10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2013

or

oTRANSITION 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.)

101 Hudson Street, Suite 3501
Jersey City, NJ 07302
(Address of principal executive offices, including zip code)

(201) 333-8819
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes x  No o

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

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

Large Accelerated Filer x	Accelerated Filer o
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 number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of August 6, 2013 was 48,899,717 shares.

OPTIMER PHARMACEUTICALS, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2013

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - June 30, 2013 and December 31, 2012	3
Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2013 and 2012	4
Consolidated Statements of Comprehensive Loss - Three Months and Six Months Ended June 30, 2013 and 2012	5
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures about Market Risk	32
Item 4. Controls and Procedures	33
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	34
Item 6. Exhibits	56
SIGNATURES	57

2

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

Optimer Pharmaceuticals, Inc.

Consolidated Balance Sheets

	June 30,			December 31,
	2013			2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	72,844,663		$	119,444,586
Short-term investments	4,664,478			4,556,329
Trade accounts receivable, net	7,684,902			7,119,089
Accounts receivable, other	906,652			2,391,071
Inventory, net	26,916,501			15,061,771
Prepaid expenses and other current assets	1,939,938			3,442,717
Total current assets	114,957,134			152,015,563
Property, equipment and other, net	4,334,860			4,338,720
Long-term investments	—			820,000
Deferred tax assets, non-current	890,843			890,843
Other assets	1,063,629			1,362,196
Total assets	$	121,246,466		$	159,427,322
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,726,849		$	7,166,127
Accrued expenses	27,246,589			19,165,362
Deferred revenue	120,818			456,250
Total current liabilities	30,094,256			26,787,739
Deferred rent	1,185,837			938,520
Income taxes payable, non-current	890,843			890,843
Commitments and contingencies	—			—
Stockholders’ equity:
Preferred stock, par value $0.001, 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	—			—
Common stock, $0.001 par value, 150,000,000 shares authorized; 48,867,868 shares and 47,791,531 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	48,868			47,792
Additional paid-in capital	398,809,632			382,277,671
Accumulated other comprehensive income	398,479			464,170
Accumulated deficit	(310,181,449		)	(251,979,413		)
Total stockholders’ equity	89,075,530			130,810,220
Total liabilities and stockholders’ equity	$	121,246,466		$	159,427,322

See accompanying notes.

3

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Revenues:
Product sales, net	$	18,967,103		$	15,232,087		$	35,780,639		$	29,612,628
Contract revenue	1,101,987			34,525,485			3,723,945			34,525,485
Other	—			—			—			2,106
Total revenues	20,069,090			49,757,572			39,504,584			64,140,219
Cost and expenses:
Cost of product sales	1,798,096			1,483,792			3,432,550			2,700,316
Cost of contract revenue	180,199			2,529,721			1,836,245			3,597,457
Research and development	10,939,649			11,557,217			20,825,834			22,625,184
Selling, general and administrative	30,520,599			28,856,929			64,520,332			54,379,211
Co-promotion expenses with Cubist	3,750,000			5,001,583			7,500,000			15,083,166
Total operating expenses	47,188,543			49,429,242			98,114,961			98,385,334
Income (loss) from operations	(27,119,453		)	328,330			(58,610,377		)	(34,245,115		)
Gain on de-consolidation of OBI	—			—			—			23,782,229
Equity in net loss of OBI	—			(668,852		)	—			(1,154,821		)
Interest income and other, net	249,116			44,318			408,341			120,705
Consolidated net loss	$	(26,870,337	)	$	(296,204	)	$	(58,202,036	)	$	(11,497,002	)
Net loss attributable to non-controlling interest	—			—			—			280,344
Net loss attributable to Optimer Pharmaceuticals, Inc.	$	(26,870,337	)	$	(296,204	)	$	(58,202,036	)	$	(11,216,658	)
Net loss per share - basic and diluted	$	(0.55	)	$	(0.01	)	$	(1.20	)	$	(0.24	)
Weighted average number of shares used to compute net loss per share - basic and diluted	48,726,107			47,234,371			48,307,482			46,978,497

See accompanying notes.

4

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Loss

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Consolidated net loss	$	(26,870,337	)	$	(296,204	)	$	(58,202,036	)	$	(11,497,002	)
Other comprehensive income (loss):
Change in foreign currency translation adjustment	(100,038		)	(124,531		)	(181,132		)	(103,823		)
Unrealized gains on securities:
Holding gains during period	87,175			243,110			115,441			1,235,796
Total other comprehensive income (loss)	(12,863		)	118,579			(65,691		)	1,131,973
Total comprehensive loss	$	(26,883,200	)	$	(177,625	)	$	(58,267,727	)	$	(10,365,029	)

See accompanying notes.

5

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
	June 30,
	2013			2012
Operating activities:
Net loss	$	(58,202,036	)	$	(11,497,002	)
Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities:
Depreciation and amortization	516,437			390,874
Stock-based compensation	7,118,650			7,058,709
Issuance of common stock for consulting services and other	28,829			1,923,763
Deferred rent	247,587			26,733
Gain on de-consolidation of OBI	—			(23,782,229		)
Equity in net loss of OBI	—			1,154,821
Gain on disposal of assets	(22,316		)	—
Gain on redemption of auction rate security	(180,000		)	—
Tax provision	(62,819		)	—
Changes in operating assets and liabilities:
Trade accounts receivable, net	(565,813		)	1,251,213
Accounts receivable, other	1,484,419			48,889,506
Inventory	(11,854,730		)	(4,014,732		)
Prepaid expenses and other current assets	1,502,779			(1,131,761		)
Other assets	298,567			(88,424		)
Accounts payable and accrued expenses	3,641,949			8,336,602
Deferred revenues	(335,432		)	245,319
Net cash provided (used) by operating activities	(56,383,929		)	28,763,392
Investing activities:
Sales or maturities of short-term investments	70,111			38,744,220
Proceeds received on redemption of auction rate security	1,000,000			—
Purchases of property and equipment	(605,166		)	(1,721,109		)
Proceeds from sale or refund on fixed assets	114,905			—
Reduction of cash due to de-consolidation of OBI	—			(4,010,680		)
Purchase of OBI common stock	—			(468,748		)
Proceeds from sale of OBI common stock	—			2,027,109
Net cash provided by investing activities	579,850			34,570,792
Financing activities:
Proceeds from sale of common stock	9,385,558			4,255,338
Net cash provided by financing activities	9,385,558			4,255,338
Effect of exchange rate changes on cash and cash equivalents	(181,402		)	326,273
Net increase (decrease) in cash and cash equivalents	(46,599,923		)	67,915,795
Cash and cash equivalents at beginning of period	119,444,586			31,787,512
Cash and cash equivalents at end of period	$	72,844,663		$	99,703,307

See accompanying notes.

6

Optimer Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(unaudited)

1.Interim Financial Information

Organization and Business Activities

Optimer Pharmaceuticals, Inc. (“Optimer” or the “Company”) is a global biopharmaceutical company focused on commercializing innovative hospital specialty products. The Company currently markets one product in the United States and Canada, DIFICID® (fidaxomicin) tablets.  DIFICID is a macrolide antibacterial drug that is approved in the United States for the treatment of Clostridium difficile-associated diarrhea (“CDAD”) in adults.  CDAD is the most common symptom of Clostridium difficile infection (“CDI”). DIFICID is approved in Canada for the treatment of CDI and is commercialized by Optimer.  Fidaxomicin also is approved in Europe for the treatment of CDI, where it is marketed by a licensee as DIFICLIR™, and in Australia, where it is marketed by a licensee as DIFICID.  Optimer is pursuing commercialization in other territories through collaboration partners and is moving forward with lifecycle management initiatives for fidaxomicin.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the three months and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the Securities and Exchange Commission (“SEC”) on March 18, 2013.

The Company has sustained recurring losses and negative cash flows from operations.  The Company’s current cash, cash equivalents and short-term investment balance of $77.5 million, and negative cash flows for the six months ended June 30, 2013 of $46.6 million, indicate substantial risk to continue as a going concern over a reasonable period of time.

On July 30, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Cubist Pharmaceuticals, Inc. (“Cubist”), a Delaware corporation, and PDRS Corporation, a Delaware corporation and a wholly owned subsidiary of Cubist (“Merger Sub”).  The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company.  As a result, the Company will become a wholly owned subsidiary of Cubist (the “Merger”). Consummation of the Merger is subject to certain conditions, as further described in Note 9.

2.     Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include all the accounts of the Company and its wholly 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 maturities of less than 90 days, at the date of purchase, are considered to be cash equivalents.  All of the Company’s investments at June 30, 2013 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 in other comprehensive income within stockholders’ equity in the consolidated balance sheets.  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.  At June 30, 2013, cash, cash equivalents and short-term investments totaled $77.5 million.

7

Accounts Receivable

Trade accounts receivable are recorded net of reserves for estimated prompt-payment discounts, service fee arrangements 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 the Company’s consolidated balance sheets. The allowance for prompt-payment discounts and service fees was $1.7 million and $1.9 million at June 30, 2013 and December 31, 2012, respectively.

Inventory

Inventory is stated at the lower of cost or market.  Cost is determined using the first-in, first-out (“FIFO”) method. The Company reserves for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales. Net inventory consisted of the following, as of the dates indicated:

	June 30,		December 31,
	2013		2012
Raw materials	$	22,466,041	$	9,072,123
Work in process	—		3,552,169
Finished goods	4,450,460		2,923,541
	$	26,916,501	$	15,547,833
Reserves	—		(486,062		)
	$	26,916,501	15,061,771

Foreign Currency Translation

The functional currency for the Company’s Canadian subsidiary 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 period. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income within stockholders’ equity in the consolidated balance sheets. Foreign currency transaction gains and losses are reported net in the consolidated statements of operations.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, 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.

Net Product Sales

DIFICID is available in the United States and Canada through three major wholesalers - AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Corporation - and through regional wholesalers and specialty pharmacies that provide DIFICID to purchasing customers, such as hospitals, retail pharmacies, long-term care facilities and other purchasing outlets that may dispense DIFICID. The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, title has passed to the customer, the price is fixed or 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, specialty pharmacies and certain direct purchasers.

The Company’s net product sales represent total gross product sales in the United States and Canada less allowances for customer credits, including estimated rebates, chargebacks, discounts and returns. These allowances are established by management as its best estimate, based on available information, and are adjusted to reflect known changes in the factors that impact such allowances. Allowances for rebates, chargebacks, 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 product sales.

Product Sales Allowances.  The Company establishes reserves for prompt-payment discounts, fee-for-service arrangements, government and commercial rebates, product returns and other applicable allowances, such as the Company’s hospital discount.

8

Allowances relate to prompt-payment discounts and fee-for-service arrangement with the Company’s contracted wholesalers and direct purchase discounts, and are recorded at the time of sale, resulting in a reduction in product sales.  Accruals related to government and commercial rebates, product returns and other applicable allowances are recognized at the time of sale, resulting in a reduction in product sales and an increase in accrued expenses.

Prompt-payment Discounts.   The Company offers a prompt-payment discount to its customers.  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.

Government and Commercial Rebates and Chargebacks.   The Company estimates commercial rebates as well as government-mandated rebates and discounts relating to federal and state programs such as Medicaid, the Veterans’ Administration, or VA, and Department of Defense programs, the Medicare Part D Coverage Discount Program and certain other qualifying federal and state government programs.  The Company estimates the amount of these rebates and chargebacks based on historical trends for DIFICID.  These allowances are adjusted periodically based on actual experience.

Medicaid rebate reserves relate to the Company’s estimated obligations to states under statutory “best price” obligations which also may 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 generally will 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 distributors.  A 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 and chargeback 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 generally will 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 generally will be paid, on average, in 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 in the United States is to accept returns of DIFICID for six months prior to, and twelve months after, the product expiration date.  The Company’s policy in Canada is to accept returns of DIFICID for three months prior to, and twelve months after, the product expiration date.  The Company 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 it 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 sales.  The Company estimates product returns based upon the sales pattern of DIFICID, management’s experience with similar products, historical trends in the pharmaceutical industry and trends for similar products sold by others.

During the six months ended June 30, 2013 and 2012, the provisions for product sales allowances reduced gross product sales as follows:

	Six Months Ended June 30,
	2013			2012
Total gross product sales	$	46,856,205		$	34,885,303
Returns reserve and allowances	(699,688		)	(990,095		)
Government and commercial rebates and chargebacks	(6,770,511		)	(1,467,126		)
Prompt-pay discounts and fees	(3,605,367		)	(2,815,454		)
Product sales allowance	$	(11,075,566	)	$	(5,272,675	)
Total product sales, net	$	35,780,639		$	29,612,628
Total product sales allowances as a percent of gross product sales	23.6		%	15.1		%

9

An analysis of the amount of, and change in, product sales reserves for the six months ended June 30, 2013 is as follows:

	Six Months Ended June 30, 2013
	Returns Reserve and Allowances			Government and Commercial Rebates and Chargebacks			Prompt-pay Discounts and Fees			Total
Balance at January 1, 2013	$	1,475,124		$	1,642,849		$	1,888,523		$	5,006,496
Provisions related to sales	699,688			6,770,511			3,605,367			11,075,566
Returns and payments	(1,054,351		)	(5,666,719		)	(3,771,065		)	(10,492,135		)
Balance at June 30, 2013	$	1,120,461		$	2,746,641		$	1,722,825		$	5,589,927

During the three months ended June 30, 2013, six launch batches of DIFICID had reached expiration and the Company experienced product returns.  A financial reserve for such returns was appropriately established at the time of sale, and the return amounts are within the scope of the Company’s expectations.

Contract Revenue

Under certain of the Company’s licensing and collaboration agreements, it is entitled to receive payments upon the achievement of contingent milestone events. In order to determine the revenue recognition for contingent milestone-based payments, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards, or FASB, guidance on the milestone method of revenue recognition at the inception of a collaboration agreement.

Accounting Standard Codification (ASC) Topic 605-28, Revenue Recognition — Milestone Method (ASC 605-28), established the milestone method as an acceptable method of revenue recognition for certain contingent, event-based payments under research and development arrangements.  Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved.  A milestone is an event: (i) that can be achieved based in whole or in part on either 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 (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; the price is fixed or determinable; and collectability is reasonably assured.

Revenues recognized for royalty payments are recognized as earned in accordance with the terms of various research and collaboration agreements. The Company also derives contract revenue from supplying raw material, bulk tablets or finished product to its collaboration partners under the supply agreements.

For collaboration agreements with multiple deliverables, the Company recognizes collaboration revenues and expenses by analyzing each element of the agreement to determine if it is to be accounted for as a separate element or single unit of accounting. If an element is to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue is to be recognized. If an element is not to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue is to be recognized.

Cash received in advance of services being performed is recorded as deferred revenue and recognized as revenue as services are performed over the applicable term of the agreement.  In connection with certain research collaboration agreements, revenues are recognized from non-refundable, up-front fees that 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.

10

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

Research and Development

The Company expenses costs related to research and development as incurred. The Company’s research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by 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. Patent application and administrative costs are recorded as general and administration expenses.

When non-refundable 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.

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date.  The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.  A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.  The Company reviews the need for a valuation allowance each interim period to reflect uncertainties about whether it will be able to utilize deferred tax assets before they expire.  The valuation allowance analysis is based on estimates of taxable income for the jurisdictions in which it operates and the periods over which its deferred tax assets may be realized.  Changes in the Company’s valuation allowance could result in material increases or decreases in our income tax expense in the period such changes occur, which could have a material impact on its operating results.

Net Income (Loss) per Share Attributable to Common Stockholders

Basic net income (loss) per share, attributable to common stockholders, is calculated by dividing net income (loss), attributable to common stockholders, by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per share, attributable to common stockholders, is computed by dividing 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.

Reclassification

The Company has reclassified certain prior period amounts to conform to the current period presentation.  Specifically, it has adjusted amounts to reclassify cost of contracts from cost of product sales in the three months and six months ended June 30, 2012.  This reclassification has no impact on the net loss from operations or stockholders’ equity as previously reported.

As per the requirement of the Accounting Standards Update 2013-02, the Company has determined that there is no significant reclassification out of accumulated other comprehensive income to net income during the three months and six months ended June 30, 2013.

Segment Reporting

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

11

3.Fair Value of Financial Instruments

The following table summarizes the Company’s financial assets measured at fair value at June 30, 2013:

	Quoted Prices in Active Markets(Level 1)		Other Observable Inputs(Level 2)		Unobservable Inputs(Level 3)		Total
Cash equivalents	$	68,918,465	$	—	$	—	$	68,918,465
Marketable security	—		3,680,670		—		3,680,670
Investment in Cempra	983,808		—		—		983,808
	$	69,902,273	$	3,680,670	$	—	$	73,582,943

Level 1:  Quoted prices in active markets for identical assets and liabilities

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

Level 3:  Unobservable inputs

Marketable 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 vendors’ pricing processes are deemed to be observable. At June 30, 2013, the Company’s marketable security consisted solely of a government agency security.  The fair value of government agency security generally is determined using standard observable inputs, including reported trades, quoted market prices and broker/dealer quotes.  This security is in Level 2.

Investment in Cempra.  Equity securities that have readily determinable fair values, not classified as trading securities or as held-to-maturity securities, are classified as available-for-sale securities.  Any unrealized gains and losses are reported in other comprehensive income (loss) until realized.  In February 2012, Cempra became a publicly-traded company and, as such, the Company assigned a value to the shares it received in March 2006 (see Note 7) and recorded the entire amount as an unrealized gain.  The Company considers the equity it owns in Cempra as available-for-sale. The fair value of the Company’s investment in Cempra is based on the quoted market price on the reporting date.  Cempra’s stock is publicly traded and is in Level 1.

Auction Rate Preferred Security (“ARPS”).  In April 2013, the Company redeemed the ARPS for $1 million and recognized a gain of $180,000 in the second quarter of 2013.

4.Investment Securities

The following is a summary of the Company’s consolidated investment securities, all of which are classified as available-for-sale. Determination of estimated fair value is based upon quoted market prices, pricing vendors or quotes from brokers/dealers as of the dates presented.

	June 30, 2013
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency security	$	3,680,085	$	585	$	—	$	3,680,670
Investment in Cempra	—		983,808		—		983,808
	$	3,680,085	$	984,393	$	—	$	4,664,478

	December 31, 2012
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency security	$	3,750,198	$	1,997	$	—	$	3,752,195
Investment in Cempra	—		804,134		—		804,134
	$	3,750,198	$	806,131	$	—	4,556,329

The government agency security did not have an unrealized loss position at June 30, 2013.

12

In February 2012, Cempra completed its initial public offering and the Company determined that its equity in Cempra had readily determinable value and recorded the fair value in the Company’s books. Prior to February 2012, the Company assigned no value to its equity in Cempra.

The amortized cost and estimated fair value of securities available-for-sale at June 30, 2013 are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	3,680,085	$	3,680,670

The weighted-average maturity of the Company’s short-term investments at June 30, 2013 and December 31, 2012 was approximately three months and nine months, respectively.

5.Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Numerator:
Net loss - basic and diluted	$	(26,870,337	)	$	(296,204	)	$	(58,202,036	)	$	(11,216,658	)
Denominator:
Weighted average number of shares of common stock outstanding - basic and diluted	48,726,107			47,234,371			48,307,482			46,978,497
Net loss per share - basic and diluted	$	(0.55	)	$	(0.01	)	$	(1.20	)	$	(0.24	)

Potentially dilutive shares of common stock, totaling 3.2 million and 4.8 million, for the three months ended June 30, 2013 and 2012, respectively, were not included in the diluted net income per share calculations because they would have been anti-dilutive.

Potentially dilutive shares of common stock, totaling 4.7 million and 5.0 million, for the six months ended June 30, 2013 and 2012, respectively, were not included in the diluted net income per share calculations because they would have been anti-dilutive.

6.Stock-based Compensation

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”) which became effective upon the closing of the Company’s initial public offering.  The 2006 Plan was succeeded by the 2012 Equity Plan (“2012 Plan”) which became effective upon approval by the Company’s stockholders on May 9, 2012. After May 9, 2012, no additional stock awards will be awarded under the 2006 Plan.  However, all outstanding stock awards granted under the 2006 Plan remain subject to the terms of the 2006 Plan.

The 2012 Plan is a continuation of the 2006 Plan.  Upon its adoption, the maximum number of shares of the Company’s common stock issuable under the 2012 Plan was 11,289,455, which consisted of: (a) 3,400,000 new shares; and (b) the number of unallocated shares remaining available for grant of new awards under the 2006 Plan as of May 9, 2012, which include shares subject to outstanding stock awards granted under the 2006 Plan that: (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or repurchased at the original issuance price; or (iii) are re-acquired or withheld (or not issued) to satisfy a tax withholding obligation in connection with an award other than a stock option or stock appreciation right.

Options granted under the 1998 Plan, the 2006 Plan and the 2012 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.

13

Restricted Stock Units

Additionally, the Company grants restricted stock units (“RSUs”) to its board members, executives and other employees. RSUs are valued based on the fair market value of the Company’s stock on the date of grant.

Performance-based Stock Options and Performance-based Restricted Stock Units

In February 2013, the Compensation Committee granted to certain executives performance-based RSUs covering up to an aggregate of 170,000 shares of common stock, which will vest over time beginning on the date the Company determines that a specified product revenue goal has been achieved.

In May 2013, the Compensation Committee granted to a certain executive performance-based stock options of 10,000 shares of common stock, which will vest over time beginning on the date the Company determines that a specified service performance goal has been achieved.

In 2010, Dr. Michael Chang resigned as the Company’s President and CEO.  The Company entered into a consulting agreement with Dr. Michael Chang to provide general consulting services. Pursuant to his consulting agreement and as part of his compensation, Dr. Michael Chang received performance-based stock options to purchase up to an aggregate of 400,000 shares of common stock which were to vest over time beginning on the dates certain regulatory filings were accepted and approved. Dr. Michael Chang’s consulting agreement was terminated in April 2012 and, as a result, the unvested portion of the performance-based options was cancelled.  Prior to the termination of his consulting agreement, 248,437 options had vested.  However, due to Dr. Michael Chang’s continuing role as a director, his other equity awards remain outstanding and continue to vest as per the vesting term of the awards.

Employee Stock Purchase Plan

Optimer issues stock under its employee stock purchase plan (“ESPP”). Under the terms of the ESPP, eligible employees may purchase shares of Optimer’s common stock at the lesser of 85% of the fair market value of Optimer’s common stock on the offering date or the purchase date.

Stock-based Compensation

Stock options are valued using the Black-Scholes option pricing model on the date of grant. This option pricing model involves a number of estimates, including the expected lives of stock options, the Company’s anticipated stock volatility and applicable interest rates.  The Company recognizes compensation expense for performance-based stock awards granted to employees under the accelerated attribution method.  The following tables show the assumptions used to compute stock-based compensation expense for the stock options and ESPP during the three months and six months ended June 30, 2013 and 2012, using the Black-Scholes option pricing model:

	Three Months ended June 30,			Six Months ended June 30,
Stock Options Including Performance-based Stock Options	2013	2012		2013		2012
Risk-free interest rate	0.75-0.98%	1.22	%	0.75-0.98	%	1.22-2.17	%
Dividend yield	0.00%	0.00	%	0.00	%	0.00	%
Expected life of options (years)	5.25-5.75	6.08-8.08		5.25-6.08		6.08-8.33
Volatility	62.08-64.74%	70.72-72.54	%	61.27-64.74	%	69.71-72.54	%

	Three Months ended June 30,				Six Months ended June 30,
ESPP	2013		2012		2013		2012
Risk-free interest rate	0.10-0.11	%	0.10-0.13	%	0.10-0.13	%	0.09-0.13	%
Dividend yield	0.00	%	0.00	%	0.00	%	0.00	%
Expected life of options (years)	0.5		0.5		0.5		0.5
Volatility	59.06-60.24	%	37.16-42.75	%	47.24-60.24	%	37.16-42.75	%

The risk-free interest rate assumption was based on the 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 Company’s expectation of not paying dividends for the foreseeable future.  The weighted-average expected life of options was calculated using the simplified method.  The Company used its historical volatility.

14

Total stock-based compensation expense related to all of the Company’s stock options, RSUs, other stock awards issued to employees and consultants and the ESPP, recognized for the three months and six months ended June 30, 2013 and 2012 was as follows:

	Three Months ended June 30,				Six Months ended June 30,
	2013		2012		2013		2012
Research and development	$	723,352	$	1,249,360	$	1,341,495	$	2,214,142
Selling, general and administrative	2,093,673		2,704,006		5,805,984		4,826,921
Stock-based compensation expense	$	2,817,025	$	3,953,366	$	7,147,479	$	7,041,063

At June 30, 2013, the total unrecognized compensation expense related to unvested stock options and unvested restricted stock units issued to employees was approximately $20.9 million and the related weighted-average period over which such expense is expected to be recognized is approximately 2.6 years.

The effect of the Company’s merger with Cubist on stock-based compensation is described in Note 9.

7.Third-party Agreements

AstraZeneca UK Limited (“AstraZeneca”)

In November 2012, the Company entered an exclusive distribution and license agreement with AstraZeneca to commercialize fidaxomicin tablets for the treatment of Clostridium difficile infection in Latin America, including Brazil, Central America, Mexico and the Caribbean.  Under the terms of the license agreement, the Company will provide to AstraZeneca the completed preclinical and clinical data, regulatory information and documents, testing information, protocols and any know-how relating to fidaxomicin.  In addition to the transfer of know-how, the Company will provide drug product for purposes of conducting validation testing in connection with seeking regulatory approval in the covered territories for commercial use of the product.  AstraZeneca will be performing, at its own expense, the work required to obtain regulatory approval and commercialization in the covered territories. Under the terms of the agreement, the Company received a $1.0 million up-front payment.

The Company is eligible to receive up to $3.0 million in aggregate contingent payments on the first commercial sale in certain countries, and up to $19.0 million on the achievement of sales-related targets for fidaxomicin in the specified regions.  In addition, under the terms of a supply agreement entered into between the Company and AstraZeneca on the same date, the Company also is entitled to receive payments that provide a return resulting in a double-digit percent of net sales in the territory.

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 determined the appropriate method of revenue recognition for each element.  The Company identified the two units of accounting as the license and the related know-how and the supply of drug product for validation testing.  As of December 31, 2012, the Company recognized $0.7 million of the $1.0 million up-front payment, as the Company determined that revenue was earned upon the delivery of license rights and related know-how.  The remaining $0.3 million was recognized during the three months ended March 31, 2013, upon delivery of the batches manufactured for validation testing. The Company has determined that the achievement of the performance conditions associated with the contingent payments is based solely on the performance of AstraZeneca and that the payments do not meet the criteria for a milestone under the revised authoritative guidance for contingent milestones. The Company will recognize the revenue for the contingent payments when the performance condition is achieved.

Specialised Therapeutics Australia Pty. Ltd. (“STA”)

In June 2012, the Company entered into a distribution and license agreement with STA to register and commercialize fidaxomicin in Australia and New Zealand for the treatment of CDI.  Under the distribution and license agreement, STA is responsible for all costs associated with the registration and commercialization of fidaxomicin in Australia and New Zealand.  In addition, the Company entered a supply agreement with STA to supply product for the registration and commercial activities of STA and its sublicensees.  Upon signing the distribution and license agreement, STA made a payment of $0.5 million related to expenses incurred by the Company in connection with pre-approved activities in Australia which was recognized as contract revenue in 2012.

The Company is entitled to receive contingent payments, which may exceed $1.5 million, upon the achievement of cumulative net sales targets and also will receive payments for the supply of fidaxomicin to STA. The Company has determined that the achievement of the performance conditions associated with the contingent payments is solely based on the performance of STA and that the payments do not meet the criteria for a milestone under the revised authoritative guidance for contingent milestones. The Company will recognize the revenue for the contingent payments when the performance condition is achieved.

15

In April 2013, STA received from the Therapeutic Goods Administration, the Australian regulatory body for therapeutic goods such as medicine, marketing approval of DIFICID tablets for the treatment of confirmed Clostridium difficile infection (CDI) in adults.  DIFICID became commercially available in Australia in May 2013.

Astellas Pharma Inc. (“Astellas Japan”)

In March 2012, the Company entered into a collaboration and license agreement with Astellas Japan pursuant to which the Company granted to Astellas Japan an exclusive, royalty-bearing license under certain of its know-how and intellectual property to develop and commercialize fidaxomicin in Japan.  Under the terms of the collaboration and license agreement, and at its expense, Astellas Japan agreed to use commercially reasonable efforts to develop and commercialize fidaxomicin in Japan and achieve certain additional regulatory and commercial diligence milestones with respect to fidaxomicin in Japan.  In addition, under the terms of the collaboration and license agreement, Astellas Japan granted to the Company an exclusive, royalty-free license under know-how and intellectual property generated by Astellas Japan and its sublicensees in the course of developing fidaxomicin and controlled by Astellas Japan or its affiliates for use by the Company and any of its sublicensees in the development and commercialization of fidaxomicin outside Japan and, following termination of the collaboration and license agreement and subject to payment by the Company of a single-digit royalties, in Japan.  In addition, under the terms of a supply agreement entered into by Astellas Japan and Optimer Europe, on the same date as the collaboration and license agreement, Optimer Europe will be the exclusive supplier of fidaxomicin to Astellas Japan for Astellas Japan’s development and commercialization activities in Japan during the term of the supply agreement.

Under the terms of the collaboration and license agreement, Astellas Japan paid the Company an up-front fee of $20.0 million in April 2012. The Company also is eligible to receive additional contingent cash payments totaling up to $70.0 million upon the achievement by Astellas Japan of specified regulatory and commercial milestones.  In addition, the Company will be entitled to receive high-single-digit royalties on net sales of fidaxomicin in Japan above an agreed threshold, which royalties are subject to reduction in certain limited circumstances.  Such royalties will be payable by Astellas Japan on a product-by-product basis until a generic product accounts for a specified market share of the applicable fidaxomicin product in Japan.  Under the supply agreement, in exchange for commercial supply of fidaxomicin, Astellas Japan is obligated to pay Optimer Europe a price equal to net sales of fidaxomicin in Japan minus a discount that is based on a high-double-digit percentage of such net sales and a mark-up to cost of goods.  This price will be payable by Astellas Japan on a product-by-product basis for commercial supply until a generic product accounts for a specified market share of the applicable fidaxomicin product in Japan.

The collaboration and license agreement will continue in effect on a product-by-product basis until expiration of Astellas Japan’s obligation to pay royalties with respect to each fidaxomicin product in Japan, unless terminated early by either party.  Following expiration of the collaboration and license agreement, Astellas Japan’s license to develop and commercialize the applicable fidaxomicin product will become non-exclusive.  Each of the Company and Astellas Japan may terminate the collaboration and license agreement prior to expiration upon the material breach of such agreement by the other party or upon the bankruptcy or insolvency of the other party.  In addition, the Company may terminate the collaboration and license agreement prior to expiration in the event Astellas Japan 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 under the collaboration and license agreement.  Astellas Japan may terminate the collaboration and license agreement prior to expiration for any reason upon 180 days’ prior written notice to the Company.  Upon any such termination, the license granted to Astellas Japan (in total or with respect to the terminated product, as applicable) will terminate and revert to the Company.  The supply agreement will continue in effect until terminated by either party.  Each of Optimer Europe and Astellas Japan may terminate the supply agreement: (i) upon the material breach of such agreement by the other party; (ii) upon the bankruptcy or insolvency of the other party; or (iii) on a product-by-product basis following expiration of Astellas Japan’s obligation to pay the price described above with respect to the applicable fidaxomicin product, or in its entirety following expiration of Astellas Japan’s obligation to pay the price described above with respect to all fidaxomicin products.

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. During the three months ended June 30, 2012, the Company recognized $19.9 million of the $20.0 million up-front payment, as the Company determined that revenue was earned upon the delivery of license rights and related know-how.  The remaining $0.1 million is being amortized over the term of the agreement and relates to the Company’s obligation to Astellas Japan to provide support in regulatory inquires and additional data as they are generated through the Company’s U.S. operations.

16

Cubist

In April 2011, the Company entered into a co-promotion agreement with 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 agreed to co-promote DIFICID to physicians, hospitals, long-term care facilities and other healthcare institutions as well as jointly to provide medical affairs support for DIFICID. In conducting their respective co-promotion activities, each party was obligated under the agreement to commit minimum levels of personnel, and Cubist was 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 was 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 term of the agreement was 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, the Company was obligated to pay a quarterly fee of approximately $3.8 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 payments are paid in arrears. Cubist also was 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 were achieved, as well as a portion of the Company’s gross profits derived from net sales above the specified annual targets, if any. During 2012, the Company achieved the first year sales target and expensed $23.2 million, which consisted of $14.7 million in quarterly co-promotion fees, $5.0 million for the year-one sales target bonus and $3.5 million for Cubist’s portion of the gross profit on net sales above the year-one target.

On July 30, 2013, the Company entered into an amendment to its co-promotion agreement with Cubist, pursuant to which the parties agreed to extend the term of the co-promotion agreement in substantially its current form until July 31, 2014, subject to early termination by either party upon termination of the Merger Agreement. Under the amendment, the Company will continue to pay a quarterly fee of $3.8 million to Cubist ($15.0 million per year) during the extension year and also will pay Cubist $3.1 million per quarter (up to $12.5 million in total) during the extension year if mutually agreed upon quarterly sales targets are achieved, as well as a portion of the Company’s gross profit derived from net sales above the specified annual target, if any.

On July 30, 2013, the Company announced that it had signed the Merger Agreement with Cubist, under which Cubist will acquire all of the outstanding shares of the Company’s common stock upon consummation of the Merger.

Astellas Pharma Europe Ltd. (“APEL”)

In February 2011, the Company entered into a collaboration and license agreement with APEL pursuant to which the Company granted to APEL an exclusive, royalty-bearing license under certain of the Company’s know-how and intellectual property to develop and commercialize fidaxomicin in Europe and certain other countries in the Middle East, Africa and the Commonwealth of Independent States, or CIS.  In March 2011, the parties amended the collaboration and license agreement and the supply agreement (described below) to include certain additional countries in the CIS and all additional territories in Africa (all such countries and territories are referred to as the APEL territories).  Under the terms of the collaboration and license agreement, APEL has agreed to use commercially reasonable efforts to develop and commercialize fidaxomicin in the APEL territories at its expense, and to achieve certain additional regulatory and commercial diligence milestones with respect to fidaxomicin in the APEL territories.  The Company and APEL also may agree to collaborate in, and share data resulting from, global development activities with respect to fidaxomicin, in which case the Company and APEL will be obligated to co-fund such activities.  In addition, under the terms of the collaboration and license agreement, APEL granted the Company an exclusive, royalty-free license under know-how and intellectual property generated by APEL and its sublicensees in the course of developing fidaxomicin and controlled by APEL or its affiliates for use by the Company and any of its sublicensees in the development and commercialization of fidaxomicin outside the APEL territories and, following termination of the agreement and subject to payment by the Company of single-digit royalties, in the APEL territories.  In addition, under the terms of a supply agreement entered into between the Company and APEL on the same date, the Company is the exclusive supplier of fidaxomicin to APEL for APEL’s development and commercialization activities in the APEL territories during the term of the supply agreement, and APEL is obligated to pay the Company an amount equal to cost plus an agreed mark-up for such supply.

Under the terms of the collaboration and license agreement, APEL paid the Company an up-front fee of $69.2 million in March 2011, and the Company recognized a milestone payment of 40.0 million Euros in December 2011 as the result of APEL attaining EMA approval of DIFICLIR.  APEL paid the Company 50.0 million Euros in June 2012, which consisted of the 40.0 million Euro approval milestone payment and a 10.0 million Euro milestone payment for the first commercial launch of DIFICLIR in an APEL territory. The Company is eligible to receive additional contingent cash payments totaling up to 65.0 million Euros, upon the achievement by APEL of additional specified commercial milestones.

17

In addition, the Company is entitled to receive escalating double-digit royalties ranging from the high teens to low twenties on net sales of DIFICLIR products in the APEL territories, which royalties are subject to reduction in certain, limited circumstances.  Such royalties are payable by APEL on a product-by-product and country-by-country basis until a generic product accounts for a specified market share of the applicable DIFICLIR product in the applicable country. APEL launched DIFICLIR in Europe during the second quarter of 2012.

The Company assessed the deliverables under the authoritative guidance for multiple element arrangements. Based on the Company’s analysis, it determined that all of the up-front payment was earned upon the delivery of the license and related know-how, which occurred by March 31, 2011.

The agreements with APEL will continue in effect on a product-by-product and country-by-country basis until expiration of APEL’s obligation to pay royalties with respect to each fidaxomicin product in each country in the APEL territory, unless terminated early by either party as more fully described below.  Following expiration, APEL’s license to develop and commercialize the applicable fidaxomicin product in the applicable country will become non-exclusive.  The Company and APEL each may terminate either of the agreements, prior to expiration, upon the material breach of such agreement by the other party or upon the bankruptcy or insolvency of the other party.  In addition, the Company may terminate the agreements prior to expiration in the event APEL 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. APEL may terminate the agreements prior to expiration for any reason on a product-by-product and country-by-country basis upon 180 days’ prior written notice to the Company.  Upon any such termination, the license granted to APEL (in total or with respect to the terminated product or terminated country, as applicable) will terminate and revert to the Company.

Par Pharmaceuticals, Inc. (“Par”)

In February 2007, the Company repurchased the rights to develop and commercialize fidaxomicin in North America and Israel from Par under a prospective buy-back agreement.  The Company paid Par a $5.0 million milestone payment in June 2010 for the successful completion by the Company of its second pivotal Phase 3 trial for fidaxomicin.  The Company is obligated to pay Par a 5% royalty on net sales by the Company, its affiliates or its licensees of fidaxomicin in North America and Israel and a 1.5% royalty on net sales by the Company or its affiliates of fidaxomicin in the rest of the world.  In addition, the Company is required to pay Par a 6.25% royalty on net revenues it receives related to fidaxomicin in connection with licensing of its right to market fidaxomicin in the rest of the world, such as the licenses the Company has granted to its partners in territories outside the United States and Canada.  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. For the six months ended June 30, 2013 and 2012, the Company expensed approximately $1.9 million and $3.3 million, respectively, in royalties to Par.

Biocon Limited (“Biocon”)

In May 2010, the Company entered into a long-term supply agreement with Biocon for the commercial manufacture of fidaxomicin active pharmaceutical ingredient (“API”).  Pursuant to the agreement, Biocon agreed to manufacture and supply the Company, up to certain limits, fidaxomicin API and, subject to certain conditions, the Company agreed to purchase from Biocon at least a portion of its requirements for fidaxomicin 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 has recovered $1.5 million of this amount under the supply agreement in the form of discounted prices for fidaxomicin API. Unless both Biocon and the Company agree to extend the term of the supply agreement, it will terminate seven and one-half years from the date the Company obtained marketing authorization for DIFICID in the United States.  The supply agreement may be earlier terminated: (i) by either party by giving two and one-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 fidaxomicin API; or (iii) by Biocon upon the occurrence of certain events, including the Company’s failure to purchase amounts of fidaxomicin API that it indicates in binding forecasts.

Patheon Inc. (“Patheon”)

In June 2011, the Company entered into a commercial manufacturing services agreement with 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.

18

The term of the agreement extends through December 31, 2016 and automatically will 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. Patheon and the Company 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 determines 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 the Company; (iii) if Patheon is unable to deliver or supply any firm orders for any two calendar quarters during any four consecutive calendar quarters; (iv) if Patheon uses any debarred or suspended person in the performance of its service obligations under the agreement; or (v) if Patheon fails to meet certain production yield requirements in relation to fidaxomicin API.

Cempra, Inc. (“Cempra”)

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 the Association of Southeast Asian Nations, or ASEAN, 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 representing an ownership of less than 20%.  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 milestone payments will be triggered upon the completion of certain clinical development milestones and, in certain instances, regulatory approval of products.  The Company also may receive royalty payments based on a percentage of net sales of licensed products.

Pursuant to the agreement, Cempra granted the Company an exclusive license whereby 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.

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 also may 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.

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: (i) events that can only be achieved in part on the Company’s past performance or upon the occurrence of a specific outcome resulting from the Company’s performance; (ii) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; and (iii) they result in additional payments being due to the Company. Clinical development and commercial milestone payments, however, currently do not meet these criteria as their achievement is solely based on the performance of Cempra.

In February 2012, Cempra completed an initial public offering at which time the Company’s equity interest in Cempra was converted to 125,646 shares of common stock.  The Company considers its equity interest in Cempra as available-for-sale (see Note 3).

In June 2012, Cempra completed its first Phase 2 clinical trial of solithromycin (CEM101) in patients with community-acquired bacterial pneumonia, which triggered a $1.0 million milestone payment to the Company.  To date, the Company has received $1.5 million in payments from this collaboration.

OBI Pharma, 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 assigned, and OBI assumed, its rights and

19

obligations under related license agreements with Memorial Sloan-Kettering Cancer Center.  Under the intellectual property assignment and license agreement, the Company is eligible to receive up to $10.0 million in milestone payments related to the development of OPT-822/821 and is eligible to receive royalties on net sales of any product which is commercialized under the program.  The term of the intellectual property assignment and license agreement continues until the last to expire of certain patents assigned to and licensed by the Company to OBI.

In January 2012, OBI and the Company executed a letter of agreement which provided the Company the right of first refusal if OBI or one of its affiliates receives any offer to obtain an exclusive, royalty-bearing license (including the right to sublicense) under the OPT-822/821 patents and the OBI OPT-822/821 technology to develop, make, have made, use, sell, offer for sale, have sold and import OPT-822/821 products in the United States, Europe or other specified territories.  In the letter of agreement, as consideration for the grant of the right of first refusal, the Company waived certain of OBI’s obligations under the intellectual property assignment and license agreement. The letter of agreement expires 10 years from the effective date of the agreement.

In the fourth quarter of 2012, the Company sold its remaining equity interest in OBI (the “Stock Purchase Agreement”) but retains its rights to receive milestone and royalty payments related to OPT-822/821 under the Intellectual Property Assignment and License Agreement and the right of first refusal to license commercial rights to OPT-822/821 in the United States, Europe or other specified territories.

Scripps Research Institute (“TSRI”)

In July 1999, the Company acquired exclusive, worldwide rights certain drug technology from TSRI.  The agreement with TSRI includes the license to the Company of patents, patent applications and copyrights related to the 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 and carbohydrate mimetics.

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.  The Company currently is not developing any products covered by the TSRI agreements.

8.     Commitments and Contingencies

Contingencies

In March 2012, the Company became aware of an attempted grant in September 2011 to Dr. Michael Chang of 1.5 million technical shares of OBI.  The Company engaged external counsel to assist it in an internal review and determined that the attempted grant may have violated certain applicable laws, including the Foreign Corrupt Practices Act (the “FCPA”).

In April 2012, the Company self-reported the results of its preliminary findings to the SEC and the U.S. Department of Justice (the “DOJ”), which included information about the attempted grant and certain related matters, including a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual associated with the OBI share grant.  At that time, the Company terminated the employment of its then-Chief Financial Officer and its then-Vice President, Clinical Development.  The Company also removed Dr. Michael Chang as the Chairman of its Board of Directors and requested that Dr. Michael Chang resign from the Board of Directors, which he has not.  The Company continued its investigation and its cooperation with the SEC and the DOJ.

As a result of the continuing internal investigation, in February 2013, the independent members of the Board of Directors determined that additional remedial action should be taken in light of prior compliance, record keeping and conflict-of-interest issues surrounding the potentially improper payment to the research laboratory and certain related matters.  On February 26, 2013, the Company’s then-President and Chief Executive Officer and its then-General Counsel and Chief Compliance Officer resigned at the request of the independent members of the Board of Directors.

20

In addition, over the past year, the Company has revised its compliance policies, strengthened its approval procedures and implemented training and internal audit procedures to make compliance and monitoring more comprehensive.

The Company continues to cooperate with the ongoing investigations by the SEC and DOJ, including by responding to document and interview requests, conducting in-person meetings and updating these authorities on its findings with respect to the attempted OBI technical share grant, the potentially improper payment to the research laboratory and certain matters that may be related.  The Company is unable to predict the ultimate resolution of these matters, whether it will be charged with violations of applicable civil or criminal laws or whether the scope of the investigations will be extended to new issues.  The Company also is unable to predict what potential penalties or other remedies, if any, the authorities may seek against it or any of its current or former employees, or what the collateral consequences may be of any such government actions.

On August 1, 2013, a putative class action lawsuit was filed by Darrell Burns, a purported stockholder of the Company, against Optimer, its directors and Cubist relating to the Company’s pending Merger with Cubist.  This action was filed in the Superior Court of New Jersey, Hudson County, and is called Burns v. Optimer Pharmaceuticals, Inc., et al., Case No. C-103-13.  The lawsuit generally alleges, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to the Company’s stockholders, that the Company’s directors breached their fiduciary duties by conducting an unfair sales process and approving the Merger Agreement and that those breaches were aided and abetted by the Company and Cubist.  The lawsuit seeks, among other things, equitable relief to prevent the defendants from consummating the Merger on the agreed-upon terms and an award of attorneys’ fees.  The Company intends to defend this case vigorously and, because it is still in the preliminary stages, has not yet determined what effect the lawsuit will have, if any, on the Company’s financial position or results of operations.

9.     Subsequent Events

Merger Agreement

On July 30, 2013, the Company entered into the Merger Agreement with Cubist and Merger Sub.  The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company.  As a result of the Merger, the Company will become a wholly owned subsidiary of Cubist.

At the effective time of the Merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time (other than: (i) shares of common stock and shares of the Company’s preferred stock, par value $0.001 per share (if any), owned by Cubist, Merger Sub or any other directly or indirectly wholly owned subsidiary of Cubist and shares of common stock owned by Optimer; and (ii) shares owned by stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be converted into the right to receive: (i) $10.75 in cash, without interest, at the effective time; and (ii) one contingent value right (a “CVR”). Each CVR will entitle its holder to a payment of $3.00 if net sales of DIFICID in the United States and Canada during the period from and including July 1, 2013 through and including December 31, 2015 are greater than $250.0 million, a payment of $4.00 if such net sales during the same period are greater than $275.0 million and a payment of $5.00 if such net sales during the same period are greater than $300.0 million.  Cubist will file a registration statement on Form S-4 in order to register the CVRs under the Securities Act of 1933, as amended, and has agreed to use its reasonable best efforts to cause the CVRs to be listed for trading on the Nasdaq Stock Market (“Nasdaq”) as of the effective time of the Merger and thereafter to cause such listing to be maintained for so long as any CVRs remain outstanding.

In addition, at the effective time of the Merger: (i) each outstanding option under the 1998 Plan, 2006 Plan or 2012 Plan will be converted into the right to receive an amount in cash equal to the excess, if any, of the last reported sale price of a share of the Company’s common stock on Nasdaq prior to the effective time of the Merger, over the per-share exercise price of the option; (ii) each outstanding RSU (including performance-based RSUs, which will be deemed to be earned as if performance goals were met at maximum) will be converted into the right to receive $10.75 in cash plus one CVR; and (iii) the 1998 Plan, 2006 Plan, 2012 Plan and ESPP will be terminated, and no new awards will be made thereunder.

Consummation of the Merger is subject to certain conditions, including: (i) the approval of the holders of a majority of the outstanding shares of Optimer common stock entitled to vote on the Merger; (ii) the expiration or termination of the waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (iii) the absence of any law, order or injunction prohibiting the consummation of the Merger; and (iv) the accuracy of the other party’s representations and warranties (subject to materiality qualifiers) and the other party’s compliance with its obligations and covenants contained in the Merger Agreement (subject to materiality qualifiers).

21

Interim Financing

Cubist has agreed to provide the Company with certain financing during the pendency of the Merger.  On a quarterly basis during the pendency of the Merger, commencing on September 15, 2013, the Company will issue to Cubist $25.0 million of non-voting senior preferred stock (“Preferred Stock”) for cash consideration, up to a potential total of $75.0 million. The Preferred Stock carries no dividend.  In the event of a termination of the Merger Agreement due to a Cubist breach, the Preferred Stock becomes redeemable in exchange for nominal consideration.  In all other instances, the Preferred Stock becomes convertible into common stock based on the value of the common stock at the time of conversion, subject to applicable legal restrictions, including limitations on the issuance of common stock in the absence of stockholder approval under the rules and regulations of Nasdaq and limitations under the HSR Act.  Furthermore, in no circumstances will Cubist be entitled to hold more than 5% of the outstanding shares of the Company’s common stock at any time.

The Preferred Stock will be extinguished, in exchange for no consideration, if the Merger is consummated.  The Preferred Stock will be redeemed in exchange for its aggregate liquidation preference in the event of a transaction resulting in a change of control of the Company as a result of which a termination fee is paid to Cubist pursuant to the terms of the Merger Agreement or on an as-converted-into-common-stock basis prior to the announcement of any other transaction resulting in a change of control of the Company.  Cubist has agreed to various restrictions on its ability to sell the Preferred Stock and any common stock received upon conversion of the Preferred Stock, including that it will not sell any such stock until the first anniversary of any termination of the Merger Agreement or to any person or group filing a beneficial ownership report on Schedule 13D in respect of the Company.

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

The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes appearing elsewhere in this report, as well as the audited financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission, or SEC.  This discussion and other parts of this report may contain forward-looking statements based upon current expectations that involve risks and uncertainties.  Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this report.

Overview

We are a global biopharmaceutical company currently focused on the commercialization of our antibiotic product DIFICID® (fidaxomicin) in the United States and Canada, and on developing other fidaxomicin products in the United States and worldwide, both independently and with our partners and licensees.  DIFICID is a macrolide antibacterial drug indicated in adults 18 years of age or older for the treatment of Clostridium difficile-associated diarrhea, or CDAD, and is the first antibacterial drug to be approved in the United States for the treatment of CDAD in more than 25 years. We currently are marketing DIFICID in the United States through our own sales force.

We continue to pursue regulatory approval for, and commercialization of, fidaxomicin in other geographies outside the United States and Canada through various collaboration partners.  In December 2011, the European Medicines Agency, or EMA, approved the Marketing Authorization Application for DIFICLIR (fidaxomicin) for the treatment of adults suffering from Clostridium difficile infection, or CDI, in Europe.  In June 2012, our collaboration partner, Astellas Pharma Europe Ltd., or APEL, achieved the first sales of DIFICLIR in its European territories.  In addition, in June 2012, our subsidiary, Optimer Pharmaceuticals Canada, Inc., or Optimer Canada, began marketing DIFICID in Canada. In April 2013, the Therapeutic Goods Administration, the Australian regulatory body for therapeutic goods such as medicines, approved DIFICID for the treatment of confirmed CDI in adults.  Specialised Therapeutics Australia Pty. Ltd., or STA, our Australia and New Zealand licensee, commenced commercialization in May 2013. We have entered into agreements with Astellas Pharma Inc., or Astellas Japan, for the development and commercialization of fidaxomicin in Japan and with AstraZeneca UK Limited, or AstraZeneca, to commercialize fidaxomicin tablets for the treatment of CDI in Latin America, including Brazil, Central America, Mexico and the Caribbean.

We were incorporated in November 1998 and have incurred significant net losses since our inception.  At June 30, 2013, we had an accumulated deficit of $310.2 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 and Canada.  We expect to incur on-going operating losses as we commercialize DIFICID and pursue further development of DIFICID, including conducting post-marketing studies for label expansion and continuing further development, regulatory approval and commercialization of fidaxomicin worldwide.

22

Merger Agreement

On July 30, 2013, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Cubist Pharmaceuticals, Inc., or Cubist, a Delaware corporation, and PDRS Corporation, a Delaware corporation and a wholly owned subsidiary of Cubist, or Merger Sub.  The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into us.  As a result, we will become a wholly owned subsidiary of Cubist, also referred to as the Merger.

At the effective time of the Merger, each share of our common stock issued and outstanding immediately prior to the effective time (other than: (i) shares of common stock and shares of our preferred stock, par value $0.001 per share (if any), owned by Cubist, Merger Sub or any other directly or indirectly wholly owned subsidiary of Cubist and shares of common stock owned by us; and (ii) shares owned by stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be converted into the right to receive: (i) $10.75 in cash, without interest, at the effective time; and (ii) one contingent value right, or CVR. Each CVR will entitle its holder to a payment of $3.00 if net sales of DIFICID in the United States and Canada during the period from and including July 1, 2013 through and including December 31, 2015 are greater than $250.0 million, a payment of $4.00 if such net sales during the same period are greater than $275.0 million and a payment of $5.00 if such net sales during the same period are greater than $300.0 million.  Cubist will file a registration statement on Form S-4 in order to register the CVRs under the Securities Act of 1933, as amended, and has agreed to use its reasonable best efforts to cause the CVRs to be listed for trading on the Nasdaq Stock Market, or Nasdaq, as of the effective time of the Merger and thereafter to cause such listing to be maintained for so long as any CVRs remain outstanding.

In addition, at the effective time of the Merger: (i) each outstanding option under the 1998 Plan, 2006 Plan or 2012 Plan will be converted into the right to receive an amount in cash equal to the excess, if any, of the last reported sale price of a share of the Company’s common stock on Nasdaq prior to the effective time of the Merger, over the per-share exercise price of the option; (ii) each outstanding RSU (including performance-based RSUs, which will be deemed to be earned as if performance goals were met at maximum) will be converted into the right to receive $10.75 in cash plus one CVR; and (iii) the 1998 Plan, 2006 Plan, 2012 Plan and ESPP will be terminated, and no new awards will be made thereunder.

Consummation of the Merger is subject to certain conditions, including: (i) the approval of the holders of a majority of the outstanding shares of our common stock entitled to vote on the Merger; (ii) the expiration or termination of the waiting period applicable to the consummation of the Merger under the HSR Act; (iii) the absence of any law, order or injunction prohibiting the consummation of the Merger; and (iv) the accuracy of the other party’s representations and warranties (subject to materiality qualifiers) and the other party’s compliance with its obligations and covenants contained in the Merger Agreement (subject to materiality qualifiers).

Interim Financing

Cubist has agreed to provide us with certain financing during the pendency of the Merger.  On a quarterly basis during the pendency of the Merger, commencing on September 15, 2013, we will issue to Cubist $25.0 million of non-voting senior preferred stock, or Preferred Stock, for cash consideration, up to a potential total of $75.0 million. The Preferred Stock carries no dividend.  In the event of a termination of the Merger Agreement due to a Cubist breach, the Preferred Stock becomes redeemable in exchange for nominal consideration.  In all other instances, the Preferred Stock becomes convertible into common stock based on the value of the common stock at the time of conversion, subject to applicable legal restrictions, including limitations on the issuance of common stock in the absence of stockholder approval under the rules and regulations of Nasdaq and limitations under the HSR Act.  Furthermore, in no circumstances will Cubist be entitled to hold more than 5% of the outstanding shares of our common stock at any time.

The Preferred Stock will be extinguished in exchange for no consideration if the Merger is consummated.  The Preferred Stock will be redeemed in exchange for its aggregate liquidation preference in the event of a transaction resulting in a change of control of the Company as a result of which a termination fee is paid to Cubist pursuant to the terms of the Merger Agreement or on an as-converted-into-common-stock basis prior to the announcement of any other transaction resulting in a change of control of the Company.  Cubist has agreed to various restrictions on its ability to sell the Preferred Stock and any common stock received upon conversion of the Preferred Stock, including that it will not sell any such stock until the first anniversary of any termination of the Merger Agreement or to any person or group filing a beneficial ownership report on Schedule 13D in respect of the Company.

Critical Accounting Policies

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 2 of the Notes to Consolidated Financial Statements appearing elsewhere in this report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

23

Product Sales

DIFICID is available in the United States and Canada through three major wholesalers - AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Corporation - and through regional wholesalers and specialty pharmacies that provide DIFICID to purchasing customers, such as hospitals, retail pharmacies, long-term care facilities and other purchasing outlets that may dispense DIFICID. We recognize revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, title has passed to the customer, the price is fixed or 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, specialty pharmacies and certain direct purchasers.

During the six months ended June 30, 2013, the $35.8 million in net product sales reflected a total of 15,916 DIFICID bottles shipped to wholesalers and specialty pharmacies. Wholesalers and specialty pharmacies shipped approximately 15,800 DIFICID bottles to hospitals, retail pharmacies, long-term care facilities and other purchasing outlets that may dispense DIFICID in the United States and Canada during the six months ended June 30, 2013.  Our sales representatives primarily target approximately 1,200 hospitals, although approximately 3,500 hospitals have ordered DIFICID.

Our net product sales represent total gross product sales in the United States and Canada less allowances for customer credits, including estimated rebates, chargebacks, discounts and returns. These allowances are established by management as its best estimate, based on available information, and are adjusted to reflect known changes in the factors that impact such allowances. Allowances for rebates, chargebacks, 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 product sales.

Our total product sales allowance, as a percentage of gross product sales, increased from 15.1% for the three months ended June 30, 2012 to 23.6% for the three months ended June 30, 2013, primarily due to higher hospital discounts.

Product Sales Allowances. We establish reserves for prompt-payment discounts, fee-for-service arrangements, government and commercial rebates, product returns and other applicable allowances, such as our hospital discount.  Allowances relate to prompt-payment discounts and fee-for-service arrangement with our contracted wholesalers and direct purchase discounts, and are recorded at the time of sale, resulting in a reduction in product sales.  Accruals related to government and commercial rebates, product returns and other applicable allowances are recognized at the time of sale, resulting in a reduction in product sales and an increase in accrued expenses.

Prompt-payment Discounts.  We offer a prompt-payment discount to our customers.  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.

Government and Commercial Rebates and Chargebacks.  We estimate commercial rebates as well as government-mandated rebates and discounts relating to federal and state programs such as Medicaid, the Veterans’ Administration, or VA, and Department of Defense programs, the Medicare Part D Coverage Discount Program and certain other qualifying federal and state government programs.  We estimate the amount of these rebates and chargebacks based on historical trends for DIFICID.  These allowances are adjusted periodically based on actual experience.

Medicaid rebate reserves relate to our estimated obligations to states under statutory “best price” obligations which also may 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 generally will 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 distributors.  A 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 and chargeback 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 generally will issue credits for such amounts after receiving notification from the distributor.

24

Although allowances and accruals are recorded at the time of product sale, certain rebates generally will be paid, on average, in 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 in the United States is to accept returns of DIFICID for six months prior to, and twelve months after, the product expiration date.  Our policy in Canada is to accept returns of DIFICID for three months prior to, and twelve months after, the product expiration date.  We permit returns if the product is damaged or defective when received by our 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 sales.  We estimate product returns based upon the sales pattern of DIFICID, management’s experience with similar products, historical trends in the pharmaceutical industry and trends for similar products sold by others.

During the six months ended June 30, 2013 and 2012, the provisions for product sales allowances reduced gross product sales as follows:

	Six Months Ended June 30,
	2013			2012
Total gross product sales	$	46,856,205		$	34,885,303
Returns reserve and allowance	(699,688		)	(990,095		)
Government and commercial rebates and chargebacks	(6,770,511		)	(1,467,126		)
Prompt-pay discounts and fees	(3,605,367		)	(2,815,454		)
Product sales allowance	$	(11,075,566	)	$	(5,272,675	)
Total product sales, net	$	35,780,639		$	29,612,628
Total product sales allowances as a percent of gross product sales.	23.6		%	15.1		%

An analysis of the amount of, and change in, product sales reserves for the six months ended June 30, 2013 is as follows:

	Six Months Ended June 30, 2013
	Returns Reserve and Allowances			Government and Commercial Rebates and Chargebacks			Prompt-pay Discounts and Fees			Total
Balance at January 1, 2013	$	1,475,124		$	1,642,849		$	1,888,523		$	5,006,496
Provisions related to sales	699,688			6,770,511			3,605,367			11,075,566
Returns and payments	(1,054,351		)	(5,666,719		)	(3,771,065		)	(10,492,135		)
Balance at June 30, 2013	$	1,120,461		$	2,746,641		$	1,722,825		$	5,589,927

During the three months ended June 30, 2013, six launch batches of DIFICID had reached expiration and we experienced product returns.  A financial reserve for such returns was appropriately established at the time of sale, and the return amounts are within the scope of our expectations.

Contract Revenue

Under certain of our licensing and collaboration agreements, we are entitled to receive payments upon the achievement of contingent milestone events. In order to determine the revenue recognition for contingent milestone-based payments, 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.

25

Accounting Standard Codification (ASC) Topic 605-28, Revenue Recognition — Milestone Method (ASC 605-28), established the milestone method as an acceptable method of revenue recognition for certain contingent, event-based payments under research and development arrangements.  Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved.  A milestone is an event: (i) that can be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance; (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; and (iii) that would result in additional payments being due to us.  The determination that a milestone is substantive is judgmental and is made at the inception of the arrangement.  Milestones are considered substantive when the consideration earned from the achievement of the milestone is: (i) commensurate with either our performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone; (ii) relates solely to past performance; and (iii) is reasonable relative to all deliverables and payment terms in the arrangement.

Other contingent, event-based payments received for which payment is either contingent solely upon the passage of time or the results of a collaborative 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; the price is fixed or determinable; and collectability is reasonably assured.

Revenues recognized for royalty payments are recognized as earned in accordance with the terms of various research and collaboration agreements.  We also derive contract revenue from supplying raw material, bulk tablets or finished product to our collaboration partners under the supply 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, up-front fees that 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.

None of the payments we have received from collaborators to date, whether recognized as revenue or deferred, is refundable even if the related program is not successful.

Inventory

Inventory is stated at the lower of cost or market.  Cost is determined using the first-in, first-out (FIFO) method. We reserve for potentially excess, dated or obsolete inventory based on an analysis of inventory on hand compared to forecasts of future sales. At June 30, 2013, inventory consisted of $22.5 million in raw materials and $4.4 million in finished goods.

Research and Development

We expense costs related to research and development as incurred. Our research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by contract research organizations and costs associated with non-clinical activities and regulatory approvals.  We use 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 non-refundable, up-front payments for goods or services are received for future research and development activities, 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.  Total consolidated stock-based compensation expense of $2.8 million and $4.0 million was recognized in the three months ended June 30, 2013 and 2012, respectively.  Total consolidated stock-based compensation expense of $7.1 million and $7.0 million was recognized in the six months ended June 30, 2013 and 2012, respectively. The stock-based compensation expense recognized included expense from performance-based stock options and performance-based restricted stock units.

26

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.

For performance-based stock options and performance-based restricted stock units, we begin to recognize the expense when it is deemed probable that the performance-based goal will be met. We evaluate the probability of achieving performance-based goals on a quarterly basis.

Equity instruments issued to non-employees are periodically revalued as the equity instruments vest and are recognized as expense over the related service period.

The effect of the Merger on stock-based compensation is described above under “Merger Agreement”.

Income Taxes

We estimate income taxes based on the jurisdictions where we conduct business.  Significant judgment is required in determining our worldwide income tax provision.  We estimate our current tax liability and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes.  These differences result in net deferred tax assets and liabilities.  We then assess the likelihood that deferred tax assets will be realized.

We estimate that our federal and state taxable income, if any, for the current year will be fully offset by net operating losses and research and development credit carryovers.  As such, no current tax provision has been recorded.  We also have recorded a full valuation allowance for the remaining net deferred tax benefits.

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 Three Months Ended June 30, 2013 and 2012

Product Sales, Net

Net product sales for the three months ended June 30, 2013 and 2012 were $19.0 million and $15.2 million, respectively, an increase of $3.8 million.  The increase was due to an increase in the number of customers ordering DIFICID and increased sales to existing DIFICID customers, as well as the impact of a price increase.

Contract Revenue

Contract revenue for the three months ended June 30, 2013 and 2012 was $1.1 million and $34.5 million, respectively, a decrease of $33.4 million. The contract revenue in 2013 was related to shipments to our collaborative partners and royalties from APEL. In 2012, pursuant to our collaboration and license agreement, we received a $20.0 million up-front payment from Astellas Japan.  We recognized $19.9 million as contract revenue, as we determined that revenue was earned upon the delivery of license rights and related know-how. In the three months ended June 30, 2012, we also recognized a 10.0 million Euro milestone payment from APEL in association with the first commercial launch of DIFICLIR in an APEL territory.

Costs and Expenses

Cost of Product Sales. Cost of product sales for the three months ended June 30, 2013 and 2012 was $1.8 million and $1.5 million, respectively, an increase of $0.3 million.  The increase was generally due to higher product sales in the quarter ended June 30, 2013, as compared to the quarter ended June 30, 2012.

27

Cost of Contract Revenue. Cost of contract revenue for the three months ended June 30, 2013 and 2012 was $0.2 million and $2.5 million, respectively, a decrease of $2.3 million.  The decrease was due to lower contract revenue in the quarter ended June 30, 2013, as compared to the quarter ended June 30, 2012.

Research and Development Expense.  Research and development expense for the three months ended June 30, 2013 and 2012 was $10.9 million and $11.6 million, respectively, a decrease of $0.7 million. The decrease was primarily due to lower general research and development expenses, including chemistry and biology, as well as lower health economic outcomes research expenses.  The decrease was offset by higher expenses related to our prophylaxis and pediatric clinical trials.

Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended June 30, 2013 and 2012 was $30.5 million and $28.9 million, respectively, an increase of $1.6 million. The increase was primarily due to higher legal, professional and outside service expenses.

Co-promotion Expenses with Cubist. Co-promotion expenses with Cubist for the three months ended June 30, 2013 and 2012 were $3.8 million and $5.0 million, respectively, a decrease of $1.2 million. The co-promotion expenses for the quarter ended June 30, 2012 included an accrual of the first year’s sales target bonus and an accrual of the first year’s gross profit on sales above the target. We did not accrue similar expenses in the quarter ended June 30, 2013.

Equity in Net Loss of OBI. The $0.7 million loss in the three months ended June 30, 2012 represented the loss recognized on our investment in OBI, using the equity method. We did not have a similar loss in the three months ended June 30, 2013.

Interest Income and Other, Net. Net interest income for the three months ended June 30, 2013 and 2012 was $249,000 and $44,000, respectively.

Comparison of Six Months Ended June 30, 2013 and 2012

Product Sales, Net

Net product sales for the six months ended June 30, 2013 and 2012 were $35.8 million and $29.6 million, respectively, an increase of $6.2 million.  The increase was due to an increase in the number of customers ordering DIFICID and increased sales to existing DIFICID customers, as well as the impact of a price increase.

Contract Revenue

Contract revenue for the six months ended June 30, 2013 and 2012 was $3.7 million and $34.5 million, respectively, a decrease of $30.8 million. The contract revenue in 2013 was related to shipments to our collaborative partners and royalties from APEL. In 2012, pursuant to our collaboration and license agreement, we received a $20.0 million up-front payment from Astellas Japan.  We recognized $19.9 million as contract revenue, as we determined that revenue was earned upon the delivery of license rights and related know-how. In the six months ended June 30, 2012, we also recognized a 10.0 million Euro milestone payment from APEL in association with the first commercial launch of DIFICLIR in an APEL territory.

Costs and Expenses

Cost of Product Sales. Cost of product sales for the six months ended June 30, 2013 and 2012 was $3.4 million and $2.7 million, respectively, an increase of $0.7 million.  The increase generally was due to higher product sales in the six months ended June 30, 2013, as compared to the six months ended June 30, 2012.

Cost of Contract Revenue. Cost of contract revenue for the six months ended June 30, 2013 and 2012 was $1.8 million and $3.6 million, respectively, a decrease of $1.8 million.  The decrease was due to lower contract revenue in the six months ended June 30, 2013, as compared to the six months ended June 30, 2012.

Research and Development Expense.  Research and development expense for the six months ended June 30, 2013 and 2012 was $20.8 million and $22.6 million, respectively, a decrease of $1.8 million.  The decrease was primarily due to lower general research and development expenses, including chemistry and biology, as well as lower health economic outcomes research expenses.  The decrease was offset by higher expenses related to our prophylaxis and pediatric clinical trials.

Selling, General and Administrative Expense. Selling, general and administrative expense for the six months ended June 30, 2013 and 2012 was $64.5 million and $54.4 million, respectively, an increase of $10.1 million. The increase was primarily due to higher legal, professional and outside service expenses. We also recognized higher stock compensation expense, primarily related to the departure of certain executives, in the first quarter of 2013.

28

Co-promotion Expenses with Cubist. Co-promotion expenses with Cubist for the six months ended June 30, 2013 and 2012 were $7.5 million and $15.1 million, respectively, a decrease of $7.6 million. The co-promotion expenses for the six months ended June 30, 2012 included an amount recognized for the first year’s sales target bonus and an amount recognized for the first year’s gross profit on sales above the target. We did not accrue similar expenses in the six months ended June 30, 2013.

Gain on De-consolidation of OBI. The $23.8 million gain in the six months ended June 30, 2012 represented the gain on the de-consolidation of OBI.  We did not have a similar gain in the six months ended June 30, 2013.

Equity in Net Loss of OBI. The $1.2 million loss in the six months ended June 30, 2012 represented the loss recognized in our investment in OBI, using the equity method. We did not have a similar loss in the six months ended June 30, 2013.

Interest Income and Other, Net. Net interest income for the six months ended June 30, 2013 and 2012 was $408,000 and $121,000, respectively.

Net Loss Attributable to Non-controlling Interest. Net loss attributable to non-controlling interest for the six months ended June 30, 2012 was $280,000. The $280,000 represented approximately one month of non-controlling interest, prior to deconsolidation of OBI in February 2012.  We did not have a similar loss in the six months ended June 30, 2013.

Liquidity and Capital Resources

Sources of Liquidity

Prior to the launch of DIFICID in July 2011, our operations were financed primarily through the sale of equity securities.  Through June 30, 2013, we received gross proceeds of approximately $333.8 million from the sale of equity securities in various private and public financing transactions. Since July 2011, we entered into collaboration and license agreements and received a total of approximately $157.8 million from up-front and milestone payments pursuant to the agreements.  In the fourth quarter of 2012, we sold our remaining equity interest in OBI for $60.0 million in gross proceeds.  Through June 30, 2013, we had generated $119.7 million of net product sales.

Until required for operations, we invest a substantial portion of our available funds in marketable securities, consisting primarily of government agency securities and money market funds.  We have established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.

We have sustained recurring losses and negative cash flows from operations.   Our current cash, cash equivalents and short-term investments balance of $77.5 million and negative cash flows for the six months ended June 30, 2013 of $46.6 million indicate substantial risk to continue as a going concern over a reasonable period of time.

On July 30, 2013, we entered into an amendment to our co-promotion agreement with Cubist pursuant to which the parties agreed to extend the term of the co-promotion agreement in substantially its current form until July 31, 2014, subject to early termination by either party upon termination of the Merger Agreement. Under the amendment, we will continue to pay a quarterly fee of $3.8 million to Cubist ($15.0 million per year) during the extension year, and also will pay Cubist $3.1 million per quarter (up to $12.5 million in total) during the extension year if mutually agreed upon quarterly sales targets are achieved, as well as a portion of our gross profit derived from net sales above the specified annual target, if any.

On July 30, 2013, we announced that we had signed the Merger Agreement with Cubist, under which Cubist will acquire all of the outstanding shares of our common stock upon the consummation of the Merger.

Cash Flows

As of June 30, 2013, cash, cash equivalents and short-term investments totaled $77.5 million, as compared to $124.0 million as of December 31, 2012, a decrease of $46.5 million.

During the six months ended June 30, 2013, cash used by operating activities was $56.4 million. We had a net loss of $58.2 million, which included non-cash expenses of $7.7 million.  Such non-cash expenses included stock-based compensation and depreciation and amortization. We also had a decrease in accounts receivable, other, of $1.5 million related to fidaxomicin shipments to collaboration partners, and we had an increase in inventory of $11.9 million. The increase in inventory is to mitigate any risk inherent with a single source of supply and to meet contractual obligations under certain supply agreements. Accounts payable and accrued expenses increased by $3.6 million, primarily due to increased legal fees, as well as severance costs associated with the departure of certain executives. Prepaid expenses and other current assets decreased by $1.5 million, primarily due to a payment related to our Cubist, co-promotion agreement.

29

During the six months ended June 30, 2012, cash provided by operating activities was $28.8 million and was primarily due to the receipt of 50.0 million Euros from APEL, which consisted of 40.0 million Euro and 10.0 million Euro milestone payments. We had a net loss of $11.5 million, which included non-cash expenses of $9.4 million. Such non-cash expenses included stock-based compensation and depreciation and amortization.  In March 2012, we sold 1.5 million shares of our then-majority-owned subsidiary, OBI, and recognized a $23.8 million gain on de-consolidation.  Accounts payable and accrued expenses increased $8.3 million, primarily due to costs for the year-one, target sales bonus under our co-promotion agreement with Cubist.

During the six months ended June 30, 2013, cash provided by investing activities was $0.6 million, primarily related to cash received on the redemption of an auction rate preferred security. During the six months ended June 30, 2012, cash provided by investing activities was $34.6 million. The cash increase was primarily due to maturities of short-term investments of $38.7 million and due to proceeds on the sale of OBI shares of $2.0 million.  The increase was offset by the purchase of property and equipment for $1.7 million and a $4.0 million reduction of cash related to the de-consolidation of OBI.

During the six months ended June 30, 2013, cash provided by financing activities was $9.4 million due to proceeds from the exercise of stock options. During the six months ended June 30, 2012, cash provided by financing activities was $4.3 million due to proceeds from the exercise of stock options.

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. We expect to continue to incur development expenses as we pursue lifecycle management opportunities for fidaxomicin.

In November 2012, we entered into a collaboration agreement with AstraZeneca to commercialize fidaxomicin in Latin America, including Brazil, Central America, Mexico and the Caribbean.  Under the terms of the agreement, we received a $1.0 million up-front payment.  We are eligible to receive up to $3.0 million in aggregate milestone payments upon the first commercial sale in certain countries, and up to $19.0 million in other milestone payments contingent on the achievement of sales-related targets for fidaxomicin in the territories.  We also are entitled to receive payments that provide a return resulting in a double-digit percent of net sales in the territory under a fidaxomicin supply agreement.

In June 2012, we entered into a distribution and license agreement with STA to register and commercialize fidaxomicin in Australia and New Zealand for the treatment of CDI.  Under the distribution and license agreement, STA is responsible for all costs associated with the registration and commercialization of fidaxomicin in Australia and New Zealand.  In addition, we entered a supply agreement with STA to supply product for the registration and commercial activities of STA and its sublicensees.  Upon signing the distribution and license agreement, STA made a payment of $0.5 million related to expenses incurred by us in connection with pre-approved activities in Australia which was recognized as contract revenue in 2012. We are entitled to receive contingent payments, which may exceed $1.5 million, upon the achievement of cumulative net sales targets and also will receive payments for the supply of fidaxomicin to STA.

In March 2012, we entered into a collaboration and license agreement with Astellas Japan pursuant to which we granted to Astellas Japan an exclusive, royalty-bearing license under certain of our know-how and intellectual property to develop and commercialize fidaxomicin in Japan. Under the terms of the license agreement, Astellas Japan paid to us an up-front fee equal to $20.0 million which we received in April 2012. We also are eligible to receive additional cash payments totaling up to $70.0 million upon the achievement by Astellas Japan of specified regulatory and commercial milestones.  In addition, we are entitled to receive high single-digit royalties on net sales of fidaxomicin products in Japan above an agreed threshold, which royalties are subject to reduction in certain, limited circumstances.  Such royalties will be payable by Astellas Japan on a product-by-product basis until a generic product accounts for a specified market share of the applicable fidaxomicin product in Japan. Under the supply agreement, in exchange for commercial supply of fidaxomicin, Astellas Japan is obligated to pay Optimer Europe a price equal to net sales of fidaxomicin products in Japan minus a discount that is based on a high double-digit percentage of such net sales and a mark-up to cost of goods.  This price will be payable by Astellas Japan on a product-by-product basis for commercial supply until a generic product accounts for a specified market share of the applicable fidaxomicin product in Japan.

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

30

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, Cubist and we 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 were obligated to pay a quarterly fee of approximately $3.8 million to Cubist which we began paying upon the commencement of the DIFICID sales program in the United States. Cubist also was 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.  During 2012, we achieved the first year sales target and paid Cubist $23.2 million, which consisted of $14.7 million in quarterly co-promotion fees, $5.0 million for the year-one sales target bonus and $3.5 million for Cubist’s portion of the gross profit on net sales above the year-one target.

In February 2011, we entered into a collaboration and license agreement with APEL pursuant to which we granted to APEL an exclusive, royalty-bearing license under certain of our know-how and intellectual property to develop and commercialize fidaxomicin in the APEL territories. Under the terms of the license agreement, APEL paid to us an up-front fee of $69.2 million in March 2011 and we recognized a milestone payment of 40.0 million Euros in December 2011 as the result of APEL attaining EMA approval of DIFICLIR. APEL paid us 50.0 million Euros in June 2012 which consisted of the 40.0 million Euro approval milestone payment and a 10.0 million Euro milestone for the first commercial launch of DIFICLIR in the APEL territories. We are eligible to receive additional cash payments totaling up to 65.0 million Euros upon the achievement by APEL of specified commercial milestones.  In addition, we are entitled to receive escalating double-digit royalties ranging from the high-teens to low-twenties on net sales of fidaxomicin products in the APEL territories, which royalties are subject to reduction in certain, limited circumstances.  Such royalties are payable by APEL 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.  APEL launched DIFICLIR in Europe during the second quarter of 2012.

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 Biocon $2.5 million for certain equipment purchases and manufacturing scale-up activities, and we have recovered $1.5 million of this amount, under the supply agreement, in the form of discounted prices for fidaxomicin API.

We may be obligated to make additional payments to Biocon if we fail to meet minimum purchase requirements, following Biocon’s dedication of certain manufacturing capacity to the production of fidaxomicin API and if Biocon is unable to manufacture alternative products with the dedicated capacity.

In February 2007, we repurchased the rights to develop and commercialize DIFICID in North America and Israel from Par under a prospective buy-back agreement.  We paid Par a $5.0 million milestone payment in June 2010 for the successful completion of the second pivotal Phase 3 trial for DIFICID.  We are obligated to pay Par a 5% royalty on net sales by us, our affiliates or our licensees of DIFICID in North America and Israel and are obligated to pay a 1.5% royalty on 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, we will be required to pay Par a 6.25% royalty on net revenues received related to fidaxomicin.  We are 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. For the six months ended June 30, 2013, we paid 1.8 million in royalties to Par.

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 Canada and the ability of our collaborators to market other fidaxomicin products in countries outside the United States and Canada;

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

·our decision to conduct future clinical trials, including the design, timing and progress of such clinical trials;

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

31

·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 where we currently do not have a collaboration partner or our own presence;

·the costs of preparing and pursuing applications for regulatory approvals and the timing of such approvals;

·the costs involved in connection with investigating and responding to governmental inquiries related to the issuance of OBI shares to Dr. Michael Chang, the potentially improper payment to the research laboratory and certain related matters described in the Risk Factors, as well as any costs relating to any potential litigation or enforcement proceedings related thereto;

·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.

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 Canada and contract revenues from existing and future collaboration agreements.  In addition, we may finance future cash needs through the sale of additional equity securities, including the Preferred Stock issuance to Cubist in connection with the Merger, new collaboration agreements or 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 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 capital markets continue to be volatile which has generally made equity and debt financing more difficult to obtain, and may negatively impact our ability to complete financing transactions.  Having insufficient funds may require us to delay, scale-back or eliminate some or all of our planned commercialization activities and development programs or negotiate less favorable terms for rights to our products or product candidates than we would otherwise choose.  Failure to obtain adequate financing also may adversely affect our ability to operate as a going concern.  If we raise funds by issuing equity securities, substantial dilution to existing stockholders would likely result.  If we raise funds by incurring debt, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Cash Equivalents and Marketable Securities Risk

Our cash, cash equivalents and short-term investments at June 30, 2013 consisted of money market funds and a U.S. government security.  Our primary exposure to market risk is interest rate 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 10% change in interest rates during the three month ended June 30, 2013 would have resulted in an approximately $3,000 change in net income. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates applicable to our securities portfolio.  In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.

Fair Value Measurements

All of our investment securities are available-for-sale securities and are reported on the consolidated balance sheet at market value.

Foreign Currency Risk

While we operate primarily in the United States, we are exposed to foreign currency risk.  Our agreement with APEL includes milestone and royalty payments which are denominated in Euros.  Our fidaxomicin API manufacturer, Biocon, is located in India and our manufacturer of fidaxomicin 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.

32

We established subsidiaries in Canada, Optimer Canada, and in Luxembourg, Optimer Luxembourg 2 S.à.r.l., or Optimer Europe, and we expect Optimer Canada’s and Optimer Europe’s transactions to be denominated primarily in Canadian dollars and Euros, respectively.  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 Canadian dollar and the Euro.

We do not use derivative financial instruments for speculative purposes. We do not engage in exchange rate hedging or hold or issue foreign exchange contracts for trading purposes. Currently, we do not expect the impact of fluctuations in the relative fair value of the other currencies to be material to our results of operations.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the 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.

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 not effective as of the end of the period covered by this report because of a material weakness in our internal control over financial reporting related to approval of certain non-recurring transactions as discussed in our Annual Report on Form 10-K for the year ended December 31, 2012. Notwithstanding the existence of the material weakness, management has concluded that the consolidated financial statements included in this report present fairly, in all material respects, our consolidated financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

Remediation Efforts to Address Material Weakness

We believe we have taken steps to remediate the issues that contributed to the material weakness.  These steps include the revision of our corporate authorization policy and other compliance policies, the strengthening of our approval procedures, the implementation of training and internal audit procedures to make our compliance and monitoring more comprehensive and changes to our senior management team, including the replacement of our Chief Executive Officer and General Counsel in February 2013.  There is no assurance that the remedial steps we have undertaken will be sufficient and additional steps may be necessary to remediate the material weakness identified above. We will not be able to determine whether the material weakness has been fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through its annual testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Except as described above, there have been no changes in our internal control over financial reporting in our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

In March 2012, we became aware of an attempted grant in September 2011 to Dr. Michael Chang of 1.5 million technical shares of OBI.  We engaged external counsel to assist us in an internal review and determined that the attempted grant may have violated certain applicable laws, including the Foreign Corrupt Practices Act, or the FCPA.

In April 2012, we self-reported the results of our preliminary findings to the SEC and the U.S. Department of Justice, or the DOJ, which included information about the attempted grant and certain related matters, including a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual associated with the OBI share grant.  At that time, we terminated the employment of our then-Chief Financial Officer and our then-Vice President, Clinical Development.  We also removed Dr. MichaelChang as the Chairman of our Board of Directors and requested that Dr. Michael Chang resign from the Board of Directors, which he has not.  We continued our investigation and our cooperation with the SEC and the DOJ.

33

As a result of our continuing internal investigation, in February 2013, the independent members of our Board of Directors determined that additional remedial action should be taken in light of prior compliance, record keeping and conflict-of-interest issues surrounding the potentially improper payment to the research laboratory and certain related matters.  On February 26, 2013, our then-President and Chief Executive Officer and our then-General Counsel and Chief Compliance Officer resigned at the request of the independent members of our Board of Directors.

In addition, over the past year, we have revised our compliance policies, strengthened our approval procedures and implemented training and internal audit procedures to make our compliance and monitoring more comprehensive.

We continue to cooperate with the ongoing investigations by the SEC and DOJ, including by responding to document and interview requests, conducting in-person meetings and updating these authorities on our findings with respect to the attempted OBI technical share grant, the potentially improper payment to the research laboratory and certain matters that may be related.  We are unable to predict the ultimate resolution of these matters, whether we will be charged with violations of applicable civil or criminal laws or whether the scope of the investigations will be extended to new issues.  We also are unable to predict what potential penalties or other remedies, if any, the authorities may seek against us or any of our current or former employees, or what the collateral consequences may be of any such government actions.

On August 1, 2013, a putative class action lawsuit was filed by Darrell Burns, a purported stockholder of the Company, against Optimer, its directors and Cubist relating to our pending Merger with Cubist.  This action was filed in the Superior Court of New Jersey, Hudson County, and is called Burns v. Optimer Pharmaceuticals, Inc., et al., Case No. C-103-13.  The lawsuit generally alleges, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to our stockholders, that our directors breached their fiduciary duties by conducting an unfair sales process and approving the Merger Agreement and that those breaches were aided and abetted by Cubist and us.  The lawsuit seeks, among other things, equitable relief to prevent the defendants from consummating the Merger on the agreed-upon terms and an award of attorneys’ fees.  We intend to defend this case vigorously and, because it is still in the preliminary stages, have not yet determined what effect the lawsuit will have, if any, on our financial position or results of operations.

Item 1a. Risk Factors

The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, including any material changes, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC.

Risks Related to Our Business

Our success largely depends on our ability to successfully commercialize our only product, DIFICID.*

Our success depends on our ability to effectively commercialize our only product, DIFICID, which was approved by the FDA in May 2011 for the treatment of CDAD in adults 18 years of age and older.  We launched DIFICID in the United States in July 2011 and launched DIFICID in Canada in June 2012 following our receipt of Canadian marketing approval. Our ability to effectively commercialize and generate revenues from DIFICID will depend on several factors, including:

·our continued ability to create market demand in the United States for DIFICID;

·our ability to successfully implement customer contracting and discounting programs to certain institutional customer segments, such as hospitals and group purchasing organizations;

·the effectiveness of our reimbursement support programs designed to improve patient access to DIFICID;

·the ability of our collaboration partners to successfully commercialize fidaxomicin outside the United States and Canada;

·our continued ability to train, deploy and support a qualified sales force;

·our continued ability to preserve existing formulary acceptance and secure additional formulary approvals for DIFICID at a substantial number of targeted hospitals and long-term care facilities;

34

·the availability of adequate coverage or reimbursement for DIFICID by government healthcare programs and third-party payors, including private health coverage insurers and health maintenance organizations;

·our customers’ ability to realize adequate reimbursement from payors, including the Centers for Medicare and Medicaid Services’ recently implemented New Technology Add-on Payment, or NTAP, program for DIFICID

·the performance of our third-party manufacturers and our ability to ensure that our supply chain efficiently and consistently delivers fidaxomicin to our customers and collaboration partners;

·our ability to implement and maintain agreements with wholesalers and distributors on commercially reasonable terms;

·our ability to expand the label of DIFICID to cover additional indications; 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, as amended, we have 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 currently can 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 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;

·Cubist and we 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 Cubist and us;

·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; 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.

The co-promotion agreement with Cubist is subject to certain early termination events, including the right of either party, upon written notice to the other party, to terminate in the event that the Merger Agreement has been terminated in accordance with its terms.  If the co-promotion 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.

35

We are dependent on our collaboration agreements with various third parties to commercialize and further develop fidaxomicin in territories outside the United States and Canada.  The failure to maintain these agreements or the failure of our collaboration partners to perform their obligations under their respective agreements, could negatively impact our business.

Pursuant to the terms of our collaboration agreements, we granted to third parties, including APEL, Astellas Japan, STA and AstraZeneca, exclusive rights to develop and commercialize fidaxomicin in various territories outside the United States and Canada, including Europe, Japan, Australia and Latin America. We also have entered into supply agreements with our collaboration partners pursuant to which we are obligated to supply our partners all of their requirements of fidaxomicin for such development and commercialization activities.  Consequently, our ability to generate any revenues from fidaxomicin in territories outside the United States and Canada depends on our collaboration partners’ ability to obtain regulatory approvals for and successfully commercialize fidaxomicin in their respective territories.  We have limited control over the amount and timing of resources that our collaboration partners will dedicate to these efforts.

We are subject to a number of other risks associated with our dependence on our collaboration agreements including:

·our collaboration partners may not comply with applicable regulatory guidelines with respect to developing or commercializing fidaxomicin, which could adversely impact sales or future development of fidaxomicin outside the United States and Canada;

·our collaboration partners could disagree as to future development plans and our collaboration partners may delay future clinical trials or stop a future clinical trial;

·there may be disputes between our collaboration partners and us, including disagreements regarding the applicable collaboration agreement, that may result in (i) the delay of or failure to achieve regulatory and commercial objectives that would result in milestone or royalty payments, (ii) the delay or termination of any future development or commercialization of fidaxomicin and/or (iii) costly litigation or arbitration that diverts our management’s attention and resources;

·because the milestone and royalty payments in the collaboration agreement with APEL 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;

·our collaboration partners 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 our collaboration partners and manage our own inventory of fidaxomicin, as well as our ability to generate accurate financial forecasts;

·business combinations or significant changes in our collaboration partners’ business strategy may adversely affect our collaboration partners’ ability or willingness to perform their respective obligations under our collaboration and supply agreements;

·our collaboration partners may not properly maintain or defend our intellectual property rights in the their respective territories 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 payments we are eligible to receive from our collaboration partners may be reduced or eliminated based upon our collaboration partners’ and our ability to maintain or defend our intellectual property rights and the presence of generic competitors in the applicable territories;

·limitations under certain of our collaboration agreements on our, or an acquiror’s, ability to maintain or pursue development or commercialization of products that are competitive with fidaxomicin could deter a potential acquisition of us that our stockholders may otherwise view as beneficial; and

·if our collaboration partners are unsuccessful in obtaining regulatory approvals for or commercializing fidaxomicin in their respective territories, we may not receive any payments under the applicable collaboration agreement and our business prospects and financial results may be materially harmed.

Our collaboration and supply agreements are subject to early termination, including through our collaboration partners’ 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 fidaxomicin in the applicable territory on acceptable terms, or at all, and we may be unable to pursue continued commercialization or development of fidaxomicin in the applicable territory on our own.

36

We may enter into additional agreements for the commercialization of fidaxomicin and may similarly be dependent on the performance of third parties with similar risk.

Other than our existing collaboration agreements, we may not be able to enter into acceptable agreements to commercialize fidaxomicin outside of the United States and Canada or, if needed, adequately build our own marketing and sales capabilities.

We intend to continue the development and commercialization of fidaxomicin outside of the United States and Canada through collaboration arrangements with third parties, such as our collaborations with APEL, Astellas Japan, STA and AstraZeneca, or independently.  We may be unable to enter into additional collaboration arrangements in international markets.  In addition, there can be no guarantee that our existing collaboration partners or any other parties with which we may enter into collaboration arrangements will be successful or will generate 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 additional collaboration arrangements for development of fidaxomicin in countries outside of the United States and Canada, 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 to hospital-based and long-term care physicians in these territories.  These efforts 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.  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 June 30, 2013, we had an accumulated deficit of $310.2 million.  We have generated limited revenues from product sales and collaborations to date, and we expect our expenses to continue to be significant in the near-term as we execute the commercialization of DIFICID due to, among other things, our employee headcount, on-going payments to Cubist pursuant to our co-promotion agreement and our pursuit of additional research and development activities, including potential additional indications and lifecycle management projects for DIFICID. We have funded our operations through June 30, 2013 primarily from the sale of approximately $333.8 million of our equity securities and through payments received under collaborations with partners or government grants and product revenues from sales of DIFICID. 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.  Our collaborators or we may never successfully commercialize our products or product candidates, including fidaxomicin outside of the United States, and thus we may never have any significant future revenues or achieve and sustain profitability.

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 being 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 generally will depend on a number of factors, many of which are beyond our control, including:

·timing of market introduction of our products as well as of competitive drugs;

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

·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 extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;

·the extent to which bacteria develop resistance to the product, thereby limiting its efficacy in treating or managing infections;

37

·the availability of adequate reimbursement by third parties, such as insurance companies and other healthcare payors;

·patients’ compliance in filling prescriptions;

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

·relative convenience and ease of administration;

·prevalence and severity of adverse side effects; and

·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.

With respect to DIFICID specifically, successful commercialization depends 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, and we may experience substantial delays in obtaining formulary approvals and restrictions on the usage of the drug may be implemented. We cannot guarantee that we will be successful in getting additional approvals 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.

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 also may 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 and a randomized trial to evaluate the efficacy of DIFICID in the treatment of patients with multiple CDAD recurrences.  Depending on the outcome of the studies, we may be unable to expand the indications for DIFICID, or we may be required to include specific warnings or limitations on dosing this product, which could negatively impact our sales of DIFICID.

We have implemented a comprehensive compliance program and related infrastructure, but we cannot provide absolute assurance that we are or will be in compliance with all potentially applicable laws and regulations. If our operations, in relation to DIFICID or any future approved product, fail to comply with applicable regulatory requirements, the FDA or other regulatory agencies may:

·issue warning letters or untitled letters;

·impose consent decrees, which may include the imposition of various fines, reimbursement for inspection costs, due dates for specific actions and penalties for noncompliance;

·impose fines or other civil or criminal penalties;

·suspend regulatory approval;

·suspend any ongoing clinical trials;

·refuse to approve pending applications or supplements to approved applications filed by us;

·impose restrictions on operations, including costly new manufacturing requirements;

38

·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, the PPACA, on drug manufacturers regarding any “transfer of value” made or distributed to prescribers and other health care providers; and

·state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

Some states, such as California, Massachusetts and Vermont, mandate implementation of comprehensive compliance programs to ensure compliance with these laws.

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by applicable regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn are used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, also violate false claims laws.

Recent healthcare reform legislation has 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 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.

39

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 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 payors.

Sales of DIFICID by our collaborators and us are dependent on the availability and extent of coverage and reimbursement from third-party payors, including government healthcare programs and private insurance plans, as well as effective use by our customers of reimbursement programs for DIFICID.  Our collaborators and we 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 may be 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, Japan, Australia, Latin America and certain other territories to our collaboration partners.  In the event our collaborators or we seek approvals to market fidaxomicin in other non-U.S. territories, our collaborators or we will need to work with the applicable government-sponsored healthcare entities in the applicable territories that are the primary payors of healthcare costs in such regions.  Certain government payors 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.

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 United States 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 our collaborators or we 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 any significant international markets, our market opportunities will be limited.*

The ability of our collaborators and us 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 also must 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 collaborators’ or our 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.

40

Other than DIFICLIR’s approval by the EMA in Europe and DIFICID’s approval in Canada and in Australia, none of our product candidates is approved for sale in any significant international market. If our collaborators or we 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.

Our ability to market products is dependent upon physician and patient perceptions of us and the efficacy, 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 also could 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 as well as global clinical trial liability insurance.  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.

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 and Canada or significantly delay, scale back or discontinue the development of one or more of our product candidates or research and development initiatives.

41

To the extent we require additional 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 harmed materially.

If we fail to attract and retain senior management and key 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.  Since the beginning of 2012, there have been several changes to our senior management team including the appointment of a new chief executive officer, chief financial officer and general counsel and chief compliance officer, among others. The unexpected loss of the service of any of these new appointees or their failure to perform as expected 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.  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 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.

As a result of ongoing investigations by U.S. authorities, it is possible that we and certain of our current and former employees and directors may be named as defendants in future civil or criminal enforcement proceedings that could result in substantial penalties and costs, and divert management’s attention.

In March 2012, we became aware of an attempted grant in September 2011 to Dr. Michael Chang of 1.5 million technical shares of OBI.  We engaged external counsel to assist us in an internal review and determined that the attempted grant may have violated certain applicable laws, including the Foreign Corrupt Practices Act, or the FCPA.

In April 2012, we self-reported the results of our preliminary findings to the SEC and the U.S. Department of Justice, or the DOJ, which included information about the attempted grant and certain related matters, including a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual associated with the OBI share grant.  At that time, we terminated the employment of our then-Chief Financial Officer and our then-Vice President, Clinical Development.  We also removed Dr. Michael Chang as the Chairman of our Board of Directors and requested that Dr. Michael Chang resign from the Board of Directors, which he has not.  We continued our investigation and our cooperation with the SEC and the DOJ.

As a result of our continuing internal investigation, in February 2013, the independent members of our Board of Directors determined that additional remedial action should be taken in light of prior compliance, record keeping and conflict-of-interest issues surrounding the potentially improper payment to the research laboratory and certain related matters.  On February 26, 2013, our then-President and Chief Executive Officer and our then-General Counsel and Chief Compliance Officer resigned at the request of the independent members of our Board of Directors.

While we are continuing to cooperate with the investigations by the relevant U.S. authorities in their review of these matters and have already taken aggressive remedial steps in response to our ongoing internal investigation, these events potentially could result in lawsuits being filed against us and certain of our current or former employees and directors or we and our current or former employees and directors could be the subject of criminal or civil enforcement proceedings. In the event any such lawsuit is filed or enforcement proceeding is instigated, there is no guarantee that we will be successful in defending it. Also, our insurance coverage may be insufficient and our assets may be insufficient to cover any amounts that exceed our insurance coverage, and we may have to pay penalties or damage awards or otherwise may enter into settlement arrangements in connection with such claims. A settlement of any such claims could involve the issuance of common stock or other equity, which may result in dilution to existing stockholders. Any payments or settlement arrangements could have material adverse effects on our business, operating results and financial condition. Even if any claims against us are not successful, any related litigation or enforcement proceeding, as well as the costs of investigation,

42

could result in substantial costs and significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results and financial condition. In addition, any such lawsuit, investigation or proceeding could result in collateral consequences for our business including, among other things, making it more difficult to finance our operations, obtain certain types of insurance (including directors’ and officers’ liability insurance), enter into collaboration agreements and attract and retain qualified executive officers, other employees and directors. If we are unable to effectively manage these risks, our business, operating results or financial condition may be adversely affected.

We have limited experience as a company in marketing drug products and managing a sales and marketing organization.*

Our strategy is to build a fully-integrated biopharmaceutical company to successfully execute the commercialization of DIFICID in the United States and Canada.  We have limited experience commercializing pharmaceutical products on our own. In order to commercialize products, we have established our own marketing, sales, distribution, pharmacovigilance, managerial and other non-technical capabilities. The establishment and development of our own sales force to market DIFICID has been, and will continue to be, expensive and time consuming, and we cannot be certain that we will be able to successfully maintain this capability or successfully adapt it to commercialize any future products we may develop or acquire. Our commercial presence may not be sufficient to adequately market DIFICID in the United States on our own, as we may be unable to successfully replace the resources and efforts of Cubist in co-promoting DIFICID in the United States.

We 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 APEL in Europe 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 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 our collaborators and us with adequate supplies of commercial product and clinical trial materials 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 DIFICID. Biocon currently is our sole source of supply for fidaxomicin API and Patheon currently is our sole source of supply for finished fidaxomicin drug product. We intend to continue outsourcing the manufacture of our products and product candidates to third parties for any future clinical trials and large-scale commercialization of any product candidates that receive regulatory approval and become commercial drugs, such as DIFICID.

Our ability, and that of our collaborators, to develop and commercialize 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 Biocon and Patheon to try to ensure continuity of supply while maintaining high quality and reliability, we cannot guarantee that these efforts will be successful, and we do not have secondary sources of supply to replace these third parties.  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 agreements with APEL, Astellas Japan, other collaboration partners or our co-promotion agreement with Cubist, which could result in any of those parties terminating their respective agreements with us.

43

In addition, our collaborators, we 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 finished drug product.  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 has been inspected by the FDA for the manufacture of our drug supplies.  Third-party manufacturers of our products and we may be unable to comply with cGMP requirements and with other FDA, state, local and foreign regulatory requirements.  Our collaborators and we 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, our collaborators and we may not be able to obtain or maintain regulatory approval for or successfully commercialize one or more of our products, which would significantly harm our business and prospects.

The adequacy of our current inventory supply is highly dependent on the accuracy of our sales forecast and the demand for our product.*

We maintain higher inventory levels to account for risk associated with having a single supplier of API and bulk tablets. If demand is less than our current expectations by a significant degree, we may realize inventory excess or obsolescence.  This may require a financial impairment to certain inventory.

In the event of an increased sales forecast from current expectations, the contractual lead time to produce additional API may be six-to-nine months.  As such, if demand exceeds our current forecast by a significant degree, we may experience product shortages.

If our products and 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. With respect to DIFICID, we face competition from branded Vancocin Pulvules, generic vancomycin capsules, reconstituted intravenious vancomycin “slurry” for oral administration and metronidazole.  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 has initiated a Phase 3 clinical trial for its compound, 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 than we do in research and development, preclinical testing, conducting clinical trials, obtaining regulatory approvals, manufacturing and marketing approved products.  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 also may 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.  For example, DIFICID currently faces direct competition from an inexpensive generic form of metronidazole and vancomycin capsules in the United States.  In Europe, DIFICLIR faces generic oral vancomycin competition.  In addition, our internal market research suggests that there is continued significant use of oral reconstituted intravenous vancomycin “slurry” in the hospital setting.  Generic antibiotic therapies typically are sold at lower prices than branded antibiotics and generally are preferred by managed care providers of health services.  For example, because metronidazole and generic vancomycin “slurry” are available at such a low price and because generic vancomycin capsules are available at a low price, we believe it may be difficult to sell DIFICID as a first-line therapy for the treatment of CDAD.  Even if physicians prescribe DIFICID to their patients, the relatively high cost of DIFICID compared to generic alternatives may cause patients not to fill their retail prescriptions or cause pharmacists to try to convert DIFICID prescriptions to generic alternatives.  If our collaborators or we 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.

44

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 developing new indications for fidaxomicin or 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 or licenses;

·higher than expected acquisition and integration costs;

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

·impairment of relationships with key suppliers, customers or partners 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.

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 preclinical studies and early clinical trials 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 preclinical studies and initial clinical testing.  In addition, sub-analysis of clinical trial data may reveal limitations even though top-line results are positive.  The type and amount of clinical data necessary to gain regulatory approval also may change during or after completion of 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 are conducting, 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 on-going or future clinical trials.  We do not know whether our clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at all.  Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites, in obtaining institutional review board approval at each site, in recruiting suitable patients to participate in a trial, in having patients complete a trial or return for post-treatment follow-up, in adding new sites or in obtaining sufficient supplies of clinical trial materials.  Many factors affect patient enrollment, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials, clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating, and whether the clinical trial design involves comparison to placebo.

45

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, 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 also may 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 on, and currently 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, our collaborators and we may not be able to obtain or maintain regulatory approval for or commercialize our product candidates.*

We have entered into agreements with CROs and other third parties to provide monitors for and to manage data for our clinical programs, including our Phase 3b clinical trial of DIFICID for the prevention of CDAD in patients undergoing HSCT.

We, and any CROs and other third parties conducting clinical trials for us, 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, any CROs or other third parties 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 or could prevent us from complying with post-approval study requirements.

In addition, these CROs and other third parties are not our employees, and we cannot control whether or not they devote sufficient time and resources to our clinical programs.  These CROs and other third parties may have relationships with other commercial entities, including our competitors, for whom they may be conducting clinical studies or other drug development activities, which could harm our competitive position.  If these CROs and other third parties 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 are 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 or our ability to comply with post-approval study requirements could be jeopardized. 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.

46

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 United States 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 United States 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 United States, 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 United States. 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, non-deductible 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 report annually drug samples that manufacturers and distributors provide to physicians;

·a licensure framework for follow-on biologic products; and

·a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research.

We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

We 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 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.

47

As a result of the PPACA and the trend toward cost-effectiveness criteria and managed healthcare in the United States, third-party payors increasingly are attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs.  They also may 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 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. Our manufacturers and we 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 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.

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;

48

·others may be able to make competing pharmaceutical formulations containing our product and product candidates or components of our product formulations that are 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;

·our licensors and we 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;

·our licensors or we 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 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 14 pending patent applications and 5 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;

·pharmaceutical composition of fidaxomicin and use for CDI;

·polymorphic forms (issued in the United States);

·composition comprising a polymorphic form (issued in the United States);

·manufacturing processes (issued in the United States);

·treatment of diseases with fidaxomicin (issued in the United States);

·formulation; and

·fidaxomicin-related compounds, including metabolites (issued in the United States).

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.

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.

We 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.

49

If our licensees or we 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 pursuant to their first right to enforce the patents licensed to them in their respective territories, 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 partners 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 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.

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.

50

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;

·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;

·our dependence on our collaborators, such as APEL, Astellas Japan, STA and AstraZeneca, 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;

51

·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;

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

·trading volume of our common stock; and

·developments in the investigation and governmental inquiries related to the attempted issuance of OBI shares to Dr. Michael Chang, the potentially improper payment to the research laboratory and certain related matters described in the Risk Factors.

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 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, certain of our directors and executive officers have established, and others may in the future establish, programmed selling plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for the purpose of effecting sales of our common stock. If any of these events cause a large number of our shares to be sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

We have identified a material weakness in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  As disclosed in Item 9A on our Form 10-K for the year ended December 31, 2012, management identified a material weakness in our internal control over financial reporting related to approval of certain non-recurring transactions.  A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective based on criteria set forth in the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.  We believe that the steps that we have taken have remediated the issues that contributed to the material weakness.  These steps included the revision of our corporate authorization policy and other compliance policies, the strengthening of our approval procedures, the implementation of training and internal audit procedures to make our compliance and monitoring more comprehensive and changes to our senior management team, concluding with the replacement of our Chief Executive Officer and General Counsel in February 2013.  If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results.

52

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.

We adopted a rights plan that could make it more difficult for a third-party to acquire us.*

On February 26, 2013, our Board of Directors adopted a stockholder rights plan in conjunction with deciding to conduct a review of strategic alternatives.  The plan could discourage, delay or prevent a third party from acquiring a large portion of our securities, initiating a tender offer or proxy contest or acquiring us, even if our stockholders might receive a premium for their shares over then-current market prices.  On July 30, 2013, in connection with the Merger Agreement with Cubist, the Board of Directors agreed to postpone the date on which a “Flip-in Date” (as defined in the Stockholder Protection Rights Agreement) could otherwise be deemed to occur as a result of the Merger and the other transactions contemplated by the Merger Agreement, including but not limited to the interim financing.

Risks Related to the Merger with Cubist

The Merger is subject to a number of conditions beyond our control. Failure to complete the Merger within the expected time frame, or at all, could adversely affect our future business and financial results and our stock price.*

Consummation of the Merger is subject to conditions, including: (i) the approval of the holders of a majority of the outstanding shares of Optimer common stock entitled to vote on the Merger; (ii) the expiration or termination of the waiting period applicable to the consummation of the Merger under the HSR Act; and (iii) the absence of any law, order or injunction prohibiting the consummation of the Merger.  Moreover, the obligations of Cubist, Merger Sub and the Company to consummate the Merger are subject to certain other conditions, including without limitation: (i) the accuracy of the other party’s representations and warranties (subject to materiality qualifiers); and (ii) the other party’s compliance with its obligations and covenants contained in the Merger Agreement (subject to materiality qualifiers).

53

We cannot predict whether and when these conditions will be satisfied. If one or more of these conditions is not satisfied, and as a result, we do not complete the Merger, or in the event the Merger is not completed or delayed for any other reason, our business may be harmed because:

·management’s and our employees’ attention may be diverted from our day-to-day business because matters related to the proposed Merger may require substantial commitments of their time and resources;

·our relationships with customers, partners and suppliers may be harmed as a result of the proposed Merger as well as uncertainties with respect to our products, employees and business;

·we have agreed to restrict certain of our activities pending the consummation of the Merger; and

·certain costs related to the proposed merger, such as legal and accounting fees and other expenses, are payable by us whether or not the proposed Merger is completed.

Our stock price may also fluctuate significantly based on announcements by Cubist and other third parties or us regarding the Merger, or based on market perceptions of the likelihood of us obtaining stockholder approval of the Merger. Such announcements may lead to perceptions in the market that the Merger may not be completed, which could cause our stock price to fluctuate or decline. In addition, if the Merger Agreement is terminated our stock price could decline significantly.  Our stock price could also be impacted by operating results prior to the closing of the Merger, as the value of the CVR is linked to DIFICID net sales.

Any of these events could harm our results of operations and financial condition and could cause a decline in the price of our common stock, particularly if the Merger does not close.

Our executive officers and directors have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally.*

Our executive officers and directors have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally. These interests include:

·our executive officers, other than our Chief Executive Officer, will be entitled to receive severance benefits, upon or after the closing of the Merger in the event of their qualified termination of employment;

·our executive officers, other than our Chief Executive Officer, will receive a pro rata portion of their annual cash incentive bonus upon the closing of the Merger, with performance deemed achieved at maximum levels; and

·equity awards held by our executive officers and outside directors that are unvested at the closing of the Merger will accelerate upon the closing of the Merger, with performance awards deemed earned at maximum levels.

Our Board of Directors was aware of these interests at the time it approved the Merger and the transactions contemplated by the Merger Agreement. These interests may cause our directors and executive officers to view the Merger proposal differently and more favorably than our shareholders may view it.

The Merger Agreement contains provisions that could discourage a potential competing acquiror.*

The Merger Agreement contains a “non-solicitation” covenant prohibiting us from soliciting, providing non-public information or entering into discussions or negotiations concerning proposals relating to alternative business combination transactions, except as permitted under the terms of the Merger Agreement.  In the event that we receive an acquisition proposal from another person, we will notify Cubist of such proposal and negotiate in good faith with Cubist prior to terminating the Merger Agreement or effecting a change in the recommendation of the Board of Directors to our stockholders with respect to the Merger. The Merger Agreement also contains certain termination rights for both Cubist and us and further provides that, upon termination of the Merger Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Merger Agreement, we will be required to pay Cubist a termination fee of $18.0 million.

These provisions could discourage a potential third-party acquiror that might have an interest in acquiring all or a significant portion of us from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Merger. These provisions also might result in a potential third-party acquiror proposing to pay a lower price to the shareholders than it might otherwise have proposed to pay because of the added expense of the $18.0 million termination fee that may become payable in certain circumstances.

If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger.

54

The Company and Cubist may be unable to obtain the regulatory approvals required to complete the merger.*

Under the HSR Act, the Merger may not be completed until notification and report forms have been filed with the U.S. Federal Trade Commission, or the FTC, and the Antitrust Division of the U.S. Department of Justice, or the Antitrust Division, and the applicable waiting period has expired or been terminated.

At any time before or after the completion of the Merger, the Antitrust Division, the FTC or a state attorney general could take any action under U.S. federal or state antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the Merger in federal court or seeking the divestiture of substantial assets of the Company, Cubist or their subsidiaries and affiliates. State attorneys general and private parties also may bring legal actions under U.S. federal or state antitrust laws under certain circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, of the result of the challenge.

In the event that the Merger Agreement is terminated (other than due to a Cubist breach), our stockholders’ voting power and equity interests may be diluted by the conversion of the Preferred Stock issued to Cubist in connection with financing provided by Cubist during the pendency of the Merger.*

Cubist has agreed to provide the Company with certain financing during the pendency of the Merger.  On a quarterly basis during the pendency of the Merger, commencing on September 15, 2013, the Company will issue to Cubist $25.0 million of Preferred Stock for cash consideration, up to a potential total of $75.0 million.

In the event of a termination of the Merger Agreement (other than due to a Cubist breach), the Preferred Stock becomes convertible into common stock based on the value of the common stock at the time of conversion, subject to certain restrictions. If and when Cubist converts the Preferred Stock, our stockholders may experience dilution in the voting power and the net tangible book value of their common stock. Sales in the public market of shares of common stock issued upon conversion, though subject to volume restrictions, would likely apply downward pressure on prevailing market prices of our common stock. In addition, the existence of the outstanding shares of the Preferred Stock represents potential issuances of common stock upon their conversion, and could represent potential sales into the market of our common stock to be acquired on conversion, which could also depress trading prices for our common stock. Cubist has agreed to various restrictions on its ability to sell the Preferred Stock and any common stock received upon conversion of the Preferred Stock.

Pending litigation against the Company, members of the Company’s Board of Directors and Cubist could result in an injunction preventing completion of the Merger, or the payment of damages in the event the Merger is completed, and/or may adversely affect the combined company’s business, financial condition or results of operations following the Merger.*

The Company, members of the Company’s Board of Directors and Cubist have been named as defendants in a putative stockholder class action lawsuit challenging the Merger.  The lawsuit generally alleges, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to the Company’s stockholders, that the Company’s directors breached their fiduciary duties by conducting an unfair sales process and approving the Merger Agreement and that those breaches were aided and abetted by the Company and Cubist.  The lawsuit seeks, among other things, equitable relief to prevent the defendants from consummating the Merger on the agreed-upon terms and an award of attorneys’ fees.  Additional lawsuits may be filed against the Company, its directors and/or Cubist in connection with the Merger.

One of the conditions to the closing of the Merger is that no order issued by a court or other governmental authority of competent jurisdiction or law or other legal restraint or prohibition making the Merger illegal or restraining, enjoining or otherwise prohibiting or preventing the consummation of the Merger or the other transactions contemplated by the Merger Agreement be in effect. Consequently, if the plaintiff secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting the defendants’ ability to complete the Merger, then such injunctive or other relief may prevent the Merger from becoming effective within the expected time frame or at all.  If completion of the Merger is prevented or delayed, it could result in substantial costs to the Company and Cubist.  In addition, the Company and Cubist could incur significant costs in connection with the lawsuit, including costs associated with the indemnification of the Company’s or Cubist’s directors.  The defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is completed may be costly and adversely affect the combined company’s business, financial condition or results of operation.

55

Item 6.  Exhibits

Exhibit No.		Description of Document
2.1	(1)	Agreement and Plan of Merger, dated as of July 30, 2013, by and among Optimer Pharmaceuticals, Inc., Cubist Pharmaceuticals, Inc. and PDRS Corporation.
3.1	(2)	Optimer Pharmaceuticals, Inc., Amended and Restated Certificate of Incorporaton.
3.2	(3)	Bylaws of Optimer Pharmaceuticals, Inc., as amended.
3.3	(4)	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Optimer Pharmaceuticals, Inc.
4.1	(5)	Common Stock Certificate of Optimer Pharmaceuticals, Inc.
4.2	(6)	Stockholder Protection Rights Agreement, dated as of February 26, 2013, between Optimer Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent, including as Exhibit A the forms of Rights Certificate and of Election to Exercise and as Exhibit B the form of Certificate of Designation and Terms of the Participating Preferred Stock of the Company.
10.1	+	Offer Letter Agreement between Optimer Pharmaceuticals, Inc. and Henry A. McKinnell, dated February 26, 2013.
10.2	*	Fourth Amendment to API Manufacturing and Supply Agreement between Optimer Pharmaceuticals, Inc. and Biocon Limited, dated May 2, 2013.
10.3	+	Offer Letter Agreement between Optimer Pharmaceuticals, Inc. and Eric Sirota, dated May 9, 2013.
10.4	(1)	Form of Contingent Value Rights Agreement between Cubist Pharmaceuticals, Inc. and Trustee.
10.5	(1)	Amendment 1 to Co-Promotion Agreement, dated as of July 30, 2013, between Optimer Pharmaceuticals, Inc. and Cubist Pharmaceuticals, Inc.
31.1		Certification of principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a).
32		Certification by the Chief Executive Officer and the Chief Financial Officer of the Registrant, as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
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 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 Current Report on Form 8-K on August 1, 2013.

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

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

(4)Filed with Registrant’s Current Report on Form 8-K on May 10, 2012.

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

(6)Filed with Registrant’s Current Report on Form 8-K on February 27, 2013.

56

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	OPTIMER PHARMACEUTICALS, INC.
Dated: August 7, 2013	By:	/s/ Stephen W. Webster
	Name:	Stephen W. Webster
	Title:	Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

57

EX-10.1

Exhibit 10.1

February 26, 2013

Henry A. McKinnell, Ph.D.

3 Creek Ranch

PO Box 524

Jackson, WY 83001

Dear Hank:

I am pleased to confirm the terms of your position as Chief Executive Officer of Optimer Pharmaceuticals, Inc. (the “Company”).

1.Effective Date.  February 26, 2013.

2.Position.  Your service as Chief Executive Officer of the Company began on the Effective Date.  In that capacity, you report directly (and only) to the Board of Directors and have all of the customary authorities, duties and responsibilities that accompany the position of Chief Executive Officer.  This position is in addition to your position as Chairman of the Board.

3.Salary.  Your initial cash salary will be $1 per year, payable in arrears.

4.Sign-on Grants.  On the Effective Date, you were granted a stock option to purchase 225,000 shares of the Company’s common stock and a performance-based restricted stock unit covering 60,000 shares of the Company’s common stock.  The award agreements for your sign-on grants are attached as Annex 1.

5.Other Activities.  To the extent they do not materially interfere with the performance of your duties and do not create a conflict of interest, you may engage in such other business and non-business activities as you determine appropriate.  In addition, you may engage in the business of the Company from such locations as you determine appropriate.  However, as a condition of employment, you must read, sign and comply with the Company’s standard Proprietary Interest Protection Agreement, which is attached as Annex 2.

6.No Severance.  You will not be eligible to receive benefits under the Company’s Severance Benefit Plan.  However, your sign-on grants will fully vest (subject to actual performance in the case of the restricted stock unit) if you experience a Covered Termination or there is a Change of Control (each as defined in the Severance Benefit Plan) while employed or if the Board accepts your voluntary retirement.

7.Restrictive Covenants.

(a)Your Importance to the Company and the Importance of This Section 7.  You acknowledge that your position in the Company will provide you with competitively sensitive information of great value to the Company.  If you compete with the Company after your employment, the Company will likely suffer significant and irreparable harm for which it will have no adequate remedy at law.  In return for the payments and benefits that you will receive from the Company, to induce the Company to enter into this letter agreement and in view of the potential harm that you could cause to the Company, you agree to, and you acknowledge that the Company would not have entered into this letter agreement without your agreement to, the terms of this Section 7 and to the enforcement of those provisions as described below.  This Section 7 limits your ability to earn a livelihood in a Competitive Enterprise and limits your relationships with Customers, but you represent and warrant to the Company that this will not result in severe economic hardship for you or your family.

(b)Non-Competition.  For two years after your employment with the Company terminates (for any reason), you agree not to directly or indirectly:  (i) hold a 5% or greater equity, voting or profit participation interest in a Competitive Enterprise; or (ii) associate (including as a director, officer, employee, partner, consultant, agent or advisor) with a Competitive Enterprise.  “Competitive Enterprise” means any business enterprise that either (x) engages in any activity that competes anywhere in the world with any activity in which that the Company is then engaged or (y) holds a 5% or greater equity, voting or profit participation interest in any enterprise that engages in such a competitive activity.  For the avoidance of doubt, this provision does not limit your acting as an outside director of any public company on whose board you serve as of the date of this letter agreement.

(c)Customer Non-Solicitation.  For two years after your employment with the Company terminates (for any reason), you agree not to attempt to:  (i) Solicit any Customer to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company; (ii) transact business with any Customer that would cause you to be a Competitive Enterprise; or (iii) interfere with or damage any relationship between the Company and a Customer.  “Customer” means (x) any customer or client of the Company or (y) any prospective customer or client of the Company whom the Company had solicited within the six months prior to your termination of employment or whose identity became known to you in connection with your relationship with or employment by the Company.  “Solicit” means any direct or indirect communication of any kind, regardless of who initiates it, that in any way invites, advises, encourages or requests any person to take or not take any action.  “Solicitation” has a corresponding meaning.

(d)Employee Non-Solicitation.  For two years after your employment with the Company terminates (for any reason), you agree not to attempt to Solicit anyone who is at the time of the attempted Solicitation an employee of the Company, or who was an employee of the Company within the six months prior to the attempted Solicitation, to resign from the Company or to apply for or accept employment with any Competitive Enterprise.

(e)Enforcement.  In the event of any breach or threatened breach of this Section 7, you hereby consent and agree that the Company will be entitled, in addition to other available remedies, to a temporary or permanent injunction or other equitable relief to restrain the breach or threatened breach from any court of competent jurisdiction,

without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security, all of which are hereby waived in advance.

(f)Severability.  If any provision of this letter agreement, including this Section 7, is found by any court of competent jurisdiction or legally empowered agency to be illegal, invalid or unenforceable for any reason, the provision will be amended automatically to the minimum extent necessary to cure the illegality or invalidity and permit enforcement, and the remainder of this letter agreement will not be affected.  In particular, if any provision of this Section 7 is found to violate law or be unenforceable because it applies for longer than a maximum permitted period or to greater than a maximum permitted area, it will be automatically amended to apply for the maximum permitted period and to the maximum permitted area.

8.Cutback; No Gross-Up.

(a)Reduction in Payments.  You hereby agree that if any Payment by the Company will be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the aggregate Present Value of all your Payments will be reduced (but not below zero) to the Reduced Amount, but only if reducing the Payments will provide you with a Net After-Tax Benefit that is greater than it would be if the reduction were not made.  The reduction of your Payments, if applicable, will be determined by the Accounting Firm in an amount that has the least economic cost to you and, to the extent the economic cost is equivalent, then all Payments, in the aggregate, will be reduced in the inverse order of when the Payments, in the aggregate, would have been made to you until the specified reduction is achieved.

(b)Definitions.  For purposes of this Section 8, the following definitions apply:

(i)“Net After-Tax Benefit” means the Present Value of a Payment, net of all federal, state and local income, employment and excise taxes, determined by applying the highest marginal rate(s) applicable to an individual for your taxable year in which the Payment is made.

(ii)“Payment” means any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to you or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this letter, pursuant to the terms of any Company Plan or otherwise.

(iii)“Present Value” means the value determined in accordance with Section 280G of the Code.

(iv)“Reduced Amount” means an amount expressed in Present Value that maximizes the aggregate Present Value of Payments without causing any Payment to be subject to excise tax under Section 4999 of the Code or the corporate deduction limitation under Section 280G of the Code.

(c)Determinations by Accounting Firm.  The Sections 4999 and 280G calculations under this Section 8 and the determination that your Payments will be reduced or not reduced based on the Net After-Tax Benefit will be made by Ernst & Young or if that firm is unavailable another nationally recognized independent public accounting firm selected by the Company and reasonably acceptable to you (the “Accounting Firm”), which will provide its determination and any supporting calculations to the Company and you within 10 days after the earlier of the date of the Change in Control or the date your employment with the Company terminates.

The reasonable costs and expenses of the Accounting Firm will be borne by the Company.  The determination by the Accounting Firm will be binding upon the Company and you.  In making its determination, the Accounting Firm will take into account the value of your non-competition covenants set forth in Section 7 of this letter agreement, which value will be determined by the independent appraisal of Duff & Phelps or, if that that firm is unavailable another nationally-recognized business valuation firm selected by the Company and reasonably acceptable to you (the “Appraised Value”), and that portion of your Payments to the extent of such Appraised Value, will be specifically allocated as reasonable compensation for such non-competition covenants and will not be treated as a parachute payment.  If the Accounting Firm’s determination is disputed by the Internal Revenue Service, including as a result of any challenge to the Appraised Value, the Company will reimburse you for the cost of your reasonable attorneys’ fees for counsel selected by the Company and reasonably acceptable to you, and any tax additions to tax, any other tax penalties (including additional excise tax) and interest that you ultimately incur upon resolution of the dispute.  Reimbursement will be made in accordance with the Section 409A procedures set forth in Section 10 of this letter agreement.

(d)All Compensation Covered.  You acknowledge and agree that this Section 8 will apply to all compensation you receive from the Company, including without limitation the sign-on grants under Section 4, and that this Section 8 will control over any conflicting provisions of any Company Plan in which you may now or hereafter participate.

9.Indemnification.  Without in any way limiting your rights under your Indemnification Agreement with the Company, the Company confirms that, during and after your employment, the Company will indemnify you in your capacity as a director, officer, employee or agent of the Company to the fullest extent permitted by applicable law and the Company’s charter and by-laws, and will provide you with director and officer liability insurance coverage (including post-termination/post-director service tail coverage) on the same basis as the Company’s other executive officers.  The Company agrees to cause any successor to all or substantially all of the business or assets (or both) of the Company to assume expressly in writing and to agree to perform all of the obligations of the Company in this paragraph.

10.Tax Matters.  To the extent any taxable expense reimbursement or in-kind benefits provided by the Company to you are subject to Section 409A of Code, the amount thereof eligible in one taxable year shall not affect the amount eligible for any other

taxable year, in no event shall any expenses be reimbursed after the last day of the taxable year following the taxable year in which you incurred such expenses and in no event shall any right to reimbursement or receipt of in-kind benefits be subject to liquidation or exchange for another benefit.

We look forward to your leadership.

Sincerely,
OPTIMER PHARMACEUTICALS, INC.
By:	/s/ Anthony E. Altig
	Anthony E. Altig
	Chairman; Compensation, Nominating and Corporate Governance Committee

I agree with and accept the foregoing terms.

/s/ Henry A. McKinnell
	Henry A. McKinnell, Ph.D.

EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT

In consideration of my employment or continued employment by Optimer Pharmaceuticals, Inc. (“Company”), and the compensation paid to me now and during my employment with the Company, I agree to the terms of this Agreement as follows:

1.CONFIDENTIAL INFORMATION PROTECTIONS.

1.1Nondisclosure; Recognition of Company’s Rights.  At all times during and after my employment, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Company’s Confidential Information (defined below), except as may be required in connection with my work for Company, or as expressly authorized by the Chief Executive Officer (the “CEO”) of Company.  I will obtain the CEO’s written approval before publishing or submitting for publication any material (written, oral, or otherwise) that relates to my work at Company and/or incorporates any Confidential Information.  I hereby assign to Company any rights I may have or acquire in any and all Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns.

1.2Confidential Information.  The term “Confidential Information” shall mean any and all confidential knowledge, data or information related to Company’s business or its actual or demonstrably anticipated research or development, including without limitation (a) trade secrets, inventions, ideas, processes, data results, ideas, processes, techniques, formulae, know-how, improvements, discoveries, develops and designs; (b) tangible and intangible information relating to biological materials such as cell lines, antibodies, tissue samples, proteins, nucleic acids and the like, assays and assay components and media, procedures and formulations for producing any such assays or assay components, and pre-clinical and clinical data, results, developments or experiments (information contained in subsection 1.2(a) and (b) are collectively referred to as “Inventions”; (c) information regarding products, services, plans for research and development, marketing and business plans, budgets, financial statements, contracts, prices, suppliers, and customers; (d) information regarding the skills and compensation of Company’s employees, contractors, and any other service providers of Company; and (e) the existence of any business discussions, negotiations, or agreements between Company and any third party.

1.3Third Party Information.  I understand that Company has received and in the future will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes.  During and after the term of my employment, I will hold Third Party Information in strict confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, Third Party Information, except in connection with my work for Company or unless expressly authorized by an officer of Company in writing.

1.4No Improper Use of Information of Prior Employers and Others.  I represent that my employment by Company does not and will not breach any agreement with any former employer, including any noncompete agreement or any agreement to keep in confidence or refrain from using information acquired by me prior to my employment by Company.  I further represent that I have not entered into, and will not enter into, any agreement, either written or oral, in conflict with my obligations under this Agreement.  During my employment by Company, I will not improperly make use of, or disclose, any information or trade secrets of any former employer or other third party, nor will I bring onto the premises of Company or use any unpublished documents or any property belonging to any former employer or other third party, in violation of any lawful agreements with that former employer or third party.  I will use in the performance of my duties only information that is generally known and used by persons with training and experience comparable to my own, is common knowledge in the industry or otherwise legally in the public domain, or is otherwise provided or developed by Company.

2.INVENTIONS.

2.1Definitions.  As used in this Agreement, the term “Intellectual Property Rights” means all trade secrets, copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country.  The term “Moral Rights” means all paternity, integrity, disclosure, withdrawal, special and any other similar rights recognized by the laws of any jurisdiction or country.

2.2Prior Inventions.  I have disclosed on Exhibit A a complete list of all Inventions that (a) I have, or I have caused to be, alone or jointly with others, conceived, developed, or reduced to practice prior to the commencement of my employment by Company; (b) in which I have an ownership interest or which I have a license to use; (c) and that I wish to have excluded from the scope of this Agreement (collectively referred to as “Prior Inventions”).  If no Prior Inventions are listed in Exhibit A, I warrant that there are no Prior Inventions.  I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions (defined below) without Company’s prior written consent. If, in the course of my employment with Company, I incorporate a

1

Prior Invention into a Company process, machine or other work, I hereby grant Company a non-exclusive, perpetual, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Prior Invention.

2.3Assignment of Company Inventions.  Inventions assigned to the Company or to a third party as directed by the Company pursuant to the subsection titled Government or Third Party are referred to in this Agreement as “Company Inventions.”  Subject to the subsections titled Government or Third Party and except for Inventions that I can prove qualify fully under the provisions of California Labor Code section 2870 (or under any other specifically applicable state law, regulation, rule, or public policy) and I have set forth in Exhibit A, I hereby assign and agree to assign in the future (when any such Inventions or Intellectual Property Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company.  Any assignment of Inventions (and all Intellectual Property Rights with respect thereto) hereunder includes an assignment of all Moral Rights.  To the extent such Moral Rights cannot be assigned to Company and to the extent the following is allowed by the laws in any country where Moral Rights exist, I hereby unconditionally and irrevocably waive the enforcement of such Moral Rights, and all claims and causes of action of any kind against Company or related to Company’s customers, with respect to such rights.  I further acknowledge and agree that neither my successors-in-interest nor legal heirs retain any Moral Rights in any Inventions (and any Intellectual Property Rights with respect thereto).

2.4Notice of Unassigned or Nonassignable Inventions.  I recognize that this Agreement will not be deemed to require assignment of any Invention that I developed entirely on my own time without using the Company’s equipment, supplies, facilities, or trade secret information, except for those Inventions that either (i) relate to the Company’s business, (ii) relate to the Company’s actual or demonstrably anticipated research or development, or (iii) result from or are connected with work performed by me for the Company.  In addition, this Agreement does not apply to any Invention which qualifies fully for protection from assignment to the Company under any specifically applicable state law, regulation, rule, or public policy, such as California Labor Code section 2870 for California employees, Title 19 Section 805 of the Delaware Code for Delaware employees, Chapter 765 Section 1060/2 of the Illinois Compiled Statutes for Illinois employees, Kansas Statute § 44-130 for Kansas employees, Minnesota Statute § 181.78 for Minnesota employees, North Carolina Statute §§ 66.57.1 and 66.57.2 for North Carolina employees, Section 49.44.140(3) of the Revised Code of Washington for Washington employees (the “Specific Inventions Law”).  I hereby agree that my signature on this Agreement acknowledges receipt of this notification pursuant to the Specific Inventions Law.

2.5Obligation to Keep Company Informed.  During the period of my employment and for one (1) year after my employment ends, I will promptly and fully disclose to Company in writing (a) all Inventions authored, conceived, or reduced to practice by me, either alone or with others, including any that might be covered under California Labor Code section 2870 or any other Specific Inventions Law, and (b) all patent applications filed by me or in which I am named as an inventor or co-inventor.

2.6Government or Third Party.  I agree that, as directed by the Company, I will assign to a third party, including without limitation the United States, all my right, title, and interest in and to any particular Company Invention.

2.7Enforcement of Intellectual Property Rights and Assistance.  During and after the period of my employment and at Company’s request and expense, I will assist Company in every proper way, including consenting to and joining in any action, to obtain and enforce United States and foreign Intellectual Property Rights and Moral Rights relating to Company Inventions in all countries.  If the Company is unable to secure my signature on any document needed in connection with such purposes, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act on my behalf to execute and file any such documents and to do all other lawfully permitted acts to further such purposes with the same legal force and effect as if executed by me.

3.RECORDS.  I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by the Company) of all Inventions made by me during the period of my employment by the Company, which records shall be available to, and remain the sole property of, the Company at all times.

4.ADDITIONAL ACTIVITIES.  I agree that during the term of my employment by Company, I will not (a) without Company’s express written consent, engage in any employment or business activity that is competitive with, or would otherwise conflict with my employment by, Company; and (b) for the period of my employment by Company and for one (1) year thereafter, I will not either directly or indirectly, solicit or attempt to solicit any employee, independent contractor, or consultant of Company to terminate his, her or its relationship with Company in order to become an employee, consultant, or independent contractor to or for any other person or entity.

5.NO SOLICITATION CUSTOMERS OR POTENTIAL CUSTOMERS FOR EMPLOYEES OUTSIDE OF CALIFORNIA.  If I am employed outside of the State of California, I agree that

2

during the period of my employment and for the one (1) year period after the date my employment ends for any reason, including but not limited to voluntary termination by me or involuntary termination by the Company, I will not, as an officer, director, employee, consultant, owner, partner, or in any other capacity, either directly or through others, except on behalf of the Company, solicit, induce or attempt to induce any Customer or Potential Customer with whom I had direct or indirect contact or whose identity I learned as a result of my employment with the Company, to terminate, diminish, or materially alter in a manner harmful to the Company its relationship with the Company.  The parties agree that for purposes of this Agreement, a “Customer or Potential Customer” is any person or entity who or which, at any time during the one (1) year prior to the date my employment with the Company ends, (i) contracted for, was billed for, or received from the Company any product, service or process with which I worked directly or indirectly during my employment by the Company or about which I acquired Confidential Information; or (ii) was in contact with me or in contact with any other employee, owner, or agent of the Company, of which contact I was or should have been aware, concerning any product, service or process with which I worked directly or indirectly during my employment with the Company or about which I acquired Confidential Information; or (iii) was solicited by the Company in an effort in which I was involved or of which I was or should have been aware.

6.RETURN OF COMPANY PROPERTY.  Upon termination of my employment or upon Company’s request at any other time, I will deliver to Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any Inventions, Third Party Information or Confidential Information and certify in writing that I have fully complied with the foregoing obligation.  I agree that I will not copy, delete, or alter any information contained upon my Company computer or Company equipment before I return it to Company.  In addition, if I have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company information, including but not limited to, Confidential Information, I agree to provide the Company with a computer-useable copy of all such Confidential Information and then permanently delete and expunge such Confidential Information from those systems; and I agree to provide the Company access to my system as reasonably requested to verify that the necessary copying and/or deletion is completed.  I further agree that any property situated on Company’s premises and owned by Company is subject to inspection by Company’s personnel at any time with or without notice.  Prior to the termination of my employment or promptly after termination of my employment, I will cooperate with Company in attending an exit interview and certify in writing that I have complied with the requirements of this section.

7.NOTIFICATION OF NEW EMPLOYER.  If I leave the employ of Company, I consent to the notification of my new employer of my rights and obligations under this Agreement, by Company providing a copy of this Agreement or otherwise.

8.GENERAL PROVISIONS.

8.1Governing Law and Venue.  This Agreement and any action related thereto will be governed and interpreted by and under the laws of the                                     , without giving effect to any conflicts of laws principles that require the application of the law of a different state.  I expressly consent to personal jurisdiction and venue in the state and federal courts for the county in which Company’s principal place of business is located for any lawsuit filed there against me by Company arising from or related to this Agreement.

8.2Severability.  If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of this Agreement will remain enforceable and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to the maximum extent permitted by law.

8.3Survival.  This Agreement shall survive the termination of my employment and the assignment of this Agreement by Company to any successor or other assignee and shall be binding upon my heirs and legal representatives.

8.4Employment.  I agree and understand that nothing in this Agreement shall give me any right to continued employment by Company, and it will not interfere in any way with my right or Company’s right to terminate my employment at any time, with or without cause and with or without advance notice.

8.5Notices.  Each party must deliver all notices or other communications required or permitted under this Agreement in writing to the other party at the address listed on the signature page, by courier, by certified or registered mail (postage prepaid and return receipt requested), or by a nationally-recognized express mail service.  Notice will be effective upon receipt or refusal of delivery.  If delivered by certified or registered mail, notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark.  If delivered by courier or express mail service, notice will be considered to have been given on the delivery date reflected by the courier or express mail service receipt. Each party may change its address for receipt of notice by giving notice of the change to the other party.

8.6Injunctive Relief. I acknowledge that, because my services are personal and unique and because I will have access to the Confidential Information of Company, any breach of this Agreement by me would cause irreparable injury to Company for which monetary damages would not be an adequate remedy and, therefore, will entitle Company to injunctive relief (including specific performance).  The rights and remedies provided to each party in this Agreement are cumulative and in addition to any other rights and remedies available to such party at law or in equity.

8.7Waiver. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be

3

deemed a waiver of that provision or any other provision on any other occasion.

8.8Export.  I agree not to export, reexport, or transfer, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, in violation of the United States export laws or regulations.

8.9Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall be taken together and deemed to be one instrument.

8.10Entire Agreement.  If no other agreement governs nondisclosure and assignment of inventions during any period in which I was previously employed or am in the future employed by Company as an independent contractor, the obligations pursuant to sections of this Agreement titled Confidential Information Protections and Inventions shall apply.  This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior communications between us with respect to such matters.  No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless in writing and signed by me and the CEO of Company.  Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

This Agreement shall be effective as of the first day of my employment with Company.

EMPLOYEE:		OPTIMER PHARMACEUTICALS, INC.:
I HAVE READ, UNDERSTAND, AND ACCEPT THIS AGREEMENT AND HAVE BEEN GIVEN THE OPPORTUNITY TO REVIEW IT WITH INDEPENDENT LEGAL COUNSEL.		ACCEPTED AND AGREED:
		/s/ Theresa Duffy
/s/ Henry McKinnell		(Signature)
(Signature)
		By:	Theresa Duffy
By:	Henry McKinnell
		Title:	Mgr. HR Bus. Operations
Title:	President and CEO
		Date:	6/25/13
Date:	6/25/13
		Address:	101 Hudson St. Jersey City, NJ 07302
Address:	3 Creek Ranch, Jackson, WY 83001

4

EXHIBIT A

INVENTIONS

1.       Prior Inventions Disclosure.  The following is a complete list of all Prior Inventions (as provided in Subsection 2.2 of the attached Employee Confidential Information and Inventions Assignment Agreement, defined herein as the “Agreement”):

x      None

o       See immediately below:

o

o

2.       Limited Exclusion Notification.

FOR EMPLOYEES IN CALIFORNIA, THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s equipment, supplies, facilities or trade secret information, except for those Inventions that either:

a.Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or development; or

b.Result from any work performed by you for Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.

This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.

FOR EMPLOYEES IN DELAWARE, THIS IS TO NOTIFY you in accordance with Title 19, Section 805 of the Delaware Code that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s equipment, supplies, facilities or trade secret information, except for those Inventions that either:

a.Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or development; or

b.Result from any work performed by you for Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.

This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.

FOR EMPLOYEES IN KANSAS, THIS IS TO NOTIFY you in accordance with Section 44-130 of the Kansas Statute that the foregoing Agreement between you and the Company does not require you to assign or offer to assign any of your rights in an Invention in which no equipment, supplies, facilities or trade secret information of the Company was used and which was developed entirely on your own time. This restriction does not apply if:

a.The invention relates to the business of the Company or to the Company’s actual or demonstrably anticipated research or development; or

b.The invention results from any work performed by you for the Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.

This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.

FOR EMPLOYEES IN MINNESOTA, THIS IS TO NOTIFY you in accordance with Section 181.78 of the Minnesota Statute that the foregoing Agreement between you and the Company is an Invention:

a.for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on your own time, and

b.which does not relate directly to the business of the Company or to the Company’s actual or demonstrably anticipated research or development, or

c.which does not result from any work performed by you for the Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.

This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.

FOR EMPLOYEES IN ILLINOIS, THIS IS TO NOTIFY you in accordance with Chapter 765 Section 1060/2 of the Illinois Compiled Statutes that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that no equipment, supplies, facilities, or trade secret information of the Company was used and that was developed entirely on your own time, unless:

a.the Invention relates to the business of the Company, or

b.the Invention relates to the Company’s actual or demonstrably anticipated research or development, or

c.The Invention results from any work performed by you for the Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.

This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.

FOR EMPLOYEES IN NORTH CAROLINA, THIS IS TO NOTIFY you in accordance with North Carolina General Statute §§ 66.57.1 and 66.57.2 that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company’s equipment, supplies, facilities or trade secret information except for those inventions that either:

1.Relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company; or

2.Result from any work performed by you for the Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.  You shall have the burden of establishing that any invention is excluded from assignment to the Company by the preceding paragraph.

This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.

FOR EMPLOYEES IN UTAH, THIS IS TO NOTIFY you in accordance with Sections 34—39—2 and 34—39—3 of the Utah Code the foregoing Agreement between you and the Company is not enforceable against you to the extent that the agreement requires you to assign or license, or to offer to assign or license, to the Company any right or intellectual property in or to an Invention that is:

a.created by you entirely on your own time;

b.not conceived, developed, reduced to practice, or created by you within the scope of the employment; during work hours; with the aid, assistance, or use of any of the Company’s property, equipment, facilities, supplies, resources, or intellectual property;

c.not the result of any work, services, or duties performed by you for the Company;

d.related to the industry or trade of the Company; or

e.related to the current or demonstrably anticipated business, research, or development of the Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.  You shall have the burden of establishing that any invention is excluded from assignment to the Company by the preceding paragraph.

This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.

FOR EMPLOYEES IN WASHINGTON, THIS IS TO NOTIFY you in accordance with Section 49.44.140(3) of the Revised Code of Washington that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company’s equipment, supplies, facilities or trade secret information except for those inventions that either:

1.Relate directly to the business of the Company;

2.Related directly to the Company’s actual or demonstrably anticipated research or development; or

3.Result from any work performed by you for the Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.

This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.

EX-10.2

Exhibit 10.2

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4)

and 240.24b-2.

AMENDMENT # 4 TO

API MANUFACTURING AND SUPPLY AGREEMENT

This Amendment # 4 to API Manufacturing and Supply Agreement (this “Amendment # 4”), is entered into as of April 29, 2013 by and between Optimer Pharmaceuticals, Inc. (“Optimer”) and Biocon Limited (“Biocon”).

RECITALS

Whereas, Optimer and Biocon have previously entered into an API Manufacturing and Supply Agreement dated May 18, 2010 (the “Agreement”); and

Whereas, the parties wish to amend the Agreement as set forth in this Amendment # 4.

Now, Therefore, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Optimer and Biocon agree as follows:

AGREEMENT

1.Section 6.3 is hereby amended and restated as follows:

During the term of this Agreement, one (1) calendar quarter prior to the beginning of each applicable calendar quarter, Optimer shall provide Biocon with a rolling forecast of its requirements of Product from Biocon for the applicable calendar quarter and the following calendar quarter (“Binding Forecast”) as well as a forecast for its estimated requirements of Product from Biocon for the two calendar quarters following the Binding Forecast (Non Binding Forecast”). Without prejudice to the foregoing, Schedule 6.3 contains Optimer’s non-binding, anticipated forecasts of the quantities of Product required pursuant to this Agreement (which forecasts are subject to revision in accordance with this Agreement, and shall not be deemed a Non-Binding or Binding Forecast). Optimer shall promptly notify Biocon if Optimer believes in good faith that the amount which will be specified in the next Binding Forecast will be more than [***] or less than [***] of the amount in the current Non-Binding Forecast for the same calendar quarter. If Optimer notifies Biocon that it believes the amount of Product in the next Binding Forecast will be more than [***] of the amount set forth in the current Non-Binding Forecast for the same calendar quarter, Biocon shall thereafter, subject to the capacity limitations in section 5.1, use Commercially Reasonable and Diligent Efforts to enable the supply of such greater amount of Product in such subsequent calendar quarter and shall promptly notify Optimer if it will be unable to supply such amount.  For purposes of clarification, Biocon shall not be deemed to be in breach of this Agreement if it is unable to supply an amount of Product in a Binding

1

Forecast which is greater than [***] of the amount set forth in the previous Non-Binding Forecast for the same calendar quarter.

2.Section 6.4 is hereby amended and restated as follows:

Notwithstanding anything contained in Section 5.3 or Section 6.3, in the event the amount of Product set forth in Optimer’s Binding Forecast, when combined with the amount of Product set forth in Binding Forecast covering the preceding two calendar quarters (and only if the provisions of Section 6.1(b) were not in effect for any of such four calendar quarters), is below [***] of Product (representing [***] of the maximum amount of Product that can be manufactured in a calendar year at Campus and Park), Biocon shall be entitled to utilize the dedicated capacity at Park to produce Permitted Products in such calendar quarter, subject to the remainder of this Section 6.4. Such production of Permitted Products shall only be undertaken with Optimer’s prior written approval, which shall not be unreasonably withheld provided Biocon demonstrates and certifies in writing to Optimer, including through relevant cleaning experimental data (via cleaning validation), that (a) cross-contamination with other Permitted Products will not affect the quality of the Product to be produced in accordance with the Specifications pursuant to this Agreement and (b) the use of the dedicated capacity at Park for the production of Permitted Products will not otherwise adversely affect Biocon’s ability to fully perform its future obligations under this Agreement.

In the event that Biocon is entitled to produce Permitted Products pursuant to the preceding paragraph and Biocon has not had an obligation or use to manufacture any Permitted Product which can be manufactured using the [***] Equipment for a period exceeding [***] prior to the beginning of the calendar quarter in which Biocon is so entitled to produce Permitted Products, Biocon shall be allowed to use the [***] Equipment in such calendar quarter for Prohibited Products, subject to all of the requirements set forth in the preceding paragraph with respect to the manufacture of Permitted Products.

3Schedule 6.3 of the Agreement is hereby amended and restated as per revised Schedule 6.3 attached to this Amendment # 4.

4Section 7.10 is hereby amended and restated as follows:

Biocon shall provide Optimer, Optimer’s representatives, and Optimer’s business partners with access to Biocon’s manufacturing facilities to conduct quality audits as defined in the Quality Agreement. Biocon shall provide Optimer, Optimer’s representatives, and Optimer’s business partners with access during reasonable business hours and after reasonable notice to those areas of Biocon’s manufacturing facilities where Product or raw materials for Product is manufactured, stored or handled and to manufacturing records, and testing and control records (including without limitation release and stability records), of Product manufactured by Biocon, so that Optimer, Optimer’s representatives, and Optimer’s business partners may perform due diligence audits of such facilities and activities. The duration of each due diligence inspection shall not exceed two (2) days per manufacturing site.  Biocon shall charge Optimer [***] per day

2

for each due diligence audit.

5.Schedule 9.1 of the Agreement is hereby amended and restated as per revised Schedule 9.1 attached to this Amendment # 4.

6.Section 9.4 of the Agreement is hereby amended and restated as follows:

The parties hereby agree to negotiate in good faith an adjustment to the price of the Product specified in Schedule 9.1 to compensate for the following:

i.      Any increase or decrease in the cost of manufacturing the Product caused by a variation in the prices of the primary raw materials in excess of [***] excluding [***] (including due to inflation). The party requesting the price adjustment must be able to demonstrate the requisite increase or decrease in the price of such primary raw materials through supplier invoices and/or other means, including, as applicable, the wholesale price index published by the Department of Economic Affairs, Ministry of Finance, Government of India. Further, any price adjustment required by this Section shall be applied not more than twice every calendar year and shall be applied to Purchase Orders issued in the following half year beginning January 1 and July 1 of each calendar year following the price agreement.

ii.   Any increase in the price of [***] from the Base Price. Base price of [***] = [***]. Biocon shall communicate [***] price as per Section 7.2 of this Agreement.

7.Section 9.5 of the Agreement is hereby amended and restated as follows:

A variation in the exchange rate between the United States dollar and Indian rupee calculated using the daily moving average for the immediately preceding twelve (12) months of any financial year (the “Yearly Average”) in excess of [***] compared to the Base Rate shall result in a price adjustment. The Base Rate for the purpose of this Agreement shall be 1 United States dollar equals Indian rupee [***]. The financial year for the purpose of this Section shall mean a consecutive period of twelve (12) months beginning on 1st April of each year and ending on 31st March of the subsequent year. For the purposes of this Section, the prevailing exchange rates of any year shall be based on the United States dollar—Indian rupee exchange rate as confirmed by the Wall Street Journal, Eastern U.S. edition.

The price of Product, net of all imported material costs, shall be adjusted according to Schedule 9.5.  If the Yearly Average calculated for any financial year varies by less than [***] from the Base Rate, the price per kg of Product for the subsequent financial year shall not be adjusted from the current value. For clarification purposes only, illustrative price adjustments pursuant to this Section are set forth in Schedule 9.5 attached to this Amendment # 4.

Any price adjustment required by this Section shall be applied at the beginning of the following financial year and such adjusted price shall be applicable to supplies due in the following financial year.

8.Schedule 9.6 of the Agreement has been deleted in its entirety.

9.This Amendment # 4 shall be effective on the date first set forth above. However, notwithstanding anything contained herein to the contrary, Section 9.4 and Section 9.5 are effective retrospectively from July 9, 2012.

3

10.Except as provided herein, all other terms and conditions of the Agreement shall remain in full force and effect, and capitalized terms used but not defined in this Amendment # 4 shall continue to have the meaning set forth in the Agreement.

[Signature page follows]

4

IN WITNESS WHEREOF, the parties hereto have executed this Amendment # 4 on the date set forth above.

For Biocon Limited		For Optimer Pharmaceuticals, Inc
1.	/s/ Rakesh Bamzai	/s/ Bridget Noe
Name: Rakesh Bamzai		Name:
Title: President-Marketing		Title:
2.	/s/ Murali Krishnan K.N.
Name: Murali Krishnan K.N.
Title: President – Group Finance

5

SCHEDULE 6.3

[***]

6

SCHEDULE 9.1

[***]

7

SCHEDULE 9.5

[***]

8

EX-10.3

Exhibit 10.3

May 9, 2013

Eric Sirota

12 Edgehill Avenue

Chatham, NJ 07928

Dear Eric:

It is with great pleasure that I offer you the position of Chief Operating Officer with Optimer Pharmaceuticals, Inc. (“Optimer” or the “Company”), performing such duties as are normally associated with this position and such duties as are assigned to you from time to time.  You will report to Hank McKinnell, Optimer’s CEO.  We at Optimer have greatly benefited from your expertise as a consultant to the Company and are very excited about your now becoming a key member of our executive team.  We look forward to the prospect of working with you in your new capacity.

Associated with this opportunity, the Company offers the following compensation and benefits:

1.Initial Salary:  $380,000 U.S. Dollars on an annualized basis, subject to standard federal and state payroll withholding requirements and paid semi-monthly in accordance with the Company’s payroll practices.

2.Optimer has an incentive compensation plan which provides for discretionary annual performance bonuses to our employees based on their position.  Your target incentive compensation is 40% of your annual salary, subject to payroll withholdings and deductions.  Actual bonuses paid under the incentive compensation plan are based on your continuous performance of services to the Company through the date the bonus is paid, the achievement of established corporate and individual goals, and the approval of the Company’s Board of Directors (the “Board”).  Neither the fact nor the amount of any bonus is guaranteed.  Rather, the Board shall determine, in its sole discretion, the amount of any bonus earned by you based upon its evaluation of (a) your achievements of certain milestones and performance objectives established for you by the Board and/or Compensation Committee of the Board and (b) the Company’s achievement of key milestones and objectives established by the Board and/or Compensation Committee of the Board.  Plan participants must be hired by September 1st to participate in the plan year.  Bonus amounts will be pro-rated for plan participants that are hired after January 1st, but before August 31st in the plan year.  The bonus shall be subject to the terms of any applicable incentive compensation plan adopted by the Company, as amended by the Company from time to time.  The bonus, if earned, will be paid to you within the time period set forth in the incentive compensation plan; or if no such time period was established, within a reasonable time after completion of the period for which performance is being measured as determined by the Company but in no event shall the bonus be paid after March 15th of the year following the year in which it is earned.  In the event your employment with the Company ends for any

reason prior to the date the bonus is paid, you are not eligible for any bonus, prorated or otherwise.  For the avoidance of doubt, you acknowledge and agree that you have no contractual right under this letter agreement to any bonus payment or any target percentage, and that any bonus that is paid to you shall be at the sole discretion of the Board.

3.Following commencement of your employment as Chief Operating Officer and as approved by Optimer’s Board of Directors, you will be granted a Restricted Stock Unit award (the “RSU”) which represents the right to be issued on a future date 10,000 shares of Common Stock of Optimer Pharmaceuticals, Inc.  The RSU will be subject to the terms and conditions applicable to restricted stock unit awards granted under the Company’s 2012 Equity Incentive Plan and the applicable Restricted Stock Unit Agreement.  The shares subject to the RSU will be issued to you according to the following  vesting schedule:  one half (1/2) will vest as of one year from the date of grant and the other half (1/2) will vest as of the second year from the date of grant, subject to your continuous employment with the Company on such dates.

4.Optimer offers a competitive benefit package to you and your eligible dependents that currently includes Medical, Dental, Vision, Group Term Life Insurance, Long Term Disability Insurance, a 401(k) plan and several voluntary benefit options.  You will be eligible to participate in these benefit plans on the same basis as similarly situated employees.  Details about these benefit plans are available for your review.  All matters of eligibility for coverage or benefits under any benefit plan shall be determined in accordance with the provisions of such plan.  The Company reserves the right to change, alter, or terminate any benefit plan in its sole discretion.

5.You will be provided 22 paid vacation days a year (7.33 hours per pay period) beginning with your first pay period as a full-time employee.  You will also be provided with 5 days of sick time per year.  Details about these benefits are provided in the employee sourcebook.

6.You will be eligible to participate in Optimer’s Amended and Restated Severance Benefit Plan (the “Severance Plan”) at the level of Company Officer; provided, however, that notwithstanding any provision of the Severance Plan to the contrary, your Base Salary Continuation Period for purposes of Appendix A-2(a) and A-3(a) of the Severance Plan will be the greater of (a) 6 months and (b) the number of months (rounded down in the event of any partial months) during which you are employed by the Company from and after the date of this offer letter, up to a maximum of 15 months (in the case of a “Regular Covered Termination” under Appendix A-2(a) of the Severance Plan) or 18 months (in the case of a “Change of Control Covered Termination” under Appendix A-3(a) of the Severance Plan.  All other terms and conditions of the Severance Plan, including qualifying termination criteria and the length of continued health care coverage, will apply to you without modification.

Please understand that this offer is contingent upon your successful completion of a background check.  You will be required to give your consent for Optimer, through an outside firm, to complete a criminal background check and verification of information provided on your employment application.  Attached is a form for you to complete giving Optimer authorization

101 HUDSON STREET, SUITE 3501, JERSEY CITY, NJ 07302     TEL: 201-333-8819   FAX: 201-333-8870

to conduct your background investigation.  This offer of employment is further contingent upon your submission to a drug test to be administered under the Company’s Drug Testing Policy and upon the Company’s receipt of satisfactory test results.  By signing this letter, you acknowledge and agree that you may be subjected to additional drug testing during your employment and the tests may be the same or different in each case, which testing will be administered under the Company’s Drug Testing Policy.  For the avoidance of doubt, and notwithstanding that this offer as a whole is contingent upon your satisfactory completion of a background investigation and initial drug screening, should the results of either your background investigation or initial drug screening be unsatisfactory to the Company in its sole discretion, (i) the RSU granted to you under paragraph 3 above shall be forfeited and (ii) you will not be eligible for participation in the Severance Plan.

We would like you to start as Chief Operating Officer on or before May 9, 2013.

You should be aware that your employment with the Company is for no specified period and constitutes at-will employment.  As a result, you are free to resign at any time, for any reason or for no reason.  Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice.  Your employment at-will status can only be modified in a written agreement signed by you and by an officer of Optimer.

For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States.  Such documentation must be provided to us at orientation but in no event later than three (3) business days of your date of hire, or our employment relationship with you may be terminated.

As a Company employee, you will be expected to abide by company rules and policies as they may be interpreted, adopted, revised or deleted from time to time in the Company’s sole discretion.  You will be specifically required to sign an acknowledgment that you have read and understand the company rules of conduct, which is included in our employee sourcebook.  You will receive access to the employee sourcebook at orientation.

You will also be expected to sign and comply with an Employee Confidential Information and Inventions Assignment Agreement, which requires, among other provisions, the assignment of rights to inventions made during your employment at the Company and non-disclosure of proprietary information.   Enclosed is a copy of the Employee Confidential Information and Inventions Assignment Agreement for your review and execution.

By signing this letter, you are representing that you have full authority to accept this position and perform the duties of the position without conflict with any other obligations and that you are not involved in any situation that might create, or appear to create, a conflict of interest with respect to your loyalty to or duties for the Company.  You specifically warrant that you are not subject to an employment agreement or restrictive covenant preventing full performance of your duties to the Company.

By signing this letter, you acknowledge that the terms described in this letter, together with the Employee Confidential Information and Inventions Assignment Agreement attached hereto, sets forth the entire understanding between us and supersedes any prior representations or agreements, whether written or oral.  There are no terms, conditions, representations,

warranties or covenants other than those contained herein.  No term or provision of this letter may be amended waived, released, discharged or modified except in writing, signed by you and an authorized officer of Optimer, except that the Company may, in its sole discretion, adjust salaries, incentive compensation, stock plans, benefits, job titles, locations, duties, responsibilities, and reporting relationships.

By signing this letter, you agree that the Consulting Agreement, dated March 8, 2013, and Initial Statement of Work, dated March 8, 2013 and amended on March 25, 2013, between you and the Company (together, the “Consulting Arrangements”) will immediately terminate, and you and the Company hereby agree to waive any right to notice of termination of the Consulting Arrangements.  You will remain entitled to any accrued but unpaid compensation under the Consulting Arrangements, including a pro-rata payment of your monthly cash fee through May 8th, except that you will not receive any pro-rata payment of restricted stock units for the month of May, and certain provisions of the Consulting Arrangements will continue in accordance with their terms.  However, you acknowledge that your change from consultant to to employee of the Company is not a “separation from service” for the purposes of the Consulting Arrangements, and therefore the restricted stock units that you have been or will be granted under the Consulting Arrangements will remain outstanding and will fully vest and deliver in accordance with their terms (i.e., on the earlier of a “change in control” of the Company or your “separation from service” within the meaning of Section 409A of the Code, which would generally be expected to correspond to termination of your employment by the Company).

We do hope that you will decide to accept this opportunity to join us at Optimer during what is a particularly exciting time in the growth and development of the Company.  If there is anything further that you wish to discuss or any issues that require clarification, please do not hesitate to contact me at (201) 492-9208.

Eric, if you accept the terms of this offer, kindly sign and date both copies of this letter, the Employee Confidential Information and Inventions Assignment Agreement and the authorization for the background investigation, keep one set for yourself and return one set to Optimer by scanning the executed document and then emailing tduffy@optimerpharma.com.

Best Regards,

/s/ Linda E. Amper

Linda Amper, Ph.D.

Senior Vice President, Human Resources

I accept the offer as stipulated above:	/s/ Eric Sirota	5/9/2013
	Signature	Date

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Henry A. McKinnell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Optimer Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The 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: August 7, 2013

/s/ Henry A. McKinnell

Henry A. McKinnell

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Stephen W. Webster, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Optimer Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The 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: August 7, 2013

/s/ Stephen W. Webster

Stephen W. Webster

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), Henry A. McKinnell, the Chief Executive Officer of Optimer Pharmaceuticals, Inc. (the “Company”), and Stephen W. Webster, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, to which this Certification is attached as Exhibit 32 (the “Quarterly Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Quarterly Report and results of operations of the Company for the period covered by the Quarterly Report.

Dated: August 7, 2013

/s/ Henry A. McKinnell	/s/ Stephen W. Webster
Henry A. McKinnell	Stephen W. Webster
Chief Executive Officer (Principal Executive Officer)	Chief Financial Officer (Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies

Schedule of net inventory

	June 30,		December 31,
	2013		2012
Raw materials	$	22,466,041	$	9,072,123
Work in process	—		3,552,169
Finished goods	4,450,460		2,923,541
	$	26,916,501	$	15,547,833
Reserves	—		(486,062		)
	$	26,916,501	15,061,771

Schedule of provisions for product sales allowances reduced gross product sales

	Six Months Ended June 30,
	2013			2012
Total gross product sales	$	46,856,205		$	34,885,303
Returns reserve and allowances	(699,688		)	(990,095		)
Government and commercial rebates and chargebacks	(6,770,511		)	(1,467,126		)
Prompt-pay discounts and fees	(3,605,367		)	(2,815,454		)
Product sales allowance	$	(11,075,566	)	$	(5,272,675	)
Total product sales, net	$	35,780,639		$	29,612,628
Total product sales allowances as a percent of gross product sales	23.6		%	15.1		%

Schedule of analysis of the amount of, and change in, product sales reserves

	Six Months Ended June 30, 2013
	Returns Reserve and Allowances			Government and Commercial Rebates and Chargebacks			Prompt-pay Discounts and Fees			Total
Balance at January 1, 2013	$	1,475,124		$	1,642,849		$	1,888,523		$	5,006,496
Provisions related to sales	699,688			6,770,511			3,605,367			11,075,566
Returns and payments	(1,054,351		)	(5,666,719		)	(3,771,065		)	(10,492,135		)
Balance at June 30, 2013	$	1,120,461		$	2,746,641		$	1,722,825		$	5,589,927

XML

Consolidated Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues:
Product sales, net	$ 18,967,103	$ 15,232,087	$ 35,780,639	$ 29,612,628
Contract revenue	1,101,987	34,525,485	3,723,945	34,525,485
Other				2,106
Total revenues	20,069,090	49,757,572	39,504,584	64,140,219
Cost and expenses:
Cost of product sales	1,798,096	1,483,792	3,432,550	2,700,316
Cost of contract revenue	180,199	2,529,721	1,836,245	3,597,457
Research and development	10,939,649	11,557,217	20,825,834	22,625,184
Selling, general and administrative	30,520,599	28,856,929	64,520,332	54,379,211
Co-promotion expenses with Cubist	3,750,000	5,001,583	7,500,000	15,083,166
Total operating expenses	47,188,543	49,429,242	98,114,961	98,385,334
Income (loss) from operations	(27,119,453)	328,330	(58,610,377)	(34,245,115)
Gain on de-consolidation of OBI				23,782,229
Equity in net loss of OBI		(668,852)		(1,154,821)
Interest income and other, net	249,116	44,318	408,341	120,705
Consolidated net loss	(26,870,337)	(296,204)	(58,202,036)	(11,497,002)
Net loss attributable to non-controlling interest				280,344
Net loss attributable to Optimer Pharmaceuticals, Inc.	$ (26,870,337)	$ (296,204)	$ (58,202,036)	$ (11,216,658)
Net loss per share - basic and diluted (in dollars per share)	$ (0.55)	$ (0.01)	$ (1.20)	$ (0.24)
Weighted average number of shares used to compute net loss per share - basic and diluted	48,726,107	47,234,371	48,307,482	46,978,497

XML

Investment Securities

6 Months Ended

Jun. 30, 2013

Investment Securities

Investment Securities

4. Investment Securities

The following is a summary of the Company’s consolidated investment securities, all of which are classified as available-for-sale. Determination of estimated fair value is based upon quoted market prices, pricing vendors or quotes from brokers/dealers as of the dates presented.

	June 30, 2013
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency security	$	3,680,085	$	585	$	—	$	3,680,670
Investment in Cempra	—		983,808		—		983,808
	$	3,680,085	$	984,393	$	—	$	4,664,478

	December 31, 2012
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency security	$	3,750,198	$	1,997	$	—	$	3,752,195
Investment in Cempra	—		804,134		—		804,134
	$	3,750,198	$	806,131	$	—	4,556,329

The government agency security did not have an unrealized loss position at June 30, 2013.

In February 2012, Cempra completed its initial public offering and the Company determined that its equity in Cempra had readily determinable value and recorded the fair value in the Company’s books. Prior to February 2012, the Company assigned no value to its equity in Cempra.

The amortized cost and estimated fair value of securities available-for-sale at June 30, 2013 are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	3,680,085	$	3,680,670

The weighted-average maturity of the Company’s short-term investments at June 30, 2013 and December 31, 2012 was approximately three months and nine months, respectively.

XML

Summary of Significant Accounting Policies (Details 2) (USD $)	6 Months Ended
	Jun. 30, 2013 item	Dec. 31, 2012
Accounts Receivable
Allowance for prompt-payment	$ 1,700,000	$ 1,900,000
Inventory
Raw materials	22,466,041	9,072,123
Work in process		3,552,169
Finished goods	4,450,460	2,923,541
Inventory, gross	26,916,501	15,547,833
Reserves		(486,062)
Inventory, total	$ 26,916,501	$ 15,061,771
Net Product Sales
Number of major wholesalers and regional wholesalers through which DIFICID is available	3
Revenue Recognition
Prompt payment discount recognized (as a percent)	100.00%
Average period of rebates payout	6 months
United States
Accounting Policies
Period prior to product expiration date for which returns of DIFICID are accepted	6 months
Period after product expiration date for which returns of DIFICID are accepted	12 months
Canada
Accounting Policies
Period prior to product expiration date for which returns of DIFICID are accepted	3 months
Period after product expiration date for which returns of DIFICID are accepted	12 months

XML

Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments

Schedule of the Company's financial assets measured at fair value

	Quoted Prices in Active Markets(Level 1)		Other Observable Inputs(Level 2)		Unobservable Inputs(Level 3)		Total
Cash equivalents	$	68,918,465	$	—	$	—	$	68,918,465
Marketable security	—		3,680,670		—		3,680,670
Investment in Cempra	983,808		—		—		983,808
	$	69,902,273	$	3,680,670	$	—	$	73,582,943

XML

Fair Value of Financial Instruments (Details) (USD $)	Jun. 30, 2013
Quoted Prices in Active Markets (Level 1)
Fair Value of Financial Instruments
Fair Value	$ 69,902,273
Quoted Prices in Active Markets (Level 1) | Cash equivalents
Fair Value of Financial Instruments
Fair Value	68,918,465
Quoted Prices in Active Markets (Level 1) | Investment in Cempra
Fair Value of Financial Instruments
Fair Value	983,808
Other Observable Inputs (Level 2)
Fair Value of Financial Instruments
Fair Value	3,680,670
Other Observable Inputs (Level 2) | Marketable security
Fair Value of Financial Instruments
Fair Value	3,680,670
Total
Fair Value of Financial Instruments
Fair Value	73,582,943
Total | Cash equivalents
Fair Value of Financial Instruments
Fair Value	68,918,465
Total | Marketable security
Fair Value of Financial Instruments
Fair Value	3,680,670
Total | Investment in Cempra
Fair Value of Financial Instruments
Fair Value	$ 983,808

XML

Summary of Significant Accounting Policies (Details 4) (USD $)	6 Months Ended
	Jun. 30, 2013 item
Analysis of the amount of, and change in, product sales reserves
Balance at the beginning of the period	$ 5,006,496
Provisions related to sales	11,075,566
Returns and payments	(10,492,135)
Balance at the end of the period	5,589,927
Segment Reporting
Number of operating segment	1
Returns Reserve and Allowances
Analysis of the amount of, and change in, product sales reserves
Balance at the beginning of the period	1,475,124
Provisions related to sales	699,688
Returns and payments	(1,054,351)
Balance at the end of the period	1,120,461
Government and Commercial Rebates and Chargebacks
Analysis of the amount of, and change in, product sales reserves
Balance at the beginning of the period	1,642,849
Provisions related to sales	6,770,511
Returns and payments	(5,666,719)
Balance at the end of the period	2,746,641
Prompt-pay Discounts and Fees
Analysis of the amount of, and change in, product sales reserves
Balance at the beginning of the period	1,888,523
Provisions related to sales	3,605,367
Returns and payments	(3,771,065)
Balance at the end of the period	$ 1,722,825

XML

Third-party Agreements (Details)	3 Months Ended		6 Months Ended		1 Months Ended	6 Months Ended		12 Months Ended	6 Months Ended		6 Months Ended	1 Months Ended	3 Months Ended	6 Months Ended	12 Months Ended				1 Months Ended	3 Months Ended	6 Months Ended		0 Months Ended	6 Months Ended	12 Months Ended	1 Months Ended	6 Months Ended		6 Months Ended	1 Months Ended	6 Months Ended				1 Months Ended	6 Months Ended		1 Months Ended	6 Months Ended			1 Months Ended			1 Months Ended	6 Months Ended
	Jun. 30, 2013 USD ($)	Jun. 30, 2012 USD ($)	Jun. 30, 2013 USD ($)	Jun. 30, 2012 USD ($)	Jun. 30, 2012 STA Achievement of cumulative net sales targets USD ($)	Jun. 30, 2012 APEL Commercial launch of DIFICLIR in the APEL territories milestones EUR (€)	Jun. 30, 2012 APEL EMA approval milestones EUR (€)	Dec. 31, 2011 APEL EMA approval milestones EUR (€)	Jun. 30, 2013 Cempra Enrollment of patients in a phase 2 clinical trial USD ($)	Jun. 30, 2012 Cempra Enrollment of patients in a phase 2 clinical trial USD ($)	Jun. 30, 2013 Cempra Maximum	Nov. 30, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement AstraZeneca USD ($)	Mar. 31, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement AstraZeneca USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement AstraZeneca item	Dec. 31, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement AstraZeneca USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement AstraZeneca First commercial sale in some countries Maximum USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement AstraZeneca Sales-related targets for fidaxomicin in the specified regions Maximum USD ($)	Jun. 30, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement STA Achievement of cumulative net sales targets Minimum USD ($)	Apr. 30, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement Astellas Japan USD ($)	Jun. 30, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement Astellas Japan USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Astellas Japan USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Astellas Japan Regulatory and commercial milestones Maximum USD ($)	Jul. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Cubist USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Cubist USD ($)	Dec. 31, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement Cubist USD ($)	Mar. 31, 2011 Collaboration agreement, license agreement, or manufacturing supply agreement APEL USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement APEL	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement APEL Commercial milestones Maximum EUR (€)	Jun. 30, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement APEL EMA approval milestones EUR (€)	Jun. 30, 2010 Collaboration agreement, license agreement, or manufacturing supply agreement Par USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Par USD ($)	Jun. 30, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement Par USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Par North America and Israel	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Par Rest of the world	May 31, 2010 Collaboration agreement, license agreement, or manufacturing supply agreement Biocon USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Biocon USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Patheon item	Feb. 29, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement Cempra	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Cempra	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Cempra Sublicense revenue milestones USD ($)	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement Cempra Regulatory approval in ASEAN countries milestones USD ($) item	Jan. 31, 2012 Collaboration agreement, license agreement, or manufacturing supply agreement OBI item	Oct. 31, 2009 Collaboration agreement, license agreement, or manufacturing supply agreement OBI item	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement OBI Maximum USD ($)	Jul. 31, 1999 Collaboration agreement, license agreement, or manufacturing supply agreement TSRI item	Jun. 30, 2013 Collaboration agreement, license agreement, or manufacturing supply agreement TSRI USD ($) item	Oct. 31, 2009 Collaboration agreement, license agreement, or manufacturing supply agreement TSRI item
Revenue and Other Collaborative Agreements
Up-front fee												$ 1,000,000							$ 20,000,000							$ 69,200,000
Contract revenue and/or up-front fees recognized as revenue	1,101,987	34,525,485	3,723,945	34,525,485									300,000		700,000					19,900,000
Remaining up-front fees																					100,000
Milestone payments receivable										1,000,000
Contingent payments which the entity is entitled to receive																3,000,000	19,000,000	1,500,000																										10,000,000
Amount received pursuant to collaboration agreement					500,000
Additional contingent cash payments receivable																						70,000,000						65,000,000
Notice period for termination of agreements prior to expiration																					180 days						180 days									2 years 6 months			30 days
Term of the agreement																								2 years												7 years 6 months			10 years
Quarterly fee in exchange of co-promotion activities and personnel commitments																							3,800,000	3,800,000
Fee paid per year in exchange of co-promotion activities and personnel commitments																							15,000,000	15,000,000
Additional payments after first commercial sale in year one																								5,000,000
Additional payments in the second year after first commercial sale if mutually agreed upon annual sales and gross profits targets are achieved																								12,500,000
Quarterly co-promotion fees																									14,700,000
Year-one sales target bonus																									5,000,000
Quarterly fee during extension year if sales targets are achieved																							3,100,000
Annual fee durng extension year if sales targets are achieved																							12,500,000
Portion of the gross profit																									3,500,000
Amount expensed																									23,200,000
Renewal term																																					2 years
Milestone revenue and amortization of up-front payment								40,000,000
Cash payment to the entity						10,000,000	40,000,000																						50,000,000
Milestone payments																														5,000,000
Potential milestone payments																																									1,000,000
Percentage of royalties at par on net revenues																															6.25%		5.00%	1.50%
Royalty payment period																															7 years
Royalty recorded																															1,900,000	3,300,000
Amount paid for certain equipment purchases and manufacturing scale-up activities																																			2,500,000
Recovery amount in the form of discounted prices																																				1,500,000
Period after which notice can be given																																				5 years
Termination of agreement, number of quarters for which no firm orders are delivered																																					2
Number of consecutive calendar quarters for which firm orders are to be delivered																																					4
Ownership interest (as a percent)											20.00%
Aggregate Potential milestone payments the company may receive																																								24,500,000						11,100,000
Number of products for which milestone payments are receivable																																									2
License fee partial consideration paid in stock (in shares)																																						125,646								239,996
Revenue recognized from milestone payments received									1,500,000
Number of early-stage, non-core programs for which funding is available for the development																																											2
Number of affiliates receiving any offer to obtain an exclusive, royalty-bearing license for the entity to exercise right of first refusal																																										1
Expiration term of the executed letter of agreement																																										10 years
Number of separate license agreements																																														3
Number of exclusive, worldwide patent rights																																													20
Number of agreements																																															4
Deemed aggregate fair market value of shares of common stock issued																																														$ 46,400
Number of agreements assigned to subsidiary																																															1
Number of agreements based on 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																																														2
Number of units of accounting														2

XML

Net Loss per Share Attributable to Common Stockholders (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Numerator:
Net loss - basic and diluted	$ (26,870,337)	$ (296,204)	$ (58,202,036)	$ (11,216,658)
Denominator:
Weighted average number of shares of common stock outstanding - basic and diluted	48,726,107	47,234,371	48,307,482	46,978,497
Net loss per share - basic and diluted (in dollars per share)	$ (0.55)	$ (0.01)	$ (1.20)	$ (0.24)
Effect of dilutive securities:
Potentially dilutive shares of common stock not included in the diluted net income per share calculations	3,200,000	4,800,000	4,700,000	5,000,000

XML

Summary of Significant Accounting Policies (Details 3) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Provisions for product sales allowances reduced gross product sales
Total gross product sales			$ 46,856,205	$ 34,885,303
Returns reserve and allowances			(699,688)	(990,095)
Government and commercial rebates and chargebacks			(6,770,511)	(1,467,126)
Prompt-pay discounts and fees			(3,605,367)	(2,815,454)
Product sales allowance			(11,075,566)	(5,272,675)
Total product sales, net	$ 18,967,103	$ 15,232,087	$ 35,780,639	$ 29,612,628
Total product sales allowances as a percent of gross product sales			23.60%	15.10%

XML

Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Operating activities:
Net loss	$ (58,202,036)	$ (11,497,002)
Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities:
Depreciation and amortization	516,437	390,874
Stock-based compensation	7,118,650	7,058,709
Issuance of common stock for consulting services and other	28,829	1,923,763
Deferred rent	247,587	26,733
Gain on de-consolidation of OBI		(23,782,229)
Equity in net loss of OBI		1,154,821
Gain on disposal of assets	(22,316)
Gain on redemption of auction rate security	(180,000)
Tax provision	(62,819)
Changes in operating assets and liabilities:
Trade accounts receivable, net	(565,813)	1,251,213
Accounts receivable, other	1,484,419	48,889,506
Inventory	(11,854,730)	(4,014,732)
Prepaid expenses and other current assets	1,502,779	(1,131,761)
Other assets	298,567	(88,424)
Accounts payable and accrued expenses	3,641,949	8,336,602
Deferred revenues	(335,432)	245,319
Net cash provided (used) by operating activities	(56,383,929)	28,763,392
Investing activities:
Sales or maturities of short-term investments	70,111	38,744,220
Proceeds received on redemption of auction rate security	1,000,000
Purchases of property and equipment	(605,166)	(1,721,109)
Proceeds from sale or refund on fixed assets	114,905
Reduction of cash due to de-consolidation of OBI		(4,010,680)
Purchase of OBI common stock		(468,748)
Proceeds from sale of OBI common stock		2,027,109
Net cash provided by investing activities	579,850	34,570,792
Financing activities:
Proceeds from sale of common stock	9,385,558	4,255,338
Net cash provided by financing activities	9,385,558	4,255,338
Effect of exchange rate changes on cash and cash equivalents	(181,402)	326,273
Net increase (decrease) in cash and cash equivalents	(46,599,923)	67,915,795
Cash and cash equivalents at beginning of period	119,444,586	31,787,512
Cash and cash equivalents at end of period	$ 72,844,663	$ 99,703,307

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.     Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include all the accounts of the Company and its wholly 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 maturities of less than 90 days, at the date of purchase, are considered to be cash equivalents.  All of the Company’s investments at June 30, 2013 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 in other comprehensive income within stockholders’ equity in the consolidated balance sheets.  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.  At June 30, 2013, cash, cash equivalents and short-term investments totaled $77.5 million.

Accounts Receivable

Trade accounts receivable are recorded net of reserves for estimated prompt-payment discounts, service fee arrangements 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 the Company’s consolidated balance sheets. The allowance for prompt-payment discounts and service fees was $1.7 million and $1.9 million at June 30, 2013 and December 31, 2012, respectively.

Inventory

Inventory is stated at the lower of cost or market.  Cost is determined using the first-in, first-out (“FIFO”) method. The Company reserves for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales. Net inventory consisted of the following, as of the dates indicated:

	June 30,		December 31,
	2013		2012
Raw materials	$	22,466,041	$	9,072,123
Work in process	—		3,552,169
Finished goods	4,450,460		2,923,541
	$	26,916,501	$	15,547,833
Reserves	—		(486,062		)
	$	26,916,501	15,061,771

Foreign Currency Translation

The functional currency for the Company’s Canadian subsidiary 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 period. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income within stockholders’ equity in the consolidated balance sheets. Foreign currency transaction gains and losses are reported net in the consolidated statements of operations.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, 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.

Net Product Sales

DIFICID is available in the United States and Canada through three major wholesalers - AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Corporation - and through regional wholesalers and specialty pharmacies that provide DIFICID to purchasing customers, such as hospitals, retail pharmacies, long-term care facilities and other purchasing outlets that may dispense DIFICID. The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, title has passed to the customer, the price is fixed or 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, specialty pharmacies and certain direct purchasers.

The Company’s net product sales represent total gross product sales in the United States and Canada less allowances for customer credits, including estimated rebates, chargebacks, discounts and returns. These allowances are established by management as its best estimate, based on available information, and are adjusted to reflect known changes in the factors that impact such allowances. Allowances for rebates, chargebacks, 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 product sales.

Product Sales Allowances.  The Company establishes reserves for prompt-payment discounts, fee-for-service arrangements, government and commercial rebates, product returns and other applicable allowances, such as the Company’s hospital discount. Allowances relate to prompt-payment discounts and fee-for-service arrangement with the Company’s contracted wholesalers and direct purchase discounts, and are recorded at the time of sale, resulting in a reduction in product sales.  Accruals related to government and commercial rebates, product returns and other applicable allowances are recognized at the time of sale, resulting in a reduction in product sales and an increase in accrued expenses.

Prompt-payment Discounts.   The Company offers a prompt-payment discount to its customers.  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.

Government and Commercial Rebates and Chargebacks.   The Company estimates commercial rebates as well as government-mandated rebates and discounts relating to federal and state programs such as Medicaid, the Veterans’ Administration, or VA, and Department of Defense programs, the Medicare Part D Coverage Discount Program and certain other qualifying federal and state government programs.  The Company estimates the amount of these rebates and chargebacks based on historical trends for DIFICID.  These allowances are adjusted periodically based on actual experience.

Medicaid rebate reserves relate to the Company’s estimated obligations to states under statutory “best price” obligations which also may 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 generally will 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 distributors.  A 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 and chargeback 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 generally will 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 generally will be paid, on average, in 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 in the United States is to accept returns of DIFICID for six months prior to, and twelve months after, the product expiration date.  The Company’s policy in Canada is to accept returns of DIFICID for three months prior to, and twelve months after, the product expiration date.  The Company 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 it 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 sales.  The Company estimates product returns based upon the sales pattern of DIFICID, management’s experience with similar products, historical trends in the pharmaceutical industry and trends for similar products sold by others.

During the six months ended June 30, 2013 and 2012, the provisions for product sales allowances reduced gross product sales as follows:

	Six Months Ended June 30,
	2013			2012
Total gross product sales	$	46,856,205		$	34,885,303
Returns reserve and allowances	(699,688		)	(990,095		)
Government and commercial rebates and chargebacks	(6,770,511		)	(1,467,126		)
Prompt-pay discounts and fees	(3,605,367		)	(2,815,454		)
Product sales allowance	$	(11,075,566	)	$	(5,272,675	)
Total product sales, net	$	35,780,639		$	29,612,628
Total product sales allowances as a percent of gross product sales	23.6		%	15.1		%

An analysis of the amount of, and change in, product sales reserves for the six months ended June 30, 2013 is as follows:

	Six Months Ended June 30, 2013
	Returns Reserve and Allowances			Government and Commercial Rebates and Chargebacks			Prompt-pay Discounts and Fees			Total
Balance at January 1, 2013	$	1,475,124		$	1,642,849		$	1,888,523		$	5,006,496
Provisions related to sales	699,688			6,770,511			3,605,367			11,075,566
Returns and payments	(1,054,351		)	(5,666,719		)	(3,771,065		)	(10,492,135		)
Balance at June 30, 2013	$	1,120,461		$	2,746,641		$	1,722,825		$	5,589,927

During the three months ended June 30, 2013, six launch batches of DIFICID had reached expiration and the Company experienced product returns.  A financial reserve for such returns was appropriately established at the time of sale, and the return amounts are within the scope of the Company’s expectations.

Contract Revenue

Under certain of the Company’s licensing and collaboration agreements, it is entitled to receive payments upon the achievement of contingent milestone events. In order to determine the revenue recognition for contingent milestone-based payments, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards, or FASB, guidance on the milestone method of revenue recognition at the inception of a collaboration agreement.

Accounting Standard Codification (ASC) Topic 605-28, Revenue Recognition — Milestone Method (ASC 605-28), established the milestone method as an acceptable method of revenue recognition for certain contingent, event-based payments under research and development arrangements.  Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved.  A milestone is an event: (i) that can be achieved based in whole or in part on either 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 (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; the price is fixed or determinable; and collectability is reasonably assured.

Revenues recognized for royalty payments are recognized as earned in accordance with the terms of various research and collaboration agreements. The Company also derives contract revenue from supplying raw material, bulk tablets or finished product to its collaboration partners under the supply agreements.

For collaboration agreements with multiple deliverables, the Company recognizes collaboration revenues and expenses by analyzing each element of the agreement to determine if it is to be accounted for as a separate element or single unit of accounting. If an element is to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue is to be recognized. If an element is not to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue is to be recognized.

Cash received in advance of services being performed is recorded as deferred revenue and recognized as revenue as services are performed over the applicable term of the agreement.  In connection with certain research collaboration agreements, revenues are recognized from non-refundable, up-front fees that 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.

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

Research and Development

The Company expenses costs related to research and development as incurred. The Company’s research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by 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. Patent application and administrative costs are recorded as general and administration expenses.

When non-refundable 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.

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date.  The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.  A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.  The Company reviews the need for a valuation allowance each interim period to reflect uncertainties about whether it will be able to utilize deferred tax assets before they expire.  The valuation allowance analysis is based on estimates of taxable income for the jurisdictions in which it operates and the periods over which its deferred tax assets may be realized.  Changes in the Company’s valuation allowance could result in material increases or decreases in our income tax expense in the period such changes occur, which could have a material impact on its operating results.

Net Income (Loss) per Share Attributable to Common Stockholders

Basic net income (loss) per share, attributable to common stockholders, is calculated by dividing net income (loss), attributable to common stockholders, by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per share, attributable to common stockholders, is computed by dividing 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.

Reclassification

The Company has reclassified certain prior period amounts to conform to the current period presentation.  Specifically, it has adjusted amounts to reclassify cost of contracts from cost of product sales in the three months and six months ended June 30, 2012.  This reclassification has no impact on the net loss from operations or stockholders’ equity as previously reported.

As per the requirement of the Accounting Standards Update 2013-02, the Company has determined that there is no significant reclassification out of accumulated other comprehensive income to net income during the three months and six months ended June 30, 2013.

Segment Reporting

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

XML

Net Loss per Share Attributable to Common Stockholders

6 Months Ended

Jun. 30, 2013

Net Loss per Share Attributable to Common Stockholders

Net Loss per Share Attributable to Common Stockholders

5. Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Numerator:
Net loss - basic and diluted	$	(26,870,337	)	$	(296,204	)	$	(58,202,036	)	$	(11,216,658	)
Denominator:
Weighted average number of shares of common stock outstanding - basic and diluted	48,726,107			47,234,371			48,307,482			46,978,497
Net loss per share - basic and diluted	$	(0.55	)	$	(0.01	)	$	(1.20	)	$	(0.24	)

Potentially dilutive shares of common stock, totaling 3.2 million and 4.8 million, for the three months ended June 30, 2013 and 2012, respectively, were not included in the diluted net income per share calculations because they would have been anti-dilutive.

Potentially dilutive shares of common stock, totaling 4.7 million and 5.0 million, for the six months ended June 30, 2013 and 2012, respectively, were not included in the diluted net income per share calculations because they would have been anti-dilutive.

XML

Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments

Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The following table summarizes the Company’s financial assets measured at fair value at June 30, 2013:

	Quoted Prices in Active Markets(Level 1)		Other Observable Inputs(Level 2)		Unobservable Inputs(Level 3)		Total
Cash equivalents	$	68,918,465	$	—	$	—	$	68,918,465
Marketable security	—		3,680,670		—		3,680,670
Investment in Cempra	983,808		—		—		983,808
	$	69,902,273	$	3,680,670	$	—	$	73,582,943

Level 1:  Quoted prices in active markets for identical assets and liabilities

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

Level 3:  Unobservable inputs

Marketable 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 vendors’ pricing processes are deemed to be observable. At June 30, 2013, the Company’s marketable security consisted solely of a government agency security.  The fair value of government agency security generally is determined using standard observable inputs, including reported trades, quoted market prices and broker/dealer quotes.  This security is in Level 2.

Investment in Cempra.  Equity securities that have readily determinable fair values, not classified as trading securities or as held-to-maturity securities, are classified as available-for-sale securities.  Any unrealized gains and losses are reported in other comprehensive income (loss) until realized.  In February 2012, Cempra became a publicly-traded company and, as such, the Company assigned a value to the shares it received in March 2006 (see Note 7) and recorded the entire amount as an unrealized gain.  The Company considers the equity it owns in Cempra as available-for-sale. The fair value of the Company’s investment in Cempra is based on the quoted market price on the reporting date.  Cempra’s stock is publicly traded and is in Level 1.

Auction Rate Preferred Security (“ARPS”).  In April 2013, the Company redeemed the ARPS for $1 million and recognized a gain of $180,000 in the second quarter of 2013.

XML

Fair Value of Financial Instruments (Details 2) (USD $)	6 Months Ended	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2013 Auction rate securities	Apr. 30, 2013 Auction rate securities
Reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs
Redemption amount			$ 1,000,000
Gain recognize on redemption	$ 180,000	$ 180,000

XML

Stock-based Compensation (Details)	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		0 Months Ended	1 Months Ended			3 Months Ended		6 Months Ended		1 Months Ended	6 Months Ended		6 Months Ended
	Jun. 30, 2013 Stock options	Jun. 30, 2012 Stock options	Jun. 30, 2013 Stock options	Jun. 30, 2012 Stock options	Jun. 30, 2013 Stock options Minimum	Jun. 30, 2012 Stock options Minimum	Jun. 30, 2013 Stock options Minimum	Jun. 30, 2012 Stock options Minimum	Jun. 30, 2013 Stock options Maximum	Jun. 30, 2012 Stock options Maximum	Jun. 30, 2013 Stock options Maximum	Jun. 30, 2012 Stock options Maximum	May 31, 2013 Performance-based Stock Options	Apr. 30, 2012 Performance-based Stock Options Michael Chang	Dec. 31, 2010 Performance-based Stock Options Michael Chang	Feb. 28, 2013 Performance-based Restricted Stock Units	Jun. 30, 2013 ESPP	Jun. 30, 2012 ESPP	Jun. 30, 2013 ESPP	Jun. 30, 2012 ESPP	May 31, 2012 2012 Plan Stock options	Jun. 30, 2013 2012 Plan Stock options	May 09, 2012 2012 Plan Stock options	Jun. 30, 2013 2012 Plan Stock options 10% or greater stockholder	Jun. 30, 2013 2006 Plan Stock options	Jun. 30, 2013 2006 Plan Stock options 10% or greater stockholder	Jun. 30, 2013 1998 Plan Stock options	Jun. 30, 2013 1998 Plan Stock options 10% or greater stockholder
Stock-based Compensation
Number of shares of common stock made available for sale															400,000	170,000							11,289,455
Additional shares of common stock reserved for issuance																					3,400,000
Expiration period																						10 years		5 years	10 years	5 years	10 years	5 years
Threshold for principal owner (as a percent)																								10.00%		10.00%		10.00%
Vesting period																						4 years			4 years		4 years
Number of shares of common stock granted													10,000
Options vested (in shares)														248,437
Purchase price of common stock (as a percent)																			85.00%
Assumptions used to compute stock-based compensation expense
Risk-free interest rate (as a percent)		1.22%
Risk-free interest rate, minimum (as a percent)	0.75%		0.75%	1.22%													0.10%	0.10%	0.10%	0.09%
Risk-free interest rate, maximum (as a percent)	0.98%		0.98%	2.17%													0.11%	0.13%	0.13%	0.13%
Dividend yield (as a percent)	0.00%	0.00%	0.00%	0.00%													0.00%	0.00%	0.00%	0.00%
Expected life of options					5 years 3 months	6 years 29 days	5 years 3 months	6 years 29 days	5 years 9 months	8 years 29 days	6 years 29 days	8 years 3 months 29 days					6 months	6 months	6 months	6 months
Volatility, minimum (as a percent)	62.08%	70.72%	61.27%	69.71%													59.06%	37.16%	47.24%	37.16%
Volatility, maximum (as a percent)	64.74%	72.54%	64.74%	72.54%													60.24%	42.75%	60.24%	42.75%

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2013	Dec. 31, 2012
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	150,000,000	150,000,000
Common stock, shares issued	48,867,868	47,791,531
Common stock, shares outstanding	48,867,868	47,791,531

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies

Commitments and Contingencies

8.     Commitments and Contingencies

Contingencies

In March 2012, the Company became aware of an attempted grant in September 2011 to Dr. Michael Chang of 1.5 million technical shares of OBI.  The Company engaged external counsel to assist it in an internal review and determined that the attempted grant may have violated certain applicable laws, including the Foreign Corrupt Practices Act (the “FCPA”).

In April 2012, the Company self-reported the results of its preliminary findings to the SEC and the U.S. Department of Justice (the “DOJ”), which included information about the attempted grant and certain related matters, including a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual associated with the OBI share grant.  At that time, the Company terminated the employment of its then-Chief Financial Officer and its then-Vice President, Clinical Development.  The Company also removed Dr. Michael Chang as the Chairman of its Board of Directors and requested that Dr. Michael Chang resign from the Board of Directors, which he has not.  The Company continued its investigation and its cooperation with the SEC and the DOJ.

As a result of the continuing internal investigation, in February 2013, the independent members of the Board of Directors determined that additional remedial action should be taken in light of prior compliance, record keeping and conflict-of-interest issues surrounding the potentially improper payment to the research laboratory and certain related matters.  On February 26, 2013, the Company’s then-President and Chief Executive Officer and its then-General Counsel and Chief Compliance Officer resigned at the request of the independent members of the Board of Directors.

In addition, over the past year, the Company has revised its compliance policies, strengthened its approval procedures and implemented training and internal audit procedures to make compliance and monitoring more comprehensive.

The Company continues to cooperate with the ongoing investigations by the SEC and DOJ, including by responding to document and interview requests, conducting in-person meetings and updating these authorities on its findings with respect to the attempted OBI technical share grant, the potentially improper payment to the research laboratory and certain matters that may be related.  The Company is unable to predict the ultimate resolution of these matters, whether it will be charged with violations of applicable civil or criminal laws or whether the scope of the investigations will be extended to new issues.  The Company also is unable to predict what potential penalties or other remedies, if any, the authorities may seek against it or any of its current or former employees, or what the collateral consequences may be of any such government actions.

On August 1, 2013, a putative class action lawsuit was filed by Darrell Burns, a purported stockholder of the Company, against Optimer, its directors and Cubist relating to the Company’s pending Merger with Cubist.  This action was filed in the Superior Court of New Jersey, Hudson County, and is called Burns v. Optimer Pharmaceuticals, Inc., et al., Case No. C-103-13.  The lawsuit generally alleges, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to the Company’s stockholders, that the Company’s directors breached their fiduciary duties by conducting an unfair sales process and approving the Merger Agreement and that those breaches were aided and abetted by the Company and Cubist.  The lawsuit seeks, among other things, equitable relief to prevent the defendants from consummating the Merger on the agreed-upon terms and an award of attorneys’ fees.  The Company intends to defend this case vigorously and, because it is still in the preliminary stages, has not yet determined what effect the lawsuit will have, if any, on the Company’s financial position or results of operations.

XML

Consolidated Statements of Comprehensive Loss (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Consolidated Statements of Comprehensive Loss
Consolidated net loss	$ (26,870,337)	$ (296,204)	$ (58,202,036)	$ (11,497,002)
Other comprehensive income (loss):
Change in foreign currency translation adjustment	(100,038)	(124,531)	(181,132)	(103,823)
Unrealized gains on securities:
Holding gains during period	87,175	243,110	115,441	1,235,796
Total other comprehensive income (loss)	(12,863)	118,579	(65,691)	1,131,973
Total comprehensive loss	$ (26,883,200)	$ (177,625)	$ (58,267,727)	$ (10,365,029)

XML

Consolidated Balance Sheets (USD $)	Jun. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 72,844,663	$ 119,444,586
Short-term investments	4,664,478	4,556,329
Trade accounts receivable, net	7,684,902	7,119,089
Accounts receivable, other	906,652	2,391,071
Inventory, net	26,916,501	15,061,771
Prepaid expenses and other current assets	1,939,938	3,442,717
Total current assets	114,957,134	152,015,563
Property, equipment and other, net	4,334,860	4,338,720
Long-term investments		820,000
Deferred tax assets, non-current	890,843	890,843
Other assets	1,063,629	1,362,196
Total assets	121,246,466	159,427,322
Current liabilities:
Accounts payable	2,726,849	7,166,127
Accrued expenses	27,246,589	19,165,362
Deferred revenue	120,818	456,250
Total current liabilities	30,094,256	26,787,739
Deferred rent	1,185,837	938,520
Income taxes payable, non-current	890,843	890,843
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001, 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively
Common stock, $0.001 par value, 150,000,000 shares authorized; 48,867,868 shares and 47,791,531 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	48,868	47,792
Additional paid-in capital	398,809,632	382,277,671
Accumulated other comprehensive income	398,479	464,170
Accumulated deficit	(310,181,449)	(251,979,413)
Total stockholders' equity	89,075,530	130,810,220
Total liabilities and stockholders' equity	$ 121,246,466	$ 159,427,322

XML

Investment Securities (Details) (USD $)	Jun. 30, 2013	Dec. 31, 2012	Jan. 31, 2012
Determination of estimated fair value of the available-for-sale securities based on quoted market prices
Gross Amortized Cost	$ 3,680,085	$ 3,750,198
Gross Unrealized Gains	984,393	806,131
Market Value	4,664,478	4,556,329
Government agency security
Determination of estimated fair value of the available-for-sale securities based on quoted market prices
Gross Amortized Cost	3,680,085	3,750,198
Gross Unrealized Gains	585	1,997
Market Value	3,680,670	3,752,195
Investment in Cempra
Determination of estimated fair value of the available-for-sale securities based on quoted market prices
Gross Unrealized Gains	983,808	804,134
Market Value	983,808	804,134
Equity value			$ 0

XML

Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013
Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments	$ 77.5

XML

Commitments and Contingencies (Details) (OBI, USD $) Share data in Millions, unless otherwise specified	1 Months Ended
	Jul. 31, 2011	Sep. 30, 2011 Michael Chang
Commitments
Number of shares granted		1.5
Payments made to research laboratory	$ 300,000

XML

Subsequent Events (Details) (USD $) In Millions, except Per Share data, unless otherwise specified			0 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jul. 30, 2013 Subsequent event Cubist and Merger Sub item	Jul. 30, 2013 Subsequent event Cubist and Merger Sub RSU item	Jul. 30, 2013 Subsequent event Cubist and Merger Sub Net sales of DIFICID in the United States and Canada, level one	Jul. 30, 2013 Subsequent event Cubist and Merger Sub Net sales of DIFICID in the United States and Canada, level two	Jul. 30, 2013 Subsequent event Cubist and Merger Sub Net sales of DIFICID in the United States and Canada, level three
Subsequent events
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001	$ 0.001
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001	$ 0.001
Tender offer purchase price of outstanding common stock of acquiree (in dollars per share)			$ 10.75	$ 10.75
Number of CVRs receivable by stockholders of acquiree			1	1
Cash payment per share due to shareholders of acquiree, if certain sales milestones are achieved (in dollars per share)					$ 3.00	$ 4.00	$ 5.00
Contingent consideration, net sales threshold					$ 250.0	$ 275.0	$ 300.0
Nonvoting senior preferred stock issued for cash consideration to provide financing on quarterly basis			25.0
Maximum Preferred Stock issued for cash consideration to provide financing on quarterly basis			75.0
Dividend on preferred stock (as a percent)			0.00%
Ownership percentage entitled to be held (as a percent)			5.00%
Consideration for extinguishment of Preferred Stock			$ 0

XML

Third-party Agreements

6 Months Ended

Jun. 30, 2013

Third-party Agreements

Third-party Agreements

7. Third-party Agreements

AstraZeneca UK Limited (“AstraZeneca”)

In November 2012, the Company entered an exclusive distribution and license agreement with AstraZeneca to commercialize fidaxomicin tablets for the treatment of Clostridium difficile infection in Latin America, including Brazil, Central America, Mexico and the Caribbean.  Under the terms of the license agreement, the Company will provide to AstraZeneca the completed preclinical and clinical data, regulatory information and documents, testing information, protocols and any know-how relating to fidaxomicin.  In addition to the transfer of know-how, the Company will provide drug product for purposes of conducting validation testing in connection with seeking regulatory approval in the covered territories for commercial use of the product.  AstraZeneca will be performing, at its own expense, the work required to obtain regulatory approval and commercialization in the covered territories. Under the terms of the agreement, the Company received a $1.0 million up-front payment.

The Company is eligible to receive up to $3.0 million in aggregate contingent payments on the first commercial sale in certain countries, and up to $19.0 million on the achievement of sales-related targets for fidaxomicin in the specified regions.  In addition, under the terms of a supply agreement entered into between the Company and AstraZeneca on the same date, the Company also is entitled to receive payments that provide a return resulting in a double-digit percent of net sales in the territory.

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 determined the appropriate method of revenue recognition for each element.  The Company identified the two units of accounting as the license and the related know-how and the supply of drug product for validation testing.  As of December 31, 2012, the Company recognized $0.7 million of the $1.0 million up-front payment, as the Company determined that revenue was earned upon the delivery of license rights and related know-how.  The remaining $0.3 million was recognized during the three months ended March 31, 2013, upon delivery of the batches manufactured for validation testing. The Company has determined that the achievement of the performance conditions associated with the contingent payments is based solely on the performance of AstraZeneca and that the payments do not meet the criteria for a milestone under the revised authoritative guidance for contingent milestones. The Company will recognize the revenue for the contingent payments when the performance condition is achieved.

Specialised Therapeutics Australia Pty. Ltd. (“STA”)

In June 2012, the Company entered into a distribution and license agreement with STA to register and commercialize fidaxomicin in Australia and New Zealand for the treatment of CDI.  Under the distribution and license agreement, STA is responsible for all costs associated with the registration and commercialization of fidaxomicin in Australia and New Zealand.  In addition, the Company entered a supply agreement with STA to supply product for the registration and commercial activities of STA and its sublicensees.  Upon signing the distribution and license agreement, STA made a payment of $0.5 million related to expenses incurred by the Company in connection with pre-approved activities in Australia which was recognized as contract revenue in 2012.

The Company is entitled to receive contingent payments, which may exceed $1.5 million, upon the achievement of cumulative net sales targets and also will receive payments for the supply of fidaxomicin to STA. The Company has determined that the achievement of the performance conditions associated with the contingent payments is solely based on the performance of STA and that the payments do not meet the criteria for a milestone under the revised authoritative guidance for contingent milestones. The Company will recognize the revenue for the contingent payments when the performance condition is achieved.

In April 2013, STA received from the Therapeutic Goods Administration, the Australian regulatory body for therapeutic goods such as medicine, marketing approval of DIFICID tablets for the treatment of confirmed Clostridium difficile infection (CDI) in adults.  DIFICID became commercially available in Australia in May 2013.

Astellas Pharma Inc. (“Astellas Japan”)

In March 2012, the Company entered into a collaboration and license agreement with Astellas Japan pursuant to which the Company granted to Astellas Japan an exclusive, royalty-bearing license under certain of its know-how and intellectual property to develop and commercialize fidaxomicin in Japan.  Under the terms of the collaboration and license agreement, and at its expense, Astellas Japan agreed to use commercially reasonable efforts to develop and commercialize fidaxomicin in Japan and achieve certain additional regulatory and commercial diligence milestones with respect to fidaxomicin in Japan.  In addition, under the terms of the collaboration and license agreement, Astellas Japan granted to the Company an exclusive, royalty-free license under know-how and intellectual property generated by Astellas Japan and its sublicensees in the course of developing fidaxomicin and controlled by Astellas Japan or its affiliates for use by the Company and any of its sublicensees in the development and commercialization of fidaxomicin outside Japan and, following termination of the collaboration and license agreement and subject to payment by the Company of a single-digit royalties, in Japan.  In addition, under the terms of a supply agreement entered into by Astellas Japan and Optimer Europe, on the same date as the collaboration and license agreement, Optimer Europe will be the exclusive supplier of fidaxomicin to Astellas Japan for Astellas Japan’s development and commercialization activities in Japan during the term of the supply agreement.

Under the terms of the collaboration and license agreement, Astellas Japan paid the Company an up-front fee of $20.0 million in April 2012. The Company also is eligible to receive additional contingent cash payments totaling up to $70.0 million upon the achievement by Astellas Japan of specified regulatory and commercial milestones.  In addition, the Company will be entitled to receive high-single-digit royalties on net sales of fidaxomicin in Japan above an agreed threshold, which royalties are subject to reduction in certain limited circumstances.  Such royalties will be payable by Astellas Japan on a product-by-product basis until a generic product accounts for a specified market share of the applicable fidaxomicin product in Japan.  Under the supply agreement, in exchange for commercial supply of fidaxomicin, Astellas Japan is obligated to pay Optimer Europe a price equal to net sales of fidaxomicin in Japan minus a discount that is based on a high-double-digit percentage of such net sales and a mark-up to cost of goods.  This price will be payable by Astellas Japan on a product-by-product basis for commercial supply until a generic product accounts for a specified market share of the applicable fidaxomicin product in Japan.

The collaboration and license agreement will continue in effect on a product-by-product basis until expiration of Astellas Japan’s obligation to pay royalties with respect to each fidaxomicin product in Japan, unless terminated early by either party.  Following expiration of the collaboration and license agreement, Astellas Japan’s license to develop and commercialize the applicable fidaxomicin product will become non-exclusive.  Each of the Company and Astellas Japan may terminate the collaboration and license agreement prior to expiration upon the material breach of such agreement by the other party or upon the bankruptcy or insolvency of the other party.  In addition, the Company may terminate the collaboration and license agreement prior to expiration in the event Astellas Japan 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 under the collaboration and license agreement.  Astellas Japan may terminate the collaboration and license agreement prior to expiration for any reason upon 180 days’ prior written notice to the Company.  Upon any such termination, the license granted to Astellas Japan (in total or with respect to the terminated product, as applicable) will terminate and revert to the Company.  The supply agreement will continue in effect until terminated by either party.  Each of Optimer Europe and Astellas Japan may terminate the supply agreement: (i) upon the material breach of such agreement by the other party; (ii) upon the bankruptcy or insolvency of the other party; or (iii) on a product-by-product basis following expiration of Astellas Japan’s obligation to pay the price described above with respect to the applicable fidaxomicin product, or in its entirety following expiration of Astellas Japan’s obligation to pay the price described above with respect to all fidaxomicin products.

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. During the three months ended June 30, 2012, the Company recognized $19.9 million of the $20.0 million up-front payment, as the Company determined that revenue was earned upon the delivery of license rights and related know-how.  The remaining $0.1 million is being amortized over the term of the agreement and relates to the Company’s obligation to Astellas Japan to provide support in regulatory inquires and additional data as they are generated through the Company’s U.S. operations.

Cubist

In April 2011, the Company entered into a co-promotion agreement with 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 agreed to co-promote DIFICID to physicians, hospitals, long-term care facilities and other healthcare institutions as well as jointly to provide medical affairs support for DIFICID. In conducting their respective co-promotion activities, each party was obligated under the agreement to commit minimum levels of personnel, and Cubist was 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 was 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 term of the agreement was 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, the Company was obligated to pay a quarterly fee of approximately $3.8 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 payments are paid in arrears. Cubist also was 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 were achieved, as well as a portion of the Company’s gross profits derived from net sales above the specified annual targets, if any. During 2012, the Company achieved the first year sales target and expensed $23.2 million, which consisted of $14.7 million in quarterly co-promotion fees, $5.0 million for the year-one sales target bonus and $3.5 million for Cubist’s portion of the gross profit on net sales above the year-one target.

On July 30, 2013, the Company entered into an amendment to its co-promotion agreement with Cubist, pursuant to which the parties agreed to extend the term of the co-promotion agreement in substantially its current form until July 31, 2014, subject to early termination by either party upon termination of the Merger Agreement. Under the amendment, the Company will continue to pay a quarterly fee of $3.8 million to Cubist ($15.0 million per year) during the extension year and also will pay Cubist $3.1 million per quarter (up to $12.5 million in total) during the extension year if mutually agreed upon quarterly sales targets are achieved, as well as a portion of the Company’s gross profit derived from net sales above the specified annual target, if any.

On July 30, 2013, the Company announced that it had signed the Merger Agreement with Cubist, under which Cubist will acquire all of the outstanding shares of the Company’s common stock upon consummation of the Merger.

Astellas Pharma Europe Ltd. (“APEL”)

In February 2011, the Company entered into a collaboration and license agreement with APEL pursuant to which the Company granted to APEL an exclusive, royalty-bearing license under certain of the Company’s know-how and intellectual property to develop and commercialize fidaxomicin in Europe and certain other countries in the Middle East, Africa and the Commonwealth of Independent States, or CIS.  In March 2011, the parties amended the collaboration and license agreement and the supply agreement (described below) to include certain additional countries in the CIS and all additional territories in Africa (all such countries and territories are referred to as the APEL territories).  Under the terms of the collaboration and license agreement, APEL has agreed to use commercially reasonable efforts to develop and commercialize fidaxomicin in the APEL territories at its expense, and to achieve certain additional regulatory and commercial diligence milestones with respect to fidaxomicin in the APEL territories.  The Company and APEL also may agree to collaborate in, and share data resulting from, global development activities with respect to fidaxomicin, in which case the Company and APEL will be obligated to co-fund such activities.  In addition, under the terms of the collaboration and license agreement, APEL granted the Company an exclusive, royalty-free license under know-how and intellectual property generated by APEL and its sublicensees in the course of developing fidaxomicin and controlled by APEL or its affiliates for use by the Company and any of its sublicensees in the development and commercialization of fidaxomicin outside the APEL territories and, following termination of the agreement and subject to payment by the Company of single-digit royalties, in the APEL territories.  In addition, under the terms of a supply agreement entered into between the Company and APEL on the same date, the Company is the exclusive supplier of fidaxomicin to APEL for APEL’s development and commercialization activities in the APEL territories during the term of the supply agreement, and APEL is obligated to pay the Company an amount equal to cost plus an agreed mark-up for such supply.

Under the terms of the collaboration and license agreement, APEL paid the Company an up-front fee of $69.2 million in March 2011, and the Company recognized a milestone payment of 40.0 million Euros in December 2011 as the result of APEL attaining EMA approval of DIFICLIR.  APEL paid the Company 50.0 million Euros in June 2012, which consisted of the 40.0 million Euro approval milestone payment and a 10.0 million Euro milestone payment for the first commercial launch of DIFICLIR in an APEL territory. The Company is eligible to receive additional contingent cash payments totaling up to 65.0 million Euros, upon the achievement by APEL of additional specified commercial milestones.

In addition, the Company is entitled to receive escalating double-digit royalties ranging from the high teens to low twenties on net sales of DIFICLIR products in the APEL territories, which royalties are subject to reduction in certain, limited circumstances.  Such royalties are payable by APEL on a product-by-product and country-by-country basis until a generic product accounts for a specified market share of the applicable DIFICLIR product in the applicable country. APEL launched DIFICLIR in Europe during the second quarter of 2012.

The Company assessed the deliverables under the authoritative guidance for multiple element arrangements. Based on the Company’s analysis, it determined that all of the up-front payment was earned upon the delivery of the license and related know-how, which occurred by March 31, 2011.

The agreements with APEL will continue in effect on a product-by-product and country-by-country basis until expiration of APEL’s obligation to pay royalties with respect to each fidaxomicin product in each country in the APEL territory, unless terminated early by either party as more fully described below.  Following expiration, APEL’s license to develop and commercialize the applicable fidaxomicin product in the applicable country will become non-exclusive.  The Company and APEL each may terminate either of the agreements, prior to expiration, upon the material breach of such agreement by the other party or upon the bankruptcy or insolvency of the other party.  In addition, the Company may terminate the agreements prior to expiration in the event APEL 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. APEL may terminate the agreements prior to expiration for any reason on a product-by-product and country-by-country basis upon 180 days’ prior written notice to the Company.  Upon any such termination, the license granted to APEL (in total or with respect to the terminated product or terminated country, as applicable) will terminate and revert to the Company.

Par Pharmaceuticals, Inc. (“Par”)

In February 2007, the Company repurchased the rights to develop and commercialize fidaxomicin in North America and Israel from Par under a prospective buy-back agreement.  The Company paid Par a $5.0 million milestone payment in June 2010 for the successful completion by the Company of its second pivotal Phase 3 trial for fidaxomicin.  The Company is obligated to pay Par a 5% royalty on net sales by the Company, its affiliates or its licensees of fidaxomicin in North America and Israel and a 1.5% royalty on net sales by the Company or its affiliates of fidaxomicin in the rest of the world.  In addition, the Company is required to pay Par a 6.25% royalty on net revenues it receives related to fidaxomicin in connection with licensing of its right to market fidaxomicin in the rest of the world, such as the licenses the Company has granted to its partners in territories outside the United States and Canada.  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. For the six months ended June 30, 2013 and 2012, the Company expensed approximately $1.9 million and $3.3 million, respectively, in royalties to Par.

Biocon Limited (“Biocon”)

In May 2010, the Company entered into a long-term supply agreement with Biocon for the commercial manufacture of fidaxomicin active pharmaceutical ingredient (“API”).  Pursuant to the agreement, Biocon agreed to manufacture and supply the Company, up to certain limits, fidaxomicin API and, subject to certain conditions, the Company agreed to purchase from Biocon at least a portion of its requirements for fidaxomicin 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 has recovered $1.5 million of this amount under the supply agreement in the form of discounted prices for fidaxomicin API. Unless both Biocon and the Company agree to extend the term of the supply agreement, it will terminate seven and one-half years from the date the Company obtained marketing authorization for DIFICID in the United States.  The supply agreement may be earlier terminated: (i) by either party by giving two and one-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 fidaxomicin API; or (iii) by Biocon upon the occurrence of certain events, including the Company’s failure to purchase amounts of fidaxomicin API that it indicates in binding forecasts.

Patheon Inc. (“Patheon”)

In June 2011, the Company entered into a commercial manufacturing services agreement with 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 automatically will 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. Patheon and the Company 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 determines 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 the Company; (iii) if Patheon is unable to deliver or supply any firm orders for any two calendar quarters during any four consecutive calendar quarters; (iv) if Patheon uses any debarred or suspended person in the performance of its service obligations under the agreement; or (v) if Patheon fails to meet certain production yield requirements in relation to fidaxomicin API.

Cempra, Inc. (“Cempra”)

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 the Association of Southeast Asian Nations, or ASEAN, 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 representing an ownership of less than 20%.  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 milestone payments will be triggered upon the completion of certain clinical development milestones and, in certain instances, regulatory approval of products.  The Company also may receive royalty payments based on a percentage of net sales of licensed products.

Pursuant to the agreement, Cempra granted the Company an exclusive license whereby 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.

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 also may 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.

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: (i) events that can only be achieved in part on the Company’s past performance or upon the occurrence of a specific outcome resulting from the Company’s performance; (ii) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; and (iii) they result in additional payments being due to the Company. Clinical development and commercial milestone payments, however, currently do not meet these criteria as their achievement is solely based on the performance of Cempra.

In February 2012, Cempra completed an initial public offering at which time the Company’s equity interest in Cempra was converted to 125,646 shares of common stock.  The Company considers its equity interest in Cempra as available-for-sale (see Note 3).

In June 2012, Cempra completed its first Phase 2 clinical trial of solithromycin (CEM101) in patients with community-acquired bacterial pneumonia, which triggered a $1.0 million milestone payment to the Company.  To date, the Company has received $1.5 million in payments from this collaboration.

OBI Pharma, 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 assigned, and OBI assumed, its rights and obligations under related license agreements with Memorial Sloan-Kettering Cancer Center.  Under the intellectual property assignment and license agreement, the Company is eligible to receive up to $10.0 million in milestone payments related to the development of OPT-822/821 and is eligible to receive royalties on net sales of any product which is commercialized under the program.  The term of the intellectual property assignment and license agreement continues until the last to expire of certain patents assigned to and licensed by the Company to OBI.

In January 2012, OBI and the Company executed a letter of agreement which provided the Company the right of first refusal if OBI or one of its affiliates receives any offer to obtain an exclusive, royalty-bearing license (including the right to sublicense) under the OPT-822/821 patents and the OBI OPT-822/821 technology to develop, make, have made, use, sell, offer for sale, have sold and import OPT-822/821 products in the United States, Europe or other specified territories.  In the letter of agreement, as consideration for the grant of the right of first refusal, the Company waived certain of OBI’s obligations under the intellectual property assignment and license agreement. The letter of agreement expires 10 years from the effective date of the agreement.

In the fourth quarter of 2012, the Company sold its remaining equity interest in OBI (the “Stock Purchase Agreement”) but retains its rights to receive milestone and royalty payments related to OPT-822/821 under the Intellectual Property Assignment and License Agreement and the right of first refusal to license commercial rights to OPT-822/821 in the United States, Europe or other specified territories.

Scripps Research Institute (“TSRI”)

In July 1999, the Company acquired exclusive, worldwide rights certain drug technology from TSRI.  The agreement with TSRI includes the license to the Company of patents, patent applications and copyrights related to the 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 and carbohydrate mimetics.

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.  The Company currently is not developing any products covered by the TSRI agreements.

XML

Investment Securities (Details 2) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Amortized Cost
Due in one year or less	$ 3,680,085
Estimated Fair Value
Estimated fair value of securities available for sale, due in one year or less	$ 3,680,670
Weighted-average maturity of short-term investments	3 months	9 months

XML

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation

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

Use of Estimates

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

Cash, Cash Equivalents and Short-term Investments

Investments with maturities of less than 90 days, at the date of purchase, are considered to be cash equivalents.  All of the Company’s investments at June 30, 2013 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 in other comprehensive income within stockholders’ equity in the consolidated balance sheets.  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.  At June 30, 2013, cash, cash equivalents and short-term investments totaled $77.5 million.

Accounts Receivable

Accounts Receivable

Trade accounts receivable are recorded net of reserves for estimated prompt-payment discounts, service fee arrangements 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 the Company’s consolidated balance sheets. The allowance for prompt-payment discounts and service fees was $1.7 million and $1.9 million at June 30, 2013 and December 31, 2012, respectively.

Inventory

Inventory

Inventory is stated at the lower of cost or market.  Cost is determined using the first-in, first-out (“FIFO”) method. The Company reserves for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales. Net inventory consisted of the following, as of the dates indicated:

	June 30,		December 31,
	2013		2012
Raw materials	$	22,466,041	$	9,072,123
Work in process	—		3,552,169
Finished goods	4,450,460		2,923,541
	$	26,916,501	$	15,547,833
Reserves	—		(486,062		)
	$	26,916,501	15,061,771

Foreign Currency Translation

Foreign Currency Translation

The functional currency for the Company’s Canadian subsidiary 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 period. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income within stockholders’ equity in the consolidated balance sheets. Foreign currency transaction gains and losses are reported net in the consolidated statements of operations.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, 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.

Net Product Sales

Net Product Sales

DIFICID is available in the United States and Canada through three major wholesalers - AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Corporation - and through regional wholesalers and specialty pharmacies that provide DIFICID to purchasing customers, such as hospitals, retail pharmacies, long-term care facilities and other purchasing outlets that may dispense DIFICID. The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, title has passed to the customer, the price is fixed or 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, specialty pharmacies and certain direct purchasers.

The Company’s net product sales represent total gross product sales in the United States and Canada less allowances for customer credits, including estimated rebates, chargebacks, discounts and returns. These allowances are established by management as its best estimate, based on available information, and are adjusted to reflect known changes in the factors that impact such allowances. Allowances for rebates, chargebacks, 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 product sales.

Product Sales Allowances.  The Company establishes reserves for prompt-payment discounts, fee-for-service arrangements, government and commercial rebates, product returns and other applicable allowances, such as the Company’s hospital discount. Allowances relate to prompt-payment discounts and fee-for-service arrangement with the Company’s contracted wholesalers and direct purchase discounts, and are recorded at the time of sale, resulting in a reduction in product sales.  Accruals related to government and commercial rebates, product returns and other applicable allowances are recognized at the time of sale, resulting in a reduction in product sales and an increase in accrued expenses.

Prompt-payment Discounts.   The Company offers a prompt-payment discount to its customers.  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.

Government and Commercial Rebates and Chargebacks.   The Company estimates commercial rebates as well as government-mandated rebates and discounts relating to federal and state programs such as Medicaid, the Veterans’ Administration, or VA, and Department of Defense programs, the Medicare Part D Coverage Discount Program and certain other qualifying federal and state government programs.  The Company estimates the amount of these rebates and chargebacks based on historical trends for DIFICID.  These allowances are adjusted periodically based on actual experience.

Medicaid rebate reserves relate to the Company’s estimated obligations to states under statutory “best price” obligations which also may 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 generally will 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 distributors.  A 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 and chargeback 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 generally will 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 generally will be paid, on average, in 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 in the United States is to accept returns of DIFICID for six months prior to, and twelve months after, the product expiration date.  The Company’s policy in Canada is to accept returns of DIFICID for three months prior to, and twelve months after, the product expiration date.  The Company 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 it 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 sales.  The Company estimates product returns based upon the sales pattern of DIFICID, management’s experience with similar products, historical trends in the pharmaceutical industry and trends for similar products sold by others.

During the six months ended June 30, 2013 and 2012, the provisions for product sales allowances reduced gross product sales as follows:

	Six Months Ended June 30,
	2013			2012
Total gross product sales	$	46,856,205		$	34,885,303
Returns reserve and allowances	(699,688		)	(990,095		)
Government and commercial rebates and chargebacks	(6,770,511		)	(1,467,126		)
Prompt-pay discounts and fees	(3,605,367		)	(2,815,454		)
Product sales allowance	$	(11,075,566	)	$	(5,272,675	)
Total product sales, net	$	35,780,639		$	29,612,628
Total product sales allowances as a percent of gross product sales	23.6		%	15.1		%

An analysis of the amount of, and change in, product sales reserves for the six months ended June 30, 2013 is as follows:

	Six Months Ended June 30, 2013
	Returns Reserve and Allowances			Government and Commercial Rebates and Chargebacks			Prompt-pay Discounts and Fees			Total
Balance at January 1, 2013	$	1,475,124		$	1,642,849		$	1,888,523		$	5,006,496
Provisions related to sales	699,688			6,770,511			3,605,367			11,075,566
Returns and payments	(1,054,351		)	(5,666,719		)	(3,771,065		)	(10,492,135		)
Balance at June 30, 2013	$	1,120,461		$	2,746,641		$	1,722,825		$	5,589,927

During the three months ended June 30, 2013, six launch batches of DIFICID had reached expiration and the Company experienced product returns.  A financial reserve for such returns was appropriately established at the time of sale, and the return amounts are within the scope of the Company’s expectations.

Contract Revenue

Contract Revenue

Under certain of the Company’s licensing and collaboration agreements, it is entitled to receive payments upon the achievement of contingent milestone events. In order to determine the revenue recognition for contingent milestone-based payments, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards, or FASB, guidance on the milestone method of revenue recognition at the inception of a collaboration agreement.

Accounting Standard Codification (ASC) Topic 605-28, Revenue Recognition — Milestone Method (ASC 605-28), established the milestone method as an acceptable method of revenue recognition for certain contingent, event-based payments under research and development arrangements.  Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved.  A milestone is an event: (i) that can be achieved based in whole or in part on either 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 (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; the price is fixed or determinable; and collectability is reasonably assured.

Revenues recognized for royalty payments are recognized as earned in accordance with the terms of various research and collaboration agreements. The Company also derives contract revenue from supplying raw material, bulk tablets or finished product to its collaboration partners under the supply agreements.

For collaboration agreements with multiple deliverables, the Company recognizes collaboration revenues and expenses by analyzing each element of the agreement to determine if it is to be accounted for as a separate element or single unit of accounting. If an element is to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue is to be recognized. If an element is not to be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue is to be recognized.

Cash received in advance of services being performed is recorded as deferred revenue and recognized as revenue as services are performed over the applicable term of the agreement.  In connection with certain research collaboration agreements, revenues are recognized from non-refundable, up-front fees that 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.

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

Research and Development

Research and Development

The Company expenses costs related to research and development as incurred. The Company’s research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by 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. Patent application and administrative costs are recorded as general and administration expenses.

When non-refundable 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.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date.  The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.  A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.  The Company reviews the need for a valuation allowance each interim period to reflect uncertainties about whether it will be able to utilize deferred tax assets before they expire.  The valuation allowance analysis is based on estimates of taxable income for the jurisdictions in which it operates and the periods over which its deferred tax assets may be realized.  Changes in the Company’s valuation allowance could result in material increases or decreases in our income tax expense in the period such changes occur, which could have a material impact on its operating results.

Net Income (Loss) per Share Attributable to Common Stockholders

Net Income (Loss) per Share Attributable to Common Stockholders

Basic net income (loss) per share, attributable to common stockholders, is calculated by dividing net income (loss), attributable to common stockholders, by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per share, attributable to common stockholders, is computed by dividing 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.

Reclassification

Reclassification

The Company has reclassified certain prior period amounts to conform to the current period presentation.  Specifically, it has adjusted amounts to reclassify cost of contracts from cost of product sales in the three months and six months ended June 30, 2012.  This reclassification has no impact on the net loss from operations or stockholders’ equity as previously reported.

As per the requirement of the Accounting Standards Update 2013-02, the Company has determined that there is no significant reclassification out of accumulated other comprehensive income to net income during the three months and six months ended June 30, 2013.

Segment Reporting

Segment Reporting

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

XML

Stock-based Compensation

6 Months Ended

Jun. 30, 2013

Stock-based Compensation

Stock-based Compensation

6. Stock-based Compensation

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”) which became effective upon the closing of the Company’s initial public offering.  The 2006 Plan was succeeded by the 2012 Equity Plan (“2012 Plan”) which became effective upon approval by the Company’s stockholders on May 9, 2012. After May 9, 2012, no additional stock awards will be awarded under the 2006 Plan.  However, all outstanding stock awards granted under the 2006 Plan remain subject to the terms of the 2006 Plan.

The 2012 Plan is a continuation of the 2006 Plan.  Upon its adoption, the maximum number of shares of the Company’s common stock issuable under the 2012 Plan was 11,289,455, which consisted of: (a) 3,400,000 new shares; and (b) the number of unallocated shares remaining available for grant of new awards under the 2006 Plan as of May 9, 2012, which include shares subject to outstanding stock awards granted under the 2006 Plan that: (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or repurchased at the original issuance price; or (iii) are re-acquired or withheld (or not issued) to satisfy a tax withholding obligation in connection with an award other than a stock option or stock appreciation right.

Options granted under the 1998 Plan, the 2006 Plan and the 2012 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.

Restricted Stock Units

Additionally, the Company grants restricted stock units (“RSUs”) to its board members, executives and other employees. RSUs are valued based on the fair market value of the Company’s stock on the date of grant.

Performance-based Stock Options and Performance-based Restricted Stock Units

In February 2013, the Compensation Committee granted to certain executives performance-based RSUs covering up to an aggregate of 170,000 shares of common stock, which will vest over time beginning on the date the Company determines that a specified product revenue goal has been achieved.

In May 2013, the Compensation Committee granted to a certain executive performance-based stock options of 10,000 shares of common stock, which will vest over time beginning on the date the Company determines that a specified service performance goal has been achieved.

In 2010, Dr. Michael Chang resigned as the Company’s President and CEO.  The Company entered into a consulting agreement with Dr. Michael Chang to provide general consulting services. Pursuant to his consulting agreement and as part of his compensation, Dr. Michael Chang received performance-based stock options to purchase up to an aggregate of 400,000 shares of common stock which were to vest over time beginning on the dates certain regulatory filings were accepted and approved. Dr. Michael Chang’s consulting agreement was terminated in April 2012 and, as a result, the unvested portion of the performance-based options was cancelled.  Prior to the termination of his consulting agreement, 248,437 options had vested.  However, due to Dr. Michael Chang’s continuing role as a director, his other equity awards remain outstanding and continue to vest as per the vesting term of the awards.

Employee Stock Purchase Plan

Optimer issues stock under its employee stock purchase plan (“ESPP”). Under the terms of the ESPP, eligible employees may purchase shares of Optimer’s common stock at the lesser of 85% of the fair market value of Optimer’s common stock on the offering date or the purchase date.

Stock-based Compensation

Stock options are valued using the Black-Scholes option pricing model on the date of grant. This option pricing model involves a number of estimates, including the expected lives of stock options, the Company’s anticipated stock volatility and applicable interest rates.  The Company recognizes compensation expense for performance-based stock awards granted to employees under the accelerated attribution method.  The following tables show the assumptions used to compute stock-based compensation expense for the stock options and ESPP during the three months and six months ended June 30, 2013 and 2012, using the Black-Scholes option pricing model:

	Three Months ended June 30,			Six Months ended June 30,
Stock Options Including Performance-based Stock Options	2013	2012		2013		2012
Risk-free interest rate	0.75-0.98%	1.22	%	0.75-0.98	%	1.22-2.17	%
Dividend yield	0.00%	0.00	%	0.00	%	0.00	%
Expected life of options (years)	5.25-5.75	6.08-8.08		5.25-6.08		6.08-8.33
Volatility	62.08-64.74%	70.72-72.54	%	61.27-64.74	%	69.71-72.54	%

	Three Months ended June 30,				Six Months ended June 30,
ESPP	2013		2012		2013		2012
Risk-free interest rate	0.10-0.11	%	0.10-0.13	%	0.10-0.13	%	0.09-0.13	%
Dividend yield	0.00	%	0.00	%	0.00	%	0.00	%
Expected life of options (years)	0.5		0.5		0.5		0.5
Volatility	59.06-60.24	%	37.16-42.75	%	47.24-60.24	%	37.16-42.75	%

The risk-free interest rate assumption was based on the 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 Company’s expectation of not paying dividends for the foreseeable future.  The weighted-average expected life of options was calculated using the simplified method.  The Company used its historical volatility.

Total stock-based compensation expense related to all of the Company’s stock options, RSUs, other stock awards issued to employees and consultants and the ESPP, recognized for the three months and six months ended June 30, 2013 and 2012 was as follows:

	Three Months ended June 30,				Six Months ended June 30,
	2013		2012		2013		2012
Research and development	$	723,352	$	1,249,360	$	1,341,495	$	2,214,142
Selling, general and administrative	2,093,673		2,704,006		5,805,984		4,826,921
Stock-based compensation expense	$	2,817,025	$	3,953,366	$	7,147,479	$	7,041,063

At June 30, 2013, the total unrecognized compensation expense related to unvested stock options and unvested restricted stock units issued to employees was approximately $20.9 million and the related weighted-average period over which such expense is expected to be recognized is approximately 2.6 years.

The effect of the Company’s merger with Cubist on stock-based compensation is described in Note 9.

XML

Interim Financial Information

6 Months Ended

Jun. 30, 2013

Interim Financial Information

Interim Financial Information

1. Interim Financial Information

Organization and Business Activities

Optimer Pharmaceuticals, Inc. (“Optimer” or the “Company”) is a global biopharmaceutical company focused on commercializing innovative hospital specialty products. The Company currently markets one product in the United States and Canada, DIFICID® (fidaxomicin) tablets.  DIFICID is a macrolide antibacterial drug that is approved in the United States for the treatment of Clostridium difficile-associated diarrhea (“CDAD”) in adults.  CDAD is the most common symptom of Clostridium difficile infection (“CDI”). DIFICID is approved in Canada for the treatment of CDI and is commercialized by Optimer.  Fidaxomicin also is approved in Europe for the treatment of CDI, where it is marketed by a licensee as DIFICLIR™, and in Australia, where it is marketed by a licensee as DIFICID.  Optimer is pursuing commercialization in other territories through collaboration partners and is moving forward with lifecycle management initiatives for fidaxomicin.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the three months and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the Securities and Exchange Commission (“SEC”) on March 18, 2013.

The Company has sustained recurring losses and negative cash flows from operations.  The Company’s current cash, cash equivalents and short-term investment balance of $77.5 million, and negative cash flows for the six months ended June 30, 2013 of $46.6 million, indicate substantial risk to continue as a going concern over a reasonable period of time.

On July 30, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Cubist Pharmaceuticals, Inc. (“Cubist”), a Delaware corporation, and PDRS Corporation, a Delaware corporation and a wholly owned subsidiary of Cubist (“Merger Sub”).  The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company.  As a result, the Company will become a wholly owned subsidiary of Cubist (the “Merger”). Consummation of the Merger is subject to certain conditions, as further described in Note 9.

XML

Stock-based Compensation (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Stock-based compensation expense
Stock-based compensation expense (in dollars)	$ 2,817,025	$ 3,953,366	$ 7,147,479	$ 7,041,063
Unrecognized compensation expense related to unvested awards (in dollars)	20,900,000		20,900,000
Related weighted-average period over which unrecognized compensation expense is expected to be recognized			2 years 7 months 6 days
Research and development
Stock-based compensation expense
Stock-based compensation expense (in dollars)	723,352	1,249,360	1,341,495	2,214,142
Selling, general and administrative
Stock-based compensation expense
Stock-based compensation expense (in dollars)	$ 2,093,673	$ 2,704,006	$ 5,805,984	$ 4,826,921

XML

Investment Securities (Tables)

6 Months Ended

Jun. 30, 2013

Investment Securities

Schedule of investment securities classified as available-for-sale

	June 30, 2013
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency security	$	3,680,085	$	585	$	—	$	3,680,670
Investment in Cempra	—		983,808		—		983,808
	$	3,680,085	$	984,393	$	—	$	4,664,478

	December 31, 2012
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Government agency security	$	3,750,198	$	1,997	$	—	$	3,752,195
Investment in Cempra	—		804,134		—		804,134
	$	3,750,198	$	806,131	$	—	4,556,329

Schedule of the amortized cost and estimated fair value of securities available-for-sale

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	3,680,085	$	3,680,670

XML

Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events

Subsequent Events

9.     Subsequent Events

Merger Agreement

On July 30, 2013, the Company entered into the Merger Agreement with Cubist and Merger Sub.  The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company.  As a result of the Merger, the Company will become a wholly owned subsidiary of Cubist.

At the effective time of the Merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time (other than: (i) shares of common stock and shares of the Company’s preferred stock, par value $0.001 per share (if any), owned by Cubist, Merger Sub or any other directly or indirectly wholly owned subsidiary of Cubist and shares of common stock owned by Optimer; and (ii) shares owned by stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be converted into the right to receive: (i) $10.75 in cash, without interest, at the effective time; and (ii) one contingent value right (a “CVR”). Each CVR will entitle its holder to a payment of $3.00 if net sales of DIFICID in the United States and Canada during the period from and including July 1, 2013 through and including December 31, 2015 are greater than $250.0 million, a payment of $4.00 if such net sales during the same period are greater than $275.0 million and a payment of $5.00 if such net sales during the same period are greater than $300.0 million.  Cubist will file a registration statement on Form S-4 in order to register the CVRs under the Securities Act of 1933, as amended, and has agreed to use its reasonable best efforts to cause the CVRs to be listed for trading on the Nasdaq Stock Market (“Nasdaq”) as of the effective time of the Merger and thereafter to cause such listing to be maintained for so long as any CVRs remain outstanding.

In addition, at the effective time of the Merger: (i) each outstanding option under the 1998 Plan, 2006 Plan or 2012 Plan will be converted into the right to receive an amount in cash equal to the excess, if any, of the last reported sale price of a share of the Company’s common stock on Nasdaq prior to the effective time of the Merger, over the per-share exercise price of the option; (ii) each outstanding RSU (including performance-based RSUs, which will be deemed to be earned as if performance goals were met at maximum) will be converted into the right to receive $10.75 in cash plus one CVR; and (iii) the 1998 Plan, 2006 Plan, 2012 Plan and ESPP will be terminated, and no new awards will be made thereunder.

Consummation of the Merger is subject to certain conditions, including: (i) the approval of the holders of a majority of the outstanding shares of Optimer common stock entitled to vote on the Merger; (ii) the expiration or termination of the waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (iii) the absence of any law, order or injunction prohibiting the consummation of the Merger; and (iv) the accuracy of the other party’s representations and warranties (subject to materiality qualifiers) and the other party’s compliance with its obligations and covenants contained in the Merger Agreement (subject to materiality qualifiers).

Interim Financing

Cubist has agreed to provide the Company with certain financing during the pendency of the Merger.  On a quarterly basis during the pendency of the Merger, commencing on September 15, 2013, the Company will issue to Cubist $25.0 million of non-voting senior preferred stock (“Preferred Stock”) for cash consideration, up to a potential total of $75.0 million. The Preferred Stock carries no dividend.  In the event of a termination of the Merger Agreement due to a Cubist breach, the Preferred Stock becomes redeemable in exchange for nominal consideration.  In all other instances, the Preferred Stock becomes convertible into common stock based on the value of the common stock at the time of conversion, subject to applicable legal restrictions, including limitations on the issuance of common stock in the absence of stockholder approval under the rules and regulations of Nasdaq and limitations under the HSR Act.  Furthermore, in no circumstances will Cubist be entitled to hold more than 5% of the outstanding shares of the Company’s common stock at any time.

The Preferred Stock will be extinguished, in exchange for no consideration, if the Merger is consummated.  The Preferred Stock will be redeemed in exchange for its aggregate liquidation preference in the event of a transaction resulting in a change of control of the Company as a result of which a termination fee is paid to Cubist pursuant to the terms of the Merger Agreement or on an as-converted-into-common-stock basis prior to the announcement of any other transaction resulting in a change of control of the Company.  Cubist has agreed to various restrictions on its ability to sell the Preferred Stock and any common stock received upon conversion of the Preferred Stock, including that it will not sell any such stock until the first anniversary of any termination of the Merger Agreement or to any person or group filing a beneficial ownership report on Schedule 13D in respect of the Company.

XML

Interim Financial Information (Details) (USD $)	6 Months Ended
	Jun. 30, 2013 item	Jun. 30, 2012
Interim Financial Information
Number of approved anti-infective products for the treatment of CDAD	1
Cash, cash equivalents and short-term investments	$ 77,500,000
Cash flows from all activities	$ (46,599,923)	$ 67,915,795

XML

Net Loss per Share Attributable to Common Stockholders (Tables)

6 Months Ended

Jun. 30, 2013

Net Loss per Share Attributable to Common Stockholders

Schedule of computation of basic and diluted net loss per share

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Numerator:
Net loss - basic and diluted	$	(26,870,337	)	$	(296,204	)	$	(58,202,036	)	$	(11,216,658	)
Denominator:
Weighted average number of shares of common stock outstanding - basic and diluted	48,726,107			47,234,371			48,307,482			46,978,497
Net loss per share - basic and diluted	$	(0.55	)	$	(0.01	)	$	(1.20	)	$	(0.24	)

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 06, 2013
Document and Entity Information
Entity Registrant Name	OPTIMER PHARMACEUTICALS INC
Entity Central Index Key	0001142576
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		48,899,717
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Stock-based Compensation

Schedule of assumptions used to compute stock-based compensation expense for the stock options and ESPP

	Three Months ended June 30,			Six Months ended June 30,
Stock Options Including Performance-based Stock Options	2013	2012		2013		2012
Risk-free interest rate	0.75-0.98%	1.22	%	0.75-0.98	%	1.22-2.17	%
Dividend yield	0.00%	0.00	%	0.00	%	0.00	%
Expected life of options (years)	5.25-5.75	6.08-8.08		5.25-6.08		6.08-8.33
Volatility	62.08-64.74%	70.72-72.54	%	61.27-64.74	%	69.71-72.54	%

	Three Months ended June 30,				Six Months ended June 30,
ESPP	2013		2012		2013		2012
Risk-free interest rate	0.10-0.11	%	0.10-0.13	%	0.10-0.13	%	0.09-0.13	%
Dividend yield	0.00	%	0.00	%	0.00	%	0.00	%
Expected life of options (years)	0.5		0.5		0.5		0.5
Volatility	59.06-60.24	%	37.16-42.75	%	47.24-60.24	%	37.16-42.75	%

Schedule of total stock-based compensation expense related to stock options, RSUs, other stock awards issued to employees and consultants, and the ESPP

	Three Months ended June 30,				Six Months ended June 30,
	2013		2012		2013		2012
Research and development	$	723,352	$	1,249,360	$	1,341,495	$	2,214,142
Selling, general and administrative	2,093,673		2,704,006		5,805,984		4,826,921
Stock-based compensation expense	$	2,817,025	$	3,953,366	$	7,147,479	$	7,041,063