10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

10110 Sorrento Valley Road, Suite C, San Diego, California, 92121

(Address of principal executive offices and zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No  x.

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	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 aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2011 (without admitting that any person whose shares are not included in such calculation is an affiliate), computed by reference to the price at which the common stock was last sold as of such date on the Nasdaq Global Select Market, was $540,638,000.

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of February 29, 2012 was 46,747,049.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for our 2012 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.

OPTIMER PHARMACEUTICALS

FORM 10-K—ANNUAL REPORT

For the Fiscal Year Ended December 31, 2011

Table of Contents

PART I
Item 1	Business	3
Item 1A	Risk Factors	21
Item 1B	Unresolved Staff Comments	42
Item 2	Properties	42
Item 3	Legal Proceedings	42
Item 4	Mine Safety Disclosures	42
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	42
Item 6	Selected Consolidated Financial Data	44
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	45
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	54
Item 8	Financial Statements and Supplementary Data	55
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	55
Item 9A	Controls and Procedures	55
Item 9B	Other Information	57
PART III
Item 10	Directors, Executive Officers and Corporate Governance	57
Item 11	Executive Compensation	57
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57
Item 13	Certain Relationships and Related Transactions, and Director Independence	57
Item 14	Principal Accounting Fees and Services	57
PART IV
Item 15	Exhibits, Financial Statement Schedules	58
Signatures		61

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PART I

Cautionary Note Regarding Forward-Looking Statements

This report and other documents we file with the SEC contain forward looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business or others on our behalf, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Words such as “expect,” “anticipate,” “will,” “could,” “would” “project,” “intend,” “plan,” “believe,” “predict,” “estimate,” “should,” “may,” “potential,” “continue,” “ongoing”, or variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in “Item 1A. Risk Factors”. We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward looking statements. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward looking statements after the filing of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

Item 1. Business

Overview

We are a global biopharmaceutical company focused on developing and commercializing innovative hospital specialty products which we believe meet an unmet medical need for patients and provide economic value to the healthcare system.

On May 27, 2011, the U.S. Food and Drug Administration, or FDA approved DIFICID® (fidaxomicin) tablets, our novel antibacterial drug for the treatment of adult patients with Clostridium difficile-associated diarrhea, or CDAD. Commercial sales of DIFICID began in July 2011.  In 2011 we achieved net revenue from DIFICID of $21.5 million.

CDAD is the most common nosocomial, or hospital acquired, diarrhea and is not only a significant medical problem in hospitals and long-term care facilities, but is beginning to emerge in the community among people previously at low risk for the disease. CDAD is a serious illness resulting from infection of the inner lining of the colon by C. difficile bacteria, which produce toxins that cause inflammation of the colon, severe diarrhea and, in the most serious cases, death.

DIFICID is the first drug approved by the FDA for the treatment of CDAD in nearly 30 years. DIFICID’s clinical response rates at the end of treatment were non-inferior to vancomycin, and DIFICID was superior to vancomycin in sustaining clinical response through 25 days beyond the end of treatment. DIFICID is the only FDA-approved antibacterial drug proven to be superior to vancomycin in sustained clinical response for CDAD.

In 2011, we established a commercial infrastructure to implement the commercialization of DIFICID in the U.S. As part of our DIFICID launch strategy, in April 2011 we entered into a collaboration agreement with Cubist Pharmaceuticals, Inc. intended to supplement our internal sales capabilities. Under the agreement, which has a term through the end of July 2013, Cubist co-promotes DIFICID in the U.S. with us. We believe the collaboration will help maximize the impact of the U.S. launch of DIFICID, accelerating adoption and market penetration.

In December 2011 fidaxomicin tablets also received marketing authorization in the European Union under the trade name DIFICLIR™.  We have licensed rights to fidaxomicin in Europe and certain countries in the Middle East, Africa and the Commonwealth of Independent States, or CIS, to Astellas Pharma Europe, Ltd. We are seeking marketing authorization for fidaxomicin in Canada and exploring marketing authorization in other parts of the world where C. difficile has emerged as a serious health problem, including Asia.  We currently hold rights to fidaxomicin in all regions of the world except for territories covered under our agreement with Astellas.

We plan to pursue, subject to FDA discussion and review, important new areas where we perceive opportunities to expand the DIFICID label with new indications to optimize its commercial potential. We believe potential prophylactic use of DIFICID represents an opportunity for significant incremental market expansion.  We intend to evaluate prophylactic use of DIFICID in patients undergoing bone marrow transplantation as these patients are generally at higher risk for CDAD and CDAD has a significant impact on this patient population and the disease associated cost burden. Additionally, we believe there are other patient subpopulations with high risk of CDAD, such as other transplant patients and cancer patients, which present opportunities to expand DIFICID’s FDA label.

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To focus on priorities that have the potential to maximize the value of DIFICID for patients and stockholders, in January 2012 we made the strategic decision to discontinue work in basic research, although we maintain clinical R&D capabilities to develop product candidates.

In addition, 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 our subsidiary in Taiwan, Optimer Biotechnology, Inc., or 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 January 2011, OBI initiated a Phase 2/3 clinical trial to evaluate OPT-822/821for the treatment of metastatic breast cancer which is being conducted in Taiwan, South Korea, Hong-Kong and Singapore.

We were incorporated in November 1998. We have one wholly-owned subsidiary, Optimer Pharmaceuticals Canada, Inc., or OPC and one majority-owned subsidiary, OBI, which is located and incorporated in Taiwan.  In this disclosure, “Optimer Pharmaceuticals,” “Optimer,” “we,” “us” and “our” refer to Optimer Pharmaceuticals, Inc., OPC and OBI on a consolidated basis, unless the context otherwise provides.  Our principal offices are in San Diego, California and we recently expanded our operations to include additional office space in Jersey City, New Jersey. We maintain internet website at www.optimerpharma.com, which includes links to reports we have filed with the Securities and Exchange Commission, or SEC. Any information that is included on or linked to our Internet site is not a part of this report or any registration statement that incorporates this report by reference. Our filings may also be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

Our Business Strategy

Our principal objective is to become a leading hospital specialty products based biopharmaceutical company focused on the development and commercialization of innovative medicines that meet unmet medical needs and provide value to patients and the healthcare system. Our initial focus is on gastrointestinal infections.  To achieve this objective our strategy includes the following key elements:

·Build a branded anti-infective franchise for DIFICID in the United States and Canada.  We intend to successfully commercialize DIFICID under the current FDA label by supporting formulary access across payers, hospitals and long term care facilities in the United States and promote adoption of first line DIFICID use in select groups of CDAD patients.  We expect to obtain regulatory approval to commercialize DIFIDID in Canada in mid- 2012.

·Develop Alliance Partners and distribution arrangements in international markets that maximize stockholder value. We intend to secure fidaxomicin marketing authorization in markets outside the United States where C. difficile has emerged as a serious health problem and pursue commercialization in these markets by evaluating partnering alternatives to market our products as appropriate. In select territories, such as Canada where we are building our own commercial infrastructure, we expect to market fidaxomicin directly.

·Develop DIFICID for additional indications. We believe there are opportunities to expand DIFICID’s label to address unmet medical needs related to C. difficile infections that can provide economic value to the healthcare system. We plan to pursue, subject to FDA discussion and review, such opportunities which we believe have significant market expansion potential. Initially we intend to evaluate prophylactic use of DIFICID in patients undergoing bone marrow transplantation, who are generally at risk for CDAD and where CDAD has a significant impact on the patient and the disease associated cost burden. Additionally, we believe there are a range of patient subpopulations with CDAD where CDAD is associated with a significant impact on the patient and disease associated cost burden. One such subpopulation consists of cancer patients and we intend to evaluate DIFICID use in these patients.

·Selectively acquire or in-license additional hospital specialty products for development and/or commercialization.  In order to maximize the value of our franchise and the investment in our commercial infrastructure, we intend to opportunistically consider the expansion of our product portfolio by selectively acquiring or in-licensing additional hospital-focused products or product candidates. We believe the U.S. hospital market provides an opportunity for a biopharmaceutical company with a modestly sized sales infrastructure to successfully market innovative medicines that meet unmet medical needs.

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Commercialization Efforts

In 2011 we completed the establishment of a commercial infrastructure, including key additions to the senior management team, to implement the commercialization of DIFICID in the U.S. Our infrastructure includes a sales force of approximately 100 hospital sales specialists, 8 medical education and research liaisons and a 7 person health economic and outcomes resources field team, in addition to an experienced commercial management, marketing and sales personnel team. Our commercialization functions include medical education, health economics research, institutional formulary adoption, payer access/coverage, sales and promotion. These functions and others are primarily performed by the following teams:

·Sales and marketing

·Health economics and outcomes research;

·Medical affairs; and

·Patient access.

Our commercialization efforts are directed at physicians, pharmacists, administrators and others throughout the hospital and long-term care settings.

In Europe and certain other countries in the Middle East, Africa and the CIS we entered into an exclusive collaboration and license agreement with Astellas Pharma Europe Ltd. in February 2011 to develop and commercialize fidaxomicin. We intend to seek additional collaborations to market fidaxomicin in other territories outside the U.S.  In select territories, such as Canada, where we are building our own commercial infrastructure, we expect to market fidaxomicin directly.

Distribution

We sell DIFICID through wholesalers that have agreed to be authorized distributors of record of DIFICID in the U.S. These wholesalers sell DIFICID to hospitals, retail and specialty pharmacies in the U.S. In addition, we outsource a number of our product supply chain services to third party vendors, including services related to warehousing and inventory management, distribution, chargeback processing, account receivables management and customer service call center management.

The following table sets forth distribution customers who represented 10% or more of revenues for the year ended December 31, 2011:

	2011
Amerisource Bergen Drug Corporation	23	%
Cardinal Health	43	%
McKesson	30	%
	96	%

Three customers represented approximately 96% of our total gross product sales. We do not believe that the loss of any one of these customers would have a material adverse effect on product sales because product sales would shift to the other customers. However, the loss of a customer could increase our dependence on a reduced number of customers.

Our Market Opportunity

Many marketed antibiotics used to treat infections have well-documented shortcomings. For example, current antibiotics often fail to reach sufficient concentrations at the site of infection to adequately eliminate harmful bacteria. Certain of these antibiotics have also been associated with serious adverse side effects, including renal toxicities, heart rhythm abnormalities, phototoxicity, rashes and central nervous effects, such as seizures. These side effects limit the use of antibiotics for certain patients. In addition, certain antibiotics have interaction issues with prescribed drugs, such as cholesterol lowering agents. Safety problems can arise when increased doses of these antibiotics are needed to treat resistant bacteria. If bacteria develop resistance to currently available antibiotics, the underlying infection can become difficult or impossible to treat, and may even lead to death. Patients also often fail to comply with treatment regimens due to many factors including the inability to tolerate an antibiotic due to its side effects, inconvenient method of dosing and undesirable frequency and length of dosing. Because of these shortcomings associated with marketed antibiotics, we believe an opportunity exists to improve upon existing treatments.

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Our Products and Product Candidates

We believe that our products and product candidates offer, or may offer, advantages over existing antibiotics in terms of efficacy, safety, bacterial resistance and dosing convenience. We also believe that the markets for these products and product candidates present us with significant commercial opportunities. We have one product, fidaxomicin, which has received marketing authorization in the U.S. and Europe. We have two additional candidates, OPT-822/821 and CEM-101 (OP-1068), which are in clinical development.

Our ability or our licensees’ ability to obtain additional regulatory approvals for fidaxomicin may require us or our licensees to successfully complete additional clinical development and demonstrate through data submissions the safety and efficacy of the product candidate to the satisfaction of foreign regulatory authorities. Similarly, our ability or our licensees’ ability to obtain regulatory approval of any of our other product candidates requires us or our licensees to successfully complete the clinical development of each such product candidate and demonstrate through data submissions the safety and efficacy of the product candidate to the satisfaction of the FDA and comparable foreign regulatory authorities. Clinical trials involve a lengthy and expensive process with an uncertain outcome, and efficacy and safety data of earlier studies and trials may not be predictive of future trial results.

Our current product or product candidate portfolio consists of the following:

Product or Product Candidate	Target Indications	Development Status	Commercial Rights
Anti-Infectives
Fidaxomicin	CDAD treatment	Approved and marketed	Optimer — worldwide except Astellas territory; Astellas — Astellas territory (all fidaxomicin product candidates and indications)
	CDAD prophylaxis CDAD in oncology patients	Phase 3B (1) Phase 3B (1)
Fidaxomicin	Pediatric CDAD treatment	Phase 2	Optimer - worldwide except Astellas territory
Solithromycin (CEM-101 or OP-1068)	Respiratory tract infections	Phase 2	Cempra worldwide (2)
Other Therapeutic Areas
OPT-822/821	Breast cancer	Phase 2/3	Licensed to OBI (3)

(1)We intend that data from these Phase 3 trials would be presented to the FDA as part of a SNDA in order to expand the indications included on DIFICID’s label.

(2)We granted to Cempra an exclusive worldwide license, except in countries in the Association of Southeast Asian Nations, or ASEAN.  We have the right to receive royalties from Cempra on any sales of CEM-101 (OP-1068) outside of ASEAN countries.

(3)We have the right to receive royalties from OBI on any sales of OPT-822/821.

Fidaxomicin

Overview. We developed fidaxomicin for the treatment of infections caused by C. difficile bacteria. C. difficile is the most common cause of infectious diarrhea in healthcare settings.  Fidaxomicin is a differentiated antibacterial drug for the treatment of CDAD in adults > 18 years of age, the most common symptom of C. difficile infection (CDI). Fidaxomicin has potent activity against C. difficile and moderate activity against certain other Gram-positive organisms, such as Enterococcus and Staphylococcus, but it is virtually inactive against Gram-negative organisms and yeast. Fidaxomicin is bactericidal in vitro and has a unique mechanism of action, exerting its activity by inhibiting RNA polymerase, a bacterial enzyme.

Clostridium difficile Infections. CDI has become a significant medical problem in hospitals, long-term care facilities, and in the community and is estimated to afflict more than 700,000 people each year in the United States.  CDI is a serious illness resulting from infection of the inner lining of the colon by C. difficile bacteria, that produce toxins that cause inflammation of the colon, severe diarrhea and, in serious cases, death. Patients typically develop CDI from the use of broad-spectrum antibiotics that disrupt normal gastrointestinal (gut) flora, thus allowing C. difficile bacteria to flourish and produce toxins. C difficile is a spore forming bacterium, creating spores excreted in the environment of the patients that can survive for months on dry surfaces in hospital rooms, beds, doors, and contaminate other patients by fecal-oral transmission through the hands of healthcare workers.

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In addition to fidaxomicin, therapeutic options for CDAD include the use of metronidazole off-label and oral vancomycin, the latter being the only other agent that is FDA-approved for the treatment for CDAD.  However, approximately 20% to 30% of CDAD patients who initially respond to these older treatment options experience a clinical recurrence following cessation of the CDAD treatment.

Primary risk factors for CDI include broad-spectrum antibiotic use (such as cephalosporins and fluoroquinolones), older age (over 65), immune compromised status (such as oncology patients), presence of multiple comorbidities, and prolonged stay in a healthcare facility.  Incidence and severity of CDI cases are increasing with growing rates of recurrence, septic shock, toxic megacolon, and intestinal perforation. C. difficile-associated mortality rates in the United States have risen dramatically in recent years, increasing, for example, by 35% each year between 1999 and 2004. The elderly are particularly vulnerable as over two-thirds of CDI patients are 65 years and older.  Rates of morbidity and mortality increase with patient age, with a mortality rate as high as 14% in elderly patients.  The increasing incidence and mortality of CDI, along with high rates of both treatment failures and recurrences with earlier therapies has resulted in greater awareness and concern about CDI among medical professionals and public health officials.

We believe that the incidence of CDI may be higher than what is currently being reported because many hospitals are not required to and do not report incidence of CDI. According to the Center for Disease Control and Prevention, CDI rates increased 200% for hospitalized patients aged > 65 years from 1996-2009.  The most recent Agency for Healthcare Research and Quality Healthcare Cost and Utilization Project (HCUP) analysis showed that in 2009, there were 336,600 hospitalizations that involved CDI, which is nearly 1 percent of all hospital stays.  In addition, C. difficile has surpassed methicillin-resistant Staphylococcus aureus (MRSA) as the leading cause of healthcare-acquired infections in community hospitals.

Reports indicate that the incidence of community-acquired CDI cases may also be increasing and CDI has been described in populations previously considered to be at low risk.  For example, a study conducted in one major U.S. city and cited at the 2006 Interscience Conference on Antimicrobial Agents and Chemotherapy, or ICAAC, reported that the percentage of CDI cases found to be community acquired increased from 12% in 2003 to 22% in 2004 and to 29% in 2005.  In another population-based U.S. study, community acquired CDI accounted for 41% of all definite cases.  The same study showed that the incidence of both community-acquired and hospital-acquired CDI increased significantly over the study period. Compared with those with hospital-acquired CDI, patients with community-acquired infection were younger, more likely to be female, had lower comorbidity scores, and were less likely to have severe infection or to have been exposed to antibiotics.  The study demonstrated that CDI affects populations previously thought to be at low risk, including young adults and children, and those who lack the traditional risk factors of recent hospitalization or exposure to antibiotics.

According to a study cited in the New England Journal of Medicine, the increased rates of CDI and severity of the disease may be caused by a combination of factors, including the excessive use of antibiotics, a growing population over the age of 65 and the impact of new hyper-virulent strains of C. difficile. Recent CDI studies have demonstrated increasing frequency of new hyper-virulent strains, which can increase the risk of clinical failure, recurrence and mortality. The analysis of C. difficile isolates from our first Phase 3 trial presented at the 2009 ICAAC meeting demonstrated that even though the BI hyper-virulent group continues to be dominant in North America, 60% of the strains analyzed belonged to non-BI groups including G, J, K and Y groups. Hyper-virulent strains are also a growing concern in Europe.

Generally, CDI results in longer hospital stays and increases average patient cost which is often not reimbursed to the hospital. Compared to the average inpatient, CDI patients are considerably sicker and their cases more complex. In addition, CDI patients have lengths of stay nearly three times longer and death rates in the hospital that are 4.5 times higher than the average inpatient.

In more complicated cases of CDI, hospitalization may be prolonged by up to two weeks. One analysis suggested that patients with CDI have their hospital stay extended by at least 3 days compared with patients without the infection, with the incremental cost of approximately $13,700 per patient.  Another recent study showed that adjusted mean cost for CDI cases was    $27,120 higher than for controls and adjusted mean length of hospital stay was 11 days longer.  In certain populations, such as surgical patients, the costs can be even higher and lengths of stay up to 16 days longer.  The overall costs associated to CDI cases in the U.S. Healthcare System are estimated at $3.8 billion. According to the data presented at the 2006 ICAAC, CDI results in an estimated increase in average patient cost of over $6,000 per patient in the United Kingdom and the total projected annual cost for treating the disease in Europe is approximately $3.8 billion.

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We believe that DIFICID meets an unmet medical need for patients with CDAD and provides economic value to the healthcare system:

·DIFICID is the first drug approved by the FDA to treat CDAD in more than 25 years and has demonstrated comparable initial efficacy and a superior sustained clinical response through 25 days after the end of treatment for CDAD versus vancomycin, the only other drug FDA approved drug for the treatment of C. difficile -associated diarrhea.

·Data presented in 2011 demonstrated that the economic value of DIFICID to the U.S. health system meets or exceeds the price per day to treat CDAD compared to vancomycin. Results showed that when data accounting for the cost and frequency of disease recurrence are factored into an economic equation weighing the value of DIFICID against three common regimens of vancomycin, the overall value provided by DIFICID, which ranged from 95% to 141% of the drug’s wholesale acquisition cost, indicates it could be cost saving in many treatment scenarios.

We believe DIFICID’s profile provides an opportunity to develop significant market penetration for first line use of DIFICID in select groups of patients that are ill with CDAD. Additionally, we believe there are opportunities to expand DIFICID’s label to address unmet medical needs related to CDAD that can provide value to patients and the healthcare system.

AlternativeTreatments and Limitations. Metronidazole is generally used for patients in the United States and Europe experiencing their first mild to moderate episode or first recurrent episode of CDAD.  Metronidazole is a generic drug that is used off-label to treat CDAD due to its low cost and historical efficacy. The guideline recommended treatment regimen for metronidazole is 500 mg three times per day, for ten to fourteen days. Metronidazole can be associated with numerous adverse side effects such as seizures, toxic reactions to alcohol, leukopenia, or reduction of white blood cells, neuropathy, a disease affecting one or more nerves, unpleasant taste and dry mouth.

Oral vancomycin is used in the United States and also in Europe and Japan for the treatment of CDAD. As a result of its broad antibacterial activity, intravenously administered vancomycin is frequently used for certain other life-threatening infections caused by multi-drug resistant bacteria such as vancomycin-resistant Enterococci, or VRE. In an effort to slow the continuing emergence of vancomycin-resistant bacteria, the medical community discourages the use of the drug for the treatment of CDAD except for patients who are not responding to metronidazole, for patients with severe symptom or for patients with risk factors that are predictive of negative treatment outcomes.  Despite these recommendations, based on our survey of 131 U.S. hospital physicians, hospital physicians would intend to prescribe oral vancomycin approximately 37% of the time, compared to our estimate of an approximately 27% expected prescription rate per the treatment guidelines.  In addition, our internal market research suggests that hospitals in the U.S. are increasing oral use of generic reconstituted intravenous vancomycin relative to the use of branded oral vancomycin capsules, or Vancocin.  Oral vancomycin’s recommended treatment protocol is 125 mg or every six hours, for ten to fourteen days.

Both metronidazole and oral vancomycin have shortcomings as treatments for CDAD including:

·Limited Efficacy. A controlled study conducted in North America and reported in 2007 showed that approximately 19% of CDAD patients treated with oral vancomycin and 28% of CDAD patients treated with metronidazole do not respond to therapy, and these patients are at risk of developing more severe CDAD.

·High Recurrence Rate. Approximately 25% of CDAD patients who initially respond to oral vancomycin and approximately 27% of CDAD patients who initially respond to metronidazole experience a clinical recurrence following the cessation of antibiotic administration.

·Bacterial Resistance. Widespread use of oral vancomycin is discouraged for the treatment of CDAD in some hospitals due to concerns over the development of cross-resistant bacteria, including VRE, and vancomycin-resistant Staphylococcus, which can also cause other serious nosocomial infections. Furthermore, C. difficile resistance to metronidazole has been reported in at least one study.

·Adverse Side Effects. Metronidazole, which is systemically absorbed, may result in serious adverse side effects and complications, including seizures, toxic reactions to alcohol, leukopenia, neuropathy, unpleasant taste and dry mouth.

·Inducement of CDI. Oral vancomycin and metronidazole are both broad-spectrum antibacterials that disrupt the normal gut flora. Because normal and healthy gut flora generally suppresses the growth of C. difficile.

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·Inconvenient Dosing and Difficult Compliance. The current treatment regimen for both oral vancomycin and metronidazole is inconvenient as they must be administered three or four times per day for a minimum of ten days, which may result in lower levels of patient compliance.

Fidaxomicin Differentiating Characteristics. Fidaxomicin is a unique antibacterial drug consisting of an 18-member macrocyclic ester ring structure. After receiving expedited priority review by the FDA, fidaxomicin was approved by the FDA in May 2011 for the treatment of CDAD adults 18 years of age or older.

Fidaxomicin has significant differentiating features, including:

·targeted antimicrobial spectrum primarily limited to species of clostridia, including C. difficile;

·bactericidal activity against C. difficile in vitro;

·minimal systemic absorption, acting locally in the gastrointestinal tract;

·no in vitro cross-resistance with other classes of antibacterial drugs;

·no significant drug interactions, no contraindications, and no dose adjustment necessary in patients > 65 yrs, or renal or hepatic impairment; and

·initial response comparable to vancomycin and designated by the FDA as superior in sustained clinical response (enduring response) through 25 days after end of treatment.

Based on our clinical and pre-clinical studies of fidaxomicin for the treatment of CDAD, we believe fidaxomicin may offer the following advantages:

·In two large pivotal trials with a total of 1105 subjects and published in the New England Journal of Medicine and LancetID, fidaxomicin was proven comparable to vancomycin in initial response and superior in both rate of sustained clinical response (enduring response) through 25 days after end of treatment, and lowered rate of recurrence;

·Fidaxomicin carries a lower risk of colonization by vancomycin-resistant Enterococci (VRE) than vancomycin. Acquired VRE intestinal colonization among patients with CDAD was lower following treatment with fidaxomicin (7%) than in patients treated with vancomycin (31%) in one Phase 3 clinical trial;

·Limited disruption of normal gut flora both in vitro and in fecal profiling clinical studies, which may contribute to the lower likelihood of CDAD recurrence;

·Minimal systemic exposure and similar rates of adverse reactions versus vancomycin;

·Post-antibiotic effect of 6 to 10 hours;

·Analysis of pooled Phase 3 data of patients on concomitant antibiotic (CA) therapy demonstrated that  fidaxomicin was significantly more effective than vancomycin in achieving initial clinical response, sustained clinical response (global cure), and decreasing the rate of recurrence; and

·Twice daily dosing regimen.

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Clinical Development

Phase 3 Pivotal Trials.

We completed two fidaxomicin Phase 3 trials which provided the basis for marketing approvals in the United States and European Union, and our marketing application Canada. The primary endpoint of both studies was clinical cure, defined as improvement in diarrhea or other symptoms such as that patients required no further CDI therapy as of two days after completion of study medication, as determined by the treating physicians.  The secondary endpoint of both studies evaluated CDI recurrence up to four weeks post therapy with recurrence defined as the return of diarrhea associated with CDI confirmed by a positive toxin test and requirement for treatment.  Global cure, an exploratory endpoint in the first study and a secondary endpoint in the second study, was defined as patients who were cured and did not have a recurrence during the subsequent four-week period. In both studies the primary, secondary, or exploratory, endpoints were met.

In February 2011, the New England Journal of Medicine published results from the first Phase 3 trial and in February 2011 the Lancet Infectious Diseases published results from the second Phase 3 trial.  Additional data from our clinical trials has also been published. A subgroup analysis in the September 1, 2011 issue of Clinical Infectious Diseases concludes that in the presence of concomitant antibiotic therapy (or the use of antibiotics to treat concurrent infections) DIFICID achieved a significantly higher initial clinical cure rate, and higher rate of global cure, compared to oral vancomycin. The publication notes that approximately 28% of patients in the Phase 3 trials required antibiotic treatment for concurrent infections. Global cure is defined as clinical cure with no recurrence through the end of study visit 26 to 30 days after completion of CDAD treatment.

We expect to continue to support peer reviewed publication of additional data and analyses related to fidaxomicin, as well as presentation of such data and analyses at a variety of medical and scientific meetings and conferences. In 2011 presentations of fidaxomicin data and analyses at scientific and medical conferences included:

·      Walker, AS, et al. 2011. “Fidaxomicin Shows Early (0-12 Day) Superiority Over Vancomycin on Intention-to-Treat Analyses of Pivotal Randomized Controlled Trials in Clostridium Difficile Infection.” Presentation at 49th Annual Meeting Infectious Diseases Society of America (IDSA); Oct 20-23, 2011;Boston, MA;

·      Mullane, KM. 2011. “Renal Impairment and Response to Fidaxomicin versus Vancomycin in Patients with Clostridium difficile Infection.” Presentation at 49th Annual Meeting Infectious Diseases Society of America (IDSA); Oct 20-23, 2011;Boston, MA;

·      Sims, C, et al. 2011. “Fidaxomicin Inhibits Production of Toxin A and Toxin B in C difficile.” Presented at: 51st Annual Interscience Conference on Antimicrobial Agents and Chemotherapy (ICAAC); September 17-20, 2011. Chicago, IL; and

·      Sclar, D, et al 2011. “Fidaxomicin for Clostridium Difficile-Associated Diarrhea (CDAD): Epidemiologic Method for Estimation of Warranted Price.” Presented at American Society of Health-System Pharmacists 46th Midyear Clinical Meeting; December 4-8, 2011, New Orleans, LA

First Phase 3 trial (OPT-80-003).  Top-line results from our first Phase 3 trial of fidaxomicin were initially reported in November 2008, and detailed results were published in the February 3, 2011 issue of the New England Journal of Medicine. This trial was a prospective, multi-center, double-blind, randomized controlled Phase 3 trial and was the largest single comparative study conducted against Vancocin in CDI. We enrolled 629 adult subjects at 67 sites throughout North America between May 9, 2006 and August 21, 2008.  The primary endpoint of the study was clinical cure defined as resolution of symptoms and no need for further therapy for C. difficile infection as of the second day after the end of the course of therapy.  The secondary endpoints were recurrence of C. difficile infection (diarrhea and a positive result on a stool toxin test within 4 weeks after treatment) and global cure (i.e., cure with no recurrence). Patients were randomly dosed with either fidaxomicin at 200 mg twice daily (400 mg/day) or Vancocin at its recommended dosing regimen of 125 mg every six hours (500 mg/day) for ten days.

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In the first Phase 3 study, 92.1% of patients treated with fidaxomicin in the per protocol population achieved clinical cure versus 89.8% for Vancocin.  In addition, only 13.3% of per protocol patients treated with fidaxomicin experienced a recurrence versus 24.0% for Vancocin (p = 0.004).  Per protocol patients treated with fidaxomicin had a global cure of 77.7% which was greater than Vancocin at 67.1% (p = 0.006).  Fidaxomicin was well-tolerated.  The results from the first Phase 3 trial are summarized in the table below.

Per Protocol (microbiologically evaluable)	Fidaxomicin (200 mg bid)	Vancocin ® capsules (125 mg qid)	P-Value	95% Confidence Interval
Clinical cure	92.1% (244/265 patients)	89.8% (254/283 patients)	NA	(-2.6, 7.1)
Recurrence	13.3% (28/211)	24.0% (53/221)	0.004	(-17.9, -3.3)
Global Cure	77.7% (206/265)	67.1% (190/283)	0.006	(3.1, 17.9)

modified Intent-to-Treat (mITT)	Fidaxomicin (200 mg bid)	Vancocin ® capsules (125 mg qid)	P-Value	95% Confidence Interval
Clinical cure	88.2% (253/287 patients)	85.8% (265/309 patients)	NA	(-3.1, 7.8)
Recurrence	15.4% (39/253)	25.3% (67/265)	0.005	(-16.6, -2.9)
Global Cure	74.6% (214/287)	64.1% (198/309)	0.006	(3.1, 17.7)

NA = Not Applicable (trial met non-inferiority endpoint)

The Per Protocol (microbiologically evaluable) population is the patient group that had CDI confirmed by diarrhea with a positive toxin assay, met all inclusion/exclusion criteria, and received at least 3 days of therapy and were considered a failure or received at least 8 days of therapy and were considered a cure.

The modified Intent-to-Treat population is the patient group that had CDI confirmed by diarrhea with a positive toxin assay and received at least one dose of study medication.

Further analysis of the results from the first Phase 3 trial demonstrated other potential advantages of fidaxomicin. Specifically, data from the first Phase 3 trial demonstrated that: [could be include in fidaxomicin advantages]

·in patients with more pronounced diarrhea (diarrhea that did not resolve in the first 24 hours of therapy), fidaxomicin was associated with a faster time to resolution of diarrhea than vancomycin (79 hours versus 105 hours, p=0.056);

·in patients who did not receive either vancomycin or metronidazole in the 24-hour pre-trial enrollment period, the difference in recurrence rate between fidaxomicin and vancomycin was more pronounced than in the overall patient population at 10.9% versus 24.3%, respectively;

·CDI recurrence occurred significantly later in patients treated with fidaxomicin with only 3% and 9% recurrence rates versus 14% and 20% recurrence rates for vancomycin, at 10 and 20 days post-treatment, respectively; and

·fidaxomicin was less likely than vancomycin to promote VRE colonization in patients treated for CDI, which we believe may be due to inhibitory activity of fidaxomicin against many VRE strains and fidaxomicin’s relative sparing of the intestinal flora including Bacteroides bacteria.  The analysis showed that only 7% of patients treated with fidaxomicin acquired VRE versus 31% of vancomycin-treated patients (p<0.001) from among a subset of 302 CDI patients, 248 of whom had a negative VRE stool sample upon entering the Phase 3 trial.

Second Phase 3 trial (OPT-80-004). Top-line results from our second Phase 3 trial of fidaxomicin were reported in February 2010, and detailed results were published online in The Lancet Infectious Diseases on February 8, 2012.  This trial was a non-inferiority, multi-center, randomized, double-blind trial of fidaxomicin (200 mg twice daily) against vancomycin (125 mg four times daily) for ten days in adult subjects suffering from CDI.  We enrolled 535 adult subjects at 86 sites throughout North America and Europe between April 19, 2007 and December 11, 2009.  The primary endpoint of the study was clinical cure defined as resolution of diarrhea for duration of treatment and no further CDI therapy two days after completion of study medication, as determined by the treating physicians.  Secondary endpoints measured recurrence and sustained clinical response (also called global cure). Recurrence was defined as the return of more than three unformed bowel movements in 24 hours, a positive stool toxin test, and a need for retreatment within 30 days of treatment completion.  Sustained response, also called global cure, was clinical cure without recurrence, and was assessed once superiority in recurrence was established.

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In the second Phase 3 study, 91.7% of patients treated with fidaxomicin in the per protocol population achieved clinical cure versus 90.6% for Vancocin. In addition, only 12.8% of per protocol patients treated with fidaxomicin experienced a recurrence versus 25.3% for Vancocin (p = 0.002).  Per protocol patients treated with fidaxomicin had a global cure of 79.6% which was greater than Vancocin at 65.5% (p = <0.001).  Fidaxomicin was also well-tolerated in the study.  The results from the second Phase 3 trial are summarized in the table below.

Per Protocol (microbiologically evaluable)	Fidaxomicin (200 mg bid)	Vancocin® capsules (125 mg qid)	P-Value	95% Confidence Interval of Difference
Clinical cure	91.7% (198/216 patients)	90.6% (213/235 patients)	NA	(-4.3, 6.3)
Recurrence	12.8% (23/180)	25.3% (46/182)	0.002	(-20.3, -4.4)
Global Cure (Sustained Response)	79.6% (172/216)	65.5% (154/235)	<0.001	(5.9, 22.1)

modified Intent-to-Treat (mITT)	Fidaxomicin (200 mg bid)	Vancocin ® capsules (125 mg qid)	P-Value	95% Confidence Interval of Difference
Clinical cure	87.7% (221/252 patients)	86.8% (223/257 patients)	NA	(-4.9, 6.7)
Recurrence	12.7% (28/221)	26.9% (60/223)	<0.002	(-21.4, -6.8)
Global Cure (Sustained Response)	76.6% (193/252)	63.4% (163/257)	0.001	(5.3, 21.0)

NA = Not Applicable (trial met non-inferiority endpoint)

The Per Protocol (microbiologically evaluable) population is the patient group with CDI confirmed by diarrhea with a positive toxin assay, met all inclusion/exclusion criteria, and that received at least 3 days of therapy if deemed a failure or at least 8 days of therapy if deemed a cure.

The modified Intent-to-Treat population is the patient group that had CDI confirmed by diarrhea with a positive toxin assay and received at least one dose of study medication.

Additional data from our two fidaxomicin Phase 3 trials was published in the September 1, 2011 issue of Clinical Infectious Diseases which indicated that treatment with concomitant antibiotics (CA) compromised initial response to CDI therapy and durability of response, and that fidaxomicin was significantly more effective than vancomycin in achieving clinical cure in the presence of CA therapy and in preventing recurrence regardless of CA use.  Treatment guidelines recommend stopping all implicated antibiotics at the onset of C. difficile infection, but many individuals have persistent or new infections necessitating the use of concomitant antibiotics. Overall, 27.5% of patients from the fidaxomicin Phase 3 trials were prescribed concomitant antibiotics during study participation.  The use of CAs concurrent with CDI treatment was associated with a lower cure rate (84.4% vs 92.6%; P < 0.001) and an extended time to resolution of diarrhea (97 vs 54 hours; P <0.001). CA use during the follow-up was associated with more recurrences (24.8% vs 17.7%; not significant), and CA administration at any time was associated with a lower global cure rate (65.8% vs 74.7%; P = 0.005).  When subjects received CAs concurrent with CDI treatment, the cure rate was 90.0% for fidaxomicin and 79.4% for vancomycin (P = 0.04).  In subjects receiving CAs during treatment and/or follow-up, treatment with fidaxomicin compared with vancomycin was associated with 12.3% fewer recurrences (16.9% vs 29.2%; P = 0.048).

Commercialization Rights

With the exception of the rights we granted to Astellas to develop and commercialize fidaxomicin in the Astellas territory, we hold worldwide rights to fidaxomicin.  In February 2007, we regained worldwide rights to fidaxomicin from Par Pharmaceuticals, Inc., or Par, under a prospective buy-back agreement to develop and commercialize fidaxomicin in North America and Israel.  We paid Par a one-time $5.0 million milestone payment in June 2010 for the successful completion of our second pivotal Phase 3 trial for fidaxomicin.  We are obligated to pay Par a 5% royalty on net sales by us or our affiliates of fidaxomicin in North America and Israel, and a 1.5% royalty on net sales by us or our affiliates of fidaxomicin 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 fidaxomicin 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.

Fidaxomicin — Label Expansion

We believe there are opportunities to expand DIFICID’s label indication to address unmet medical needs related to C. difficile infections that can provide economic value to the healthcare system. We plan to pursue, subject to FDA discussion and review, such opportunities where we view significant potential for market expansion.

One area that we believe presents an important label expansion opportunity is an indication for prophylactic use of DIFICID in certain patient populations. We believe DIFICID may be effective not only for treating CDAD but also for preventing CDAD in patients at high risk of developing CDAD. There is currently no therapeutic drug approved for the prevention of CDAD.  We believe fidaxomicin may provide safe, potent and narrow-spectrum bactericidal activity against C. difficile, thereby protecting high-risk patients while limiting disruption to normal gut flora. Initially, we intend to evaluate prophylactic use of DIFICID in patients undergoing bone marrow transplantation, These patients are generally at risk for CDAD and CDAD has a significant impact on the patient and the disease associated cost burden in this patient population.

Additionally, we believe there are other patient populations where CDAD is associated with a significant impact on the patient and disease associated cost burden and prophylactic use of DIFICID might be an effective option.

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Other Pipeline Product Candidates

In addition to fidaxomicin, we have also licensed rights to others to develop and commercialize our other product candidates in order to maximize their potential.  These product candidates are as follows:

Solithromycin (CEM-101 or OP-1068): Macrolide and Ketolide Antibiotics

Macrolide antibiotics have been marketed for the treatment of upper and lower respiratory tract infections.  Macrolides such as erythromycin and azithromycin, and ketolides, such as telithromycin, are related classes of antibiotics which have strong gram-positive activity and inhibit bacterial growth.  However, an increasing number of pathogens are now resistant to currently available macrolides and ketolides.  The leading product candidate developed with our discovery technology, solithromycin, was effective against these resistant bacterial strains according to a pre-clinical study conducted by the Institute for Medical Microbiology.  This product candidate has shown to possess potent activity against multi-drug resistant Streptococcus pneumoniae and Streptococcus pyogenes, common respiratory tract infection or RTI pathogens.  The pre-clinical study also showed that solithromycin was orally active with potent efficacy in animal models after once-a-day administration.  Cempra Pharmaceuticals, Inc. or Cempra, has licensed from us a library of approximately 500 macrolides related to this product candidate.  Cempra has completed a Phase 2 clinical trial with solithromycin as an oral dosage form in moderate to severe community-acquired bacterial pneumonia.

OPT-822/821: A Cancer Immunotherapy.

Overview.  In October 2009, we entered into a number of transactions involving OBI, in which we sold 40% of our existing equity in OBI.  We assigned to OBI certain of our patent rights and know-how related to OPT-822/821, a novel carbohydrate-based cancer immunotherapy which we licensed from MSKCC. We also assigned to OBI our rights and obligations under the related license agreement with MSKCC.

OBI is developing OPT-822/821 for the treatment of metastatic breast cancer. According to the American Cancer Society, breast cancer was the second most common form of cancer among women in the United States, with more than 250,000 new cases and more than 40,000 deaths in 2008. The survival rate for patients with metastatic breast cancer remains limited, with a median survival of two to three years and a five-year survival rate of 21% for those patients diagnosed with late-stage cancer that has metastasized to other parts of the body. In July 2002, we acquired exclusive rights from MSKCC to develop and commercialize OPT-822/821 worldwide.  Carbohydrate antigens are known to stimulate the immune response against cancer cells in the body.  We have applied our OPopS technology to manufacture effectively complex carbohydrate cancer antigens, including Globo-H, a prominent antigen in breast cancer cells, and sialyl Lewis a, an antigen in breast and small lung cancer cells.  OPT-822/821 is a novel cancer immunotherapy and is composed of Globo H linked to a protein carrier.

MSKCC completed Phase 1 safety studies of OPT-822/821 in prostate cancer patients and breast cancer patients in 1999 and 2001, respectively.  In these studies, OPT-822/821 appeared to be well tolerated and to stimulate responses to tumor antigens.  Twenty-one of 27 metastatic breast cancer patients treated with OPT-822/821 in the study survived after four years, with 48% of patients surviving more than nine years following completion of the Phase 1 safety study.

In December 2010, OBI initiated a Phase 2/3 clinical trial of OPT-822/821. This study, referenced as OPT-822-001, is designed as a multi-center trial with sites in Taiwan, South Korea, Hong Kong and Malaysia.  The Phase 2/3 clinical trial is expected to enroll up to 342 patients. The primary endpoint is the progression free survival rate from the time of randomization until disease progression. The secondary endpoint is the overall survival rate from the time of enrollment. Patients will receive a total of up to nine injections of OPT-822/821 plus cyclophosphamide, or placebo plus cyclophosphamide (2:1 randomization) over a treatment period of nine months with study follow-up at eight week intervals until disease progression or up to two years, as well as survival follow-up until five years from randomization.

OPopS Drug Discovery

Our OPopS drug discovery platform enables the rapid synthesis of a wide array of carbohydrate containing compounds, from small molecules, to peptides, to complex oligosaccharides, large molecules containing a small number of simple sugars. We acquired worldwide rights to this technology from the Scripps Research Institute, or TSRI, in July 1999. We have built approximately 500 carbohydrate building blocks, and are able to rapidly and reliably produce a wide variety of carbohydrate-based molecules.  Key components of our OPopS technology are:

·GlycoOptimization. This process enables the modification of a carbohydrate group on an existing drug to improve its therapeutic properties such as potency and pharmacokinetics.

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·De Novo Glycosylation. This process introduces new carbohydrate groups to drug candidates and create new, patentable compounds through improvement of pharmacokinetics.

We intend to maintain our OPopS technology for its potential to produce and modify a wide variety of carbohydrate-based molecules that could provide promising new drug candidates for the treatment of various diseases.

Collaborations, Commercial and License Agreements and Grants

Cubist Pharmaceuticals, Inc. 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 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, we are 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 will end in July 2013, subject to renewal or early termination as described below.

In exchange for Cubist’s 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) 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.

The agreement may be renewed by mutual agreement of the parties for additional, consecutive one-year terms.  We 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, we may terminate the agreement, subject to certain limitations, if (i) we withdraw 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 Cubist’s 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) we experience certain supply failures in relation to the demand for DIFICID in the United States, (ii) we are acquired by certain types of entities, including competitors of Cubist, (iii) certain market events occur related to CUBICIN in the United States, or (iv) we fail to comply with applicable laws in performing our obligations.

In June 2011, we began our quarterly payments of $3.75 million to Cubist which we started expensing as a selling, general and administrative expense in the third quarter of 2011 in connection with the launch of DIFICID.

Astellas Pharma Europe Ltd.  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 fidaxomicin in Europe, and certain other countries in the Middle East, Africa and the CIS. In March 2011, we and Astellas 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 territory). Under the terms of the agreement, Astellas has agreed to use commercially reasonable efforts to develop and commercialize fidaxomicin in the Astellas territory at its expense, and to achieve certain additional regulatory and commercial diligence milestones with respect to fidaxomicin in the Astellas territory.  We and Astellas may also agree to collaborate in, and share data resulting from, global development activities with respect to fidaxomicin, in which case we and Astellas will be obligated to co-fund such activities.  In addition, under the terms of the agreement, Astellas granted us an exclusive, royalty-free license under know-how and intellectual property generated by Astellas and its sublicensees in the course of developing fidaxomicin and controlled by Astellas or its affiliates for use by us and any of our sublicensees in the development and commercialization of fidaxomicin outside the Astellas territory and, following termination of the agreement and subject to payment by us of single-digit royalties, in the Astellas territory.  In addition, under the terms of a supply agreement entered into between us and Astellas on the same date, we will be the exclusive supplier of fidaxomicin 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 us an amount equal to cost plus an agreed mark-up for such supply.

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Under the terms of the license agreement with Astellas, in March 2011, Astellas paid 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 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 us upon the launch in any country in the Astellas territory. In December 2011, we received approval from EMA for DIFICLIR™ (fidaxomicin) tablets and thus the 40 million Euro milestone payment will be due no later than July 2012. We are also eligible to receive additional milestone payments to totaling up to 65 million Euros upon the achievement of certain commercial milestones.

In addition, we will be entitled to receive escalating double-digit royalties ranging from the high teens to low twenties on net sales of fidaxomicin products in the Astellas territory, which royalties are subject to reduction in certain, limited circumstances.  These 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 fidaxomicin product in the applicable country.

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 fidaxomicin 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 fidaxomicin product in the applicable country will become non-exclusive.  We 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, we 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 us.  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 us.

Par Pharmaceutical, Inc.  In February 2007, we repurchased the rights to develop and commercialize fidaxomicin in North America and Israel from Par under a prospective buy-back agreement.  We paid Par a one-time $5.0 million milestone payment in June 2010 for the successful completion of our second pivotal Phase 3 trial for fidaxomicin.  We are obligated to pay Par a 5% royalty on any net sales by us, our affiliates or our licensees of fidaxomicin in North America and Israel, including Cubist, and a 1.5% royalty on any net sales by us or our affiliates of fidaxomicin in the rest of the world.  In addition, in the event we license our right to market fidaxomicin in the rest of the world, such as the license granted to Astellas, we will be required to pay Par a 6.25% royalty on net revenues we receive related to fidaxomicin.  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.

Biocon Limited.  In May 2010, we entered into a long-term supply agreement with Biocon for the commercial manufacture of fidaxomicin active pharmaceutical ingredient, or API of DIFICID.  Pursuant to the agreement, Biocon agreed to manufacture and supply, up to certain limits, fidaxomicin API and, subject to certain conditions, we agreed to purchase from Biocon at least a portion of our requirements for fidaxomicin 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 fidaxomicin API.  Unless both we and Biocon agree to extend the term of the supply agreement, it will terminate in November 2018.  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 us upon the occurrence of certain events, including Biocon’s failure to supply requested amounts of fidaxomicin API, or (iii) by Biocon upon the occurrence of certain events, including our failure to purchase amounts of fidaxomicin API indicated in binding forecasts.

Patheon Inc. In June 2011, we entered into a commercial manufacturing services agreement with Patheon Inc. to manufacture and supply fidaxomicin drug products, in North America, Europe and other countries, subject to agreement by the parties to any additional fees for such countries.  We agreed to purchase a specified percentage of our 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. We 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 we provide notice to Patheon that we no longer require manufacturing services for such product because the product has been discontinued. Additionally, we may terminate the agreement, subject to certain limitations, (i) with respect to any fidaxomicin product, if any regulatory authority takes any action or raises any objection that prevents us from importing, exporting, purchasing or selling such product, or if we determine to discontinue development or commercialization of such product for safety or efficacy reasons, (ii) if any regulatory authority takes an enforcement action against Patheon’s manufacturing site that relates to

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fidaxomicin products or that could reasonably be expected to adversely affect Patheon’s ability to supply fidaxomicin products to us, (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, Inc. In March 2006, we entered into collaborative research and development and license agreement with Cempra Inc., or Cempra.  We granted to Cempra an exclusive worldwide license, except in Association of Southeast Asian Nations, or ASEAN, countries with the right to sublicense, to our patent and know-how related to our macrolide and ketolide antibacterial program.  As partial consideration for granting Cempra the license, we obtained equity of Cempra and we assigned no value to such equity.  We 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.  We have assessed milestones under the revised authoritative guidance for research and development milestones and determined that the preclinical milestone payments, as defined in the agreement, meet the definition of a milestone as they are 1) events that can only be achieved in part on our past performance or upon the occurrence of a specific outcome resulting from our performance, 2) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and 3) they result in additional payments being due to us. Clinical development and commercial milestone payments, however, currently do not meet this criteria as their achievement is solely based on the performance of Cempra. To date we have recognized $500,000 in payments from this collaboration.  We 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 us in the amount of $1.0 million for each of the first two products we develop 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. In February 2012, Cempra completed an initial public offering at which time our equity of Cempra was converted to 125,646 common stock shares.

OBI.  In October 2009, we entered into certain transactions involving OBI, our then wholly-owned subsidiary, to provide funding for the development of two of our early-stage, non-core programs.  The transactions with OBI included an Intellectual Property Assignment and License Agreement, pursuant to which we assigned to OBI certain patent rights, information and know-how related to OPT-822/821.  In anticipation of these transactions, we also assigned, and OBI assumed, our rights and obligations under related license agreements with MSKCC and The Scripps Research Institute, or TSRI.  Under this agreement, we are eligible to receive up to $10 million in milestone payments for each product developed under the development programs and we are 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 us 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 OBI’s product development efforts, we and OBI also entered into a financing agreement with a group of new investors.  Simultaneously, we sold 40 percent of our existing OBI shares to the group of new investors, and we and the new investors also purchased new OBI shares.  The financing agreement also contemplated an additional financing pursuant to which we 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).  We 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.

In February 2012, OBI issued 36 million newly-issued shares of its common stock in an additional financing for gross proceeds of approximately 540 million New Taiwan Dollars (approximately $18.3 million based on then-current exchange rates).  We did not participate in the February 2012 financing and the issuance of the new shares reduced our ownership percentage to approximately 44%.  Our Chief Executive Officer and our Chairman of the Board participated.  Each individual purchased 924,000 and 7,080,981, respectively, of the new shares at 15 New Taiwan Dollar per share.  OBI has also announced its intention to conduct an initial public offering of its common stock.  To the extent that additional newly-issued shares of OBI’s common stock are sold in the initial public offering and we do not participate, or to the extent that we sell a portion of our OBI shares in the initial public offering, our percentage ownership of OBI would decrease further.

Memorial Sloan-Kettering Cancer Center.  In July 2002, we entered into a license agreement with MSKCC to acquire, together with certain non-exclusive licenses, exclusive, worldwide licensing and sublicensing rights to certain patented and patent-pending carbohydrate-based cancer immunotherapies.  As partial consideration for the licensing rights, we paid to MSKCC a one-time fee consisting of both cash and 55,383 shares of our common stock. In anticipation of the various transactions involving OBI which we completed in October 2009, we assigned our rights and obligations under this agreement to OBI.  Under the agreement, which was

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amended in June 2005, OBI may owe 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 submission of the first NDA, (iii) $1.5 million upon marketing approval in the United States and (iv) $1.0 million upon marketing approval in each and any of Japan and certain European countries, but only to the extent that we, and not a sublicensee, achieve 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.

The Scripps Research Institute. In July 1999, we acquired exclusive, worldwide rights to our OPopS technology from The Scripps Research Institute, or TSRI.  This agreement includes the license to us of patents, patent applications and copyrights related to our OPopS technology.  We 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, we paid TSRI license fees consisting of an aggregate of 239,996 shares of our common stock with a deemed aggregate fair market value of $46,400, as determined on the dates of each such payment. In October 2009, we assigned to OBI one of the agreements with TSRI related to OPT-88 in 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, we owe TSRI royalties based on net sales by us, our affiliates and sublicensees of the covered products and royalties based on revenue we generate from sublicenses granted pursuant to the agreements.  For the first licensed product under each of the three agreements, we 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 we may be required to pay TSRI under the remaining TSRI agreements is approximately $11.1 million.

Research Grants

NIH Small Business Innovation Research Award.  We have one active grant from National Institute of Allergy and Infectious Diseases, or NIAID. This $3 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 the narrow spectrum activity and potency of DIFICID against hypervirulent epidemic strains of C.difficile, 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 a surveillance study of C. difficile isolates across North America to compare activity of DIFICID with existing CDAD treatments.

Qualifying Therapeutic Discovery Project Grant.  In November 2010, we received $244,000 in the form of a cash grant from the Qualifying Therapeutic Discovery Project program of the Internal Revenue Service /the U.S. Treasury Department for expenditures related to its DIFICID development program.  We had to meet eligible criteria defined by the guidelines of the Patient Protection and Affordable Care Act signed into law March 23, 2010 to qualify for the cash grant.

Taiwan Ministry of Economic Affairs Grant. OBI has one active grant from Taiwan Ministry of Economic Affairs, or 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.  For the year ended December 31, 2011, OBI recognized revenues related to research grants of 15.3 million New Taiwan Dollars.

Manufacturing

We rely on third parties to manufacture our product candidates and currently have no plans to develop our own manufacturing facility.  We require in our manufacturing and processing agreements that all third-party contract manufacturers and processors produce fidaxomicin API and finished products in accordance with current Good Manufacturing Practices, or cGMP, and all other applicable laws and regulations.  We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to our drug candidates.

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In May 2010, we entered into a long-term supply agreement with Biocon for the commercial manufacture of fidaxomicin API. In June 2011, we entered into a commercial manufacturing services agreement with Patheon to manufacture fidaxomicin drug products, including DIFICID.  The manufacturing facilities of Biocon and Patheon have been approved by the FDA for the manufacture of our fidaxomicin drug supplies. We may contract with other third-party contract manufacturers for additional commercial supply of fidaxomicin API and fidaxomicin drug product for commercial sale.

We have used both in-house capabilities and outside third-party cGMP manufacturers for the preparation of compounds for pre-clinical development and for the manufacture of limited quantities of finished products for clinical development.  We have developed a proprietary synthetic process in our laboratories for Globo-H, the carbohydrate portion of OPT-822.  Third parties with cGMP facilities have manufactured OPT-822 for clinical trials.  We also expect that OBI will use third-party cGMP manufacturers for the production of the adjuvant, OPT-821.

Intellectual Property

The proprietary nature of, and protection for, our products, product candidates, processes and know-how are important to our business.  We seek patent protection in the United States and internationally for our product candidates and other technology where available and when appropriate.  Our policy is to patent or in-license the technology, inventions and improvements that we consider important to the development of our business.  In addition, we use license agreements to selectively convey to others, rights to our own intellectual property.  We also rely on trade secrets, know-how and continuing innovation to develop and maintain our competitive position.  We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology.  For this and more comprehensive risks related to our intellectual property, please see “Risk Factors — Risks Related to Our Intellectual Property.”

We have established and continue to build proprietary positions for our pipeline product candidates and technology in the United States and abroad.  We have built a portfolio of more than 150 patents and patent applications that we either own or have licensed around our key products and technologies.  As of February 1, 2012, this portfolio included six issued U.S. patents and 17 pending U.S. patent applications.  Foreign counterparts to these included 31 issued patents and 97 pending patent applications.  Of the more than 150 patents and patent applications that we own or license, as of February 1, 2012, 43 were owned or licensed by OBI.  In addition to the patents and patent applications mentioned above, we have licensed U.S. and foreign patents and patent applications related to our proprietary OPopS drug discovery platform.

With respect to fidaxomicin, we have five issued U.S. patents and 12 U.S. pending patent applications.  We also have 13 issued foreign patents and 67 pending foreign counterparts in Australia, Canada, China, Europe, Hong Kong, Israel, Japan, South Korea, India, New Zealand, Taiwan, South Africa, Russian Federation, Mexico and Brazil.  The issued patents cover a specific polymorphic form, methods of treatment, and specific manufacturing methods and expire in 2027, 2023 and 2025, respectively.  The pending patent applications, if issued, may cover the composition of matter, an additional polymorphic form, and pharmaceutical formulations containing the various components and would expire between 2023 and 2029.

Government Regulation and Product Approval

FDA Approval Process

Regulation by governmental authorities in the United States and other countries is a significant factor in the development, manufacture and marketing of pharmaceuticals and antibiotics.  All of our product candidates will require regulatory approval by governmental agencies prior to commercialization.  In particular, pharmaceutical drugs are subject to rigorous pre-clinical testing and clinical trials and other premarketing approval requirements by the FDA and regulatory authorities in other countries.  In the United States, various federal, and, in some cases, state statutes and regulations, also govern or impact the manufacturing, safety, labeling, storage, record-keeping and marketing of pharmaceutical products.  The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources.  Regulatory approval, if and when obtained for any of our product candidates, may be limited in scope, which may significantly limit the indicated uses for which our product candidates may be marketed.  Furthermore, approved drugs and manufacturers are subject to ongoing review and discovery of previously unknown problems may result in restrictions on their manufacture, sale or use or in their withdrawal from the market.

Before testing any compounds with potential therapeutic value in human subjects in the United States, we must satisfy stringent government requirements for pre-clinical studies.  Pre-clinical testing includes both in vitro and in vivo laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation.  Pre-clinical testing results obtained from studies in several animal species, as well as data from in vitro studies, are submitted to the FDA as part of an IND and are reviewed by the FDA

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prior to the commencement of human clinical trials.  These pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial trials in human volunteers. In order to test a new drug in humans in the United States, an IND must be submitted to the FDA.  The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concern or questions significant enough to merit a clinical hold, in which case, the IND sponsor and the FDA must resolve any outstanding concerns before a hold is lifted and clinical trials can proceed.

Clinical trials are typically conducted in three sequential phases, Phases 1, 2 and 3, with Phase 4 trials potentially conducted after initial marketing approval.  These phases may be compressed, may overlap or may be omitted in some circumstances. Certain clinical trials are required to be publicly registered, as with www.clinicaltrials.com, and their results made publicly available.

·Phase 1.  Phase 1 human clinical trials evaluate a drug’s safety profile and the range of safe dosages that can be administered to healthy volunteers and/or patients, including the maximum tolerated dose that can be given to a trial subject with the target disease or condition.  Phase 1 trials also determine how a drug is absorbed, distributed, metabolized and excreted by the body and the duration of its action.  In some cases, we may decide to run what is referred to as a “Phase 1a” evaluation in which we administer single doses of a new drug candidate in a small group of people to evaluate its pharmacokinetic properties, safety, dose range and side effects.  We may also decide to run what is referred to as a “Phase 1b” evaluation, which is a second safety-focused Phase 1 trial in which we administer a new drug candidate at its targeted dosing regimen in a small group of people to evaluate its pharmacokinetic properties, safety, dose range and side effects.

·Phase2.  Phase 2 clinical trials are typically designed to evaluate the potential effectiveness of the drug in patients and to further ascertain the safety of the drug at the dosage given in a larger patient population.  In some cases, we may decide to run what is referred to as a “Phase 2a” evaluation, which is a trial to determine the ideal dosing regimen and length of treatment and to evaluate effectiveness and safety.  We may also decide to conduct what is referred to as a “Phase 2b” evaluation, which is a second, confirmatory Phase 2 clinical trial in which we collect more efficacy and safety data prior to initiation of a Phase 3 clinical trial.  If positive and accepted by the FDA, results from Phase 2b study can serve as a part of pivotal clinical trial in the approval of a drug candidate.

·Phase 3.  In Phase 3 clinical trials, often referred to as pivotal or registration clinical trials, the drug is usually tested in one or more controlled, randomized trials comparing the investigational new drug to an approved form of therapy or placebo in an expanded and well-defined patient population at multiple clinical sites.  The goal of these trials is to obtain definitive statistical evidence of safety and effectiveness of the investigational new drug regimen as compared to a placebo or an approved standard therapy in defined patient populations with a given disease and stage of illness. Trials designed to register potential new indications for approved products are called Phase 3b.

·Phase 4.  Phase 4 clinical trials are studies required of or agreed to by a sponsor that are conducted after the FDA has approved a product for marketing.  These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication.  Failure to promptly conduct any mandatory Phase 4 clinical trials that are required to as part of an NDA’s approval could result in withdrawal of approval or other legal sanction.

After completion of Phase 1, 2 and 3 clinical trials, if there is substantial evidence that the drug is safe and effective, an NDA is prepared and submitted for the FDA to review.  The NDA must contain all of the essential information on the drug gathered to that date, including data from pre-clinical and clinical trials, and the content and format of an NDA must conform to all FDA regulations and guidelines.  Accordingly, the preparation and submission of an NDA is a significant undertaking for a company. The FDA reviews all submitted NDAs before it accepts them for filing and may request additional information from the sponsor rather than accepting an NDA for filing.  In this case, the NDA must be re-submitted with the additional information and, again, is subject to review before filing.  Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA.  Most NDAs are reviewed by the FDA within ten months of submission.  The review process is often significantly extended by the FDA through requests for additional information and clarification.  The FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved.  The FDA is not bound by the recommendation but typically gives it great weight.  If the FDA evaluations of both the NDA and the manufacturing facilities are favorable, the FDA may issue either an approval letter or a complete response, the latter of which usually contains a number of conditions that must be satisfied in order to secure final approval.

FDA Post-Approval Process

Even after approval of an NDA, such approval is subject to a wide-range of regulatory requirements, any or all of which may adversely impact a sponsor’s ability to effectively market and sell the approved product. Furthermore, the FDA may require the sponsor to conduct non-clinical and/or clinical trials, also known as post-marketing requirements or post-marketing commitments, to

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provide additional information on the safety and efficacy of the approved product. The results of such post-market studies may be negative and could lead to limitations on the further marketing of a product. Also, under the Pediatric Research Equity Act (PREA), the FDA may require pediatric assessment of certain drugs, and if the results of these studies are negative, marketing of the product in adults could be impacted. In addition, the FDA may require a sponsor to implement a Risk Evaluation Mitigation Strategy, or REMS, to manage a known or potential serious risk associated with the product. The FDA may, either prior to approval or subsequent to approval if new safety data arises, require a REMS if it determines that a REMS is necessary to ensure that the benefits of the product outweigh its risks. Failure to comply with a REMS, including submission of a required assessment, may result in substantial civil penalties.

In addition, drug manufacturers and their subcontractors are required to register with the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP regulations which impose procedural and documentation requirements upon us and any third party manufacturers we utilize. Significant negative findings in such an inspection could impact our ability to supply our products.

The FDA closely regulates the marketing and promotion of drugs.  A company can make only those claims relating to safety and efficacy that are part of, or consistent with, the FDA approved product labeling.  Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.  Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA.  Such off-label uses are common across medical specialties.  Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances.  The FDA does not regulate the behavior of physicians in their choice of treatments.  The FDA does, however, restrict manufacturer’s communications on the subject of off-label use and healthcare payors, including the federal government, can use the False Claims Act and related statutes to pursue drug companies for off-label promotions that result in the submission of claims for payment for uses that have not been approved by the FDA as safe and effective.

The FDA requires a sponsor to submit reports of certain information on side effects and adverse events associated with its products that occur either during clinical trials or after marketing approval. These requirements include specific and timely notification of certain serious, unexpected and/or frequent adverse events, as well as regular periodic reports summarizing adverse drug experiences. Failure to comply with these FDA safety reporting requirements may result in FDA regulatory action that may include civil action or criminal penalties. In addition, as a result of these reports, the FDA could create a Tracked Safety Issue for a product in the FDA’s Document Archiving, Reporting and Regulatory Tracking System, place additional limitations on an approved product’s use, such as through labeling changes, or, potentially, could require withdrawal or suspension of the product from the market.

The FDA’s policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or approval of new indications after the initial approval of our existing product candidates.  We cannot predict the likelihood, nature or extent of adverse governmental regulations that might arise from future legislative or administrative action, either in the United States or abroad.

We and our marketing partners are also subject to a wide variety of foreign regulatory requirements as we move to commercialize DIFICID internationally. Approval of a drug by applicable regulatory agencies of foreign countries must be secured prior to the marketing of such drug in those countries. The regulatory approval process in countries outside of the U.S. vary widely from country to country and may in some cases be more rigorous than requirements in the U.S. Certain foreign regulatory authorities may require additional studies or studies designed with different clinical endpoints and/or comparators than those which we are conducting or have already completed. In addition, any adverse regulatory action taken by the FDA with respect to an approved product in the U.S. may affect the regulatory requirements or decisions made by certain foreign regulatory bodies with regard to the regulatory approval of products outside of the U.S.

We will also be subject to a wide variety of foreign regulations governing the development, manufacture and marketing of our products.  Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to manufacturing or marketing the product in those countries.  The approval process varies from country to country and the time needed to secure approval may be longer or shorter than that required for FDA approval.  We cannot assure you that clinical trials conducted in one country will be accepted by other countries or that approval in one country will result in approval in any other country.

Competition

The pharmaceutical industry is highly competitive.  We face significant competition from pharmaceutical companies and biotechnology companies that are researching and selling products designed to treat infectious disease.  Many of these companies have significantly greater financial, manufacturing, marketing and product development resources than us.  Additionally, many of these companies have substantially greater experience developing, manufacturing and commercializing drugs which may allow them to

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bring their products to market quicker than we can.  Several pharmaceutical and biotechnology companies have already established themselves in the markets for the treatment of CDAD and many additional companies are currently developing products for the treatment of CDAD, which we expect will compete with fidaxomicin if approved for marketing.  Potentially significant competitors to fidaxomicin both currently marketed and in clinical development, include the following:

Product	Stage of Development	Company
Flagyl™/metronidazole	Marketed	Pfizer, Sanofi-Aventis and generics
Vancocin™/oral vancomycin	Marketed	Viropharma and generics
Xifaxan™/rifaximin	Phase 3 trial stopped	Salix and generics
Ramoplanin	Phase 2 completed	Nanotherapeutics
ACAM-Cdiff (vaccine)	Phase 2	Sanofi-Aventis
MK-3415/MK-6072/MK-3415A (antibodies combination)	Phase 3 initiated	Merck
CB-183,315	Phase 2 completed	Cubist

Research and Development

Our research and development efforts are primarily focused on further developing fidaxomicin and our other product candidates.  Our research and development expense was approximately $43.1 million, $32.8 million and $33.7 million in years 2011, 2010 and 2009, respectively.

Employees

As of February 29, 2012, we employed 278 persons, 29 of whom hold Ph.D., M.D. or JD degrees.  Nine employees were engaged in discovery research, 55 in clinical research, regulatory affairs and manufacturing, 48 in corporate development and 111 commercial including 99 sales force and corporate development and 55 in support administration, including finance, access, information systems, facilities and human resources.  None of our employees is subject to a collective bargaining agreement.  We consider our relations with our employees to be good.

Long-Lived Assets

Information regarding long-lived assets by geographic area is as follows:

	As of December 31,
	2011		2010		2009
	(in thousands)
United States	$	2,358	$	590	$	644
Taiwan	233		108		29
Total	$	2,591	$	698	$	673

Item 1A. Risk Factors

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;

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·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;

·our 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 Cubist’s 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 Cubist’s business strategy, including the acquisition or development by Cubist of other products, may adversely affect Cubist’s 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 Cubist’s 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 fidaxomicin 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 fidaxomicin in the Astellas territory, and pursuant to the terms of our supply agreement with Astellas, we are obligated

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to supply to Astellas all of its requirements of fidaxomicin for such development and commercialization activities.  Consequently, our ability to generate any revenues from fidaxomicin in the Astellas territory depends on Astellas’ ability to obtain regulatory approvals for and successfully commercialize fidaxomicin 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 management’s 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 acquiror’s 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.

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Other than our collaboration agreement with Astellas, we may not be able to enter into acceptable agreements to commercialize fidaxomicin 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 fidaxomicin 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 fidaxomicin 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 fidaxomicin in countries outside of the United States and outside of the Astellas territory, or if we otherwise decide to market fidaxomicin ourselves in these countries, we will need to develop our own marketing and sales force to market fidaxomicin in these territories to hospital-based and long-term care physicians.  These efforts, including our on-going 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 fidaxomicin, 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 December 31, 2011, we had an accumulated deficit of approximately $215.0 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 December 31, 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 Cubist’s 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;

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·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 product’s 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 hospital’s list of approved drugs, or formulary list, by the hospital’s Pharmacies and Therapeutics, or P&T, committee. A hospital’s 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 FDA’s 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.

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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 fidaxomicin 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

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·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 fidaxomicin in Europe and certain other countries to Astellas.  In the event we or our collaborators, including Astellas, seek approvals to market fidaxomicin 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 fidaxomicin 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.

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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 product’s 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 fidaxomicin 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.

Other than fidaxomicin approval by the EMA in Europe, 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.

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.

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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.

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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, pharmacovigilance, 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 had 278 employees as of February 29, 2012.  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 fidaxomicin and in June 2011, we entered into a manufacturing services agreement with Patheon to manufacture and supply certain fidaxomicin products, including fidaxomicin.  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.

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Our ability and that of our collaborators to develop and commercialize fidaxomicin 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 fidaxomicin 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 fidaxomicin 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 fidaxomicin 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 Biocon’s or Patheon’s 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 in the United States.  In Europe, DIFICLIR will immediately face generic oral vancomycin competition and in the future DIFICID 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

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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 fidaxomicin.  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 and development that we decide to conduct may involve 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.  We currently have exited basic research and are not seeking to identify potential product candidates through internal research programs.  We may seek to obtain rights to novel therapeutics from third parties.

We cannot be certain that we will identify any product candidates to co-develop, in-license or acquire.  If we do identify and enter into any such agreements regarding product candidates we cannot be certain such product candidates will produce commercially viable drugs that safely and effectively treat infectious diseases or other diseases.  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, 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, 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 management’s 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;

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·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.

We rely on 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 diminished our ability to control OBI, and we may no longer maintain a controlling interest in OBI.  As a result, have to rely on OBI’s 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

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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.

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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 manufacturer’s 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.

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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 product 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 situation 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.

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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 product and product candidates but that are not covered by the claims of our pending patent applications or owned or licensed patents, or for which we are not licensed under our license agreements;

·others may be able to make competing pharmaceutical formulations containing our product and product candidates or components of our product formulations that are either not covered by the claims of our owned 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 patents and 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 pending patent applications or the pending patent applications and issued patents we own or license 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 extend our portfolio by pursuing additional development of a product candidate for follow-on indications for any product.

We have 12 pending patent applications and five issued patents related to fidaxomicin from the United States Patent and Trademark Office or U.S.P.T.O.

These patents and patent applications related to fidaxomicin encompass various topics relating to:

·composition of matter for fidaxomicin;

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

·polymorphic forms (issued in U.S.);

·composition comprising a polymorphic form (issued in the U.S.);

·manufacturing processes (issued in the U.S.);

·treatment of diseases with fidaxomicin (issued in the U.S.);

·formulation; and

·fidaxomicin related compounds, including metabolites, e.g. OP-1118 (issued in the U.S.).

If we are unable to obtain a composition of matter patent, our competitors, including generic drug companies, may be able to design other similar formulations of the active ingredient of fidaxomicin.  Furthermore, our competitors, including generic drug companies, may be able to design around our existing patents and pending applications which may issue as patents for fidaxomicin. As a result, our competitors may be able to develop competing products.

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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 fidaxomicin.  If Par fails to adequately protect fidaxomicin 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 party’s 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 party’s 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 party’s 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 party’s 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 product 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.

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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 fidaxomicin 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 EMA’s review of our MAA for DIFICLIR (DIFICID), including a request for additional information;

·failure of fidaxomicin 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;

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·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 management’s 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.

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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, 2011, 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.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our facilities consist of approximately 32,000 square feet of laboratory and office space in two facilities in San Diego, California, and 24,000 square feet of office space in Jersey City, New Jersey.  The leases for both San Diego facilities expired in November 2011 and were extended through July 2012, in anticipation of our move to a single facility scheduled for August 2012.  The lease for the facility in Jersey City expires approximately June 2018, subject to one five year renewal option.

We believe these facilities are adequate to meet our current needs and that additional space will be available on commercially reasonable terms as needed.

Item 3. Legal Proceedings

We are not currently a party to any legal proceeding.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock has been traded on the Nasdaq Global Select Market under the symbol “OPTR” since February 9, 2007. Prior to that time, there was no public market for our common stock. The following table sets forth the range of high and low sale prices for our common stock reported by Nasdaq Global Select Market.

2011	High		Low
First Quarter	$	13.00	$	10.50
Second Quarter	$	14.74	$	11.75
Third Quarter	$	17.95	$	6.81
Fourth Quarter	$	15.40	$	10.00

2010	High		Low
First Quarter	$	13.86	$	11.10
Second Quarter	$	12.98	$	8.85
Third Quarter	$	10.00	$	7.68
Fourth Quarter	$	11.87	$	8.78

As of February 29, 2012, there were approximately 30 holders of record of our common stock.

Dividends

We have never paid or declared cash dividends on our capital stock. We currently intend to retain future earnings, if any, for use in the expansion and operation of our business and do not anticipate paying any cash dividends in the foreseeable future.

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Performance Measurement Comparison

The following stock performance graph illustrates a comparison of the total stockholder return on our common stock since February 9, 2007, which is the date our common stock first began trading on the Nasdaq Global Select Market, to two indices: the Nasdaq Composite Index and the Nasdaq Biotechnology Index.  The graph assumes an initial investment of $100 on February 9, 2007, and that all dividends were reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Optimer Pharmaceuticals Inc, the NASDAQ Composite Index,

and the NASDAQ Biotechnology Index

*$100 invested on2/9/07 in stock or 1/31/07 in index, including reinvestment of dividends. Fiscal year ending December 31.

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Item 6.  Selected Consolidated Financial Data

You should read the following selected consolidated financial and operating information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this report. Historical results for any prior period are not necessarily indicative of the results to be expected for any future period.

	Years Ended December 31,
	2011		2010			2009			2008			2007
	(in thousands, except per share amounts)
Statement of Operations Data:
Product revenue, net	$	21,511	$	—		$	—		$	—		$	—
Licensing	122,749		—			—			—			—
Research grants and collaborative agreement	718		1,480			893			1,023			767
Total revenues	144,978		1,480			893			1,023			767
Operating expenses:
Cost of product sales	1,526		—			—			—			—
Cost of licensing	7,584		—			—			—			—
Research and development	43,085		32,797			34,417			30,206			41,569
Selling, general and administrative	87,144		17,551			9,074			7,964			7,399
Total operating expenses	139,339		50,348			43,491			38,170			48,968
Income (loss) from operations	5,639		(48,868		)	(42,598		)	(37,147		)	(48,201		)
Interest income and other, net	291		329			364			1,562			2,062
Consolidated net income (loss)	5,930		(48,539		)	(42,234		)	(35,585		)	(46,139		)
Net loss attributable to noncontrolling interest	1,892		1,199			142			—			—
Net income (loss) attributable to Optimer Pharmaceuticals, Inc.	$	7,822	$	(47,340	)	$	(42,092	)	$	(35,585	)	$	(46,139	)
Net income (loss) per share attributable to common stockholders - basic	$	0.17	$	(1.25	)	$	(1.30	)	$	(1.24	)	$	(2.12	)
Net income (loss) per share attributable to common stockholders - diluted	$	0.17	$	(1.25	)	$	(1.30	)	$	(1.24	)	$	(2.12	)
Weighted average shares outstanding - basic	45,622		37,830			32,469			28,683			21,715
Weighted average shares outstanding — diluted	46,369		37,830			32,469			28,683			21,715

	As of December 31,
	2011			2010			2009			2008			2007
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	110,579		$	49,415		$	38,185		$	39,326		$	58,806
Working capital	145,853			45,239			30,951			32,258			52,173
Total assets	182,023			52,020			40,656			42,295			60,786
Accumulated deficit	(214,993		)	(222,814		)	(175,475		)	(133,382		)	(97,698		)
Noncontrolling interest	6,661			1,997			3,040			—			—
Total stockholders’ equity (deficit)	150,564			47,186			32,752			34,231			52,903

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis should be read in conjunction with our “Selected Consolidated Financial Data” and consolidated financial statements and accompanying notes appearing elsewhere in this report.  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 global biopharmaceutical company currently focused on commercializing our antibiotic product DIFICID®(fidaxomicin) in the United States, and further developing other fixacomicin products in the United States and worldwide, both ourselves and with our partners and licensees.  DIFICID is indicated for the treatment of CDAD in adults 18 years of age or older, and is the first antibacterial drug to be approved in the United States for the treatment of CDAD in nearly 30 years. 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, in December 2011, the European Medicines Agency, or EMA, approved the Marketing Authorization Application, or MAA, for DIFICLIR™ (fidaxomicin) tablets for the treatment of adults suffering with CDAD in Europe.

In February 2011, we entered into an exclusive collaboration and license agreement with Astellas to develop and commercialize fidaxomicin in Europe, Africa and certain other countries in the Middle East and CIS which we refer to as the Astellas territory. In return for an exclusive license to fidaxomicin 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. Of this amount, 40 million Euros will become due 30 days after the earlier to occur of launch in two major countries or six months after EMA approval of the MAA for DIFICLIR and 10 million Euros will become due 30 days after the launch of a fidaxomicin product in any country in the Astellas territory. Furthermore, we will be entitled to receive escalating double-digit royalties ranging from the high teens to low twenties on net sales of fidaxomicin in the Astellas territory.  Astellas is responsible for all future costs associated with the development, regulatory approval and commercialization of fidaxomicin in the Astellas territory.  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 2011, we established a commercial infrastructure to implement the commercialization of DIFICID in the U.S.  In addition, as part of our DIFICID launch strategy, 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 Cubist’s 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 currently have made the decision to exit basic research.  However in the future we may develop 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 were incorporated in November 1998.  Since inception, we have focused on developing and commercializing DIFICID and other fidaxomicin products. We have incurred significant net losses since our inception.  As of December 31, 2011, we had an accumulated deficit of $215.0 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, and more recently expenses incurred in connection with our commercial efforts with respect to DIFICID in the United States.  We expect to incur operating losses for the next several years as we pursue the commercialization of DIFICID, as well as further development of

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DIFICID, including conducting post-marketing studies for label expansion and to obtain approval in the U.S. for use of DIFICID for a prophylaxis indication, and further development, regulatory approval and commercialization of fidaxomicin worldwide.  We may also acquire or in-license additional products or product candidates, technologies or businesses that are complementary to our own.

Financial Operations Overview

Revenues

Our revenues depend on our ability to successfully commercialize DIFICID.  We began commercial sale of DIFICID in July 2011 and have begun to generate revenue on such sales. We sell DIFICID to 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.

Prior to our launch of DIFICID in July 2011, we have generated revenues primarily as a result of various collaborations with pharmaceutical and biotechnology companies and grants from government agencies.  Revenues from license and collaboration agreements are recognized based on the performance requirements of the underlying agreements. Revenue is deferred for fees received before they are earned. Nonrefundable upfront payments and license fees, where we have an ongoing involvement or performance obligation, are recorded as deferred revenue and recognized as revenue over the contract or development period. Milestone payments are generally recognized as revenue upon the achievement of the milestones as specified in the underlying agreement, assuming we meet certain criteria. Royalty revenues from the sale of DIFICID are recognized upon the sale of such products.

Cost and Expenses

Cost of Sales. Cost of sales consists primarily of royalty fees paid related to net sales of DIFICID. A significant portion of the cost of DIFICID sold during the year was expensed as research and development expenses when manufactured in the beginning of the year since DIFICID had not been approved by the FDA at that time.

Research and Development Expense. Research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates and developing and advancing our drug discovery technology.  Our research and development expenses consist primarily of salaries and related employee benefits, costs associated with clinical trials managed by our CROs and costs associated with non-clinical research activities and regulatory approvals.  Our historical research and development expenses have resulted predominantly from our clinical trials of DIFICID, the development of our carbohydrate technology platforms, including OPopS, in-licensing fees and general research activities.  We charge all research and development expenses to operations as they are incurred because the underlying technology associated with these expenditures relates to our research and development efforts and has no alternative future uses.  From inception through December 31, 2011, we incurred total research and development expenses of approximately $223.0 million.

We use our internal research and development resources across several projects, and much of this use is not allocable to a specific project.  Accordingly, we do not account for all of our internal research and development costs on a project basis.  In addition to our internal resources, we use external service providers and vendors to conduct our clinical trials, to manufacture our product candidates to be used in clinical trials and to provide various other research and development related products and services.  These external costs are allocable to specific projects.

We incurred $24.5 million, $22.5 million and $133.0 million of research and development expenses directly related to the development of DIFICID for the years ended December 31, 2011 and 2010, and cumulatively through December 31, 2011, respectively.  All other research and development expenses were for other clinical programs.

Selling, General and Administrative Expense. Selling, general and administrative expense consists primarily of compensation, including stock-based compensation, related to our corporate operations and administrative employees, co-promotion costs relating to Cubist, and other expenses related to an allocated portion of facility cost, legal fees and other professional services expenses, and insurance costs.  We anticipate that the level of selling, general and administrative expenditures will increase as we increase our commercial infrastructure globally.

Interest Income (Expense) and Other, Net.  Interest income (expense) and other, net consists of interest earned on our cash, cash equivalents and short-term investments and other-than-temporary declines in the market value of available-for-sale securities and cash and non-cash interest charges related to bridge financings.

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Net Operating Losses and Tax Credit Carryforwards.  As of December 31, 2011 we had federal, state and foreign net operating loss carryforwards of approximately $161.8 million, $185.6 million, and $7.7 million, respectively.  If not utilized, the net operating loss carryforwards will begin expiring in 2020 for federal purposes and 2015 for state purposes.  The foreign losses will begin expiring in 2020.  As of December 31, 2011, we had both federal and state research and development tax credit carryforwards of approximately $6.9 million and $3.8 million, respectively.  The federal tax credits will begin expiring in 2020 unless previously utilized and the state tax credits carryforward indefinitely.  As of December 31, 2011, we had a state manufacturer’s investment tax credit carryforward of approximately $47,000 which will begin to expire in 2012, unless previously utilized.  Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss and tax credit carryforwards that could be utilized annually in the future to offset taxable income.  Any such annual limitation may significantly reduce the utilization of the net operating losses and tax credits before they expire.

As of December 31, 2011, we have completed a Section 382/383 analysis regarding the limitation of the net operating losses and credit carryovers and determined that the entire amount of U.S. federal and state net operating losses and credit carryovers are available for utilization, subject to the annual limitation. Any carryforwards that will expire prior to utilization as a result of future limitation will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, future changes in the unrecognized tax benefits will not impact the effective tax rate.

Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of our 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 1 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 December 31, 2011, inventories consist of $1.8 million in raw materials, $1.3 million in work in progress and $810,000 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 recognize revenue from product sales when 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 year ended December, 2011, the $21.5 million in net product revenue to wholesalers reflected a total of 8,699 DIFICID treatments. 7,177 DIFICID treatments were shipped to hospitals, retail pharmacies and long-term care facilities.  As of December 31, 2011, 1,081 hospitals had ordered DIFICID with 501 hospitals covered by the Company and Cubist have placed DIFICID on their formularies.

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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 distribution 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 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 the sales pattern of DIFICID, management experience with similar products, 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.

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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 underresearch 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 partner’s 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. Compensation expense of $11.8 million, $6.4 million and $2.8 million was recognized in the years ended December 31, 2011, 2010 and 2009, respectively.

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.

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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 Optimer’s and OBI’s 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 Optimer’s and OBI’s dividend history as well as Optimer’s and OBI’s 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

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 in 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.

Segment Reporting

Our management has determined that we operate in one business segment which is the development and commercialization of pharmaceutical products.

Results of Operations

Comparison of Years Ended December 31, 2011 and 2010

Revenues

Total revenues for the years ended December 31, 2011 and 2010 were $145.0 million and $1.5 million, respectively. The increase of $143.5 million was primarily due to two milestone payments received or due to us from our Astellas collaboration. We received a $69.0 million upfront payment from Astellas in the first quarter of 2011 which payment was earned upon the delivery of the license and related know-how which occurred in the quarter ended March 31, 2011.  We also recorded a $53.6 million milestone payment for the EMA approval milestone receivable from Astellas which we expect to receive 30 days after the earlier to occur of six months after the EMA approval or Astellas’ launch in two major countries. Total revenues also included $21.5 million of net product revenue from the sale of DIFICID. Included in the net product revenue recognized are reductions for wholesaler fees, returns and allowances, prompt pay discounts and government rebates and chargebacks.

Cost and expenses

Cost of product sales.  Cost of product sales for the year ended December 31, 2011 primarily represents the 5% royalty due to Par on net sales of DIFICID in the United States.  A significant portion of the product cost of DIFICID sold during the year was expensed as research and development expense 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 represents a 6.25% royalty to Par based on the Astellas upfront payment as well as the receivable related to the EMA approval milestone. We did not have a similar expense in the prior year.

Research and development expense.  Research and development expense for the years ended December 31, 2011 and 2010 was $43.1 million and $32.8 million, respectively, an increase of $10.3 million. The increase was primarily due to higher health economics and outcomes research, medical affairs, pharmacovigilance, publication expenses as well are higher research and development expense 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 2010 for the successful completion of the second DIFICID Phase 3 trial.

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Selling, general and administrative expense. Selling, general and administrative expense for the year ended December 31, 2011 and 2010 was $87.1 million and $17.6 million respectively, an increase of $69.5 million. The increase was primarily due 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 in mid-2011 which significantly increased our compensation expenses and related personnel costs. In addition, we expensed $6.6 million related to the Cubist service fee as part of our co-promotion agreement.

Interest income and other, net. Interest income and other, net of $291,000 for the year ended December 31, 2011 was relatively consistent with the $329,000 for the year ended December 31, 2010.

Comparison ofYears Ended December 31, 2010 and 2009

Revenues

Total revenues for the years ended December 31, 2010 and 2009 were $1,480,000 and $893,000, respectively.  The increase of $587,000, or 66%, was primarily due to a milestone payment received from Cempra Pharmaceuticals for the completion of its Phase 1 study for the treatment of respiratory infections.

Expenses

Research and Development Expense.  Research and development expense for the years ended December 31, 2010 and 2009 was $32,798,000 and $34,417,000, respectively.  The decrease of $1,619,000, or 5%, was due primarily to a decrease in DIFICID development expenses and manufacturing set-up expenses reimbursable to Biocon incurred in the prior year. The decrease was offset by a $5.0 million milestone to Par for the successful completion of the second DIFICID Phase 3 trial and the regulatory filing fee for the DIFICID NDA.

Selling, general and administrative expense. Selling, general and administrative expense for the year ended December 31, 2010 and 2009 was $17.6 million and $9.1 million respectively, an increase of $8.5 million. The increase was primarily due to increased market research and pre-commercial launch commercialization efforts related to our DIFICID program as well as higher consulting, recruitment and compensation expenses which included $4.7 million of stock compensation expense, an increase of $3.1 million over the same period in the prior year.

Interest Income and Other, net.  Net interest income and other of $329,000 for the year ended December 31, 2010 was relatively consistent with the $364,000 for the year ended December 31, 2009.

Liquidity and Capital Resources

Sources of Liquidity

Prior to our collaboration with Astellas and subsequent launch of DIFICID in July 2011, our operations have been financed primarily through the sale of equity securities.  Through December 31, 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 December 31, 2011, cash, cash equivalents and short-term investments totaled approximately $110.6 million as compared to $49.4 million as of December 31, 2010, an increase of approximately $61.2 million.  The increase in our cash, cash equivalents and short-term investments was primarily due to the net $73.1 million raised in a public offering of our common stock in February 2011 and a $69.2 million upfront payment from Astellas in March 2011 in connection with a collaboration and license agreement for DIFICID offset by the use of cash for our operating expenses. 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, $14.9 million was held by OBI as of December 31, 2011.

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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 Cubist’s 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 fidaxomicin 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. 40 million Euros is due 30 days after the earlier to occur of launch of fidaxomicin in two major countries or six months after EMA approval of the MMA for DIFICLIR, which occurred in December 2011 and 10 million Euros will become due 30 days after the launch of a fidaxomicin in any Astellas territory.  We currently expect to receive these two milestone payments no later than mid-2012.  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 fidaxomicin product in the applicable country.

In June 2011, we entered into a commercial manufacturing services agreement with Patheon Inc. 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.  We agreed to purchase a specified percentage of our fidaxomicin product requirements for North America and Europe from Patheon or its affiliates.

In May 2010, we entered into a long-term supply agreement with Biocon Limited, or Biocon, for the commercial manufacture of fidaxomicin’s active pharmaceutical ingredient, or API. Pursuant to the agreement, Biocon agreed to manufacture and supply to us, up to certain limits, fidaxomicin API and, subject to certain conditions, we agreed to purchase from Biocon at least a portion of our requirements for fidaxomicin 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 fidaxomicin API.

In February 2007, we regained worldwide rights to fidaxomicin 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 fidaxomicin.  We are obligated to pay Par a 5% royalty on net sales by us or our affiliates of fidaxomicin in North America and Israel, and a 1.5% royalty on net sales by us or our affiliates of fidaxomicin 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 fidaxomicin 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 in the United States and other fidaxomicin products in countries outside the United States;

·the costs of establishing, maintaining and managing our commercial infrastructure, including our sales or distribution capabilities and the timing of such efforts;

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·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 fidaxomicin or commercialize fidaxomicin 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 plus the two milestone payments from Astellas 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 volatility 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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

The following table describes our long-term contractual obligations and commitments as of December 31, 2011:

	Payments Due by Period
	Total		Less than 1 year		1-2 years		3-5 years		After 5 years
	(in thousands)
Operating lease obligations	$	23,541	$	1,578	$	4,899	$	7,898	$	9,166

Our facilities currently consist of laboratory and office space in two facilities in San Diego, California, and office space in Jersey City, New Jersey.  Our operating leases for our San Diego facilities have an original expiration of November 2011 but were extended through July 2012.  We plan to consolidate our San Diego offices and in December 2011, we entered into an operating lease agreement for laboratory and office space in San Diego for a 10-year lease term with a two five- year renewal option. We expect to move in the new facility in August 2012. The operating lease in New Jersey is subject to a one five-year renewal option.

We had firm purchase order commitments for the acquisition of inventory from Biocon and Patheon as of December 31, 2011 and 2010 of $1.0 million and zero, respectively.

Pursuant to our co-promotion with Cubist, we are obligated to pay a quarterly fee of $3.75 million ($15.0 million per year) beginning in July 2011, the commencement of the sale program of DIFICID in the United States.  As of December 31, 2011, approximately $26.3 million of the fee remains to be paid.

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The contractual obligations table does not include (a) potential future milestone payments to Cempra in the amount of $1.0 million due upon the regulatory approval of each of the first two products we develop under our licensing agreement with Cempra in any country which is a member of the Association of Southeast Asian Nations, or ASEAN, or (b) potential future milestone payments of up to $11.1 million to TSRI due upon achievement of certain clinical milestones, the filing of NDAs or their foreign equivalents and government marketing and distribution approval.  We may also be required to pay royalties on any net sales of fidaxomicin and other licensed product candidates.  The milestone and royalty payments under our license agreements are not included in the table above because we cannot, at this time, determine when or if the related milestones will be achieved or the events triggering the commencement of payment obligations will occur.

Recently Issued Accounting Pronouncements

FASB issued the following accounting amendments:

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 Company’s 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 Company’s financial position, cash flow or results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Cash Equivalents and Marketable Securities Risk

Our cash and cash equivalents and short-term investments as of December 31, 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 year ended December 31, 2011 would have resulted in an approximately $37,000 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.

Our cash and cash equivalents and short-term investments as of December 31, 2010 consisted primarily of money market funds and United States government instruments and other readily marketable debt instruments.  A hypothetical ten percent change in interest rates during the year ended December 31, 2010 would have resulted in approximately a $13,000 change in net loss.

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 securities 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 securities are redeemed by the issuer or they mature.

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.

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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 Canada’s 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. In anticipation of a 40 million Euro milestone payment from Astellas when we received the EMA approval of fidaxomicin, we entered in a forward contract to limit our foreign currency exposure to Euro. And thus, we do not expect the impact of fluctuations in the relative fair value of the Euro to be material to our results of operations.

Item 8.    Financial Statements and Supplementary Data

Our financial statements required by this item are attached to this Report beginning on page 62.

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure 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 SEC’s 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. There has been no change in our internal control over financial reporting in our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Internal Control Over Financial Reporting

(a)Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting is supported by written policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of our assets’ provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally

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accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board or Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. We based this assessment on criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. We reviewed the results of our assessment with the Audit Committee.

Based on this assessment, management determined that, as of December 31, 2011, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this annual report, has issued its report on the effectiveness of our internal control over financial reporting as of December 31, 2011.

(b)Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and

Stockholders of Optimer Pharmaceuticals, Inc.

We have audited Optimer Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO criteria”). Optimer Pharmaceuticals, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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In our opinion, Optimer Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Optimer Pharmaceuticals, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011 of Optimer Pharmaceuticals, Inc. and our report dated March 8, 2012 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
San Diego, California
March 8, 2012

Item 9B.  Other Information

None.

PART III

Certain information required by Part III is omitted from this report because we will file a definitive proxy statement within 120 days after the end of our fiscal year ended December 31, 2011 pursuant to Regulation 14A (the “Proxy Statement”) for our annual meeting of stockholders to be held on May 9, 2012, and certain information included in the Proxy Statement is incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance

We have adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available on our website at www.optimerpharma.com. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver.

The other information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Item 11. Executive Compensation

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Item 14. Principal Accounting Fees and Services

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

1. Financial Statements

See Index to Consolidated Financial Statements in Item 8 of this report.

2. Financial Statement Schedules

None

3. Exhibits

Exhibit No.		Description of Document
3.1	(2)	Certificate of Incorporation of Optimer Pharmaceuticals, Inc., as amended and restated.
3.2	(5)	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 investors listed therein dated November 30, 2005, as amended and restated.
4.3	(6)	Registration Rights Agreement, dated October 23, 2007, by and between Optimer Pharmaceuticals, Inc. and the purchasers listed on the signature pages thereto.
10.1	(1)*	Master Services Agreement between Optimer Pharmaceuticals, Inc. and Advanced Biologics, LLC (subsequently INC Research, Inc.), dated November 16, 2005, as amended.
10.2	(3)*	License Agreement between Optimer Pharmaceuticals, Inc. and Sloan-Kettering Institute for Cancer Research, dated July 31, 2002, as amended.
10.3	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute, dated July 23, 1999.
10.4	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute, dated May 30, 2001.
10.5	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute, dated June 1, 2004.
10.6	(2)	Building Lease between Optimer Pharmaceuticals, Inc. and Pacific Sorrento Technology Park, dated May 1, 2001, as amended.
10.7	(1)+	Form of Employee Proprietary Information Agreement of Optimer Pharmaceuticals, Inc.
10.8	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Sherwood L. Gorbach, dated October 6, 2005.
10.9	(9)+	Offer letter between Optimer Pharmaceuticals, Inc. and John D. Prunty, dated May 10, 2006, as amended.
10.10	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Tessie M. Che, dated August 30, 2001.
10.11	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Youe-Kong Shue, dated February 18, 2000.
10.12	(1)+	Form of Indemnification Agreement between Optimer Pharmaceuticals, Inc. and its directors and officers.
10.13	(1)+	1998 Stock Plan of Optimer Pharmaceuticals, Inc.
10.14	(1)+	Stock Plan Stock Option Agreement of Optimer Pharmaceuticals, Inc.
10.15	(16)+	2006 Equity Incentive Plan of Optimer Pharmaceuticals, Inc., as amended.
10.16	(5)+	Employee Stock Purchase Plan of Optimer Pharmaceuticals, Inc., as amended.
10.17	(2)	Prospective Buy-Back Agreement between Optimer Pharmaceuticals, Inc. and Par Pharmaceutical, Inc., dated January 19, 2007.
10.18	(7)	Office Lease, dated August 18, 2008, by and between Optimer Pharmaceuticals, Inc. and Trizec Sorrento Towers, LLC, as amended.
10.19	(8)+	Optimer Pharmaceuticals, Inc. Severance Benefit Plan.
10.20	(10)*	Collaboration Research and Development and License Agreement between Optimer Pharmaceuticals, Inc. and Cempra Pharmaceuticals, Inc., dated March 31, 2006, as amended.
10.21	(10)*	Intellectual Property Assignment and License Agreement between Optimer Pharmaceuticals, Inc. and Optimer Biotechnology, Inc., dated October 30, 2009.
10.22	(10)	Financing Agreement between Optimer Pharmaceuticals, Inc. Optimer Biotechnology, Inc. and certain investors named therein, dated October 30, 2009, as amended.
10.25	(12)+	Offer letter between Optimer Pharmaceuticals, Inc. and Pedro Lichtinger, dated May 5, 2010.

58

10.26	(17)+	Offer letter between Optimer Pharmaceuticals, Inc. and Kurt Hartman, dated November 12, 2010.
10.27	(17)+	Offer letter between Optimer Pharmaceuticals, Inc. and Gregory Papaz, dated December 20, 2010.
10.28	(12)+	Separation and Consulting Agreement between Optimer Pharmaceuticals, Inc. and Michael N. Chang, dated May 5, 2010.
10.29	(4)	Compensation Agreement between Optimer Pharmaceuticals, Inc. and AFOS, LLC, dated July 22, 2010.
10.30	(14)*	API Manufacturing and Supply Agreement between Optimer Pharmaceuticals, Inc. and Biocon Limited, dated May 18, 2010.
10.31	(17)+	Offer letter between Optimer Pharmaceuticals, Inc. and Linda Amper, dated January 18, 2011.
10.32	(22)+	Optimer Pharmaceuticals,Inc Amended and Restated Severance Benefit Plan.
10.33	(14)	First Amendment to Office Lease between Optimer Pharmaceuticals, Inc. and Trizec Sorrento Towers, LLC, dated May 3, 2010.
10.34	(17)	Amendment to API Manufacturing and Supply Agreement between Optimer Pharmaceuticals, Inc. and Biocon Limited, dated December 21, 2010.
10.35	(17)	Office Lease between Optimer Pharmaceuticals, Inc. and 101 Hudson Leasing Associates, dated February 9, 2011.
10.36	(15)	First Amendment to Financing Agreement between Optimer Pharmaceuticals, Inc. and Optimer Biotechnology, Inc., dated February 28, 2011.
10.37	(18)*	Collaboration and License Agreement between Optimer Pharmaceuticals, Inc. and Astellas Pharma Europe Ltd., dated February 2, 2011.
10.38	(18)*	Supply Agreement between Optimer Pharmaceuticals, Inc. and Astellas Pharma Europe Ltd., dated February 2, 2011.
10.39	(22)	Optimer Pharmaceuticals, Inc. Incentive Compensation Plan.
10.40	(20)	Amendment Agreement between Optimer Pharmaceuticals, Inc. and Astellas Pharma Europe, Ltd., dated March 29, 2011.
10.41	(20)*	Co-Promotion Agreement between Optimer Pharmaceuticals, Inc. and Cubist Pharmaceuticals, Inc., dated April 5, 2011.
10.42	(20)	First Amendment to Lease between Optimer Pharmaceuticals, Inc. and 101 Hudson Leasing Associates, dated May 4, 2011.
10.43	(20)*	Manufacturing Services Agreement between Optimer Pharmaceuticals, Inc. and Patheon Inc., dated June 1, 2011.
10.44	(20)+	2006 Equity Incentive Plan Form of Notice of Grant of Restricted Stock Units.
10.45	(21)	Second Amendment to Lease between Optimer Pharmaceuticals, Inc. and 101 Hudson Leasing Associates, dated July 5, 2011.
10.46	(21)	Second Amendment to Office Lease between Optimer Pharmaceuticals, Inc. and Trizec Sorrento Towers, LLC, dated July 26, 2011.
10.47	(21)	Second Lease Extension and Addendum between Optimer Pharmaceuticals, Inc. and HELF Sorrento, LLC, dated July 26, 2011.
10.48	(21)	Third Amendment to Lease between Optimer Pharmaceuticals, Inc. and 101 Hudson Leasing Associates, dated September 30, 2011.
10.59	(21)+	Form of Restricted Stock Unit Grant Notice and Agreement for shares of Optimer Biotechnology, Inc.
10.50		Separation Agreement between Optimer Pharmacueuticals, Inc. and Tessie M. Che, dated January 10, 2012.
10.51		Lease Agreement between Optimer Pharmaceuticals, Inc. and ARE-SD Region No. 33, LLC, dated December 15, 2011.
21.1		Subsidiaries of Optimer Pharmaceuticals, Inc.
23.1		Consent of Independent Registered Public Accounting Firm.
31.1		Certification of principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a).
32		Certification by the Chief Executive Officer and the Chief Financial Officer of Optimer Pharmaceuticals, Inc., 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		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

+	Indicates management contract or compensatory plan.
*	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed

59

	separately with the Securities and Exchange Commission.
**	Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
(1)	Filed with Registrant’s Registration Statement on Form S-1 on November 9, 2006.
(2)	Filed with Registrant’s Amendment No. 3 to Registration Statement on Form S-1 on January 22, 2007.
(3)	Filed with Registrant’s Amendment No. 4 to Registration Statement on Form S-1 on February 5, 2007.
(4)	Filed with the Registrant’s Current Report on Form 8-K on July 22, 2010.
(5)	Filed with the Registrant’s Current Report on Form 8-K on September 18, 2007.
(6)	Filed with the Registrant’s Current Report on Form 8-K on October 29, 2007.
(7)	Filed with the Registrant’s Current Report on Form 8-K on August 21, 2008.
(8)	Filed with the Registrant’s Current Report on Form 8-K on October 8, 2008.
(9)	Filed with the Registrant’s Annual Report on Form 10-K on March 12, 2009.
(10)	Filed with the Registrant’s Quarterly Report on Form 10-Q on November 3, 2009.
(11)	Filed with the Registrant’s Current Report on Form 8-K on May 6, 2010.
(12)	Filed with the Registrant’s Quarterly Report on Form 10-Q on August 4, 2010.
(13)	Filed with the Registrant’s Current Report on Form 8-K on February 10, 2011.
(14)	Filed with the Registrant’s Current Report on Form 8-K on March 2, 2011.
(15)	Filed with the Registrant’s Current Report on Form 8-K on June 10, 2011.
(16)	Filed with the Registrant’s Current Report on Form 10-K on March 10, 2011.
(17)	Filed with the Registrant’s Current Report on Form 10-Q on May 6, 2011.
(18)	Filed with the Registrant’s Current Report on Form 8-K on April 29, 2011.
(19)	Filed with the Registrant’s Current Report on Form 10-Q on August 4, 2011.
(20)	Filed with the Registrant’s Current Report on Form 10-Q on November 3, 2011.
(22)	Filed with the Registrant’s Current Report on Form 8-K on February 13, 2012.

60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	OPTIMER PHARMACEUTICALS, INC.
Dated: March 8, 2012	By:	/s/ Pedro Lichtinger
	Name:	Pedro Lichtinger
	Title:	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ PEDRO LICHTINGER	President, Chief Executive Officer and Director (Principal Executive Officer)	March 8, 2012
Pedro Lichtinger
/s/ JOHN D. PRUNTY	Chief Financial Officer (Principal Accounting and Financial Officer)	March 8, 2012
John D. Prunty
/s/ MICHAEL N. CHANG	Chairman	March 8, 2012
Michael N. Chang
/s/ ANTHONY E. ALTIG	Director	March 8, 2012
Anthony E. Altig
/s/ MARK AUERBACH	Director	March 8, 2012
Mark Auerbach
/s/ JOSEPH Y. CHANG	Director	March 8, 2012
Joseph Y. Chang
/s/ PETER E. GREBOW	Director	March 8, 2012
PETER E. GREBOW
/s/ HENRY A. MCKINNELL	Director	March 8, 2012
Henry A. McKinnell
/s/ ROBERT L. ZERBE	Director	March 8, 2012
Robert L. Zerbe

61

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	63
Consolidated Balance Sheets	64
Consolidated Statements of Operations	65
Consolidated Statements of Stockholders’ Equity	66
Consolidated Statements of Cash Flows	67
Notes to Consolidated Financial Statements	68

62

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and

Stockholders of Optimer Pharmaceuticals Inc.

We have audited the accompanying consolidated balance sheets of Optimer Pharmaceuticals, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Optimer Pharmaceuticals, Inc. at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Optimer Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2012 expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
San Diego, California
March 8, 2012

63

Optimer Pharmaceuticals, Inc.

Consolidated Balance Sheets

	December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	31,787,512		$	19,861,924
Short-term investments	78,791,066			29,553,506
Trade accounts receivable, net	6,563,645			—
Accounts receivable, other	52,289,290			53,552
Inventory	3,947,380			—
Prepaid expenses and other current assets	3,781,830			463,307
Total current assets	177,160,723			49,932,289
Property and equipment, net	2,590,715			697,683
Long-term investments	882,000			882,000
Other assets	1,389,734			508,190
Total assets	$	182,023,172		$	52,020,162
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,860,462		$	2,307,820
Accrued liabilities	21,447,544			2,385,046
Total current liabilities	31,308,006			4,692,866
Deferred rent	151,141			141,138
Commitments and contingencies	—			—
Stockholders’ equity:
Preferred stock, par value $0.001, 10,000,000 shares authorized and no shares issued and outstanding at December 31, 2011 and 2010, respectively	—			—
Common stock, $0.001 par value, 75,000,000 shares authorized, 46,689,951 shares and 39,278,965 shares issued and outstanding at December 31, 2011 and 2010, respectively	46,690			39,279
Additional paid-in capital	358,895,471			267,665,732
Accumulated other comprehensive income (loss)	(46,725		)	298,850
Accumulated deficit	(214,992,783		)	(222,814,407		)
Total Optimer Pharmaceuticals, Inc. stockholders’ equity	143,902,653			45,189,454
Noncontrolling interest	6,661,372			1,996,704
Total stockholders’ equity	150,564,025			47,186,158
Total liabilities and stockholders’ equity	$	182,023,172		$	52,020,162

See accompanying notes.

64

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Operations

	Years Ended December 31,
	2011		2010			2009
Revenues:
Product revenue, net	$	21,511,037	$	—		$	—
Licensing	122,749,000		—			—
Research grants and collaborative agreement	718,336		1,480,362			892,644
Total revenues	144,978,373		1,480,362			892,644
Cost and expenses:
Cost of product sales	1,525,798		—			—
Cost of licensing	7,584,353		—			—
Research and development	43,085,307		32,797,672			34,416,983
Selling, general and administrative	87,144,257		17,550,883			9,073,898
Total operating expenses	139,339,715		50,348,555			43,490,881
Income (loss) from operations	5,638,658		(48,868,193		)	(42,598,237		)
Interest income and other, net	290,870		329,290			363,998
Consolidated net income (loss)	5,929,528		(48,538,903		)	(42,234,239		)
Net loss attributable to noncontrolling interest	1,892,096		1,199,161			141,682
Net income (loss) attributable to Optimer Pharmaceuticals, Inc.	$	7,821,624	$	(47,339,742	)	$	(42,092,557	)
Net income (loss) per share attributable to Optimer Pharmaceuticals, Inc. common stockholders - basic	$	0.17	$	(1.25	)	$	(1.30	)
Net income (loss) per share attributable to Optimer Pharmaceuticals, Inc. common stockholders - diluted	$	0.17	$	(1.25	)	$	(1.30	)
Shares used to compute net income (loss) per share attributable to common stockholders - basic	45,622,168		37,830,452			32,468,702
Shares used to compute net income (loss) per share Attributable to common stockholders - diluted	46,369,683		37,830,452			32,468,702

See accompanying notes.

65

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

	Common Stock			Additional paid-		Accumulated other comprehensive			Accumulated			Noncontrolling
	Shares	Amount		in capital		income (loss)			deficit			Interest			Total
Balance at December 31, 2008	29,716,751	$	29,717	$	167,544,806	$	38,088		$	(133,382,108	)	$	—		$	34,230,503
Issuance of common stock upon exercise of options	125,430	125		145,050		—			—			—			145,175
Issuance of common stock during the registered direct offerings, net	3,252,366	3,252		32,865,715		—			—			—			32,868,967
Issuance of common stock pursuant to employee stock purchase plan	44,826	45		382,246		—			—			—			382,291
Compensation expense related to grants of consultant stock options	—	—		89,395		—			—			—			89,395
Employee stock based compensation	—	—		2,718,597		—			—			—			2,718,597
Sale of investment in subsidiary to non-controlling interest				1,369,105								3,165,906			4,535,011
Comprehensive loss:
Unrealized gain on short-term investment	—	—		—		13,959			—			—			13,959
Foreign currency translation adjustment	—	—		—		(13,984		)	—			15,932			1,948
Net loss	—	—		—		—			(42,092,557		)	(141,682		)	(42,234,239		)
Comprehensive loss												(125,750		)	(42,218,332		)
Balance at December 31, 2009	33,139,373	33,139		205,114,914		38,063			(175,474,665		)	3,040,156			32,751,607
Issuance of common stock upon exercise of options	552,253	552		1,171,550		—			—			—			1,172,102
Issuance of common stock during the public offerings, net	4,887,500	4,888		51,203,837		—			—			—			51,208,725
Issuance of common stock pursuant to employee stock purchase plan	49,077	49		422,481		—			—			—			422,530
Issuance of common stock for consulting services	585,762	586		3,377,331		—			—			—			3,377,917
Compensation expense related to grants of consultant stock options and awards	65,000	65		2,121,984		—			—			—			2,122,049
Employee stock based compensation	—	—		4,253,635		—			—			—			4,253,635
Comprehensive loss:
Unrealized loss on short-term investment	—	—		—		(3,020		)	—			—			(3,020		)
Foreign currency translation adjustment	—	—		—		263,807			—			155,709			419,516
Net loss	—	—		—		—			(47,339,742		)	(1,199,161		)	(48,538,903		)
Comprehensive loss												(1,043,452		)	(48,122,407		)
Balance at December 31, 2010	39,278,965	39,279		267,665,732		298,850			(222,814,407		)	1,996,704			47,186,158
Issuance of common stock upon exercise of options	347,803	347		1,858,738		—			—			—			1,859,085
Issuance of common stock during the public offerings, net	6,900,000	6,900		73,151,057		—			—			—			73,157,957
Issuance of common stock pursuant to employee stock purchase plan	71,650	72		640,150		—			—			—			640,222
Issuance of common stock upon exercise of warrants	91,533	92		999,907		—			—			—			999,999
Issuance of common stock for consulting services and other	—	—		2,793,513		—			—			491,761			3,285,274
Employee stock based compensation	—	—		11,786,374		—			—			—			11,786,374
Sale by subsidiary of common stock to non-controlling interest	—	—		—		—						6,194,192			6,194,192
Comprehensive income:
Unrealized gain on short-term investment	—	—		—		119,789			—			—			119,789
Foreign currency translation adjustment	—	—		—		(465,364		)	—			(129,189		)	(594,553		)
Net income (loss)	—	—		—		—			7,821,624			(1,892,096		)	5,929,528
Comprehensive income:	—	—		—		—						(2,021,285		)	5,454,764
Balance at December 31, 2011	46,689,951	$	46,690	$	358,895,471	$	(46,725	)	$	(214,992,783	)	$	6,661,372		$	150,564,025

66

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2011			2010			2009
Operating activities
Consolidated net income (loss)	$	5,929,528		$	(48,538,903	)	$	(42,234,239	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	525,008			306,718			216,783
Stock based compensation	11,786,374			6,375,684			2,807,992
Issuance of common stock for consulting services and other	3,285,274			3,377,917			—
Deferred rent	10,003			(112,336		)	1,970
(Gain) Loss on disposal of assets	21,681			(25,511		)	20,267
Changes in operating assets and liabilities:
Trade accounts receivable, net	(6,563,645		)	—			—
Accounts receivable, other	(52,289,290		)	30,612			127,135
Inventory	(3,947,380		)	—			—
Prepaid expenses and other current assets	(3,264,971		)	(130,612		)	200,676
Other assets	(881,544		)	(9,428		)	(512		)
Accounts payable and accrued expenses	26,615,140			(2,958,043		)	(162,582		)
Net cash used in operating activities	(18,773,822		)	(41,683,902		)	(39,022,510		)
Investing activities
Purchases of short-term investments	(91,279,751		)	(55,284,340		)	(28,567,298		)
Sales or maturity of short-term investments	42,165,000			46,845,000			30,153,000
Purchase of property and equipment	(2,439,718		)	(305,992		)	(215,763		)
Net cash provided (used) in investing activities	(51,554,469		)	(8,745,332		)	1,369,939
Financing activities
Proceeds from sale of common stock	76,657,262			52,803,357			33,396,433
Proceeds from sale of subsidiary common stock	6,194,192			—			4,535,011
Net cash provided by financing activities	82,851,454			52,803,357			37,931,444
Effect of exchange rate changes on cash and cash equivalents	(597,575		)	433,473			(3,425		)
Net increase in cash and cash equivalents	11,925,588			2,807,596			275,448
Cash and cash equivalents at beginning of year	19,861,924			17,054,328			16,778,880
Cash and cash equivalents at end of year	$	31,787,512		$	19,861,924		$	17,054,328

See accompanying notes.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Organization and Summary of Significant Accounting Policies

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.  In October 2011, Optimer also 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.

Principles of Consolidation

The consolidated financial statements include all the accounts of the Company and its majority owned subsidiaries.  All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term 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 within other comprehensive income/(loss) in the consolidated statement 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. As of December 31, 2011, cash, cash equivalents and short-term investments totaled approximately $110.6 million of which $14.9 million was held by OBI.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and short-term investments.  The Company maintains deposits in federally insured financial institutions in excess of federally insured limits.  However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.  Additionally, the Company has established guidelines regarding diversification of its investments and their maturities, which are designed to maintain safety and liquidity.

The Company’s accounts receivable consists of amounts due from customers for the sales of DIFICID.  The following table sets forth distribution customers who represented 10% or more of gross revenues for the year ended December 31, 2011:

	2011
Amerisource Bergen Drug Corporation	23	%
Cardinal Health	43	%
McKesson	30	%
	96	%

Accounts Receivable

Trade accounts receivable are recorded net of reserves for estimated chargeback obligations, prompt payment discounts and any allowance for doubtful accounts. Reserves for other sales related allowances such as rebates, distribution and other fees, and product returns are included in accrued expenses in our condensed consolidated balance sheet. The allowance for prompt pay and service fee was $1.6 million and none at December 31, 2011 and 2010, respectively.

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 expenses costs relating to the production of inventory in the period incurred until such time as the product receives regulatory approval, at which point the Company begins to capitalize the inventory costs related to the product.  Prior to the FDA approval of DIFICID for commercial sale in July 2011, all production costs related to DIFICID were expensed to research and development.  Subsequent to receiving FDA approval, costs related to the production of DIFICID are capitalized to inventory, including the cost of converting previously existing raw materials to inventory and labeling and packaging inventory manufactured

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prior to approval whose cost had already been recorded as research and development expense.  Until the Company sells the inventory for which a portion of the costs were previously expensed, the carrying value of the inventories and the cost of product sales will reflect only incremental costs incurred subsequent to the approval date. The Company continues to expense costs associated with clinical trial material as research and development expense.

As of December 31, 2011, inventories consist of:

Raw materials	$	1,815,696
Work in process	1,321,763
Finish goods	809,921
	$	3,947,380

Foreign Currency Translation

The functional currency for our foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rates on the balance sheet dates. Net revenues and expenses are translated using the average exchange rates prevailing during the year. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income (loss) within stockholders’ equity in the consolidated balance sheets. Foreign currency transaction gains and losses are reported in operating expenses, net in the consolidated statements of operations.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, short-term investments and accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.  The fair value of available-for-sale securities is based upon quoted market prices for those securities.

Derivatives

The Company may use derivatives to manage foreign currency risk and interest rate risk and not for speculative or trading purposes. The Company’s objective is to reduce the risk to earnings and cash flows associated with changes in foreign currency exchange rates. Gains and losses resulting from changes in the fair values of those derivative instruments are recorded to earnings or other comprehensive income (loss) depending on the use of the derivative instrument and whether it qualifies for hedge accounting.

Property and Equipment

Property and equipment, including leasehold improvements, are stated at cost.  Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years.  Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or the fair value less costs to sell, and are no longer depreciated.  Assets and liabilities that are part of a disposed group and classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.  The Company has not recognized any impairment losses through December 31, 2011.

Deferred Rent

Rent expense is recorded on a straight-line basis over the term of the lease.  The difference between rent expense accrued and amounts paid under the lease agreement is recorded as deferred rent in the accompanying consolidated balance sheets.

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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 in 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.

Revenue Recognition

DIFICID is available through three major wholesalers and regional wholesalers that provide the DIFICID to hospital and retail pharmacies, and long-term care facilities. The Company recognizes 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 Company’s 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 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.

Allowances against receivable balances primarily relate to prompt payment discounts and distribution 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 Company’s 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 Company’s estimated obligations resulting from contractual commitments to sell DIFICID to qualified healthcare providers at a price lower than the list price charged to the Company’s 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.

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 Company’s operating results in the period of the adjustment.

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Product Returns.   The Company’s 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 the sales pattern of DIFICID, management experience with similar products, historical trends in the pharmaceutical industry and trends for similar products sold by others.

During the year ended December 31, 2011, provisions for product sales allowances reduced gross product sales as follows:

Total gross product sales	$	24,357,200
Prompt pay and other discounts	(2,004,689		)
Government rebates and chargebacks	(476,116		)
Returns and allowances	(365,358		)
Product sales allowance	$	(2,846,163	)
Total product sales, net	$	21,511,037
Total product sales allowances as a percent of gross product sales	11.7		%

Collaborations, Milestones and Royalties

In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones 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 Company’s performance or on the occurrence of a specific outcome resulting from the Company’s 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 Company’s performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from the Company’s 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 partner’s 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 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.

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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. And in December 2011, we recorded a $53.6 million or 40 million Euros upon the approval of European Marketing Authorization (“EMA”). 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.

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.

The Company’s research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by the Company’s 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.

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 stockholder’s equity as previously reported.

Stock-Based Compensation

The Company recognizes in its financial statements the share-based payment transactions with employees and consultants based on their fair value and recognized as compensation expense over the vesting period.  Compensation expense of $11.8 million, $6.4 million and $2.8 million was recognized in the years ended December 31, 2011, 2010 and 2009, respectively.

Employee 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. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model and the fair value of its stock awards based on the quoted market price of its common stock.

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Estimating the fair value for stock options requires judgment, including estimating stock-price volatility, expected term, expected dividends and risk-free interest rates. The expected volatility rates are based on the historical fluctuation in the stock price since inception. The average expected term is calculated using the simplified method. Expected dividends are estimated based on the Company’s dividend history as well as the Company’s current projections. The risk-free interest rate for periods approximating the expected terms of the options is based on the U.S. Treasury yield curve in effect at the time of grant. These assumptions are updated on an annual basis or sooner if there is a significant change in circumstances that could affect these assumptions.

The Company also grants awards to non-employees and determine the fair value of such stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is completed.

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

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). As of December 31, 2011, the cumulative unrealized gain on investments and the cumulative loss on foreign currency translation adjustment was $119,789 and $(166,514), respectively. As of December 31, 2010, the cumulative unrealized loss on investments and the cumulative gain on foreign currency adjustment was $(3,020) and $301,870, respectively.

Net Income (Loss) Per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.  Diluted net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common stock equivalents outstanding for the period determined using the treasury-stock method.  For purposes of this calculation stock options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share attributable to common stockholders when their effect is dilutive.

	Years Ended December 31,
	2011		2010			2009
Historical
Numerator:
Net income (loss) attributable to Optimer Pharmaceuticals, Inc.	$	7,821,624	$	(47,339,742	)	$	(42,092,557	)
Denominator:
Weighted average common shares outstanding - basic	45,622,168		37,830,452			32,468,702
Effect of dilutive securities:
Restricted stock	—		—			—
Stock award common share equivalents	747,515		—			—
Weighted average number of shares of common stock — diluted	46,369,683		37,830,452			32,468,702
Net income (loss) attributable to common stockholders per share — basic	$	0.17	$	(1.25	)	$	(1.30	)
Net income (loss) attributable to common stockholders per share — diluted	$	0.17	$	(1.25	)	$	(1.30	)
Historical outstanding anti-dilutive securities not included in diluted net loss per share calculation
Common stock options	3,706,708		3,589,626			2,466,751
Common stock warrants	—		91,533			91,533
Total	3,706,708		3,681,159			2,558,284

Segment Reporting

The Company’s management has determined that it operates in one business segment which is the development and commercialization of pharmaceutical products.

Recently Issued Accounting Pronouncements

The FASB issued the following accounting amendments:

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 Company’s financial position, cash flow or results of operations.

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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 Company’s financial position, cash flow or results of operations.

2.Fair Value of Financial Instruments

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2011 and 2010:

	Fair Value Measurements at December 31, 2011 Using:
	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
Cash equivalents	$	31,787,512	$	—	$	—	$	31,787,512
Marketable securities	—		78,791,066		—		78,791,066
Auction rate preferred securities	—		—		882,000		882,000
Other assets — forward contracts not designated as hedges	—		1,752,006		—		1,752,006
	$	31,787,512	$	80,543,072	$	882,000	$	113,212,584

	Fair Value Measurements at December 31, 2010 Using:
	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (1) (Level 2)		Unobservable Inputs (Level 3)		Total
Cash equivalents	$	19,861,924	$	—	$	—	$	19,861,924
Marketable securities	—		29,553,506		—		29,553,506
Auction rate preferred securities	—		—		882,000		882,000
	$	19,861,924	$	29,553,506	$	882,000	$	50,297,430

(1)   During 2011, the Company changed how it categorizes amounts within the fair value hierarchy and thus, the amounts now reported as Level 2 fair value instruments at December 31, 2010 were previously shown as Level 1 and have been reclassified.

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.

Marketable Securities.  With the exception of auction rate securities, the Company obtains pricing information from quoted market prices, pricing vendors or quotes from brokers/dealers. The Company conducts reviews of its primary pricing vendors to determine whether the inputs used in the vendor’s pricing processes are deemed to be observable.

The fair value of U.S. Treasury securities and government-related securities, and corporate bonds are generally determined using standard observable inputs, including reported trades, quoted market prices, and broker/dealer quotes.

The fair value of preferred auction rate securities (ARPS”) is estimated by the Company using a discounted cash flow model that incorporates transaction details such as contractual terms, maturity and timing and amount of cash flows and expected holding period of the ARPS. The Company’s ARPS is classified as a long-term investment on the consolidated balance sheets, as the Company does not believe it could liquidate the security in the near term. The ARPS does not have observable inputs and thus the ARPS is included in Level 3.

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Derivative Instruments. Derivative instrument includes a forward contract to manage foreign exchange risk for certain transactions denominated in a foreign currency. The forward contract is valued using standard calculation that is primarily based on observable inputs, such as foreign currency exchange rates and thus the forward contract is included in Level 2.  For the year ended December 31, 2011, included in its interest income and other, net, the Company recognized a gain of $1.8 million on its forward contract.

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 Preferred Securities
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 December 31, 2011	$	882,000
Change in unrealized gains (losses) included in net loss related to assets still held	$	—

3.           Short-Term Investments

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

	December 31, 2011
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency bonds	$	69,241,792	$	106,347	$	—	$	69,348,139
Corporate bonds	9,429,485		13,442		—		9,442,927
	$	78,671,277	$	119,789	$	—	$	78,791,066

	December 31, 2010
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Government agency bonds	$	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

None of the investments had a net unrealized loss positions as of December 31, 2011.

The amortized cost and estimated fair value of securities available-for-sale at December 31, 2011, by contractual maturity, are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	78,671,277	$	78,791,066

The weighted average maturity of short-term investments as of December 31, 2011 and 2010, was approximately seven months and four months, respectively.

Evaluating Investments for Other-than Temporary Impairments

The Company considers 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 of which the market value has been less than cost, the financial condition of the issuer and the Company’s intent to hold and ability to retain these short-term investments.  Based on these factors, except for the ARPS, on which the Company recorded as an other temporary impairment in 2008, the Company has not identified any other than temporary impairment.

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4.           Property and Equipment

Property and equipment is stated at cost and consists of the following:

	December 31,
	2011			2010
Equipment	$	3,098,431		$	2,294,784
Furniture and fixtures	226,362			211,295
Leasehold improvements	1,282,138			1,288,714
Computer equipment and software	1,579,514			495,971
	6,186,445			4,290,764
Less accumulated depreciation and amortization	(3,595,730		)	(3,593,081		)
Total property and equipment, net	$	2,590,715		$	697,683

Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which typically is five years.  Leasehold improvements and assets acquired under capital leases are amortized over their estimated useful life or the related lease term, whichever is shorter.

The recorded depreciation expense of $525,008, $306,718, and $216,783 in the years ended December 31, 2011, 2010 and 2009, respectively.

5.     Accrued Liabilities

Accrued liabilities consisted of the following:

	December 31,
	2011		2010
Accrued preclinical and clinical expenses	$	975,589	$	262,399
Accrued research services	—		151,751
Accrued legal fees	393,672		61,967
Accrued salaries, wages and benefits	6,955,837		1,872,191
Accrued royalties	3,886,180		—
Reserved for product returns, rebates and chargebacks	735,256		—
Accrued service fees for Cubist	3,220,421		—
Accrued inventory in transit	1,089,531		—
Other accrued liabilities	4,191,058		36,738
Total accrued liabilities	$	21,447,544	$	2,385,046

6.     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 Cubist’s 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. Except for the first quarterly payment which the Company paid in advance, all subsequent payments are paid in arrears. 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.

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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 Cubist’s 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 began its quarterly payments of $3.75 million to Cubist 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.

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 Company’s 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 its 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. In December 2011, the Company received an approval from the EMA for DIFICLIR™ (fidaxomicin) tablets and thus recorded the 40 million Euro milestone as a receivable in the fourth quarter of 2011.  The Company entered into a forward contract in order to limit the Company’s foreign currency exposure. The Company is eligible to receive additional milestone payments totaling up to 65 million Euros upon the achievement of certain commercial milestones.

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 its performance or on the occurrence of a separate outcome resulting from its 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 Company’s 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 its performance.  In addition, the Company 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.

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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 Company’s analysis, it 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, we 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 us.  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 us.

Par Pharmaceuticals, 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 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 net sales by the Company, its affiliates or its licensees of DIFICID in North America and Israel, and a 1.5% royalty on 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, the Company will be required to pay Par a 6.25% royalty on net revenues received by it related to DIFICID.  The Company is obligated to pay each of these royalties, 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.  In the fourth quarter of 2011, the Company also recorded $3.3 million in royalties related to the $53.6 million EMA approval milestone due from Astellas.  Through December 31, 2011, the Company recorded $1.1 million in royalties related to DIFICID net sales in the U.S.

Biocon Limited

In May 2010, the Company entered into a long-term supply agreement with Biocon, for the commercial manufacture of DIFICID API.  Pursuant to the agreement, Biocon agreed to manufacture and supply 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 it 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.  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 obtains 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 Biocon’s failure to supply requested amounts of DIFICID API, or (iii) by Biocon upon the occurrence of certain events, including our failure to purchase amounts of DIFICID API that it indicates 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 agreed to purchase a specified percentage of its fidaxomicin product requirements for North America and Europe from Patheon or its affiliates.

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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 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 determine to discontinue development or commercialization of such product for safety or efficacy reasons, (ii) if any regulatory authority takes an enforcement action against Patheon’s manufacturing site that relates to fidaxomicin products or that could reasonably be expected to adversely affect Patheon’s ability to supply fidaxomicin products to us, (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.  The Company granted to Cempra an exclusive worldwide license, except in ASEAN countries, with the right to sublicense, the Company’s patent and know-how related to the Company’s macrolide and ketolide antibacterial program.  As partial consideration for granting Cempra the licenses, 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 has assessed milestones under the revised authoritative guidance for research and development milestones and determined that the preclinical milestone payments, as defined in the agreement, meet the definition of a milestone as they are 1) events that can only be achieved in part on our past performance or upon the occurrence of a specific outcome resulting from our performance, 2) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and 3) they result in additional payments being due to us. Clinical development and commercial milestone payments, however, currently do not meet this criteria as their achievement is solely based on the performance of Cempra. To date the Company has recognized $500,000 in payments from this collaboration. The Company will 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.

In February 2012, Cempra completed an initial public offering at which time the Company’s equity of Cempra was converted to 125,646 common stock shares.

Optimer Biotechnology, Inc.

In October 2009, the Company entered into certain transactions involving OBI, its then wholly-owned subsidiary, to provide funding for the development of two of its 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, its 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 OBI’s 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 same group of new investors, and the Company and the new investors also purchased new OBI shares.  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. The Company purchased 277.2 million New Taiwan Dollars of the shares issued in the financing. In December 2011.

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Memorial Sloan-Kettering Cancer Center (“MSKCC”)

In July 2002, the Company entered into a license agreement with MSKCC to acquire, together with certain nonexclusive licenses, exclusive, worldwide licensing and sublicensing rights to certain patented and patent-pending carbohydrate-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 with OBI. Under the agreement, which was amended in June 2005, the Company 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 the Company, 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 (“TSRI”)

In July 1999, the Company acquired exclusive, worldwide rights to its OPopS technology from 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 the Company’s 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 OPT-88 which, after further evaluation, OBI decided not to pursue. In February 2011, OBI and TSRI agreed to terminate the agreement 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, the Company’s 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 remaining 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 three remaining TSRI agreements is approximately $11.1 million.

Research Grants

NIH Small Business Innovation Research Award.  The Company has one active grant from National Institute of Allergy and Infectious Diseases (“NIAID”). This $3 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 the DIFICID and its major metabolite in CDI patients and to support a surveillance study of C. difficile isolates across North America to compare activity of DIFICID with existing CDI treatments.  For the years ended December 31, 2011, 2010 and 2009, the Company recognized revenues related to research grants of $217,239, $980,362 and $792,644, respectively.

Qualifying Therapeutic Discovery Project Grant.  In November 2010, the Company received $244,000 in the form of a cash grant from the Qualifying Therapeutic Discovery Project program of the Internal Revenue Service (IRS) / the U.S. Treasury Department for expenditures related to its DIFICID development program.  The Company had to meet eligible criteria defined by the guidelines of the Patient Protection and Affordable Care Act signed into law March 23, 2010 to qualify for the cash grant.  The Company recorded the receipt of the cash grant as interest income and other, net in the Consolidated Statements of Operations.

Taiwan Ministry of Economic Affairs (“MOEA”) Grant.  OBI has one active grant from 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.  For the year ended December 3, 2011, OBI recognized revenues related to research grants of 15.3 million New Taiwan dollars.

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7.     Commitments

Leases

The Company leases office and research facilities under operating lease agreements.  The Company’s facility leases in San Diego extend through July 2012 at which time the company expects to consolidate into a single facility.  In December 2011, we entered into a lease agreement for approximately 45,000 square feet of office and laboratory space in San Diego.  The Lease is intended to replace our existing leases covering an aggregate of approximately 32,000 square feet of office and laboratory space in San Diego. The target commencement date of the Lease is August 1, 2012, and the initial term will expire approximately 10 years after the commencement date. The minimum rent payable by us will be approximately $129,000 per month during the first year of the initial term, with 3% annual increases thereafter. In addition, we have the option to extend the Lease for up to two additional consecutive five-year terms, which would commence upon the expiration of the initial 10-year term. In the event we choose to extend the term of the Lease, the minimum monthly rent payable for any additional term will be determined according to the then-prevailing market rate.

The Company’s facility lease in Jersey City expires approximately June 2018, subject to one five year renewal option. The Company has recorded deferred rent of $151,141 and $141,138 as of December 31, 2011 and 2010, respectively, in conjunction with these lease agreements.

At December 31, 2011, annual minimum rental payments due under the Company’s operating leases are as follows:

Years ending December 31,
2012	$	1,577,562
2013	2,401,726
2014	2,497,412
2015	2,570,171
2016 and thereafter	14,494,533
Total minimum lease payments	$	23,541,404

Rent expense was $1,565,607, $1,057,565 and $1,068,542, for the years ended December 31, 2011, 2010, and 2009, respectively.

8.     Stockholders’ Equity

Public Offerings

In March 2009, the Company received approximately $32.9 million in gross proceeds from the sale of its securities in a registered direct offering to institutional investors. The Company sold 3,252,366 million shares and warrants to purchase up to an aggregate of 91,533 shares of its common stock.  The warrants are exercisable at an exercise price of $10.93 per share and were exercised in June 2011.

In March 2010, the Company completed the sale of 4,887,500 shares of its common stock in a public offering which included 637,500 shares sold pursuant to the full exercise of an overallotment option previously granted to the underwriter.  The net proceeds to the Company from the sale of shares in the offering were approximately $51.2 million.

In July 2010, the Company issued 585,762 shares of common stock to AFOS, LLC as consideration for the engagement of an affiliate of AFOS to provide certain services to the Company.

In February 2011, the Company completed the sale of 6,900,000 shares of its common stock in a public offering which included 900,000 shares sold pursuant to the full exercise of an overallotment option previously granted to the underwriter.  The net proceeds to the Company from the sale of shares in the offering were approximately $73.1 million.

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

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million New Taiwan Dollars (approximately $9.3 million based on then-current exchange rates) of the shares issued in the financing. In December 2011, OBI’s Board of Directors issued 1,500,000 shares of its common stock for providing technical know-how services, such that the Company’s equity interest in OBI was decreased from 60% to 59.1%.  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:

	December 31,
	2011			2010
Noncontrolling interest, January 1	$	1,996,704		$	3,040,156
Additional financing	6,194,192			—
Issuance of common stock to consultant	491,761			—
Net loss attributable to noncontrolling interest	(1,892,096		)	(1,199,161		)
Translation adjustments	(129,189		)	155,709
Noncontrolling interest, December 31,	$	6,661,372		$	1,996,704

Equity Compensation Plans

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 Company’s initial public offering in February 2007.

In December 2006, the Company’s board of directors approved the 2006 Equity Incentive Plan (“2006 Plan”).  The 2006 Plan became effective upon the closing of the Company’s initial public offering. A total of 2,000,000 shares of the Company’s 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, beginning with the Company’s 2008 fiscal year, equal to the lesser of (i) 5% of the outstanding shares of the Company’s 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 Company’s common stock were reserved for issuance under the 2006 Plan on January 1, 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 Company’s common stock on the date of grant.

In March and in June 2011, the Company’s 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 Company’s 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 individual’s 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 Company’s common stock on the date of grant.

Performance-Based Stock Options, Performance-Based Restricted Stock Units, and Stock Awards

On May 5, 2010, the Company’s Board of Directors appointed Pedro Lichtinger as its President and CEO and as a member of its Board of Directors.  Pursuant to Mr. Lichtinger’s 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.

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Simultaneously with Mr. Lichtinger’s appointment, Michael Chang resigned as the Company’s 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 Company’s 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.  Options that were granted to Dr. Chang as an employee were converted to consultant stock options.

In September 2011, the Company’s Board of Directors awarded performance-based restricted stock units covering an aggregate of 3,000,000 of the Company’s 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 OBI’s achievement of a specified corporate goal and will be subject to forfeiture to the extent the recipient’s service with the Company terminates prior to the three year anniversary of the share issuance date.

The performance-based stock options, performance-based restricted stock units and stock grant were made under the 2006 Plan.

Following is a summary of stock option activity, including performance-based stock options:

	Options		Weighted- Average Exercise Price
Balance as of December 31, 2008	1,979,660		$	3.64
Granted	637,750		$	11.24
Exercised	(125,430	)	$	1.16
Canceled	(25,229	)	$	7.60
Balance as of December 31, 2009	2,466,751		$	5.69
Granted	1,815,450		$	11.88
Exercised	(552,253	)	$	2.12
Canceled	(140,322	)	$	11.39
Balance as of December 31, 2010	3,589,626		$	9.15
Granted	3,427,500		$	12.26
Exercised	(347,803	)	$	5.35
Canceled	(486,823	)	$	10.87
Balance as of December 31, 2011	6,182,500		$	10.95

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 fair value of options determined under authoritative accounting guidance is amortized to expense over the vesting periods of the underlying options which is generally four years.  The Company recognizes compensation expense for performance-based stock awards granted to employees under the accelerated attribution method.  The fair value of stock options granted to employees and consultants including performance-based stock options and performance-based restricted stock units, was estimated at grant data using the following assumptions:

Stock Options including performance-based stock options	2011		2010		2009
Risk-free interest rate	1.84-3.46	%	2.27-3.53	%	2.00-2.56	%
Dividend yield	0.00	%	0.00	%	0.00	%
Expected life of options (years)	5.27-9.49		5.02-10.00		5.27-6.08
Volatility	69.13-73.63	%	69.30-79.07	%	69.93-71.39	%

The risk-free interest rate assumption was based on the United States Treasury’s 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 Optimer’s 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 Optimer’s limited history.  In addition, due to Optimer’s limited historical data, the estimated volatility incorporates the historical volatility of comparable companies whose share prices are publicly available.

The aggregate intrinsic value of options exercised during the year ended December 31, 2011, 2010 and 2009 was approximately $2,531,606, $4,680,334 and $1,294,667, respectively.  The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2011 was approximately $9,782,141 and $7,713,308, respectively.

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The following table summarizes information concerning outstanding and exercisable stock options as of December 31, 2011:

	December 31, 2011
	Options Outstanding				Options Exercisable
Exercise Price	Number of Shares Subject to Options Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number of Shares Exercisable	Weighted Average Exercise Price
$0.65 - $11.41	2,391,397	6.92	$	8.40	1,314,059	$	6.46
$11.42 - $12.34	2,466,083	8.65	$	12.04	555,092	$	12.08
$12.42 - $14.86	1,325,020	8.61	$	13.53	51,288	$	13.71
$0.65 - $14.86	6,182,500	7.97	$	10.95	1,920,439	$	8.28

Of the options outstanding, options to purchase 1,920,439 shares were vested as of December 31, 2011, with a weighted average remaining contractual life of 6.30 years and a weighted average exercise price of $8.28 per share, while options to purchase 4,262,061 shares were unvested.

Based on these assumptions, the weighted average grant-date fair values of stock options granted during the years ended December 31, 2011, 2010 and 2009 was $7.75, $7.35 and $7.11 per share, respectively.

As of December 31, 2011, the total unrecognized compensation expense related to stock options was approximately $23,868,095 and the related weighted-average period over which it is expected to be recognized is approximately 3.2 years.

Employee Stock Purchase Plan

Concurrent with the Company’s initial public offering in February 2007, the Company’s board of directors adopted the employee stock purchase plan (“ESPP”) in December 2006, and the stockholders approved the plan in January 2007.  A total of 200,000 shares of the Company’s common stock were initially made available for sale under the plan.  In addition, the employee stock purchase plan provides for annual increases in the number of shares available for issuance under the purchase plan on the first day of each fiscal year, beginning with the Company’s 2008 fiscal year, equal to the lesser of (i) 3% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; (ii) 300,000 shares; or (iii) such other amount as may be determined by the Company’s board of directors. Pursuant to this provision, 300,000 additional shares of the Company’s common stock were reserved for issuance under the ESPP on January 1, 2008. The Company’s board of directors determined to reserve zero additional shares under the ESPP as of January 1, 2011 and 2010.

As of December 31, 2011, there were 235,962 shares of common stock issued and 564,038 shares remained available for issuance under the ESPP.

The following table shows the assumptions used to compute stock-based compensation expense for the stock purchased under the ESPP during the year ended December 31, 2011, 2010 and 2009 using the Black-Scholes option pricing model:

Employee Stock Options	2011		2010		2009
Risk-free interest rate	0.06%-0.18	%	0.17%-0.20	%	0.21-0.43	%
Dividend yield	0.00	%	0.00	%	0.00	%
Expected life (years)	0.5		0.5		0.5
Volatility	40.01%-73.53	%	34.08%-40.82	%	35.53-74.94	%

For the years ended December 31, 2011, 2010 and 2009, the Company recorded stock-based compensation expense related to the ESPP of $320,485, $119,281 and $146,777, respectively.

Total stock-based compensation expense, related to all of Optimer’s stock options, restricted stock units, stock awards issued to employees and consultants and employee stock purchases, recognized for the years ended December 31, 2011, 2010 and 2009 was comprised as follows:

	2011		2010		2009
Research and development	$	3,176,997	$	1,596,515	$	1,162,274
Selling, general and administrative	8,407,951		4,622,332		1,645,718
Total stock-based compensation expense	$	11,584,948	$	6,218,847	$	2,807,992

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Optimer Biotechnology, Inc.

Stock Options

In March 2010, OBI’s 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, directors and consultants of OBI. The options generally vest over four years and have a maximum contractual term of ten years.

During 2011 and 2010, OBI granted 2,502,000 and 2,664,000 option shares, respectively, to its employees with exercise prices of $10 New Taiwan dollars for both years. There were no options exercised or canceled during the two years.  As of December 31, 2011, no options have been exercised.

Valuations

The following table shows the assumptions used to compute stock-based compensation expense for the stock options granted by OBI using the Black-Scholes option pricing model:

	December 31,
	2011		2010
Risk-free interest rate	1.63%-1.88	%	1.25%-1.63	%
Dividend yield	0.00	%	0.00	%
Expected life of options (years)	6.08		6.08
Volatility	88.12%-90.17	%	88.10%-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 OBI’s 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 OBI’s limited history.  Due to OBI’s limited historical data, OBI used the historical volatility of OBI’s peers whose share prices are publicly available to estimate the volatility rate of OBI options.

The following table summarizes the stock-based compensation expense for OBI included in each operating expense line item in Optimer’s consolidated statements of operations:

	December 31,
	2011		2010
Research and development	$	60,463	$	43,450
General and administrative	140,963		113,387
Stock-based compensation expense	$	201,426	$	156,837

At December 31, 2011, the total unrecognized stock-based compensation expense relating to OBI’s unvested stock-based awards granted to employees, net of forfeitures, was $845,025, which OBI anticipates recognizing as a charge against income over a weighted average period of 3.4 years.

9.     Income Taxes

There were no unrecognized tax benefits as of the date of adoption and there were no unrecognized tax benefits included in the balance sheet at December 31, 2011 that would, if recognized, affect the effective tax rate.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s balance sheets at December 31, 2011 and 2010 and has not recognized interest and/or penalties in the statement of operations for the year ended December 31, 2011.

The Company is subject to taxation in the United States, California and various other state and foreign jurisdictions. The Company’s tax years for 2000 and forward are subject to examination by the Federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.

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As of December 31, 2011, the Company completed a Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards and determined that the entire amount of federal and state NOL and credit carryovers are available for utilization, subject to the annual limitation.  Any carryforwards that will expire prior to utilization as a result of future limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.  Due to the existence of the valuation allowance, future changes in the unrecognized tax benefits will not impact the effective tax rate.

At December 31, 2011, the Company had Federal, state and foreign income tax net operating loss carryforwards of approximately $161.8 million, $185.6 million, and $7.7 million, respectively. If not utilized, the net operating loss carryforwards will begin expiring in 2020 for federal purposes and 2015 for state purposes. The foreign losses will begin expiring in 2020.  In addition, the Company has Federal and California research tax credit carryforwards of approximately $6.9 million and $3.8 million, respectively. The Federal research and development credit carryforwards will begin to expire in 2020 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized. The Company also has California state manufacturer’s investment tax credit carryforwards of $47,000 which will begin to expire in 2012 unless previously utilized. Under the Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss and tax credit carryforwards that could be utilized annually in the future to offset taxable income.  Any such annual limitation may significantly reduce the utilization of the net operating losses and tax credits before they expire.

The Company has $4.9 million net operating loss carryforwards related to stock option exercises, which will result in an increase to additional paid-in capital and a decrease in income taxes payable when the tax loss carryforwards are utilized.

The Provision for income taxes consists of the following:

	2011		2010
Current:
Federal	$	—	$	—
State	20,000		—
Subtotals	20,000		—
Deferred:
Federal	—		—
State	—		—
Subtotals	—		—
Totals	$	20,000	$	—

Significant components of the Company’s deferred tax assets as of December 31, 2011 and 2010 are listed below. A valuation allowance of $88.8 million and $91.0 million at December 31, 2011 and 2010, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. Amounts are shown as of December 31, of the respective years:

	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	65,478,000		$	72,499,000
Tax credits	9,559,000			7,575,000
Capitalized license, net	4,728,000			6,477,000
Other, net	8,692,000			4,440,000
Total deferred tax assets	88,457,000			90,991,000
Valuation allowance for deferred tax assets	(88,457,000		)	(90,991,000		)
	$	—		$	—

Income taxes computed by applying the U.S. Federal Statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the statement of earnings as follows:

	2011			2010			2009
Tax expense (benefit) at statutory federal rate	$	2,676,000		$	(16,085,000	)	$	(14,308,000	)
State tax expense (benefit), net of federal	53,000			(2,758,000		)	(2,453,000		)
Foreign subsidiary transactions	161,000			77,000			(115,000		)
Generation of research and development credits	(2,047,000		)	(1,273,000		)	(3,020,000		)
Stock compensation expense	317,000			(14,000)			248,000
Permanent difference for R&D credit expense addback	505,000			356,000			862,000
Change in State effective rate	1,068,000			—			—
Other	(179,000		)	92,000			33,000
Change in valuation allowance	(2,534,000		)	19,605,000			18,753,000
	$	20,000		$	—		$	—

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10.  Employee Benefit Plans

Effective January 1, 2000, the Company established a 401(k) plan covering substantially all employees.  Employees may contribute up to 100% of their compensation per year (subject to a maximum limit prescribed by federal tax law).  The Company may elect to make a discretionary contribution or match a discretionary percentage of employee contributions.  As of December 31, 2011, 2010 and 2009, the Company had not elected to make any contributions to the 401(k) plan.

11.  Subsequent Event

In February 2012, OBI issued 36 million newly-issued shares of its common stock resulting in gross proceeds of approximately 540 million New Taiwan dollars (approximately $18.3 million based on then-current exchange rates).  The Company did not participate in the February 2012 financing and the issuance of the shares reduced its ownership percentage to approximately 44%.  However, the Company’s Chief Executive Officer and the Chairman of the Board participated.  Each individual purchased 924,000 and 7,080,981, respectively, of the new shares at 15 New Taiwan Dollars per share. OBI has also announced its intention to conduct an initial public offering of its common stock.  To the extent that additional newly-issued shares of OBI’s common stock are sold in the initial public offering and the Company does not participate, or to the extent that it sells a portion of our OBI shares in the initial public offering, its percentage ownership of OBI would decrease further.

12.   Geographic Information

Information regarding long-lived assets by geographic area is as follows:

	As of December 31,
	2011		2010		2009
	(in thousands)
United States	$	2,358	$	590	$	644
Taiwan	233		108		29
Total	$	2,591	$	698	$	673

13.Quarterly Financial Data (Unaudited)

Selected quarterly consolidated financial data is shown below (in thousands, except per share data).

	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
2011 Quarters
Total revenue	$	69,277	$	33		$	11,052		$	64,616
Operating expenses	24,458		25,051			37,966			51,864
Income (loss) from operations	44,819		(25,018		)	(26,914		)	12,752
Consolidated net income (loss)	44,842		(24,922		)	(26,806		)	12,815
Net income (loss) attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	45,133	$	(24,239	)	$	(26,427	)	$	13,354
Basic net income (loss) attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	1.06	$	(0.52	)	$	(0.57	)	$	0.29
Diluted net income (loss) attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	1.04	$	(0.52	)	$	(0.57	)	$	0.28

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2010 Quarters
Revenue	$	298		$	357		$	669		$	156
Operating expenses	14,019			10,762			12,920			12,647
Loss from operations	(13,721		)	(10,405		)	(12,251		)	(12,491		)
Consolidated net loss	(13,697		)	(10,351		)	(12,228		)	(12,263		)
Net loss attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	(13,496	)	$	(10,061	)	$	(11,837	)	$	(11,946	)
Basic and diluted net loss attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	(0.39	)	$	(0.26	)	$	(0.30	)	$	(0.31	)

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EX-10.50

Exhibit 10.50

December 20, 2011

Tessie Che

700 West E Street, Unit 3402

San Diego, CA 92101

Dear Tessie:

This letter sets forth the terms and conditions of the separation agreement (the “Agreement”) that Optimer Pharmaceuticals, Inc. (the “Company”) is offering to you to aid in your employment transition.

1.             Termination of Employment. The Company and you have mutually agreed that you will cease employment with the Company effective as of January 10, 2012 (the “Separation Date”). For purposes of this Agreement only, the Company will consider such employment termination to be a Covered Termination pursuant to the Company’s Amended and Restated Severance Benefit Plan (the “Severance Plan”). You acknowledge and agree that, at the time of the Separation Date, you held an Officer position at the Company, and that pursuant to the Severance Plan, you are eligible for Company Officer level severance benefits, and that the Company, although not obligated to do so, is providing additional benefits pursuant to this Agreement.

2.             Base Salary Severance. If you sign, date and return this Agreement to the Company within twenty-one (21) days of the date hereof, you do not revoke it, and you comply with your continuing obligations under this Agreement and the Severance Plan (including your continuing obligations under your Employee Proprietary Information Agreement), the Company will pay you cash severance in an amount equivalent to 24 months of your Base Salary as of the Separation Date (with total severance payments to equal $630,000), subject to standard payroll deductions and withholdings (the “Base Salary Severance”). The Base Salary Severance will be paid to you in substantially equal installments on the Company’s normal payroll periods during the 24 month period following your Separation Date, provided, however, than any payments scheduled to be made prior to the Effective Date of this Agreement (as defined below), shall instead accrue and be paid to you in a single lump sum during the first payroll period following the Effective Date.

3.             Accrued Salary and Vacation Pay. On the Separation Date, the Company will pay you any and all accrued and unused vacation and any and all accrued salary earned through the Separation Date, less standard payroll deductions and withholdings.

4.             Health Insurance and Other Employee Benefits. Your health insurance benefits will continue through January 31, 2012 (the end of the calendar month that includes your Separation Date). To the extent provided by the federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), and by the Company’s current group health insurance policies, you may be eligible to continue coverage under such group health plan (or to convert to

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an individual policy), following such date. No provision of this Agreement will affect your continuation coverage rights under COBRA. You will be provided with a separate notice describing your rights and obligations under COBRA laws, and any rights to convert to an individual policy, on or after the Separation Date. Additionally, if you timely elect continued group health coverage pursuant to COBRA, as an additional benefit, the Company will pay your COBRA premium payments sufficient to continue your group coverage at its current level (including costs of dependent coverage, if applicable) for a maximum period of 24 months following the Separation Date; provided that, the Company’s obligation to pay your COBRA premium payments will terminate earlier if you cease to be eligible for COBRA coverage or you become eligible for coverage under a group health plan of a subsequent employer. The Company will also schedule an exit interview with you, at which time the Company human resources department will provide you with all other information and appropriate forms necessary for you to ascertain what coverage, if any, might continue to be available to you under the other Company employee benefit plans after the Separation Date.

5.             Stock Options. In connection with your employment, you were granted various stock options, of which options covering a total 144,615 shares of the Company’s common stock (the “Options”), are currently outstanding. As of the Separation Date, 100,240 shares subject to the Options are vested and 44,375 shares are unvested. Subject only to you signing, dating and returning this Agreement to the Company within twenty-one (21) days of the date hereof, not revoking it, and complying with your continuing obligations under this Agreement and the Severance Plan (including your continuing obligations under your Employee Proprietary Information Agreement), the Company is (a) accelerating vesting of the Options in full, effective as of the Separation Date, and (b) extending the period during which you can exercise the Options following the Separation Date to be commensurate with the original term of each Option, as applicable. For example, for an Option granted on December 28, 2009 with a 10-year term from the date of grant, you would be able to exercise the Option through December 27, 2019 despite the termination of your continuous service.

Furthermore, you were granted a restricted stock unit covering a total of 600,000 shares of common stock of Optimer Biotechnology, Inc. (the “OBI RSU”). Subject only to you signing, dating and returning this Agreement to the Company within twenty-one (21) days of the date hereof, not revoking it, and complying with your continuing obligations under this Agreement and the Severance Plan (including your continuing obligations under your Employee Proprietary Information Agreement), you and the Company are agreeing to amend the OBI RSU as follows:

(a)           The “Issuance Schedule” of the OBI RSU grant notice is amended and restated to read: “The shares of OBI’s common stock to be issued in respect of the Award will be issued to Service Provider in January 2013, provided that the IPO Date is prior to December 31, 2012, and no shares shall be issued in respect of the Award if the IPO Date is after December 31, 2012.”;

(b)           The “Vesting Schedule” of the OBI RSU grant notice is amended and restated to read in its entirety as follows: “The shares of OBI’s common stock issued in respect of the Award will be fully vested upon issuance”;

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(c)           Section 5 of the award agreement related to the OBI RSU is amended and restated to read in its entirety as follows: “5. DATE OF ISSUANCE. The shares of OBI Common Stock to be issued in respect of the Award will be issued to you, provided that the IPO Date occurs prior to December 31, 2012, as soon as practicable after December 31, 2012, but in no event later than thirty (30) days after December 31, 2012. Notwithstanding the foregoing, the Company reserves the right, in its discretion, to earlier issue the shares of OBI Common Stock to you.”; and

(d)           Section 6 of the award agreement related to the OBI RSU is amended and restated to read in its entirety as follows: “6. VESTING. The shares issued in respect of your Award will be fully vested upon issuance.”

6.             Additional Severance Payment. In addition to the Base Salary Severance, if you sign, date and return this Agreement to the Company within twenty-one (21) days of the date hereof, you do not revoke it, and you comply with your continuing obligations under this Agreement and the Severance Plan (including your continuing obligations under your Employee Proprietary Information Agreement), you shall be eligible to receive a one-time additional cash payment of $130,900 (the “Additional Severance Payment”), based on the Company’s achievement of the pre-established corporate goals (the “Goals”) established by the Compensation Committee of the Board in connection with the Company’s 2011 Incentive Compensation Plan. Any payment of the Additional Severance Payment will occur at the same time as such amounts under the Company’s 2011 Incentive Compensation Plan are paid to other similarly situated Company executives.

7.             No Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not be entitled to receive any additional compensation, severance, or benefits from the Company after the Separation Date.

8.             Expense Reimbursements. You agree that, within twenty-one (21) days of the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice.

9.             Proprietary Information Obligations. You acknowledge and affirm your agreement to adhere to your continuing obligations under your Employee Proprietary Information Agreement.

10.          Return of Property. Except as otherwise provided in Section 12, you agree to return to the Company, no later than twenty-one (21) days of the Separation Date, all Company documents (and all copies thereof), other property of the Company in your possession or control, and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). You agree that you will make a diligent search to locate any such documents, property and information prior to the passage of twenty-one (21) days from the Separation Date. In addition, if you have used any personally owned computer, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, then you agree

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 to provide the Company, within twenty-one (21) days after the Separation Date, with a computer-useable copy of all such information and then permanently delete and expunge such Company confidential or proprietary information from those systems without retaining any reproductions (in whole or in part); and you agree to provide the Company access to your system as requested to verify that the necessary copying and/or deletion is done. The Company agrees to return to you, no later than twenty-one (21) days after the Separation Date all property of yours in the Company’s possession or control, provided that you specifically identify such property. The Company will also make, within twenty-one (21) days after the Separation Date, an information technology professional available to assist you with the removal and retrieval of your personal information from the computer issued to you by the Company.

11.          Nondisparagement. You agree not to disparage the Company, and the Company’s officers, directors, employees, stockholders, investors and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided that you may respond accurately and fully to any question, inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar compulsion of law) or as part of a government investigation. The Company agrees that it shall not and the Company shall cause its directors and executive officers to not disparage or make derogatory or defamatory statements about you.

12.          Cooperation and Assistance. You agree that you will not voluntarily provide assistance, information or advice, directly or indirectly (including through agents or attorneys), to any person or entity in connection with any claim or cause of action of any kind brought against the Company, nor shall you induce or encourage any person or entity to bring such claims; provided that you may respond accurately and fully to any question, inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar compulsion of law) or as part of a government investigation. Further, you agree to voluntarily cooperate with the Company if you have knowledge of facts relevant to any threatened or pending litigation against the Company by making yourself reasonably available without further compensation for interviews with the Company or its legal counsel, for preparing for and providing deposition testimony, and for preparing for and providing trial testimony. To ensure an orderly transition of your duties and in consideration for the benefits being provided to you under this Agreement, you agree to provide reasonable assistance during the first three (3) months following the Separation Date with (a) the transition of the Company’s new Senior Vice President of Manufacturing, (b) other projects that you and the Company mutually agree upon (such as the preparation of a written history of the Company and planning regarding the Company’s new San Diego facility), and (c) advising the Company and/or the Board on matters known to you from your former employment with the Company, as the Company’s Chief Executive Officer or his designees may request from time to time. The Company will provide you with reasonable access to (i) the Company facilities at its sole discretion, provided such access shall be in an amount reasonably necessary for you to perform your duties required by the previous sentence and (ii) Company materials, documents and data as the Company deems reasonably necessary or useful to enable you to complete any of the projects described in the previous sentence.

13.          Chemistry Laboratory. The Company will (i) name the chemistry laboratory in its new San Diego facility -T. CHEmistry Labs”, (ii) name a conference room in the new laboratory the “TMC Conference Room”

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14.Confidentiality. The provisions of this Agreement will be held in strictest confidence by you and the Company and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) you may disclose this Agreement to your immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement as necessary to fulfill standard or legally required corporate reporting or disclosure requirements; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former Company employee, independent contractor or affiliate other than Michael Chang.

15.          Release of Claims. In exchange for the consideration provided to you by this Agreement that you are not otherwise entitled to receive, you hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date that you sign this Agreement (collectively, the “Released Claims”). The Released Claims include, but are not limited to: (a) all claims arising out of or in any way related to your employment with the Company, or the termination of that employment; (b) all claims related to your compensation or benefits from the Company including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing, including but not limited to claims arising under or related to the Severance Plan or your employment offer letter; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (the “ADEA”), the federal Family and Medical Leave Act, the California Labor Code, and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (a) any rights or claims for indemnification you may have pursuant to any written indemnification agreement with the Company to which you are a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; (b) any rights that are not waivable as a matter of law; or (c) any claims arising from the breach of this Agreement. You hereby represent and warrant that, other than the Excluded Claims, you are not aware of any claims you have or might have against any of the Released Parties that are not included in the Released Claims.

16.          ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA (“ADEA Waiver”). You also acknowledge that the consideration given for the ADEA Waiver is in addition to anything of value to which you were already entitled. You are advised by this writing, as required by the ADEA, that: (a) your ADEA Waiver does not apply to any claims that may arise after you sign this Agreement; (b) you should consult with an attorney prior to executing this Agreement;

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(c) you have twenty-one (21) days within which to consider this ADEA Agreement (although you may choose to voluntarily execute this Agreement earlier); (d) you have seven (7) days following the execution of this Agreement to revoke the ADEA Waiver(in a written revocation sent to me); and (e) this ADEA Waiver will not be effective until the eighth day after you sign this Agreement, provided that you have not earlier revoked this ADEA Waiver(the “Effective Date”). You will not be entitled to receive any of the benefits specified by this Agreement unless and until it becomes effective.

17.          Section 1542 Waiver. In giving the releases set forth in this Agreement, which include claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Agreement.

18.          Section 409A Compliance. You and the Company agree and acknowledge that Section 4 of the Severance Plan is incorporated in its entirety into this Agreement.

19.          Attorney Fees. The Company will reimburse you, up to a maximum of $5,000, for reasonable legal fees incurred with the negotiation, preparation and execution of this Agreement. You must submit to the Company such evidence deemed reasonably sufficient by the Company to document such legal fees within thirty (30) days of the effective date of this Agreement and the Company shall pay such reimbursement within thirty (30) days of receiving such final verification of the applicable legal fees.

20.          Miscellaneous. This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, and your and its heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach. This Agreement may be executed in counterparts and facsimile signatures will suffice as original signatures.

If this Agreement is acceptable to you, please sign below and return the original to me.

Sincerely,

OPTIMER PHARMACEUTICALS, INC.
By:	/s/ Kurt Hartman
	Kurt Hartman, General Counsel
UNDERSTOOD AND AGREED:
/s/ Tessie Che
Tessie Che
Date:		January 10, 2012

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EX-10.51

Exhibit 10.51

LEASE AGREEMENT

THIS LEASE AGREEMENT (this “Lease”) is made this 15th day of December, 2011, between ARE-SD REGION NO. 33, LLC, a Delaware limited liability company (“Landlord”), and OPTIMER PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

Building:4755 Nexus Centre Drive, San Diego, California 92121

Premises:The Building containing 45,255 rentable square feet, as determined by Landlord, as shown on Exhibit A.

Project:The real property on which the Building in which the Premises are located, together with all improvements thereon and appurtenances thereto as described on Exhibit B.

Base Rent:$2.85 per rentable square foot of the Premises per month, subject to adjustment as provided in Section 4(a) and 4(b) below.

Rentable Area of Premises:  45,255 sq. ft.

Rentable Area of Project:  45,255 sq. ft.

Tenant’s Share of Operating Expenses:  100%

Security Deposit:  $128,976.75

Target Commencement Date:  August 1, 2012; provided, however, that the Target Commencement Date shall be extended 1 day for each day after (i) December 9, 2011, that this Lease is not mutually executed and delivered by the parties, and (ii) December 15, 2011, until the Space Plan (as defined in the Work Letter) has been finalized.

Rent Adjustment Percentage:  3%

Base Term:Beginning on the Commencement Date and ending 120 months from the first day of the first full month after the Commencement Date.

Permitted Use:Research and development laboratory, related office and other related uses consistent with the character of the Project and otherwise in compliance with the provisions of Section 7 hereof.

Address for Rent Payment:	Landlord’s Notice Address:
Alexandria Real Estate Equities, Inc.	385 E. Colorado Boulevard, Suite 299
DEPT LA 23447	Pasadena, CA 91101
Pasadena, CA 91185-3447	Attention: Corporate Secretary

Tenant’s Notice Address:

4755 Nexus Centre Drive

San Diego, California 92121

Attention: Lease Administrator

The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:

x EXHIBIT A - PREMISES DESCRIPTION	x EXHIBIT B - DESCRIPTION OF PROJECT
x EXHIBIT C – WORK LETTER	x EXHIBIT D - COMMENCEMENT DATE
x EXHIBIT E - RULES AND REGULATIONS	x EXHIBIT F – TENANT’S PERSONAL PROPERTY
x EXHIBIT G – STORAGE LOCATION	x EXHIBIT H – ADJACENT LAND
x EXHIBIT I – RENDERING

1.             Lease of Premises.  Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord.  The portions of the Project which are for the non-exclusive use of tenants of the Project are collectively referred to herein as the “Common Areas.”  Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenant’s use of the Premises for the Permitted Use, Tenant’s access to the Premises or Tenant’s parking rights, other than on a temporary basis.

2.             Delivery; Acceptance of Premises; Commencement Date.  Landlord shall use reasonable efforts to deliver the Premises to Tenant on or before the Target Commencement Date, with the Tenant Improvements Substantially Completed (“Delivery” or “Deliver”).  Delivery shall not be deemed to have occurred unless (i) the Base Building Improvements (as described in Exhibit C) (other than the landscaping (not including grading or earthmoving activity) and south patio site concrete work which may completed after the Commencement Date) have been substantially completed and the Tenant Improvements have been Substantially Completed and (ii) subject to the other provisions of this Lease, the number of parking spaces which Tenant is entitled to use under this Lease are available for use by Tenant.  If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein.

If Landlord fails to Deliver the Premises by August 31, 2012 (as such date may be extended for Tenant Delays and/or Force Majeure and for each day after (i) December 9, 2011, that this Lease has not been fully executed and delivered by both parties and (ii) December 15, 2011, until the Space Plan has been finalized, the “Outside Date”), Landlord shall reimburse Tenant for the Holdover Premium actually required to be paid by Tenant pursuant to Tenant’s existing lease agreements for its current space (collectively, “Tenant’s Existing Lease”).  As used herein, the “Holdover Premium” shall mean the amount of $59,450.00 per month, which is the penalty amount required to be paid by Tenant over and above the amount of rent that is otherwise payable by Tenant each month during the last year of the term under Tenant’s Existing Lease in order for Tenant to hold over in their current space.  Landlord shall, however, only be responsible for the portion of the Holdover Premium due during the period between the Outside Date and the date that Landlord Delivers the Premises to Tenant; provided, however, that if Landlord fails to Deliver the Premises to Tenant on or before the Outside Date, the Commencement Date shall be extended for 1 full month (the “1 Month Extension”) and Landlord shall be responsible for 1 full month of Holdover Premium regardless of whether Landlord Delivers the Premises to Tenant prior to the expiration of such 1 month period.  Tenant represents and warrants to Landlord that the Holdover Premium shall be due and payable by Tenant under Tenant’s Existing Lease if Tenant holds over.  If Tenant agrees to any amendments or modifications to Tenant’s Existing Lease which in any way increases or results in an increase in the Holdover Premium, Tenant shall be solely responsible for paying the increased portion of such Holdover Premium.  Payment of the Holdover Penalty for any fractional calendar month shall be prorated.

If Landlord does not Deliver the Premises within 120 days of the Target Commencement Date for any reason other than Force Majeure delays and Tenant Delays, this Lease may be terminated by Tenant by written notice to the Landlord, and if so terminated:  (a) the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease.  As used herein, the terms “Tenant Improvements,” “Tenant Delays” and “Substantially Completed” shall have the meanings set forth for such terms in the Work Letter.  If Tenant does not elect to void this Lease within 5 business days of the lapse of such 120 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect.

The “Commencement Date” shall be the earlier of:  (i) the date Landlord Delivers the Premises to Tenant; and (ii) the date Landlord could have Delivered the Premises but for Tenant Delays; provided, however that the Commencement Date shall not occur prior to July 1, 2012 and, if applicable, the Commencement Date may be extended by the 1 Month Extension if Landlord fails to Deliver the Premises by the Outside Date.  Upon request of Landlord, Tenant shall execute and deliver a written

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acknowledgment of the Commencement Date and the expiration date of the Term when such are established in the form of the “Acknowledgement of Commencement Date” attached to this Lease as Exhibit D; provided, however, Tenant’s failure to execute and deliver such acknowledgment shall not affect Tenant’s or Landlord’s rights hereunder.  The “Term” of this Lease shall be the Base Term, as defined above on the first page of this Lease and any Extension Terms which Tenant may elect pursuant to Section 40 hereof.

Except as set forth in this Lease and the Work Letter:  (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section 7 hereof); (ii) Landlord shall have no obligations for any defects in the Premises; and (iii) Tenant’s taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken, subject to the provisions of the Work Letter.  Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, excluding the obligation to pay Base Rent and Operating Expenses.

Tenant agrees and acknowledges that, except as expressly set forth in this Lease, neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use.  This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein.  Landlord in executing this Lease does so in reliance upon Tenant’s representations, warranties, acknowledgments and agreements contained herein.

3.             Rent.

(a)           Base Rent.  The first month’s Base Rent and the Security Deposit shall be due and payable on delivery of an executed copy of this Lease to Landlord.  Except for the Abated Base Rent (as defined below) Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing.  Payments of Base Rent for any fractional calendar month shall be prorated.  The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations.  Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5) due hereunder except for any abatement as may be expressly provided in this Lease.

Notwithstanding anything to the contrary contained herein, Tenant shall not be required to pay Base Rent for months 2 through 5 after the Commencement Date.  The Base Rent which is abated during months 2 through 5 after the Commencement Date shall be referred to herein as “Abated Base Rent.”

(b)           Additional Rent.  In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (“Additional Rent”):  (i) Tenant’s Share of “Operating Expenses” (as defined in Section 5), except for Abated Operating Expenses (as defined in Section 5) and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.

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4.             Base Rent Adjustments.

(a)           Annual Adjustments.  Base Rent shall be increased on each annual anniversary of the first day of the first full month during the Term of this Lease (each an “Adjustment Date”) by multiplying the Base Rent payable immediately before such Adjustment Date by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such Adjustment Date.  Base Rent, as so adjusted, shall thereafter be due as provided herein.  Base Rent adjustments for any fractional calendar month shall be prorated.

(b)           Additional Tenants Improvements Allowance.  In addition to the TI Allowance (as defined in the Work Letter), Landlord shall, subject to the terms of the Work Letter, make available to Tenant an additional tenant improvement allowance (“Additional Tenant Improvements Allowance”) for the construction of the Tenant Improvements of up to $20.00 per rentable square foot of the Premises.  Commencing on the Commencement Date and thereafter on the first day of each month of the Base Term, Tenant shall pay to Landlord the amount necessary to fully amortize the portion of the Additional Tenant Improvements Allowance actually funded by Landlord, if any, in equal monthly payments with interest at a rate of 9% per annum over the Base Term (“TI Rent”).  The Additional Tenant Improvements Allowance shall only be available for use by Tenant as part of the construction of the Tenant Improvements in accordance with the terms of the Work Letter, and Tenant shall have no right thereafter to use any undisbursed portion thereof.

5.             Operating Expense Payments.  Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the “Annual Estimate”), which may be revised by Landlord from time to time during such calendar year.  Commencing on the Commencement Date and continuing on the first day of each month thereafter, except for Abated Operating Expenses, Tenant shall pay Landlord an amount equal to 1/12th of Tenant’s Share of the Annual Estimate.  Payments for any fractional calendar month shall be prorated.

Notwithstanding anything to the contrary contained herein, Tenant shall not be required to pay Operating Expenses (other than Utilities and janitorial services for the Premises) for months 2 through 5 after the Commencement Date. The Operating Expenses which are abated during months 2 through 5 after the Commencement Date shall be referred to herein as “Abated Operating Expenses.”

The term “Operating Expenses” means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Project (including, without duplication, Taxes (as defined in Section 9), capital repairs and improvements amortized over the lesser of 10 years and the useful life of such capital items, and the costs of Landlord’s third party property manager not to exceed an amount equal to 3.0% of Base Rent or, if there is no third party property manager, administration rent in the amount of 3.0% of Base Rent), excluding only:

(a)           the original construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original design, construction or renovation;

(b)           capital expenditures for expansion of the Project;

(c)           interest, principal payments of Mortgage (as defined in Section 27) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured, and all payments of base rent (but not taxes or operating expenses) under any ground lease or other underlying lease of all or any portion of the Project;

(d)           depreciation of the Project (except for capital improvements, the cost of which are includable in Operating Expenses);

(e)           advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;

(f)            legal and other expenses incurred in the negotiation or enforcement of leases;

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(g)           completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;

(h)           costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;

(i)            salaries, wages, benefits and other compensation paid to officers and employees of Landlord above the level of assistant vice president or to any lower level officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project (with the costs to be prorated if such officers and employees are assigned to the Project only in part);

(j)            general organizational, administrative and overhead costs relating to maintaining Landlord’s existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;

(k)           costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;

(l)            costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 7);

(m)          penalties, fines or interest incurred as a result of Landlord’s inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord«‘s failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;

(n)           overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

(o)           costs of Landlord’s charitable or political contributions, or of fine art (and insurance related thereto) maintained at the Project;

(p)           costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;

(q)           costs incurred in the sale or refinancing of the Project;

(r)            net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein;

(s)           any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project;

(t)            any costs incurred to remove, study, test, remediate or otherwise related to the presence of Hazardous Materials in or about the Building or the Project, which Hazardous Materials Tenant proves (i) existed prior to the Commencement Date, (ii) originated from any separately demised tenant space

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within the Project other than the Premises or (iii) were not brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Project by Tenant or any Tenant Party (as herein defined); and

(u)           costs of repairs and other work occasioned by fire, windstorm, or other casualty for which Landlord is reimbursed by insurance or for which Landlord would have been reimbursed by insurance if Landlord failed to maintain the insurance which Landlord is required to maintain under this Lease.

Following the first year of the Term of this Lease, during the Base Term, that part of Operating Expenses which is comprised of Controllable Operating Expenses (as defined below) may be increased by no more than 5% over the amount of the Controllable Operating Expenses for the previous year during the Base Term. Such limitation of 5% per year on increases shall be cumulative year to year, so that if in any year the increase in cumulative Controllable Operating Expenses is more or less than 5%, then the difference between 5% and the actual percentage increase in that year may be carried forward to any future year, and may be applied in such future year to increase the actual percentage increase (even if more than 5% for such year) subject to the limitation that Controllable Operating Expenses shall not have increased by more than 5% compounded annually.  “Controllable Operating Expenses” shall mean those Operating Expenses for which increases are reasonably within the control of Landlord, and shall specifically not include, without limitation, Taxes, assessments, refuse and or trash removal, insurance, collectively bargained union wages, electricity and other utilities, and any payments required under any applicable conditions, covenants and restrictions or any owners’ association of which the Project is a part.  There shall be no limitation on the amount of increase from year to year on Operating Expenses which are not Controllable Operating Expenses.

Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an “Annual Statement”) showing in reasonable detail:  (a) the total and Tenant’s Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenant’s payments in respect of Operating Expenses for such year.  If Tenant’s Share of actual Operating Expenses for such year exceeds Tenant’s payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant.  If Tenant’s payments of Operating Expenses for such year exceed Tenant’s Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.

The Annual Statement shall be final and binding upon Tenant unless Tenant, within 90 days after Tenant’s receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor.  If, during such 90 day period, Tenant reasonably and in good faith questions or contests the accuracy of Landlord’s statement of Tenant’s Share of Operating Expenses, Landlord will provide Tenant with access to Landlord’s books and records relating to the operation of the Project and such information as Landlord reasonably determines to be responsive to Tenant’s questions (the “Expense Information”).  If after Tenant’s review of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenant’s Share of Operating Expenses, then Tenant shall have the right to have an independent regionally recognized public accounting firm selected by Tenant, working pursuant to a fee arrangement other than a contingent fee (at Tenant’s sole cost and expense) and approved by Landlord (which approval shall not be unreasonably withheld or delayed), audit and/or review the Expense Information for the year in question (the “Independent Review”).  The results of any such Independent Review shall be binding on Landlord and Tenant.  If the Independent Review shows that the payments actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenant’s Share of Operating Expenses for such calendar year, Landlord shall at Landlord’s option either (i) credit the excess amount to the next succeeding installments of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.  If the Independent Review shows that Tenant’s payments with respect to Operating Expenses

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for such calendar year were less than Tenant’s Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency to Landlord within 30 days after delivery of such statement.  If the Independent Review shows that Tenant has overpaid with respect to Operating Expenses by more than 5% then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review.  Operating Expenses for the calendar years in which Tenant’s obligation to share therein begins and ends shall be prorated.  Notwithstanding anything set forth herein to the contrary, if the Building is not at least 95% occupied on average during any year of the Term, Tenant’s Share of Operating Expenses for such year shall be computed as though the Building had been 95% occupied on average during such year.

The square footages for the Premises and the Project listed on page 1 of this Lease shall conclusively be deemed to be correct and shall not be subject to further re-measurement except as provided for in this paragraph.  If Landlord elects, in its sole and absolute discretion and without any obligation to do so, to construct any common area amenity (e.g. bistro, fitness center) on the existing land parcel constituting the Project (i.e. the 2.02 acre parcel on which the Building is currently located), for use by tenants at any other buildings, Tenant shall only be responsible for Tenant’s pro rata share (based on the rentable square footage of the Building compared to the rentable square footage of the other buildings utilizing such common area amenity) of the Operating Expenses in connection with such common area amenity if Tenant elects to use such common area amenity; otherwise Landlord shall equitably adjust Tenant’s Share of the Operating Costs as result of the such common area amenity.  If Landlord elects, in its sole and absolute discretion and without any obligation to do so, to make available for use by Tenant any common area amenity in any other buildings outside of the existing land parcel constituting the Project (i.e. the 2.02 acre parcel on which the Building is currently located), Tenant shall only be required to pay Tenant’s pro rata share (based on the rentable square footage of the Building compared to the rentable square footage of the applicable other buildings utilizing such common area amenity) if Tenant elects to use any such common area amenity.  The provisions of the preceding sentence shall cease to apply if Tenant leases any other space at the Project in which case Tenant shall be required to pay Tenant’s pro rata share of Operating Expenses with respect to each common area amenity.  If Landlord elects, in its sole and absolute discretion and without any obligation to do so, to add additional land or building(s) to the Project (and/or demolish any building(s)) and Landlord includes within the Operating Expenses charged to the Project any costs related such other land or buildings, Tenant’s Share of such costs shall be equitably adjusted so that Tenant pays Tenant’s pro rata share (based on the rentable square footage of the Building compared to the rentable square footage of the applicable other buildings) of such costs.  Subject to the provisions of this paragraph, “Tenant’s Share” shall be the percentage set forth on the first page of this Lease as Tenant’s Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter.  Landlord may equitably increase Tenant’s Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use.  Base Rent, Tenant’s Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as “Rent.”

6.             Security Deposit.  Tenant shall deposit with Landlord, upon delivery of an executed copy of this Lease to Landlord, a security deposit (the “Security Deposit”) for the performance of all of Tenant’s obligations hereunder in the amount set forth on page 1 of this Lease, which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the “Letter of Credit”):  (i) in form and substance satisfactory to Landlord in its commercially reasonable discretion, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by Silicon Valley Bank or another FDIC-insured financial institution satisfactory to Landlord, in its commercially reasonable discretion, and (v) redeemable by presentation of a sight draft in the state of Landlord’s choice.  If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least 10 days before the stated expiration date of any then current Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without obligation for interest thereon as the Security Deposit.  The Security Deposit shall be held by Landlord as security for the performance of Tenant’s obligations under this Lease.  The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default.  Upon each occurrence of a Default (as defined in Section 20), Landlord may use all or any part of the Security Deposit to pay

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delinquent payments due under this Lease, future rent damages under California Civil Code Section 1951.2, and the cost of any damage, injury, expense or liability caused by such Default, without prejudice to any other remedy provided herein or provided by law.  Landlord’s right to use the Security Deposit under this Section 6 includes the right to use the Security Deposit to pay future rent damages following the termination of this Lease pursuant to Section 21(c) below.  Upon any use of all or any portion of the Security Deposit, Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to the amount set forth on Page 1 of this Lease.  Tenant hereby waives the provisions of any law, now or hereafter in force, including, without limitation, California Civil Code Section 1950.7, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant.  Upon bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for periods prior to the filing of such proceedings.  Upon any such use of all or any portion of the Security Deposit, Tenant shall, within 5 days after demand from Landlord, restore the Security Deposit to its original amount.  If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within 90 days after the expiration or earlier termination of this Lease.

Notwithstanding anything to the contrary contained herein, the parties hereto agree that Tenant may in lieu of the Letter of Credit in the amount of $128,976.75 deposit the sum of $128,976.75 in cash (“Initial Deposit”) with Landlord as the Security Deposit under this Lease concurrent with Tenant’s delivery to Landlord of an original of this Lease executed by Tenant; provided, however, that Tenant shall replace the cash Security Deposit with a Letter of Credit in the amount of $128,976.75 on or before the date that is 30 days after the full execution and delivery of this Lease.  Promptly after the delivery to Landlord of the approved and effective Letter of Credit in the amount of $128,976.75, Landlord shall return the Initial Deposit to Tenant.

If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer any Security Deposit then held by Landlord to a person or entity assuming Landlord’s obligations under this Section 6, or (b) return to Tenant any Security Deposit then held by Landlord and remaining after the deductions permitted herein.  Upon such transfer to, and assumption by, such transferee or the return of the Security Deposit to Tenant, Landlord shall have no further obligation with respect to the Security Deposit, and Tenant’s right to the return of the Security Deposit shall apply solely against Landlord’s transferee.  The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default.  Landlord’s obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon.

7.             Use.  The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, “ADA”) (collectively, “Legal Requirements” and each, a “Legal Requirement”).  Tenant shall, upon 5 days’ written notice from Landlord, discontinue any use of the Premises which is declared by any Governmental Authority (as defined in Section 9) having jurisdiction to be a violation of a Legal Requirement.  Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits.  Tenant shall not permit any part of the Premises to be used as a “place of public accommodation”, as defined in the ADA or any similar legal requirement.  Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenant’s failure to comply with the provisions of this Section or otherwise caused by Tenant’s use and/or occupancy of the Premises.  Tenant will use the Premises in a careful, safe and

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proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose.  Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project.  Tenant shall not place any machinery or equipment weighing 500 pounds or more in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed.  Except as may be provided under the Work Letter, Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant’s Share as usually furnished for the Permitted Use.

Following Substantial Completion of Landlord’s Work in accordance with the Work Letter, Tenant, at its sole expense, shall make any alterations or modifications to the interior or the exterior of the Premises or the Project that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA) related to Tenant’s use or occupancy of the Premises.  Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys’ fees, charges and disbursements and costs of suit) (collectively, “Claims”) arising out of or in connection with Legal Requirements compliance with which is Tenant’s responsibility under this Lease, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any such Legal Requirement.

8.             Holding Over.  If, with Landlord’s express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as Landlord may indicate, in Landlord’s sole and absolute discretion, in such written consent, and (iv) all other payments shall continue under the terms of this Lease.  If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenant’s holding over, including consequential damages.  No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises.  Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.

9.             Taxes.  Landlord shall pay, as part of Operating Expenses, all taxes, levies, fees, assessments and governmental charges of any kind, existing as of the Commencement Date or thereafter enacted (collectively referred to as “Taxes”), imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, “Governmental Authority”) during the Term, including, without limitation, all Taxes:  (i) imposed on or measured by or based, in whole or in part, on rent payable to (or gross receipts received by) Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any

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portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from Legal Requirements, or interpretations thereof, promulgated by any Governmental Authority, or (v) imposed as a license or other fee, charge, tax, or assessment on Landlord’s business or occupation of leasing space in the Project.  Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes.  For the avoidance of any doubt, except as provided in the paragraph immediately following this paragraph with respect to new buildings for use by other tenants being constructed on the land parcel on which the Building is located,  Taxes shall include and Tenant shall be solely responsible for paying the Taxes during the Term on the Building and the land parcel on which the Building is located. Taxes shall not include any net income taxes imposed on Landlord except to the extent such net income taxes are in substitution for any Taxes payable hereunder.  If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require.  Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant.  If any Taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes.  Landlord’s reasonable determination of any excess assessed valuation shall be binding and conclusive, absent manifest error.  The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord immediately upon demand.

Notwithstanding the foregoing, if, following the Commencement Date, Landlord constructs new buildings at the Project solely for lease by tenants, Tenant shall not be required to pay any increase to the Taxes otherwise required to be paid by Tenant which are solely and directly attributable to such new buildings unless Tenant leases any space in any such new buildings.  For the avoidance of any doubt, any Taxes attributable to the construction by Landlord of any new building(s) which include amenities (e.g. conference center, bistro and fitness center) which are available to Tenant and other tenants at the Project shall be included as part of Taxes if Tenant elects to use any of the same but Tenant shall only be responsible for its pro rata share (based on the rentable square footage of the Premises as compared to the rentable square footage of Project) of such Taxes.

10.           Parking.  Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below), spaces impacted by the Emergency Generator (as defined in Section 44(q) below) and the exercise by Landlord of its rights hereunder, Tenant shall have the right, in common with other tenants of the Project to use 119 parking spaces in those areas designated for non-reserved parking, subject in each case to Landlord’s rules and regulations, of which no less than 70 of such 119 spaces shall be located on the 2.02 acre parcel constituting the Project.  Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, including other tenants of the Project.

Notwithstanding anything to the contrary contained herein, Tenant acknowledges and agrees that Landlord may require Tenant, at any time and from time to time, use up to 49 of the parking space rights granted to Tenant under this Lease in locations to be designated by Landlord within the 3 parcels of land (and/or in a parking structure(s) on such land) identified as 4757 Nexus Centre Drive, Vacant Land and 4767 Nexus Centre Drive on Exhibit H. Tenant further acknowledges and agrees that Landlord and any owner(s) of the other parcels shall have the right, at any time and from time to time, to construct and/or demolish any buildings on such land as Landlord and/or such other owners shall determine in their sole and absolute discretion.

11.           Utilities, Services.  Landlord shall provide, subject to the terms of this Section 11, water, electricity, heat, light, power, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), refuse and trash collection and janitorial services (collectively, “Utilities”).  Landlord shall pay, as Operating Expenses or subject to Tenant’s reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges

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or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon.  Landlord may cause any Utilities to be separately metered or charged directly to Tenant by the provider.  To the extent that such separate metering is performed as part of the Tenant Improvements, such separate metering shall be paid for out of the TI Fund.  If such separate metering is performed following the Substantial Completion of the Tenant Improvements, such separate metering shall be paid for by Landlord.  Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term.  Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord.  No interruption or failure of Utilities, from any cause whatsoever other than Landlord’s willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent.  Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use.  Tenant shall be responsible for obtaining and paying for its own janitorial services for the Premises.

Notwithstanding anything to the contrary set forth herein, if (i) a stoppage of an Essential Service (as defined below) to the Premises shall occur and such stoppage is due solely to the negligent acts or omissions of Landlord and not due in any part to any act or omission on the part of Tenant or any Tenant Party or any matter beyond Landlord’s reasonable control (any such stoppage of an Essential Service being hereinafter referred to as a “Service Interruption”), and (ii) such Service Interruption continues for more than 3 consecutive business days after Landlord shall have received written notice thereof from Tenant, and (iii) as a result of such Service Interruption, the conduct of Tenant’s normal operations in the Premises are materially and adversely affected, then, there shall be an abatement of one day’s Base Rent for each day during which such Service Interruption continues after such 3 business day period; provided, however, that if any part of the Premises is reasonably useable for Tenant’s normal business operations or if Tenant conducts all or any part of its operations in any portion of the Premises notwithstanding such Service Interruption, then the amount of each daily abatement of Base Rent shall only be proportionate to the nature and extent of the interruption of Tenant’s normal operations or ability to use the Premises.  The rights granted to Tenant under this paragraph shall be Tenant’s sole and exclusive remedy resulting from a failure of Landlord to provide services, and Landlord shall not otherwise be liable for any loss or damage suffered or sustained by Tenant resulting from any failure or cessation of services.  For purposes hereof, the term “Essential Services” shall mean the following services:  access to the Premises, HVAC service, water, sewer and electricity, but in each case only to the extent that Landlord has an obligation to provide same to Tenant under this Lease.  The provisions of this paragraph shall only apply as long as Optimer Pharmaceuticals, Inc. (or its successor or assign pursuant to a Permitted Assignment (as defined in Section 22(b)), is the tenant occupying the Premises under this Lease and shall not apply to any other assignee or sublessee.

12.           Alterations and Tenant’s Property.  Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant following Substantial Completion of Landlord’s Work in accordance with the Work Letter, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other then by ordinary plugs or jacks) to Building Systems (as defined in Section 13) (“Alterations”) shall be subject to Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion if any such Alteration affects the structure or Building Systems and shall not be otherwise unreasonably withheld, conditioned or delayed.  Tenant may construct nonstructural Alterations in the Premises without Landlord’s prior approval if the aggregate cost of all such work in any 12 month period does not exceed $50,000 (a “Notice-Only Alteration”), provided Tenant notifies Landlord in writing of such intended Notice-Only Alteration, and such notice shall be accompanied by plans, specifications, work contracts and such other information concerning the nature and cost of the Notice-Only Alteration as may be reasonably requested by Landlord, which notice and accompanying materials shall be delivered to Landlord not less than 15 business days in advance of any proposed construction.  If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlord’s commercially reasonable discretion.  Any request for approval shall be in writing, delivered not less than 10 business days in advance of any proposed construction, and accompanied by plans,

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specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials.  Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements.  Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations.  Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to Landlord’s reasonable out-of-pocket costs incurred in connection with plan review, coordination, scheduling and supervision.  Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law.  Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup.

For any Alteration with a projected cost in excess of $100,000, Tenant shall, but only if requested to do so by Landlord, furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers’ compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction.  Upon completion of any Alterations, Tenant shall deliver to Landlord:  (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) “as built” plans for any such Alteration.

Except for Removable Installations (as hereinafter defined), all Installations (as hereinafter defined) shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term unless replacement is required in which case Tenant shall provide Landlord with prior written thereof and replace the same with a comparable Installation, and shall remain upon and be surrendered with the Premises as a part thereof.  Notwithstanding the foregoing, Landlord shall upon Tenant’s written request, at the time its approval of any such Installation is requested, or at the time it receives notice of a Notice Only Alteration, notify Tenant whether Landlord requires that Tenant remove such Installation upon the expiration or earlier termination of the Term, in which event Tenant shall remove such Installation in accordance with the immediately succeeding sentence.  Upon the expiration or earlier termination of the Term, Tenant shall remove (i) all wires, cables or similar equipment which Tenant has installed in the Premises or in the risers or plenums of the Building, (ii) any Installations for which Landlord has given Tenant notice of removal in accordance with the immediately preceding sentence, and (iii) all of Tenant’s Property (as hereinafter defined), and Tenant shall restore and repair any damage caused by or occasioned as a result of such removal, including, without limitation, capping off all such connections behind the walls of the Premises and repairing any holes.  During any restoration period beyond the expiration or earlier termination of the Term, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant.  If Landlord is requested by Tenant or any lender, lessor or other person or entity claiming an interest in any of Tenant’s Property to waive any lien Landlord may have against any of Tenant’s Property, and Landlord consents to such waiver, then Landlord shall be entitled to be paid as administrative rent a fee of $1,000 per occurrence for its time and effort in preparing and negotiating such a waiver of lien.

For purposes of this Lease, (x) “Removable Installations” means any items listed on Exhibit F attached hereto and any items agreed by Landlord in writing to be included on Exhibit F in the future, (y) “Tenant’s Property” means Removable Installations and, other than Installations, any personal property or equipment of Tenant that may be removed without material damage to the Premises, and (z) “Installations” means all property of any kind paid for with the TI Fund, all Alterations, all fixtures, and all partitions, hardware (excluding computer hardware), built-in machinery, built-in casework and cabinets and other similar additions, equipment, property and improvements built into the Premises so as to become an integral part of the Premises, including, without limitation, fume hoods which penetrate the

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roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch.

13.           Landlord’s Repairs.  Landlord, as an Operating Expense, shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project (“Building Systems”), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenant’s agents, servants, employees, invitees and contractors (collectively, “Tenant Parties”) excluded.  Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenant’s sole cost and expense.  Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed.  Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided, however, that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 24 hours advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements.  Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall make a commercially reasonable effort to effect such repair.  Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenant’s written notice of the need for such repairs or maintenance.  Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlord’s expense and agrees that the parties’ respective rights with respect to such matters shall be solely as set forth herein.  Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 18.

14.           Tenant’s Repairs.  Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls.  Such repair and replacement may include capital expenditures and repairs whose benefit may extend beyond the Term.  Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure.  If Tenant fails to commence cure of such failure within 10 days of Landlord’s notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant.  Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises.

15.           Mechanic’s Liens.  Tenant shall discharge, by bond or otherwise, any mechanic’s lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after Tenant’s receipt of notice of the filing thereof, at Tenant’s sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant.  Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent.  If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property of Tenant located within the Premises.  In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property, located in an identified suite held by Tenant.

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16.           Indemnification.  Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out of use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, unless caused solely by the willful misconduct or gross negligence of Landlord and/or Landlord’s Parties.  Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises).  Tenant further waives any and all Claims for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records).  Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.

17.           Insurance.  Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project or such lesser coverage amount as Landlord may elect provided such coverage amount is not less than 90% of such full replacement cost.  Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less than $2,000,000 for bodily injury and property damage with respect to the Project.  Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers’ compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project.  All such insurance shall be included as part of the Operating Expenses.  The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer’s cost calculations).  Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant’s use of the Premises.

Tenant, at its sole cost and expense, shall maintain during the Term:  all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant’s expense; workers’ compensation insurance with no less than the minimum limits required by law; employer’s liability insurance with such limits as required by law; and commercial general liability insurance, with a minimum limit of not less than $6,000,000 per occurrence for bodily injury and property damage with respect to the Premises which coverage amount may be satisfied through a combination of primary and umbrella policies.  The commercial general liability insurance policy and umbrella policies shall name Alexandria Real Estate Equities, Inc., and Landlord, its officers, directors, employees, managers, agents, invitees and contractors (collectively, “Landlord Parties”), as additional insureds; insure on an occurrence and not a claims-made basis; be issued by insurance companies which have a rating of not less than policyholder rating of A- and financial category rating of at least Class VII in “Best’s Insurance Guide”; shall not be cancelable for nonpayment of premium unless 10 days prior written notice shall have been given to Landlord from the insurer; contain a hostile fire endorsement and a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies). Certificates of insurance showing the limits of coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance.  Tenant’s policy may be a “blanket policy”.  Tenant shall, at least 5 days prior to the expiration of such policies, furnish Landlord with renewal certificates.

In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to:  (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.

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The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors (“Related Parties”), in connection with any loss or damage thereby insured against.  Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage.  The failure of a party to insure its property shall not void this waiver.  Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever.  If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the other’s insurer.

Landlord may require insurance policy limits to be raised to conform with requirements of Landlord’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.

18.           Restoration.  If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 60 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the “Restoration Period”).  If the Restoration Period is estimated to exceed 12 months (the “Maximum Restoration Period”), Landlord may, in such notice, elect to terminate this Lease as of the date that is 75 days after the date of discovery of such damage or destruction.  Unless Landlord so elects to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises (excluding the improvements installed by Tenant or by Landlord and paid for by Tenant), subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30) in, on or about the Premises (collectively referred to herein as “Hazardous Materials Clearances”); provided, however, that if, despite Landlord’s diligent efforts, repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, in which event Landlord shall be relieved of its obligation to make such repairs or restoration and this Lease shall terminate as of the date that is 75 days after the later of:  (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant, if any, prior to such election by Landlord or Tenant.

Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force Majeure (as defined in Section 34) events or to obtain Hazardous Material Clearances, all repairs or restoration not required to be done by Landlord.  Notwithstanding the foregoing, Landlord may terminate this Lease if the Premises are damaged during the last 1 year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage, or if insurance proceeds are not available for such restoration.  Rent shall be abated from the date all required Hazardous Material Clearances, if any, are obtained so that Landlord has unrestricted access to the Premises (or if no such Hazardous Materials Clearances are required to be obtained Rent shall be abated from the date of the casualty) until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises, unless Landlord provides Tenant with other space during the period of repair that is suitable, in Tenant’s reasonable opinion, for the temporary conduct of Tenant’s business.  Such abatement shall be the sole remedy of Tenant, and except as provided in this Section 18, Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

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The provisions of this Lease, including this Section 18, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding and agreement with respect to such matters.

19.           Condemnation.  If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “Taking” or “Taken”), and the Taking would in Landlord’s reasonable judgment, either prevent or materially interfere with Tenant’s use of the Premises or materially interfere with or impair Landlord’s ownership or operation of the Project, then upon written notice by Landlord this Lease shall terminate and Rent shall be apportioned as of said date.  If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenant’s Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances.  Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award.  Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s trade fixtures, if a separate award for such items is made to Tenant.  Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.

20.           Events of Default.  Each of the following events shall be a default (“Default”) by Tenant under this Lease:

(a)           Payment Defaults.  Tenant shall fail to pay any installment of Rent or any other payment hereunder when due;  provided, however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay Rent within 3 business days of any such notice not more than once in any 12 month period and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by law.

(b)           Insurance.  Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 5 days before the expiration of the current coverage.

(c)           Abandonment.  Tenant shall abandon the Premises.

(d)           Improper Transfer.  Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant’s interest in this Lease or the Premises except as expressly permitted herein, or Tenant’s interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.

(e)           Liens.  Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after Tenant receives notice that any such lien is filed against the Premises.

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(f)            Insolvency Events.  Tenant or any guarantor or surety of Tenant’s obligations hereunder shall:  (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “Proceeding for Relief”); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

(g)           Estoppel Certificate or Subordination Agreement.  Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 5 days after a second notice requesting such document.

(h)           Other Defaults.  Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 20, and, except as otherwise expressly provided herein, such failure shall continue for a period of 30 days after written notice thereof from Landlord to Tenant.

Any notice given under Section 20(h) hereof shall:  (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant’s default pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 30 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 30 day period and thereafter diligently prosecutes the same to completion; provided, however, that, upon request from Landlord from time to time, Tenant shall provide Landlord with any information reasonably requested by Landlord regarding the prosecution of the cure in question including, without limitation, status reports detailing actions being undertaken by Tenant.

21.           Landlord’s Remedies.

(a)           Payment By Landlord; Interest.  Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act.  All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the “Default Rate”), whichever is less, shall be payable to Landlord on demand as Additional Rent.  Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenant’s Default hereunder.

(b)           Late Payment Rent.  Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain.  Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises.  Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum equal to 6% of the overdue Rent as a late charge.  Notwithstanding the foregoing, before assessing a late charge the first time in any calendar year, Landlord shall provide Tenant written notice of the delinquency and will waive the right if Tenant pays such delinquency within 5 days thereafter.  The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant.  In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.

(c)           Remedies.  Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

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(i)            Terminate this Lease, or at Landlord’s option, Tenant’s right to possession only, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor;

(ii)           Upon any termination of this Lease, whether pursuant to the foregoing Section 21(c)(i) or otherwise, Landlord may recover from Tenant the following:

(A)          The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

(B)           The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(C)           The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(D)          Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including, but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

(E)           At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “rent” as used in this Section 21 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others.  As used in Sections 21(c)(ii)(A) and (B), above, the “worth at the time of award” shall be computed by allowing interest at the Default Rate.  As used in Section 21(c)(ii)(C) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.

(iii)          Landlord may continue this Lease in effect after Tenant’s Default and recover rent as it becomes due (Landlord and Tenant hereby agreeing that Tenant has the right to sublet or assign hereunder, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease following a Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies hereunder, including the right to recover all Rent as it becomes due.

(iv)          Whether or not Landlord elects to terminate this Lease following a Default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements.  Upon Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

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(v)           Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section 30(d) hereof, at Tenant’s expense.

(d)           Effect of Exercise.  Exercise by Landlord of any remedies hereunder or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, it being understood that such surrender and/or termination can be effected only by the express written agreement of Landlord and Tenant.  Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same and shall not be deemed a waiver of Landlord’s right to enforce one or more of its rights in connection with any subsequent default.  A receipt by Landlord of Rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord.  To the greatest extent permitted by law, Tenant waives the service of notice of Landlord’s intention to re-enter, re-take or otherwise obtain possession of the Premises as provided in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge.  Any reletting of the Premises or any portion thereof shall be on such terms and conditions as Landlord in its sole discretion may determine.  Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or collect rent due in respect of such reletting or otherwise to mitigate any damages arising by reason of Tenant’s Default.

22.           Assignment and Subletting.

(a)           General Prohibition.  Without Landlord’s prior written consent subject to and on the conditions described in this Section 22, Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect.  If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 50% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 22.

(b)           Permitted Transfers.  If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises, then at least 15 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the “Assignment Date”), Tenant shall give Landlord a notice (the “Assignment Notice”) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 10 business days after receipt of the Assignment Notice:  (i) grant such consent, (ii) refuse such consent, in its reasonable discretion; or (iii) with respect to

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a proposed sublease for the remainder of the Term or an assignment other than a Permitted Assignment, terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an “Assignment Termination”).  Among other reasons, it shall be reasonable for Landlord to withhold its consent in any of these instances:  (1) the proposed assignee or subtenant is a governmental agency; (2) in Landlord’s reasonable judgment, the use of the Premises by the proposed assignee or subtenant would entail any alterations that would lessen the value of the leasehold improvements in the Premises, or would require increased services by Landlord; (3) in Landlord’s reasonable judgment, the proposed assignee or subtenant is engaged in areas of scientific research or other business concerns that are controversial such that they may (i) attract or cause negative publicity for or about the Building or the Project, (ii) negatively affect the reputation of the Building, the Project or Landlord, (iii) attract protestors to the Building or the Project, or (iv) lessen the attractiveness of the Building or the Project to any tenants or prospective tenants, purchasers or lenders; (4) in Landlord’s reasonable judgment, the proposed assignee or subtenant lacks the creditworthiness to support the financial obligations it will incur under the proposed assignment or sublease; (5) in Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is inconsistent with the desired tenant-mix or the quality of other tenancies in the Project or is inconsistent with the type and quality of the nature of the Building; (6) Landlord has received from any prior landlord to the proposed assignee or subtenant a negative report concerning such prior landlord’s experience with the proposed assignee or subtenant; (7) Landlord has experienced previous defaults by or is in litigation with the proposed assignee or subtenant; (8) the use of the Premises by the proposed assignee or subtenant will violate any applicable Legal Requirement; (9) the proposed assignee or subtenant, or any entity that, directly or indirectly, controls, is controlled by, or is under common control with the proposed assignee or subtenant, is then an occupant of the Project and Landlord at that time has space available for lease which is comparable to that being offered by Tenant; (10) the proposed assignee or subtenant is an entity with whom Landlord is negotiating to lease space in the Project and Landlord at that time has space available for lease which is comparable to that being offered by Tenant; or (11) the assignment or sublease is prohibited by Landlord’s lender.  If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such Assignment Notice by written notice to Landlord of such election within 5 business days after Landlord’s notice electing to exercise the Assignment Termination.  If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect.  If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice.  No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlord’s consent to the proposed assignment, sublease or other transfer.  Tenant shall pay to Landlord a fee equal to One Thousand Five Hundred Dollars ($1,500) in connection with its consideration of any Assignment Notice and/or its preparation or review of any consent documents.  Notwithstanding anything to the contrary set forth in this Lease, Landlord’s consent to an assignment of this Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant (a “Control Permitted Assignment”) shall not be required, provided that Tenant shall deliver to Landlord, prior to the effective date of any Control Permitted Assignment, a fully executed copy of any such sublease or assignment along with an insurance certificate from the sublessee or assignee, as applicable, satisfying all of the insurance requirements of the Tenant under this Lease.  In addition, Tenant shall have the right to assign this Lease, upon 30 days prior written notice to Landlord (unless Tenant is prohibited from providing such notice by confidentiality or Legal Requirements in which case Tenant shall notify Landlord promptly thereafter) but without obtaining Landlord’s prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a good business purpose and not principally for the purpose of transferring the Lease, and (ii) the net worth (as determined in accordance with generally accepted accounting principles (“GAAP”)) of the assignee is not less than the net worth (as determined in accordance with GAAP) of Tenant as of the Commencement Date, and (iii) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (a “Corporate Permitted Assignment”).  Control Permitted Assignments and Corporate Permitted Assignments are hereinafter referred to as “Permitted Assignments.”

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(c)           Additional Conditions.  As a condition to any such assignment or subletting, whether or not Landlord’s consent is required, Landlord may require:

(i)            that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and

(ii)           A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation:  permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks.  Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.

(d)           No Release of Tenant, Sharing of Excess Rents.  Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenant’s other obligations under this Lease.  If the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the rental payable under this Lease, (excluding however, any Rent payable under this Section) (“Excess Rent”), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant; provided that no Excess Rent shall be payable to Landlord in connection with any Permitted Assignment.  If Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.

(e)           No Waiver.  The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease.  The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.

(f)            Prior Conduct of Proposed Transferee.  Notwithstanding any other provision of this Section 22, if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by

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any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

23.           Estoppel Certificate.  Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be requested thereon.  Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part.  Tenant’s failure to deliver such statement within 5 business days of the second request therefor shall, at the option of Landlord, constitute a Default under this Lease, and, in any event, shall be conclusive upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

24.           Quiet Enjoyment.  So long as Tenant is not in Default under this Lease, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

25.           Prorations.  All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day months.

26.           Rules and Regulations.  Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project.  The current rules and regulations are attached hereto as Exhibit E.  If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control.  Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.

27.           Subordination.  This Lease and Tenant’s interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided, however that so long as there is no Default hereunder, Tenant’s right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage.  Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder.  Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenant’s quiet enjoyment of the Premises as set forth in Section 24 hereof.  Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder.  The term “Mortgage” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “Holder” of a Mortgage shall be deemed to include the beneficiary under a deed of trust.

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28.           Surrender.  Upon the expiration of the Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, “Tenant HazMat Operations”) and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted.  At least 3 months prior to the surrender of the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the “Surrender Plan”).  Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Landlord’s environmental consultant.  In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request.  On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations.  Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlord’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $2,500.  Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord’s environmental consultant with respect to the surrender of the Premises to third parties.

If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28.

Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant.  If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key.  Any Tenant’s Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and/or disposition of such property.  All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.

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29.           Waiver of Jury Trial.  TO THE EXTENT PERMITTED BY LAW, TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

30.           Environmental Requirements.

(a)           Prohibition/Compliance/Indemnity.  Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated  in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party.  If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord’s employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys’, consultants’ and experts’ fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, “Environmental Claims”) which arise during or after the Term as a result of such contamination.  This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises.  Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project.

(b)           Business.  Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the Permitted Use.  Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements.  As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises (“Hazardous Materials List”).  Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year and shall also deliver an updated list to the extent that any change to the Tenant’s Hazardous Materials inventory at the Premises requires an update to Tenant’s Hazardous Materials Business Plan pursuant to the Legal Requirements of the City and/or County of San Diego.  Tenant shall deliver to Landlord true and correct copies of the following documents (the “Haz Mat Documents”) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the

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receipt from or submission to a Governmental Authority:  permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section 28 cannot be accomplished in 3 months).  Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.  It is not the intent of this Section to provide Landlord with information which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors.

(c)           Tenant Representation and Warranty.  Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority).  If Landlord determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion.

(d)           Testing.  Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenant’s use.  Tenant shall be required to pay the cost of such annual test of the Premises only if contamination is identified and/or if Tenant is found to have violated Environmental Requirements.  In addition, at any time, and from time to time but not more often than twice annually, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenant’s use of the Premises.  In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party.  If contamination has occurred for which Tenant is liable under this Section 30, Tenant shall pay all costs to conduct such tests.  If no such contamination is found, Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense).  Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement.  Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements.  Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.

(e)           Control Areas.  Tenant shall have dedicated and exclusive use of all control areas within the Building permitted by Legal Requirements solely for Tenant’s use, in the locations identified in the approved Space Plan, for chemical use or storage.

(f)            Underground Tanks.  If underground or other storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks.

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(g)           Tenant’s Obligations.  Tenant’s obligations under this Section 30 shall survive the expiration or earlier termination of the Lease.  During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s reasonable discretion, which Rent shall be prorated daily.

(h)           Definitions.  As used herein, the term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following:  the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder.  As used herein, the term “Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas).  As defined in Environmental Requirements, Tenant is and shall be deemed to be the “operator” of Tenant’s “facility” and the “owner” of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

31.           Tenant’s Remedies/Limitation of Liability.  Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary).  Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices.  All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder.

All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter.  The term “Landlord” in this Lease shall mean only the owner for the time being of the Premises.  Upon the transfer by such owner of its interest in the Premises and assumption of Landlord’s obligations thereafter arising under this Lease by the new owner, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner’s ownership.

32.           Inspection and Access.  Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose.  Landlord and Landlord’s representatives may enter the Premises during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose.  Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale.  Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely

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affects Tenant’s use of the Common Areas, or use or occupancy of the Premises for the Permitted Use.  At Landlord’s request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions.  Tenant shall at all times, except in the case of emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlord’s access rights hereunder.

33.           Security.  Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises.  Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises.  Tenant shall be solely responsible for the personal safety of Tenant’s officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project.  Tenant shall at Tenant’s cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.

34.           Force Majeure.  Landlord shall not be responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, sinkholes or subsidence, strikes, lockouts, or other labor disputes, embargoes, quarantines, unusual weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions, orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits, enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other causes or events beyond the reasonable control of Landlord (“Force Majeure”).

35.           Brokers.  Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “Broker”) in connection with this transaction and that no Broker brought about this transaction, other than Cushman & Wakefield.  Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 35, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.  Landlord shall pay Cushman & Wakefield a commission in connection with this Lease pursuant to the terms of a separate agreement between Landlord and Cushman & Wakefield.

36.           Limitation on Landlord’s Liability.  NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY:  (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO:  TENANT’S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD’S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD’S INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS.  UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT’S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.

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37.           Severability.  If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby.  It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.

38.           Signs; Exterior Appearance.  Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlord’s sole discretion:  (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord’s standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises.  Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.  Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord’s standard lettering.  The directory tablet shall be provided exclusively for the display of the name and location of tenants.

Tenant shall, at Tenant’s sole cost and expense, have the exclusive right to install and place Tenant’s name on (i) a building monument sign located at the Project (“Monument Sign”), and (ii) a Building top location reasonably approved by Landlord (the “Building Sign”).  The Monument Sign and Building Sign are collectively referred to as “Tenant’s Signs”.  Tenant acknowledges and agrees that Tenant’s Signs including, without limitation, the size, color and type, shall be subject to Landlord’s prior written approval, which shall not be unreasonably withheld, conditioned or delayed and shall be consistent with Landlord’s signage program at the Project and applicable Legal Requirements.  Tenant shall be responsible, at Tenant’s sole cost and expense, for the installation and maintenance of Tenant’s Signs, for the removal of Tenant’s signage on the Monument Sign and the Building Sign at the expiration or earlier termination of this Lease and for the repair all damage resulting from such removal.

39.           Right to Expand at the Project.  Tenant shall also have the right to expand the Premises at the Project upon the following terms and conditions:

(a)           Right of Refusal.  Upon the terms and conditions set forth in this Section 39, during the Base Term, Tenant shall have a one time right of refusal (the “Expansion Right”) exercisable the first time that Landlord intends to accept a written proposal from a third party (the “Pending Deal”) to elect to lease Available Second Generation Space.  As used herein, “Available Second Generation Space” shall mean the first space in excess of 10,000 rentable square feet in each multi-tenant building, if any, constructed by Landlord or an entity controlled by Alexandria Real Estate Equities, Inc. (“Landlord’s Affiliate”) on the land depicted on Exhibit H after the date of this Lease becoming available for lease which space was previously leased by Landlord to a third party in such new building; provided, however, in no event shall the Expansion Right apply to any building on the parcel designated as 4767 Nexus Centre Drive on Exhibit H.  If Available Second Generation Space becomes available for lease or will become available for lease to a third party (other than the tenant then leasing such space (whether or not such tenant has the right to renew) and/or any other party to whom Landlord grants a right to lease such Available Second Generation Space) and Landlord intends to accept a Pending Deal with respect to such Available Second Generation Space, Landlord shall deliver to Tenant written notice (the “Pending Deal Notice”) of the existence of such Pending Deal.  Tenant shall be entitled to exercise its right under this Section 39 only with respect to the entire Available Second Generation Space described in such Pending

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Deal Notice.  Within 5 business days after Tenant’s receipt of the Pending Deal Notice, Tenant shall deliver to Landlord written notice (the “Space Acceptance Notice”) if Tenant elects to lease the Available Second Generation Space.  If Tenant elects to lease the Available Second Generation Space described in the Pending Deal Notice by delivering the Space Acceptance Notice within the required 5 business day period, Tenant shall be deemed to agree to lease the Available Second Generation Space on the same general terms and conditions as this Lease except that the terms of the Lease shall be modified to reflect the terms of the Pending Deal Notice for the rental of the Available Second Generation Space.  Tenant acknowledges that the term of the Lease with respect to the Available Second Generation Space and the term of the Lease with respect to the original Premises may not be co-terminous.  Notwithstanding anything to the contrary contained herein, in no event shall the TI Allowance, the Work Letter or the Termination Right apply to the Available Second Generation Space.  Notwithstanding anything to the contrary contained herein, this Section 39 shall terminate and have no further force and effect if either the Project and/or any building containing the Available Second Generation Space is owned by a party other than Landlord and/or a Landlord’s Affliate.

Notwithstanding anything to the contrary contained herein, Tenant acknowledges and agrees that Landlord shall have no obligation to construct any multi-tenant building(s) at the Project unless Landlord elects to do so in its sole and absolute discretion nor shall Landlord have any obligation to increase the acreage of Project by adding any additional land unless Landlord elects to do so in its sole and absolute discretion, and the same may result in Tenant never having any opportunity to expand the Premises as contemplated by this Section 39.

(b)           Amended Lease.  If: (i) Tenant fails to deliver the Space Acceptance Notice within the required 5 business day period, or (ii) after the expiration of a period of 10 business days from the date that Landlord delivers to Tenant a lease amendment or lease agreement for the leasing of the Space Acceptance Notice, no lease amendment or lease agreement for the Available Second Generation Space, on terms and conditions acceptable to each party in the exercise of its sole and absolute discretion after negotiating in good faith, has been mutually executed and delivered by the parties, Tenant shall be deemed to have forever waived its rights under this Section 39 with respect to the building identified in the Pending Deal Notice.

(c)           Rights Personal.  The Expansion Right is personal to Tenant and is not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in the Lease, except that they may be assigned in connection with any Permitted Assignment of this Lease.

(d)           Exceptions.  Notwithstanding anything set forth above to the contrary, the Expansion Right shall not be in effect and Tenant may not exercise the Expansion Right:

(i)            during any period of time that Tenant is in Default under any provision of this Lease; or

(ii)           if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise the Expansion Right, whether or not the Defaults are cured.

(e)           No Extensions.  The period of time within which the Expansion Right may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Expansion Right.

(f)            Termination.  The Expansion Right shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Expansion Right, if, after such exercise, but prior to the commencement date of the term of the lease for the Available Second Generation Space, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Expansion Right to the date of the commencement of the term of the lease for the Available Second Generation Space, whether or not such Defaults are cured.

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40.           Right to Extend Term.  Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:

(a)           Extension Rights.  Tenant shall have 2 consecutive rights (each, an “Extension Right”) to extend the term of this Lease for 5 years each (each, an “Extension Term”) on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice of its election to exercise each Extension Right at least 12 months prior to the expiration of the Base Term of the Lease or the expiration of any prior Extension Term.

Upon the commencement of any Extension Term, Base Rent shall be payable at the Market Rate (as defined below).  Base Rent shall thereafter be adjusted on each annual anniversary of the commencement of such Extension Term by a percentage as determined by Landlord and agreed to by Tenant at the time the Market Rate is determined.  As used herein, “Market Rate” shall mean the then market rental rate as determined by Landlord and agreed to by Tenant.

If, on or before the date which is 180 days prior to the expiration of the Base Term of this Lease, or the first Extension Term, if applicable, Tenant has not agreed with Landlord’s determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall be deemed to have elected arbitration as described in Section 40(b).  Tenant acknowledges and agrees that, if Tenant has elected to exercise the Extension Right by delivering notice to Landlord as required in this Section 40(a), Tenant shall have no right thereafter to rescind or elect not to extend the term of the Lease for the Extension Term.

(b)           Arbitration.

(i)            Within 10 days of Tenant’s notice to Landlord of its election (or deemed election) to arbitrate Market Rate and escalations, each party shall deliver to the other a proposal containing the Market Rate and escalations that the submitting party believes to be correct (“Extension Proposal”).  If either party fails to timely submit an Extension Proposal, the other party’s submitted proposal shall determine the Base Rent and escalations for the Extension Term.  If both parties submit Extension Proposals, then Landlord and Tenant shall meet within 7 days after delivery of the last Extension Proposal and make a good faith attempt to mutually appoint a single Arbitrator (and defined below) to determine the Market Rate and escalations.  If Landlord and Tenant are unable to agree upon a single Arbitrator, then each shall, by written notice delivered to the other within 10 days after the meeting, select an Arbitrator.  If either party fails to timely give notice of its selection for an Arbitrator, the other party’s submitted proposal shall determine the Base Rent for the Extension Term.  The 2 Arbitrators so appointed shall, within 5 business days after their appointment, appoint a third Arbitrator.  If the 2 Arbitrators so selected cannot agree on the selection of the third Arbitrator within the time above specified, then either party, on behalf of both parties, may request such appointment of such third Arbitrator by application to any state court of general jurisdiction in the jurisdiction in which the Premises are located, upon 10 days prior written notice to the other party of such intent.

(ii)           The decision of the Arbitrator(s) shall be made within 30 days after the appointment of a single Arbitrator or the third Arbitrator, as applicable.  The decision of the single Arbitrator shall be final and binding upon the parties.  The average of the two closest Arbitrators in a three Arbitrator panel shall be final and binding upon the parties.  Each party shall pay the fees and expenses of the Arbitrator appointed by or on behalf of such party and the fees and expenses of the third Arbitrator shall be borne equally by both parties.  If the Market Rate and escalations are not determined by the first day of the Extension Term, then Tenant shall pay Landlord Base Rent in an amount equal to the Base Rent in effect immediately prior to the Extension Term and increased by the Rent Adjustment Percentage until such determination is made.  After the determination of the Market Rate and escalations, the parties shall make any necessary adjustments to such payments made by Tenant.  Landlord and Tenant shall then execute an amendment recognizing the Market Rate and escalations for the Extension Term.

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(iii)          An “Arbitrator” shall be any person appointed by or on behalf of either party or appointed pursuant to the provisions hereof and:  (i) shall be (A) a member of the American Institute of Real Estate Appraisers with not less than 10 years of experience in the appraisal of improved office and high tech industrial real estate in the greater UTC and Torrey Pines area, or (B) a licensed commercial real estate broker with not less than 15 years experience representing landlords and/or tenants in the leasing of high tech or life sciences space in the greater UTC and Torrey Pines area, (ii) devoting substantially all of their time to professional appraisal or brokerage work, as applicable, at the time of appointment and (iii) be in all respects impartial and disinterested.

(c)           Rights Personal.  Extension Rights are personal to Tenant and are not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in the Lease, except that they may be assigned in connection with any Permitted Assignment of this Lease.

(d)           Exceptions.  Notwithstanding anything set forth above to the contrary, Extension Rights shall not be in effect and Tenant may not exercise any of the Extension Rights:

(i)            during any period of time that Tenant is in Default under any provision of this Lease; or

(ii)           if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise an Extension Right, whether or not the Defaults are cured.

(e)           No Extensions.  The period of time within which any Extension Rights may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Extension Rights.

(f)            Termination.  The Extension Rights shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of an Extension Right, if, after such exercise, but prior to the commencement date of an Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of an Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.

41.           Early Termination Right.  Tenant shall have the right, subject to the provisions of this Section 41, to terminate this Lease (“Termination Right”) with respect to the entire Premises only as of expiration of the 84th month after the Commencement Date (“Early Termination Date”), so long as Tenant delivers to Landlord (i) a written notice (“Termination Notice”), of its election to exercise its Termination Right no less than 6 months in advance of the Early Termination Date, and (ii) concurrent with Tenant’s delivery to Landlord of the Termination Notice delivers, an early termination payment equal to (1) the unamortized amount of the TI Allowance provided to Tenant, (2) all of the unamortized leasing commissions paid by Landlord in connection with this Lease, (3) an amount equal to the unamortized amount of the Abated Base Rent and Abated Operating Expenses provided to Tenant under this Lease, and (4) an amount equal to 6 months of Base Rent payable as of the Early Termination Date (collectively, the “Early Termination Payment”).  Upon written request from Tenant delivered no earlier than 12 months prior to the Early Termination Date, Landlord shall, within 30 days of such request, provide Tenant with a written notice setting forth the calculations of the amounts due under the preceding sentence (“Landlord’s Early Termination Fee Notice”).  If Tenant timely and properly exercises the Termination Right, Tenant shall vacate the Premises and deliver possession thereof to Landlord in the condition required by the terms of this Lease on or before the Early Termination Date and Tenant shall have no further obligations under this Lease except for those accruing prior to the Early Termination Date and those which, pursuant to the terms of this Lease, survive the expiration or early termination of this Lease.  Provided Landlord has delivered Landlord’s Early Termination Fee Notice within the time required, in the event that Tenant does not deliver to Landlord the Termination Notice and the Early Termination Payment within the time period provided in this paragraph, Tenant shall be deemed to have waived its Termination Right and the provisions of this Section 41 shall have no further force or effect.

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42.           Roof Equipment.  Subject to the provisions of this Lease, Tenant may, at its sole cost,  install, maintain, and from time to time replace mechanical equipment and a satellite dish (weighing up to 50 pounds and having a diameter or height of up to 20 inches (or if Tenant desires a larger satellite dish the same shall be subject to Landlord’s prior written consent which shall not be unreasonably withheld, conditioned or delayed)) and related ancillary cabling on the roof of the Building (collectively, “Roof Equipment”), at no additional rental expense to Tenant (other than reimbursing Landlord for any costs incurred by Landlord in connection with the exercise by Tenant of any rights granted to Tenant under this Section 42) and Tenant shall have the right to access the roof only with a representative of Landlord present for the purposes set forth in this Section 42; provided, however, that (i) Tenant shall obtain Landlord’s prior written approval of the proposed location of the Roof Equipment and method for fastening the same to the roof, (ii) Tenant shall, at its sole cost, comply with reasonable requirements imposed by Landlord and all Legal Requirements and the conditions of any bond or warranty maintained by Landlord on the roof, (iii) Tenant shall be responsible for paying for any structural upgrades that may be required by Landlord in connection with the Roof Equipment, and (iv) Tenant shall remove, at its expense, at the expiration or earlier termination of this Lease, any Roof Equipment which Landlord requires to be removed. Landlord shall have the right supervise any roof penetration.  Tenant shall repair any damage to the Building caused by Tenant’s installation, maintenance, replacement, use or removal of the Roof Equipment.  The Roof Equipment shall remain the property of Tenant.  Tenant shall remove the Roof Equipment at its cost upon expiration or termination of the Lease or sooner, at the request of Landlord, if any of the same unreasonably interferes, as reasonably determined by Landlord, with the operation of any other tenant’s use of the Project and Tenant cannot reasonably cure such interference.  Landlord shall give Tenant written notice and 10 days to cure such interference before requiring Tenant to remove any Roof Equipment; provided, however, that if such interference causes Landlord to be in default under any other lease, Landlord may shorten the cure period as necessary to avoid being in default under such other lease.  Tenant shall install, use, maintain and repair the Roof Equipment, and use the access areas, so as not to damage or interfere with the operation of the Building or with the occupancy or activities of any other tenant of the Building.  Tenant shall protect, defend, indemnify and hold harmless Landlord from and against claims, damages, liabilities, costs and expenses of every kind and nature, including  attorneys’ fees, incurred by or asserted against Landlord arising out of Tenant’s installation, maintenance, replacement, use or removal of the Roof Equipment.  Tenant’s right to use the roof as contemplated in this Section 42 is not exclusive and Tenant may not install any Roof Equipment on the roof which is not directly and solely related to Tenant’s operations at the Premises.

Except for the express rights granted to Tenant under this Section 42, Landlord retains all rights to utilize the remainder of the rooftop for any purpose in Landlord’s sole and absolute discretion, so long as Landlord’s use of the remainder of the rooftop does not interfere with Tenant’s use of the Roof Equipment and/or Building Systems.

43.           LEED Certification.  Tenant agrees to cooperate with Landlord and to comply with measures implemented by Landlord with respect to the Building and/or the Project in connection with Landlord’s efforts to obtain a Leadership in Energy and Environmental Design (LEED) certificate for the base, shell and core of the Building as part of the Base Building Improvements (as defined in the Work Letter); provided, however, that Landlord shall have no obligation to seek such LEED certification.  Any measures implemented in accordance with the foregoing will be at minimal or no cost to Tenant, will be performed so as to minimize interference with Tenant’s use and enjoyment of the Premises, and will not require Tenant to make any substantial changes to its business operations for the Permitted Use in the Premises nor materially increase the cost of such business operations.  Tenant shall have the right, at Tenant’s sole cost and expense or utilizing the TI Allowance, to pursue a LEED certification of the Tenant Improvements, and Landlord will cooperate, at minimal or no cost to Landlord, with Tenant’s efforts to pursue such certification.

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44.           Miscellaneous.

(a)           Notices.  All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above.  Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.

(b)           Joint and Several Liability.  If and when included within the term “Tenant,” as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.

(c)           Financial Information.  Tenant shall furnish Landlord  with true and complete copies of (i) Tenant’s most recent audited annual financial statements within 90 days of the end of each of Tenant’s fiscal years during the Term, and (ii) Tenant’s most recent unaudited quarterly financial statements within 45 days of the end of each of Tenant’s first three fiscal quarters of each of Tenant’s fiscal years during the Term.  Notwithstanding the foregoing, so long as Tenant is a publicly traded company, the requirements of this Section 44(c) shall not apply.

(d)           Recordation.  Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public land record.  Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.  The foregoing is not intended to prohibit Tenant from filing this Lease to the extent that Tenant is required to do so pursuant to applicable SEC requirements; provided, however that Tenant shall seek confidential treatment from the SEC with respect to certain information contained in this Lease, as requested by Landlord at the time of Landlord’s execution of this Lease.  Landlord agrees to promptly review any items requested by Tenant and cooperate with Tenant so that Tenant may timely comply with its SEC filing obligations.

(e)           Interpretation.  The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto.  Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires.  The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

(f)            Not Binding Until Executed.  The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

(g)           Limitations on Interest.  It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease.  If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

(h)           Choice of Law.  Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.

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(i)            Time.  Time is of the essence as to the performance of Tenant’s obligations under this Lease.

(j)            OFAC.  Tenant, and all beneficial owners of Tenant, are currently (a) in compliance with and shall at all times during the Term of this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “OFAC Rules”), (b) not listed on, and shall not during the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.

(k)           Incorporation by Reference.  All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof.  If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

(l)            Entire Agreement.  This Lease, including the exhibits attached hereto, constitutes the entire agreement between Landlord and Tenant pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein.

(m)          No Accord and Satisfaction.  No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and satisfaction.  Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to pursue any other remedy provided in this Lease.

(n)           Hazardous Activities.  Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenant’s routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses.  In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord’s reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant’s Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.

(o)           Redevelopment of Project.  Tenant acknowledges that Landlord, in its sole discretion, may now and/or in the future time expand, renovate and/or reconfigure the Project as the same may exist from time to time and, in connection therewith or in addition thereto, as the case may be, from time to time without limitation:  (a) change the shape, size, location, number and/or extent of any improvements, buildings, structures, lobbies, hallways, entrances, exits, parking and/or parking areas relative to any portion of the Project; (b) modify, eliminate and/or add any buildings, improvements, and parking structure(s) either above or below grade, to the Project, the Common Areas and/or any other portion of the Project and/or make any other changes thereto affecting the same; and (c) make any other changes, additions and/or deletions in any way affecting the Project and/or any portion thereof as Landlord may elect from time to time, including without limitation, additions to and/or deletions from the land comprising the Project, the Common Areas and/or any other portion of the Project.  Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no right to seek damages (including abatement of Rent) or to cancel or terminate this Lease because of any proposed changes, expansion, renovation or reconfiguration of the Project nor shall Tenant have the right to restrict, inhibit or prohibit any such changes, expansion, renovation or reconfiguration; provided, however, Landlord shall not change the size, dimensions, location or Tenant’s Permitted Use of the Premises.

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(p)           Discontinued Use.  If, at any time following the Commencement Date, Tenant does not continuously operate its business in the Premises for a period of 6 consecutive months, Landlord may, but is not obligated to, elect to terminate this Lease upon 30 days’ written notice to Tenant, whereupon this Lease shall terminate 30 days’ after Landlord’s delivery of such written notice (“Termination Date”), and Tenant shall vacate the Premises and deliver possession thereof to Landlord in the condition required by the terms of this Lease on or before the Termination Date and Tenant shall have no further obligations under this Lease except for those accruing prior to the Termination Date and those which, pursuant to the terms of this Lease, survive the expiration or early termination of this Lease.

(q)           Emergency Generator.  Subject to Tenant complying with all of the provisions of this Lease including, without limitation, Section 12 hereof, and all applicable Legal Requirements and Landlord’s rules and regulations, Tenant shall have the right, using funds from the TI Allowance, to install an emergency generator (the “Emergency Generator”) in the location shown on Exhibit G (“Generator Area”).  All such improvements to the Generator Area shall be of a design and type and with screening acceptable to Landlord, in Landlord’s reasonable discretion.  Landlord shall have the right, in its sole and absolute discretion, to require Tenant to remove any such Emergency Generator installed by Tenant and restore the Generator Area to its original use and condition, free of any debris and trash and free of any Hazardous Materials, upon the expiration or earlier termination of the Term.  If Landlord requires Tenant to remove such Emergency Generator and restore the Generator Area to its original use and condition as provided for in the preceding sentence, Tenant shall be entitled to keep the Emergency Generator or sell the Emergency Generator and retain the proceeds from the sale of such Emergency Generator. Tenant’s parking spaces (i.e., the 119 parking spaces) provided for in this Lease shall be reduced by the number of parking spaces impacted by the Emergency Generator and Tenant shall not be entitled to any additional parking rights in the Project.  Landlord shall have no obligation to make any repairs or improvements to the Emergency Generator or the Generator Area and Tenant shall maintain the same, at Tenant’s sole cost and expense, in good repair and condition during the Term as though the same were part of the Premises.

(r)            Materials Storage Shed.  Subject to Tenant complying with all of the provisions of this Lease including, without limitation, Section 12 hereof, and all applicable Legal Requirements and Landlord’s rules and regulations, Tenant shall have the right to use and improve, with funds from the TI Allowance, the Hazardous Materials storage area depicted on Exhibit G (the “Storage Area”), in connection with Tenant’s occupancy of the Building, at no additional Base Rent for the use of such facilities.  All such improvements to the Storage Area shall be of a design and type and with screening acceptable to Landlord, in Landlord’s sole and absolute discretion.  Landlord shall have the right, in its sole and absolute discretion, to require Tenant to remove any such improvements installed by Tenant in the Storage Area and restore all such areas to their original use and condition upon the expiration or earlier termination of the Term.  Tenant’s parking spaces provided for in this Lease shall be reduced by the number of parking spaces impacted by the Storage Area and Tenant shall not be entitled to any additional parking rights in the Project.  Landlord shall have no obligation to make any repairs or improvements to the Storage Areas and Tenant shall maintain the same, at Tenant’s sole cost and expense, in good repair and condition during the Term as though the same were part of the Premises.  At the expiration or earlier termination of the Term, Tenant shall, at Tenant’s sole cost and expense, remove all of Tenant’s personal property from the Storage Area and deliver the Storage Area to Landlord free of any debris and trash and free of any Hazardous Materials.

[ Signatures on next page ]

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

TENANT:
OPTIMER PHARMACEUTICALS, INC.,
a Delaware corporation
By:	/s/ John Prunty
Its:	CFO
LANDLORD:
ARE-SD REGION NO. 33, LLC,
a Delaware limited liability company
By:			ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
			a Delaware limited partnership,
			as Managing Member
		By:		ARE-QRS CORP.,
				a Maryland corporation,
				as General Partner
				By:		/s/ Eric S. Johnson
				Its:		Eric S. Johnson
					Vice President
					Real Estate Legal Affairs

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EXHIBIT A TO LEASE

DESCRIPTION OF PREMISES

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2

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EXHIBIT B TO LEASE

DESCRIPTION OF PROJECT

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

PARCEL A:

LOTS 6 OF LA JOLLA COMMONS IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 14466, FILED IN THE OFFICE OF THE COUNTY RECORDER ON OCTOBER 7, 2002, AND CERTIFICATE OF CORRECTION RECORDED OCTOBER 7, 2009 AS DOCUMENT NO. 2009-0558783 OF OFFICIAL RECORDS, IN SAID RECORDER’S OFFICE.

PARCEL B:

A NONEXCLUSIVE EASEMENT FOR DRAINAGE OVER THAT PORTION OF LOT 5 OF LA JOLLA COMMONS IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 14466, FILED IN THE OFFICE OF COUNTY RECORDER OF SAN DIEGO COUNTY ON OCTOBER 7, 2002, AND CERTIFICATE OF CORRECTION RECORDED OCTOBER 7, 2009 AS DOCUMENT NO. 2009-0558783 OF OFFICIAL RECORDS, IN SAID RECORDER’S OFFICE, WHICH LIES NORTH OF EXECUTIVE DRIVE, BEING MORE PARTICULARLY DESCRIBED IN SECTION 5.3 OF THAT CERTAIN DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS RECORDED JULY 16, 2003 AS INSTRUMENT NO. 2003-0847500 OF OFFICIAL RECORDS.

Assessor’s Parcel Number: 345-250-06-00

END OF LEGAL DESCRIPTION

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EXHIBIT C TO LEASE

WORK LETTER

THIS WORK LETTER dated December 15, 2011 (this “Work Letter”) is made and entered       into by and between ARE-SD REGION NO. 33, LLC, a Delaware limited liability company (“Landlord”), and OPTIMER PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”), and is attached to and made a part of the Lease Agreement dated December 15, 2011 (the “Lease”), by and between     Landlord and Tenant.  Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

1.             General Requirements.

(a)           Tenant’s Authorized Representative.  Tenant designates Mitch Che (such individual acting alone, “Tenant’s Representative”) as the only person authorized to act for Tenant pursuant to this Work Letter.  Landlord shall not be obligated to respond to or act upon any request, approval, inquiry or other communication (“Communication”) from or on behalf of Tenant in connection with this Work Letter unless such Communication is in writing from Tenant’s Representative.  Tenant may change Tenant’s Representative or add an additional person who may serve as a Tenant’s Representative at any time upon not less than 5 business days advance written notice to Landlord.  Neither Tenant nor Tenant’s Representative shall be authorized to direct Landlord’s contractors in the performance of Landlord’s Work (as hereinafter defined).

(b)           Landlord’s Authorized Representative.  Landlord designates Dan Ryan and Rodney Hunt (either such individual acting alone, “Landlord’s Representative”) as the only persons authorized to act for Landlord pursuant to this Work Letter.  Tenant shall not be obligated to respond to or act upon any request, approval, inquiry or other Communication from or on behalf of Landlord in connection with this Work Letter unless such Communication is in writing from Landlord’s Representative.  Landlord may change either Landlord’s Representative at any time upon not less than 5 business days advance written notice to Tenant. Landlord’s Representative shall be the sole persons authorized to direct Landlord’s contractors in the performance of Landlord’s Work.

(c)           Architects, Consultants and Contractors.  Landlord and Tenant hereby acknowledge and agree that:  (i) the general contractor and any subcontractors for the Base Building Improvements (as defined below) shall be selected by Landlord, in it is sole discretion, (ii) the general contractor for the Tenant Improvements and any subcontractors and vendors shall be selected and retained by Landlord, subject to Tenant’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, and (iii) Gensler (together with McFarlane Architects) has been retained by Landlord as the architect (the “TI Architect”) for the Tenant Improvements.

Tenant has advised Landlord that Tenant previously retained Serbia Consulting Group to provide consulting services to Tenant.  On the Commencement Date, Landlord shall reimburse Tenant for (i) $38,250 in consulting fees previously paid by Tenant to Serbia Consulting Group, and (ii) $7,500 per month for consulting fees paid by Tenant to Kavanagh Associates from November 2011 until the Commencement Date.  For the avoidance of any doubt and consistent with how the term is used in the Lease, Commencement Date (as used in the preceding sentence) shall mean the earlier of the (i) the date Landlord Delivers the Premises to Tenant; and (ii) the date Landlord could have Delivered the Premises but for Tenant Delays.

2.             Tenant Improvements.

(a)           Definition of Base Building Improvements, Tenant Improvements and Landlord’s Work.  As used herein, the term, “Base Building Improvements” shall mean the improvements to the Building reflected on Annex 1 attached to this Work Letter.  Landlord shall not make material changes to the Base Building Improvements that are inconsistent with the description set forth on Annex 1 without

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Tenant’s consent which consent shall not be unreasonably withheld, conditioned or delayed.  As used herein, the term “Tenant Improvements” shall mean all improvements to the Building as shown on the TI Construction Drawings, as defined in Section 2(c) below, which shall be required to satisfy the requirements set forth on Annex 2 attached hereto.  As used herein, the term “Landlord’s Work” shall mean collectively the work of constructing the Base Building Improvements and the Tenant Improvements.  Attached hereto as Annex 3 is the proposed schedule for Landlord’s Work.

Attached as Exhibit I to the Lease is a rendering of the planned south elevation of the Building but Landlord reserves the right to modify the finishes subject to Tenant’s approval which shall not be unreasonably withheld, conditioned or delayed provided, however, that Tenant may not withhold its consent to modifications that are reasonably consistent and harmonious with the Project.

Tenant shall be solely responsible for ensuring that the Base Building Improvements and the Tenant Improvements design and specifications for the Premises are consistent with Tenant’s requirements.  Tenant shall be solely responsible for all costs incurred by Landlord to alter the Building as a result of Tenant’s requested changes.  Landlord shall have no obligation to, and shall not, secure any permits, approvals or entitlements related to Tenant’s specific use of the Premises or Tenant’s business operations therein.  Other than its obligation to perform the Tenant Improvements, Landlord shall not have any obligation whatsoever with respect to the finishing of the Premises for Tenant’s use and occupancy.

(b)           Tenant’s Space Plans.  Landlord and Tenant will cooperate with the goal of enabling the TI Architect to deliver to Tenant an architectural space plan (the “Space Plans”) detailing Tenant’s requirements for the Tenant Improvements within 5 business days of the date hereof.  Not more than 5 business days thereafter, Tenant shall deliver to Landlord the written objections, questions or comments of Tenant with regard to the Space Plans.  Landlord shall cause the Space Plans to be revised to address such written comments and shall resubmit said drawings to Tenant for approval within 5 business days thereafter.  Such process shall continue until Landlord and Tenant have approved the Space Plans.

Following the approval by the parties of the Space Plans, Landlord shall not make any material changes to the Space Plans and/or TI Construction Drawings without obtaining Tenant’s prior approval, which approval shall not be unreasonably withheld, conditioned or delayed.

(c)           Working Drawings.  Not later 8 weeks following the approval of the Space Plans, Landlord shall cause the TI Architect to prepare and deliver to Tenant for review and comment construction plans, specifications and drawings for the Tenant Improvements (“TI Construction Drawings”), which TI Construction Drawings shall be prepared substantially in accordance with the Space Plans.  Tenant shall be solely responsible for ensuring that the TI Construction Drawings reflect Tenant’s requirements for the Tenant Improvements.  Tenant shall deliver its written comments on the TI Construction Drawings to Landlord not later than 10 business days after Tenant’s receipt of the same; provided, however, that Tenant may not disapprove any matter that is consistent with the Space Plans without submitting a Change Request.  Landlord and the TI Architect shall consider all such comments in good faith and shall, within 10 business days after receipt, notify Tenant how Landlord proposes to respond to such comments.  Any disputes in connection with such comments shall be resolved in accordance with Section 2(d) hereof.  Provided that the design reflected in the TI Construction Drawings is consistent with the Space Plans, Tenant shall approve the TI Construction Drawings submitted by Landlord, unless Tenant submits a Change Request.  Once approved by Tenant, subject to the provisions of Section 4 below, Landlord shall not materially modify the TI Construction Drawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section 3(b) below), without Tenant’s approval, which shall not be unreasonably withheld, conditioned or delayed.

(d)           Approval and Completion.  It is hereby acknowledged by Landlord and Tenant that the TI Construction Drawings must be completed and approved by Landlord and Tenant not later than January 15, 2012, in order for the Tenant Improvements to be Substantially Complete by the Target Commencement Date (as defined in the Lease).  Upon any dispute regarding the design of the Tenant

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Improvements, which is not settled within 10 business days after notice of such dispute is delivered by one party to the other, Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably and such final decision is either consistent with or a compromise between Landlord’s and Tenant’s positions with respect to such dispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable out of the TI Fund (as defined in Section 5(d) below), and (iii) Tenant’s decision will not affect the base Building, structural components of the Building or any Building systems.  Any changes to the TI Construction Drawings following Landlord’s and Tenant’s approval of same requested by Tenant shall be processed as provided in Section 4 hereof.

3.             Performance of Tenant Improvements.

(a)           Commencement and Permitting.  Landlord shall commence construction of the Tenant Improvements upon obtaining a building permit (the “TI Permit”) authorizing the construction of the Tenant Improvements consistent with the TI Construction Drawings approved by Tenant.  The cost of obtaining the TI Permit shall be payable from the TI Fund.  Tenant shall assist Landlord in obtaining the TI Permit.  If any Governmental Authority having jurisdiction over the construction of Landlord’s Work or any portion thereof shall impose terms or conditions upon the construction thereof that:  (i) are inconsistent with Landlord’s obligations hereunder, (ii) increase the cost of constructing Landlord’s Work, or (iii) will materially delay the construction of Landlord’s Work, Landlord and Tenant shall reasonably and in good faith seek means by which to mitigate or eliminate any such adverse terms and conditions.

(b)           Completion of Tenant Improvements.  On or before the Target Commencement Date (subject to Tenant Delays and Force Majeure delays), Landlord shall substantially complete or cause to be substantially completed the Tenant Improvements in a good and workmanlike manner, in accordance with the TI Permit subject, in each case, to Minor Variations and normal “punch list” items of a non-material nature that do not interfere with the use of the Premises (“Substantial Completion” or “Substantially Complete”).  Landlord acknowledges and agrees that issuance of a temporary certificate of occupancy or its equivalent for the Premises and the start-up and commissioning of the mechanical systems and equipment that are part of the Tenant Improvements will be required to achieve Substantial Completion.  Upon Substantial Completion of Tenant Improvements, Landlord shall require the TI Architect and the general contractor to execute and deliver, for the benefit of Tenant and Landlord, a Certificate of Substantial Completion in the form of the American Institute of Architects (“AIA”) document G704.  For purposes of this Work Letter, “Minor Variations” shall mean any modifications reasonably required (and completed):  (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit (including the TI Permit); (ii) to comply with any request by Tenant for modifications to the Tenant Improvements; (iii) to comport with good design, engineering, and construction practices that are not material; or (iv) to make reasonable adjustments for field deviations or conditions encountered during the construction of Tenant Improvements.

(c)           Selection of Materials.  Where more than one type of material or structure is indicated on the TI Construction Drawings approved by Landlord and Tenant, the option will be selected at Landlord’s sole discretion.  As to all building materials and equipment that Landlord is obligated to supply under this Work Letter for the Tenant Improvements, Landlord shall select the manufacturer thereof in its sole and absolute subjective discretion if no manufacturer is specified. In those cases where more than one manufacturer is specifically called out on the TI Construction Drawings or if the manufacturer specified is unable to perform, Tenant may select the manufacturer. As to all building materials and equipment that Landlord is obligated to supply under this Work Letter for the Base Building Improvements, Landlord shall select the manufacturer thereof in its sole and absolute subjective discretion.

(d)           Delivery of the Premises.  When the Tenant Improvements are Substantially Complete, subject to the remaining terms and provisions of this Section 3(d), Tenant shall accept the Premises.  Tenant’s taking possession and acceptance of the Premises shall not constitute a waiver of:  (i) any warranty with respect to workmanship (including installation of equipment) or material (exclusive of equipment provided directly by manufacturers), (ii) any non-compliance of Tenant Improvements with

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applicable Legal Requirements, or (iii) any claim that the Tenant Improvements were not completed substantially in accordance with the TI Construction Drawings (subject to Minor Variations and such other changes as are permitted hereunder) (collectively, a “Construction Defect”).  Tenant shall have one year after Substantial Completion within which to notify Landlord of any such Construction Defect discovered by Tenant, and Landlord shall use reasonable efforts to remedy or cause the responsible contractor to remedy any such Construction Defect within 30 days thereafter.  Notwithstanding the foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlord’s reasonable efforts, fails to remedy such Construction Defect within such 30-day period, in which case Landlord shall have no further obligation with respect to such Construction Defect other than to cooperate (which may include, if necessary, assigning claims against the applicable contractor to Tenant), at no cost to Landlord, with Tenant should Tenant elect to pursue a claim against such contractor, provided that Tenant shall defend with counsel reasonably acceptable to Landlord, indemnify and hold Landlord harmless from and against any claims arising out of or in connection with any such claim.

Tenant shall be entitled to receive the benefit of all construction warranties and manufacturer’s equipment warranties relating to equipment installed in the Premises.  If requested by Tenant, Landlord shall attempt to obtain extended warranties from manufacturers and suppliers of such equipment, but the cost of any such extended warranties shall be borne solely out of the TI Fund.  Landlord shall promptly undertake and complete, or cause to be completed, all punch list items in a good and workmanlike manner.

(e)           Commencement Date Delay.  Except as otherwise provided in the Lease, Delivery of the Premises shall occur when the Tenant Improvements have been Substantially Completed, except to the extent that Substantial Completion of the Tenant Improvements shall have been actually delayed by any one or more of the following causes (“Tenant Delay”):

(i)            Tenant’s Representative was not available for an unreasonable length of time to give or receive any Communication or to take any other action required to be taken by Tenant hereunder;

(ii)           Tenant’s request for Change Requests (as defined in Section 4(a) below) whether or not any such Change Requests are actually performed;

(iii)          Construction of any Change Requests;

(iv)          Tenant’s request for materials, finishes or installations requiring unusually long lead times, provided that within 7 business days of Tenant’s selection, Landlord notifies Tenant that such item requires an unusually long lead time;

(v)           Tenant’s delay in reviewing, revising or approving plans and specifications beyond the periods set forth herein;

(vi)          Tenant’s delay in providing information critical to the normal progression of the Project.  Tenant shall provide such information as soon as reasonably possible, but in no event longer than one week after receipt of any request for such information from Landlord;

(vii)         Tenant’s delay in making payments to Landlord as required pursuant to the provisions of Section 5 below; or

(viii)        Any other act or omission by Tenant or any Tenant Party (as defined in the Lease), or persons employed by any of such persons.

If Delivery is delayed for any of the foregoing reasons, then Landlord shall cause the contractor for the Tenant Improvements to certify the date on which the Tenant Improvements would have been substantially completed but for such Tenant Delay and such certified date shall be the date of Delivery.

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4.             Changes.  Any changes requested by Tenant to the Tenant Improvements after the delivery and approval by Tenant and Landlord of the Space Plan shall be requested and instituted in accordance with the provisions of this Section 4 and shall be subject to the written approval of Landlord and the TI Architect, such approval not to be unreasonably withheld, conditioned or delayed.

(a)           Tenant’s Request For Changes.  If Tenant shall request changes to the Tenant Improvements (“Changes”), Tenant shall request such Changes by notifying Landlord in writing in substantially the same form as the AIA standard change order form (a “Change Request”), which Change Request shall detail the nature and extent of any such Change.  Such Change Request must be signed by Tenant’s Representative.  Landlord shall, before proceeding with any Change, use commercially reasonable efforts to respond to Tenant as soon as is reasonably possible with an estimate of:  (i) the time it will take, and (ii) the architectural and engineering fees and costs that will be incurred, to analyze such Change Request (which costs shall be paid from the TI Fund to the extent actually incurred, whether or not such change is implemented).  Landlord shall thereafter submit to Tenant in writing, within 5 business days of receipt of the Change Request (or such longer period of time as is reasonably required depending on the extent of the Change Request), an analysis of the additional cost or savings involved, including, without limitation, architectural and engineering costs and the period of time, if any, that the Change will extend the date on which the Tenant Improvements will be Substantially Complete.  Any such delay in the Substantial Completion of Landlord’s Work caused by a Change, including any suspension of Landlord’s Work while any such Change is being evaluated and/or designed, shall be Tenant Delay.

(b)           Implementation of Changes.  If Tenant approves in writing the cost or savings and the estimated extension in the time for completion of the Landlord’s Work, if any, Landlord shall cause the approved Change to be instituted.  Notwithstanding any approval or disapproval by Tenant of any estimate of the delay caused by such proposed Change, the TI Architect’s determination of the amount of Tenant Delay in connection with such Change shall be final and binding on Landlord and Tenant.

5.             Costs.

(a)           Budget For Tenant Improvements.  Before the commencement of construction of the Tenant Improvements, Landlord shall obtain a detailed breakdown by trade of the costs incurred or that will be incurred in connection with the design and construction of the Tenant Improvements in form and substance agreed upon by the parties (the “Budget”).  The Budget shall be based upon the TI Construction Drawings approved by Tenant and shall include a payment to Landlord of administrative rent (“Administrative Rent”) equal to 1% of the TI Costs for monitoring and inspecting the construction of the Tenant Improvements and Changes, which sum shall be payable from the TI Fund (as defined in Section 5(d).  Administrative Rent shall include, without limitation, all out-of-pocket costs, expenses and fees incurred by or on behalf of Landlord arising from, out of, or in connection with monitoring the construction of the Tenant Improvements and Changes, and shall be payable out of the TI Fund.  If the Budget is greater than the TI Allowance, Tenant shall deposit with Landlord the difference, in cash, prior to the commencement of construction of the Tenant Improvements or Changes, for disbursement by Landlord as described in Section 5(d).

(b)           TI Allowance.  Landlord shall provide to Tenant a tenant improvement allowance (collectively, the “TI Allowance”) as follows:

1.             a “Tenant Improvement Allowance” in the maximum amount of $185.00 per rentable square foot in the Premises which is included in the Base Rent set forth in the Lease; and

2.             an Additional Tenant Improvement Allowance in the maximum amount of $20.00 per rentable square foot in the Premises as provided for in Section 4 of the Lease which shall, to the extent used, result in the TI Rent as set forth in Section 4 of the Lease.

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Before the Commencement Date, Tenant shall notify Landlord how much Additional Tenant Improvement Allowance Tenant has elected to receive from Landlord.  Such election shall be final and binding on Tenant, and may not thereafter be modified without Landlord’s consent, which may be granted or withheld in Landlord’s sole and absolute subjective discretion.  The TI Allowance shall be disbursed in accordance with this Work Letter.

Tenant shall have no right to the use or benefit (including any reduction to or payment of Base Rent) of any portion of the TI Allowance not required for the construction of (i) the Tenant Improvements described in the TI Construction Drawings approved pursuant to Section 2(d) or (ii) any Changes pursuant to Section 4.

(c)           Costs Includable in TI Fund.  The TI Fund shall be used solely for the payment of design, permits and construction costs in connection with the construction of the Tenant Improvements, including, without limitation, the cost of electrical power and other utilities used in connection with the construction of the Tenant Improvements, the cost of preparing the Space Plan and the TI Construction Drawings, all costs set forth in the Budget, including Landlord’s Administrative Rent, Landlord’s out-of-pocket expenses, costs resulting from Tenant Delays and the cost of Changes (collectively, “TI Costs”).

(d)           Allocation of TI Costs.  Landlord shall have no obligation to bear any portion of the cost of any of the Tenant Improvements except to the extent of the Tenant Improvement Allowance and the portion, if any, of the Additional Tenant Improvement Allowance which Tenant has elected to use.  As used in this Work Letter, “Landlord’s Portion” shall equal the amount of the Tenant Improvement Allowance and the portion, if any, of the Additional Tenant Improvement Allowance which Tenant has elected to use, and “Landlord’s Proportionate Share” shall mean a fraction, the numerator of which shall be the Landlord’s Portion and the denominator of which shall be the anticipated TI Costs (as reasonably determined by Landlord).  If at any time TI Costs under the Budget exceed the Tenant Improvement Allowance and the portion, if any, of the Additional Tenant Improvement Allowance which Tenant has elected to use, the difference shall be referred to herein as “Tenant’s Portion.”  As used in this Work Letter, “Tenant’s Proportionate Share” shall mean a fraction, the numerator of which is Tenant’s Portion and the denominator of which is the anticipated TI Costs (as reasonably determined by Landlord).  Landlord may equitably adjust Landlord’s Proportionate Share and Tenant’s Proportionate Share from time to time based on changes in the anticipated TI Costs and changes in the amount of the Additional Tenant Improvement Allowance elected to be used by Tenant.  After the end of each calendar month beginning with the month in which TI Costs are first incurred, (i) Landlord shall determine the TI Costs incurred for the prior calendar month (and if applicable, for the period prior to Lease execution) (collectively, the “Total Monthly Costs”), (ii) Tenant shall reimburse Landlord within 10 days after Landlord’s written request for Tenant’s Proportionate Share of Total Monthly Costs, and (iii) Landlord shall pay Landlord’s Proportionate Share of Total Monthly Costs.  The Tenant Improvement Allowance and the portion, if any, of the Additional Tenant Improvement Allowance which Tenant has elected to use and Tenant’s Portion are herein referred to together as the “TI Fund.”  If upon completion of the Tenant Improvements and the payment of all sums due in connection therewith there remains any undisbursed portion of the TI Fund, Tenant shall be entitled to such undisbursed TI Fund solely to the extent of Tenant’s Proportionate Share of Total Monthly Costs actually paid by Tenant to Landlord. Notwithstanding anything to the contrary set forth in this Section 5(d), Tenant shall be fully and solely liable for TI Costs and the cost of Minor Variations in excess of the Tenant Improvement Allowance and the portion, if any, of the Additional Tenant Improvement Allowance which Tenant has elected to use.

(e)           Funding Requisition; Reconciliation; Timely Payment.  Landlord shall submit to Tenant monthly during the performance of the Tenant Improvements a report (each, a “Reimbursement Notice”) setting forth in reasonable detail: (i) a computation of the TI Costs incurred during the prior calendar month, including without limitation costs relating to all requested Changes; (ii) the then-current cumulative TI Costs; and (iii) Landlord’s calculation of the parties’ respective responsibilities for payment of such costs for such month (i.e., the estimated amounts of Tenant’s Portion and/or Landlord’s Portion due for such month).  Reimbursement Notices may be sent at the beginning of a calendar month for the prior calendar month.  Upon final completion of the Tenant Improvements (including all punch list items), Landlord shall prepare a final Reimbursement Notice consisting of a reconciliation of the total costs of the

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Tenant Improvements.  Tenant shall pay to Landlord the amount of Tenant’s Proportionate Share of Total Monthly Costs as set forth in each Reimbursement Notice within 10 days of receipt of each Reimbursement Notice.  Such payment by Tenant shall be a condition precedent to Landlord’s obligation to complete the Tenant Improvements.  If Tenant fails to pay Tenant’s Proportionate Share of Total Monthly Costs as set forth in any Reimbursement Notice within such 10-day period, Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate after the expiration of 5 business days following the date when due and the right to assess a late charge).  For purposes of any litigation instituted with regard to such amounts, those amounts will be deemed Rent under the Lease.

6.             Tenant Access.

(a)           Tenant’s Access Rights.  Landlord hereby agrees to permit Tenant access, at Tenant’s sole risk and expense, to the Building (i) 14 days prior to the estimated Commencement Date to perform any work (“Tenant’s Work”) required by Tenant other than Landlord’s Work, provided that such Tenant’s Work is coordinated with the TI Architect and the general contractor, and complies with the Lease and all other reasonable restrictions and conditions Landlord may impose, and (ii) prior to the completion of the Tenant Improvements, to inspect and observe work in process; all such access shall be during normal business hours or at such other times as are reasonably designated by Landlord.  Notwithstanding the foregoing, Tenant shall have no right to enter onto the Premises or the Project unless and until Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that any insurance reasonably required by Landlord in connection with such pre-commencement access (including, but not limited to, any insurance that Landlord may require pursuant to the Lease) is in full force and effect.  Any entry by Tenant shall comply with all established safety practices of Landlord’s contractor and Landlord until completion of the Tenant Improvements and acceptance thereof by Tenant.

(b)           No Interference.  Neither Tenant nor any Tenant Party (as defined in the Lease) shall interfere with the performance of Landlord’s Work, nor with any inspections or issuance of final approvals by applicable Governmental Authorities, and upon any such interference, Landlord shall have the right to exclude Tenant and any Tenant Party from the Premises and the Project until Substantial Completion of the Tenant Improvements.

(c)           No Acceptance of Premises.  The fact that Tenant may, with Landlord’s consent, enter into the Project prior to the date the Tenant Improvements are Substantially Complete for the purpose of performing Tenant’s Work shall not be deemed an acceptance by Tenant of possession of the Premises, but in such event Tenant shall defend with counsel reasonably acceptable by Landlord, indemnify and hold Landlord harmless from and against any loss of or damage to Tenant’s property, completed work, fixtures, equipment, materials or merchandise, and from liability for death of, or injury to, any person, caused by the act or omission of Tenant or any Tenant Party.

7.             Miscellaneous.

(a)           Consents.  Whenever consent or approval of either party is required under this Work Letter, that party shall not unreasonably withhold, condition or delay such consent or approval, unless expressly set forth herein to the contrary.

(b)           Modification.  No modification, waiver or amendment of this Work Letter or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.

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ANNEX 1

Base Building Improvements

Division 1 — General

1.Base building work to include: new front entry paving at north side lobby, new curtain wall at south elevation and replacement of existing glazing with new single pane glazing on East, North and West elevations (keep existing mullions)  including replacement of existing spandrel glass directly above the floor slab to vision glass (from 0” to 30”).  Structural work for two 2 story atrium; 1) expand existing opening at lobby and 2) create new atrium southeast of lobby and structural work for two new stairwells: 1) accessible stair to main lobby and 2) stair near the center of the building.  Stair work to include finishes on stair treads and new stainless steel and glass handrails on stair only.  Extend patio on south side of the building and various landscape upgrades to the site, including all underground utilities, storm drain system and parking modifications.  Build out of restrooms on each floor including finishes.  Fireproofing for control area and occupancy separations will also be provided, both vertical and horizontal separations, additionally include firesafing at horizontal and insulation at shell walls and underside of roof deck.  One passenger (2,500 lbs) and one service elevator (4,500 lbs) elevator including elevator equipment rooms inclusive of all supporting power and HVAC requirements.  Main electrical room and MPOE room separate from main electrical room.

2.Landlord shall be responsible for securing all applicable design, engineering, permits and approvals required for the base building work

Division 3 — Concrete

1. Existing slab on grade and concrete over metal decks

Division 9 — Finishes

1.Landlord is responsible for drywall finishes in the building restrooms, elevators shafts, and exit stairwells.

2.For new restrooms Landlord shall provide tile or other hard surface product and gypsum board or lay-in acoustical tile ceilings, painted walls and wall base.

3.Typical building restroom doors shall be 3’ x 9’ stain grade solid core wood in anodized aluminum frames.  Hardware shall be brushed stainless steel, commercial grade with mortise locksets, ball bearing hinges, and closers as required by Code.

4.Restrooms shall have tile floors and base, painted gypsum board walls and ceilings, toilet partitions, wall mounted fixtures, toilet accessories, stone lavatory counter with mirror, general and accent lighting, HVAC (including ducted air supply and exhaust), fire protection and life safety systems compliant with applicable Codes.  Toilet room fixture counts and construction comply with ADA and other applicable Codes.  All HVAC exhaust systems, power and supports to be included with restrooms.

5.Elevator machine rooms shall include sealed concrete floors, gypsum board walls, general lighting, fire protection, HVAC, and life safety systems.

6.Construction of structural stair and structural openings for atrium including skylight at roof

Division 10 — Specialties

1.Landlord shall provide all restrooms code required signage

2.Landlord to provide restroom toilet partitions

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3.Passenger and service elevators to include finished elevator cabs complete with finished doors frames, hardware, hall lanterns, call buttons, fire department connections and placards as required by ADA and applicable Codes.

Division 15 — Mechanical

HVAC

All work shall be in strict conformance with the currently adopted editions of the following codes and standards:

CA Mechanical Code

CA Plumbing Code

CA Building Code

CA Fire Code

Local Fire Department Regulations

National Fire Protection Association

1.Building envelope shall meet or exceed 2008 Title 24, California Energy Efficiency Standards.

2.Restrooms to be provided with HVAC ductwork and diffusers to be ran from the tenant supplied rooftop mounted package units

PLUMBING

All work shall be in strict conformance with the following codes and standards:

Uniform Plumbing Code

Uniform Building Code

Uniform Fire Code

Local Fire Department Regulations

National Fire Protection Association

Water and sewer services of adequate size will be provided for the building. Natural gas service of adequate size is available at the existing SDGE riser manifold

1.Plumbing Fixtures in Restrooms

a.Water Closets, ADA Compliant: Handicap-height, vitreous china, wall mounted, floor outlet, low-flush toilet with flush valve. 1.28 gpf maximum

b.Water Closet: Vitreous china, wall mounted, floor outlet, low-flush toilet with flush valve. 1.28 gpf maximum

c.Urinal, ADA Compliant: Wall hung, vitreous china, low-flush urinal with flushometer. Mount at handicap height. 1/8 gpf maximum

d.Urinal: Wall hung, vitreous china, low-flush urinal with flushometer. 1/8 gpf maximum

e.Lavatory: Vitreous china wall hung lavatory with a single temperature-metering faucet

f.Faucet:  Infra-red sensor control faucet on 120 v power

g.Service Sink: Corner model, terrazzo mop service basin with vacuum breaker faucet

h.Localized instantaneous electric domestic hot water heaters serve lavatories and sinks

i.Floor drains are cast iron body floor drains with nickel bronze top, membrane clamp and adjustable collar

j.Floor sinks are cast iron body receptor with acid-resistant coated interior, bottom dome strainer, seepage flange and grate

FIRE PROTECTION

All work shall be in strict conformance with the currently adopted editions of the following codes and standards:

NFPA 13 Installation of Sprinkler Systems

NFPA 14 Standpipe Systems

NFPA 70 National Electrical Code

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NFPA 101 Life Safety Code

BOCA Building Code

1.The entire building is provided with an existing shell fire protection system capable of being modified by the tenant.

Division 16 - Electrical

All work shall be in strict conformance with the currently adopted editions of the following codes and standards:

NFPA 70 National Electrical Code

NFPA 101 Life Safety Code

BOCA Building Codes

IES - Illuminating Engineering Society of North America

1.Main electrical service and associated transformers, switchgear and meters, and appropriate incoming electrical service to support the final engineered design loads of the building mechanical systems and tenant requirements with a maximum growth of 15% to be provided in existing main SDGE room.

2.Landlord to provide two (2) 4” conduit from building MPOE to the street for network services path of travel to building

3.Distribution System —by tenant

4.Lighting Control - By tenant

5.Electrical Power

a.     As required for the restrooms

6.     Lighting

a.     As required for the restrooms

7.     Teldata — by tenant

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ANNEX 2
Tenant Improvements Specifications

4755 Nexus Centre – Optimer Tenant Improvement

TENANT IMPROVEMENTS SPECIFICATIONS

Items included:

1.	All TI architectural, MEP, structural, hazardous chemical/fire life safety or other design costs and design related costs such as reimbursable expenses and drawing reproduction.
2.	Project management fees are handled separately and are not included or reimbursed through the TI Allowance
3.	Special inspections
4.	Building permit fees
5.	Waste diversion fees
6.	Hazardous Materials and Business Plan related fees
7.	Environmental, Health and Safety related permit fees
8.	Utility connection and capacity fees
9.	Builders Risk Insurance
10.	All TI construction costs
11.	Furniture
12.	Security – Card access system (but not camera or alarm systems)
13.	IT Cabling (but not IT gear or phone systems)
14.	Audio Visual
15.	Emergency generator, built in autoclave/glasswash equipment, DI water system, built in fume hoods

State and Local Code Compliance

Design and construction shall conform to all Federal, State and Local building codes and ordinances to include but not limited to the most current version of the following documents:

CA Mechanical Code

CA Plumbing Code

CA Building Code

CA Fire Code

Local Fire Department Regulations

National Fire Protection Association

LEED Certification Guidelines for Tenant

Tenant may elect to design their suite improvements to comply with LEED Silver Certification requirements with specific emphasis on the Energy and Water Conservation categories noted below.

ARCHITECTURAL IMPROVEMENTS

Service Yard	Yard for Premises to be located directly east of the building if required Footprint and height of the site enclosure to be determined upon sizing of emergency generator and will be constructed of CMU walls and an aluminum trellis Exposed CMU walls to be clad with 4’x4’ Alucabond or equivalent metal panels Yard to be surrounded by standard curb and gutter and a minimum 2’ wide panting bed with landscaping (approved by landlord), irrigation and drainage All underground conduit, piping, sleeves and cabling runs from the yard to the building must remain underground until inside the building
Rooftop	Screen to have a minimum 12’ high tube steel framing
Equipment	Cladding to be 4’x4’ Alucabond or equivalent metal panels
Screen	e

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Interior Partitions	Metal stud and drywall partitions per tenant’s floor plan requirements.
	3-5/8” studs typical, gauge and spacing as required by code, and Type X, 5/8” drywall Standard Interior Partitions penetrate ceiling grid 6”
	Full height partitions to underside of structure at demising locations or where sound/security requirements occur
	Fire rated assemblies as required by code, full height, tunnel or shaft wall construction as approved by local building officials
	Backing required in any walls where casework, appliances, equipment or fixtures will be mounted Coordinate with structural engineer to determine any specialty requirements for heavy loads.
	Smooth drywall finish to Level 4
Insulation	Batt insulation within wall cavity as required for sound control.
Doors, Frames & Hardware	Offices/ General Use Areas
	Suite entry door assemblies are 3’ x 9’ or 6’ x 9’ pair, solid core, wood veneer, flush face doors with no added urea-formaldehyde resins.
	Interior door assemblies are 3’ x 8’, solid core, wood veneer, flush face doors with no added urea-formaldehyde resins.
	Anodized aluminum frames, natural finish, 3’ x 8’ or 6’ x 8’ pr, with integral 24” sidelights at offices and conference rooms.
	Lever style, heavy duty, satin aluminum hardware.
	Suite entry doors are mortise locksets; interior doors are passage or cylindrical locksets. Include components and ratings as required by code.
	Keying to be compatible with Landlord’s master system.
	Lab/ Lab Support/ Equipment/ Storage Areas
	Door Assemblies are 3’ x 8’ or 3’-6” x 8’ to match offices
	Doors stained to match offices and 2’w x 3’h vision lite
	Lab offices and shall be 3’ x 8’, 3’-6”x 8’ or 6’ x 8’ custom stained to match office areas with aluminum frames to match offices
	Lever style, heavy duty, satin aluminum cylindrical passage lockset hardware
	Include components and ratings as required by code
	Keying to be compatible with Landlord’s master system
Windows	Frames to match style of door frames in office areas. Storefront or mullion less glass at atrium
Ceiling System	General
	Ceiling heights to be minumum 10’-0” unless existing condition or new work prohibits.
	All ceilings less than 10’-0” require Landlord review and approval prior to installation of overhead mechanical systems
	T-Bar suspension installation per code, utilize BERC clips in lieu of 2” wall angle
	Office Areas
	Armstrong XL 2’ x 2’, 15/16” exposed T-Grid, white
	Armstrong 2’ x 2’ acoustic tile, Dune 1775NF (no added/low formaldehyde) with beveled tegular edge, white
	Lab/ Lab support/ equipment/ storage areas
	Armstrong XL 2’ x 4’, 15/16” exposed T-grid, white
	Armstrong 2’x 4’ Climaplus (No added/ low formaldehyde) with beveled, tegular edge, white

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Window Covering	MechoShade Systems or Equal roller shades, manual controls, EcoVeil 1350, color #1369 Silver, shade cloth mounted within blind pocket
Cabinetry	Construction Designation APA C-D plugged with exterior glue, 3/4” thick or 3/4” high-pressure particle board with no added urea-formaldehyde containing resins for Break Rooms, Copy/Work Rooms and Conference Rooms. Adhesive compliant with Indoor Air Quality criteria per ASTM D-5116
	Plastic laminate finish, countertops and splashes shall be constructed in accordance with WI Manual of Millwork, “Custom” grade
	Self-closing hinges with vertical, horizontal and depth adjustment Adjustable shelf standards, full extension, heavy-duty drawer glides Lab casework shall be metal Hanson Lab Furniture Inc, Fisher Hamilton, or equivalent or plastic laminate and constructed in accordance with WI Manual of Millwork, “Custom” grade Self-closing hinges with vertical, horizontal and depth adjustment Adjustable shelf standards, full extension, heavy-duty drawer glides Countertops at labs to be TRESPA or equivalent countertops
Floor Covering	Office and Admin Areas
	Monterey or Equal, Overview Multi-Level Loop Pattern, Adhesives: GLP16003 – latex resin based multi-purpose carpet floor adhesive, C16E GLP91505 – floor preparation primers, C36E, C46E GLP58266 – latex resin based multi-purpose broadloom carpet adhesive, B-19 GLP60151 – latex based carpet broadloom seam sealer, B-71 4” rubber base with adhesive compliant with Indoor Air Quality criteria per ASTM D-5116
	Lab/ Lab Support/ Equipment/ Storage Areas Vinyl Composition Tile, Armstrong or equivalent, 12” x12” x 1/8” Adhesive compliant with Indoor Air Quality criteria per ASTM D-5116 4” ” rubber coved base with adhesive compliant with Indoor Air Quality criteria per ASTM D-5116 Vivarium & Glass Wash Epoxy flooring w/ 8” integral coved base Server Room Static Dissipative tile 24” x 24” Mipolam or VPI, non-grounded Tissue Culture Resilient sheet flooring with matching welded seams and 6” integral coved base — Medintech or equal
Paint	Shall not exceed the VOC and chemical component limits of Green Seal’s Standard GS-11
	Epoxy paint – provide at Vivarium, Glass Wash and Tissue Culture
Restrooms	Floors and wet walls to be finished with porcelain tile (60” AFF on wet walls), vinyl wall covering above tile and on non-wet walls, solid surface countertops with full coverage laminate aprons, stainless steel toilet partitions, stainless steel Boberick accessories, drywall ceilings with recessed can lights and cove lighting above toilets, urinals and mirrors.
Cold Rooms	Wall Panels Withstand live lateral load of 100 lbs point load, 5 psf uniform load
	Ceiling Panels Withstand their own weight, dead loads, and live loads of 25 lbs with maximum deflection of 1:180

13

	Cooler Rooms Maintain 4 degrees F; plus or minus 2 F degrees
	Air Tightness of Assembled Unit Limit air infiltration through assembly to 0.06 cu ft/min/sq ft of wall area, measured at a reference differential pressure across assembly of 1.57 psf as measured in accordance with ASTM E 283
	Vapor Seal Interior room atmospheric pressure of 1 inch sp, 72 degrees F, 40 percent RH: No failure
	Vapor Tightness Sufficient to eliminate frost accumulation
	Insulation Thickness 4 inches
	Doors: Overlap type for 34 x 78 inch opening, construction as for walls but with edges closed, 2-1/2 inch thick insulation; flexible gasket containing magnetic strip on four edges; heated gasket thermostatic control with two way air relief valve. Configuration and quantity as shown on drawings
	View Windows Sealed insulating glass units in doors
	Hardware Cast brass, nylon bearing self closing hinges, roller catch latch and keeper; cylinder lock and inside safety release mechanism
	Shelving and Supports Stainless steel construction, open rod construction, free standing style, adjustable supports
	Deli Boxes Rear load, deep shelving with front access at each door
	Light Fixtures Vapor tight, incandescent with 150 watt lamp, operating toggle switch on exterior wall of room with pilot light, wired in rigid conduit
	Cooling System Direct expansion refrigerant, water cooled; remote located condensing unit for all rooms, evaporator, unit cooler, self contained with valves, controls, switches, timers, refrigerant piping, insulated suction lines, and wiring. Size and capacity to maintain environment specified; hot gas defrost; electrically heated trace condensate drain
	Cooling Unit Locate remote from cold storage rooms. Pipe coolant to cold rooms
Specialties	Pass Throughs Stainless steel (#3160 with mechanical interlock, view window in doors and exhausted by rooftop fan. Unit shall be seamless and fully welded, shall have installation flange and supplied with support brackets as required
	Lockers 4 High x 12” W. plastic laminate lockable units with matching sloped top. Provide on built up 6” pedestal. Interiors shall be white melamine. Supply with number plates
	Corner guards Stainless Steel in all lab / lab support areas 3 1/2” x 3 1/2” x 5’
	Coat Racks Provide unitized aluminum coat hooks at each locker location
	Projector Screens Install motorized projections screens (Daylite or equal) with recessed housing above ceiling and controls to switch
STRUCTURAL
Floor	Care must be taken prior to cutting any portion of the slab to confirm location of structural slab elements.  Cutting, removal, repair and replacement must be done in accordance with structural engineering drawings and instructions

14

Bldg Structure	Replacement of any spray-applied fire protection that is removed or damaged during the course of tenant improvements is required
Roof Structure	A licensed structural engineer design a platform to accommodate any roof top equipment. Equipment on the north side of the roof shall be housed in the existing penthouse or on a platform
FIRE PROTECTION
Fire Sprinkler	Spacing and number of heads shall comply with recommendations of NFPA 13 for type of occupancy.  Ceiling mounted high temperature heads (pendant, natural brass with chrome finish, semi-recessed with matching adjustable metal escutcheon) shall be used in those areas required by code. Provide water curtain as required for the atrium.
Fire Extinguisher	Semi-Recessed, stainless steel fire extinguisher cabinet Dry chemical fire extinguisher bottle: Sentry 5 or equivalent Provide quantity required by code
Fire Alarm	Suite improvements to include all devices required by code and must be connected to the building fire alarm system. All work must be performed by an authorized Notifier representative with a minimum of 10 years experience

PLUMBING – TENANT IMPROVEMENT MINIMUM CRITERIA

All work shall be in strict conformance with the following codes & standards

CA Plumbing Code

CA Building Code

CA Fire Code

Local Fire Department Regulations

National Fire Protection Association

All other Authorities Having Jurisdiction

1.All water fixtures used in general office space including restrooms but not including Process Fixtures, shall exceed the minimum rating by 30% specified in the Energy Policy Act of 1992, in accordance with LEED calculations

2.Adhesives shall comply: VOC content shall be less than the current VOC content limits of SCAQMD Rule #1168, AND all sealants used as fillers must meet to exceed the requirements of the South Coast Air Quality Management District Regulation 8, Rule 51

Principal Systems to be Included in the Design

1.	Sanitary sewer drain, waste & vent - all spaces above ground level drain by gravity to the public sewer.
2.	Compressed Gases (( CA, N2, CO2 )
3.	House Vacuum System
4.	Water Systems ( ICW, IHW, DCW, DHW, DI ). Water usage shall be submetered and measured for bill back purposes to the tenant
5.	Liquid Nitrogen System
6.	Localized instantaneous electric domestic hot water heaters serve lavatories and sinks in the tenant suites
7.	Condensate drain piping runs from the HVAC units to the nearest indirect waste receptor (max. 60” AFF.) or to a Janitor’s Sink
8.	All drain piping from HVAC equipment and plumbing equipment runs to the nearest indirect waste receptor or Janitor Sink

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Materials	Soil, Waste and Vent above Ground: Service-weight, no-hub cast-iron pipe and fittings
	Soil, Waste and Vent Below Ground and to 5’-0” Outside of Building: Service-weight, cast-iron hub & spigot pipe and fittings
	Industrial Waste and Vent piping above ground to be plenum rated polypropylene DWV Industrial Waste and Vent piping below ground to be polypropylene DWV.
	Industrial Waste piping to route to a sample port just prior to connection to sanitary system Water and Condensate Drain Piping Above Ground: Type “L” hard-drawn copper type, ASTM B88, and wrought copper fittings, ANSI B1 6.22. All hot water supply piping shall be insulated with 1-inch thick fiberglass insulation for sizes up to 2-1/2 inch size, 1-1/2 inch thick above 2-inch size piping. Condensate drain piping above ceilings to be insulated
	Water Piping Below Ground 4-inches and smaller: Type ”K” hard-drawn copper tubing, ASTM B88, and wrought copper fittings ANSI B 16.22, silver brazed joints
	Natural Gas Piping: Buried piping to be Polyethylene per ASTM D2513; above grade to be Schedule 40 black steelper ASTM D2513
	Indirect Drains: Type “M” copper fittings, ANSI B 16.22, solder joint type. Insulate with Manville Micro-Lok 650AP
	Specialty gas piping shall be type L copper, silver brazed
	Deionized Water: Schedule 40 polypropylene with socket fused joints
	Liquid Nitrogen: Vacuum insulated stainless steel tubing
	Adhesives shall comply: VOC content shall be less than the current VOC content limits of SCAQMD Rule ealants used as fillers must meet or exceed the requirements of the South Coast Air Quality Management District Regulation 8, Rule 51
Plumbing Fixtures	Water Closets, ADA Compliant: Handicap-height, vitreous china, wall mounted, floor outlet, low-
	flush toilet with flush valve
	Water Closet: Vitreous china, wall mounted, floor outlet, low-flush toilet with flush valve Urinal, ADA Compliant: Wall hung, vitreous china, low-flush urinal with flushometer. Mount at handicap height
	Urinal: Wall hung, vitreous china, low-flush urinal with flushometer
	Lavatory: Vitreous china wall hung lavatory with a single temperature-metering faucet Faucet: Infra-red sensor control faucet on 120 v power
	Lab sink: 25 in. x 22 in. x 12 in. deep stainless steel sink.
	Scullery sink: Double compartment stainless steel sink with 14 in. deep basin
	Service Sink: Corner model, terrazzo mop service basin with vacuum breaker faucet. Emergency Shower/Eyewash: Water Saver Faucet Co. Model SSBF2150 or equivalent
	Electric Water Cooler: Barrier-free, wall hung water cooler with push bar control and equipped for handicap usage
	All water fixtures used in general office space including restrooms but not including Process Fixtures, shall exceed the minimum rating by 30% specified in the Energy Policy Act of 1992, in accordance with LEED calculations
Drains	Floor Drains: Cast iron body floor drains with nickel bronze top, membrane clamp and adjustable collar
	Floor Sinks: Cast iron body receptor with acid-resistant coated interior, bottom dome strainer, seepage flange and grate
Break rooms shall have either double compartment 18 gauge stainless steel sinks. Minimum acceptable building standard sinks and accessories:
	Double Compartment Sink:	Just Model #DL-2133-A-GR
	Drain:	Just Model #J-35FS
	Faucet:	Just #J-900 single handle 8” center
	Garbage Disposer:	In-Sink-Erator #444 0.75HP @ 12011/60
	Provide air gap fitting for dishwasher, if installed.

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HVAC — TENANT IMPROVEMENT MINIMUM CRITERIA

All work shall be in strict conformance with the following codes and standards

CA Mechanical Code

CA Plumbing Code

CA Building Code

CA Fire Code

Local Fire Department Regulations

National Fire Protection Association

All other Authorities Having Jurisdiction

Principal Systems to be Included in Design

1.	Summer-Winter air conditioning for all occupied areas, including corridors
2.	Toilet exhaust systems for all restrooms and janitor rooms per code
3.	Building controls to be Johnson Metasys DDC System
Office Areas	These areas to be fed by multiple rooftop packaged heat pump constant volume units with stand alone wall mounted programmable thermostats
Lab Areas	These areas to be fed by a roof mounted variable volume 100% OSA packaged unit equivalent to an Aaon RN model with moisture eliminators and 95% efficient filtration. Temperature control by hot water reheat zones served by a roof mounted hot water heating boiler equipped with a backup HW pump. Exhaust fans to be utility type roof mounted. Controls to be a DDC BMS system
Telephone/IT Room	Dedicated 24/7 independent split system units with the fan coil units mounted above the ceiling space and the condensing unit located on the roof and connected to emergency power.
Environmental Design	The following criteria will be used for sizing the heating and cooling systems:
Conditions
	Outdoor Ambient Design Conditions:
	Summer:	91∞F dB, 72∞F mwB, 13∞F dB outdoor daily range
	Winter:	38∞F dB
	Indoor Conditions for Air Conditioned Area: Offices, Labs	72∞F dB ± 3∞F dB, No Humidity Control
	Electrical, Telecom, Storage	Typical of office space unless equipment requires a more specifically controlled environment
Ventilation Air Requirements	Outdoor air for ventilation on this project exceeds the requirements of the American Society of Heating Ventilating and Air Conditioning Engineers (ASHRAE) Standard 62-1989, Ventilation for Acceptable Indoor Air Quality. On average approximately 0.2 cfm per square foot should be provided for all office environments.

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	For laboratory areas provide 100% outside air. The following minimum air change requirements are recommended:
	1.	Biology Areas	8 AC/ Hr
	2.	Chemistry Areas	12 AC/Hr
	3.	Chemical Storage	15 AC/Hr
	4.	Wash Areas	15 AC/Hr
	5.	BL-3 Areas	15 AC/Hr
Energy Use & Conservation	The Energy Efficiency Standard, Title 24, to be used to set the minimum performance requirements of this installation.
Ceiling Registers & Diffusers	Ceiling diffusers with perforated face with frame style compatible with the type of ceiling used. Surface mounted diffusers require gaskets to prevent leakage. Diffuser faceplate to have concealed hinges and latches. Faceplates to be easily removable from the frame.
	Supply diffusers, Titus-PMC perforated modular face-size 24” X 24” for lay-in ceiling tile. Linear diffusers for all hard lid areas.
	These manufacturers are considered equal, providing corresponding models meet specified requirements. Equivalent substituted equipment to be submitted for the Designer’s review during bid of major equipment.
	Air Filters			AAF, Air Guard
	Diffusers, Registers, Grilles			Titus, EH Price, Krueger
Duct Work	Supply ducts, return ducts, and exhaust ducts plenum chambers, housing, and panels fabricated from zinc-coated (galvanized) steel sheets conforming to the latest ASTM Specs A-525. Zinc-coating to be of the “Commercial” class
	Exhaust duct from fume hoods shall be PVC coated galvanized.
	Exhaust duct from Glasswash area shall be 304 stainless steel back to main exhaust duct. Ductwork shall be installed in strict accordance with the latest SMACNA guidelines and shall also adhere to the latest State and Federal seismic requirements.
	Install flexible ducts in a fully extended condition free of sags and kinks, using minimum length required for connection. Flexible duct suspended on 36” centers with a min 3/4” wide flat banding material where horizontal support is required. Joints and connections to be made in accordance with Underwriters Laboratories, Inc. Connect to rigid sheet metal with min 1/2” wide collar positively clamped and secured with screws or other approved fastening.
Toilet Exhaust Ventilation	Exhausted all restrooms and janitor rooms with a min of 12 air changes per hour.
Miscellaneous Exhaust/ Ventilation Systems	The following exhaust system have been installed as part of the shell design, it is assumed that outside ambient air shall provide makeup air to the exhausted area:
	Elevator Machinery Rooms (if required)
	Main SDGE Room
	Restrooms per floor
Controls	Tenant to provide new Electronic DDC building automation system. The system operates the HVAC system and controls occupied and non-occupied temperature and ventilation schedules. The system includes monitoring, alarm and by-pass functions for efficient energy management The DDC System is programmed to log tenant utilities usage

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Electronic digital control to be provided at the tenant zone level; controls shall be coordinated with the shell building system. Purchase and installation of all DDC Controls and utility monitoring devices within the tenant space are part of Tenant Improvement scope of work

ELECTRICAL – TENANT IMPROVEMENT MINIMUM CRITERIA

All work shall be in strict conformance with the following codes and standards

NFPA 70 National Electrical Code

NFPA 101 Life Safety Code

BOCA Building Codes

IES - Illuminating Engineering Society of North America

	a.  Distribution The building distribution is to be provided by tenant
	All conductors for new switchgear to be installed as new New HVAC equipment to be fed from the first floor distribution switchgear. New external starters for HVAC equipment. New Neva 3R combination starters will be added to the roof equipment feeding the first and second floor Panelboards and distribution boards shall be located at the satellite electrical rooms to feed the office/lab and support areas.
	All new transformers are energy efficient Energy Star type Tenant to provide 208V branch circuit panelboards within the tenant space
Distribution	Panelboards
Equipment	All Panelboards to be new, all TI panels to be surface mounted and stacked if necessary, inside the dedicated electrical rooms.
	Panelboards for lighting to be 480Y/277V 3φ 4W to be series rated for fault current. All Electrical panels are to be located in electrical equipment rooms.
	Panelboards for power and control power shall be 208Y/120V 3φ 4W with minimum fault current ratings of 10,000 AIC located in electrical equipment rooms. Panelboards served through transformers shall have integral main over current protection, sized as indicated on the drawings.
	All panelboards have bolt-on circuit breakers, 42-pole space, bus ratings (as indicated on the panel schedules) and are either surface or flush mounted (as indicated on the panel schedules). All panels located in electrical rooms to be stacked or switchboard mounted to minimize space used by the panels
	Panelboards with an isolated ground bus are required as noted.  All 208Y/120V 3φ 4W panelboards shall be provided with 100% rated neutral bus; panelboards for IT room UPS equipment to be 200% rated neutral bus with an isolated ground bus.
	Feeders
	Feeders shall be copper conductors (Type THHN or THW) routed in electro metallic tubing (EMT), polyvinylchloride (PVC) conduit, or rigid galvanized steel (RGS) conduit. EMT shall be used in all indoor, concealed locations where the feeder is protected from damage or weather. RGS conduit shall be used in exterior applications or where the conduit may be exposed to physical damage. PVC shall be used for all below-grade applications.
	Feeders shall be sized according to the singleline diagram in the construction documents. Feeders shall be rack-mounted in accessible ceiling spaces or routed below grade under the slab.

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Emergency Power System

Emergency power systems are provided and maintained by Tenant. At Landlord’s discretion it is Tenant’s sole responsibility to remove all items related to this system upon vacating the premises.

Tenant generators shall meet the following requirements:

·Generator tanks are sub-base mounted and provided as a complete package without grade or in-grade fuel tank

·Generator is provided in a weather rated Nema 3R enclosure and be UL2200 compliant

·Generators to be standard sound attenuated enclosures rated to reduce noise to 75 db at 23’ from enclosure

Branch Circuitry

1. Conduit and Wire

a.Branch circuits for all power circuits serving furniture partition systems, office power, convenience outlets, control power, etc. to be nominally sized as 120V 20A.

b.Branch circuits for lighting circuits to be either 277V 20A unless specifically indicated otherwise (undercabinet lighting is connected to 120V 20A circuits).

c.All area branch circuit conductors to be copper and routed in metal conduit.

d.Branch circuiting to individual offices shall be (3)#12AWG (two ‘hot’ and one neutral) plus (1) #12 green ground wire forming a two dedicated 120V 20A 3- wire circuits to feed a maximum of four offices.

e.Each office to include (2) duplex receptacles, and (1) ring and string devices per 130 SF office Quantity to be adjusted per square footage room size.

f.Systems furniture feeds to be provided as (4) circuit (8) wire systems with three normal circuits and one isolated ground circuit.

g.Branch circuits may be increased in size for specific loads or as necessary to prevent excessive voltage drop on longer circuits.

h.MC cable to be provided as for concealed office well wring and concealed lighting only. All homeruns to be provided in EMT conduit.

2. Electrical Devices

a.Electrical devices inducing (receptacles and switches) shall be rated according to the load served.

b.Electrical devices shall be Decora type, white in color with white thermoplastic cover plates.

c.Cover plates for receptacles and junction boxes shall be labeled indicating the circuit and panelboard from which device is fed.

d.All floor furniture feeds shall be flush type, and flush type to be provided at conference rooms. Floor devices must be 2 hr rated at second floor locations

3. Lighting Systems

a.Fixtures shall be suitable for the application including the ability to provide egress illumination where required. Egress light shall be wired and remain on a night lights.

b.Fixtures shall meet U.L.requirements and selection and placement of fixtures shall comply with ADA requirements.

c.All lighting fixtures shall operate at 277 V unless specifically noted otherwise.

d.Lab areas to consist of direct/indirect linear pendant style fixtures. Office area to

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consist of direct/indirect linear pendant style fixtures or recessed direct/indirect light fixtures type: Focal Point Skylite 2’x4’, FBX-24-B Perforated Shield, White, lamping and voltage to be confirmed. Landlord reserves the right to determine use and location of either style of fixture.

e.Exit Lights — Lithonia LRP, Green on clear, 120/277, EL N.

4. Lighting Control Systems

a.Lighting control must comply with Title 24 requirements (including over-ride control for automatically shutting the lights off at prescribed periods of time and the ability to over-ride the lighting control for up to two hours of use).

b.Lighting control equipment shall include a programmable lighting control panel, relay panels (quantity as necessary), over-ride switches (distributed throughout the space), and interconnecting conductors.

c.Control zones to include perimeter areas for daylit spaces, skylit areas, and interior areas under 5,000SF.

d.Lighting over-ride switches to be located in corridors and similar areas to allow ease of access.

e.Each room shall be controlled by dual-level switching for local control.

f.Each private enclosed office to be provided with wall mounted dual-level switching and a ceiling mounted override motion sensor. Manufacturer: Hubbell or equal.

5. Mechanical Equipment

a.Power provided from the 480 V or 208 Y/120 V system for line voltage to mechanical equipment.

b.Control power wiring (other than 120 V as indicated on Mechanical control wiring diagrams) by the mechanical contractor.

c.Smoke detectors, time clocks, relays, contactors, etc. by the mechanical contractor.

d.Motor starters and disconnect switches by the electrical contractor according to the control wiring diagrams provided by mechanical contractor.

6. Telephone/Data Room and Low Voltage Wiring

a.The existing MPOE area on the first floor shall be used, and tenant shall build out new server rooms and IDF rooms as required

21

ANNEX 3

Schedule for Landlord’s Work

22

23

EXHIBIT D TO LEASE

ACKNOWLEDGMENT OF COMMENCEMENT DATE

This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this            day of                             ,         , between ARE-SD REGION NO. 33, LLC, a Delaware limited liability company (“Landlord”) and OPTIMER PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”), and is attached to and made a part of the Lease dated                             ,            (the “Lease”), by and between Landlord and Tenant.  Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that:

·The Commencement Date of the Base Term of the Lease is                             ,         ;

·The termination date of the Base Term of the Lease shall be midnight on                             ,           ;

·The Early Termination Date is                             ,         ; and

·The date that the Termination Notice is due is                     .

In case of a conflict between the terms of the Lease and the terms of this Acknowledgment of Commencement Date, this Acknowledgment of Commencement Date shall control for all purposes.

IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above written.

TENANT:
OPTIMER PHARMACEUTICALS, INC.,
a Delaware corporation
By:
Its:
LANDLORD:
ARE-SD REGION NO. 33, LLC,
a Delaware limited liability company
By:		ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
		a Delaware limited partnership,
		as Managing Member
	By:		ARE-QRS CORP.,
			a Maryland corporation,
			as General Partner
			By:
			Its:

1

EXHIBIT E TO LEASE

Rules and Regulations

1.The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises.

2.Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

3.Except for animals assisting the disabled, no animals shall be allowed in the offices, halls, or corridors in the Project.

4.Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

5.If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted.  Any such installation or connection shall be made at Tenant’s expense.

6.Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease.  The use of oil, gas or inflammable liquids for heating or  lighting is expressly prohibited.  Explosives or other articles deemed extra hazardous shall not be brought into the Project.

7.Parking any type of recreational vehicles, other than those which fit in a normal size parking space, is specifically prohibited on or about the Project.  Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time.  In the event that a vehicle is disabled, it shall be removed within 48 hours.  There shall be no “For Sale” or other advertising signs on or about any parked vehicle.  All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings.  All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

8.Tenant shall maintain the Premises free from rodents, insects and other pests.

9.Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

10.Tenant shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference in the preservation of good order and cleanliness.  Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

11.Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

12.Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

1

13.All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

14.No auction, public or private, will be permitted on the Premises or the Project.

15.No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

16.The Premises shall not be used for lodging, sleeping or cooking (other than microwave cooking) or for any immoral or illegal purposes or for any purpose other than that specified in the Lease.  No gaming devices shall be operated in the Premises.

17.Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

18.Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant’s ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

2

EXHIBIT F TO LEASE

TENANT’S PERSONAL PROPERTY

None.

1

EXHIBIT G TO LEASE

STORAGE LOCATION

*The highlighted parking spaces on this site plan will be available exclusively for Tenant and its visitors as part of the terms of this Lease.

1

EXHIBIT H TO LEASE

ADJACENT LAND

1

EXHIBIT I TO LEASE

RENDERING

1

EX-21.1

Exhibit 21.1

Subsidiaries of Optimer Pharmaceuticals, Inc.:

NAME:	JURISDICTION OF INCORPORATION:
Optimer Biotechnology, Inc.	Taiwan
Optimer Pharmaceuticals Canada, Inc.	Canada

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-179131, 333-174836, 333-173442, 333-171645, 333-157897 and 333-140739 Form S-3 Nos. 333-177709, and 333-147706) of Optimer Pharmaceuticals, Inc  and related prospectus of our reports dated March 8, 2012, with respect to the consolidated financial statements of Optimer Pharmaceuticals, Inc., and the effectiveness of internal control over financial reporting of Optimer Pharmaceuticals, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2011.

	/s/ Ernst & Young LLP
San Diego, California
March 8, 2012

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Pedro Lichtinger, certify that:

1. I have reviewed this annual report on Form 10-K 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: March 8, 2012

/s/ Pedro Lichtinger

Pedro Lichtinger

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John D. Prunty, certify that:

1. I have reviewed this annual report on Form 10-K 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: March 8, 2012

/s/ John D. Prunty

John D. Prunty

Vice-President and Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32

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 Company’s Annual Report on Form 10-K for the year ended December 31, 2011, to which this Certification is attached as Exhibit 32 (the “Annual 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 Annual Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Annual Report and results of operations of the Company for the period covered by the Annual Report.

Dated: March 8, 2012
/s/ Pedro Lichtinger	/s/ John D. Prunty
Pedro Lichtinger	John D. Prunty
Chief Executive Officer	Chief Financial Officer
(Principal Executive 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-K 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 Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

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Short-Term Investments

12 Months Ended

Dec. 31, 2011

Short-Term Investments

Short-Term Investments

3.           Short-Term Investments

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

	December 31, 2011
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency bonds	$	69,241,792	$	106,347	$	—	$	69,348,139
Corporate bonds	9,429,485		13,442		—		9,442,927
	$	78,671,277	$	119,789	$	—	$	78,791,066

	December 31, 2010
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Government agency bonds	$	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

None of the investments had a net unrealized loss positions as of December 31, 2011.

The amortized cost and estimated fair value of securities available-for-sale at December 31, 2011, by contractual maturity, are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	78,671,277	$	78,791,066

The weighted average maturity of short-term investments as of December 31, 2011 and 2010, was approximately seven months and four months, respectively.

Evaluating Investments for Other-than Temporary Impairments

The Company considers 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 of which the market value has been less than cost, the financial condition of the issuer and the Company’s intent to hold and ability to retain these short-term investments.  Based on these factors, except for the ARPS, on which the Company recorded as an other temporary impairment in 2008, the Company has not identified any other than temporary impairment.

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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments

Fair Value of Financial Instruments

2.Fair Value of Financial Instruments

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2011 and 2010:

	Fair Value Measurements at December 31, 2011 Using:
	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
Cash equivalents	$	31,787,512	$	—	$	—	$	31,787,512
Marketable securities	—		78,791,066		—		78,791,066
Auction rate preferred securities	—		—		882,000		882,000
Other assets — forward contracts not designated as hedges	—		1,752,006		—		1,752,006
	$	31,787,512	$	80,543,072	$	882,000	$	113,212,584

	Fair Value Measurements at December 31, 2010 Using:
	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (1) (Level 2)		Unobservable Inputs (Level 3)		Total
Cash equivalents	$	19,861,924	$	—	$	—	$	19,861,924
Marketable securities	—		29,553,506		—		29,553,506
Auction rate preferred securities	—		—		882,000		882,000
	$	19,861,924	$	29,553,506	$	882,000	$	50,297,430

(1)   During 2011, the Company changed how it categorizes amounts within the fair value hierarchy and thus, the amounts now reported as Level 2 fair value instruments at December 31, 2010 were previously shown as Level 1 and have been reclassified.

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.

Marketable Securities.  With the exception of auction rate securities, the Company obtains pricing information from quoted market prices, pricing vendors or quotes from brokers/dealers. The Company conducts reviews of its primary pricing vendors to determine whether the inputs used in the vendor’s pricing processes are deemed to be observable.

The fair value of U.S. Treasury securities and government-related securities, and corporate bonds are generally determined using standard observable inputs, including reported trades, quoted market prices, and broker/dealer quotes.

The fair value of preferred auction rate securities (ARPS”) is estimated by the Company using a discounted cash flow model that incorporates transaction details such as contractual terms, maturity and timing and amount of cash flows and expected holding period of the ARPS. The Company’s ARPS is classified as a long-term investment on the consolidated balance sheets, as the Company does not believe it could liquidate the security in the near term. The ARPS does not have observable inputs and thus the ARPS is included in Level 3.

Derivative Instruments. Derivative instrument includes a forward contract to manage foreign exchange risk for certain transactions denominated in a foreign currency. The forward contract is valued using standard calculation that is primarily based on observable inputs, such as foreign currency exchange rates and thus the forward contract is included in Level 2.  For the year ended December 31, 2011, included in its interest income and other, net, the Company recognized a gain of $1.8 million on its forward contract.

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 Preferred Securities
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 December 31, 2011	$	882,000
Change in unrealized gains (losses) included in net loss related to assets still held	$	—

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Consolidated Balance Sheets (USD $)	Dec. 31, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 31,787,512	$ 19,861,924
Short-term investments	78,791,066	29,553,506
Trade accounts receivable, net	6,563,645
Accounts receivable, other	52,289,290	53,552
Inventory	3,947,380
Prepaid expenses and other current assets	3,781,830	463,307
Total current assets	177,160,723	49,932,289
Property and equipment, net	2,590,715	697,683
Long-term investments	882,000	882,000
Other assets	1,389,734	508,190
Total assets	182,023,172	52,020,162
Current liabilities:
Accounts payable	9,860,462	2,307,820
Accrued liabilities	21,447,544	2,385,046
Total current liabilities	31,308,006	4,692,866
Deferred rent	151,141	141,138
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001, 10,000,000 shares authorized and no shares issued and outstanding at December 31, 2011 and 2010, respectively
Common stock, $0.001 par value, 75,000,000 shares authorized, 46,689,951 shares and 39,278,965 shares issued and outstanding at December 31, 2011 and 2010, respectively	46,690	39,279
Additional paid-in capital	358,895,471	267,665,732
Accumulated other comprehensive income (loss)	(46,725)	298,850
Accumulated deficit	(214,992,783)	(222,814,407)
Total Optimer Pharmaceuticals, Inc. stockholders' equity	143,902,653	45,189,454
Noncontrolling interest	6,661,372	1,996,704
Total stockholders' equity	150,564,025	47,186,158
Total liabilities and stockholders' equity	$ 182,023,172	$ 52,020,162

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Operating activities
Consolidated net income (loss)	$ 5,929,528	$ (48,538,903)	$ (42,234,239)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	525,008	306,718	216,783
Stock based compensation	11,786,374	6,375,684	2,807,992
Issuance of common stock for consulting services and other	3,285,274	3,377,917
Deferred rent	10,003	(112,336)	1,970
(Gain) Loss on disposal of assets	21,681	(25,511)	20,267
Changes in operating assets and liabilities:
Trade accounts receivable, net	(6,563,645)
Accounts receivable, other	(52,289,290)	30,612	127,135
Inventory	(3,947,380)
Prepaid expenses and other current assets	(3,264,971)	(130,612)	200,676
Other assets	(881,544)	(9,428)	(512)
Accounts payable and accrued expenses	26,615,140	(2,958,043)	(162,582)
Net cash used in operating activities	(18,773,822)	(41,683,902)	(39,022,510)
Investing activities
Purchases of short-term investments	(91,279,751)	(55,284,340)	(28,567,298)
Sales or maturity of short-term investments	42,165,000	46,845,000	30,153,000
Purchase of property and equipment	(2,439,718)	(305,992)	(215,763)
Net cash provided (used) in investing activities	(51,554,469)	(8,745,332)	1,369,939
Financing activities
Proceeds from sale of common stock	76,657,262	52,803,357	33,396,433
Proceeds from sale of subsidiary common stock	6,194,192		4,535,011
Net cash provided by financing activities	82,851,454	52,803,357	37,931,444
Effect of exchange rate changes on cash and cash equivalents	(597,575)	433,473	(3,425)
Net increase in cash and cash equivalents	11,925,588	2,807,596	275,448
Cash and cash equivalents at beginning of year	19,861,924	17,054,328	16,778,880
Cash and cash equivalents at end of year	$ 31,787,512	$ 19,861,924	$ 17,054,328

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Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

1.Organization and Summary of Significant Accounting Policies

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.  In October 2011, Optimer also 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.

Principles of Consolidation

The consolidated financial statements include all the accounts of the Company and its majority owned subsidiaries.  All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term 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 within other comprehensive income/(loss) in the consolidated statement 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. As of December 31, 2011, cash, cash equivalents and short-term investments totaled approximately $110.6 million of which $14.9 million was held by OBI.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and short-term investments.  The Company maintains deposits in federally insured financial institutions in excess of federally insured limits.  However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.  Additionally, the Company has established guidelines regarding diversification of its investments and their maturities, which are designed to maintain safety and liquidity.

The Company’s accounts receivable consists of amounts due from customers for the sales of DIFICID.  The following table sets forth distribution customers who represented 10% or more of gross revenues for the year ended December 31, 2011:

	2011
Amerisource Bergen Drug Corporation	23	%
Cardinal Health	43	%
McKesson	30	%
	96	%

Accounts Receivable

Trade accounts receivable are recorded net of reserves for estimated chargeback obligations, prompt payment discounts and any allowance for doubtful accounts. Reserves for other sales related allowances such as rebates, distribution and other fees, and product returns are included in accrued expenses in our condensed consolidated balance sheet. The allowance for prompt pay and service fee was $1.6 million and none at December 31, 2011 and 2010, respectively.

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 expenses costs relating to the production of inventory in the period incurred until such time as the product receives regulatory approval, at which point the Company begins to capitalize the inventory costs related to the product.  Prior to the FDA approval of DIFICID for commercial sale in July 2011, all production costs related to DIFICID were expensed to research and development.  Subsequent to receiving FDA approval, costs related to the production of DIFICID are capitalized to inventory, including the cost of converting previously existing raw materials to inventory and labeling and packaging inventory manufactured prior to approval whose cost had already been recorded as research and development expense.  Until the Company sells the inventory for which a portion of the costs were previously expensed, the carrying value of the inventories and the cost of product sales will reflect only incremental costs incurred subsequent to the approval date. The Company continues to expense costs associated with clinical trial material as research and development expense.

As of December 31, 2011, inventories consist of:

Raw materials	$	1,815,696
Work in process	1,321,763
Finish goods	809,921
	$	3,947,380

Foreign Currency Translation

The functional currency for our foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rates on the balance sheet dates. Net revenues and expenses are translated using the average exchange rates prevailing during the year. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income (loss) within stockholders’ equity in the consolidated balance sheets. Foreign currency transaction gains and losses are reported in operating expenses, net in the consolidated statements of operations.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, short-term investments and accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.  The fair value of available-for-sale securities is based upon quoted market prices for those securities.

Derivatives

The Company may use derivatives to manage foreign currency risk and interest rate risk and not for speculative or trading purposes. The Company’s objective is to reduce the risk to earnings and cash flows associated with changes in foreign currency exchange rates. Gains and losses resulting from changes in the fair values of those derivative instruments are recorded to earnings or other comprehensive income (loss) depending on the use of the derivative instrument and whether it qualifies for hedge accounting.

Property and Equipment

Property and equipment, including leasehold improvements, are stated at cost.  Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years.  Leasehold improvements are amortized over the shorter of their useful lives or the terms of the related leases.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or the fair value less costs to sell, and are no longer depreciated.  Assets and liabilities that are part of a disposed group and classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.  The Company has not recognized any impairment losses through December 31, 2011.

Deferred Rent

Rent expense is recorded on a straight-line basis over the term of the lease.  The difference between rent expense accrued and amounts paid under the lease agreement is recorded as deferred rent in the accompanying consolidated balance sheets.

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 in 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.

Revenue Recognition

DIFICID is available through three major wholesalers and regional wholesalers that provide the DIFICID to hospital and retail pharmacies, and long-term care facilities. The Company recognizes 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 Company’s 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 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.

Allowances against receivable balances primarily relate to prompt payment discounts and distribution 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 Company’s 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 Company’s estimated obligations resulting from contractual commitments to sell DIFICID to qualified healthcare providers at a price lower than the list price charged to the Company’s 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.

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 Company’s operating results in the period of the adjustment.

Product Returns.   The Company’s 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 the sales pattern of DIFICID, management experience with similar products, historical trends in the pharmaceutical industry and trends for similar products sold by others.

During the year ended December 31, 2011, provisions for product sales allowances reduced gross product sales as follows:

Total gross product sales	$	24,357,200
Prompt pay and other discounts	(2,004,689		)
Government rebates and chargebacks	(476,116		)
Returns and allowances	(365,358		)
Product sales allowance	$	(2,846,163	)
Total product sales, net	$	21,511,037
Total product sales allowances as a percent of gross product sales	11.7		%

Collaborations, Milestones and Royalties

In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones 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 Company’s performance or on the occurrence of a specific outcome resulting from the Company’s 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 Company’s performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from the Company’s 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 partner’s 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 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. And in December 2011, we recorded a $53.6 million or 40 million Euros upon the approval of European Marketing Authorization (“EMA”). 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.

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.

The Company’s research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by the Company’s 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.

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 stockholder’s equity as previously reported.

Stock-Based Compensation

The Company recognizes in its financial statements the share-based payment transactions with employees and consultants based on their fair value and recognized as compensation expense over the vesting period.  Compensation expense of $11.8 million, $6.4 million and $2.8 million was recognized in the years ended December 31, 2011, 2010 and 2009, respectively.

Employee 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. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model and the fair value of its stock awards based on the quoted market price of its 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. The expected volatility rates are based on the historical fluctuation in the stock price since inception. The average expected term is calculated using the simplified method. Expected dividends are estimated based on the Company’s dividend history as well as the Company’s current projections. The risk-free interest rate for periods approximating the expected terms of the options is based on the U.S. Treasury yield curve in effect at the time of grant. These assumptions are updated on an annual basis or sooner if there is a significant change in circumstances that could affect these assumptions.

The Company also grants awards to non-employees and determine the fair value of such stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is completed.

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

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). As of December 31, 2011, the cumulative unrealized gain on investments and the cumulative loss on foreign currency translation adjustment was $119,789 and $(166,514), respectively. As of December 31, 2010, the cumulative unrealized loss on investments and the cumulative gain on foreign currency adjustment was $(3,020) and $301,870, respectively.

Net Income (Loss) Per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.  Diluted net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common stock equivalents outstanding for the period determined using the treasury-stock method.  For purposes of this calculation stock options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share attributable to common stockholders when their effect is dilutive.

	Years Ended December 31,
	2011		2010			2009
Historical
Numerator:
Net income (loss) attributable to Optimer Pharmaceuticals, Inc.	$	7,821,624	$	(47,339,742	)	$	(42,092,557	)
Denominator:
Weighted average common shares outstanding - basic	45,622,168		37,830,452			32,468,702
Effect of dilutive securities:
Restricted stock	—		—			—
Stock award common share equivalents	747,515		—			—
Weighted average number of shares of common stock — diluted	46,369,683		37,830,452			32,468,702
Net income (loss) attributable to common stockholders per share — basic	$	0.17	$	(1.25	)	$	(1.30	)
Net income (loss) attributable to common stockholders per share — diluted	$	0.17	$	(1.25	)	$	(1.30	)
Historical outstanding anti-dilutive securities not included in diluted net loss per share calculation
Common stock options	3,706,708		3,589,626			2,466,751
Common stock warrants	—		91,533			91,533
Total	3,706,708		3,681,159			2,558,284

Segment Reporting

The Company’s management has determined that it operates in one business segment which is the development and commercialization of pharmaceutical products.

Recently Issued Accounting Pronouncements

The FASB issued the following accounting amendments:

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 Company’s 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 Company’s financial position, cash flow or results of operations.

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2011	Dec. 31, 2010
Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	46,689,951	39,278,965
Common stock, shares outstanding	46,689,951	39,278,965

XML

Subsequent Event

12 Months Ended

Dec. 31, 2011

Subsequent Event

Subsequent Event

11.  Subsequent Event

In February 2012, OBI issued 36 million newly-issued shares of its common stock resulting in gross proceeds of approximately 540 million New Taiwan dollars (approximately $18.3 million based on then-current exchange rates).  The Company did not participate in the February 2012 financing and the issuance of the shares reduced its ownership percentage to approximately 44%.  However, the Company’s Chief Executive Officer and the Chairman of the Board participated.  Each individual purchased 924,000 and 7,080,981, respectively, of the new shares at 15 New Taiwan Dollars per share. OBI has also announced its intention to conduct an initial public offering of its common stock.  To the extent that additional newly-issued shares of OBI’s common stock are sold in the initial public offering and the Company does not participate, or to the extent that it sells a portion of our OBI shares in the initial public offering, its percentage ownership of OBI would decrease further.

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Feb. 29, 2012	Jun. 30, 2011
Document and Entity Information
Entity Registrant Name	OPTIMER PHARMACEUTICALS INC
Entity Central Index Key	0001142576
Document Type	10-K
Document Period End Date	Dec. 31, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 540,638,000
Entity Common Stock, Shares Outstanding		46,747,049
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY

XML

Geographic Information

12 Months Ended

Dec. 31, 2011

Geographic Information

Geographic Information

12.   Geographic Information

Information regarding long-lived assets by geographic area is as follows:

	As of December 31,
	2011		2010		2009
	(in thousands)
United States	$	2,358	$	590	$	644
Taiwan	233		108		29
Total	$	2,591	$	698	$	673

XML

Consolidated Statements of Operations (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Revenues:
Product revenue, net	$ 21,511,037
Licensing	122,749,000
Research grants and collaborative agreement	718,336	1,480,362	892,644
Total revenues	144,978,373	1,480,362	892,644
Cost and expenses:
Cost of product sales	1,525,798
Cost of licensing	7,584,353
Research and development	43,085,307	32,797,672	34,416,983
Selling, general and administrative	87,144,257	17,550,883	9,073,898
Total operating expenses	139,339,715	50,348,555	43,490,881
Income (loss) from operations	5,638,658	(48,868,193)	(42,598,237)
Interest income and other, net	290,870	329,290	363,998
Consolidated net income (loss)	5,929,528	(48,538,903)	(42,234,239)
Net loss attributable to noncontrolling interest	1,892,096	1,199,161	141,682
Net income (loss) attributable to Optimer Pharmaceuticals, Inc.	$ 7,821,624	$ (47,339,742)	$ (42,092,557)
Net income (loss) per share attributable to Optimer Pharmaceuticals, Inc. common stockholders - basic (in dollars per share)	$ 0.17	$ (1.25)	$ (1.30)
Net income (loss) per share attributable to Optimer Pharmaceuticals, Inc. common stockholders - diluted (in dollars per share)	$ 0.17	$ (1.25)	$ (1.30)
Shares used to compute net income (loss) per share attributable to common stockholders - basic (in shares)	45,622,168	37,830,452	32,468,702
Shares used to compute net income (loss) per share attributable to common stockholders - diluted (in shares)	46,369,683	37,830,452	32,468,702

XML

Collaborative Agreements

12 Months Ended

Dec. 31, 2011

Collaborative Agreements

Collaborative Agreements

6.     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 Cubist’s 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. Except for the first quarterly payment which the Company paid in advance, all subsequent payments are paid in arrears. 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.

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 Cubist’s 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 began its quarterly payments of $3.75 million to Cubist 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.

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 Company’s 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 its 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. In December 2011, the Company received an approval from the EMA for DIFICLIR™ (fidaxomicin) tablets and thus recorded the 40 million Euro milestone as a receivable in the fourth quarter of 2011.  The Company entered into a forward contract in order to limit the Company’s foreign currency exposure. The Company is eligible to receive additional milestone payments totaling up to 65 million Euros upon the achievement of certain commercial milestones.

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 its performance or on the occurrence of a separate outcome resulting from its 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 Company’s 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 its performance.  In addition, the Company 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.

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 Company’s analysis, it 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, we 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 us.  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 us.

Par Pharmaceuticals, 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 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 net sales by the Company, its affiliates or its licensees of DIFICID in North America and Israel, and a 1.5% royalty on 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, the Company will be required to pay Par a 6.25% royalty on net revenues received by it related to DIFICID.  The Company is obligated to pay each of these royalties, 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.  In the fourth quarter of 2011, the Company also recorded $3.3 million in royalties related to the $53.6 million EMA approval milestone due from Astellas.  Through December 31, 2011, the Company recorded $1.1 million in royalties related to DIFICID net sales in the U.S.

Biocon Limited

In May 2010, the Company entered into a long-term supply agreement with Biocon, for the commercial manufacture of DIFICID API.  Pursuant to the agreement, Biocon agreed to manufacture and supply 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 it 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.  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 obtains 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 Biocon’s failure to supply requested amounts of DIFICID API, or (iii) by Biocon upon the occurrence of certain events, including our failure to purchase amounts of DIFICID API that it indicates 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 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 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 determine to discontinue development or commercialization of such product for safety or efficacy reasons, (ii) if any regulatory authority takes an enforcement action against Patheon’s manufacturing site that relates to fidaxomicin products or that could reasonably be expected to adversely affect Patheon’s ability to supply fidaxomicin products to us, (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.  The Company granted to Cempra an exclusive worldwide license, except in ASEAN countries, with the right to sublicense, the Company’s patent and know-how related to the Company’s macrolide and ketolide antibacterial program.  As partial consideration for granting Cempra the licenses, 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 has assessed milestones under the revised authoritative guidance for research and development milestones and determined that the preclinical milestone payments, as defined in the agreement, meet the definition of a milestone as they are 1) events that can only be achieved in part on our past performance or upon the occurrence of a specific outcome resulting from our performance, 2) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and 3) they result in additional payments being due to us. Clinical development and commercial milestone payments, however, currently do not meet this criteria as their achievement is solely based on the performance of Cempra. To date the Company has recognized $500,000 in payments from this collaboration. The Company will 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.

In February 2012, Cempra completed an initial public offering at which time the Company’s equity of Cempra was converted to 125,646 common stock shares.

Optimer Biotechnology, Inc.

In October 2009, the Company entered into certain transactions involving OBI, its then wholly-owned subsidiary, to provide funding for the development of two of its 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, its 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 OBI’s 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 same group of new investors, and the Company and the new investors also purchased new OBI shares.  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. The Company purchased 277.2 million New Taiwan Dollars of the shares issued in the financing. In December 2011.

Memorial Sloan-Kettering Cancer Center (“MSKCC”)

In July 2002, the Company entered into a license agreement with MSKCC to acquire, together with certain nonexclusive licenses, exclusive, worldwide licensing and sublicensing rights to certain patented and patent-pending carbohydrate-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 with OBI. Under the agreement, which was amended in June 2005, the Company 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 the Company, 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 (“TSRI”)

In July 1999, the Company acquired exclusive, worldwide rights to its OPopS technology from 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 the Company’s 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 OPT-88 which, after further evaluation, OBI decided not to pursue. In February 2011, OBI and TSRI agreed to terminate the agreement 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, the Company’s 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 remaining 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 three remaining TSRI agreements is approximately $11.1 million.

Research Grants

NIH Small Business Innovation Research Award.  The Company has one active grant from National Institute of Allergy and Infectious Diseases (“NIAID”). This $3 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 the DIFICID and its major metabolite in CDI patients and to support a surveillance study of C. difficile isolates across North America to compare activity of DIFICID with existing CDI treatments.  For the years ended December 31, 2011, 2010 and 2009, the Company recognized revenues related to research grants of $217,239, $980,362 and $792,644, respectively.

Qualifying Therapeutic Discovery Project Grant.  In November 2010, the Company received $244,000 in the form of a cash grant from the Qualifying Therapeutic Discovery Project program of the Internal Revenue Service (IRS) / the U.S. Treasury Department for expenditures related to its DIFICID development program.  The Company had to meet eligible criteria defined by the guidelines of the Patient Protection and Affordable Care Act signed into law March 23, 2010 to qualify for the cash grant.  The Company recorded the receipt of the cash grant as interest income and other, net in the Consolidated Statements of Operations.

Taiwan Ministry of Economic Affairs (“MOEA”) Grant.  OBI has one active grant from 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.  For the year ended December 3, 2011, OBI recognized revenues related to research grants of 15.3 million New Taiwan dollars.

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Accrued Liabilities

12 Months Ended

Dec. 31, 2011

Accrued Liabilities

Accrued Liabilities

5.     Accrued Liabilities

Accrued liabilities consisted of the following:

	December 31,
	2011		2010
Accrued preclinical and clinical expenses	$	975,589	$	262,399
Accrued research services	—		151,751
Accrued legal fees	393,672		61,967
Accrued salaries, wages and benefits	6,955,837		1,872,191
Accrued royalties	3,886,180		—
Reserved for product returns, rebates and chargebacks	735,256		—
Accrued service fees for Cubist	3,220,421		—
Accrued inventory in transit	1,089,531		—
Other accrued liabilities	4,191,058		36,738
Total accrued liabilities	$	21,447,544	$	2,385,046

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Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Financial Data (Unaudited)

Quarterly Financial Data (Unaudited)

13.Quarterly Financial Data (Unaudited)

Selected quarterly consolidated financial data is shown below (in thousands, except per share data).

	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
2011 Quarters
Total revenue	$	69,277	$	33		$	11,052		$	64,616
Operating expenses	24,458		25,051			37,966			51,864
Income (loss) from operations	44,819		(25,018		)	(26,914		)	12,752
Consolidated net income (loss)	44,842		(24,922		)	(26,806		)	12,815
Net income (loss) attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	45,133	$	(24,239	)	$	(26,427	)	$	13,354
Basic net income (loss) attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	1.06	$	(0.52	)	$	(0.57	)	$	0.29
Diluted net income (loss) attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	1.04	$	(0.52	)	$	(0.57	)	$	0.28

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2010 Quarters
Revenue	$	298		$	357		$	669		$	156
Operating expenses	14,019			10,762			12,920			12,647
Loss from operations	(13,721		)	(10,405		)	(12,251		)	(12,491		)
Consolidated net loss	(13,697		)	(10,351		)	(12,228		)	(12,263		)
Net loss attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	(13,496	)	$	(10,061	)	$	(11,837	)	$	(11,946	)
Basic and diluted net loss attributable to Optimer Pharmaceuticals, Inc. common stockholders	$	(0.39	)	$	(0.26	)	$	(0.30	)	$	(0.31	)

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes.

Income Taxes

9.     Income Taxes

There were no unrecognized tax benefits as of the date of adoption and there were no unrecognized tax benefits included in the balance sheet at December 31, 2011 that would, if recognized, affect the effective tax rate.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s balance sheets at December 31, 2011 and 2010 and has not recognized interest and/or penalties in the statement of operations for the year ended December 31, 2011.

The Company is subject to taxation in the United States, California and various other state and foreign jurisdictions. The Company’s tax years for 2000 and forward are subject to examination by the Federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.

As of December 31, 2011, the Company completed a Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards and determined that the entire amount of federal and state NOL and credit carryovers are available for utilization, subject to the annual limitation.  Any carryforwards that will expire prior to utilization as a result of future limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.  Due to the existence of the valuation allowance, future changes in the unrecognized tax benefits will not impact the effective tax rate.

At December 31, 2011, the Company had Federal, state and foreign income tax net operating loss carryforwards of approximately $161.8 million, $185.6 million, and $7.7 million, respectively. If not utilized, the net operating loss carryforwards will begin expiring in 2020 for federal purposes and 2015 for state purposes. The foreign losses will begin expiring in 2020.  In addition, the Company has Federal and California research tax credit carryforwards of approximately $6.9 million and $3.8 million, respectively. The Federal research and development credit carryforwards will begin to expire in 2020 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized. The Company also has California state manufacturer’s investment tax credit carryforwards of $47,000 which will begin to expire in 2012 unless previously utilized. Under the Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss and tax credit carryforwards that could be utilized annually in the future to offset taxable income.  Any such annual limitation may significantly reduce the utilization of the net operating losses and tax credits before they expire.

The Company has $4.9 million net operating loss carryforwards related to stock option exercises, which will result in an increase to additional paid-in capital and a decrease in income taxes payable when the tax loss carryforwards are utilized.

The Provision for income taxes consists of the following:

	2011		2010
Current:
Federal	$	—	$	—
State	20,000		—
Subtotals	20,000		—
Deferred:
Federal	—		—
State	—		—
Subtotals	—		—
Totals	$	20,000	$	—

Significant components of the Company’s deferred tax assets as of December 31, 2011 and 2010 are listed below. A valuation allowance of $88.8 million and $91.0 million at December 31, 2011 and 2010, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. Amounts are shown as of December 31, of the respective years:

	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	65,478,000		$	72,499,000
Tax credits	9,559,000			7,575,000
Capitalized license, net	4,728,000			6,477,000
Other, net	8,692,000			4,440,000
Total deferred tax assets	88,457,000			90,991,000
Valuation allowance for deferred tax assets	(88,457,000		)	(90,991,000		)
	$	—		$	—

Income taxes computed by applying the U.S. Federal Statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the statement of earnings as follows:

	2011			2010			2009
Tax expense (benefit) at statutory federal rate	$	2,676,000		$	(16,085,000	)	$	(14,308,000)
State tax expense (benefit), net of federal	53,000			(2,758,000		)	(2,453,000)
Foreign subsidiary transactions	161,000			77,000			(115,000)
Generation of research and development credits	(2,047,000)			(1,273,000		)	(3,020,000)
Stock compensation expense	317,000			(14,000		)	248,000
Permanent difference for R&D credit expense addback	505,000			356,000			862,000
Change in State effective rate	1,068,000			—			—
Other	(179,000		)	92,000			33,000
Change in valuation allowance	(2,534,000		)	19,605,000			18,753,000
	$	20,000		$	—		$	—

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Commitments

12 Months Ended

Dec. 31, 2011

Commitments

Commitments

7.     Commitments

Leases

The Company leases office and research facilities under operating lease agreements.  The Company’s facility leases in San Diego extend through July 2012 at which time the company expects to consolidate into a single facility.  In December 2011, we entered into a lease agreement for approximately 45,000 square feet of office and laboratory space in San Diego.  The Lease is intended to replace our existing leases covering an aggregate of approximately 32,000 square feet of office and laboratory space in San Diego. The target commencement date of the Lease is August 1, 2012, and the initial term will expire approximately 10 years after the commencement date. The minimum rent payable by us will be approximately $129,000 per month during the first year of the initial term, with 3% annual increases thereafter. In addition, we have the option to extend the Lease for up to two additional consecutive five-year terms, which would commence upon the expiration of the initial 10-year term. In the event we choose to extend the term of the Lease, the minimum monthly rent payable for any additional term will be determined according to the then-prevailing market rate.

The Company’s facility lease in Jersey City expires approximately June 2018, subject to one five year renewal option. The Company has recorded deferred rent of $151,141 and $141,138 as of December 31, 2011 and 2010, respectively, in conjunction with these lease agreements.

At December 31, 2011, annual minimum rental payments due under the Company’s operating leases are as follows:

Years ending December 31,
2012	$	1,577,562
2013	2,401,726
2014	2,497,412
2015	2,570,171
2016 and thereafter	14,494,533
Total minimum lease payments	$	23,541,404

Rent expense was $1,565,607, $1,057,565 and $1,068,542, for the years ended December 31, 2011, 2010, and 2009, respectively.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity

Stockholders' Equity

8.     Stockholders’ Equity

Public Offerings

In March 2009, the Company received approximately $32.9 million in gross proceeds from the sale of its securities in a registered direct offering to institutional investors. The Company sold 3,252,366 million shares and warrants to purchase up to an aggregate of 91,533 shares of its common stock.  The warrants are exercisable at an exercise price of $10.93 per share and were exercised in June 2011.

In March 2010, the Company completed the sale of 4,887,500 shares of its common stock in a public offering which included 637,500 shares sold pursuant to the full exercise of an overallotment option previously granted to the underwriter.  The net proceeds to the Company from the sale of shares in the offering were approximately $51.2 million.

In July 2010, the Company issued 585,762 shares of common stock to AFOS, LLC as consideration for the engagement of an affiliate of AFOS to provide certain services to the Company.

In February 2011, the Company completed the sale of 6,900,000 shares of its common stock in a public offering which included 900,000 shares sold pursuant to the full exercise of an overallotment option previously granted to the underwriter.  The net proceeds to the Company from the sale of shares in the offering were approximately $73.1 million.

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. In December 2011, OBI’s Board of Directors issued 1,500,000 shares of its common stock for providing technical know-how services, such that the Company’s equity interest in OBI was decreased from 60% to 59.1%.  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:

	December 31,
	2011			2010
Noncontrolling interest, January 1	$	1,996,704		$	3,040,156
Additional financing	6,194,192			—
Issuance of common stock to consultant	491,761			—
Net loss attributable to noncontrolling interest	(1,892,096		)	(1,199,161		)
Translation adjustments	(129,189		)	155,709
Noncontrolling interest, December 31,	$	6,661,372		$	1,996,704

Equity Compensation Plans

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 Company’s initial public offering in February 2007.

In December 2006, the Company’s board of directors approved the 2006 Equity Incentive Plan (“2006 Plan”).  The 2006 Plan became effective upon the closing of the Company’s initial public offering. A total of 2,000,000 shares of the Company’s 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, beginning with the Company’s 2008 fiscal year, equal to the lesser of (i) 5% of the outstanding shares of the Company’s 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 Company’s common stock were reserved for issuance under the 2006 Plan on January 1, 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 Company’s common stock on the date of grant.

In March and in June 2011, the Company’s 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 Company’s 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 individual’s 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 Company’s common stock on the date of grant.

Performance-Based Stock Options, Performance-Based Restricted Stock Units, and Stock Awards

On May 5, 2010, the Company’s Board of Directors appointed Pedro Lichtinger as its President and CEO and as a member of its Board of Directors.  Pursuant to Mr. Lichtinger’s 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. Lichtinger’s appointment, Michael Chang resigned as the Company’s 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 Company’s 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.  Options that were granted to Dr. Chang as an employee were converted to consultant stock options.

In September 2011, the Company’s Board of Directors awarded performance-based restricted stock units covering an aggregate of 3,000,000 of the Company’s 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 OBI’s achievement of a specified corporate goal and will be subject to forfeiture to the extent the recipient’s service with the Company terminates prior to the three year anniversary of the share issuance date.

The performance-based stock options, performance-based restricted stock units and stock grant were made under the 2006 Plan.

Following is a summary of stock option activity, including performance-based stock options:

	Options		Weighted- Average Exercise Price
Balance as of December 31, 2008	1,979,660		$	3.64
Granted	637,750		$	11.24
Exercised	(125,430	)	$	1.16
Canceled	(25,229	)	$	7.60
Balance as of December 31, 2009	2,466,751		$	5.69
Granted	1,815,450		$	11.88
Exercised	(552,253	)	$	2.12
Canceled	(140,322	)	$	11.39
Balance as of December 31, 2010	3,589,626		$	9.15
Granted	3,427,500		$	12.26
Exercised	(347,803	)	$	5.35
Canceled	(486,823	)	$	10.87
Balance as of December 31, 2011	6,182,500		$	10.95

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 fair value of options determined under authoritative accounting guidance is amortized to expense over the vesting periods of the underlying options which is generally four years.  The Company recognizes compensation expense for performance-based stock awards granted to employees under the accelerated attribution method.  The fair value of stock options granted to employees and consultants including performance-based stock options and performance-based restricted stock units, was estimated at grant data using the following assumptions:

Stock Options including performance-based stock options	2011		2010		2009
Risk-free interest rate	1.84-3.46	%	2.27-3.53	%	2.00-2.56	%
Dividend yield	0.00	%	0.00	%	0.00	%
Expected life of options (years)	5.27-9.49		5.02-10.00		5.27-6.08
Volatility	69.13-73.63	%	69.30-79.07	%	69.93-71.39	%

The risk-free interest rate assumption was based on the United States Treasury’s 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 Optimer’s 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 Optimer’s limited history.  In addition, due to Optimer’s limited historical data, the estimated volatility incorporates the historical volatility of comparable companies whose share prices are publicly available.

The aggregate intrinsic value of options exercised during the year ended December 31, 2011, 2010 and 2009 was approximately $2,531,606, $4,680,334 and $1,294,667, respectively.  The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2011 was approximately $9,782,141 and $7,713,308, respectively.

The following table summarizes information concerning outstanding and exercisable stock options as of December 31, 2011:

	December 31, 2011
	Options Outstanding				Options Exercisable
Exercise Price	Number of Shares Subject to Options Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number of Shares Exercisable	Weighted Average Exercise Price
$0.65 - $11.41	2,391,397	6.92	$	8.40	1,314,059	$	6.46
$11.42 - $12.34	2,466,083	8.65	$	12.04	555,092	$	12.08
$12.42 - $14.86	1,325,020	8.61	$	13.53	51,288	$	13.71
$0.65 - $14.86	6,182,500	7.97	$	10.95	1,920,439	$	8.28

Of the options outstanding, options to purchase 1,920,439 shares were vested as of December 31, 2011, with a weighted average remaining contractual life of 6.30 years and a weighted average exercise price of $8.28 per share, while options to purchase 4,262,061 shares were unvested.

Based on these assumptions, the weighted average grant-date fair values of stock options granted during the years ended December 31, 2011, 2010 and 2009 was $7.75, $7.35 and $7.11 per share, respectively.

As of December 31, 2011, the total unrecognized compensation expense related to stock options was approximately $23,868,095 and the related weighted-average period over which it is expected to be recognized is approximately 3.2 years.

Employee Stock Purchase Plan

Concurrent with the Company’s initial public offering in February 2007, the Company’s board of directors adopted the employee stock purchase plan (“ESPP”) in December 2006, and the stockholders approved the plan in January 2007.  A total of 200,000 shares of the Company’s common stock were initially made available for sale under the plan.  In addition, the employee stock purchase plan provides for annual increases in the number of shares available for issuance under the purchase plan on the first day of each fiscal year, beginning with the Company’s 2008 fiscal year, equal to the lesser of (i) 3% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; (ii) 300,000 shares; or (iii) such other amount as may be determined by the Company’s board of directors. Pursuant to this provision, 300,000 additional shares of the Company’s common stock were reserved for issuance under the ESPP on January 1, 2008. The Company’s board of directors determined to reserve zero additional shares under the ESPP as of January 1, 2011 and 2010.

As of December 31, 2011, there were 235,962 shares of common stock issued and 564,038 shares remained available for issuance under the ESPP.

The following table shows the assumptions used to compute stock-based compensation expense for the stock purchased under the ESPP during the year ended December 31, 2011, 2010 and 2009 using the Black-Scholes option pricing model:

Employee Stock Options	2011		2010		2009
Risk-free interest rate	0.06%-0.18	%	0.17%-0.20	%	0.21-0.43	%
Dividend yield	0.00	%	0.00	%	0.00	%
Expected life (years)	0.5		0.5		0.5
Volatility	40.01%-73.53	%	34.08%-40.82	%	35.53-74.94	%

For the years ended December 31, 2011, 2010 and 2009, the Company recorded stock-based compensation expense related to the ESPP of $320,485, $119,281 and $146,777, respectively.

Total stock-based compensation expense, related to all of Optimer’s stock options, restricted stock units, stock awards issued to employees and consultants and employee stock purchases, recognized for the years ended December 31, 2011, 2010 and 2009 was comprised as follows:

	2011		2010		2009
Research and development	$	3,176,997	$	1,596,515	$	1,162,274
Selling, general and administrative	8,407,951		4,622,332		1,645,718
Total stock-based compensation expense	$	11,584,948	$	6,218,847	$	2,807,992

Optimer Biotechnology, Inc.

Stock Options

In March 2010, OBI’s 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, directors and consultants of OBI. The options generally vest over four years and have a maximum contractual term of ten years.

During 2011 and 2010, OBI granted 2,502,000 and 2,664,000 option shares, respectively, to its employees with exercise prices of $10 New Taiwan dollars for both years. There were no options exercised or canceled during the two years.  As of December 31, 2011, no options have been exercised.

Valuations

The following table shows the assumptions used to compute stock-based compensation expense for the stock options granted by OBI using the Black-Scholes option pricing model:

	December 31,
	2011		2010
Risk-free interest rate	1.63%-1.88	%	1.25%-1.63	%
Dividend yield	0.00	%	0.00	%
Expected life of options (years)	6.08		6.08
Volatility	88.12%-90.17	%	88.10%-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 OBI’s 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 OBI’s limited history.  Due to OBI’s limited historical data, OBI used the historical volatility of OBI’s peers whose share prices are publicly available to estimate the volatility rate of OBI options.

The following table summarizes the stock-based compensation expense for OBI included in each operating expense line item in Optimer’s consolidated statements of operations:

	December 31,
	2011		2010
Research and development	$	60,463	$	43,450
General and administrative	140,963		113,387
Stock-based compensation expense	$	201,426	$	156,837

At December 31, 2011, the total unrecognized stock-based compensation expense relating to OBI’s unvested stock-based awards granted to employees, net of forfeitures, was $845,025, which OBI anticipates recognizing as a charge against income over a weighted average period of 3.4 years.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans

Employee Benefit Plans

10.  Employee Benefit Plans

Effective January 1, 2000, the Company established a 401(k) plan covering substantially all employees.  Employees may contribute up to 100% of their compensation per year (subject to a maximum limit prescribed by federal tax law).  The Company may elect to make a discretionary contribution or match a discretionary percentage of employee contributions.  As of December 31, 2011, 2010 and 2009, the Company had not elected to make any contributions to the 401(k) plan.

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Consolidated Statements of Stockholders' Equity (USD $)	Total	Common Stock	Additional paid-in capital	Accumulated other comprehensive income (loss)	Accumulated deficit	Noncontrolling Interest	Comprehensive Income (Loss)
Balance at Dec. 31, 2008	$ 34,230,503	$ 29,717	$ 167,544,806	$ 38,088	$ (133,382,108)
Balance (in shares) at Dec. 31, 2008		29,716,751
Increase (Decrease) in Stockholders' Equity
Issuance of common stock upon exercise of options	145,175	125	145,050
Issuance of common stock upon exercise of options (in shares)		125,430
Issuance of common stock during the registered direct offerings, net	32,868,967	3,252	32,865,715
Issuance of common stock during the registered direct offerings, net (in shares)		3,252,366
Issuance of common stock pursuant to employee stock purchase plan	382,291	45	382,246
Issuance of common stock pursuant to employee stock purchase plan (in shares)		44,826
Compensation expense related to grants of consultant stock options and awards	89,395		89,395
Employee stock based compensation	2,718,597		2,718,597
Sale of investment in subsidiary to non-controlling interest	4,535,011		1,369,105			3,165,906
Comprehensive income (loss):
Unrealized gain (loss) on short-term investment	13,959			13,959			13,959
Foreign currency translation adjustment	1,948			(13,984)		15,932	1,948
Net income (loss)	(42,234,239)				(42,092,557)	(141,682)	(42,234,239)
Comprehensive income (loss)	(42,218,332)					(125,750)	(42,218,332)
Balance at Dec. 31, 2009	32,751,607	33,139	205,114,914	38,063	(175,474,665)	3,040,156
Balance (in shares) at Dec. 31, 2009		33,139,373
Increase (Decrease) in Stockholders' Equity
Issuance of common stock upon exercise of options	1,172,102	552	1,171,550
Issuance of common stock upon exercise of options (in shares)		552,253
Issuance of common stock during the public offerings, net	51,208,725	4,888	51,203,837
Issuance of common stock during the public offerings, net (in shares)		4,887,500
Issuance of common stock pursuant to employee stock purchase plan	422,530	49	422,481
Issuance of common stock pursuant to employee stock purchase plan (in shares)		49,077
Issuance of common stock for consulting services and other	3,377,917	586	3,377,331
Issuance of common stock for consulting services and other (in shares)		585,762
Compensation expense related to grants of consultant stock options and awards	2,122,049	65	2,121,984
Compensation expense related to grants of consultant stock options and awards (in shares)		65,000
Employee stock based compensation	4,253,635		4,253,635
Comprehensive income (loss):
Unrealized gain (loss) on short-term investment	(3,020)			(3,020)			(3,020)
Foreign currency translation adjustment	419,516			263,807		155,709	419,516
Net income (loss)	(48,538,903)				(47,339,742)	(1,199,161)	(48,538,903)
Comprehensive income (loss)	(48,122,407)					(1,043,452)	(48,122,407)
Balance at Dec. 31, 2010	47,186,158	39,279	267,665,732	298,850	(222,814,407)	1,996,704
Balance (in shares) at Dec. 31, 2010	39,278,965	39,278,965
Increase (Decrease) in Stockholders' Equity
Issuance of common stock upon exercise of options	1,859,085	347	1,858,738
Issuance of common stock upon exercise of options (in shares)		347,803
Issuance of common stock during the public offerings, net	73,157,957	6,900	73,151,057
Issuance of common stock during the public offerings, net (in shares)		6,900,000
Issuance of common stock pursuant to employee stock purchase plan	640,222	72	640,150
Issuance of common stock pursuant to employee stock purchase plan (in shares)		71,650
Issuance of common stock upon exercise of warrants	999,999	92	999,907
Issuance of common stock upon exercise of warrants (in shares)		91,533
Issuance of common stock for consulting services and other	3,285,274		2,793,513			491,761
Employee stock based compensation	11,786,374		11,786,374
Sale of investment in subsidiary to non-controlling interest	6,194,192					6,194,192
Comprehensive income (loss):
Unrealized gain (loss) on short-term investment	119,789			119,789			119,789
Foreign currency translation adjustment	(594,553)			(465,364)		(129,189)	(594,553)
Net income (loss)	5,929,528				7,821,624	(1,892,096)	5,929,528
Comprehensive income (loss)	5,454,764					(2,021,285)	5,454,764
Balance at Dec. 31, 2011	$ 150,564,025	$ 46,690	$ 358,895,471	$ (46,725)	$ (214,992,783)	$ 6,661,372
Balance (in shares) at Dec. 31, 2011	46,689,951	46,689,951

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Property and Equipment

12 Months Ended

Dec. 31, 2011

Property and Equipment

Property and Equipment

4.           Property and Equipment

Property and equipment is stated at cost and consists of the following:

	December 31,
	2011			2010
Equipment	$	3,098,431		$	2,294,784
Furniture and fixtures	226,362			211,295
Leasehold improvements	1,282,138			1,288,714
Computer equipment and software	1,579,514			495,971
	6,186,445			4,290,764
Less accumulated depreciation and amortization	(3,595,730		)	(3,593,081		)
Total property and equipment, net	$	2,590,715		$	697,683

Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which typically is five years.  Leasehold improvements and assets acquired under capital leases are amortized over their estimated useful life or the related lease term, whichever is shorter.

The recorded depreciation expense of $525,008, $306,718, and $216,783 in the years ended December 31, 2011, 2010 and 2009, respectively.