Lower Dificid Price Doesn’t Resonate With Analysts, OPTR Could Trade Lower

Yesterday, Optimer Pharmaceuticals hosted its Analyst Day describing a new lower pricing policy with hospitals to spur demand of Dificid. Our negative view of the meeting was echoed by many analyst reports this morning with at least two broker dealers cutting their price targets and one reducing its rating from Buy to Neutral (see PropThink's story from Monday). The overwhelming view after the Analyst Day is that the company’s decision to provide a 25% discount on the price of Dificid to hospitals failed to resonate with analysts and investors as a long‐term driver of value by significantly increasing volume to outweigh the price reduction. Analysts expressed skepticism, particularly given the flattening prescription trends over the past few months, and also noted that the company’s co-promotion agreement with Cubist (NASDAQ:CBST) for Dificid expires in April 2013, which could crimp the sales ramp even further. Despite the discount only being applied to hospitals and not retail (outpatient) prescriptions, unit growth of Dificid would have to increase by 30% above current growth estimates just to offset the new discount, which could be challenging. Importantly, even after the Dificid 25% price discount, the product still costs $210 per day vs. generics at around $10 per day, so hospitals will likely continue to favor generic use. In addition, physicians still believe that the generic options (metronidazole and vancomycin) are highly effective, so displacing them could be more difficult than OPTR implies. Expect follow through this morning on OPTR’s decline yesterday, as the uncertainty over Dificid’s peak sales potential continues.