not available or is available only to limited levels, we may not be able to commercialize DIFICID or any other products successfully or at all, which would materially harm our business and prospects.
Regulatory approval for any approved product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated as listed in the approved labeling.*
Any regulatory approval is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. In addition to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval.
While physicians may choose to prescribe drugs for uses that are not described in the products labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA. Regulatory authorities in the U.S. generally do not regulate the behavior of physicians in their choice of treatments, and such off-label uses by healthcare professionals are common. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If we are not able to obtain FDA approval for any desired future indications for DIFICID or any future approved products, our ability to market and sell such products will be limited and our business may be adversely affected.
If we or our collaborators fail to gain and/or maintain marketing approvals from regulatory authorities in international markets for DIFICID and any future product candidates for which we have or license rights in international markets, our market opportunities will be limited.*
Our and our collaborators ability to sell our product candidates outside of the United States is subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the marketing of the product candidate in those countries. Regulatory requirements can vary widely from country to country and could delay the introduction of our products in those countries. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval will be obtained in any other country. In addition, our or our collaborators failure to obtain regulatory approval in any country may delay
or have negative effects on the process for regulatory approval in others. We could experience significant delays and difficulties and incur significant costs in obtaining foreign regulatory approvals in the territories for which we retain commercialization rights.
None of our product candidates is approved for sale in any international market for which we have or have licensed rights. If we or our collaborators fail to comply with regulatory requirements with respect to our product candidates in international markets or to obtain and maintain required approvals, our market opportunities and ability to generate revenues will be diminished, which would significantly harm our business, results of operations and prospects. For example, if Astellas is unable to obtain approvals to market DIFICID in the Astellas territory, particularly in the European Union, our ability to recognize future milestone and royalty payments under our agreement with Astellas will be substantially limited. Moreover, while the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, recently adopted a positive opinion for DIFICLIR (fidaxomicin) tablets, there is no guarantee that the EMA will ultimately follow the opinion of the CHMP when making its final determination on the DIFICLIR marketing authorization application, or MAA.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products.*
We face an inherent risk of product liability lawsuits related to the testing of our product candidates, and face an even greater risk related to the sale of commercial products, such as DIFICID. An individual may bring a liability claim against us if one of our products or product candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against a product liability claim, we may incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
· significant litigation costs;
· substantial monetary awards to or costly settlement with patients;
· product recalls and/or an inability to continue marketing our products;
· decreased demand for our product;
· injury to our reputation;
· termination of clinical trial sites or entire clinical trial programs;
· withdrawal of clinical trial participants;
· loss of revenues; and
· the inability to commercialize our product candidates.
Our ability to market products is dependent upon physician and patient perceptions of us and the safety and quality of our products. We could be adversely affected if we or our products and product candidates are subject to negative publicity. We could also be adversely affected if any of our products or product candidates or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Also, because of our dependence upon physician and patient perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on our results of operations.
We have product liability insurance that covers our commercial product up to a $10.0 million annual aggregate limit as well as global clinical trial liability insurance that covers our clinical trials up to a $10.0 million annual aggregate limit. Our current or future insurance coverage may prove insufficient to cover any liability claims brought against us. Because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise.
If we fail to obtain additional financing, we may be unable to commercialize DIFICID and develop and commercialize other product candidates, or continue our other research and development programs.*
We may require additional capital to fully commercialize DIFICID and any future products for which we obtain regulatory approval or acquire or in-license. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may require us to pledge our assets as collateral or involve restrictive covenants, such as limitations on our ability to incur additional indebtedness, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could negatively impact our ability to conduct our business. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly scale back our commercialization activities for DIFICID in the United States or significantly delay, scale back or discontinue the development of one or more of our product candidates or research and development initiatives. We also could be required to:
· seek collaborators for one or more of our current or future products or product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or
· relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.
Any of the above events could significantly harm our business and prospects and could cause our stock price to decline.
To the extent we require addition resources to successfully commercialize DIFICID, and we are unable to raise additional capital or are unable to effectively collaborate with additional partners for the commercialization of DIFICID, we will not generate significant revenues from sales of this product and our business will be materially harmed.
If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully develop or commercialize our product candidates.*
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, sales and marketing, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists. We are highly dependent on our chief executive officer, and the other principal members of our executive and scientific teams. The unexpected loss of the service of any of these persons may significantly delay or prevent the achievement of research, development, commercialization and other business objectives. Replacing key employees may be difficult and costly and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop and commercialize pharmaceutical products successfully. We do not maintain key person insurance policies on the lives of these individuals or the lives of any of our other employees. With the exception of Mr. Lichtinger, we employ these individuals on an at-will basis and their employment can be terminated by us or them at any time, for any reason and with or without notice.
We will need to hire additional personnel as we expand our commercial activities. We may not be able to attract or retain qualified management, sales and marketing and scientific personnel on acceptable terms in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Diego, California and New Jersey areas. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will impede significantly the achievement of our commercialization and research and development objectives, our ability to raise additional capital and our ability to implement our business strategy. In particular, if we lose any members of our senior management team, we may not be able to find suitable replacements, and our business and prospects may be harmed as a result.
We recently established a sales and marketing organization and have little experience as a company in marketing drug products.*
Our strategy is to build a fully-integrated U.S.-focused biopharmaceutical company to successfully execute the commercial launch of DIFICID in the U.S. market. Although we have engaged Cubist as our exclusive partner to co-promote DIFICID in the United States, we have very limited experience commercializing pharmaceutical products on our own. In order to commercialize products, in addition to our engagement of Cubist as our exclusive co-promotion partner for DIFICID in the United States, we have established our own marketing, sales, distribution, pharmacovigilence, managerial and other non-technical capabilities. We established the commercial organization primarily in New Jersey, and our bicoastal organizational structure could create management challenges. The establishment and development of our own sales force to market DIFICID has been and will continue to be expensive and time consuming and could delay any product launch, and we cannot be certain that we will be able to successfully maintain this capability or successfully adapt it to commercialize and future products we may develop or
acquire. Although we have engaged Cubist to assist in the promotion of DIFICID in the United States, our agreement with Cubist could terminate early, and our commercial presence may not be sufficient to adequately market DIFICID in the United States on our own. We also compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. To the extent we rely on third parties to commercialize our products, if any, we may receive less revenues than if we commercialized these products ourselves. In addition, we may have little or no control over the sales efforts of any third parties involved in commercializing our products, including those of Astellas in the Astellas territory and Cubist in the United States. In the event we are unable to further develop and maintain our own marketing and sales capabilities or collaborate with a third-party marketing and sales organization, we would not be able to fully commercialize any product, including DIFICID, which would negatively impact our ability to generate product revenues.
We substantially increased the size of our organization, and we may experience difficulties in managing growth.*
We are a relatively small company with 271 employees as of October 31, 2011. The commercial launch of DIFICID required us to expand our managerial, operational, marketing, sales, financial and other resources. Our management, personnel, systems and facilities currently in place may not be adequate to support this recent growth, and we may not be able to retain or recruit qualified personnel in the future due to competition for personnel among pharmaceutical businesses, and the failure to do so could have a significant negative impact on our future product revenue and business results. To effectively manage our operations growth and various projects, we must:
· effectively train and manage a significant number of new employees, in particular our sales force, who have no prior experience with our company or DIFICID, and establish appropriate systems, policies and infrastructure to support our commercial organization;
· ensure that our consultants and other service providers successfully carry out their contractual obligations, provide high quality results, and meet expected deadlines;
· continue to carry out our own contractual obligations to our licensors and other third parties; and
· continue to improve our operational, financial and management controls, reporting systems and procedures.
We may not be able to implement these tasks on a larger scale, and accordingly, may not achieve our development and commercialization goals. Our failure to accomplish any of these goals could harm our financial results and prospects.
We currently depend, and will in the future continue to depend, on third parties to manufacture our products and product candidates, including DIFICID. If these manufacturers fail to provide us and our collaborators with adequate supplies of clinical trial materials and commercial product or fail to comply with the requirements of regulatory authorities, we may be unable to develop or commercialize our products.*
We have outsourced all manufacturing of supplies of our products and product candidates to third parties. We seek to establish long-term supply arrangements with third-party contract manufacturers. For example, in May 2010, we entered into a long-term supply agreement with Biocon for the commercial manufacturing of the API, for DIFICID and in June 2011, we entered into a manufacturing services agreement with Patheon to manufacture and supply certain fidaxomicin products, including DIFICID. We intend to continue outsourcing the manufacture of our products and product candidates to third parties for any future clinical trials and large-scale commercialization of any product candidates that receive regulatory approval and become commercial drugs, such as DIFICID.
Our ability and that of our collaborators to develop and commercialize DIFICID and any other product candidates will depend in part on our ability and that of our collaborators to arrange for third parties to manufacture our products at a competitive cost, in accordance with strictly enforced regulatory requirements and in sufficient quantities for regulatory approval, commercialization and any future clinical trials. Third-party manufacturers that we select to manufacture our product candidates for clinical testing or on a commercial scale may encounter difficulties with the small- and large-scale formulation and manufacturing processes required for such manufacture. Further, development of large-scale manufacturing processes will require additional validation studies, which the FDA must review and approve. Difficulties in establishing these required manufacturing processes could result in delays in clinical trials, regulatory submissions and approvals, or commercialization of our product candidates.
While we work closely with our current suppliers to try to ensure continuity of supply while maintaining high quality and reliability, we cannot guarantee that these efforts will be successful. Even if we are able to establish additional or replacement manufacturers, identifying these sources and entering into definitive supply agreements and obtaining regulatory approvals may involve a substantial amount of time and cost and such supply arrangements may not be available on acceptable economic terms. A reduction or interruption in our supply of DIFICID API or drug product from our current suppliers, and an inability to develop alternative sources for such supply, could adversely affect our ability to obtain DIFICID in a timely or cost effective manner to maximize product sales, and could result in a breach of our supply agreement with Astellas or our co-promotion agreement with Cubist, which could result in either or both of those parties terminating their respective agreements with us.
In addition, we, our collaborators and other third-party manufacturers of our products must comply with strictly enforced current good manufacturing practices, or cGMP, requirements enforced by the FDA through its facilities inspection program. These requirements include quality control, quality assurance and the maintenance of records and documentation. We currently rely on Biocon to manufacture DIFICID API and rely on Patheon to manufacture the drug product supplies. As such, Biocon and Patheon will be subject to ongoing periodic unannounced inspections by the FDA and other agencies for compliance with current cGMP, and similar foreign standards. The manufacturing facilities of Biocon and Patheon have been
inspected and approved by the FDA for other companies drug products; however, none of Biocons nor Patheons facilities have been inspected by the FDA for the manufacture of our drug supplies. We or other third-party manufacturers of our products may be unable to comply with cGMP requirements and with other FDA, state, local and foreign regulatory requirements. We and our collaborators have little control over third-party manufacturers compliance with these regulations and standards. A failure to comply with these requirements by our third-party manufacturers, including Biocon and Patheon could result in the issuance of untitled letters and/or warning letters from authorities, as well as sanctions being imposed on us, including fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall or withdrawal of product approval. In addition, we have no control over these manufacturers ability to maintain adequate quality control, quality assurance and qualified personnel. If the safety of any quantities supplied by third parties is compromised due to their failure to adhere to applicable laws or for other reasons, we and our collaborators may not be able to obtain or maintain regulatory approval for or successfully commercialize one or more of our product, which would significantly harm our business and prospects.
If our product candidates are unable to compete effectively with branded and generic antibiotics, our commercial opportunity would be reduced or eliminated.*
Our products and product candidates compete or will compete against both branded and generic antibiotic therapies, such as branded Vancocin Pulvules, generic metronidazole and oral vancomycin with respect to DIFICID. In addition, we anticipate that DIFICID will compete with other antibiotic and anti-infective product candidates currently in development for the treatment of CDAD. For example, Cubist recently announced its intention to proceed with a Phase 3 clinical trial for its compounds, CB-183,315, as a potential treatment for CDAD. Many of these products have been or will be developed and marketed by major pharmaceutical companies, who have significantly greater financial resources and expertise in research and development, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals, manufacturing and marketing approved products than we do. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established pharmaceutical or other companies.
DIFICID currently faces, and we anticipate it will continue to face, increasing competition in the form of generic versions of branded products of competitors that will lose their patent exclusivity. For example, DIFICID currently faces steep competition from an inexpensive generic form of metronidazole. If approved in Europe, DIFICID will immediately face generic oral vancomycin competition and in the future may face competition from generic oral vancomycin in the United States as well. In addition, our internal market research suggests that there is increasing use of oral reconstituted intravenous vancomycin slurry in the hospital setting. Generic antibiotic therapies typically are sold at lower prices than branded antibiotics and are generally preferred by managed care providers of health services. For example, because metronidazole and generic vancomycin slurry are available at such a low price, we believe it may be difficult to sell DIFICID as a first-line therapy for the treatment of CDAD other than in certain limited circumstances, such as in patients at high risk of recurrence. If we or our
collaborators are unable to demonstrate to physicians and patients that, based on experience, clinical data, side-effect profiles and other factors, our products are preferable to these generic antibiotic therapies, we may never generate meaningful product revenues. In addition, many antibiotics experience bacterial resistance over time because of their continued use. There can be no guarantee that bacteria would not develop resistance to DIFICID or any of our other product candidates. Our commercial opportunity would also be reduced or eliminated if our competitors develop and commercialize generic or branded antibiotics that are safer, more effective, have lower recurrence rates, have fewer side effects or are less expensive than our product candidates.
If we fail to develop and commercialize other products or product candidates, we may be unable to grow our business.*
A key element of our strategy is to commercialize a portfolio of innovative hospital specialty products in addition to DIFICID. As a significant part of our growth strategy, we intend to develop and commercialize, independently and/or through collaboration partners, additional products and product candidates through our discovery research program using our proprietary technology, including OPopS. The success of this strategy depends upon our ability to identify, select and acquire pharmaceutical product candidates and products that fit into our development plans on terms that are acceptable to us. To supplement this strategy, we may also obtain rights to additional product candidates from third parties through acquisition or in-licensing transactions.
Any product candidate we identify or to which we acquire rights will likely require additional development efforts prior to commercial sale, including pre-clinical studies, extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives.
A significant portion of the research that we are conducting involves new and unproven technologies. Research programs to identify new disease targets and product candidates require substantial technical, financial and human resources whether or not we ultimately identify any candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development. If we are unable to develop suitable potential product candidates through internal research programs or by obtaining rights to novel therapeutics from third parties, our business and prospects will suffer.
Our focus on drug discovery and development using our technology platform, including our patented proprietary OPopS drug discovery platform, is novel and unique. As a result, we cannot be certain that our product candidates will produce commercially viable drugs that safely and effectively treat infectious diseases or other diseases. To date, our technology platform has yielded only a small number of anti-infective product candidates. In addition, we do not have significant clinical data with respect to any of these potential product candidates. Even if we or
our collaborators are successful in completing clinical development and receiving regulatory approval for one commercially viable drug for the treatment of one disease using our technology platform and carbohydrate chemistry focus, we cannot be certain that we or our collaborators will also be able to develop and receive regulatory approval for other drug candidates for the treatment of other forms of that disease or other diseases. If we fail to develop and commercialize, independently and/or through collaborators, viable drugs using our platform and specialized focus, we will not be successful in developing a pipeline of potential product candidates to follow DIFICID, and our business prospects would be significantly harmed.
Our future growth depends on our ability to identify and acquire or in-license products. If we do not successfully identify and acquire or in-license related product candidates or integrate them into our operations, we may have limited growth opportunities.
An important part of our business strategy is to continue to develop a pipeline of product candidates by acquiring or in-licensing products, businesses or technologies that we believe are a strategic fit for our business. Future in-licenses or acquisitions, however, may entail numerous operational and financial risks, including:
· exposure to unknown liabilities;
· disruption of our business and diversion of our managements time and attention to develop acquired products or technologies;
· incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
· higher than expected acquisition and integration costs;
· increased amortization expenses;
· difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
· impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
· inability to retain key employees of any acquired businesses.
We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. In particular, we may compete with larger pharmaceutical companies and other competitors in our efforts to establish new collaborations and in-licensing opportunities. These competitors likely will have access to greater financial resources than us and may have greater expertise in identifying and evaluating new opportunities. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.
Our ability to pursue the development of additional product candidates depends upon the continuation of our licenses from third parties.
If our agreement with TSRI for the license of our OPopS technology is terminated, we will not be able to further develop future product candidates using our OPopS technology, and our third party licensees may be unable to continue development of our existing out-licensed product candidates.
We rely on our majority-owned subsidiary, OBI, for the development of one of our product candidates.
In October 2009, we completed a number of transactions involving our subsidiary, OBI, including the sale of 40% of our ownership interest in OBI to various third party investors. In connection with these transactions, we assigned to OBI, and OBI assumed from us, our rights and obligations under our license agreement with MSKCC related to our OPT-822/821 product candidate. We also assigned to OBI certain of our intellectual property and know-how related to this product candidate. In exchange for these assignments, we have the right to receive certain milestone or royalty payments relating to OPT-822/821.
We cannot assure you that OBI will successfully advance the development of OPT-822/821. In addition, if OBI does not comply with its obligations under the agreement with MSKCC, the agreement may be terminated and we may not be able to re-assume our rights under the agreement. If the agreement with MSKCC was terminated and we were unable to re-assume our rights, we would not be able to pursue further development of OPT-822/821. Moreover, the addition of third party investors in OBI has also diminished our ability to control OBI, which is now subject in some respects to the rights of the third party minority stockholders. In the future, additional equity financings or other issuances of equity securities or securities convertible into equity by OBI may further reduce our ownership position in OBI and we may not maintain a controlling interest in OBI. To the extent that we do not maintain a controlling equity interest in OBI in the future, we would have to rely on OBIs contractual obligations, including under our Intellectual Property Assignment and License Agreement, to ensure that OBI continues development of OPT-822/821 and complies with its obligations under the MSKCC agreement. Finally, OBI will need additional funds to further develop and commercialize OPT-822/821, and OBI may not be able to secure adequate funding or be able to do so on terms you or we believe are favorable. If OBI is unable to raise additional funds to continue operations, or otherwise fails to advance the development of OPT-822/821, we will not receive milestone or royalty payments with respect to this product candidate, and the value of our OBI equity position would likely diminish. To the extent we provide funds to OBI through additional equity investments or otherwise, we may need to divert funds away from our operations which could adversely affect the development and/or commercialization of our products and product candidates.
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical testing. In addition, sub-analysis of clinical trial data may reveal limitations of our product candidates even though top-line results are positive. The type and amount of clinical data necessary to gain regulatory approval for our product candidates may also change during or after completion of our clinical trials or we may inaccurately characterize such requirements. Moreover, we cannot guarantee that the FDA or comparable foreign regulatory authorities will agree with our interpretation of clinical trial data, or find such data sufficient to grant product approval. There are also risks that post-approval clinical trials we agreed to conduct or otherwise plan to conduct with respect to DIFICID will not yield positive results, which would impair our ability to continue marketing DIFICID in the United States.
Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize or delay our ability to achieve regulatory approval and commence product sales as currently contemplated.
We have in the past experienced delays in clinical trials of our product candidates and we may experience delays in future clinical trials. We do not know whether planned clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites, in obtaining institutional review board approval at each site, in recruiting suitable patients to participate in a trial, in having patients complete a trial or return for post-treatment follow-up, in adding new sites or in obtaining sufficient supplies of clinical trial materials. Many factors affect patient enrollment, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials, clinicians and patients perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating and whether the clinical trial design involves comparison to placebo.
We could encounter delays if prescribing physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing antibiotics that have established safety and efficacy profiles or with administering placebo to patients in our placebo-controlled trials. Further, a clinical trial may be suspended or terminated by us, our collaborators, the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and
our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects.
We may be required to suspend or discontinue clinical trials due to adverse events, adverse side effects or other safety risks that could preclude approval of our product candidates or negatively affect sales of any marketed product.*
Our clinical trials may be suspended at any time for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to participants. In our Phase 3 clinical trials of DIFICID, the most common drug-related side effects reported were nausea, vomiting, constipation, anorexia, headache and dizziness. If adverse, drug-related events are encountered or suspected, our trials would be interrupted, delayed or halted and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. Adverse events encountered in any post-approval studies may also harm our efforts and those of our collaborators to market our product candidates or could result in withdrawal of regulatory approvals. Even if we believe our product candidates are safe, our data is subject to review by the FDA, which may disagree with our conclusions and delay or deny approval of our product candidates which would significantly harm the commercial prospects of such product candidates. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse side effects as a result of participating in our clinical trials. Any of these occurrences may significantly harm our business and prospects.
We have relied and in the future may rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we and our collaborators may not be able to obtain regulatory approval for or commercialize our product candidates.
We have in the past entered into agreements with third-party CROs, such as INC Research, to provide monitors for and to manage data for our clinical programs.
We and any CROs conducting clinical trials for our product candidates are required to comply with current good clinical practices, or GCPs, regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or the CROs that conduct clinical trials of our product candidates fail to comply with applicable GCPs, the clinical data generated in the clinical trials may be deemed unreliable and the FDA may require additional clinical trials before approving any marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any clinical trials of our product candidates
comply with GCPs. In addition, our clinical trials must be conducted with product produced under cGMP regulations, and require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would be costly and delay the regulatory approval process and commercialization of our product candidates.
In addition, these third-party CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our clinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could harm our competitive position. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated or may have to be repeated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Current healthcare laws and regulations and future legislative or regulatory reforms to the healthcare system may affect our ability to sell DIFICID and any future approved product profitably.*
The U.S. and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
In March 2010, PPACA became law in the U.S. PPACA substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. Among the provisions of PPACA of greatest importance to the pharmaceutical industry are the following:
· an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;
· an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;
· a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their overage gap period, as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D;
· extension of manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
· expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals which began in April 2010 and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing manufacturers Medicaid rebate liability;
· expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
· new requirements to report certain financial arrangements with physicians, including reporting any transfer of value made or distributed to prescribers and other healthcare providers, effective March 30, 2013, and reporting any investment interests held by physicians and their immediate family members during the preceding calendar year;
· a new requirement to annually report drug samples that manufacturers and distributors provide to physicians, effective April 1, 2012;
· a licensure framework for follow-on biologic products; and
· a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
We also cannot be certain that DIFICID or any future approved products will successfully be placed on the list of drugs covered by particular health plan formularies, nor can we predict the negotiated price for any future products, which will be determined by market factors. Many states have also created preferred drug lists and include drugs on those lists only when the manufacturers agree to pay a supplemental rebate. If DIFICID or any future products are not included on these preferred drug lists, physicians may not be inclined to prescribe them to their Medicaid patients, thereby diminishing the potential market for our products.
As a result of the PPACA and the trend towards cost-effectiveness criteria and managed healthcare in the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse for newly-approved drugs, which in turn will put pressure on the pricing of drugs. Further, we do not have experience in ensuring approval by applicable third-party payors outside of the United States for coverage and reimbursement of our products. The availability of numerous generic antibiotics at lower prices than branded antibiotics can also be expected to substantially reduce the likelihood of reimbursement for DIFICID. We also anticipate pricing pressures in connection with the sale of our products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.
Our business involves the use of hazardous materials and we and our third-party manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.*
Our third-party manufacturers activities and, to a lesser extent, our own activities involve the controlled storage, use and disposal of hazardous materials, including the components of our products and product candidates and other hazardous compounds. We and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. We currently have insurance coverage in the amount of approximately $250,000 for damage claims arising from contamination on our property. These amounts may not be sufficient to adequately protect us from liability for damage 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 also curtail our use of these materials and interrupt our business operations.
Our business and operations would suffer in the event of computer, telecommunications or other system failure.*
Despite the implementation of security measures, our internal computer systems are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Any system failure, accident or security breach that causes interruptions in our operations could result in a material disruption of our commercialization activities or drug development programs. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability, the commercialization of our products may be harmed and the further development of our product candidates may be delayed.
Risks Related to Our Intellectual Property
It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.*
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of the use, formulation and structure of our products and product candidates, and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges, including those from generic drug manufacturers. Our ability to protect our products and product candidates from unauthorized making, using, selling, offering to sell or importing by third parties is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in the United States. The biotechnology patent environment outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our licensed patents, our patents or in third-party patents.
In addition, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was recently signed into law and includes a number of significant changes to United States patent law. These include changes in the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office is currently developing regulations and procedures to administer the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act will not become effective until one year or 18 months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the cost of prosecuting our patent applications, our ability to obtain patents based on our patent applications and our ability to enforce or defend our issued patents.
The degree of future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
· others may be able to make compounds that are similar to our products and product candidates but that are not covered by the claims of our issued patents and pending patent applications or licensed patents and pending patent applications, or for which we are not licensed under our license agreements;
· others may be able to make competing pharmaceutical formulations containing our products and product candidates or components of our product formulations that are either not covered by the claims of our issued patents or licensed patents, not licensed to us under our license agreements or are subject to patents that expire;
· we or our licensors might not have been the first to make the inventions covered by our issued patents and pending patent applications or the pending patent applications and issued patents of our licensors;
· we or our licensors might not have been the first to file patent applications for these inventions;
· others may independently develop similar or alternative technologies or duplicate any of our technologies;
· it is possible that our pending patent applications or our licensed patent applications will not result in issued patents;
· our issued patents and pending patent applications or the pending patent applications and issued patents of our licensors may not provide us with any competitive advantages, may be designed around by our competitors, including generic drug companies, or may be held invalid or unenforceable as a result of legal challenges by third parties;
· we may not develop additional proprietary technologies that are patentable; or
· the patents of others may have an adverse effect on our business.
In addition, to the extent we are unable to obtain and maintain patent protection for our products and product candidates or in the event such patent protection expires, it may no longer be cost effective to continue commercializing a product or to extend our portfolio by pursuing additional development of a product or product candidate for follow-on indications.
We have four issued patents and ten pending patent applications related to DIFICID in the U.S. We also have six issued foreign patents related to DIFICID.
The patent and patent applications related to DIFICID encompass various topics relating to:
· composition of matter;
· pharmaceutical composition and methods of use;
· polymorphic forms and pharmaceutical compositions thereof;
· manufacturing processes;
· treatment of diseases;
· formulation;
· selected indications in CDAD patients; and
· primary metabolites.
If we are unable to obtain sufficient patent protection encompassing DIFICID, our competitors, including generic drug companies, may be able to design other similar formulations of the active ingredient of DIFICID. Furthermore, even though the manufacturing process patent has issued, and even if the formulation patent application results in an issued patent, our competitors, including generic drug companies, may be able to design around our manufacturing processes or formulation for DIFICID. As a result, our competitors may be able to develop competing products without infringing our patents.
We depend, in part, on our licensors and collaborators to protect a portion of our proprietary rights. In such cases, our licensors and collaborators may be primarily or wholly responsible for the maintenance of patents and prosecution of patent applications relating to important areas of our business. We may be dependent on Par to provide technical support for patent applications relating to DIFICID. If Par fails to adequately protect DIFICID with issued patents, our business and prospects would be significantly harmed.
Our agreement with Par does not have explicit provisions regarding our rights to take necessary action with respect to maintenance of patents and prosecution of patent applications nor do such agreements provide us with any legal recourse in the event such parties do not so maintain and/or prosecute. If Par or others on which we rely for patent maintenance and prosecution fail to adequately maintain patents and prosecute patent applications relating to technology licensed to or from us, we may be required to take further action on our own to protect our technology. However, we may not be successful in maintaining such patents or prosecuting such patent applications and if so, our business and prospects would be significantly harmed.
We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
If we or our licensors fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.
We may incur substantial costs as a result of litigation or other proceedings relating to our patent, trademark and other intellectual property rights, and we may be unable to protect our rights to, or use, our technology.*
If we or, as applicable, our commercialization partners, including Astellas pursuant to its first right to enforce the patents licensed to it in the Astellas territory, choose to go to court to stop someone else from using our inventions, that individual or company has the right to ask the court to rule that the underlying patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we or our commercialization partner were successful in stopping the infringement of these patents. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other partys activities do not infringe our rights to these patents.
Furthermore, a third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third partys patent rights and may go to court to stop us from engaging in our normal operations and activities, including making, using or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we or our commercialization partners are infringing the third partys patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will order us or our partners to pay the other party damages for having violated the other partys patents. We have indemnified our commercialization partners, including Astellas, against patent infringement claims and thus would be responsible for any of their costs associated with such claims and actions. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
Although we have conducted searches of third-party patents with respect to DIFICID, these searches may not have identified all third-party patents relevant to this products and we have not conducted an extensive search of patents issued to third parties with respect to our product candidates. Consequently, no assurance can be given that third-party patents containing 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 and patent applications filed in our technical areas or fields, we believe there is a risk that third parties may allege they have patent rights encompassing our products, technology or methods. In addition, 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 under common trademark law. While we have filed a trademark application for the names Optimer, and Optimer Pharmaceuticals, we are aware that the name Optimer has been registered as a trademark with the U.S. PTO by more than one third party, including one in the biotechnology space. As such, we believe there is a significant risk that third parties may allege they have trademark rights encompassing the names for which we have applied for protection.
Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our licensors issued patents or our pending applications or our licensors pending applications, or that we or our licensors were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our or our licensors patent applications and could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. PTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Risks Related to the Securities Market and Ownership of Our Common Stock
The market price of our common stock may be highly volatile.*
Before our initial public offering in February 2007, there was no public market for our common stock. We cannot assure you that an active trading market will continue to exist for our common stock. You may not be able to sell your shares quickly or at the market price if trading in our common stock is not active.
The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:
· general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors;
· actual or anticipated variations in our quarterly operating results, including DIFICID sales and royalties, and our quarterly expenses;
· announcement of foreign regulatory agency approval or non-approval of our or our competitors product candidates, or specific label indications for their use, or delays in the foreign regulatory agency review process;
· actions taken by the FDA or other regulatory agencies with respect to our product or product candidates, clinical trials, manufacturing process or marketing and sales activities;
· any adverse development or perceived adverse development with respect to the EMAs review of our MAA for DIFICLIR (DIFICID), including a request for additional information;
· failure of DIFICID to achieve commercial success;
· changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;
· the success of our development efforts and clinical trials, particularly with respect to DIFICID;
· announcements by our collaborators with respect to clinical trial results, regulatory submissions and communications from the FDA or comparable foreign regulatory agencies;
· the success of our efforts to acquire or in-license additional products or product candidates;
· developments concerning our collaborations and partnerships, including but not limited to those with our sources of manufacturing supply and our development and commercialization partners;
· our dependence on our collaborators, such as Astellas, to commercialize and further develop our products in foreign countries in compliance with foreign regulatory schemes;
· our failure to successfully execute our commercialization strategy with respect to our products following marketing approval thereof;
· the success of our continuing efforts to establish and build marketing and sales capabilities;
· inability to obtain adequate commercial supply for any product following marketing approval thereof, or inability to do so at acceptable prices;
· announcements of technological innovations by us, our collaborators or our competitors;
· new products or services introduced or announced by us or our commercialization partners, or our competitors and the timing of these introductions or announcements;
· the development of generic product alternatives to our or our competitors products;
· third-party coverage or reimbursement policies;
· changes in government regulations affecting product approvals, reimbursement or other aspects of our or our competitors business;
· actual or anticipated changes in earnings estimates or recommendations by securities analysts;
· conditions or trends in the biotechnology and biopharmaceutical industries;
· announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
· changes in the market valuations of similar companies;
· sales of common stock or other securities by us or our stockholders in the future;
· additions or departures of key scientific or management personnel;
· our ability to successfully integrate our new executive personnel into our organization;
· difficulties associated with the expansion of our domestic operations into a bicoastal organization;
· disputes or other developments relating to intellectual property, proprietary rights, including patents, litigation matters 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 the market for biotechnology and biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have often been unrelated and/or disproportionate to the operating performance of those companies. These broad market and industry 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, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of managements attention and resources, which could significantly harm our business, financial condition and prospects.
Future sales of our common stock in the public market could cause our stock price to decline.
We have also registered all common stock that we have issued under our employee benefits plans. As a result, these shares can be freely sold in the public market upon issuance, subject to any applicable restrictions under the securities laws. In addition, our directors and executive
officers may in the future establish programmed selling plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, for the purpose of effecting sales of our common stock. If any of these events cause a large number of our shares to be sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.
We will continue to incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will continue to incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and the Nasdaq Stock Market, or Nasdaq, impose various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations result in increased legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to maintain director and officer liability insurance, and we may be required to incur substantial costs in the future to maintain the same or similar coverage. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. We are required to perform an evaluation of our internal controls over financial reporting to allow management to report on the effectiveness of those controls, as required by Section 404 of the Sarbanes-Oxley Act. Additionally, our independent auditors were required to perform a similar evaluation and report on the effectiveness of our internal controls over financial reporting. At December 31, 2010, management and our independent auditors did not identify any material weaknesses in our internal controls over financial reporting. Our efforts to comply with Section 404 and related regulations have required, and continue to require, the commitment of significant financial and managerial resources. While we anticipate maintaining the integrity of our internal controls over financial reporting and all other aspects of Section 404, we cannot be certain that a material weakness will not be identified when we test the effectiveness of our control systems in the future. If a material weakness is identified, we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources, costly litigation or a loss of public confidence in our internal controls, which could have an adverse effect on the market price of our stock.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders, or remove our current management. These provisions include:
· a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
· authorizing the issuance of blank check preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
· 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 our stockholders;
· eliminating the ability of stockholders to call a special meeting of stockholders; and
· establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more 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 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with a stockholder owning 15% or more of our outstanding voting stock for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Such a delay or prevention of a change of control transaction could cause the market price of our stock to decline.
On November 1, 2011, in connection with a strategic decision to discontinue the development of Pruvel (prulifloxacin), we notified Nippon Shinyaku, Co. Ltd. that we were terminating our license agreement dated June 10, 2004. The license agreement provides Optimer with the exclusive rights to develop and commercialize Pruvel for all indications in the United States. In accordance with its terms, the license agreement will terminate 60 days following the date of the notice, at which time all rights to Pruvel will revert to Nippon Shinyaku.
Exhibit No. |
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Description of Document |
3.1 |
(2) |
Certificate of Incorporation of Optimer Pharmaceuticals, Inc., as amended and restated. |
3.2 |
(4) |
Bylaws of Optimer Pharmaceuticals, Inc., as amended. |
4.1 |
(3) |
Common Stock Certificate of Optimer Pharmaceuticals, Inc. |
4.2 |
(1) |
Investors Rights Agreement by and among Optimer Pharmaceuticals, Inc. and certain stockholders of Optimer Pharmaceuticals, Inc. dated November 30, 2005, as amended and restated. |
4.3 |
(5) |
Registration Rights Agreement, dated October 23, 2007, by and between Optimer Pharmaceuticals, Inc. and the purchasers listed on the signature pages thereto. |
10.1 |
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Second Amendment to Lease between Optimer Pharmaceuticals, Inc. and 101 Hudson Leasing Associates, dated July 5, 2011. |
10.2 |
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Second Amendment to Lease between Optimer Pharmaceuticals, Inc. and Trizec Sorrento Towers, LLC, dated July 26, 2011. |
10.3 |
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Second Lease Extension and Addendum between Optimer Pharmaceuticals, Inc. and HELF Sorrento, LLC, dated July 26, 2011. |
10.4 |
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Third Amendment to Lease between Optimer Pharmaceuticals, Inc. and 101 Hudson Leasing Associates, dated September 30, 2011. |
10.5+ |
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Form of Restricted Stock Unit Grant Notice and Agreement for shares of Optimer Biotechnology, Inc. |
31.1 |
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Certification of principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a). |
31.2 |
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Certification of principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a). |
32 |
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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). |
101.INS |
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XBRL Instance Document |
101.SCH |
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XBRL Taxonomy Extension Schema Document |
101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
+ Indicates management contract or compensatory plan.
(1) Filed with Registrants Registration Statement on Form S-1 November 9, 2006.
(2) Filed with Registrants Amendment No. 3 to Registration Statement on Form S-1 January 22, 2007.
(3) Filed with Registrants Amendment No. 4 to Registration Statement on Form S-1 February 5, 2007.
(4) Filed with Registrants Current Report on Form 8-K on September 18, 2007.
(5) Filed with Registrants Current Report on Form 8-K on October 29, 2007.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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OPTIMER PHARMACEUTICALS, INC. | |
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Dated: November 3, 2011 |
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By: |
/s/ John D. Prunty |
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Name: |
John D. Prunty |
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Title: |
Chief Financial Officer |
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(Duly Authorized Officer and Principal Financial |
Exhibit 10.1
SECOND AMENDMENT TO LEASE
1. PARTIES
1.1 THIS AGREEMENT made the 5th day of July, 2011 is by and between 101 HUDSON STREET ASSOCIATES (Landlord) whose address is c/o Mack-Cali Realty Corporation, 343 Thornall Street, P.O. Box 7817, Edison, New Jersey 08818-7817 and OPTIMER PHARMACEUTICALS, INC. (Tenant) whose address is 10110 Sorrento Valley Road, Suite C, San Diego, California 92121.
2. STATEMENT OF FACTS
2.1 Landlord and Tenant have previously entered into a Lease dated February 9, 2011, as amended by a First Amendment to Lease dated May 4, 2011 (collectively, the Lease) covering 14,196 gross rentable square feet on the thirty-fifth (35th) floor (hereinafter referred to as the Premises) in the building located at 101 Hudson Street, Jersey City, New Jersey (Building); and
2.2 The parties desire to amend certain terms of the Lease as set forth below.
3. AGREEMENT
NOW, THEREFORE, in consideration of the terms, covenants and conditions hereinafter set forth, Landlord and Tenant agree as follows:
3.1 The above recitals are incorporated herein by reference.
3.2 All capitalized and non-capitalized terms used in this Agreement which are not separately defined herein but are defined in the Lease shall have the meaning given to any such term in the Lease.
3.3 TEMPORARY CONFERENCE ROOM:
On the date of this Agreement (the Temporary Conference Room Delivery Date), Landlord shall deliver to Tenant and shall permit Tenant to utilize additional space on the thirty-ninth (39th) floor of the Building consisting of approximately 605 rentable square feet, as shown on Exhibit A attached hereto and made part hereof (the Temporary Conference Room), for the use set forth in the Lease until the date upon which Landlord has completed the work in Tenants permanent conference room located within the Premises (the Temporary Conference Room Expiration Date). If Tenant fails to vacate and surrender and discontinue the use of the Temporary Conference Room on the Temporary Conference Room Expiration Date, Tenant shall be deemed a holdover tenant in the Temporary Conference Room and the provisions of Section 28.02 of the Lease shall govern, mutatis mutandis. From the date hereof until the date Tenant vacates the Temporary Conference Room, the Temporary Conference Room shall be deemed part of the Premises for purposes of the obligations of the parties with respect thereto, except as set forth herein. In connection with Tenants occupancy of the Temporary Conference Room, the parties hereby agree as follows:
a. Tenant shall be required to pay Temporary Conference Room Rent, as that term is defined herein, from and after the date hereof.
b. Landlord shall deliver the Temporary Conference Room to Tenant in its As-Is condition. Any and all alterations and improvements to be made by Tenant to the Temporary Conference Room shall be subject to Landlords prior written consent.
c. Tenant will pay a rental (which shall be deemed additional rent under the Lease) for the Temporary Conference Room in the amount of $600.00 per month (the Temporary Conference Room Rent), equitably
prorated for partial months. Except for the Temporary Conference Room Rent, Tenant shall have no other obligation to make any payment of rent or additional rent to Landlord of any nature, except as set forth herein. As such, Tenant shall not be responsible for Tenants Share of Taxes and Tenants Share of Operating Costs with respect to the Temporary Conference Room.
d. Tenant covenants and agrees to pay to Landlord the cost of electricity as indicated by a submeter for the entire thirty-ninth (39th) floor in accordance with Article 4 of the Lease.
e. Tenant covenants and agrees to pay to Landlord the amount for Chilled Water as indicated by a submeter measuring the demand for, and consumption of, Chilled Water for the entire thirty-ninth (39th) floor, pursuant to Section 21.04 of the Lease.
f. Landlord, at Tenants sole cost and expense, shall perform cleaning and janitorial services pursuant to Exhibit E of the Lease.
g. Tenant shall remove all personal property, telephone and data equipment and wiring from the Temporary Conference Room upon vacating same.
h. It is understood that the Temporary Conference Room is part of a larger unit of space (Larger Unit) consisting of approximately 24,179 gross rentable square feet. However, Tenant shall not be required to pay Basic Annual Rent or additional rent applicable to the Larger Unit, except that Tenant shall pay Landlord the cost of Electricity consumed within the Larger Unit in accordance with Article 4 of the Lease (Electricity). Tenant acknowledges that Landlord shall not be obligated to separately demise the Temporary Conference Room from the Larger Unit and that, until such time as Landlord separately demises the Temporary Conference Room, Tenant shall be obligated to carry insurance and to indemnify Landlord under the Lease with respect to the Larger Unit. With respect to the Larger Unit, Tenant shall have no rights, benefits, entitlements, options or privileges, except that if necessary Tenant may traverse through the Larger Unit only to the extent necessary (and for no other purpose) to enter in and exit from the Temporary Conference Room. Tenant shall commit no waste in, and shall do nothing to damage, the Larger Unit. Landlord shall have the right, at any time, in its sole discretion, to erect, at Landlords expense, demising walls around the Temporary Conference Room, separate mechanical systems or do such other work as may be necessary to separate the Temporary Conference Room from the Larger Unit (the Demising Work). Tenant agrees that, subject to the prior sentence, any performance by Landlord of the Demising Work shall not constitute an eviction or otherwise entitle Tenant to any abatement, reduction or modification of the basic annual rent or additional rent due under the Lease. Tenant shall at its expense reasonably cooperate with Landlord during the performance of the Demising Work by relocating all furniture, fixtures and personnel as necessary.
i. All monies payable by Tenant under this Agreement shall be deemed additional rent under the Lease. Such monies shall be paid together with and in the same manner as the Basic Annual Rent under the Lease.
j. Either party shall have the right to terminate Tenants rights pursuant to this Paragraph 3.3 upon thirty (30) days written notice to the other party for any reason or no reason whatsoever. In the event either party exercises such right, Tenant shall vacate and surrender and discontinue to the use of the Temporary Conference Room and Larger Unit. If Tenant fails to vacate and surrender and discontinue the use of the Temporary Conference Room and Larger Unit, Tenant shall be deemed a holdover tenant in the Temporary Conference Room and Larger Unit and
the provisions of Section 28.02 of the Lease shall govern, mutatis mutandis.
3.4 Tenant hereby represents to Landlord that (i) there exists no default under the Lease either by Tenant or Landlord; (ii) Tenant is entitled to no credit, free rent or other offset or abatement of the rents due under the Lease; and (iii) there exists no offset, defense or counterclaim to Tenants obligation under the Lease.
3.5 Tenant represents to Landlord that no broker brought about this transaction and agrees to indemnify and hold Landlord harmless from any and all claims of any broker arising out of or in connection with negotiations of, or entering into of, this Agreement.
3.6 Except as expressly amended herein, the Lease, as amended, shall remain in full force and effect as if the same had been set forth in full herein, and Landlord and Tenant hereby ratify and confirm all of the terms and conditions thereof.
3.7 Tenant agrees not to disclose the terms, covenants, conditions or other facts with respect to this Agreement, including the Basic Annual Rent and Additional Rent, to any person, corporation, partnership, association, newspaper, periodical or other entity, except to Tenants accountants or attorneys (who shall also be required to keep the terms of this Agreement confidential) or as required by law. This non-disclosure and confidentiality agreement will be binding upon Tenant without limitation as to time, and a breach of this paragraph will constitute a material breach under the Lease. In addition, Tenants employees, contractors, etc. shall keep any of the terms and conditions of this Agreement, including any billing statements and/or any backup supporting those statements, confidential.
3.8 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns.
3.9 Each party agrees that it will not raise or assert as a defense to any obligation under the Lease or this Agreement or make any claim that the Lease or this Agreement is invalid or unenforceable due to any failure of this document to comply with ministerial requirements including, but not limited to, requirements for corporate seals, attestations, witnesses, notarizations, or other similar requirements, and each party hereby waives the right to assert any such defense or make any claim of invalidity or unenforceability due to any of the foregoing.
This Agreement may be executed in multiple counterparts, each of which, when assembled to include an original signature for each party contemplated to sign this Agreement, will constitute a complete and fully executed original. All such fully executed counterparts will collectively constitute a single agreement. Tenant expressly agrees that if the signature of Landlord and/or Tenant on this Agreement is not an original, but is a digital, mechanical or electronic reproduction (such as, but not limited to, a photocopy, fax, e-mail, PDF, Adobe image, JPEG, telegram, telex or telecopy), then such digital, mechanical or electronic reproduction shall be as enforceable, valid and binding as, and the legal equivalent to, an authentic and traditional ink-on-paper original wet signature penned manually by its signatory.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written.
LANDLORD: |
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TENANT: | |||
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101 HUDSON STREET ASSOCIATES |
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OPTIMER PHARMACEUTICALS, INC. | |||
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By: |
MC Hudson Holding L.L.C., |
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general partner |
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By: |
Mack-Cali Realty, L.P., sole member |
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By: |
Mack-Cali Realty Corporation, |
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general partner |
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By: |
/s/ Christopher M. DeLorenzo |
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By: |
/s/ John Prunty | |
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Christopher M. DeLorenzo |
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Name: John Prunty | |
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Vice President of Leasing |
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Title: CFO | |
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[SEAL] |
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Exhibit 10.2
SECOND AMENDMENT
THIS SECOND AMENDMENT (this Amendment) is made and entered into as of July 26, 2011, by and between TRIZEC SORRENTO TOWERS, LLC, a Delaware limited liability company (Landlord), and OPTIMER PHARMACEUTICALS, INC., a Delaware corporation (Tenant).
RECITALS
A. Landlord and Tenant are parties to that certain lease dated August 18, 2008, as previously amended by Notice of Lease Term Dates dated December 23, 2008 and First Amendment dated May 3, 2010 (the First Amendment) (as amended, the Lease). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 9,626 rentable square feet (the Existing Premises) described as Suite Nos. 250 and 260 on the second (2nd) floor of the building commonly known as Sorrento Towers North located at 5355 Mira Sorrento Place, San Diego, California (the Building).
B. The parties wish to expand the Existing Premises to include: (i) additional space, containing approximately 1,543 rentable square feet described as Suite No. 265 on the second (2nd) floor of the Building and shown on Exhibit A attached hereto; and (ii) additional space, containing approximately 2,024 rentable square feet described as Suite No. 290 on the second (2nd) floor of the Building and shown on Exhibit A attached hereto (Suite No. 265 and 290 are collectively referred to as the Suite 265/290 Expansion Space), on the following terms and conditions.
C. The Lease will expire by its terms on November 30, 2011 (the Existing Expiration Date), and the parties wish to extend the term of the Lease on the following terms and conditions.
NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants and conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
1. Suite 265/290 Expansion.
1.1 Effect of Suite 265/290 Expansion. Effective as of the Suite 265/290 Expansion Effective Date (defined in Section 1.2 below), the Premises shall be increased from 9,626 rentable square feet on the second (2nd) floor to 13,193 rentable square feet on the second (2nd) floor by the addition of the Suite 265/290 Expansion Space, and, from and after the Suite 265/290 Expansion Effective Date, the Existing Premises and the Suite 265/290 Expansion Space shall collectively be deemed the Premises. The term of the Lease for the Suite 265/290 Expansion Space (the Suite 265/290 Expansion Term) shall commence on the Suite 265/290 Expansion Effective Date and, unless sooner terminated in accordance with the Lease, end on the Extended Expiration Date (which the parties acknowledge is July 31, 2012). From and after the Suite 265/290 Expansion Effective Date, the Suite 265/290 Expansion Space shall be subject to all the terms and conditions of the Lease except as provided herein, and except that, except as may be expressly provided in this Amendment, (a) Tenant shall not be entitled to receive, with respect to the Suite 265/290 Expansion Space, any allowance, free rent or other financial concession granted with respect to the Existing Premises, and (b) no representation or warranty made by Landlord with respect to the Existing Premises shall apply to the Suite 265/290 Expansion Space.
1.2 Suite 265/290 Expansion Effective Date. As used herein, Suite 265/290 Expansion Effective Date means the date on which Landlord provides Tenant with possession of the Suite 265/290 Expansion Space following the execution of this Amendment by Landlord and Tenant.
1.3 Confirmation Letter. At any time after the Suite 265/290 Expansion Effective Date, Landlord may deliver to Tenant a notice substantially in the form of Exhibit B attached hereto, as a confirmation of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) days after receiving it. If Tenant fails to execute and return (or reasonably object in writing to) such notice within five (5) days after receiving it, Tenant shall be deemed to have executed and returned it without exception.
2. Extension. The tern of the Lease is hereby extended through July 31, 2012 (the Extended Expiration Date). The portion of the term of the Lease commencing December 1, 2011 (the
Extension Date) and ending on the Extended Expiration Date shall be referred to herein as the Extended Term.
3. Base Rent.
3.1 With respect to the Suite 265/290 Expansion Space during the Suite 265/290 Expansion Term, the schedule of Base Rent shall be as follows:
Period During Suite 265/290 |
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Monthly Base Rent |
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Suite 265/290 Expansion Effective Date through Extended Expiration Date |
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$ |
9,452.55 |
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All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease.
3.2 During the Extended Term, the schedule of Base Rent with respect to the Original Premises shall be as follows:
Period of Extended Term |
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Monthly Base Rent |
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December 1, 2011 through Extended Expiration Date |
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$ |
29,913.71 |
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All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease.
4. Additional Security Deposit. No additional security deposit shall be required in connection with this Amendment.
5. Expenses and Taxes.
5.1 With respect to the Suite 265/290 Expansion Space during the Suite 265/290 Expansion Term, Tenant shall pay for Tenants Share of Expenses and Taxes in accordance with the terms of the Lease; including a 2008 Base Year. With respect to the Suite 265/290 Expansion Space during the Suite 265/290 Expansion Term, Tenants Share shall be 1.2923%.
5.2 With respect to the Existing Premises during the Extended Term, Tenant shall pay for Tenants Share of Expenses and Taxes in accordance with the terms of the Lease.
6. Improvements to Suite 265/290 Expansion Space.
6.1 Condition of Suite 265/290 Expansion Space. Tenant acknowledges that it has inspected the Suite 265/290 Expansion Space and agrees to accept it as is without any representation by Landlord regarding its condition and without any obligation on the part of Landlord to perform or pay for any alteration or improvement, except as may be otherwise expressly provided in this Amendment.
6.2 Responsibility for Improvements to Suite 265/290 Expansion Space. Landlord, at its sole cost and expense, shall be obligated to steam clean the carpet in Suite 265 and paint two (2) walls in Suite 265 (currently painted orange) with a color selected by Tenant from Landlords building standard paint selections. Except for Landlords obligations under this Section 6.2, any improvements to the Suite 265/290 Expansion Space shall be paid for by Tenant and performed in accordance with the terms of the Lease. In the event Tenant, at Tenants sole cost and expense, constructs a doorway between the Existing Premises and the Suite 265/290 Expansion Space, Landlord will not require Tenant to remove such doorway and return the doorway area back to its state prior to said construction. In the event Tenant, at Tenants sole cost and expense, installs card readers between the Existing Premises and the Suite 265/290 Expansion Space, Tenant shall be obligated to remove such card readers and associated wiring and patch and repair any damage in accordance with the terms of the Lease.
7. Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment (unless different effective date(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects:
7.1 Parking. During the Extended Term, Tenant shall retain its existing parking rights as set forth in the Lease.
7.2 No Options. The parties hereto acknowledge and agree that any option or other rights contained in the Lease which entitle Tenant to extend the term of the Lease, expand or contract the Premises are deemed null, void and of no further force and effect.
8. Miscellaneous.
8.1 This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Tenant shall not be entitled, in connection with entering into this Amendment, to any free rent, allowance, alteration, improvement or similar economic incentive to which Tenant may have been entitled in connection with entering into the Lease, except as may be otherwise expressly provided in this Amendment.
8.2 Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.
8.3 In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.
8.4 Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered it to Tenant.
8.5 The capitalized terns used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terns are defined therein and not redefined in this Amendment.
8.6 Tenant shall indemnify and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment. Landlord shall indemnify and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents harmless from all claims of any brokers (other than Cushman & Wakefield) claiming to have represented Landlord in connection with this Amendment. Tenant acknowledges that any assistance rendered by any agent or employee of any affiliate of Landlord in connection with this Amendment has been made as an accommodation to Tenant solely in furtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant.
8.7 Each signatory of this Amendment represents hereby that he or she has the authority to execute and deliver it on behalf of the party hereto for which such signatory is acting.
[SIGNATURES ARE ON FOLLOWING PAGE]
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
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LANDLORD: | |||
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TRIZEC SORRENTO TOWERS, LLC, a Delaware limited liability company | |||
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By: |
/s/ Brendan McCracken | ||
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Name: |
Brendan McCracken | |
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Title: |
Vice President Leasing | |
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TENANT: | |||
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OPTIMER PHARMACEUTICALS, INC., a Delaware corporation | |||
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By: |
/s/ John Prunty | ||
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Name: |
John Prunty | ||
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Title: |
CFO | ||
EXHIBIT B
NOTICE OF LEASE TERM DATES
, 2011
OPTIMER PHARMACEUTICALS, INC.
5355 Mira Sorrento Place
Suite 250
San Diego, California
Re: Second Amendment (the Amendment), dated , 2011, to a lease agreement dated August 18, 2008, as amended, between TRIZEC SORRENTO TOWERS, LLC, a Delaware limited liability company (Landlord), and OPTIMER PHARMACEUTICALS, INC., a Delaware corporation (Tenant), concerning Suite 265/290 on the second (2nd) floor of the building located at 5355 Mira Sorrento Place, San Diego, California (the Suite 265/290 Expansion Space).
Lease ID:
Business Unit Number:
Dear :
In accordance with the Amendment, Tenant accepts possession of the Suite 265/290 Expansion Space and confirms that (a) the Suite 265/290 Expansion Effective Date is , 20 , and (b) the expiration date of the Lease is July 31, 2012.
Please acknowledge the foregoing by signing all three (3) counterparts of this letter in the space provided below and returning two (2) fully executed counterparts to my attention. Please note that, pursuant to Section 1.3 of the Amendment, if Tenant fails to execute and return (or reasonably object in writing to) this letter within five (5) days after receiving it, Tenant shall be deemed to have executed and returned it without exception.
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Landlord: | ||
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EQUITY OFFICE MANAGEMENT, L.L.C., | ||
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on behalf of Trizec Sorrento Towers, LLC | ||
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By: |
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Name: |
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Title: |
Authorized Signatory |
Agreed and Accepted as
of July 18, 2011.
Tenant:
OPTIMER PHARMACEUTICALS, INC., |
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a Delaware corporation |
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By: |
/s/ John Prunty |
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Name: |
John Prunty |
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Title: |
CFO |
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Exhibit 10.3
SECOND LEASE EXTENSION AND ADDENDUM
This Second Lease Extension and Addendum (Second Extension) is made and entered into the 26th day of July, 2011 by and between HELF Sorrento, LLC, a California Limited Liability Company (as Landlord) and Optimer Pharmaceuticals, Inc. a Delaware corporation (as Tenant), for those certain premises known as 10110 Sorrento Valley Rd., Suite C, San Diego, CA .
This Second Lease Extension and Addendum (Second Extension) hereby extends and amends the Lease dated May 1, 2001 (the Lease) and the First Amendment to Lease dated July 1, 2011, by and between Landlord and Tenant. Landlord and Tenant wish to modify the above referenced Lease as follows:
1. TERM: The term of this Second Extension shall be for Eight (8) Months and shall extend the term from December 1, 2011 through July 31, 2012.
2. RENT: During the Second Extension of Eight (8) Months commencing December 1, 2011 through July 31, 2012, the Base Monthly Rental rate shall remain the same rate of $66,147.76 (Sixty Six Thousand One Hundred Forty-Seven Dollars and 76/100) per month.
3. NET LEASE: This Lease continues to be Net Lease. Tenant shall be responsible for their proportionate share of Common Area Operating Expenses including but not limited to taxes, insurance, common area maintenance. Tenants current monthly share of Common Area Maintenance Expense is estimated at $12,749.66 (Twelve Thousand Seven Hundred Forty-Nine Dollars and 66/100) per month and is subject to an annual adjustment pursuant to the Lease. Additionally, Tenant remains responsible for all Utilities including but not limited to Tenants proportionate share of Electrical Charges and Services as described and not limited to Sections 6 & 18 of the original Lease.
4. ACCEPTANCE OF PREMISES: Tenant continues on and accepts the Premises in its now AS-IS condition. Tenant is responsible for all interior repairs and maintenance, including but not limited to, HVAC, plumbing, and electrical exclusively serving the Premises.
5. TIME IS OF THE ESSENCE: Both Landlord and Tenant mutually agree that time is of the essence in the execution of this Second Lease Extension And Addendum and any other extension thereof.
All other Terms and Conditions as incorporated in the Lease will remain in full force and effect.
LANDLORD: |
HELF Sorrento, LLC |
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TENANT: |
Optimer Pharmaceuticals, Inc., | ||
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a Delaware Corporation | |||
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AGREED: |
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AGREED: | ||||
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BY: |
/s/ Frank M. Goldberg |
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BY: |
/s/ John Prunty | ||
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Frank M. Goldberg, President |
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John Prunty, Chief Financial Officer | ||||
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DATE: |
9/14/11 |
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DATE: |
8/25/11 | ||
Exhibit 10.4
THIRD AMENDMENT TO LEASE
1. PARTIES
1.1 THIS AGREEMENT made the 30th day of September, 2011 is between 101 HUDSON LEASING ASSOCIATES (Landlord) whose address is c/o Mack-Cali Realty Corporation, 343 Thornall Street, P.O. 7817, Edison, NJ 08818-7817 and OPTIMER PHARMACEUTICALS, INC. (Tenant), whose address is 10110 Sorrento Valley Road, Suite C, San Diego, California 92121.
2. STATEMENT OF FACTS
2.1 Landlord and Tenant have previously entered into a Lease Agreement dated February 9, 2011, as amended by a First Amendment to Lease dated May 4, 2011 and a Second Amendment to Lease dated July 5, 2011 (hereinafter collectively referred to as the Lease) covering 14,196 gross rentable square feet on the thirty-fifth (35th) floor (Existing Premises) in the building located at 101 Hudson Street, Jersey City, New Jersey (Building); and
2.2 The Term of the Lease expires on June 30, 2016 (Expiration Date); and
2.3 Tenant desires to expand the Existing Premises by leasing 10,141 gross rentable square feet on the thirty-sixth (36th) floor of the Building (Expansion Premises), as shown on Exhibit A attached hereto and made a part hereof; and
2.4 The parties desire to extend the Term of the Lease for a period to commence on July 1, 2016; and
2.5 The parties desire to amend certain terms of the Lease as set forth below.
3. AGREEMENT
NOW, THEREFORE, in consideration of the terms, covenants and conditions hereinafter set forth, Landlord and Tenant agree as follows:
3.1 The above recitals are incorporated herein by reference.
3.2 All capitalized and non-capitalized terms used in this Agreement which are not separately defined herein but are defined in the Lease shall have the meaning given to any such term in the Lease.
3.3 The Term applicable to the Expansion Premises shall commence on the Effective Date (as defined below) and shall terminate at 11:59 p.m. on the last day of the month during which the day prior to the six (6) year and two (2) month anniversary of the Effective Date occurs (the New Expiration Date).
3.4 The effective date applicable to the Expansion Premises (the Effective Date) shall be the earlier of (i) the day Landlord substantially completes the improvements to be made to the Expansion Premises in accordance with Exhibit B attached hereto and made part hereof and Landlord has received all necessary inspection sign-offs to allow Tenant to legally occupy the Expansion Premises or (ii) the date Tenant or anyone claiming under or through Tenant shall occupy the Expansion Premises. The estimated Effective Date is the target substantial completion date shown in the project schedule attached as Exhibit C.
3.5 From and after the Effective Date, the following shall be effective:
a. Landlord shall lease to Tenant and Tenant shall hire from Landlord the Expansion Premises as shown on Exhibit A attached hereto and made part hereof.
d. The Demised Premises, demised premises and Premises shall be defined as 24,337 gross rentable square feet consisting of 14,196 gross rentable square feet on the thirty-fifth (35th) floor and 10,141 gross rentable square feet on the thirty-sixth (36th) floor of the Building and the Lease shall be deemed amended accordingly.
c. In addition to the Basic Annual Rent payable applicable to the Existing Premises, Tenant shall pay Landlord Basic Annual Rent applicable to the Expansion Premises which shall accrue as follows and paragraph (h) of the Reference Page to the Lease shall be deemed amended accordingly:
Term |
|
Basic Annual Rate |
|
Monthly Installments |
|
Annual Per Rentable |
| |||
Effective Date through and 06/30/13 |
|
$ |
334,653.00 |
|
$ |
27,887.75 |
|
$ |
33.00 |
|
July 1, 2013 - June 30, 2014 |
|
$ |
354,935.00 |
|
$ |
29,577.92 |
|
$ |
35.00 |
|
July 1, 2014 - June 30, 2016 |
|
$ |
375,217.00 |
|
$ |
31,268.08 |
|
$ |
37.00 |
|
For the remainder of the Term |
|
$ |
385,358.00 |
|
$ |
32,113.17 |
|
$ |
38.00 |
|
Notwithstanding the foregoing, provided that this Lease is in full force and effect and Tenant is not in default beyond any applicable notice and cure period, Tenant shall have no obligation to pay the Monthly Installments of Basic Annual Rent applicable to the Expansion Premises for the first (1st) and second (2nd) full calendar months of the Term applicable to the Expansion Premises. Tenant shall remain liable for the Monthly Installments of Basic Annual Rent with respect to the Existing Premises for such months.
If the Effective Date is a day other than the first day of a calendar month, then the Monthly Installment of Basic Annual Rent payable by Tenant for such month shall be prorated at the same rental rate payable for the first (1st) Monthly Installment listed above.
d. Tenants Tax Share applicable to the Expansion Premises shall be .84% and paragraph (i) of the Reference Page to the Lease shall be deemed supplemented accordingly. Tenants Expense Share applicable to the Expansion Premises shall be .87% and paragraph (k) of the Reference Page to the Lease shall be deemed supplemented accordingly.
e. Tenant shall pay to Landlord as Additional Rent Tenants Tax Share and Tenants Expense Share applicable to the Expansion Premises of the cost to Landlord for each of the categories set forth in Article 3 Additional Rent of the Lease above the current Base Tax Year and Base Operating Year, as applicable. Tenant shall continue to pay Landlord Tenants Tax Share and Tenants Expense Share applicable to the Existing Premises of Taxes and Operating Expenses pursuant to Article 3 of the Lease.
f. Tenants Electricity Share for the Expansion Premises shall be deemed to be 33% and Paragraph (q) of the Reference Page to the Lease shall be deemed supplemented accordingly and Tenant shall pay its Electric Share applicable to the Expansion Premises in accordance with Article 4 Electricity of the Lease. Tenants Electricity Share for the Existing Premises shall remain unchanged and Tenant shall pay the cost of electricity consumed within the demised premises in accordance with Article 4 Electricity of the Lease.
g. Tenants Chilled Water Share for the Expansion Premises shall be deemed to be 33% and Paragraph (u) of the Reference Page to the Lease shall be deemed supplemented accordingly and Tenant shall pay its Chilled Water Share applicable to the Expansion Premises in accordance with Article 21 Services and Equipment of the Lease. Tenants Chilled Water Share for the Existing Premises shall remain unchanged and Tenant shall pay the cost of chilled water consumed within the demised premises in accordance with Article 21 Services and Equipment of the Lease.
h. The number of Tenants Vehicles shall be increased to sixteen (16) and Paragraph (o) of the Reference Page to the Lease shall be deemed amended accordingly.
3.6 |
The Term applicable to the Existing Premises shall be extended for a period commencing on July 1, 2016 and expiring at 11:59 p.m. on the New Expiration Date (Extension Term) and paragraphs (f) and (g) of the Reference Page to the Lease shall be deemed amended accordingly. |
|
|
3.7 |
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the Existing Premises in its AS-IS condition for the Extension Term, as defined herein, under the terms and conditions set forth herein. Landlord shall have no obligation to perform any tenant improvement work in the Existing Premises except as referenced to in Exhibit B of this Third Amendment. |
|
|
3.8 |
Commencing on July 1, 2016, the following shall be effective: |
a. |
The Basic Annual Rent applicable to the Existing Premises shall be as follows and paragraph (h) of the Reference Page to the Lease shall be deemed amended accordingly: |
Term |
|
Basic Annual Rent |
|
Monthly |
|
Annual |
|
Sq. |
|
Per |
| |||
July 1, 2016 New Expiration Date |
|
$ |
539,448.00 |
|
$ |
44,954.00 |
|
$ |
38.00 |
|
|
|
|
|
b. |
Tenant shall continue to pay Landlord Tenants Tax Share and Tenants Expense Share applicable to the Existing Premises of Taxes and Operating Expenses pursuant to Article 3 Additional Rent of the Lease. |
|
|
c. |
Tenant shall continue to pay Landlord Tenants Electric Share of electricity consumed within the Existing Premises in accordance with Article 4 Electricity of the Lease. |
|
|
d. |
Tenant shall continue to Landlord Tenants Chilled Water Share chilled water consumed within the Existing Premises in accordance with Article 21 Services and Equipment of the Lease. |
3.9 |
Article 45 of the Lease shall remain in full force and effect and shall apply to both the Existing Premises and Expansion Premises. Tenant shall have no right to exercise such Option to Renew with respect to the Existing Premises or Expansion Premises separately. |
|
|
3.10 |
No later than thirty (30) days after the determination of the Effective Date, the parties shall agree to memorialize the Effective Date in writing. |
|
|
3.11 |
Tenant and Landlord each represent and warrant to the other that no broker brought about this transaction, except Cushman & Wakefield of New Jersey, Inc., and the parties agree to indemnify and hold each other harmless from any and all claims of any other broker other than Tenants Broker arising out of or in connection with negotiations of, or entering into of, this Agreement. |
|
|
3.12 |
Tenant agrees not to disclose the terms, covenants, conditions or other facts with respect to this Agreement, including the Basic Annual Rent and Additional Rent, to any person, corporation, partnership, association, newspaper, periodical or other entity, except to Tenants employees, accountants or attorneys (who shall also be required to keep the terms of this Agreement confidential) or as required by law. This non-disclosure and confidentiality agreement will be binding upon Tenant without limitation as to time, and a breach of this paragraph will constitute a material breach under this Agreement and the Lease. In addition, Tenants employees, contractors, etc. shall keep any of the terms and conditions of this Agreement, including any billing statements and/or any backup supporting those statements, confidential. |
|
|
3.13 |
Tenant hereby represents to Landlord that to its knowledge (i) there exists no default under the Lease either by Landlord or Tenant; (ii) Tenant is entitled to no credit, free rent, other than the two (2) month Tenant is entitled to under this Third Amendment or other offset or abatement of the rents due under the Lease; and (iii) currently there exists no offset, defense or counterclaim to Tenants obligation under the Lease. |
3.14 |
Except as expressly amended herein, the Lease dated February 9, 2011, as amended herein, shall remain in full force and effect as if the same had been set forth in full herein, and Landlord and Tenant hereby ratify and confirm all of the terms and conditions thereof. |
|
|
3.15 |
This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. |
|
|
3.16 |
Each party agrees that it will not raise or assert as a defense to any obligation under the Lease or this Agreement or make any claim that the Lease or this Agreement is invalid or unenforceable due to any failure of this document to comply with ministerial requirements including, but not limited to, requirements for corporate seals, attestations, witnesses, notarizations, or other similar requirements, and each party hereby waives the right to assert any such defense or make any claim of invalidity or unenforceability due to any of the foregoing. |
This Agreement may be executed in multiple counterparts, each of which, when assembled to include an original signature for each party contemplated to sign this Agreement, will constitute a complete and fully executed original. All such fully executed counterparts will collectively constitute a single agreement. Tenant expressly agrees that if the signature of Landlord and/or Tenant on this Agreement is not an original, but is a digital, mechanical or electronic reproduction (such as, but not limited to, a photocopy, fax, e-mail, PDF, Adobe image, JPEG, telegram, telex or telecopy), then such digital, mechanical or electronic reproduction shall be as enforceable, valid and binding as, and the legal equivalent to, an authentic and traditional ink-on-paper original wet signature penned manually by its signatory.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands and seals the date and year first above written, and acknowledge one to the other that they possess the requisite authority to enter into this transaction and to sign this Agreement.
LANDLORD:
101 HUDSON LEASING ASSOCIATES | ||||||||
By: |
MC Hudson Holding L.L.C., general partner | |||||||
|
By: |
Mack-Cali Realty, L.P., sole member | ||||||
|
By: |
Mack-Cali Realty Corporation, general partner | ||||||
| ||||||||
|
By: |
/s/ Christopher M. DeLorenzo |
| |||||
|
|
Christopher M. DeLorenzo | ||||||
|
|
Vice President of Leasing | ||||||
|
||||||||
| ||||||||
TENANT: | ||||||||
| ||||||||
OPTIMER PHARMACEUTICALS, INC. | ||||||||
| ||||||||
By: |
/s/ John Prunty |
| ||||||
|
Name: |
John Prunty |
| |||||
|
(please print) |
| ||||||
|
Title: |
Chief Financial Officer |
| |||||
|
(please print) |
| ||||||
EXHIBIT B
LANDLORDS WORK
NOTES
RE: Workletter Agreement for office space on the 36th floor at 101 Hudson Street, Jersey City, New Jersey.
September 30, 2011
TENANT:
OPTIMER PHARMACEUTICALS, INC.
You (Tenant) and we (Landlord) are executing a written lease amendment (Amendment), covering the space referred to above, as more particularly described in the Amendment (Premises).
With respect to the construction work being conducted in or about the Expansion Premises, each party agrees to be bound by the approval and actions of their respective construction representatives. Unless changed by written notification, the parties hereby designate the following individuals as their respective construction representatives:
FOR LANDLORD: |
|
FOR TENANT: |
|
|
|
|
|
|
c/o Mack-Cali Realty Corporation |
|
|
|
|
|
|
|
|
To induce Tenant to enter into the Agreement (which together with the Lease are hereby incorporated by reference) and in consideration of the covenants hereinafter contained, Landlord and Tenant mutually agree as follows:
1. Landlord, at its sole cost and expense, shall have its architect prepare the following architectural and mechanical drawings and specifications based upon the sketch layout supplied to Landlord by Tenant, attached hereto and made a part hereof, upon full execution of this Lease.
a. Architectural drawings and specifications for Tenants partition layout, reflected ceiling, placement of electrical outlets and other installations for the work to be done by Landlord.
b. Mechanical plans and specifications where necessary for installation of air conditioning systems, ductwork and heating.
All such plans and specifications are expressly subject to Landlords written approval, which Landlord covenants it will not unreasonably withhold.
2. Landlord agrees to cause the partition plan, electrical plan, HVAC zoning plan and the reflected ceiling plan to be delivered to Tenant on or before the fifteenth (15th) day after Tenants approved sketch layout. Tenant agrees to approve said plans by initialing and returning same to Landlord within five (5) business days of receipt of each plan. Upon approval of the plans initialed by Tenant, Landlord shall file said plans with the appropriate governmental agencies.
3. Landlord agrees, at its sole cost and expense and without charge to Tenant (unless otherwise provided), to do the work in the Expansion Premises as shown on the plans attached hereto and described on the Description of Materials schedule attached hereto which shall hereinafter be referred to as The Work. The Work shall include any and all costs to install necessary public corridors and demising walls as necessary and as shown in Exhibit A Floor Plan. The Work shall include Landlords general conditions and overhead amounts indicated
on the Description of Materials. Building Standard shall mean the type and grade of material, equipment and/or device designated by Landlord as standard for the Building. All items are Building Standard unless otherwise noted. The provisions of Article 6 of the Lease shall apply to any alterations made to the Expansion Premises after the initial work to be performed herein. Landlord shall deliver the Expansion Premises to Tenant on the Effective Date with all building systems servicing the Expansion Premises in proper working order. Landlord shall warranty that the Work be free of defects for a period of one (1) year from the Effective Date, except to the extent any portion of the Work is damaged or becomes defective as a result of any misuse or neglect by Tenant.
4. Intentionally omitted.
5. All low partitioning, workstation modules, bank screen partitions and prefabricated partition systems shall be furnished and installed by Tenant.
6. The installation or wiring of telephone and computer (data) outlets is not part of The Work. Tenant shall bear the responsibility to provide its own telephone and data systems at Tenants sole cost and expense. Upon expiration or sooner termination of the Lease, Tenant shall remove all telephone and data equipment from the Expansion Premises upon vacation of same. Notwithstanding the foregoing, Tenant shall not be required to remove any of its wiring at the expiration or earlier termination of the Lease.
7. Changes in The Work, if necessary or requested by the Tenant, shall be accomplished after submission of Tenants final approved sketch layout, , by written agreement between Landlord and Tenant hereinafter referred to as a Change Order and without invalidating any part of the Lease or Workletter Agreement. Each Change Order shall be prepared by Landlord and signed by both Tenant and Landlord stating their agreement upon all of the following:
a. The scope of the change in The Work; and
b. The cost of the change; and
c. Manner in which the cost will be paid or credited; and
d. The estimated extent of any adjustment to the Effective Date (if any) as a result of the change in The Work.
Each and every Change Order shall be signed by Landlords and Tenants respective construction representatives. In no event shall any Change Order(s) be permitted without such authorizations. A 7.5% supervision plus 7.5% overhead charge will be added to the cost of any Change Order and to the cost of any other work to be performed by Landlord in the Expansion Premises after Landlords completion of The Work. If Tenant shall fail to approve any such Change Order within one (1) week, the same shall be deemed disapproved in all respects by Tenant and Landlord shall not be authorized to proceed thereon. Any increase in the cost of The Work or the change in The Work stated in a Change Order which results from Tenants failure to timely approve and return said Change Order shall be paid by the Tenant. Tenant agrees to pay to Landlord the cost of any Change Order promptly upon receipt of an invoice for same.
8. If Tenant elects to use the architect suggested by Landlord, this architect becomes the Tenants agent solely with respect to the plans, specifications and The Work. If any change is made after completion of schematic drawings and prior to completion of final construction documents which result in a Change Order and additional costs, such costs shall be the responsibility of the Tenant.
9. Ten (10) business days prior to Tenants occupancy of the Expansion Premises, Tenant shall be provided the opportunity by Landlord to identify and list any portion of The Work which does not conform to this Workletter Agreement (Punch List). The Landlord shall review with the Tenant all of the items so listed and correct or complete any portion of The Work which fails to conform to the requirements of this Workletter Agreement.
10. The terms contained in the Agreement (which include all exhibits attached thereto) constitute Landlords agreement with Tenant with respect to the work to be performed by Landlord on Tenants behalf. If the architectural drawings are in conflict with the terms of the Agreement, then the Lease shall be deemed the controlling document.
11. All materials and installations constructed for the Tenant within the Expansion Premises shall become the property of the Landlord upon installation. No refund, credit or removal of said items is to be permitted at the termination of the Lease. Items installed that are not integrated in any such way with other common building materials do not fall under this provision (e.g. shelving, furniture, etc.).
12. It is agreed that notwithstanding the date provided in the Lease for the Effective Date, the term applicable to the Expansion Premises shall not commence until Landlord has substantially completed all work to be performed by Landlord in the Expansion Premises as hereinbefore set forth in Paragraph 3 above and as set forth in the Amendment; provided, however, that if Landlord shall be delayed in substantially completing said work as a result of:
a. Tenants failure to approve the plans and specifications in accordance with Paragraph 2 hereof; or
b. Tenants failure to furnish interior finish specifications, i.e., paint colors, carpet selection, etc., to Landlord by the fifth (5th) working day after Landlord has approved the plans and specifications submitted by Tenant referred to in Paragraph 2 hereof; or
c. Tenants request for materials, finishes or installations other than Landlords Building Standard; or
d. Tenants changes in The Work; or
e. The performance of a person, firm, partnership or corporation employed by Tenant and the completion of the said work by said person, firm, partnership or corporation;
then the Effective Date of the term of said Lease shall be accelerated by the number of days of such delay and Tenants obligation to pay Basic Annual Rent and Additional Rent shall commence as of such earlier date.
13. Landlord shall permit Tenant and its agents to enter the Expansion Premises at least two (2) weeks prior to the Effective Date in order that Tenant may perform through its own non-union contractors (or union contractor if required by Landlord) such other work and decorations as Tenant may desire at the same time Landlords contractors are working in the Expansion Premises. The foregoing license to enter prior to the Effective Date, however, is conditioned upon:
a. Tenants workmen and mechanics working in harmony and not interfering with the labor employed by Landlord, Landlords mechanics or contractors or by any other Tenant or its mechanics or contractors; and
b. Tenant providing Landlord with evidence of Tenants contractors and subcontractors carrying such workers compensation, general liability, personal and property insurance as required by law and in amounts no less than the amounts set forth in Article 9 of the Lease. If at any time such entry shall cause disharmony or interference therewith, this license may be withdrawn by Landlord upon forty-eight (48) hours written notice to Tenant. Such entry shall be deemed controlled by all of the terms, covenants, provisions and conditions of said Lease, except as to the covenant to pay Basic Annual Rent and Additional Rent. Except in the event of Landlord, its agents or employees gross negligence or intentional misconduct, Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenants decorations or installations so made prior to the Effective Date, the same being solely at Tenants risk.
14. No part of the Expansion Premises shall be deemed unavailable for occupancy by the Tenant, nor shall any work which the Landlord is obligated to perform in such part of the Expansion Premises be deemed incomplete for the purpose of any adjustment of Basic Annual Rent payable hereunder, solely due to the non-completion of details of construction, decoration or mechanical adjustments which are minor in character and the non-completion of which does not materially interfere with the Tenants beneficial use and occupancy of such part of the Expansion Premises.
15. Tenant is responsible for all costs related to the repairs and maintenance of any additional or supplemental HVAC systems, appliances and equipment installed to meet Tenants specific requirements. Tenant shall purchase a service contract for this equipment so that the equipment is covered by such service contract each year of the term of the Lease and shall forward a copy of such contract to Landlord.
16. If construction is to occur in a space occupied by Tenants employees, Tenant shall be liable for all costs associated with a delay if Tenant shall fail to comply with a submitted construction schedule to relocate personnel, furniture, or equipment. Tenant shall relocate such personnel, furniture and equipment at its sole cost and expense. In the event Tenant fails to comply with a submitted construction schedule following notice thereof by Landlord, and to the extent. Landlords contractors are delayed as a result thereof, Tenant shall be responsible for the costs, which shall include, but not be limited to the following:
a. reasonable and actual cost of construction workers time wasted (upon reasonable evidence thereof); and
b. reasonable and actual cost of any overtime work necessary to meet schedule deadlines; and
17. This workletter is based on the quantities and specifications listed herein. Any change to these specifications shall require the recalculation of the construction costs. Such recalculation shall not negate any other section of this Lease.
18. All sums payable by Tenant to Landlord in connection with this Exhibit B and any other work to be performed by Landlord within the Expansion Premises and billable to Tenant shall be deemed Additional Rent.
-END-
EXHIBIT B
09/26/11
8/22/2011 rev 9/8/11 rev 9/23/11 |
|
|
Drwg. Date |
Worldetter Agreement between Lessor/Landlord and Lessee/Tenant for the construction of the Premises in the Building. The costs for the work stated below are based upon the Description of Materials attached which enumerates the materials and quantities estimated for the Work.
Lessee/Tenant |
Optimer Pharmaceuticals |
|
Type |
OFFICE SPACE |
Lessor/Landlord. |
101 Hudson Leasing Associates LLC |
|
Premises (RSF) |
10,141 |
Building |
101 Hudson Street, Jersey City, NJ |
|
Floor |
36 |
DIVISION |
|
GL# |
|
DESCRIPTION |
|
BUDGET |
|
COST |
| ||
|
|
|
|
|
|
|
|
|
| ||
1.0 |
|
5502 |
|
DESIGN COSTS |
|
$ |
350.00 |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
| ||
1.0 |
|
5510 |
|
GEN. REQ. |
|
$ |
39,366.60 |
|
$ |
3.88 |
|
|
|
|
|
|
|
|
|
|
| ||
1.5 |
|
5515 |
|
CASH CONTRIBUTION |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||
1.0 |
|
5524 |
|
MISCELLANEOUS |
|
$ |
9,490.50 |
|
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
| ||
2.0 |
|
5505 |
|
DEMOLITION |
|
$ |
26,917.00 |
|
$ |
2.65 |
|
|
|
|
|
|
|
|
|
|
| ||
6.0 |
|
5561 |
|
MILLWORK |
|
$ |
10,400.00 |
|
$ |
1.03 |
|
|
|
|
|
|
|
|
|
|
| ||
8.1 |
|
5540 |
|
DOORS & HARDWARE |
|
$ |
10,980.00 |
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
| ||
8.4 |
|
5570 |
|
ALUMINUM, GLASS & GLAZING |
|
$ |
10,750.00 |
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
| ||
9.3 |
|
5530 |
|
PARTITIONS |
|
$ |
21,275.00 |
|
$ |
2.10 |
|
|
|
|
|
|
|
|
|
|
| ||
9.5 |
|
5542 |
|
ACOUSTICAL CEILINGS |
|
$ |
38,250.00 |
|
$ |
3.77 |
|
|
|
|
|
|
|
|
|
|
| ||
9.7 |
|
5565 |
|
PAINTING & VINYL WALL COVERING |
|
$ |
10,390.00 |
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
| ||
9.9 |
|
5564 |
|
FLOORING & CARPET |
|
$ |
24,380.00 |
|
$ |
2.40 |
|
|
|
|
|
|
|
|
|
|
| ||
15.3 |
|
5574 |
|
FIRE SUPPRESSION |
|
$ |
17,000.00 |
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
| ||
15.4 |
|
5532 |
|
PLUMBING |
|
$ |
5,160.00 |
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
| ||
15.5 |
|
5535 |
|
HVAC |
|
$ |
43,737.75 |
|
$ |
4.31 |
|
|
|
|
|
|
|
|
|
|
| ||
16.0 |
|
5533 |
|
ELECTRICAL |
|
$ |
64,513.15 |
|
$ |
6.36 |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
5572 |
|
FIRE ALARM |
|
$ |
7,500.00 |
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
Subtotal |
|
$ |
340,460.00 |
|
$ |
33.57 |
|
|
|
|
|
5% Contingency |
|
$ |
17,023.00 |
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
SUBTOTAL |
|
$ |
357,483.00 |
|
$ |
35.25 |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
5% Overhead |
|
$ |
17,874.15 |
|
$ |
1.76 |
|
|
|
|
|
Total Cost |
|
$ |
375,357.15 |
|
$ |
37.01 |
|
DESCRIPTION OF MATERIALS
DESIGN COSTS - 5502 |
|
Units |
|
Quantity |
| |
|
Architect |
|
SF |
|
0 |
|
|
Structural Engineer |
|
HR |
|
0 |
|
|
Fire Inspection |
|
EA |
|
0 |
|
|
Printing Costs |
|
EA |
|
100 |
|
|
|
|
|
|
| |
GENERAL REQUIREMENTS - 5510 |
|
Units |
|
Quantity |
| |
* |
Fire extinguishers 10 # ABC dry chemical |
|
EA |
|
0 |
|
|
Dumpsters |
|
EA |
|
6 |
|
|
Permits, inspections, and Certificate of Occupancy |
|
SF |
|
10,141 |
|
|
Expeditor |
|
Allowance |
|
1 |
|
|
Contingency |
|
SF |
|
10,141 |
|
|
Fire Inspection |
|
EA |
|
0 |
|
|
Temp. Services and Protection |
|
SF |
|
10,141 |
|
|
Construction Clean up |
|
SF |
|
10,141 |
|
|
Final Clean up, windows, floors |
|
SF |
|
10,141 |
|
|
Directory Signs |
|
LS |
|
0 |
|
EXHIBIT B
09/26/11
CASH CONTRIBUTION - 5515 |
|
|
|
|
| |
|
Cash payment to Lessee for T.I. allowance |
|
SF |
|
0 |
|
|
|
|
|
|
| |
MISCELLANEOUS - 5524 |
|
Units |
|
Quantity |
| |
* |
Clean and patch window blinds |
|
EA |
|
48 |
|
|
Provide and install new window blinds |
|
EA |
|
0 |
|
|
Patch Fireproofing |
|
SF |
|
10,141 |
|
* |
Patch Finishes in corridor at new entrance |
|
EA |
|
1 |
|
|
Tactile Signage |
|
EA |
|
0 |
|
|
|
|
|
|
|
|
DEMOLITION - 5505 |
|
Units |
|
Quantity |
| |
|
Remove flooring |
|
SF |
|
9000 |
|
|
Remove doors or sidelites |
|
EA |
|
14 |
|
|
Remove film from glass door and sidelite |
|
EA |
|
1 |
|
|
Remove Partitions |
|
LF |
|
304 |
|
|
Remove Ceiling Tile Only |
|
SF |
|
0 |
|
|
Remove Ceiling Tile and Grid |
|
SF |
|
9000 |
|
|
Mechanical Room demolition |
|
LS |
|
1 |
|
|
Remove millwork |
|
LF |
|
50 |
|
|
|
|
|
|
|
|
CABINETS & MILLWORK - 5561 |
|
Units |
|
Quantity |
| |
* |
Base cabinets with Formica top |
|
LF |
|
16 |
|
* |
Upper cabinets |
|
LF |
|
16 |
|
* |
Counter top with undercounter supports |
|
LF |
|
0 |
|
* |
Five shelf storage closet 5 wide |
|
LF |
|
0 |
|
* |
Wood frame for 2x7 sidelight |
|
EA |
|
0 |
|
* |
Wood frame for wood door |
|
EA |
|
0 |
|
* |
Counter top on file cabinets |
|
LF |
|
0 |
|
* |
4 high oak wall base |
|
LF |
|
0 |
|
|
Closet Shelf and Rod |
|
LF |
|
0 |
|
* |
Chair Rail |
|
LF |
|
0 |
|
|
Crown Molding |
|
LF |
|
0 |
|
* |
Corian Counter top |
|
LF |
|
0 |
|
|
Stone Counter Top |
|
LF |
|
0 |
|
|
Vanity counter tops |
|
LF |
|
|
|
|
Overtime Allowance |
|
Allowance |
|
0 |
|
|
Furnish and install motorized projection screen |
|
EA |
|
0 |
|
* |
File room adjustable shelves |
|
LF |
|
0 |
|
|
|
|
|
|
|
|
DOORS, BUCKS, HARDWARE - 5540 |
|
Units |
|
Quantity |
| |
* |
Secondary entrance door 30 x , 1 hour fire rating. |
|
EA |
|
0 |
|
* |
Interior doors 30 x70 xl 3/4 SC stain grade HMB |
|
EA |
|
9 |
|
* |
Pair Interior doors 30 x 70 x l 3/4 SC stain grade HMB sliding closet doors |
|
EA |
|
0 |
|
|
Full height interior SC 3 wide door HMB |
|
EA |
|
0 |
|
|
Pair interior doors 3 wide SC HMB |
|
EA |
|
0 |
|
* |
ADA Lockset |
|
EA |
|
0 |
|
* |
ADA Passage/latch set |
|
EA |
|
0 |
|
* |
Exit bar on secondary entrance door |
|
EA |
|
0 |
|
* |
Key locks |
|
EA |
|
0 |
|
* |
Door closers |
|
EA |
|
0 |
|
* |
Door stops |
|
EA |
|
9 |
|
* |
Re-install existing doors |
|
EA |
|
0 |
|
* |
Coat hook |
|
EA |
|
0 |
|
* |
3x70 wood door with hollow metal sidelite frame |
|
EA |
|
0 |
|
* |
Full height pair of doors with HM frame |
|
EA |
|
0 |
|
* |
Full height bifold doors and frame |
|
EA |
|
0 |
|
* |
7, high sliding wood doors and frame |
|
EA |
|
0 |
|
* |
Folding partition including installation and steel |
|
SF |
|
0 |
|
* |
Wood door with wood sidelite frame |
|
EA |
|
0 |
|
* |
Wood entrance doors and wood frame full height |
|
EA |
|
0 |
|
|
Replace exterior HM door and frame |
|
EA |
|
0 |
|
|
|
|
|
|
|
|
ALUMINUM, GLASS & GLAZING - 5570 |
|
Units |
|
Quantity |
| |
* |
Pair of Herculite doors |
|
EA |
|
1 |
|
* |
Single Herculite door |
|
EA |
|
0 |
|
* |
Pair of aluminum and glass doors |
|
EA |
|
0 |
|
* |
Single aluminum and glass door |
|
EA |
|
0 |
|
* |
Butt glazed glass sidelite 3 wide |
|
EA |
|
0 |
|
* |
Aluminum and glass sidelight 2 wide |
|
EA |
|
5 |
|
|
3/8 tinted glass butt glazed |
|
SF |
|
0 |
|
* |
Butt glazed partition 1/2 glass |
|
LF |
|
0 |
|
|
One way mirrors |
|
SF |
|
0 |
|
|
Alur partition system all glass |
|
LF |
|
0 |
|
* |
Construct aluminum railing on new ramp |
|
LF |
|
0 |
|
* |
2 wide glass sidelite in HM frame by others |
|
EA |
|
0 |
|
|
|
|
|
|
|
|
PARTITIONS - 5530 |
|
Units |
|
Quantity |
| |
* |
21/2 metal studs 24 OC; 5/8 fire rated gypsum board to U/S Slab (with SAB) |
|
LF |
|
60 |
|
* |
2 1/2 metal studs 24 OC; 5/8 gypsum board to U/S Ceiling (with SAB) |
|
LF |
|
0 |
|
* |
2 1/2 metal studs 24 OC; 5/8 gypsum board to U/S Ceiling (w/ No SAB) |
|
LF |
|
148 |
|
* |
18 ga metal studs 16 OC; 5/8 fire rated gypsum board each side; 25 high demise wall (w/o SAB). |
|
LF |
|
0 |
|
* |
21/2 metal studs 24 OC; 5/8 gypsum board to 6 inches above hung ceiling |
|
LF |
|
0 |
|
|
Low drywall partition 60 high |
|
LF |
|
0 |
|
* |
Finish on Mullions |
|
EA |
|
0 |
|
* |
Soffit over files or cabinets |
|
LF |
|
0 |
|
* |
Metal stud soffit and blocking work for glass partitions |
|
LF |
|
0 |
|
* |
Box Columns |
|
EA |
|
0 |
|
* |
Scar Patch |
|
MH |
|
24 |
|
|
Construct Drywall Ceiling |
|
SF |
|
0 |
|
|
Top fill for demising partition |
|
LF |
|
0 |
|
* |
Soffit to slab |
|
LF |
|
0 |
|
|
Millwork Blocking |
|
LF |
|
32 |
|
|
Entrance door and Sidelite Blocking |
|
EA |
|
6 |
|
|
Plywood panel 4x8 for telephone room |
|
EA |
|
2 |
|
|
Glass partition blocking |
|
LF |
|
0 |
|
* |
Cut opening for new door or sidelite |
|
EA |
|
3 |
|
* |
Close up opening |
|
EA |
|
2 |
|
|
|
|
|
|
|
|
ACOUSTICAL CEILINGS - 5542 |
|
Units |
|
Quantity |
| |
* |
Repair ceiling grid |
|
SF |
|
0 |
|
* |
Repair & replace ceiling grid and tiles as necessary |
|
SF |
|
0 |
|
* |
New 2x4 Second look II tile and grid |
|
SF |
|
9000 |
|
* |
New 2x4 cortega tile and grid |
|
SF |
|
0 |
|
* |
New 2x2 Cimis Tile and grid |
|
SF |
|
0 |
|
* |
Patch grid at partitions |
|
LF |
|
0 |
|
* |
Replace Second look II tile only |
|
SF |
|
0 |
|
* |
Replace cortega tile only |
|
SF |
|
0 |
|
* |
Replace cimis tile only |
|
SF |
|
0 |
|
|
Overtime Allowance |
|
Allowance |
|
0 |
|
* |
Add sound attenuation blankets above ceilings |
|
SF |
|
0 |
|
|
|
|
|
|
|
|
PAINTING & VINYL WALL COVERING 5565 |
|
Units |
|
Quantity |
| |
* |
Paint - 2 coats flat latex |
|
SF |
|
12600 |
|
* |
Paint 2 coats flat latex on drywall ceiling |
|
SF |
|
0 |
|
* |
Repaint doors |
|
EA |
|
11 |
|
|
Stain an existing stained door |
|
EA |
|
0 |
|
* |
Stain or paint new doors |
|
EA |
|
9 |
|
* |
Paint hollow metal frames |
|
EA |
|
20 |
|
* |
Vinyl wall covering |
|
SF |
|
0 |
|
* |
Paint ceiling grid |
|
SF |
|
0 |
|
* |
Paint sidelite frames |
|
EA |
|
0 |
|
* |
Paint sill and drapery pocket |
|
LF |
|
0 |
|
|
Prep existing walls for new finishes |
|
SF |
|
0 |
|
* |
Remove existing VWC and prepare wall |
|
SF |
|
0 |
|
|
Overtime Allowance |
|
Allowance |
|
0 |
|
* |
Stain chair rail |
|
LF |
|
0 |
|
* |
Stain wood base |
|
LF |
|
0 |
|
|
|
|
|
|
|
|
FLOORING & CARPET - 5564 |
|
Units |
|
Quantity |
| |
* |
Floor preparation |
|
SF |
|
9000 |
|
* |
Vinyl cove base |
|
LF |
|
1400 |
|
* |
Rubber cove base |
|
LF |
|
0 |
|
* |
Vinyl composition die |
|
SF |
|
360 |
|
* |
Carpet to be building standard $15.00 allowance per yard, including a 10% waste factor |
|
SY |
|
1060 |
|
|
Carpet to be building standard carpet tiles S30 allowance per yard, including 10% waste |
|
SY |
|
0 |
|
* |
Carpet base |
|
LF |
|
0 |
|
* |
Upcharge for tackless installation including pad |
|
SY |
|
0 |
|
* |
Carpet borders |
|
LF |
|
0 |
|
* |
30 oz, cut pile carpet glue down installation |
|
SY |
|
0 |
|
* |
Carpet in existing open office area to match new |
|
SY |
|
0 |
|
* |
Wall base in existing open space |
|
LF |
|
0 |
|
|
Ceramic Tile Floor including Base |
|
SF |
|
0 |
|
|
Ceramic Tile Wall |
|
SF |
|
0 |
|
|
Marble or Granite Floor including Base |
|
SF |
|
0 |
|
* |
Upcharge for overtime and relocating furniture |
|
SY |
|
0 |
|
* |
Patch Carpet at new partition and door opening |
|
LF |
|
0 |
|
|
|
|
|
|
|
|
FIRE SUPPRESSION SYSTEM - 5574 |
|
Units |
|
Quantity |
| |
* |
Additional heads above building standard (allowance 1 head per 144 square feet) |
|
EA |
|
0 |
|
* |
Plans and permits including calculatons |
|
EA |
|
1 |
|
* |
Relocate existing heads |
|
EA |
|
0 |
|
* |
Install new head from existing pipe centered in tile |
|
EA |
|
70 |
|
* |
Install new head aligned in tile from existing pipe |
|
EA |
|
0 |
|
|
Overtime Allowance |
|
Allowance |
|
0 |
|
* |
Minimum Job |
|
EA |
|
0 |
|
EXHIBIT B
PLUMBING - 5532 |
|
Units |
|
Quantity |
| |
* |
Sink with rough plumbing, hot and cold water |
|
EA |
|
0 |
|
* |
New drinking fountain |
|
EA |
|
0 |
|
* |
Relocate drinking fountain |
|
EA |
|
0 |
|
* |
Private toilet |
|
EA |
|
0 |
|
* |
Cold water line for coffee machine |
|
EA |
|
1 |
|
* |
Floor Drain |
|
EA |
|
0 |
|
* |
Relocate sink and hot water heater |
|
EA |
|
1 |
|
* |
Hook up refrigerator mounted ice maker |
|
EA |
|
1 |
|
|
Hook up dishwasher |
|
EA |
|
0 |
|
|
Remove and reset plumbing fixtures for tile |
|
EA |
|
0 |
|
* |
Demolish existing plumbing |
|
EA |
|
0 |
|
HVAC - 5535 |
|
Units |
|
Quantity |
| |
* |
BIdg Std HVAC distribution system |
|
SF |
|
10,141 |
|
* |
Relocate diffuser and 10 of flex duct |
|
EA |
|
0 |
|
* |
Furnish diffuser and 10of flex duct |
|
EA |
|
0 |
|
* |
Furnish and install return air grille |
|
EA |
|
0 |
|
* |
Relocate VAV Box |
|
EA |
|
0 |
|
* |
Furnish and install new VAV box |
|
EA |
|
2 |
|
* |
Exhaust fan with duct work, connections and |
|
EA |
|
0 |
|
* |
Exhaust fan ceiling mounted |
|
EA |
|
0 |
|
* |
Relocate moduline diffuser |
|
EA |
|
0 |
|
* |
Install moduline diffuser |
|
EA |
|
0 |
|
* |
Install box mounted thermostat |
|
EA |
|
0 |
|
* |
Install wall mounted thermostat |
|
EA |
|
2 |
|
* |
Relocate box mounted thermostat |
|
EA |
|
0 |
|
* |
Relocate wall mounted thermostat |
|
EA |
|
0 |
|
|
Refurbish existing moduline VAV box |
|
EA |
|
0 |
|
* |
Install new moduline VAV box |
|
EA |
|
0 |
|
* |
Relocate moduline VAV box |
|
EA |
|
0 |
|
* |
Relocate ducted exhaust fan |
|
EA |
|
0 |
|
* |
Relocate ceiling mounted exhaust fan |
|
EA |
|
0 |
|
|
Provide 1 ton HVAC unit |
|
EA |
|
0 |
|
* |
Provide 2 ton HVAC unit |
|
EA |
|
0 |
|
|
Mechanical room demolition |
|
LS |
|
1 |
|
* |
Balance report |
|
SF |
|
10,141 |
|
|
|
|
|
|
|
|
El.ECTRICAL - 5533 |
|
Units |
|
Quantity |
| |
|
DEMOLITION |
|
|
|
|
|
* |
Electrical Demolition |
|
SF |
|
10,141 |
|
|
LIGHT FIXTURES |
|
|
|
|
|
* |
Relocate 2x4fixture |
|
EA |
|
0 |
|
* |
Install new prismatic lens fixture |
|
EA |
|
0 |
|
* |
Install new parabolic lens fixture |
|
EA |
|
135 |
|
|
Install new Indirect light fixture |
|
EA |
|
0 |
|
* |
Relocate hi-hat fixture |
|
EA |
|
0 |
|
* |
Install new hi-hat fixture |
|
EA |
|
0 |
|
* |
Rewire light fixture for new switching |
|
EA |
|
0 |
|
|
Retrofit existing light fixtures |
|
EA |
|
0 |
|
* |
Clean and relamp light fixtures |
|
EA |
|
0 |
|
|
SWITCHES |
|
|
|
|
|
* |
Install single pole switch |
|
EA |
|
10 |
|
* |
Install 3 way switch |
|
EA |
|
2 |
|
* |
Install 600 watt dimmer |
|
EA |
|
0 |
|
* |
Install 4 way switch |
|
EA |
|
0 |
|
|
Occupancy Sensor |
|
EA |
|
0 |
|
|
Occupancy Sensor - Open Areas |
|
EA |
|
0 |
|
|
3 Way Occupancy Sensor Switch |
|
EA |
|
0 |
|
* |
Install fluorescent dimmers |
|
EA |
|
0 |
|
|
EXIT AND EMERGENCY LIGHTS |
|
|
|
|
|
* |
Relocate exit light |
|
EA |
|
0 |
|
* |
Relocate emergency light |
|
EA |
|
0 |
|
* |
Install new exit light |
|
EA |
|
10 |
|
|
Install new Low exit light |
|
|
|
|
|
* |
Install new emergency light |
|
EA |
|
10 |
|
|
CIRCUITS and RECEPTACLES |
|
|
|
|
|
* |
Install wall duplex receptacle |
|
EA |
|
20 |
|
* |
Install wall quad receptacle |
|
EA |
|
0 |
|
* |
Install floor duplex receptacle |
|
EA |
|
1 |
|
* |
Install GFI wall outlet |
|
EA |
|
0 |
|
* |
Install 120V 20 A separate circuit |
|
EA |
|
2 |
|
* |
Install 120V 30 A separate circuit |
|
EA |
|
0 |
|
* |
Install 240V 30 A separate circuit |
|
EA |
|
0 |
|
* |
Install 240V 50 A separate circuit |
|
EA |
|
0 |
|
* |
Install new 200 A 42 circuit low voltage panel |
|
EA |
|
0 |
|
|
MISCELLANEOUS |
|
|
|
|
|
* |
Hook up exhaust fan including switch |
|
EA |
|
0 |
|
* |
Hook up hot water heater |
|
EA |
|
0 |
|
* |
Hook up projection screen including switch |
|
EA |
|
0 |
|
|
Install tenant electric check meter |
|
EA |
|
0 |
|
* |
Install power feed for modular partition |
|
EA |
|
3 |
|
* |
Install floor power feed for modular partition |
|
EA |
|
3 |
|
* |
Install communications outlet with dragline |
|
EA |
|
0 |
|
* |
Hook up electric strike or lock |
|
EA |
|
0 |
|
* |
Power Requirements for HVAC systems |
|
SF |
|
0 |
|
* |
Disconnect and reconnect modular partitions |
|
LS |
|
0 |
|
|
Mechanical room demolition |
|
LS |
|
1 |
|
* |
Empty Conduit run |
|
LS |
|
1 |
|
|
|
|
|
|
|
|
ALARM- 5572 |
|
Units |
|
Quantity |
| |
|
Relocate Horn/Strobe |
|
EA |
|
0 |
|
|
Install new Horn/Strobe |
|
EA |
|
10 |
|
|
Overtime Allowance |
|
Allowance |
|
0 |
|
|
Relocate manual pull station |
|
EA |
|
0 |
|
|
Install new manual pull station |
|
EA |
|
0 |
|
ASSUMPTIONS AND CLARIFICATIONS:
* Asterisk (*) indicates Building Standard items.
Cross () indicates non-Building Standard items.
The following work is excluded:
Communications Work, Tele/Data
Security and Access Systems
Office Furniture, Equipment, and Appliances
Modular Partitions and Work stations
Overtime except for work in adjacent tenant spaces or public areas of the building
Dishwashers are not allowed
Undercounter ice makers are not allowed
Existing window blinds to be cleaned and repaired as required
Existing space to be demolished as required
Estimate based on drawing SK-3 dated 8/16/11 as prepared by John J. Perkins, PC
Millwork in existing pantry to be removed and plumbing capped
New upper and base cabinets to be installed in new pantry adjacent to toilet
Existing doors, frames and hardware to be reused to the extent possible
New doors, frames and hardware are to match the existing
New pair of Herculite glass doors to be installed at entrance
Film to be removed from existing glass entrance door and sidelite
Existing glass sidelites to remain.
New glass sidlites to match the existing are to be installed at new offices and conference room
Demising partition is existing except at new entrance door. Demising partition to be deck high insulated and
Interior drywall partitions to be ceiling high without sound insulation except as noted below
Conference room pqartition to be deck high and insulated
Two sheets of plywood to be mounted in telephone room to mount communications equipment
Existing ceiling tile and grid to be removed and replaced with building standard 2x4 Second Look tile in star
New and existing drywall surfaces to be painted, Vinyl wall covering is not included
Wood doors and hollow metal frames are to be finished to match the existing
IT closet to receive vinyl composition tile and vinyl cove base
Break room and pantry to receive vinyl composition tile and vinyl cove base
Ceramic floor tile in private toilet to remain
Remainder of the space to receive building standard loop pile carpet
Provide new sink and trim in pantry
Fire sprinklers to be added or relocated as required for new layout
Building standard HVAC system to be modified as needed for new tenant layout
CEO office to have separate VAV box and wall mounted thermostat
Conference room to have separate VAV box with wall mounted thermostat
No special or supplemental HVAC systems are included. Tenant to confirm requirements
Existing light fixtures to be replaced with deepcell parabolic fixtures 2x4
No special lighting systems or fixtures are included
Duplex wall receptacles to be installed as per tenants requirements
Where possible existing outlets to be reused
Duplex floor receptacle to be installed in conference room
Two dedicated circuit wall receptacles to be installed for office equipment
Power feeds are included for modular partition work stations. An allowance of 3 wall and 3 floor feeds
Exit and emergency lights to be installed as per code requirements
Fire alarm devices to be istalled as per code requirements
Empty conduit run from35th to 36th floor is included
Exhibit C
Optimer Pharmaceuticals |
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Mack-Cali Realty Corp. |
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1 Wed 9/28/11 |
101 Hudson Street, 36th Floor |
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343 Thornall Street |
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Jersey City, NJ |
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Edison, N.J. 08818 |
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Exhibit C
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September | ||||||||||||
ID |
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o |
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Task Name |
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Duration |
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Start |
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Finish |
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8/14 |
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8/21 |
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8/28 |
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9/4 |
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9/11 |
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9/18 |
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9/25 |
1 |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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2 |
|
23 |
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PREPARE SCHEMATIC DESIGN |
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34 days? |
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Tue 8/16/11 |
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Fri 9/30/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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3 |
|
S3 |
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OPTIMER REVIEW AND APPROVAL OF SCHEMATIC |
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5 days? |
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Mon 10/3/11 |
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Fri 10/7/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
S3 |
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PREPARE CONSTRUCTION DOCUMENTS |
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10 days? |
|
Mon 10/10/11 |
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Fri 10/21/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
S3 |
|
PREPARE MEP ENGINEERED DRAWINGS |
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5 days? |
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Mon 10/24/11 |
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Fri 10/28/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
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JC DOB PLAN REVIEW |
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25 days? |
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Mon 10/31/11 |
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Fri 12/2/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
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ACQUIRE JC DOB PERMITS |
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5 days? |
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Mon 12/5/11 |
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Fri 12/9/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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8 |
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|
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CONSTRUCTION |
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45 days |
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Mon 12/12/11 |
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Fri 2/10/12 |
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|
|
|
|
|
|
|
|
|
|
|
|
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9 |
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|
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SUBSTANTIAL COMPLETION |
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1 day? |
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Mon 2/13/12 |
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Mon 2/13/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
S3 |
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PUNCHLIST |
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9 days? |
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Tue 2/14/12 |
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Fri 2/24/12 |
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|
|
|
|
|
|
|
|
|
|
|
|
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Exhibit C
Optimer Pharmaceuticals |
Mack-Cali Realty Corp. |
2 Wed 9/28/11 |
101 Hudson Street, 36th Floor |
343 Thornall Street |
|
Jersey City, NJ |
Edison, N.J. 08818 |
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Exhibit C |
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October |
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November |
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December |
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January |
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February | ||||||||||||||||||||||||||||||||
10/2 |
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10/9 |
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10/16 |
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10/23 |
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10/30 |
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11/6 |
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11/13 |
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11/20 |
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11/27 |
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12/4 |
|
12/11 |
|
12/18 |
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12/25 |
|
1/1 |
|
1/8 |
|
1/15 |
|
1/22 |
|
1/29 |
|
2/5 |
|
2/12 |
|
2/19 |
Exhibit 10.5
OPTIMER PHARMACEUTICALS, INC.
RESTRICTED STOCK UNIT GRANT NOTICE
Optimer Pharmaceuticals, Inc. (the Company), hereby awards to the service provider set forth below the number of stock units set forth below in respect of shares of common stock of the Companys subsidiary, Optimer Biotechnology, Inc., a Taiwanese corporation (OBI) (the Award). The Award is subject to all of the terms and conditions as set forth herein and in the Restricted Stock Unit Agreement, which is attached hereto and incorporated herein in its entirety. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Restricted Stock Unit Agreement.
Service Provider: |
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Date of Grant: |
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Number of Stock Units Subject to Award: |
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Consideration: |
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Service Providers Services |
Issuance Schedule: |
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The shares of OBIs common stock to be issued in respect of the Award will be issued to Service Provider within thirty (30) days following the IPO Date provided that Service Provider is still providing Continuous Service on the IPO Date and provided further that the IPO Date is prior to December 31, 2012. The IPO Date is the date that OBIs common stock is first sold by OBI in a public offering after which OBIs common stock is traded on a national securities exchange. |
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Vesting Schedule: |
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The shares of OBIs common stock issued in respect of the Award will vest with respect to 1/3rd of the shares on each anniversary of the IPO Date, subject to the Service Providers Continuous Service through each applicable vesting date, such that the shares will be fully vested on the third anniversary of the IPO Date. Upon a termination of the Service Providers Continuous Service within the three year period following the IPO Date, any then unvested shares previously issued in respect of the Award will be automatically forfeited to the Company by Service Provider at no cost to the Company and the Service Provider will have no further right, title or interest in such shares of common stock of OBI. |
Additional Terms/Acknowledgements: The undersigned Service Provider acknowledges receipt of, and understands and agrees to, this Restricted Stock Unit Grant Notice and the Restricted Stock Unit Agreement. Service Provider further acknowledges that as of the Date of Grant, this Restricted Stock Unit Grant Notice and the Restricted Stock Unit Agreement set forth the entire understanding between Service Provider and the Company regarding the Award and supersedes all prior oral and written agreements on that subject.
OPTIMER PHARMACEUTICALS, INC. |
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SERVICE PROVIDER: | |||
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By: |
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Signature |
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Signature | |||
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Title: |
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Date: |
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Date: |
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ATTACHMENT: |
Restricted Stock Unit Agreement |
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OPTIMER PHARMACEUTICALS, INC.
RESTRICTED STOCK UNIT AGREEMENT
Pursuant to the Restricted Stock Unit Grant Notice (Grant Notice) and this Restricted Stock Unit Agreement and in consideration of your services, Optimer Pharmaceuticals, Inc (the Company) has awarded you restricted stock units in respect of the common stock of OBI (the Award). Your Award is granted to you effective as of the Date of Grant set forth in the Grant Notice for this Award. This Restricted Stock Unit Award Agreement shall be deemed to be agreed to by the Company and you upon the signing by you of the Restricted Stock Unit Grant Notice to which it is attached. Capitalized terms not explicitly defined in this Restricted Stock Unit Agreement shall have the same meanings given to them in the Grant Notice, as applicable. The details of your Award, in addition to those set forth in the Grant Notice, are as follows.
1. GRANT OF THE AWARD. This Award represents the right to be issued on a future date the number of shares of common stock of OBI (OBI Common Stock) that is equal to the number of stock units indicated in the Grant Notice (the Stock Units). As of the Date of Grant, the Company will credit to a bookkeeping account maintained by the Company for your benefit (the Account) the number of Stock Units subject to the Award. This Award was granted in consideration of your services to the Company. Except as otherwise provided herein, you will not be required to make any payment to the Company (other than past and future services to the Company) with respect to your receipt of the Award, the vesting of the Stock Units or the delivery of the OBI Common Stock to be issued in respect of the Award.
2. NUMBER OF SHARES.
(a) The number of Stock Units subject to your Award may be adjusted from time to time for capitalization adjustments in the event that any dividend or other distribution (whether in the form of cash, shares of OBI, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of OBI Common Stock or other securities of OBI, occurs. Following such an event, the board of directors of the Company or an authorized committee thereof (the Board) shall adjust the number and class of shares of OBI stock that may be delivered in respect of your Award.
(b) Any additional Stock Units that become subject to the Award pursuant to this Section 3 shall be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Stock Units covered by your Award.
(c) Notwithstanding the provisions of this Section 3, no fractional shares or rights for fractional shares of OBI Common Stock shall be created pursuant to this Section 3. The Board shall, in its discretion, determine an equivalent benefit for any fractional shares or fractional shares that might be created by the adjustments referred to in this Section 3.
3. SECURITIES LAW COMPLIANCE. You may not be issued any shares of OBI Common Stock in respect of your Award unless either (i) the shares are registered under the
Securities Act of 1933, as amended (the Securities Act); or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award also must comply with other applicable laws and regulations governing the Award, and you will not receive such shares if the Company determines that such receipt would not be in material compliance with such laws and regulations.
4. TRANSFER RESTRICTIONS. Your Award is not transferable, except by will or by the laws of descent and distribution. In addition to any other limitation on transfer created by applicable securities laws, you agree not to assign, hypothecate, donate, encumber or otherwise dispose of any interest in any of the shares of OBI Common Stock to be issued in respect of the Award until the shares are issued to you in accordance with Section 5 of this Agreement. After the shares have been issued to you, you are free to assign, hypothecate, donate, encumber or otherwise dispose of any interest in such shares to the extent, and only to the extent, such shares are vested in accordance with Section 6 below, provided that any such actions are in compliance with the provisions herein and applicable securities laws. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to receive any distribution of OBI Common Stock to which you were entitled at the time of your death pursuant to this Agreement.
5. DATE OF ISSUANCE. The shares of OBI Common Stock to be issued in respect of the Award will be issued to you within the thirty (30) day period following the IPO Date, provided that you remain in Continuous Service with the Company through the IPO Date. Notwithstanding the foregoing, the Company reserves the right, in its discretion, to earlier issue the shares of OBI Common Stock to you. Upon a termination of your Continuous Service prior to the date the shares of OBI Common Stock are issued in respect of the Award, the Award will be forfeited at no cost to the Company, and you will have no further right, title or interest in the Award.
6. VESTING. Subject to the limitations contained herein, the shares issued in respect of your Award will vest, if at all, in accordance with the vesting schedule provided in the Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. Upon such termination of your Continuous Service, any shares of OBI Common Stock previously issued in respect of your Award that were not vested on the date of such termination will be forfeited to the Company at no cost to the Company and you will have no further right, title or interest in such shares of OBI Common Stock or such portion of the Award.
For all purposes of the Award, your Continuous Service means that your service with the Company or OBI (for so long as it remains a subsidiary), whether as an employee, director or consultant, is not interrupted or terminated. A change in the capacity in which you render service to the Company or OBI (for so long as it remains a subsidiary) as an employee, consultant or director or a change in the entity for which you render such service, provided that there is no interruption or termination of your service with the Company or OBI (for so long as it remains a subsidiary), shall not terminate your Continuous Service. To the extent permitted by law, the Board or the Chief Executive Officer of the Company, in that partys sole discretion, may determine whether your Continuous Service shall be considered interrupted in the case of (i) any leave of absence approved by the Board or Chief Executive Officer, including sick leave,
military leave or any other personal leave, or (ii) transfers between the Company and any other affiliate or successor. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in the Award only to such extent as may be provided in the Companys leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to you, or as otherwise required by law.
The Company as escrow agent will hold the shares of OBI Common Stock issued in respect of the Award until the vesting restrictions on such shares have lapsed. The OBI Common Stock will be released from escrow to you as soon as practicable after the vesting restrictions have lapsed. The Company, in its discretion, may accelerate the time at which any vesting restrictions will lapse or be removed.
7. DIVIDENDS. You shall receive no benefit or adjustment to your Award with respect to any cash dividend, stock dividend or other distribution that does not result from a capitalization adjustment as provided in Section 3 of this Agreement; provided, however, that this sentence shall not apply with respect to any shares of OBI Common Stock that are delivered to you in connection with your Award after such shares have been delivered to you.
7. RESTRICTIVE LEGENDS. The shares issued in respect of your Award shall be endorsed with appropriate legends determined by the Company.
8. AWARD NOT A SERVICE CONTRACT.
(a) Nothing in this Restricted Stock Unit Agreement (including, but not limited to, the issuance of the shares in respect of your Award or the vesting of the shares issued in respect of your Award) or any covenant of good faith and fair dealing that may be found implicit in this Restricted Stock Unit Agreement shall: (i) confer upon you any right to continue in the employ of, or affiliation with, the Company or OBI; (ii) constitute any promise or commitment by the Company or OBI regarding the fact or nature of future positions, future work assignments, future compensation or any other term or condition of employment or affiliation; (iii) confer any right or benefit under this Restricted Stock Unit Agreement unless such right or benefit has specifically accrued under the terms of this Agreement; or (iv) deprive the Company of the right to terminate you at will and without regard to any future vesting opportunity that you may have.
(b) By accepting this Award, you acknowledge and agree that the right to continue vesting in the shares to be issued in respect of the Award pursuant to the schedule set forth in Section 6 is earned only by continuing as an employee, director or consultant at the will of the Company (not through the act of being hired, being granted this Award or any other award or benefit) and that the Company has the right to reorganize, sell, spin-out or otherwise restructure one or more of its businesses at any time or from time to time, as it deems appropriate (a reorganization). You further acknowledge and agree that such a reorganization could result in the termination of your status as an employee, director or consultant for the Company or OBI and the loss of benefits available to you under this Restricted Stock Unit Agreement, including but not limited to, the termination of the right to continue vesting in the shares issued in respect of the Award. You further acknowledge and agree that this Restricted Stock Unit Agreement, the transactions contemplated hereunder and the vesting schedule set forth herein or any
covenant of good faith and fair dealing that may be found implicit in any of them do not constitute an express or implied promise of continued engagement as an employee or consultant for the term of this Agreement, for any period, or at all, and shall not interfere in any way with your right or any right of the Company to terminate your Continuous Service at any time, with or without cause and with or without notice.
9. WITHHOLDING OBLIGATIONS.
(a) On or before the time you receive a distribution of the shares subject to your Award, or at any time thereafter as requested by the Company, you hereby authorize any required withholding from the OBI Common Stock issuable to you and/or otherwise agree to make adequate provision in cash for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or OBI which arise in connection with your Award (the Withholding Taxes). Additionally, the Company may, in its sole discretion, satisfy all or any portion of the Withholding Taxes obligation relating to your Award by any of the following means or by a combination of such means: (i) withholding from any compensation otherwise payable to you by the Company; (ii) causing you to tender a cash payment; or (iii) withholding shares of OBI Common Stock from the shares of OBI Common Stock issued or otherwise issuable to you in connection with the Award with a fair market value (measured as of the date shares of OBI Common Stock are issued pursuant to Section 5) equal to the amount of such Withholding Taxes; provided, however, that the number of such shares of OBI Common Stock so withheld shall not exceed the amount necessary to satisfy the Companys required tax withholding obligations using the minimum statutory withholding rates for federal, state, local and foreign tax purposes, including payroll taxes, that are applicable to supplemental taxable income.
(b) Unless the tax withholding obligations of the Company and/or OBI are satisfied, the Company shall have no obligation to deliver to you any OBI Common Stock.
(c) In the event the Companys obligation to withhold arises prior to the delivery to you of OBI Common Stock or it is determined after the delivery of OBI Common Stock to you that the amount of the Companys withholding obligation was greater than the amount withheld by the Company, you agree to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.
10. UNSECURED OBLIGATION. Your Award is unfunded, and you shall be considered an unsecured creditor of the Company with respect to the Companys obligation, if any, to issue shares pursuant to this Agreement. You shall not have voting or any other rights as a stockholder of OBI with respect to the shares to be issued pursuant to this Agreement until such shares are issued to you pursuant to Section 5 of this Agreement. Upon such issuance, you will obtain full voting and other rights as a stockholder of OBI. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between you and OBI, the Company or any other person.
11. OTHER DOCUMENTS. You hereby acknowledge receipt of the Companys policy permitting officers and directors to sell shares only during certain window periods and the
Companys insider trading policy, in effect from time to time. You also agree to abide by any similar policy of OBI in effect from time to time.
12. NOTICES. Any notices provided for in your Award shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. Notwithstanding the foregoing, the Company may, in its sole discretion, decide to deliver any documents related to this Award by electronic means. You hereby consent to receive such documents by electronic delivery and, if requested, to accept this Award through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
13. MISCELLANEOUS.
(a) The rights and obligations of the Company under your Award shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Companys successors and assigns. Your rights and obligations under your Award may only be assigned with the prior written consent of the Company.
(b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.
(c) You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award, and fully understand all provisions of your Award.
(d) This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(e) All obligations of the Company under this Agreement shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
14. SEVERABILITY. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
15. EFFECT ON OTHER EMPLOYEE BENEFIT PLANS. The value of the Award subject to this Agreement shall not be included as compensation, earnings, salaries, or other similar terms used when calculating the Service Providers benefits under any employee benefit plan sponsored by the Company, except as such plan otherwise expressly provides. The Company
expressly reserves its rights to amend, modify, or terminate any of the Companys employee benefit plans.
16. AMENDMENT. This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by you and by a duly authorized representative of the Company. Notwithstanding the foregoing, this Agreement may be amended solely by the Board by a writing which specifically states that it is amending this Agreement, so long as a copy of such amendment is delivered to you, and provided that no such amendment adversely affecting your rights hereunder may be made without your written consent. Without limiting the foregoing, the Board reserves the right to change, by written notice to you, the provisions of this Agreement in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, ruling, or judicial decision, provided that any such change shall be applicable only to rights relating to that portion of the Award which is then subject to restrictions as provided herein.
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Pedro Lichtinger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Optimer Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 3, 2011
/s/ Pedro Lichtinger |
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Pedro Lichtinger |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, John D. Prunty, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Optimer Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 3, 2011
/s/ John D. Prunty |
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John D. Prunty |
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Vice-President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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Exhibit 32
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Pedro Lichtinger, the Chief Executive Officer of Optimer Pharmaceuticals, Inc. (the Company), and John D. Prunty, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
1. The Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, to which this Certification is attached as Exhibit 32 (the Quarterly Report), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Quarterly Report and results of operations of the Company for the period covered by the Quarterly Report.
Dated: November 3, 2011
/s/ Pedro Lichtinger |
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/s/ John D. Prunty |
Pedro Lichtinger Chief Executive Officer (Principal Executive Officer) |
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John D. Prunty Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
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