10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from              to

Commission file number: 001-33291

Optimer Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	33-0830300
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
10110 Sorrento Valley Road, Suite C, San Diego, California, 92121
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (858) 909-0736

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   o No  x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No   x.

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

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

Large accelerated filer  o Accelerated filer  x Non-accelerated filer  o Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x.

The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2008 (without admitting that any person whose shares are not included in such calculation is an affiliate), computed by reference to the price at which the common stock was last sold as of such date on the Nasdaq Global Market, was $226,483,907.

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of March 11, 2009 was 33,037,661.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for our 2009 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.

OPTIMER PHARMACEUTICALS

FORM 10-K—ANNUAL REPORT

For the Fiscal Year Ended December 31, 2008

Table of Contents

PART I
Item 1	Business	3
Item 1A	Risk Factors	21
Item 1B	Unresolved Staff Comments	40
Item 2	Properties	40
Item 3	Legal Proceedings	40
Item 4	Submission of Matters to a Vote of Security Holders	40
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	41
Item 6	Selected Consolidated Financial Data	42
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	43
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	51
Item 8	Financial Statements and Supplementary Data	52
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	72
Item 9A	Controls and Procedures	72
Item 9B	Other Information	74
PART III
Item 10	Directors, Executive Officers and Corporate Governance	74
Item 11	Executive Compensation	74
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	74
Item 13	Certain Relationships and Related Transactions, and Director Independence	74
Item 14	Principal Accountant Fees and Services	74
PART IV
Item 15	Exhibits and Financial Statement Schedules	74
Signatures		77

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PART I

Cautionary Note Regarding Forward-Looking Statements

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

Item 1. Business

Overview

We are a biopharmaceutical company focused on discovering, developing and commercializing innovative anti-infective products. Our current development efforts are focused on products that treat gastrointestinal infections, and related diseases where current therapies have limitations, including limited efficacy, serious adverse side effects, drug-to-drug interactions, difficult patient compliance and bacterial resistance.

We currently have two late-stage anti-infective product candidates, fidaxomicin, formerly known as OPT-80, and prulifloxacin.

Fidaxomicin, our lead product candidate, is an antibiotic currently in its second Phase 3 registration trial for the treatment of Clostridium difficile-infections, or CDI, the most common nosocomial, or hospital acquired diarrhea. In November 2008, we reported positive data from the first fidaxomicin Phase 3 trial, the largest single comparative study ever conducted against Vancocin® (oral vancomycin) in CDI. The top-line analysis of data from this trial showed that fidaxomicin achieved the primary endpoint of clinical cure and demonstrated a significantly lower recurrence rate compared to Vancocin, the only FDA-approved antibiotic for the treatment of CDI.   Fidaxomicin was also well-tolerated in the trial. The second fidaxomicin Phase 3 trial is on-going and we anticipate completing enrollment and reporting data from this trial in 2009.  We currently hold worldwide rights to fidaxomicin.

Prulifloxacin is a prodrug in the fluoroquinolone class of antibiotics, a widely-used class of broad-spectrum antibiotics. We are developing prulifloxacin as a treatment for infectious diarrhea in travelers.  We have announced positive results from each of our two Phase 3 trials assessing the safety and efficacy of prulifloxacin as a once-daily (600 mg), three-day oral therapy for the treatment of infectious diarrhea, including travelers’ diarrhea.  In July 2008, we reported positive top-line data from the first of two Phase 3 trials. The top-line analysis of data from this study showed that prulifloxacin met the primary endpoint of Time to Last Unformed Stool, or TLUS, in both the modified intent-to treat, or mITT (n=187) and microbiologically evaluable (per protocol; n=165) populations compared to placebo.  Prulifloxacin was generally well tolerated and had a similar safety profile compared to placebo.  In February 2009, we reported positive top-line data from the second Phase 3 trial which showed that prulifloxacin met the study objective of superiority to placebo in the resolution of diarrhea, measured by TLUS, in both the mITT (n=200) and microbiologically evaluable (per protocol; n=173) populations.  The trial also confirmed the overall efficacy and safety profile observed in the first Phase 3 trial, demonstrating that prulifloxacin was generally well tolerated and had similar safety profile compared to placebo.  With the results of these two Phase 3 trials we intend to file an NDA for prulifloxacin by the end of 2009.  We intend to conduct a Phase 4 trial of prulifloxacin subsequent to the NDA submission to compare prulifloxacin to ciprofloxacin for the treatment of infectious diarrhea.  We plan to seek a label for prulifloxacin and initially plan to focus commercialization efforts on the treatment of infectious diarrhea in travelers.

We are developing additional product candidates using our proprietary technology, including our Optimer One-Pot Synthesis, or OPopS™ drug discovery platform. OPopS is a computer-aided technology that enables the rapid and low-cost synthesis of a wide array of carbohydrate-based compounds.  Two components of the OPopS technology that allow us to synthesize new compounds are GlycoOptimization and De Novo Glycosylation.  These technologies are capable of rapidly generating drug candidates for broad

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therapeutic application.  One of the more advanced OPopS product candidates is OPT-88, a disease-modifying intra-articular, or within the cavity of a joint, therapy for osteoarthritis.  We plan to submit an Investigational New Drug application in 2009 and subsequently to, either ourselves or with a partner, initiate a Phase 1 study to assess safety of repetitive intra-articular injections of OPT-88 in patients with knee osteoarthritis.

We also acquired exclusive rights from Memorial Sloan-Kettering Cancer Center, or MSKCC, to develop and commercialize OPT-822, a novel carbohydrate-based cancer immunotherapy.  We plan to seek a partner and initiate Phase 2/3 clinical trials for the treatment of metastatic breast cancer in Asia in 2009.

We were incorporated in November 1998. Our principal offices are in San Diego, California. We make available, free of charge, on our website, www.optimerpharma.com, which includes links to reports we have filed with the Securities and Exchange Commission, or SEC. Any information that is included on or linked to our Internet site is not a part of this report or any registration statement that incorporates this report by reference. Our filings may also be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

Antibiotic Market Background

Infectious diseases can be caused by bacteria present in the environment that enter the body through the skin or mucous membranes of the lungs, nasal passages and gastrointestinal tract, or GI tract. These bacteria can be pathogenic, or disease-causing, and can overwhelm the body’s immune system by establishing themselves throughout the body in various tissues and organs where they proliferate. This can cause a number of serious and, in some cases, fatal infections, including those of the GI tract, urinary tract, respiratory tract, bloodstream, skin and heart.

Bacteria can be classified as either gram-positive or gram-negative. The difference in classification is largely based on a difference in bacteria cell wall structure in that gram-positive bacteria have exposed thick peptidoglycan, a polymer consisting of sugars and amino acids, cell walls, while gram-negative bacteria do not. Antibiotics that treat bacterial infections can be classified as either broad-spectrum or narrow-spectrum. Most antibiotics in use today are generally considered broad-spectrum, meaning they target a wide variety of bacteria. In contrast, narrow-spectrum antibiotics target a select group of bacteria such as gram-positive or gram-negative bacteria. Current research is increasingly focused on antibiotics that target specific bacteria, which may be beneficial for the treatment of certain infections.

Antibiotics used to treat bacterial infections work by interfering with bacterial cellular activities, such as cell wall synthesis or protein synthesis. Antibiotics may be bacteriostatic or bactericidal. Bacteriostatic antibiotics stop the growth of bacteria, which prevents the infecting bacteria from multiplying and allows the patient’s own immune system to eradicate the infecting bacteria. Bactericidal antibiotics work by directly killing the bacteria, which is particularly important for patients with weakened immune systems that cannot effectively eradicate the infecting bacteria on their own.

The anti-infective market is one of the largest therapeutic categories worldwide. According to IMS Health, the combined market for prescription antibacterial drugs in 2008 exceeded $38 billion worldwide.  The largest antibacterial sales per region were: North America ($11 billion), Europe ($10 billion), Asia Pacific ($10 billion), Latin America ($3 billion), and others ($4 billion). The market for anti-infective products is generally divided into two categories, nosocomial infections and community-acquired infections, which represent approximately 30% and 70% of the anti-infectives market, respectively. According to the U.S. Centers for Disease Control and Prevention, or CDC, approximately two million healthcare associated (nosocomial) infections occur annually in the United States and these infections can increase average length of hospital stays by seven to nine days. Approximately four million healthcare associated (nosocomial) infections occur annually in Europe, three million in North America, two million in South America and two million in East Asia (excluding China). Nosocomial infections are costly to address, with an estimated annual aggregate healthcare cost in the United States and the United Kingdom of approximately $4.5 billion and $1.9 billion, respectively. In addition, in the United States, nosocomial infections cause approximately 100,000 deaths annually, making them one of the five leading causes of death in the United States. We believe that bacterial infections, especially infections caused by difficult-to-treat, drug resistant bacteria, cause or contribute to a majority of these deaths.

Our Market Opportunity

Many marketed antibiotics used to treat infections have well-documented shortcomings. For example, current antibiotics often fail to reach sufficient concentrations at the site of infection to adequately eliminate harmful bacteria. Certain of these antibiotics have also been associated with serious adverse side effects, including renal toxicities, heart rhythm abnormalities, phototoxicity, rashes and central nervous effects, such as seizures. These side effects limit the use of antibiotics for certain patients. In addition,

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certain antibiotics have interaction issues with prescribed drugs, such as cholesterol lowering agents. Safety problems can arise when increased doses of these antibiotics are needed to treat resistant bacteria. If bacteria develop resistance to currently available antibiotics, the underlying infection can become difficult or impossible to treat, and may even lead to death. Patients also often fail to comply with treatment regimens due to many factors including the inability to tolerate an antibiotic due to its side effects, inconvenient method of dosing and undesirable frequency and length of dosing. Because of these shortcomings associated with marketed antibiotics, we believe an opportunity exists to improve upon existing treatments.

Our Product Candidates

We believe that our product candidates may offer advantages over existing antibiotics in terms of efficacy, safety, bacterial resistance and dosing convenience. We also believe that the markets for these product candidates present us with significant commercial opportunities. Our product candidates are in various stages of clinical development and none have been approved for sale by the FDA. Our ability to obtain FDA approval of any of our product candidates requires us to successfully complete the clinical development of each such product candidate. Clinical trials involve a lengthy and expensive process with an uncertain outcome, and efficacy and safety data of earlier studies and trials may not be predictive of future trial results.

Our current product candidate portfolio consists of the following:

Product Candidate	Target Indications	Development Status	Commercial Rights
Anti-Infectives
Fidaxomicin (1)	CDI treatment	Phase 3 — first trial completed; second trial on-going	Optimer worldwide
	CDI oral suspension	Pre-clinical
	CDI prevention	Proof-of-Concept Trial (2)
	Prevention of VRE in CDI	Proof-of-Concept Trial (2)
	MRS infections (2nd generation)	Pre-clinical
Prulifloxacin	Infectious diarrhea	NDA Preparation; Two Phase 3’s completed	Optimer U.S.
CEM-101 (OP-1068)	Respiratory tract infections	Phase 1	Cempra worldwide (3)
Other Therapeutic Areas
OPT-822/OPT-821 Combination Therapy	Breast cancer	Planning Phase 2	Optimer worldwide
OPT-88	Osteoarthritis	Pre-clinical	Optimer worldwide

(1)We filed an investigational new drug application, or IND, with the FDA for fidaxomicin in August 2003.

(2)A proof-of-concept trial is an exploratory clinical trial to provide or establish evidence that a product candidate is efficacious for a target indication.

(3)We have the right to receive royalties from Cempra Pharmaceuticals, Inc. on any sales of CEM-101 (OP-1068).

Anti-Infective Product Candidates

Fidaxomicin

Overview. We are initially developing fidaxomicin for the treatment of infections caused by Clostridium difficile, or C. difficile, bacteria. Fidaxomicin is a differentiated antibiotic for the treatment of CDI, the most common nosocomial diarrhea. Specifically, fidaxomicin has a narrow spectrum of activity against certain gram-positive bacteria.  Pre-clinical data indicates that fidaxomicin is bactericidal and acts by inhibiting RNA polymerase, a bacterial enzyme.  This data also shows that fidaxomicin inhibits the growth of other potentially harmful bacteria such as Staphylococci, common bacteria that reside on the skin and in the GI tract, and Enterococci, common bacteria that reside in the GI tract.

Fidaxomicin is currently in the second of two planned Phase 3 registration trials for the treatment of CDI.  In November 2008, we reported positive data from the first fidaxomicin Phase 3 trial.  The top-line analysis of data from this trial showed that fidaxomicin achieved the primary endpoint of clinical cure and demonstrated a significantly lower recurrence rate compared to Vancocin.  Fidaxomicin was also well-tolerated in the trial. The second Phase 3 trial is on-going and we anticipate completing enrollment and

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reporting data from this trial in 2009. Following our repurchase of certain development and commercialization rights from Par Pharmaceutical, Inc. in February 2007, we hold worldwide rights to fidaxomicin.  The FDA has granted Fast Track status for fidaxomicin in the treatment of CDI. Fast Track designation indicates that fidaxomicin has the potential to treat life-threatening diseases with unmet medical needs.  The FDA also chose fidaxomicin to be the only investigational new drug in the FDA’s CMA, Pilot 2 Program in the Division of Anti-Infective and Ophthalmology Products. The CMA designation offers several potential benefits, including a program of continuous FDA feedback designed to streamline the development process. Participation in these programs will not eliminate any phase of clinical development.

Currently, metronidazole and oral vancomycin are two standard antibiotic therapies used to treat CDI. Both have shortcomings including limited efficacy, high recurrence rates, adverse side effects and poor patient compliance. Of the two standard therapies, only oral vancomycin is FDA-approved to treat CDI.

Clostridium Difficile Infections. CDI is a serious illness caused by infection of the inner lining of the colon by C. difficile, bacteria that produce toxins resulting in inflammation, severe diarrhea and, in serious cases, death. Outbreaks and illness related to C. difficile generally occur during or after therapy with broad-spectrum antibiotics. Broad-spectrum antibiotics can cause CDI by disrupting normally present gastrointestinal bacteria, or gut flora, thereby allowing C. difficile to proliferate. Recent studies have suggested that the use of proton pump inhibitors, or PPIs, a widely used group of heartburn drugs, may also be linked to C. difficile infections. CDI accounts for up to 33% of antibiotic-associated diarrhea incidences as well as many cases of antibiotic-associated colitis, or inflammation of the colon. C. difficile can be transmitted by direct or indirect contact with infected patients via spores that can live for months on dry surfaces.  According to the CDC, CDI is becoming more prevalent outside the hospital.

We estimate that CDI affects over 500,000 patients in the United States annually. In the United Kingdom, the reported number of CDI patients over 65 years of age was approximately 55,000 in 2006, and we believe that CDI incidence is growing in patients worldwide. We believe that the incidence of CDI may be higher than what is currently being reported because many hospitals are not required to and do not report incidents of CDI. For example, a survey conducted in May 2008 through August 2008 by the Association for Professionals in Infection Control and Epidemiology, or APIC, showed that 13 out of every 1,000 inpatients were either infected or colonized with C- difficile (94.4% infected). The rate is 6.5 to 20 times higher than previous incidence estimates.     Additionally, recent reports indicate that the incidence of community-acquired CDI cases may be increasing. For example, a study conducted in one major U.S. city and cited at the 2006 Interscience Conference on antimicrobial Agents and Chemotherapy, or ICCAC, reported that the percentage of CDI cases found to be community-acquired increased from 12% in 2006 to 22% in 2004 and to 29% in 2005.

According to a study cited in the New England Journal of Medicine, the increased rates of CDI and severity of the disease may be caused by a combination of factors, including the excessive use of antibiotics and the emergence of a new hypervirulent strain of C. difficile known as North America Phenotype 1/027, or NAP1/027. A study published in the medical journal Lancet in September 2005 demonstrated that NAP1/027 produces 16 to 23 times more toxins in vitro than other strains. NAP1/027 has been reported in at least 40 states in the United States and is characterized by increased virulence, morbidity and mortality as well as potential antimicrobial resistance. According to the data presented at the 2006 ICAAC, NAP1/027 incidence in the United Kingdom increased an estimated 200% in the two years after mandatory surveillance of the disease was initiated in hospitals in 2004.

Generally, CDI results in longer hospital stays and increases average patient cost which is often not reimbursed to the hospital. In more complicated cases of CDI, hospitalization may be prolonged by up to two weeks. A recent analysis suggests that patients with CDI have their hospital stay extended by at least 3 days compared with patients without the infection, with the incremental cost of approximately $13,700 per patient. The total costs associated with hospital cases of CDI in United States are estimated at $3.2 billion.  According to the data presented at the 2006 ICAAC, CDI results in an estimated increase in average patient cost of over $6,000 per patient in the United Kingdom and the total projected annual cost for treating the disease in Europe is approximately $3.8 billion.

Physicians often care for patients with CDI by discontinuing previously administered broad-spectrum antibiotics, if possible, and providing supportive care such as fluid and electrolyte replacement. If these measures fail, the standard therapy for CDI includes the administration of metronidazole and/or oral vancomycin.

Current Treatments and Limitations. Metronidazole is generally used for patients in the United States and Europe experiencing their first episode or first recurrent episode of CDI. Metronidazole is a generic drug that is used off-label to treat CDI due to its low cost and historical efficacy. The typical treatment regimen for metronidazole is 250 mg every six hours, for a minimum of ten days. Metronidazole can be associated with numerous adverse side effects such as seizures, toxic reactions to alcohol, leukopenia, or reduction of white blood cells, neuropathy, a disease affecting one or more nerves, unpleasant taste and dry mouth.

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Oral vancomycin is used in the United States and also in Europe and Japan for the treatment of CDI. As a result of its broad antibacterial activity, intravenously administered vancomycin is frequently used for certain other life-threatening infections caused by multi-drug resistant bacteria. In an effort to slow the continuing emergence of vancomycin-resistant bacteria, the medical community discourages the use of the drug for the treatment of CDI except for patients who are not responding to metronidazole or for patients with severe, life-threatening colitis. Oral vancomycin’s recommended treatment protocol is 125 mg or 250 mg doses every six hours, for approximately ten days.

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

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

·High Recurrence Rate. Approximately 20% of CDI patients who initially respond to oral vancomycin and 30% of CDI patients who initially respond to metronidazole experience a clinical recurrence following the cessation of antibiotic administration.

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

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

·Inducement of CDI. Oral vancomycin and metronidazole are both broad-spectrum antibiotics that disrupt the normal gut flora. Because normal and healthy gut flora generally suppresses the growth of C. difficile, administration of oral vancomycin or metronidazole may actually induce the development of CDI.

·Inconvenient Dosing and Difficult Compliance. The current treatment regimen for both oral vancomycin and metronidazole is inconvenient as both must be administered every six hours for a minimum of seven days, which may result in lower levels of patient compliance.

Potential Fidaxomicin Advantages. Fidaxomicin is a differentiated macrocycle antibiotic consisting of an 18-member ring structure. Fidaxomicin has significant differentiating features, including a narrow antimicrobial spectrum, fast-acting bactericidal activity against C. difficile, minimal systemic exposure and an enduring clinical effect. Based on our clinical and pre-clinical studies of fidaxomicin for the treatment of CDI, we believe fidaxomicin may offer the following advantages:

·Demonstrated activity against C. difficile, including hypervirulent strains such as NAP1/027, with low rates of treatment failures and recurrences.  Our first Phase 3 study provided evidence of a high cure rate and substantially improved recurrence rates compared to Vancocin;

·Evidence of low C. difficile resistance, including hypervirulent strains such as NAP1/027;

·Minimal systemic exposure resulting in a favorable safety profile;

·Limited disruption of normal gut flora resulting in a lower likelihood of inducement of CDI and decreased severity of disease; and

·Convenient, twice daily dosing regimen.

Clinical Development

Phase 3 Pivotal Trials. In November 2008, we reported the results from a 629 patient North American Phase 2b/3 clinical trial of fidaxomicin for the treatment of CDI.  This trial was a multi-center, double-blind, controlled Phase 3 trial and was the largest single comparative study conducted against Vancocin in CDI. We enrolled 629 adult subjects at more than 100 sites throughout North America.  The primary endpoint of the study was clinical cure defined as patients requiring no further CDI therapy two days after

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completion of study medication, as determined by the treating physicians.  The secondary endpoint evaluated CDI recurrence up to four weeks post therapy with recurrence defined as the return of diarrhea associated with CDI confirmed by a positive toxin test.  Global cure, an exploratory endpoint, was defined as patients who were cured and did not have a recurrence.  Patients were dosed with either fidaxomicin at 200 mg twice daily (400 mg/day) or Vancocin at its recommended dosing regimen of 125 mg every six hours (500 mg/day) for ten days. In the initial Phase 2b portion of the trial, we enrolled a total of 93 CDI patients at 32 sites. Following an interim blinded safety analysis by an independent data safety monitoring board, we transitioned into a Phase 3 clinical trial in March 2007.

In November 2008, we reported positive top-line data from this first Phase 3 study. In the study, 92.1% of patients treated with fidaxomicin in the per protocol population achieved clinical cure versus 89.8% for Vancocin.  In addition, only 13.3% of per protocol patients treated with fidaxomicin experienced a recurrence versus 24.0% for Vancocin (p = 0.004).  Per protocol patients treated with fidaxomicin had a global cure of 77.7% which was greater than Vancocin at 67.1% (p = 0.006).  Fidaxomicin was well-tolerated.  The top-line trial results are summarized in the table below.

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

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

* one-sided 97.5% confidence intervals

** global cure rate is considered to be the most significant outcome in a CDI treatment trial by a recent Cochrane review.

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

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

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

We initiated a second Phase 3 pivotal trial of the same design in the second quarter of 2007. We anticipate completing enrollment and reporting data from the second trial in 2009. If the second trial is successful, we intend to submit a New Drug Application, or NDA, as soon as practical.

Phase 2a Study. In July 2005, we completed an open-label, dose-ranging, randomized safety and clinical evaluation study of fidaxomicin in patients with CDI at five sites. Fidaxomicin was administered to 48 patients. Three patients withdrew from the trial for reasons unrelated to the administration of fidaxomicin, resulting in 45 patients eligible for evaluation. Forty-one of these patients completed a ten-day therapy regimen consisting of twice daily doses of 50 mg (100 mg/day), 100 mg (200 mg/day) or 200 mg (400 mg/day). A primary endpoint of the trial was clinical cure of CDI, as determined by the treating physician for each patient on the tenth day of administration. Additional endpoints investigated were time-to-resolution of diarrhea, recurrence rate through six weeks post-treatment and total relief of CDI symptoms, defined as complete relief of diarrhea, fever and abdominal pain, and normalized white blood cell counts by the end of the ten-day therapy.

Among the 45 evaluated patients, only four patients failed to achieve clinical cure by the end of ten days of therapy, two of whom were in the 100 mg/day dose group and two of whom were in the 200 mg/day dose group. None of the patients in the 400 mg/day dose group failed to achieve clinical cure. All 41 cured subjects were subsequently monitored for six weeks following therapy for recurrence. CDI recurred in two of the 41 cured subjects, one in the 100 mg/day dose group and one in the 400 mg/day dose group. The median cure times, or time-to-resolution of diarrhea, were as follows: 5.5 days for the 100 mg/day dose group, 3.5 days for the 200 mg/day dose group and 3.0 days for the 400 mg/day dose group.

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A summary of the results of the Phase 2a clinical trial for fidaxomicin is presented below:

	Dose Group
Parameter	100 mg/day	200 mg/day	400 mg/day
Clinical Cures	86% (12/14)	87% (13/15)	100% (16/16)
Total Symptom Relief	43% (6/14)	53% (8/15)	81% (13/16)
Recurrence	8% (1/12)	0% (0/13)	6% (1/16)
Median Time to Cure of Diarrhea	5.5 Days	3.5 Days	3.0 Days

Pharmacokinetic analyses were performed on all patients. Fidaxomicin was not detectable in the blood in half of the patients and only three subjects had levels exceeding 0.02 mg/mL. Stool concentrations of fidaxomicin averaged over 1,400 mg/g of stool at the 400 mg/day dose level at day ten. As C. difficile is present mainly in the gut, high stool concentrations suggest that fidaxomicin is present where needed to treat CDI and low concentrations in the blood indicate fidaxomicin is minimally absorbed in the system, thus reducing the risk of side effects. There were no adverse events determined by the physicians to be related to fidaxomicin. At one site in this Phase 2a trial, we performed a microbiologic analysis of the stool of 29 patients. This analysis showed that fidaxomicin did not cause any unusual disruptions of normal gut flora for patients in any of the three dose groups.

In this study there was a 42% presence of the super toxin-producing strain of C. difficile, the BI/NAP1/027 strain, and there was no significant difference in the overall cure rates with fidaxomicin between subjects with the BI/NAP1/027 strain and subjects without the hypervirulent strain. The distribution of the BI/NAP1/027 strain was nearly equal in all three dosing groups.

The bacterial isolates from the study were also tested for susceptibility to fidaxomicin, vancomycin, and metronidazole. Overall antibiotic susceptibilities were consistent with the previously reported MIC90 values for the three antibiotics.  However, fidaxomicin showed no difference in MIC values between the BI/NAP1/027 strains and the non-BI/NAP1/027 strains, whereas currently available antibiotics, metronidazole and vancomycin, showed slightly higher MIC valuesfor the hypervirulent strains.

Phase 1 Studies. We have completed two double-blind, oral, dose-escalating, placebo-controlled Phase 1 trials, one of which was a Phase 1a single-dose trial, and one of which was a Phase 1b multiple-dose trial. The trials were designed to determine the safety, tolerability, and pharmacokinetic characteristics of fidaxomicin in healthy volunteers. Each Phase 1a patient received two single oral administrations of either a 100 mg dose followed by a 300 mg dose, or a 200 mg dose followed by a 450 mg dose of fidaxomicin. Each Phase 1b patient received daily oral administrations of 150, 300, or 450 mg doses of fidaxomicin for ten consecutive days. In both trials, there were eight subjects for each dose level, six of whom were randomly selected to receive fidaxomicin and two of whom received placebo. We collected blood, urine and stool samples for pharmacokinetic analysis. Vital signs including blood pressure, pulse, body temperature and electrocardiograms were measured following each dosing and on a regular basis throughout the study. In both studies, fidaxomicin was well tolerated by all subjects and no drug-related adverse events were observed.

Fidaxomicin also exhibited a favorable pharmacokinetic profile for CDI treatment. After oral administration at either single dose or multiple doses, all blood samples had low, usually lower than 0.02 mg/mL, or undetectable levels of fidaxomicin which indicates very low systemic absorption. In contrast, fidaxomicin was found to be present in high concentrations in the stool. For example, at day ten for the 450 mg per day multiple-dose group, the mean fidaxomicin stool concentration exceeded 10,000 times the MIC90, or minimum concentration of a drug needed to inhibit growth of 90% of microorganisms, of C. difficile.

Oral Suspension Formulation Development. We are developing an oral suspension formulation which complements the existing tablet form of fidaxomicin. This formulation is intended for use with intensive care unit and elderly patients. We plan to submit an IND to pursue development for this potential label indication expansion.

Commercialization

We hold worldwide rights to fidaxomicin. In February 2007, we elected to exercise our right under a prospective buy-back agreement to repurchase Par Pharmaceutical, Inc.’s rights to develop and commercialize fidaxomicin in North America and Israel. We paid Par a one-time $20.0 million termination fee. We are obligated to pay Par a one-time $5.0 million milestone payment, a 5% royalty on net sales by us or our affiliates of fidaxomicin in North America and Israel, and a 1.5% royalty on net sales by us or our affiliates of fidaxomicin in the rest of the world. In addition, 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 we receive related to fidaxomicin. We are obligated to pay each of these royalties, if any, on a country-by-country basis for seven years commencing on the applicable commercial launch in each such country. We intend to seek one or more partners for the commercialization of fidaxomicin outside North America.

Fidaxomicin — Other Indications

Based on our pre-clinical and clinical studies for CDI treatment, we believe fidaxomicin may be effective against a broad range of indications with significant unmet medical needs. Our strategy is to develop fidaxomicin for its lead indication, CDI treatment, while also advancing its development for additional indications.

CDI Prevention. We believe fidaxomicin may be effective not only for treating CDI but also for preventing CDI. Patients at high risk of developing CDI, such as elderly patients in long-term care facilities or hospital patients on broad-spectrum antibiotics or PPIs, may benefit from prophylactic protection from the disease. Up to 20% of long-term care patients are colonized with C. difficile. There is currently no therapeutic drug approved for the prevention of CDI. Incidence of CDI outbreaks has been increasing in the

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hospital and community settings, and we believe fidaxomicin may provide safe, potent and narrow-spectrum bactericidal activity against C. difficile, thereby protecting high-risk patients while limiting disruption to normal gut flora. We continue to evaluate the design of a proof-of-concept clinical trial of fidaxomicin to prevent CDI in high-risk populations.

Prevention of VRE in CDI. Pre-clinical data indicate that fidaxomicin is active in vitro against antibiotic-resistant Enterococci, including VRE. Enterococci are common bacteria that reside in the GI tract and generally do not pose a serious health risk. However, if Enterococci enter the bloodstream, they can cause serious and life-threatening infections, especially in subjects with weakened immune systems. Vancomycin is considered the last line of defense against such infection. However, growing bacterial resistance to vancomycin has emerged, requiring new therapeutic options.

Biological and stool concentration data from our Phase 1 and 2a CDI treatment trials indicate fidaxomicin may be useful in the prevention of VRE bloodstream infections by minimizing the colonization of these bacteria in the GI tract before they enter the bloodstream. With the completion of our first Phase 3 CDI trial, we are currently analyzing the propensity of Vancocin and fidaxomicin to promote VRE colonization.  Upon completion of this analysis, we will assess whether to conduct a VRE prevention in CDI clinical trial.

Methicillin-Resistant Staphylococci, or MRS, Infections. We believe second generation fidaxomicin compounds may be useful for the treatment of Staphylococcal infections. Methicillin is a broad-spectrum antibiotic that was previously used to treat infections caused by susceptible gram-positive bacteria, such as Staphylococcus aureus, or S. aureus, and Staphylococcus epidermidis, or S. epidermidis, that would otherwise be resistant to most penicillins.

Prulifloxacin

Overview. We are developing prulifloxacin for the treatment of infectious diarrhea, including travelers’ diarrhea, a community-acquired infection which can be caused by a broad range of bacteria. We intend to initially seek  approval for prulifloxacin for the treatment of infectious diarrhea in travelers. Prulifloxacin is a prodrug in the fluoroquinolone class of antibiotics, a widely-used class of broad-spectrum antibiotics. A prodrug is an inactive form of a compound that is converted in the body to an active drug either by spontaneous chemical reaction or through the enzymatic process. Following oral administration, prulifloxacin is converted to ulifloxacin, which is rapidly bactericidal by killing susceptible bacterial pathogens through inhibition of DNA replication. Ulifloxacin has demonstrated potent broad-spectrum activity against gram-positive and gram-negative bacteria. We have completed two Phase 3 clinical trials of prulifloxacin for the treatment of travelers’ diarrhea and reported positive top-line data from each study. In July 2008, we reported positive top-line data from the first Phase 3 trial conducted in Mexico and Peru and in February 2009, we reported positive top-line data from the second Phase 3 trial conducted in India, Guatemala and Mexico.  The top-line analysis of data from these studies showed that prulifloxacin met the primary endpoint of TLUS compared to placebo. Prulifloxacin was generally well tolerated and had a similar safety profile compared to placebo.  With the results of these two Phase 3 trials we intend to file an NDA for prulifloxacin by the end of 2009.

We believe that prulifloxacin will be a differentiated therapeutic option for travelers’ diarrhea due to its broad and potent activity against gastrointestinal pathogens, favorable safety profile, clinical efficacy and convenient dosing regimen.

In June 2004, we acquired from Nippon Shinyaku Co., Ltd. the exclusive rights to develop and commercialize prulifloxacin for all indications in the United States. Prulifloxacin has been marketed by other companies in Japan since 2002 to treat a wide range of bacterial infections, including infectious diarrhea, and in Italy since 2004 to treat urinary tract infections, or UTIs, and respiratory tract infections, or RTIs. Other parties have found that prulifloxacin is well-tolerated, as demonstrated by its use in the treatment of more than two million patients. A 1996 investigator-initiated clinical study of prulifloxacin in Japan by a third party for the treatment of infectious diarrhea evaluated the safety and efficacy of prulifloxacin in 122 subjects, with an endpoint of clinical cure, as evidenced by eradication of bacterial pathogens. Prulifloxacin was considered effective in approximately 98% of the 54 subjects evaluated for clinical cure. Prulifloxacin also eradicated the bacterial pathogen in approximately 95% of the 77 subjects evaluated for bacteriological effect. One hundred eight of the 109 subjects evaluated for safety had no adverse effects while one subject experienced a mild rash that was possibly related to prulifloxacin administration, but quickly recovered and continued to receive all scheduled therapy.

Infectious Diarrhea. Infectious diarrhea is associated with an infection caused by bacteria, viruses or parasites. Its symptoms include stomach cramps, vomiting, nausea, fever and headache. Infectious diarrhea is the world’s second-leading cause of morbidity and mortality. It is a significant problem even in the United States where it is often found in otherwise healthy individuals.

Travelers’ diarrhea is infectious diarrhea contracted by the ingestion of contaminated food or water. The CDC estimates that there are approximately 50,000 cases of travelers’ diarrhea each day among the 50 million worldwide annual travelers to developing countries. We estimate that approximately 23 million patients are treated with antibiotics for infectious diarrhea annually in the United

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States. Bacteria cause approximately 85% of travelers’ diarrhea in most localities, and the majority of these cases involve E. coli, Shigella or Salmonella. Severe infections can cause large fluid loss and result in dehydration and hospitalization. The CDC estimates that 30% to 50% of travelers to high-risk regions (including most of Asia, the Middle East, Africa, Central America and South America) will develop travelers’ diarrhea during a one- to two-week visit. The risk of infection increases with the duration of travel, and infection is possible throughout the world. A study of Americans visiting developing countries found that 46% acquired diarrhea.

Current Treatments and Limitations. Authorities such as the Infectious Disease Society of America and the CDC recommend treatment for travelers’ diarrhea with an antibiotic that has an appropriate spectrum of activity against typical pathogens related to travelers’ diarrhea. These antibiotics include fluoroquinolones such as ciprofloxacin, macrolides such as azithromycin, sulfonamides such as trimethoprim-sulfamethoxazole, or TMP/SMX, tetracyclines such as doxycycline, and rifamycins such as rifaximin. Fluoroquinolones remain the first-line treatment for infectious diarrhea because of their bactericidal nature, broad spectrum of activity and generally well-tolerated profile.

Many of the treatments for travelers’ diarrhea have significant limitations. Limitations of ciprofloxacin, rifaximin and TMP/SMX, three of the most commonly prescribed treatments for infectious diarrhea, include one or more of the following:

·Limited Spectrum of Activity and Antimicrobial Resistance. Rifaximin is approved only for the treatment of travelers’ diarrhea caused by noninvasive strains of E. coli. Rifaximin is not recommended for the treatment of diarrhea caused by other pathogens commonly associated with travelers’ diarrhea such as Shigella, Salmonella, Aeromonas, Campylobacter, Plesiomonas, and Yersinia. In addition, our studies with a panel of 582 infectious diarrhea-associated bacteria have shown that 25% of E. coli and 67% of Shigella strains associated with travelers’ diarrhea are resistant to TMP/SMX.

·Possible Side Effects. Ciprofloxacin has been associated with phototoxicity and QT interval prolongation, a condition that is associated with potentially life-threatening cardiac arrhythmias. Rifaximin has been linked to allergic reactions to the drug. TMP/SMX has been associated with both frequent mild allergic reactions and rare but serious adverse effects including bone marrow suppression, severe liver damage, severe renal impairment and agranulocytosis, an acute condition related to leukopenia.

·Convenience and Compliance. Ciprofloxacin is approved as therapy for infectious diarrhea with a dosing regimen of twice daily administrations for five to seven days. Rifaximin is approved as a therapy for diarrhea caused by noninvasive E. coli and is typically given three times daily for three days. These treatment regimens may be inconvenient for traveling patients.

Prulifloxacin Advantages. We believe that prulifloxacin will be a differentiated and better therapeutic course for bacterial infectious diarrhea for several reasons, including:

·Efficacy. In October 2008, positive top-line data was presented at ICAAC/IDSA from the first of two Phase 3 trials. The first trial which was conducted in Mexico and Peru, and was a randomized, double-blind placebo-controlled clinical trial in which two-thirds of the patients received prulifloxacin in 600 mg doses and one-third of the patients received a placebo. Data from this study showed that prulifloxacin met the primary endpoint of Time to Last Unformed Stool, or TLUS, in both the modified intent-to treat, or mITT (n=187) and microbiologically evaluable (per protocol; n=165) populations compared to placebo.  The median TLUS for patients treated with prulifloxacin was approximately 24 hours; this was significantly different from the TLUS for placebo with a p-value of <0.0001.

In February 2009, we reported the top-line analysis of data from the second of two Phase 3 trials. The second trial was also a randomized, double-blind placebo-controlled clinical trial in which half of the patients received prulifloxacin in 600 mg doses and half of the patients received placebo.  The second trial was conducted in India, Guatemala and Mexico.  Data from this study showed that prulifloxacin met the objective of superiority to placebo in the resolution of diarrhea, measured by TLUS in Both the mITT (n=200) and microbiologically evaluable (per protocol; n=173 populations compared to placebo.  The median TLUS for patients treated with prulifloxacin was 32.8 hours; this was significantly different from the TLUS for placebo with a p-value of <0.0001.

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·Unique Pharmacokinetic Profile. Ulifloxacin, the active metabolite of prulifloxacin, quickly reached effective concentration levels following a single administration of the drug in patients with profuse diarrhea. Approximately two-thirds of the oral dose of prulifloxacin remains in the stool after being converted to ulifloxacin while approximately one-third is absorbed and accumulated in tissues and in phagocytes, the white blood cells which engulf bacterial pathogens. Ulifloxacin remains active in these tissues and available in the body to eliminate invasive and intracellular pathogens such as Shigella and Salmonella and invasive forms of E. coli.

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·Spectrum of Activity. Ulifloxacin has more potent antibacterial activity relative to other antibacterial agents against infectious diarrhea pathogens. In a recent study published in Antimicrobial Agents and Chemotherapy, ulifloxacin was the most active of nine antibacterial agents tested against a panel of 582 international infectious diarrhea-associated bacteria. The potency of six of these agents against common bacterial pathogens that cause diarrhea is shown below, normalized to the potency of rifaximin:

	Comparative Potency Against Bacteria(1)
Antibacterial	E. coli (100 isolates)	Salmonella (101 isolates)	Shigella (101 isolates)
Ulifloxacin	2,000	533	2,000
Ciprofloxacin	1,000	133	1,000
Azithromycin	4	4	4
Rifaximin	1	1	1
Doxycycline	1	0.5	0.5
TMP/SMX	<0.25	>32	<0.25

(1)The potency of an antibiotic normalized to rifaximin is expressed as the quotient obtained by dividing the MIC90 concentration of rifaximin by the MIC90 concentration of that antibiotic.

·Side Effects. Prulifloxacin has an established and favorable safety profile with minimal potential to produce adverse side effects associated with other treatments for travelers’ diarrhea, such as QT interval prolongation, phototoxicity, or central nervous system effects. In the first phase 3 trial, prulifloxacin was generally well tolerated and had a similar safety profile compared to placebo.

·Convenience and Compliance. If approved, we expect prulifloxacin will be marketed as therapy for infectious diarrhea with a convenient dosing regimen of one tablet daily for three days.

On-Going Clinical Development and Next Steps. We conducted two Phase 3 clinical trials for the registration of prulifloxacin in the United States for the treatment of bacterial infectious diarrhea.

·Phase 3 Trials. In July 2008, we reported positive top-line data from the first of two Phase 3 trials. The first trial which was conducted in the United States, Mexico and Peru, was initiated in July 2006 and was a randomized, double-blind placebo-controlled clinical trial in which two-thirds of the patients received prulifloxacin in 600 mg doses and one-third of the patients received a placebo. The top-line analysis of data from this study showed that prulifloxacin met the primary endpoint of Time to Last Unformed Stool, or TLUS, in both the modified intent-to treat, or mITT (n=187) and microbiologically evaluable (per protocol; n=165) populations compared to placebo.  The median TLUS for patients treated with prulifloxacin was approximately 24 hours; this was significantly different from the TLUS for placebo with a p-value of <0.0001.  Prulifloxacin was generally well tolerated and had a similar safety profile compared to placebo.

In February 2009, we reported the top-line analysis of data from the second of two Phase 3 trials. The second trial was also a randomized, double-blind placebo-controlled clinical trial in which half of the patients received prulifloxacin in 600 mg doses and half of the patients received placebo. The primary endpoint of both trials is TLUS. Secondary endpoints include microbiological eradication of the disease pathogen and relief of other disease symptoms. Data from this study showed that prulifloxacin met the objective of superiority to placebo in the resolution of diarrhea, measured by TLUS in Both the mITT (n=200) and microbiologically evaluable (per protocol; n=173 populations compared to placebo.  The median TLUS for patients treated with prulifloxacin was 32.8 hours; this was significantly different from the TLUS for placebo with a p-value of <0.0001.  We plan on submitting an NDA as soon as practical.

·Proposed Phase 4 Marketing Support Trial. We anticipate that this trial will be a randomized, double-blind clinical trial using ciprofloxacin as a comparator. We plan to initiate this trial subsequent to NDA submission of prulifloxacin.

Additional Indication for Urinary Tract Infection. After the anticipated launch of prulifloxacin for the treatment of infectious diarrhea, we may seek additional approval of prulifloxacin for the treatment of complicated UTIs, which are commonly caused by bacteria such as E. coli, Staphylococcus saprophyticus and Pseudomonas aeruginosa. According to the Kidney and Urology Foundation of America, an estimated ten million physician office visits in 2002 were due to UTIs, the second leading cause of infection following RTIs. UTIs account for up to 40% of nosocomial infections and, when present, can increase the average hospital patient cost by approximately $675 per patient. According to IMS Health, global sales of UTI prescription antibiotics exceeded $1.1 billion in 2003, with the United States accounting for approximately 62% of this market. We believe prulifloxacin’s advantages

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as a therapy for infectious diarrhea can be leveraged in the approval for treatment of complicated UTIs. Prulifloxacin is currently approved as therapy for complicated and uncomplicated UTIs in Italy and Japan. Prulifloxacin was compared to ciprofloxacin as therapy for complicated lower UTIs in a 257-patient, double-blind, comparator-controlled clinical trial that was conducted in Europe by third parties. In patients that were administered prulifloxacin once daily for 10 days, clinical resolution of the infection was achieved in approximately 95% of patients and the pathogen was eradicated in approximately 90% of patients. In contrast, in patients that were administered ciprofloxacin twice daily for 10 days, clinical resolution was achieved in approximately 93% of patients and the pathogen was eradicated in approximately 78% of patients. A similar open-label study produced microbiological eradication and clinical cure in approximately 93% and approximately 96%, respectively, of 113 prulifloxacin-treated patients.

Our OPopS Drug Discovery Platform

Background. Carbohydrates are the most abundant class of biological molecules in nature and are fundamental to many physiological processes, which can be inhibited or augmented by carbohydrate-based drugs. We believe these processes represent potential drug targets for infectious diseases, cancer and immune-related disorders. Carbohydrates, however, can be difficult to synthesize because of their complex molecular structure. Historically, the synthesis of complex carbohydrate molecules took weeks to months to complete, and thus carbohydrate synthesis for use in therapeutics has often been characterized as prohibitively difficult and time-consuming. Numerous drugs currently on the market have carbohydrate components, which are often implicated in bacterial resistance, and numerous diseases involve interactions with carbohydrate molecules. Carbohydrate synthesis involves the manipulation of existing drugs to improve their spectrum of activity or significantly reduce their side effects. Such drugs include aminoglycosides, glycopeptides, macrolides and antivirals.

Our Technology. Our proprietary OPopS drug discovery platform allows us to develop potential drug candidates through carbohydrate drug synthesis. OPopS is a computer-aided technology that enables the rapid and low cost synthesis of a wide array of carbohydrate-based compounds. Specifically, the two components of our OPopS technology that allow us to synthesize new compounds are:

·GlycoOptimization. This process enables the modification of a carbohydrate group on an existing drug to improve its properties.

·De Novo Glycosylation. This process enables the addition of new carbohydrate groups on an existing drug to create new, patentable compounds.

We acquired worldwide rights to this technology from The Scripps Research Institute, or TSRI, in July 1999. We have built approximately 500 carbohydrate building blocks, and through our proprietary OptiMer software program, we are able to rapidly and reliably produce a wide variety of carbohydrate-based molecules. With OPopS, we are able to reduce the time required for the synthesis of these molecules from weeks or months to hours. We believe OPopS enables us to develop patentable drugs, optimizing drug performance, improving activity, overcoming bacterial resistance issues and/or improving side effect profiles. Several of our pre-clinical drug candidates have been developed with OPopS and we intend to use this technology to identify additional novel carbohydrate-based product candidates with significant commercial potential.

Other Pipeline Product Candidates

Using our OPopS technology, we are developing a pipeline of promising new drug candidates for the treatment of various indications including infectious disease, osteoarthritis and breast cancer. Our strategy is to license these drug candidates opportunistically to third-party partners in order to maximize the potential for their development and commercialization. The most advanced pipeline product candidates are as follows:

OPT-88: A Therapy for Osteoarthritis

Overview. We intend to develop our carbohydrate-based product candidate OPT-88, to which we obtained rights through an in-license from TSRI, as a disease-modifying intra-articular, or within the cavity of a joint, therapy for osteoarthritis. Osteoarthritis is caused by the breakdown and eventual loss of the cartilage of one or more joints in the body. Key symptoms include pain in joints such as knees, hips and fingers, inability to walk or bear weight and infection surrounding such joints. According to the National Institute of Arthritis and Musculoskeletal and Skin Diseases, osteoarthritis is one of the most common types of joint diseases and is estimated to affect 33 million people in the United States in 2006. Pre-clinical studies of OPT-88 indicate reduced erosion of knee cartilage and a reduction of pain for up to nine days after a single injection. With its disease-modifying activity and tolerability profile, OPT-88 represents a potentially new intra-articular therapy, and we believe it is a significant product opportunity for the osteoarthritis market.

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Pre-Clinical Studies and Future Plans. In vitro studies of OPT-88 in human cell cultures have shown that it significantly stimulates restoration of joint cartilage. Animal studies demonstrated a reduced pathology and reduction in the erosion of knee cartilage. We held a pre-Investigational New Drug application, or pre-IND, meeting with the FDA in the first quarter of 2008 and plan to file an IND application for OPT-88 in 2009 to initiate a Phase 1 study for assessing the safety of repetitive intra-articular injections in patients with knee osteoarthritis using an escalating dose scheme.  If the Phase 1 study is successful, we plan to conduct a subsequent proof-of-concept Phase 2 efficacy study.

OPT-822/OPT-821: A Cancer Immunotherapy

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

Clinical Studies and Future Plans.  SKI completed Phase 1 safety studies of OPT-822 in prostate cancer patients and breast cancer patients in 1999 and 2001, respectively.  In these studies, OPT-822 appeared to be well tolerated and to stimulate response to tumor antigens.  Eighteen of 27 metastatic breast cancer patients treated with OPT-822 in the studies survived after five years.  We currently plan to identify a strategic partner, apply for government grants for subsequent clinical trials, and then initiate a Phase 2/3 clinical trial in Asia to evaluate the clinical efficacy of OPT-822 combined with OPT-822’s adjuvant therapy OPT-821.

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

Macrolide antibiotics have been marketed for the treatment of upper and lower respiratory tract infections.  Macrolides such as erythromycin and azithromycin, and ketolides, such as telithromycin, are related classes of antibiotics which have strong gram-positive activity and inhibit bacterial growth.  However, an increasing number of pathogens are now resistant to currently available macrolides and ketolide.  The leading product candidate developed with our discovery technology, including glycooptimization, CEM-101 (OP-1068), was effective against these resistant bacterial strains according to a pre-clinical study conducted by the Institute for Medical Microbiology.  This product candidate has shown to possess potent activity against multi-drug resistant Streptococcus pneumoniae and Streptococcus pyogenes, common RTI pathogens.  The pre-clinical study also showed that CEM-101 was orally active with potent efficacy in animal models after once-a-day administration.  Cempra has licensed from us a library of approximately 500 macrolides related to this product candidate.  Cempra has informed us that it is initially planning to develop CEM-101 for RTIs in adults and children, including community-acquired mild and moderate pneumonia.

Our Strategy

Our principal objective is to become a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative anti-infective compounds, with an initial focus on gastrointestinal infections and related diseases.  To achieve these objectives, our strategy includes the following key elements:

·Build a branded anti-infective franchise through current and in-licensed product candidates.  We currently have two late-stage antibiotic product candidates, fidaxomicin for the treatment of CDI, and prulifloxacin for the treatment of infectious diarrhea in travelers.  We also intend to develop these two lead products for additional indications and selectively in-license additional anti-infective compounds for development and/or commercialization.  In addition, in order to maximize the value of our franchise, we intend to opportunistically seek partners to commercialize our product candidates outside of our core markets.  We believe our management’s industry knowledge and contacts will be a significant advantage in executing this part of our strategy.

·Develop our lead product candidates for clinical and regulatory approval.  We are currently focusing our resources on developing fidaxomicin and prulifloxacin.  Fidaxomicin potentially offers significant advantages over existing therapeutics for CDI, a serious and growing hospital-acquired illness.  Prulifloxacin also potentially offers significant advantages over existing therapeutics for infectious diarrhea and has an extensive record of safety and efficacy, having been used in over two million patients in Europe and Japan.  If our second trial for fidaxomicin for the treatment of CDI

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is successful, we plan to submit an NDA for fidaxomicin as soon as practical.  We reported the positive results of our two prulifloxacin Phase 3 trials and we plan to file an NDA for prulifloxacin by the end of 2009.

·Build marketing and sales capabilities in our core markets.  Our objective is to market innovative antibiotics in areas of unmet medical needs for the treatment and prevention of nosocomial and serious community-acquired infections.  Specifically, we initially plan to commercialize and develop fidaxomicin and prulifloxacin in key defined markets.  In order to achieve these goals, we intend to develop our own marketing organization and sales force, as well as evaluate partnering alternatives to commercialize our product candidates.

·Leverage our internal discovery capabilities and expertise in carbohydrate chemistry to expand our portfolio of product candidates.  We intend to expand our product portfolio by exploiting our internal expertise to discover and develop additional product candidates.  We believe our proprietary technology and our capabilities and expertise in carbohydrate chemistry will enable us to more rapidly identify and develop successful product candidates.  We may opportunistically seek partners for the development and commercialization of product candidates in order to maximize value and maintain our strategic focus.

Marketing and Sales

We currently have a limited marketing organization, and do not have a sales organization for the marketing, sale and distribution of pharmaceutical products.  We plan to develop a sales organization internally or through collaborations with third parties.  We hold worldwide rights to fidaxomicin and rights to commercialize prulifloxacin in the United States. Assuming approval by the FDA, we plan to build our own marketing and sales force for fidaxomicin in North America and prulifloxacin in the United States.  We plan to seek collaborations with one or more third parties for the commercialization of fidaxomicin outside of North America.  In the United States, we plan to target our marketing and sales of fidaxomicin to hospital-based and long-term care physicians, including gastroenterologists, infectious disease specialists and internists.  We plan to target our marketing and sales of prulifloxacin to high-prescribing physicians of antibiotics for travelers’ diarrhea, including those at travel clinics.

 We have established a medical affairs group to introduce our product candidates to key opinion leaders in CDI and healthcare professionals focusing on infectious diseases and gastroenterology.  We also continue to evaluate the marketing and sales capabilities that will be necessary to launch and commercialize fidaxomicin and prulifloxacin in our target markets.

Collaborations, Commercial and License Agreements and Grants

Par Pharmaceutical, Inc. In February 2007, we exercised our right under a prospective buy-back agreement to repurchase Par’s rights to develop and commercialize fidaxomicin in North America and Israel and paid Par a one-time $20.0 million termination fee.  As a result, we now hold worldwide rights to fidaxomicin.  We also paid Par $1.9 million for fidaxomicin clinical supply material and active pharmaceutical ingredient in 2007.  We are obligated to pay Par a one-time $5.0 million milestone payment, a 5% royalty on net sales by us or our affiliates of fidaxomicin in North America and Israel, and a 1.5% royalty on net sales by us or our affiliates of fidaxomicin in the rest of the world.  We are required to pay the one-time $5.0 million milestone payment after the earliest to occur of (i) the successful completion by us of our second pivotal Phase 3 trial for fidaxomicin, (ii) our grant to a third party of the rights to fidaxomicin or (iii) the submission to the FDA of an NDA for fidaxomicin.  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 we receive related to fidaxomicin.  We are obligated to pay each of these royalties, if any, on a country-by-country basis for seven years commencing on the applicable commercial launch in each such country.  The agreement also includes a mutual release between the parties and our indemnification of Par for actions related to fidaxomicin, the agreements assigned to us by Par and certain other matters.

Biocon.  In connection with the exercise of our rights under the prospective buy-back agreement, Par assigned to us a supply agreement with Biocon Limited, or Biocon, regarding the active pharmaceutical ingredient, or API, for fidaxomicin. Under this agreement, Biocon is obligated to supply to us our requirements of the fidaxomicin API for certain markets. The supply agreement will terminate upon the tenth anniversary of the commercial launch of fidaxomicin unless earlier terminated by mutual agreement or material default of either party.

Nippon Shinyaku.  In June 2004, we entered into a license agreement with Nippon Shinyaku.  Under the terms of the agreement, we acquired the non-exclusive right to import and purchase prulifloxacin, and the exclusive right (with the right to sublicense) within the United States to develop, make, use, offer to sell, sell and license products suitable for consumption by humans containing prulifloxacin.

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Under the terms of the agreement, we paid Nippon Shinyaku a $1.0 million upfront licensing fee and will be required to pay Nippon Shinyaku a milestone payment in the amount of $1.0 million upon the submission of a NDA for prulifloxacin in the United States.  We also agreed to exclusively purchase prulifloxacin from Nippon Shinyaku and to purchase a certain amount of prulifloxacin annually that is to be mutually agreed upon by us and Nippon Shinyaku, commencing in the year of the first commercial sale of prulifloxacin in the United States.  If Nippon Shinyaku is unable to supply us with the required amount of prulifloxacin, then Nippon Shinyaku is obligated to grant us a non-exclusive, worldwide license to make or have made prulifloxacin, in which event we will owe Nippon Shinyaku a royalty based on the amount of net sales of prulifloxacin generated by us and our sublicensees.  Additionally, we will owe Nippon Shinyaku certain royalties based on the amount of net sales of prulifloxacin less the amount of prulifloxacin we buy from Nippon Shinyaku.

Either party may terminate the agreement 60 days after giving notice of a material breach which remains uncured 60 days after written notice.  If not terminated earlier, the agreement will terminate upon the later of ten years from the date of the first commercial sale of prulifloxacin in the United States or the date on which the last valid patent claim relating to prulifloxacin expires in the United States.

Sloan-Kettering Institute for Cancer Research.  In July 2002, we entered into a license agreement with Sloan-Kettering Institute for Cancer Research, or SKI, to acquire, together with certain non-exclusive licenses, exclusive, worldwide licensing and sublicensing rights to certain patented and patent-pending carbohydrate-based cancer immunotherapies, which includes OPT-822.  As partial consideration for the licensing rights, we paid to SKI a one-time fee consisting of both cash and 55,383 shares of our common stock.  Under the agreement, which was amended in June 2005, we owe SKI milestone payments in the following amounts for each licensed product: (i) $500,000 upon the commencement of Phase 3 clinical studies, (ii) $750,000 upon the submission of the first NDA, (iii) $1.5 million upon marketing approval in the United States and (iv) $1.0 million upon marketing approval in each and any of Japan and certain European countries, but only to the extent that we, and not a sublicensee, achieve such milestones.  We also owe SKI royalties based on net sales generated from the licensed products and income we source from our sublicensing activities, which royalty payments are credited against a minimum annual royalty payment we owe to SKI during the term of the agreement.

The term of the agreement continues until the later of July 31, 2017, or the expiration of the last to expire of the patents licensed under this agreement, unless the agreement is earlier terminated.  The agreement can be terminated by SKI for a variety of reasons, including (i) upon 60 days’ notice in the event we fail to meet a development milestone specified in the agreement or (ii) upon 30 days’ notice, in the event we fail to pay any licensing fees, royalties or patent expenses due under the agreement within 30 days of the due date and thereafter fail to pay such deficit in-full within the 30-day notice period.

Cempra Pharmaceuticals, Inc.  In March 2006, we entered into a collaborative research and development and license agreement with Cempra, a biotechnology company focused on anti-infectives.  We are collaborating with Cempra to discover, develop and commercialize drugs based on macrolide and ketolide compounds.  We granted to Cempra an exclusive worldwide license, except in Association of Southeast Asian Nations, or ASEAN, countries as of the effective date of the agreement, with the right to sublicense, our patent and know-how related to our macrolide and ketolide antibacterial program, several other pre-clinical compounds and our related proprietary technology.  Cempra is responsible for many of the costs associated with the development and commercialization of product candidates arising under the agreement, including manufacturing, marketing and sales costs.  As partial consideration for granting Cempra the license, we obtained equity interest in Cempra.   We will receive milestone payments as product candidates are developed and/or co-developed by Cempra.  The milestone payments will be triggered upon the completion of certain clinical development milestones and in certain instances, regulatory approval of products.  The aggregate amount of such milestone payments we may receive is based in part on the number of products developed under the agreement and can exceed $24.5 million.  We will also receive royalty payments based on a percentage of net sales of licensed products.  In consideration of the foregoing, Cempra will receive milestone payments of $1.0 million from us for each of the first two products we develop which receive regulatory approval in ASEAN countries as well as royalty payments on the net sales of such products.

The research term of this agreement was completed on March 31, 2008.  Subject to certain exceptions, on a country-by-country basis, the general terms of this agreement continue until the later of: (i) the expiration of the last to expire patent rights related to a covered product in the applicable country or (ii) ten years from the first commercial sale of a covered product in the applicable country.  Either party may terminate the agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure.  Either party may also terminate the agreement for any reason upon 30 days’ prior written notice provided that all licenses granted by the terminating party to the non-terminating party will survive upon the express election of the non-terminating party.

The Scripps Research Institute. In July 1999, we acquired exclusive, worldwide rights to our OPopS technology from The Scripps Research Institute, or TSRI.  This agreement includes the license to us of patents, patent applications and copyrights related to our  OPopS technology.  We also acquired, pursuant to three separate license agreements with TSRI, exclusive, worldwide rights to over 20 TSRI patents and patent applications related to other potential drug compounds and technologies, including HIV/FIV protease inhibitors, aminoglycoside antibiotics, polysialytransferase, selectin inhibitors, nucleic acid binders, carbohydrate mimetics and osteoarthritis.

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Under the four agreements with TSRI, we paid TSRI license fees consisting of an aggregate of 239,996 shares of our common stock with a deemed aggregate fair market value of $46,400, as determined on the dates of each such payment.  Additionally, under each agreement, we owe TSRI royalties based on net sales by us, our affiliates and sublicensees of the covered products and royalties based on revenue we generate from sublicenses granted pursuant to the agreements.  For the first licensed product under each of the four agreements, we also will owe TSRI payments upon achievement of certain milestones.  In three of the four TSRI agreements, the milestones are the successful completion of a Phase 2 trial or its foreign equivalent, the submission of an NDA or its foreign equivalent and government marketing and distribution approval.  In the remaining TSRI agreement, the milestones are the initiation of a Phase 3 trial or its foreign equivalent, the submission of an NDA or its foreign equivalent and government marketing and distribution approval.  The aggregate potential amount of milestone payments we may be required to pay TSRI under all four TSRI agreements is approximately $14.0 million.

Each TSRI agreement terminates in part as follows: (i) with respect to each product which utilizes patent rights licensed under the agreement, on a country-by-country basis concurrently with the expiration of the last to expire of the applicable patent rights, (ii) with respect to each product which utilizes technology licensed under the agreement but which does not utilize patent rights also licensed thereunder, 15 years after the date of the first commercial sale of the product in each country and (iii) with respect to software licensed under the 1999 OPopS agreement, 75 years after the date the applicable copyright is filed in the United States.

Inc. Research, Inc.  In November 2005, we entered into a master services agreement with Inc Research, Inc., formerly known as Advanced Biologics, which was subsequently amended in January 2006.  Under the terms of the agreement, Inc Research will, from time to time, at our request and pursuant to separate work orders, perform research and/or administrative services in connection with certain of our clinical trials, including trial management, data collection, statistical programming or analysis, quality assurance auditing, scientific and medical communications, regulatory affairs consulting, regulatory submissions and strategic consulting.  Pursuant to the master services agreement, we have issued work orders totaling $42.4 million to-date for services.  Unless extended by the mutual agreement of the parties, the master services agreement will terminate on November 16, 2012.  We may terminate the master services agreement at any time and for any reason, upon 30 days’ prior notice to Inc Research.

NIH Small Business Innovation Research Award.  In June 2005, we received a National Institutes of Health Small Business Innovation Research Program Phase II Award in the amount of $612,000 from the National Institute of Allergy and Infectious Diseases, or NIAID.  The award was used to facilitate discovery of a new macrolide class of antibiotics through glycosylation, our proprietary chemistry technology and evaluation of the lead compound in pre-clinical settings.  This grant was completed in May 2008.

In September 2007, we received an award from the National Institute of Allergy and Infectious Diseases, or NIAID, for a maximum amount of $3 million over three years. This award is renewable for $1 million each year until August 2010.  The award will be used to conduct supplementary studies to the ongoing fidaxomicin trials to confirm narrow spectrum activity and potency of fidaxomicin against hypervirulent epidemic strains, to support additional toxicology and macrobiological studies to demonstrate the safety and efficacy of the fidaxomicin compound and its major metabolite in CDI patients and to support a surveillance study of C. difficile isolates across North America to compare activity of fidaxomicin with existing CDI treatments.

Manufacturing

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

Par assigned to us its contract with Biocon to manufacture clinical trial supplies of the API for fidaxomicin in February 2007 in connection with our repurchase of rights to fidaxomicin for North America and Israel.  The manufacturing facilities of Biocon have been approved by the FDA for other companies’ drug products, however, Biocon’s facilities have not yet been approved by the FDA for the manufacture of our fidaxomicin drug supplies.  We may contract with other third-party contract manufacturers for additional commercial supply of fidaxomicin.

In June 2004, as part of our license agreement for exclusive rights to develop and commercialize prulifloxacin in the United States, we entered into a supply agreement with Nippon Shinyaku for the manufacture and supply of the API for prulifloxacin.  In turn, Nippon Shinyaku contracts with Juzen Chemical Co. for the manufacture of the API for prulifloxacin.  The tablets used in our

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Phase 3 clinical trials for prulifloxacin were manufactured by Angelini ACRAF, or Angelini.  We are also in discussion with Angelini and other contract manufacturers for the manufacturing, packaging and labeling of prulifloxacin for commercial sale in the United States.  The manufacturing facilities of Juzen have been approved by the FDA for other companies’ drug products; however, Juzen’s facilities have not yet been approved for the manufacture of our prulifloxacin drug supplies.  Angelini’s facilities have not been approved by the FDA for the manufacture of any drug.

We have used both in-house capabilities and outside third-party cGMP manufacturers for the preparation of compounds for pre-clinical development and for the manufacture of limited quantities of finished products for clinical development.  We have developed a proprietary synthetic process in our laboratories for Globo-H, the carbohydrate portion of our OPT-822 cancer immunotherapy.  Third parties with cGMP facilities have manufactured OPT-822 for clinical trials.  We also plan to use third-party cGMP manufacturers for the production of the adjuvant, OPT-821, as well as for the production of our carbohydrate-based product candidate OPT-88, a disease-modifying intra-articular therapy for osteroarthritis.

Intellectual Property

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

We have established and continue to build proprietary positions for our pipeline product candidates and technology in the United States and abroad.  We have built a portfolio of more than 80 patents and patent applications that we either own or have licensed around our key products and technologies.  As of February 28, 2009, this portfolio included 5 issued U.S. patents and 16 pending U.S. patent applications.  Foreign counterparts to these included 12 issued patents and 52 pending patent applications.

For our lead product candidate fidaxomicin, we have one issued patent, one allowed patent and six U.S. pending patent applications, and one issued patent and 34 pending foreign counterparts in Australia, Canada, China, Europe, Japan, South Korea, India, Taiwan, Mexico and Brazil.  If issued, these fidaxomicin related patent applications may cover the composition of matter, the specific crystalline polymorph forms, specific methods for manufacturing, methods of using and pharmaceutical formulations containing the various components.  If issued, these patent applications would expire between 2023 and 2027.  For our other product candidate prulifloxacin, we have licensed one issued U.S. patent and one pending U.S. patent application from Nippon Shinyaku.  The U.S. patent, covers the compound prulifloxacin, however, this patent expired in February 2009.  If issued, the U.S. pending patent application for prulifloxacin would expire in 2023 and may cover processes for producing a drug-form of prulifloxacin.  Absent additional patent protection we intend to rely on a five-year marketing exclusivity period for prulifloxacin that may be afforded to us under the Hatch-Waxman Act.  The remainder of our patents and patent applications, and licensed patents and patent applications, relate to our other products and technology, and expire between 2015 and 2023.

Government Regulation and Product Approval

FDA Approval Process

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

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Before testing any compounds with potential therapeutic value in human subjects in the United States, we must satisfy stringent government requirements for pre-clinical studies.  Pre-clinical testing includes both in vitro and in vivo laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation.  Pre-clinical testing results obtained from studies in several animal species, as well as data from in vitro studies, are submitted to the FDA as part of an IND and are reviewed by the FDA prior to the commencement of human clinical trials.  These pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial trials in human volunteers. In order to test a new drug in humans in the United States, an IND must be submitted to the FDA.  The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concern or questions, in which case, the IND sponsor and the FDA must resolve any outstanding concerns before a hold is lifted and clinical trials can proceed.

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

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

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

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

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

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

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Any products we manufacture or distribute under FDA approvals are subject to pervasive and continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the products.  Drug manufacturers and their subcontractors are required to register with the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP regulations which impose procedural and documentation requirements upon us and any third party manufacturers we utilize.

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

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

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

Fast Track Products Designation

The FDA has granted Fast Track status for fidaxomicin in the treatment of CDI.  The FDA’s Fast Track program is intended to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for their condition.  Under Fast Track designation, the FDA may initiate review of sections of an NDA before the application is complete.  This rolling review is available if the applicant provides a schedule for the submission of the remaining information and pays applicable user fees.  However, the time period specified in the Prescription Drug User Fee Act, which governs the time period goals the FDA has committed to for reviewing an application, does not begin until the complete application has been submitted.  The Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.  Participation in the Fast Track program does not eliminate any phase of clinical studies.  Additionally, in some cases, a Fast Track designated product may also qualify for priority review, or review within a six-month time frame from the time an NDA is accepted for filing.  A Fast Track designated product would ordinarily meet the FDA’s criteria for priority review.  We cannot guarantee any of our products will obtain priority review designation, or if a priority designation is received, that review or approval will be faster than conventional FDA procedures.

Competition

The pharmaceutical industry is highly competitive.  We face significant competition from pharmaceutical companies and biotechnology companies that are researching and selling products designed to treat infectious disease.  Many of these companies have significantly greater financial, manufacturing, marketing and product development resources than us.  Additionally, many of these companies have substantially greater experience developing, manufacturing and commercializing drugs which may allow them to bring their products to market quicker than we can.  Several pharmaceutical and biotechnology companies have already established themselves in the markets for the treatment of CDI and/or infectious diarrhea and many additional companies are currently developing products for the treatment of CDI and/or infectious diarrhea, which we expect will compete with fidaxomicin and prulifloxacin if approved for marketing.  Potentially significant competitors to fidaxomicin and prulifloxacin, both currently marketed and in clinical development, include the following:

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Product	Stage of Development	Company
Fidaxomicin Competitors
Flagyl™/metronidazole	Marketed	Pfizer, Sanofi-Aventis and generics
Vancocin™/oral vancomycin	Marketed	Viropharma and generics
Xifaxan™/rifaximin	Phase 3	Salix and generics
ramoplanin	Phase 2 completed	Oscient
ACAM-Cdiff	Phase 2	Sanofi-Pasteur
MDX-066/ MDX-1388 (antibodies combination)	Phase 2	Medarex
Prulifloxacin Competitors
Cipro™/ciprofloxacin	Marketed	Bayer and generics
Zithromax™/azithromycin	Marketed	Pfizer
Xifaxan™/rifaximin	Marketed	Salix and generics
Bactrim™/Septra™/TMP/SMX	Marketed	Roche and generics
Vibramycin™/doxycycline	Marketed	Pfizer and generics
Levaquin™/levofloxacin	Marketed	Johnson & Johnson
ETEC Vaccine	Phase 2 completed	Intercell

Research and Development

Our research and development efforts are primarily focused on developing fidaxomicin and prulifloxacin and our other product candidates.  Our research and development expense was approximately $29.0 million, $41.6 million and $10.5 million in years 2008, 2007 and 2006, respectively.  Research and development expenses in 2007 include the one-time termination payment of $20 million related to the prospective buy-back agreement with Par, and the $1.9 million fidaxomicin clinical supply material and active pharmaceutical ingredient which we purchased from Par.

Employees

As of March 2, 2009, we employed 55 persons, 19 of whom hold Ph.D., M.D. or DVM degrees.  Ten employees were engaged in discovery research, nineteen in clinical research and regulatory affairs, four in commercial and corporate development and 22 in support administration, including finance, information systems, facilities and human resources.  None of our employees is subject to a collective bargaining agreement.  We consider our relations with our employees to be good.

Item 1a. Risk Factors

Risks Related to Our Business

We are a company with limited sources of revenue, and we are largely dependent on the success of our lead product candidate fidaxomicin and, to a lesser degree, our other lead product candidate prulifloxacin.

We are a biopharmaceutical company with no products approved for commercial sale and, to date, we have not generated any revenues from product sales.  Our ability to generate future revenues depends heavily on our success in:

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

·commercializing. alone or with a partner, any product candidates for which we receive approval from the FDA; and/or comparable foreign regulatory authorities; and

·generating a pipeline of innovative product candidates utilizing our drug discovery platform or through licensing strategies.

Our product candidates will generally require extensive clinical study and evaluation, regulatory approval in multiple jurisdictions, substantial investment and significant marketing efforts before we generate any revenues from product sales.  We are not permitted to market or promote our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities.  We have not submitted an NDA, or received marketing approval for either fidaxomicin or prulifloxacin, and we cannot be certain that either of these product candidates will be successful in on-going or future clinical trials or receive regulatory

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approval.  If we do not receive regulatory approval for and successfully commercialize fidaxomicin and prulifloxacin, we will not generate any revenues from product sales for several years, if at all, and we may not be able to continue our operations.

We believe our initial success will be more dependent on fidaxomicin than prulifloxacin, because we believe that the market for the treatment of CDI is larger than the market for the treatment of infectious diarrhea.  Even if we successfully obtain regulatory approval to market fidaxomicin or prulifloxacin, our revenues for either drug candidate will be dependent upon the size of the markets in the territories for which we have commercial rights.  If the markets for the treatment of CDI or infectious diarrhea are not as significant as we estimate, our business and prospects will be harmed.

We have incurred significant operating losses since inception and anticipate that we will incur continued losses for the foreseeable future.

We have experienced significant operating losses since our inception in 1998.  As of December 31, 2008, we had an accumulated deficit of approximately $133.4 million.  We have generated no revenues from product sales to date.  We have funded our operations through December 31, 2008 from the sale of approximately $169.5 million of our securities and through research funding pursuant to collaborations with partners or government grants.  We expect to continue to incur substantial additional operating losses for the next several years as we advance our clinical trials and research and development initiatives, prepare submissions for regulatory approval of our lead product candidates and build our marketing and sales capabilities.  Because of the numerous risks and uncertainties associated with developing, obtaining regulatory approval for and commercializing our product candidates, we are unable to predict the extent of any future losses.  We may never successfully commercialize our product candidates and thus may never have any significant future revenues or achieve and sustain profitability.

If we fail to obtain additional financing, we may be unable to commercialize fidaxomicin and prulifloxacin or develop and commercialize our other product candidates, or continue our other research and development programs.

We will require additional capital to commercialize our current lead product candidates, fidaxomicin and prulifloxacin.  We cannot be certain that additional funding will be available on acceptable terms, or at all.  Recently, the credit markets and the financial services industry have been experiencing a period of unprecedented turmoil and upheaval characterized by the government take-over, bankruptcy, failure, collapse or sale of various financial institutions.  These events have generally made equity and debt financing more difficult to obtain, and may negatively impact our ability to complete financing transactions.  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 delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives.  We also could be required to:

·seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or

·relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.

Any of the above events could significantly harm our business and prospects and could cause our stock price to decline.

We do not currently have sufficient resources to commercialize fidaxomicin and prulifloxacin on our own. If we are unable to raise additional capital or are unable to effectively collaborate with one or more partners for the commercialization of fidaxomicin or prulifloxacin, we will not generate significant revenues from sales of these products and our business will be materially harmed.

We are dependent on third party collaborators and we may be unable to enter into future collaboration agreements or we may have disagreements with these collaborators.

We currently plan to build our own marketing and sales force for fidaxomicin in North America and prulifloxacin in the United States, and we intend to seek one or more partners for the commercialization of fidaxomicin outside of North America.  With respect to our OPT-88 and OPT-822/OPT-821 product candidates, we currently plan to conduct a limited amount of additional research and development before seeking a partner to advance these product candidates. We cannot be certain that we would be successful in attracting any such partners.  If we were not able to find appropriate partners for the continued development and commercialization of fidaxomicin, or our other product candidates, we would either have to delay further development and

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commercialization initiatives,  which would harm our business and prospects, or raise significant additional funds to develop clinical and commercialization capabilities internally.

We are subject to a number of additional risks associated with our dependence on collaborations with third parties.  Conflicts may arise between us and collaborators, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration.  If any such conflicts arise, a collaborator could act in its own self-interest, which may be adverse to our best interests.  Any such disagreement between us and a collaborator could result in one or more of the following, each of which could delay or prevent the development or commercialization of fidaxomicin, and our other product candidates, and in turn prevent us from generating sufficient revenues to achieve or maintain profitability:

·reductions in the payment of royalties or other payments we believe are due pursuant to the applicable collaboration arrangement or agreement;

·uncertainties regarding ownership of intellectual property rights arising from our collaborative activities, which could prevent us from entering into additional collaborations and commercializing such rights;

·actions taken by a collaborator inside or outside our collaboration which could negatively impact our rights or benefits under our collaboration; or

·unwillingness on the part of a collaborator to keep us informed regarding the progress of its development and commercialization activities or to permit public disclosure of the results of those activities.

In addition, a collaborator may not have or devote sufficient resources to develop and commercialize our product candidates, may elect to underfund, discontinue or may not properly perform pre-clinical studies or clinical trials, or may divert resources to other programs that are potentially competitive with our product candidates.

If we are unable to obtain FDA approval of our product candidates, we will not be able to commercialize them in the United States.

We need FDA approval prior to marketing our product candidates in the United States.  If we fail to obtain FDA approval to market our product candidates, we will be unable to sell our product candidates in the United States, which will significantly impair our ability to generate any revenues.

This regulatory review and approval process, which includes evaluation of pre-clinical studies and clinical trials of our product candidates as well as the evaluation of our manufacturing processes and our third-party contract manufacturers’ facilities, is lengthy, expensive and uncertain.  To receive approval for a product candidate, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that the product candidate is both safe and effective for each indication for which approval is sought.  Satisfaction of the approval requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product.  We cannot predict if or when we might receive regulatory approvals for any of our product candidates currently under development.  Moreover, any approvals that we obtain may not cover all of the clinical indications for which we are seeking approval, or could contain significant limitations in the form of narrow indications, warnings, precautions or contra-indications with respect to conditions of use.  In such an event, our ability to generate revenues from such products would be greatly reduced and our business would be harmed.

The FDA has substantial discretion in the approval process and may either refuse to consider our applications for substantive review or may form the opinion after review of our data that our applications are insufficient to allow approval of our product candidates.  If the FDA does not consider or approve an application that we submit, it may require that we conduct additional clinical, pre-clinical or manufacturing validation studies and submit that data before it will reconsider our application.  Depending on the extent of these or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available.  For example, we intend to rely in part on certain legacy data from a third party to support an NDA for prulifloxacin. If we are unable to obtain this data in a timely manner or the FDA deems this data to insufficient, it may delay our filing of a NDA for prulifloxacin and could require us to complete additional studies.  It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by the FDA for approval or even to make our applications approvable.  If any of these outcomes occur, we may be forced to abandon one or more of our future applications for approval, which might significantly harm our business and prospects.

It is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or our collaborators to commence product sales.  Increased scrutiny

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by regulatory authorities may result in significant delays in obtaining regulatory approvals, as well as more stringent product labeling and post-marketing testing requirements.

Although the FDA has granted Fast Track status to fidaxomicin and selected it for participation in a CMA Pilot 2 Program, we cannot be certain that we will receive any benefits from these designations or that the designations will expedite regulatory review or approval of fidaxomicin.  Participation in these programs will not eliminate any phase of clinical development.  Moreover, our participation in the CMA Pilot 2 Program will involve frequent scientific discussions and other interactions with the staff of the FDA during the investigational new drug phase of our development of fidaxomicin.  These frequent discussions could subject fidaxomicin to a greater level of scrutiny than it might otherwise have received or require us to make more frequent submissions and endure other burdens that would have been avoided if we had not participated in the program.  Therefore, despite any potential benefits of fidaxomicin’s Fast Track and CMA Pilot 2 Program designations, significant uncertainty remains regarding the clinical development and regulatory approval process for fidaxomicin.

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 uncertain.  Failure can occur at any time during the clinical trial process.  The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. For example, results from the first fidaxomicin Phase 3 trial, while positive, may not predict results from the second Phase 3 trial which is on-going.  Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical testing.  In addition, the type and amount of clinical data necessary to gain regulatory approval for our product candidates may change or we may inaccurately characterize such requirements.  For example, we recently announced our intention to prepare a Marketing Authorization Application, or MAA, for submission to the European Medicines Agency, or EMEA, for fidaxomacin based on the results from our first Phase 3 trial.  Although we currently believe that the EMEA will accept an MAA for fidaxomicin based on only one completed Phase 3 trial, we may be incorrect in this belief and may be required to resubmit our filing following the completion of our second Phase 3 trial.  Such a resubmission would involve additional delay and expense related to any approval of fidaxomicin in Europe.

Even after we complete our planned clinical trials, our product candidates could fail to receive regulatory approval for many reasons, including the following:

·the results of our clinical trials may not demonstrate to the satisfaction of or meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for any indication;

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

·the  results of our clinical trials may not demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

·the results of our clinical trials may not demonstrate that a product candidate presents an advantage over existing therapies, or over placebo in any indications for which the FDA requires a placebo-controlled trial;

·the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials;

·the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an  NDA or other submission or to obtain regulatory approval in the United States or elsewhere; and

·the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

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 may experience delays in clinical trials of our product candidates.  We reported positive top-line data from the first of two Phase 3 trials evaluating fidaxomicin for the treatment of CDI. We anticipate completing enrollment and reporting data from the second trial in 2009. If the second trial is also successful, we intend to file an NDA as soon as practicable thereafter. In addition, we

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are planning to conduct a registration study for other formulations and proof-of-concept clinical trials for other indications of fidaxomicin.  We reported positive top-line data from the two Phase 3 trials evaluating prulifloxacin for the treatment of infectious diarrhea in travelers. We intend to conduct a Phase 4 trial of prulifloxacin subsequent to NDA submission to compare prulifloxacin to ciprofloxacin for the treatment of infectious diarrhea.  We do not know whether planned clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at all.  Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites, in obtaining institutional review board approval at each site, in recruiting suitable patients to participate in a trial, in having patients complete a trial or return for post-treatment follow-up, in adding new sites or in obtaining sufficient supplies of clinical trial materials.  Many factors affect patient enrollment, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials, clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating and whether the clinical trial design involves comparison to placebo.

We could encounter delays if prescribing physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing antibiotics that have established safety and efficacy profiles or with administering placebo to patients in our placebo-controlled trials.  Further, a clinical trial may be suspended or terminated by us, our collaborators, the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.  If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will 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.

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 the first Phase 3 clinical trial of fidaxomicin, the most common drug-related side effects reported were nausea, vomiting, constipation, anorexia, headache and dizziness.  Patients treated with prulifloxacin have experienced drug-related side effects including abdominal pain, diarrhea, nausea, renal toxicities, cardiac arrhythmias, photosensitivity, rash, excessive flushing of the skin and central nervous system effects, such as seizures.  The FDA recommended that we conduct a study to determine the effect, if any, of prulifloxacin on the prolongation of the QT interval, a condition that is associated with potentially life-threatening cardiac arrhythmias.  In response to the FDA’s recommendation, we initiated such a QT interval study, which is currently ongoing and expected to be completed in 2009.  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.  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 rely on third parties to conduct our clinical trials.  If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we and our collaborators may not be able to obtain regulatory approval for or commercialize our product candidates.

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

We and the CROs conducting clinical trials for our product candidates are required to comply with current good clinical practices, or GCPs, regulations and guidelines enforced by the FDA for all of our products in clinical development.  The FDA enforces GCPs through periodic inspections of trial sponsors, principal investigators and trial sites.  If we or the CROs conducting clinical trials of our product candidates fail to comply with applicable GCPs, the clinical data generated in the clinical trials may be

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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 will 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.

Typically, the CROs conducting clinical trials of our product candidates have the right to terminate their agreements with us or our collaborators upon notice in the event of an uncured material breach.  In addition, some CROs have an ability to terminate their respective agreements with us if we fail to perform our obligations, if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.  We have relied substantially on INC Research to conduct the clinical trials for fidaxomicin and prulifloxacin.  INC Research has also subcontracted with other third-party CROs for various aspects of the clinical trials.  If any relationships with INC Research or these other third-party CROs terminate, we or our collaborators may not be able to enter into arrangements with alternative CROs or we may enter into arrangements with alternative CROs that do not have the expertise or relationships that INC Research has with government agencies.

In addition, these third-party CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our on-going clinical programs.  These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could harm our competitive position.  If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.  As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

If 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 rights in international markets, our market opportunities will be limited.

Sales of our product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval.  Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the marketing of the product candidate in those countries.  This is important for the commercialization of fidaxomicin for which we currently have exclusive worldwide marketing rights.  Obtaining foreign regulatory approvals could result in significant delays, difficulties and costs for us and require additional pre-clinical studies or clinical trials which would be costly and time consuming.  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 failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in others.  For example, if our planned MAA for fidaxomicin is rejected or unanticipated concerns are raised by the EMEA during its review, a subsequent NDA submission for fidaxomicin could be negatively impacted. Other than prulifloxacin, which is sold by other parties in Japan, Italy and certain other European countries, none of our product candidates is approved for sale in any international market for which we have rights. If we fail to comply with regulatory requirements in our international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to generate revenues will be diminished, which would significantly harm our business, results of operations and prospects.

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

We currently have a limited marketing organization and do not have a sales organization for marketing, sales and distribution of pharmaceutical products.  In order to commercialize any products, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services.  We plan to build our own marketing and sales force to commercialize fidaxomicin in North America and will seek third-party partners outside North America.  We own exclusive rights to commercialize prulifloxacin in the United States, and we contemplate establishing our own sales force or seeking third-party partners to sell prulifloxacin in the United States.  The establishment and development of our own sales force to market any products we may develop will be expensive and time consuming and could delay any product launch, and we cannot be certain that we will be able to successfully develop this capability.  We do not currently have sufficient funds to develop a sales force and other resources that we believe would be necessary to adequately market fidaxomicin and prulifloxacin in the United States.

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We will also have to 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.  In the event we are unable to develop our own marketing and sales force or collaborate with a third-party marketing and sales organization, we would not be able to commercialize our product candidates which would negatively impact our ability to generate product revenues.

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

If appropriate regulatory approvals are obtained, we intend to commercialize fidaxomicin outside of North America through collaboration arrangements with third parties.  We may be unable to enter into collaboration arrangements in international markets.  In addition, there can be no guarantee that if we enter into these collaboration arrangements with other parties that they will be successful or result in more revenues than we could obtain by marketing fidaxomicin on our own. If we are unable to enter into collaboration arrangements for our products or develop an effective international sales force, our ability to generate product revenues would be limited, which would adversely affect our business, financial condition, results of operations and prospects. If we are unable to enter into such collaboration arrangements, we may need to develop our own marketing and sales force to market fidaxomicin in a number of countries in Europe and Latin America to hospital-based and long-term care physicians.  These efforts may not be successful as we have no relationships among such hospital-based and long-term care physicians and do not currently have sufficient funds to develop an adequate sales force in these regions.  There is no guarantee that we will be able to develop an effective international sales force to successfully commercialize our products in these international markets.  If we cannot commercialize fidaxomicin, we will have to rely solely on prulifloxacin and earlier stage product candidates for any future revenues, and our ability to achieve and sustain profitability will be materially and adversely harmed.

If our product candidates are unable to compete effectively with branded and generic antibiotics, our commercial opportunity would be reduced or eliminated.

If approved, our lead product candidates will compete against both branded antibiotic therapies, such as Vancocin Pulvules with respect to fidaxomicin and Xifaxan®/rifazamin with respect to prulifloxacin, and generic antibiotics such as metronidazole and oral vancomycin with respect to fidaxomicin and ciprofloxacin with respect to prulifloxacin.  In addition, we anticipate that fidaxomicin will compete with other antibiotic and anti-infective product candidates currently in development for the treatment of CDI, such as Xifaxan®/rifaxamin and Alinia™/nitazoxanide.  Many of these products have been or will be developed and marketed by major pharmaceutical companies, who have significantly greater financial resources and expertise in research and development, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals, manufacturing and marketing approved products than we do.  As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well.  Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.

We anticipate that, if approved, fidaxomicin and prulifloxacin will face increasing competition in the form of generic versions of branded products of competitors that will lose their patent exclusivity.  For example, fidaxomicin, if approved, will immediately face steep competition from an inexpensive generic form of metronidazole.  Fidaxomicin would currently face generic oral vancomycin competition in Europe and in the future may face competition from generic oral vancomycin in the United States as well.  Generic antibiotic therapies typically are sold at lower prices than branded antibiotics and are generally preferred by managed care providers of health services.  For example, because metronidazole is sold at such a low price, we believe it will be difficult to sell fidaxomicin as a first-line therapy for the treatment of CDI.  If 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 fidaxomicin, prulifloxacin 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 fewer side effects or are less expensive than our product candidates.

We currently depend, and will in the future continue to depend, on third parties to manufacture our product candidates, including fidaxomicin and prulifloxacin.  If these manufacturers fail to provide us and our collaborators with adequate supplies of clinical trial materials and commercial product or fail to comply with the requirements of regulatory authorities, we may be unable to develop or commercialize our products.

We outsource all manufacturing of clinical trial supplies of our product candidates to third parties.  We seek to establish long-term supply arrangements with third-party contract manufacturers.  We intend to continue outsourcing the manufacture of our 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.

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Our ability to develop and commercialize fidaxomicin and prulifloxacin and any other product candidates depends in part on our ability to arrange for collaborators or other third parties to manufacture our products at a competitive cost, in accordance with strictly enforced regulatory requirements and in sufficient quantities for clinical testing and eventual commercialization.  We have not yet manufactured commercial batches of fidaxomicin, prulifloxacin or any of our other product candidates.  Collaborators or 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.  Such difficulties could result in delays in clinical trials, regulatory submissions and approvals, or commercialization of our product candidates.  The inability of us or our collaborators to enter into and maintain agreements with third-party manufacturers on acceptable terms would cause shortages of clinical trial supplies of our product candidates, thereby delaying or preventing regulatory approval and/or commercialization of the affected product candidate, and adversely affecting our ability to generate revenues.  Further, development of large-scale manufacturing processes will require additional validation studies, which the FDA must review and approve, and the time it will take us or a third party manufacturer to develop such large-scale processes and capabilities may delay any product launch following regulatory approval.  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.

In addition, we, our collaborators and other third-party manufacturers of our products must comply with strictly enforced 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 active pharmaceutical ingredient and rely on Patheon, Inc. to manufacture the drug product supplies.  As such, Biocon and Patheon will be subject to ongoing periodic unannounced inspections by the FDA and other agencies for compliance with current cGMP, and similar foreign standards. We also rely on Nippon Shinyaku, which contracts with Juzen, Angelini and Patheon to manufacture prulifloxacin drug supplies.  The manufacturing facilities of Biocon, Juzen and Patheon have been inspected and approved by the FDA for other companies’ drug products; however, none of Biocon’s, Juzen’s nor Patheon’s facilities have yet been inspected by the FDA for the manufacture of our drug supplies.  Angelini’s facilities have not been inspected or approved by the FDA.  We or other third-party manufacturers of our products may be unable to comply with cGMP requirements and with other FDA, state, local and foreign regulatory requirements.  We and our collaborators have little control over third-party manufacturers’ compliance with these regulations and standards.  A failure to comply with these requirements by our third-party manufacturers, including Biocon, Juzen, Angelini, and Patheon could result in the issuance of untitled letters and/or warning letters from authorities, as well as sanctions being imposed on us, including fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall or withdrawal of product approval.  In addition, we have no control over these manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel.  If the safety of any quantities supplied by third parties is compromised due to their failure to adhere to applicable laws or for other reasons, we may not be able to obtain or maintain regulatory approval for or successfully commercialize one or more of our product candidates, which would significantly harm our business and prospects.

The commercial success of our product candidates will depend upon attaining significant market acceptance of these product candidates among physicians, patients, healthcare payors and the medical community.

Even if our product candidates are approved by the appropriate regulatory authorities for marketing and sale, physicians may not prescribe our product candidates, which would prevent us from generating revenues or becoming profitable.  Market acceptance of fidaxomicin, prulifloxacin and any of our future product candidates by physicians, patients and healthcare payors will depend on a number of factors, many of which are beyond our control, including:

·the clinical indications for which the product candidate is approved;

·acceptance by physicians and patients of each product candidate as a safe and effective treatment;

·perceived advantages over alternative treatments;

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

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

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

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·whether the product candidate is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;

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

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

·relative convenience and ease of administration; and

·prevalence and severity of adverse side effects.

Because fidaxomicin is a differentiated antibiotic for the treatment of CDI, it may encounter additional hurdles to market acceptance by physicians, who may be skeptical about its clinical benefits or healthcare payors who may resist reimbursing a premium-priced therapeutic particularly in light of the availability of generic alternatives.

We plan to target our marketing of prulifloxacin primarily to high-prescribing physicians of antibiotics for travelers’ diarrhea, including those at travel clinics.  Because of the number of these physicians in the United States, we will be required to expend significant time and resources to obtain broad market acceptance of prulifloxacin among these physicians.  We do not have experience in marketing to this population of physicians and do not currently have the resources to be able to conduct such marketing efforts on our own.  As such, we may not be successful in any of these marketing efforts which would limit the commercial success of prulifloxacin.

 In addition, in July 2008 the FDA notified makers of fluoroquinolone antimicrobial drugs for systemic use that a boxed warning is necessary for those products due to the risk of tendonitis and tendon rapture.  As prulifloxacin is a fluoroquinolone antibiotic it may be required to carry a black box warning.  Although these risks have been described for years on the product label of many fluoroquinolones the increased awareness of this risk may impact the market potential for the fluoroquinolone class of antibiotics, including prulifloxacin.  Furthermore, because prulifloxacin has already been marketed by other companies outside the United States to treat a wide range of bacterial infections, including infectious diarrhea, UTIs and RTIs, patients may be able to obtain prulifloxacin from these other companies, and not from us, if prulifloxacin is approved in the market where the patient is located.  We have rights to prulifloxacin only in the United States.  These patients may obtain prulifloxacin in these other markets from other companies even if these patients are from the United States.

If we fail to develop and commercialize other products or product candidates, we may be unable to grow our business.

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

Any product candidate we identify or to which we acquire rights will likely require additional development efforts prior to commercial sale, including pre-clinical studies, extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities.  All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities.  In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives.

A significant portion of the research that we are conducting involves new and unproven technologies.  Research programs to identify new disease targets and product candidates require substantial technical, financial and human resources whether or not we ultimately identify any candidates.  Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development.

If we are unable to develop suitable potential product candidates through internal research programs or by obtaining rights to novel therapeutics from third parties, our business and prospects will suffer.

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Our focus on drug discovery and development using our technology platform, including our patented proprietary OPopS drug discovery platform, is novel and unique.  As a result, we cannot be certain that our product candidates will produce commercially viable drugs that safely and effectively treat infectious diseases or other diseases.  To date, our technology platform has yielded only a small number of anti-infective product candidates.  In addition, we do not have significant clinical data with respect to any of these potential product candidates.  Even if we are successful in completing clinical development and receiving regulatory approval for one commercially viable drug for the treatment of one disease using our technology platform and carbohydrate chemistry focus, we cannot be certain that we will also be able to develop and receive regulatory approval for other drug candidates for the treatment of other forms of that disease or other diseases.  If we fail to develop and commercialize viable drugs using our platform and specialized focus, we will not be successful in developing a pipeline of potential product candidates to follow fidaxomicin and prulifloxacin, and our business prospects would significantly be harmed.

Our future growth depends on our ability to identify and acquire or in-license products.  If we do not successfully identify and acquire or in-license related product candidates or integrate them into our operations, we may have limited growth opportunities.

We in-licensed the U.S. rights to prulifloxacin from Nippon Shinyaku who, along with Meiji-Seika Kaisha Ltd., conducted the initial development of this product candidate.  An important part of our business strategy is to continue to develop a pipeline of product candidates by acquiring or in-licensing products, businesses or technologies that we believe are a strategic fit for our business.  Future in-licenses or acquisitions, however, may entail numerous operational and financial risks, including:

·exposure to unknown liabilities;

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

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

·higher than expected acquisition and integration costs;

·increased amortization expenses;

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

·impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

·inability to retain key employees of any acquired businesses.

We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure.  In particular, we may compete with larger pharmaceutical companies and other competitors in our efforts to establish new collaborations and in-licensing opportunities.  These competitors likely will have access to greater financial resources than us and may have greater expertise in identifying and evaluating new opportunities.  Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.

Our ability to pursue the development and commercialization of prulifloxacin, our other product candidates and our future product candidates depends upon the continuation of our licenses from third parties.

Our license agreement with Nippon Shinyaku provides us with an exclusive license to develop and commercialize prulifloxacin for any indication in the United States, with a right to sublicense to third parties.  In the event Nippon Shinyaku is not able to supply us with prulifloxacin, the license agreement provides us with a non-exclusive, worldwide right and license to manufacture or have prulifloxacin manufactured for us.  Either we or Nippon Shinyaku may terminate the license agreement immediately upon the bankruptcy or dissolution of the other party or upon a breach of any material provision of the agreement if the breach is not cured within 60 days following written notice.  In addition, we are entitled to terminate the agreement in the event that the FDA compels us to cease sales of prulifloxacin in the United States.  If our license agreement with Nippon Shinyaku terminates, we will lose our rights to develop, manufacture and commercialize prulifloxacin and our potential revenues would be limited. 

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Similarly, if our agreement with the Scripps Research Institute, or TSRI, for the license of our OPopS technology is terminated, we will not be able to further develop future product candidates using our OPopS technology.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability lawsuits related to the testing of our product candidates, and will face an even greater risk if product candidates are introduced commercially.  An individual may bring a liability claim against us if one of our product candidates causes, or merely appears to have caused, an injury.  If we cannot successfully defend ourselves against the product liability claim, we may incur substantial liabilities.  Regardless of merit or eventual outcome, liability claims may result in:

·decreased demand for our product candidates;

·injury to our reputation;

·termination of clinical trial sites or entire clinical trial programs;

·withdrawal of clinical trial participants;

·significant litigation costs;

·substantial monetary awards to or costly settlement with patients;

·product recalls;

·loss of revenues; and

·the inability to commercialize our product candidates.

We may become dependent upon consumer perceptions of us and the safety and quality of our product candidates.  We could be adversely affected if we or our product candidates are subject to negative publicity.  We could also be adversely affected if any of our potential products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to consumers.  Also, because of our dependence upon consumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from consumers’ use or misuse of our potential products or any similar products distributed by other companies could have a material adverse impact on our results of operations.

We have global clinical trial liability insurance that covers our clinical trials up to a $10.0 million annual aggregate limit.  Our current or future insurance coverage may prove insufficient to cover any liability claims brought against us.  We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for our product candidates, which would increase our insurance premiums.  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.

Even if we receive regulatory approval for our product candidates, we will be subject to ongoing significant regulatory obligations and oversight.

Even if we receive regulatory approval to sell our product candidates, the FDA and foreign regulatory authorities will likely impose significant restrictions on the indicated uses or marketing of such products, or impose ongoing requirements for potentially costly post-approval studies.  In addition, following any regulatory approval of our product candidates, we and our collaborators will be subject to continuing regulatory obligations, such as requirements for storage, recordkeeping and safety reporting, and additional post-marketing obligations, including regulatory oversight of the labeling, packaging, promotion and marketing of our products.  If we or our collaborators become aware of previously unknown problems with any of our product candidates in the United States or overseas or at our third-party manufacturers’ facilities, a regulatory agency may impose restrictions on our products, our third-party manufacturers or on us, including requiring us to reformulate our products, conduct additional clinical trials, make changes in the labeling of our products, implement changes to, or obtain re-approvals of, our third-party manufacturers’ facilities, or withdraw the product from the market.  In addition, we or our collaborators may experience a significant drop in the sales of the affected products and our product revenues will be reduced, our reputation in the marketplace may suffer and we may become the target of lawsuits, including class action suits.  Moreover, if we or our collaborators or third-party manufacturers fail to comply with applicable regulatory requirements, we may be subject to civil or criminal fines, suspension or withdrawal of regulatory approvals, product

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recalls, seizure of products, operating restrictions, costly new manufacturing requirements and criminal prosecution.  Any of these events could harm or prevent sales of the affected products and reduce our related revenues or could substantially increase the costs and expenses of commercializing and marketing these products, which would significantly harm our business, financial condition and prospects.

If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully develop our product candidates, conduct our clinical trials and commercialize our product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists.  We are highly dependent upon our senior management and scientific staff, particularly Michael N. Chang, Ph.D., our President and Chief Executive Officer, Tessie M. Che, Ph.D., our Senior Vice President and Chief Operating Officer, Francois-Xavier Frapaise, M.D., our Senior Vice President and Chief Scientific Officer, Youe-Kong Shue, Ph.D., our Vice President, Clinical Development, Sherwood L. Gorbach, M.D., our Vice President of Medical Affairs and Chief Medical Officer, and Kevin P. Poulos, our Chief Commercial Officer.  The loss of services of any of Drs. Chang, Che, Frapaise, Shue, Gorbach or Shue or Mr. Poulos or one or more of our other members of senior management could delay or prevent the successful completion of our planned clinical trials or the commercialization of our product candidates.  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 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 will need to hire additional personnel as we expand our clinical development and commercial activities.  We may not be able to attract or retain qualified management 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 area.  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 research and development objectives, our ability to raise additional capital and our ability to implement our business strategy.  In particular, if we lose any members of our senior management team, we may not be able to find suitable replacements, and our business and prospects may be harmed as a result.

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

We are a small company with 55 employees as of March 2, 2009.  To continue our clinical trials and commercialize our product candidates, we will need to expand our employee base for managerial, operational, marketing, sales, financial and other resources.  Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees and may take time away from running other aspects of our business, including development and commercialization of our product candidates.  Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively.  To that end, we must be able to:

·manage our development efforts effectively;

·manage our current clinical trials effectively;

·integrate additional management, administrative and manufacturing personnel;

·build a marketing and sales organization; and

·maintain sufficient administrative, accounting and management information systems and controls.

We may not be able to accomplish these tasks, and accordingly, may not achieve our research, development and commercialization goals.  Our failure to accomplish any of these goals could harm our financial results and prospects.

Third-party payor coverage and reimbursement may be insufficient or unavailable altogether for our product candidates, which could diminish our sales or affect our ability to sell our products profitably.

Market acceptance and sales of our product candidates will depend on reimbursement policies and may be affected by future healthcare reform measures.  Government third-party payors, such as the Medicare and Medicaid programs, and private payors, including health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels for these drugs.

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Because third-party payors increasingly are challenging prices charged and the cost-effectiveness of medical products, significant uncertainty exists as to the ability of our product candidates to receive adequate coverage and reimbursement.  We cannot be sure that third-party payors will place our product candidates on approved formularies or that reimbursement will be available in whole or in part for any of our product candidates.  Also, we cannot be sure that insufficient reimbursement amounts will not reduce

 the demand for, or the price of, our products, if approved.

Many healthcare providers, such as hospitals, receive a fixed reimbursement amount per procedure or other treatment therapy, and these amounts are not necessarily based on the actual costs incurred.  As a result, these healthcare providers may choose only the least expensive therapies regardless of efficacy.  We cannot guarantee that our product candidates will be the least expensive alternative and thus providers may decide not to use them or buy them for treatment.

We have not commenced efforts to have our product candidates reimbursed by government or third-party payors.  If reimbursement is not available or is available only to limited levels, we may not be able to commercialize our products successfully or at all, which would harm our business and prospects.

Recent proposed legislation may permit re-importation of drugs from foreign countries into the United States, including foreign countries where the drugs are sold at lower prices than in the United States, which could materially adversely affect our operating results and our overall financial condition.

We may face competition for our products from lower priced products from foreign countries that have placed price controls on pharmaceutical products.  Imports from Canada and elsewhere may continue to increase due to market and political forces, and the limited enforcement resources of the FDA, the U.S. Customs Service, and other government agencies.  For example, U.S. Customs Service generally does not prevent individuals from importing from Canada less than a 90-day supply of a prescription drug for personal use, when the drug otherwise complies with the Federal Food, Drug and Cosmetic Act.  Further, several states and local governments have implemented importation schemes for their citizens, and, in the absence of federal action to curtail such activities, we expect other states and local governments to launch importation efforts.  The importation of foreign products that compete with our own product candidates could negatively impact our business and prospects.

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

In both the United States and certain foreign jurisdictions, there have been, and we anticipate there will continue to be, a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell our products profitably.  We cannot be certain that fidaxomicin and prulifloxacin or other current or future drug candidates will successfully be placed on the list of drugs covered by particular health plan formularies, nor can we predict the negotiated price for our drug candidates, which will be determined by market factors. Many states have also created preferred drug lists and include drugs on those lists only when the manufacturers agree to pay a supplemental rebate.  If fidaxomicin and prulifloxacin or other current or future drug candidates are not included on these preferred drug lists, physicians may not be inclined to prescribe them to their Medicaid patients, thereby diminishing the potential market for our products.

As a result of legislative proposals and the trend towards cost-effectiveness criteria and managed healthcare in the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs.  They may also refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals.  As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse for newly-approved drugs, which in turn will put pressure on the pricing of drugs.  Further, we do not have experience in ensuring approval by applicable third-party payors outside of the United States for 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 fidaxomicin and prulifloxacin.  We also anticipate pricing pressures in connection with the sale of our products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.

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.

We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws, the False Claims Act, the Foreign Corrupt Practices Act and state laws requiring reporting and certification under comprehensive compliance programs governing our financial relationships with healthcare providers.  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

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compliance with such laws and we are aware of the need to increase our compliance resources if we begin marketing products.  However, because of the far-reaching nature of these laws, there can be no assurance that we would 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 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 product candidates and other hazardous compounds.  We and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.  Although we believe that the safety procedures for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials.  We currently have insurance coverage in the amount of approximately $250,000 for damage claims arising from contamination on our property.  These amounts may not be sufficient to adequately protect us from liability for damage claims relating to contamination.  If we are subject to liability exceeding our insurance coverage amounts, our business and prospects would be harmed.  In the event of an accident, state or federal authorities may also curtail our use of these materials and interrupt our business operations.

Our business and operations would suffer in the event of computer, telecommunications or other system failure.

Despite the implementation of security measures, our internal computer systems are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.  Any system failure, accident or security breach that causes interruptions in our operations could result in a material disruption of our drug development programs.  For example, the loss of clinical trial information from completed or ongoing clinical trials for fidaxomicin or prulifloxacin, which is maintained by our third-party CRO, could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.  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 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 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 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 candidates but that are not covered by the claims of our pending patent applications or licensed patents, or for which we are not licensed under our license agreements;

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

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

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

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

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

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

·we may not develop additional proprietary technologies that are patentable; or

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

In addition, to the extent we are unable to obtain and maintain patent protection for one of our lead 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.

We have filed 8 patent applications related to fidaxomicin, six of which are pending, one of which has resulted in the issuance of a polymorph patent and one of which has resulted in the allowance of a manufacturing patent from the United States Patent and Trademark Office or U. S. PTO.

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

·composition of matter for fidaxomicin (allowed in Taiwan);

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

·polymorphic forms (issued in U.S.);

·composition comprising a polymorphic form;

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

·treatment of diseases;

·formulation; and

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

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, even when the process patent is issued and if the formulation patent applications become issued patents, our competitors, including generic drug companies, may be able to design around our manufacturing processes or formulation for fidaxomicin.  As a result, our competitors may be able to develop competing products.

In addition, we currently plan to submit an NDA for prulifloxacin for the treatment of infectious diarrhea in travelers in 2009.  The composition of matter patent covering prulifloxacin is expired in February 2009. Although in some cases the U.S. PTO will grant an extension of a patent term where the related product is subject to FDA approval, this extension was unavailable to us with respect to the prulifloxacin composition of matter patent because we did not submit an NDA for prulifloxacin prior to the expiration of this patent.  There are currently no other active issued patents which would prevent third parties from potentially marketing prulifloxacin in the United States.  Therefore, we will likely rely on one or more regulatory marketing exclusivities for prulifloxacin in the United States.  Specifically, if our NDA for prulifloxacin is approved, we expect to receive a five-year period of marketing exclusivity under the Hatch-Waxman Act. This exclusivity period is available to the first applicant to gain approval of an NDA for a new chemical entity, or NCE, that has not previously been approved as an active ingredient under Section 505(b) of the Food Drug and Cosmetic

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Act, or FDCA.  While we expect that the NCE exclusivity period will be available for prulifloxacin, if we or Nippon Shinyaku are unsuccessful in obtaining additional patents related to prulifloxacin, we may face generic competition in the United States five years after our NDA for prulifloxacin is approved by the FDA.  If we are unable to obtain marketing exclusivity beyond five years from the approval of our NDA, our potential revenues from prulifloxacin sales in the U.S. will be limited.

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.  For example, Nippon Shinyaku, SKI, TSRI and Cempra are responsible for the maintenance of patents and prosecution of patent applications relating to prulifloxacin, OPT-822/OPT-821 combination therapy, our OPopS technology, and OP-1068 also known as CEM-101, respectively.  We may also be dependent on Par to provide technical support for patent applications relating to fidaxomicin.  If any of these parties fail to adequately protect these product candidates with issued patents, our business and prospects would be significantly harmed.

Under our agreement with Nippon Shinyaku, in the event Nippon Shinyaku fails to take all steps necessary to seek extension of the patents licensed to us in the United States 180 days after we request such action be taken, then we have the right to take all necessary actions to extend the licensed patents.  Our agreements with SKI, TSRI, Cempra and Par do not have explicit provisions regarding our rights to take necessary action with respect to maintenance of patents and prosecution of patent applications nor do such agreements provide us with any legal recourse in the event such parties do not so maintain and/or prosecute.  If any of these parties fails to adequately maintain patents and prosecute patent applications relating to technology licensed to or from us, we may be required to take further action on our own to protect this technology.  However, we may not be successful in maintaining such patents or prosecuting such patent applications and if so, our business and prospects would be significantly harmed.

We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable.  However, trade secrets are difficult to protect.  Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors.  Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable.  In addition, courts outside the United States are sometimes less willing to protect trade secrets.  Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

If we or our licensors fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.

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

If we 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 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 commercial 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.

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

Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our licensors’ issued patents or our pending applications or our licensors’ pending applications, or that we or our licensors were the first to invent the technology.  Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours.  Any such patent application may have priority over our or our licensors’ patent applications and could further require us to obtain rights to issued patents covering such technologies.  If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. PTO, to determine priority of invention in the United States.  The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our U.S. patent position with respect to such inventions.

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

Risks Related to the Securities Market and Ownership of Our Common Stock

The market price of our common stock may be highly volatile.

Before our initial public offering in February 2007, there was no public market for our common stock.  We cannot assure you that an active trading market will 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, including the current turmoil in the credit market and financial services industry;

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

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

·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 fidaxomicin and prulifloxacin;

·announcements by our collaborators with respect to clinical trial results 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;

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·developments concerning our collaborations and partnerships, including but not limited to those with our sources of manufacturing supply and our commercialization partners;

·actual or anticipated variations in our quarterly operating results;

·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;

·third-party coverage or reimbursement policies;

·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;

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

·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; and

·trading volume of our common stock.

In addition, the stock market in general and the market for biotechnology and biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have often been unrelated and/or disproportionate to the operating performance of those companies.  These broad market and industry factors may significantly harm the market price of our common stock, regardless of our operating performance.  In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies.  Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could significantly harm our business, financial condition and prospects.

Future sales of our common stock in the public market could cause our stock price to decline.

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

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

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Negative conditions in the global credit markets may impair the liquidity of a portion of our investment portfolio.

Our investment securities consist of high-grade auction rate securities, money market funds, corporate debt securities and government agency securities. As of December 31, 2008, we held two auction rate preferred securities valued at $1.0 million with perpetual maturity dates that reset every 28 days. The negative conditions in the global credit markets have prevented some investors from liquidating their holdings, including their holdings of auction rate securities.  There was insufficient demand at auction for these two auction rate preferred securities.  As a result, these affected securities are currently not liquid, and we could be required to hold them until they are redeemed by the issuer or to maturity.  In the event we need to access the funds that are in an illiquid state, we will not be able to do so without a loss of principal, until a future auction on these investments is successful, the securities are redeemed by the issuer or they mature. As of December 31, 2008, the carrying value of all auction rate securities had been reduced by $118,000, from $1,150,000 to $1,032,000, reflecting an estimated change in fair market value due primarily to a lack of liquidity. Although the auction rate securities continue to pay interest according to their stated terms, based on valuation models, we have recorded an unrealized loss for an other-than-temporary change in valuation of $118,000.  If the credit ratings of the security issuers deteriorate or if uncertainties in these markets continue and any decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an impairment charge, which could negatively affect our financial condition, cash flow and reported earnings.

We will continue to incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will continue to incur significant legal, accounting and other expenses.  In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and the Nasdaq Global Market, or Nasdaq, impose various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.  Our management and other personnel need to devote a substantial amount of time to these compliance initiatives.  Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.  For example, these rules and regulations to make it more difficult and more expensive for us to maintain director and officer liability insurance, and we may be required to incur substantial costs in the future to maintain the same or similar coverage.

The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. As a result, as of December 31, 2008, we were required to perform an evaluation of our internal controls over financial reporting to allow management to report on the effectiveness of those controls, as required by Section 404 of the Sarbanes-Oxley Act. Additionally, our independent auditors were required to perform a similar evaluation and report on the effectiveness of our internal controls over financial reporting. At December 31, 2008, management and our independent auditors did not identify any material weaknesses in our internal controls over financial reporting. Our efforts to comply with Section 404 and related regulations has required, and continues to require, the commitment of significant financial and managerial resources. While we anticipate maintaining the integrity of our internal controls over financial reporting and all other aspects of Section 404, we cannot be certain that a material weakness will not be identified when we test the effectiveness of our control systems in the future. If a material weakness is identified, we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources, costly litigation or a loss of public confidence in our internal controls, which could have an adverse effect on the market price of our stock.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders, or remove our current management.  These provisions include:

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

·authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

·limiting the removal of directors by the stockholders;

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

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

·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.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our facilities currently consist of approximately 26,000 square feet of laboratory and office space in two facilities in San Diego, California.  We believe these facilities are adequate to meet our current needs and that additional space will be available on commercially reasonable terms as needed.

Item 3. Legal Proceedings

We are not currently a party to any legal proceeding.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year ended December 31, 2008.

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PART II

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

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

2008	High		Low
First Quarter	$	7.30	$	5.90
Second Quarter	$	9.00	$	5.85
Third Quarter	$	9.70	$	7.24
Fourth Quarter	$	12.14	$	3.30

2007	High		Low
First Quarter (from February 9, 2007)	$	10.74	$	7.24
Second Quarter	$	10.40	$	8.50
Third Quarter	$	10.42	$	7.75
Fourth Quarter	$	8.86	$	6.50

As of March 11, 2009, there were approximately 71 holders of record of our common stock.

Dividends

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

Performance Measurement Comparison (1)

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

COMPARISON OF CUMULATIVE TOTAL RETURN*

Among Optimer Pharmaceuticals Inc, The NASDAQ Composite Index

And The NASDAQ Biotechnology Index

*$100 invested on 2/9/07 in stock & 1/31/07 in index-including reinvestment of dividends.

Fiscal year ending December 31.

(1) This section is not “soliciting material”, is not deemed “filed” with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act, and is not to be incorporated by reference in any of our filings under the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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Item 6.  Selected Consolidated Financial Data

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

	Years Ended December 31,
	2008			2007			2006			2005			2004
	(in thousands, except per share amounts)
Statement of Operations Data:
Collaboration and grant revenues	$	1,023		$	767		$	933		$	2,147		$	1,111
Operating expenses:
Research and development	29,036			41,569			10,481			7,047			8,571
Marketing	2,451			2,048			—			—			—
General and administrative	6,683			5,351			3,523			2,782			2,697
Total operating expenses	38,170			48,968			14,004			9,829			11,268
Loss from operations	(37,147		)	(48,201		)	(13,071		)	(7,682		)	(10,157		)
Interest income and other, net	1,562			2,062			1,169			237			247
Net loss	(35,585		)	(46,139		)	(11,902		)	(7,445		)	(9,910		)
Accretion to redemption amount of redeemable convertible preferred stock	—			—			(329		)	(223		)	(12		)
Net loss attributable to common stockholders	$	(35,585	)	$	(46,139	)	$	(12,231	)	$	(7,668	)	$	(9,922	)
Basic and diluted net loss per share attributable to common stockholders	$	(1.24	)	$	(2.12	)	$	(4.81	)	$	(3.22	)	$	(4.76	)
Weighted average shares outstanding	28,683			21,715			2,543			2,383			2,084

	As of December 31,
	2008			2007			2006			2005			2004
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	39,326		$	58,806		$	21,341		$	29,880		$	1,953
Working capital	32,258			52,173			17,990			28,490			1,231
Total assets	42,295			60,786			24,114			32,335			4,903
Redeemable convertible preferred stock	—			—			65,460			65,078			32,175
Accumulated deficit	(133,382		)	(97,698		)	(51,558		)	(39,656		)	(32,212		)
Total stockholders’ equity (deficit)	34,231			52,903			(46,702		)	(35,143		)	(28,463		)

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

The following discussion and analysis should be read in conjunction with our “Selected Consolidated Financial Data” and consolidated financial statements and accompanying notes appearing elsewhere in this report.  This discussion and other parts of this report may contain forward-looking statements based upon current expectations that involve risks and uncertainties.  Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this report.

Overview

We are a biopharmaceutical company focused on discovering, developing and commercializing innovative anti-infective products. Our current development efforts are focused on products that treat gastrointestinal infections, and related diseases where current therapies have limitations, including limited efficacy, serious adverse side effects, drug-to-drug interactions, difficult patient compliance and bacterial resistance.

We currently have two late-stage anti-infective product candidates, fidaxomicin, formerly known as OPT-80, and prulifloxacin.

Fidaxomicin, our lead product candidate, is an antibiotic currently in its second Phase 3 registration trial for the treatment of CDI, the most common nosocomial, or hospital acquired, diarrhea. In November 2008, we reported positive data from the first fidaxomicin Phase 3 trial, the largest single comparative study ever conducted against Vancocin. The top-line analysis of data from this trial showed that fidaxomicin achieved the primary endpoint of clinical cure and demonstrated a significantly lower recurrence rate compared to Vancocin, the only FDA-approved antibiotic for the treatment of CDI.  Fidaxomicin was also well-tolerated in the trial.  The second fidaxomicin Phase 3 trial is on-going and we anticipate completing enrollment and reporting data from this trial in 2009.  We currently hold worldwide rights to fidaxomicin.

Prulifloxacin is a prodrug in the fluoroquinolone class of  antibiotics, a widely-used class of broad-spectrum antibiotics. We are developing prulifloxacin as a treatment for infectious diarrhea in travelers.  In July 2008, we reported positive top-line data from the first Phase 3 trial conducted in Mexico and Peru and in February 2009, we reported positive top-line data from the second Phase 3 trial conducted in India, Guatemala and Mexico.  The top-line analysis of data from these studies showed that prulifloxacin met the primary endpoint of TLUS compared to placebo. We intend to conduct a Phase 4 trial of prulifloxacin subsequent to the NDA submission to compare prulifloxacin to ciprofloxacin for the treatment of infectious diarrhea.  We plan to initially seek approval for prulifloxacin for the treatment of infectious diarrhea in travelers.

We are developing additional product candidates using our proprietary technology, including our Optimer One-Pot Synthesis, or OPopS™ drug discovery platform. OPopS is a computer-aided technology that enables the rapid and low-cost synthesis of a wide array of carbohydrate-based compounds.  Two components of the OPopS technology that allow us to synthesize new compounds are GlycoOptimization and De Novo Glycosylation.  These technologies are capable of rapidly generating drug candidates for broad therapeutic application.  One of the more advanced OPopS product candidates is OPT-88, a disease-modifying intra-articular, or within the cavity of a joint, therapy for osteoarthritis.  We plan to submit an Investigational New Drug application in 2009 and subsequently to, either ourselves or with a partner, initiate a Phase 1 study to assess safety of repetitive intra-articular injections of OPT-88 in patients with knee osteoarthritis.

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

We were incorporated in November 1998.  Since inception, we have focused on developing our product candidates, including fidaxomicin and prulifloxacin.  We have never been profitable and have incurred significant net losses since our inception.  As of December 31, 2008, we had an accumulated deficit of $133.4 million.  These losses have resulted principally from costs incurred in connection with research and development activities, including the costs of clinical trial activities associated with our current lead product candidates, license fees and general and administrative expenses.  We expect to continue to incur operating losses for the next several years as we pursue the clinical development and commercialization of our product candidates, as well as acquire or in-license additional products or product candidates, technologies or businesses that are complementary to our own.

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Financial Operations Overview

Collaboration and Grant Revenues

We have not generated any revenues from sales of commercial products.  Since inception, we have generated revenues primarily as a result of various collaborations with pharmaceutical and biotechnology companies and grants from government agencies.  We may also periodically recognize as revenues non-refundable payments for achieving certain milestones during the term of our collaboration agreements.

Research and Development Expense

Research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates and developing and advancing our drug discovery technology.  Our research and development expenses consist primarily of salaries and related employee benefits, costs associated with clinical trials managed by our CROs and costs associated with non-clinical research activities and regulatory approvals.  Our most significant costs are for clinical trials, including payments to vendors such as CROs, investigators, manufacturers of clinical supplies and related consultants.  Our historical research and development expenses have resulted predominantly from our clinical trials of fidaxomicin and prulifloxacin, the development of our carbohydrate technology platforms, including OPopS, in-licensing fees and general research activities.  We charge all research and development expenses to operations as they are incurred because the underlying technology associated with these expenditures relates to our research and development efforts and has no alternative future uses.  From inception through December 31, 2008, we incurred total research and development expenses of approximately $113.4 million.

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

External costs are expensed as incurred.  We incurred $18.6 million, $34.4 million and $64.7 million of research and development expenses directly related to the development of fidaxomicin for the years ended December 31, 2008 and 2007, and cumulatively through December 31, 2008, respectively.  The decrease in these research and development expenses, from 2007 to 2008, resulted primarily from expense recorded in 2007 related to a $20 million payment to Par Pharmaceutical to regain the rights to fidaxomicin in North America.  We incurred $7.5 million, $4.0 million, and $16.2 million of research and development expenses directly related to the development of prulifloxacin for the years ended December 31, 2008 and 2007, and cumulatively through December 31, 2008, respectively.  All other research and development expenses were for other clinical programs.

We expect our research and development expenses to increase as we complete our clinical trial activities with respect to fidaxomicin, prepare regulatory filings for marketing approval of fidaxomicin and prulifloxacin, incur expenses related to large-scale manufacturing of fidaxomicin and prulifloxacin, advance our other product candidates through the development process and invest in additional product opportunities and research programs.  Although we expect our costs associated with clinical trials to decrease as we complete the second of two Phase 3 clinical trials for fidaxomicin, we expect to incur substantial costs in the preparation of applications for regulatory approval and manufacturing and scale-up for fidaxomicin and prulifloxacin.  The process of conducting pre-clinical and clinical trials and obtaining regulatory approval for our product candidates is time-consuming, expensive and subject to many uncertainties. For example, the cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including the number of patients enrolled, the rate of enrollment and the duration of patient treatment and follow-up.  In addition, it is not uncommon for the FDA to request additional data following its review of an NDA, which can significantly lengthen the regulatory approval process and increase expenses.

As a result of the uncertainties discussed above, we are unable to determine with any significant degree of certainty the duration and completion costs of our research and development projects or when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates.  However, while we do not have specific estimates for the costs of all of our projects, we currently estimate that we will incur external costs of approximately $8.3 million to complete the Phase 3 clinical trials for fidaxomicin to treat CDI and approximately $1.3 million to complete the Phase 3 clinical trials for Prulifloxacin to treat infectious diarrhea in travelers.

General and Administrative Expense

General and administrative expense consists primarily of compensation, including stock-based compensation, and other expenses related to an allocated portion of facility cost, legal fees and other professional services expenses, our corporate

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administrative employees and insurance costs.  We anticipate that we will maintain our existing level of general and administrative expenditures.  However, we will make determinations as to the necessary levels of general and administrative expenditures on an on-going basis in response to our research and development activities and regulatory obligations.

Interest Income (Expense) and Other, Net

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

Net Operating Losses and Tax Credit Carryforwards

As of December 31, 2008 we had federal, state and foreign net operating loss carryforwards of approximately $120.5 million, $123.9 million and $2.6 million, respectively.  If not utilized, the net operating loss carryforwards will begin expiring in 2020 for federal purposes and 2012 for state purposes.  The foreign losses originate from our subsidiary in Taiwan.  The losses from our subsidiary in Taiwan expire five years after origination.  As of December 31, 2008, we had both federal and state research and development tax credit carryforwards of approximately $2.2 million and $1.5 million, respectively.  The federal tax credits will begin expiring in 2020 unless previously utilized and the state tax credits carryforward indefinitely.  As of December 31, 2008, we had a state manufacturer’s investment tax credit carryforward of approximately $103,000 which will begin to expire in 2011, unless previously utilized.  Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss and tax credit carryforwards that could be utilized annually in the future to offset taxable income.  Any such annual limitation may significantly reduce the utilization of the net operating losses and tax credits before they expire.

As of December 31, 2008, we have completed a Section 382/383 analysis regarding the limitation of the net operating losses and credit carryovers and had determined that the maximum amount of U.S. federal and state NOL and credit carryovers are available for utilization, subject to the annual limitation.  Based on the analysis, the related deferred tax assets were reinstated in 2008 and the corresponding valuation allowance was increased.  Any carryforwards that will expire prior to utilization as a result of future limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.  Due to the existence of the valuation allowance, future changes in the unrecognized tax benefits will not impact the effective tax rate.

Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States.  The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures.  Actual results could differ from those estimates. While our significant accounting policies are described in more detail in Note 1 of the Notes to Consolidated Financial Statements appearing elsewhere in this report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Our collaboration agreements contain multiple elements, including non-refundable upfront fees, payments for reimbursement of third-party research costs, payments for ongoing research, payments associated with achieving specific development milestones and royalties based on specified percentages of net product sales, if any.  We apply the revenue recognition criteria outlined in Staff Accounting Bulletin, or SAB No. 104, Revenue Recognition and Emerging Issues Task Force, or EITF, Issue 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21.  In applying these revenue recognition criteria, we consider a variety of factors in determining the appropriate method of revenue recognition under these arrangements, such as whether the elements are separable, whether there are determinable fair values and whether there is a unique earnings process associated with each element of a contract.

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.

When a payment is specifically tied to a separate earnings process, revenues are recognized when the specific performance obligation associated with the payment is completed.  Performance obligations typically consist of significant and substantive milestones.  Revenues from milestone payments may be considered separable from funding for research services because of the uncertainty surrounding the achievement of milestones for products in early stages of development.  Accordingly, these milestone

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payments are allowed to be recognized as revenue if and when the performance milestone is achieved if they represent a substantive earnings process as described in EITF 00-21.

In connection with certain research collaboration agreements, revenues are recognized from non-refundable upfront fees, which we do not believe are specifically tied to a separate earnings process, ratably over the term of the agreement or the period over which we have significant involvement or perform services.  Research fees are recognized as revenue as the related research activities are performed.

Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with grants are recorded in compliance with EITF Issue 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, and EITF Issue 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred.  According to the criteria established by these EITF Issues, in transactions where we act as a principal, with discretion to choose suppliers, bear credit risk and perform part of the services required in the transaction, we record revenue for the gross amount of the reimbursement.  The costs associated with these reimbursements are reflected as a component of research and development expense in the consolidated statements of operations.

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

Research and Development

Research and development costs are expensed as incurred and consist primarily of costs associated with clinical trials, compensation, including stock-based compensation, and other expenses related to research and development, including personnel costs, facilities costs and depreciation.

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

Accrued Clinical Trial Costs

A substantial portion of our on-going research and development activities are performed under agreements we enter into with external service providers, including CROs, who conduct many of our research and development activities.  We accrue the costs incurred under these contracts based on factors such as estimates of work performed, milestones achieved, patient enrollment and costs historically incurred for similar contracts.  As actual costs become known, we adjust our accruals.  Historically, our accruals have been within management’s estimates, and no material adjustments to research and development expenses have been recognized.  Subsequent changes in estimates may result in a material change in our accruals, which could also materially affect our results of operations.

Stock-Based Compensation

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS No. 123(R) requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period.  We used the modified prospective method when we adopted SFAS No. 123(R) and accordingly we did not restate the results of operations for the prior periods. Compensation expense of $1.8 million, $1.2 million and $0.7 million was recognized in the years ended December 31, 2008, 2007 and 2006, respectively.

Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period. We estimate the fair value of our stock options using the Black-Scholes option-pricing model and the fair value of our stock awards based on the quoted market price of our common stock.

Estimating the fair value for stock options requires judgment, including estimating stock-price volatility, expected term, expected dividends and risk-free interest rates. The expected volatility rates are based on the historical fluctuation in the stock price since inception. The average expected term is calculated using SAB No. 107, “Simplified Method for Estimating the Expected Term.”

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Expected dividends are estimated based on our dividend history as well as our current projections. The risk-free interest rate for periods approximating the expected terms of the options is based on the U.S. Treasury yield curve in effect at the time of grant. These assumptions are updated on an annual basis or sooner if there is a significant change in circumstances that could affect these assumptions.

Equity instruments issued to non-employees are recorded at their fair value as determined in accordance with SFAS No.
123(R) and EITF Issue 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period.

Results of Operations

Comparison of Years Ended December 31, 2008 and 2007

Collaboration and Grant Revenues.  Collaboration and grant revenues for the years ended December 31, 2008 and 2007 were $1,023,000 and $767,000, respectively.  The increase of $256,000, or 33%, was primarily due to an increase in revenue from a NIH research grant, which was partially offset by a decrease in revenue from a collaboration with a natural healthcare company which was completed in 2007.

Research and Development Expense.  Research and development for the years ended December 31, 2008 and 2007 was $29,036,000 and $41,569,000, respectively.  The decrease of $12,533,000, or 30%, was due primarily to a $20.0 million payment in 2007 to Par to regain the rights to fidaxomicin in North America, and the purchase of $1.9 million of clinical supply material and active pharmaceutical ingredient.  This decrease was partially offset by an increase in expenses of $7.0 million related to our fidaxomicin and prulifloxacin Phase 3 clinical trials in 2008.

Marketing Expense.  Marketing expense for the years ended December 31, 2008 and 2007 was $2,451,000 and $2,048,000, respectively. The increase of $403,000, or 20%, was primarily due to an increase in medical education and pre-launch marketing efforts related to fidaxomicin.

General and Administrative Expense.  General and administrative expense for the years ended December 31, 2008 and 2007 was $6,683,000 and $5,351,000, respectively.  The increase of $1,332,000 or 25% was due to higher legal, accounting, investor relations, and compensation expenses, including an increase of $247,000 in stock compensation expense over the same period in the prior year.

Interest Income and Other, net.  Net interest income and other for the years ended December 31, 2008 and 2007 were $1,562,000 and $2,061,000, respectively.  The decrease of $500,000, or 24%, was primarily due to lower cash and short-term investments and lower overall interest rates. In addition, we recorded an impairment on our long-term investments of $118,000 in 2008.

Comparison of Years Ended December 31, 2007 and 2006

Collaboration and Grant Revenues.  Collaboration and grant revenues for the years ended December 31, 2007 and 2006 were $767,000 and $933,000, respectively.  The decrease of $166,000, or 18%, was primarily due to a decrease in revenue from a NIH grant and the conclusion of a development and license agreement, partially offset by an increase of $370,000 related to a collaboration with a natural healthcare company.

Research and Development Expense.  Research and development for the years ended December 31, 2007 and 2006 was $41,569,000 and $10,481,000, respectively.  The increase of $31,088,000, or 297% was due primarily to the $20.0 million payment to Par to reacquire the rights to fidaxomicin in North America and Israel, the advancement of our fidaxomicin and prulifloxacin clinical trials, including the initiation of the second pivotal Phase 3 trial for fidaxomicin, and the purchase of $1.9 million of fidaxomicin clinical supply material and active pharmaceutical ingredient for the fidaxomicin clinical study.

Marketing.  We incurred $2,048,000 of marketing expense in the year ended December 31, 2007 and no such expense in the year ended December 31, 2006.  The expenses in the year ended December 31, 2007 were related to salaries and pre-launch activities which include medical education, scientific conferences, and public relations services.

General and Administrative Expense.  General and administrative expense for the year ended December 31, 2007 and 2006 was $5,351,000 and $3,523,000, respectively.  The increase of $1,828,000, or 52%, was due to increased expenses to support a public

47

company infrastructure which included higher legal expenses, insurance and compensation expenses, including a $679,000 of stock compensation expense, an increase of $265,000 over the prior year.

Interest Income and Other, net.  Net interest income and other for the year ended December 31, 2007 and 2006 were $2,062,000 and $1,169,000, respectively.  The increase was primarily due to higher cash and short-term investment balances as a result of our initial public offering completed in February 2007 and our private placement offering which closed in October 2007.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, our operations have been financed primarily through the sale of equity securities.  Through March 9, 2009, we received gross proceeds of approximately $202.4 million from the sale of shares of our preferred and common stock as follows:

·in May 2000, we sold a total of 1.6 million shares of Series A preferred stock for proceeds of $3.4 million;

·from March 2001 to December 2001, we sold a total of 4.1 million shares of Series B preferred stock for proceeds of $32.2 million;

·in April 2005, we sold a total of 1.5 million shares of Series C preferred stock for proceeds of $12.0 million;

·from April 2005 to November 2005, we sold a total of 2.9 million shares of Series D preferred stock for proceeds of $22.3 million;

·in February 2007, we sold a total of 7.0 million shares of our common stock in connection with our initial public offering for proceeds of $49.0 million;

·in October 2007, we sold a total of 4.6 million shares of our common stock in connection with a private placement offering for proceeds $35.9 million;

·in July 2008, we sold a total of 1.7 million shares of our common stock in a registered direct offering for proceeds of $14.7 million; and

·in March 2009, we sold a total of 3.3 million shares of our common stock and warrants to purchase up to an aggregate of 91,533 shares of our common stock in a registered direct offering for proceeds of $32.9 million.

Until required for operations, we invest a substantial portion of our available funds in money market funds, corporate debt securities, United States government instruments and other readily marketable debt instruments, all of which are investment-grade quality.  We have established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.

Cash Flows

As of December 31, 2008, our cash, cash equivalents and short-term investments totaled approximately $39.3 million as compared to $58.8 million as of December 31, 2007. The decrease of approximately $19.5 million was primarily due to cash used in operations and was partially offset by $14.7 million raised in a registered direct offering in July 2008.  In addition, as noted above, in March 2009, we raised $32.9 million in a registered direct offering.

We cannot be certain if, when or to what extent we will receive cash inflows from the commercialization of our product candidates.  We expect our development expenses to be substantial and to increase over the next few years as we advance the development of our product candidates and prepare for regulatory submissions and commercialization.

In February 2007, we regained worldwide rights to fidaxomicin from Par under a prospective buy-back agreement.   We paid Par a one-time $20.0 million termination fee and purchased $1.9 million of fidaxomicin clinical supply material and active pharmaceutical ingredient.  We are obligated to pay Par a one-time $5.0 million milestone payment, a 5% royalty on net sales by us or our affiliates of fidaxomicin in North America and Israel, and a 1.5% royalty on net sales by us or our affiliates of fidaxomicin in the rest of the world.  In addition, 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 we receive related to fidaxomicin.  We are obligated to pay each of these royalties, if any, on

48

a country-by-country basis for seven years commencing on the applicable commercial launch in each such country.   In connection with the exercise of our rights under the prospective buy-back agreement, Par assigned to us a supply agreement with Biocon. Under this agreement, Biocon is obligated to supply to us our requirements of the fidaxomicin API for certain markets. We may be obligated to pay a  $3.0 million prepayment to Biocon, subject to future set-offs.

In June 2004, we entered into a license agreement with Nippon Shinyaku pursuant to which we acquired the non-exclusive right to import and purchase prulifloxacin, and the exclusive right (with the right to sublicense), within the United States, to develop, make, use, offer to sell, sell and license products suitable for consumption by humans containing prulifloxacin.  Additionally, we acquired rights within the United States to a key patent which covers the compound and the treatment of bacterial infections in humans and animals.  Under the terms of the agreement, we will be required to pay Nippon Shinyaku a milestone payment in the amount of $1.0 million upon the filing, if any, of an NDA for prulifloxacin in the United States.

In October 2008, our Compensation Committee adopted a Severance Benefit Plan covering certain eligible employees of the Company, including executive officers.  Pursuant to the plan, upon an involuntary termination other than for cause an eligible employee may be entitled to receive specified severance benefits. The benefits may include cash severance payments and acceleration of stock award vesting.  The level of benefits provided under the plan depends upon an eligible employee’s position and years of service, and whether the termination is related to a change in control.

Funding Requirements

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

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

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

·the costs involved in prosecuting, enforcing or defending patent claims or other intellectual property rights;

·the costs and timing of regulatory approvals;

·the costs of establishing sales or distribution capabilities;

·the commercial success of our products; and

·the extent to which we in-license, acquire or invest in other indications, products, technologies and businesses.

We believe that our existing cash and cash equivalents will be sufficient to meet our capital requirements for at least the next 15 months.

Until we can generate significant cash from our operations, we expect to continue to fund our operations with existing cash resources that were primarily generated from offerings of our equity securities and collaborations and government grants.  In addition, we may finance future cash needs through the sale of additional equity securities, strategic collaboration agreements and debt financing.  However, we may not be successful in entering into additional collaboration agreements, in receiving milestone or royalty payments under new or existing collaboration agreements, in obtaining new government grants or in obtaining equity or 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.  Having insufficient funds may require us to delay, scale-back or eliminate some or all of our development programs, relinquish some or even all of our rights to product candidates at an earlier stage of development or renegotiate less favorable terms 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 additional debt financing, 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.

49

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

The following table describes our long-term contractual obligations and commitments as of December 31, 2008:

	Payments Due by Period
	Total		Less than 1 year		1-2 years		3-5 years		After 5 years
	(in thousands)
Operating lease obligations	$	2,099	$	856	$	1,243	$	—	$	—

We contracted with a CRO for clinical research services for the fidaxomicin Phase 3 clinical trials and prulifloxacin Phase 3 clinical trials.  We have issued purchase orders totaling $42.4 million as of December 31, 2008 for these services, $8.4 million, $9.8 million and $20.4 million were issued in 2008, 2007, and 2006, respectively.  As of December 31, 2008, we have paid $28.6 million related to these purchase orders.  We can terminate the service agreement at any time upon 60 days’ written notice to the CRO.  We have not included any amounts related to the CRO contract in the table above.

The contractual obligations table does not include (a) a potential future milestone payment in the amount of $1.0 million to Nippon Shinyaku due upon filing our first NDA in the United States for prulifloxacin, (b) potential future milestone payments to Cempra in the amount of $1.0 million due upon the regulatory approval of each of the first two products we develop under our licensing agreement with Cempra in any country which is a member of the Association of Southeast Asian Nations, or ASEAN, (c) potential future milestone payments to SKI for each product licensed under the SKI agreement as follows: (i) $500,000 upon the commencement of Phase 3 clinical studies, (ii) $750,000 upon the filing of the first NDA, (iii) $1.5 million upon marketing approval in the United States and (iv) $1.0 million upon marketing approval in each and any of Japan and certain European countries, (d) potential future milestone payments of up to $14.0 million to TSRI due upon achievement of certain clinical milestones, the filing of NDAs or their foreign equivalents and government marketing and distribution approval, or (e) a future $5.0 million milestone payment to Par upon the earliest occurrence of (i) the successful completion by us of our pivotal Phase 3 trial for fidaxomicin, (ii) our grant to a third party of the rights to fidaxomicin or (iii) the submission to the FDA of an NDA for fidaxomicin.  We may also be required to pay royalties on any net sales of prulifloxacin, fidaxomicin and other licensed product candidates.  The milestone and royalty payments under our license agreements are not included in the table above because we cannot, at this time, determine when or if the related milestones will be achieved or the events triggering the commencement of payment obligations will occur.

Recently Issued Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board, or FASB issued Statement of Financial Accounting Standards, or SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51”, or SFAS 160.  SFAS 160 requires the recognition of a noncontrolling interest, sometimes called minority interest, as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We do not expect the adoption of this standard to have a material impact on our financial position, cash flows, or results of operations.

In December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations”, or SFAS 141(R). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in connection with business combinations. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008.  We do not expect the adoption of this standard to have a material impact on our financial position, cash flows, or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. This new standard requires enhanced disclosures for derivative instruments, including those

50

used in hedging activities. It is effective for fiscal years and interim periods beginning after November 15, 2008. We do not expect the adoption of this standard to have a material impact on our financial position, cash flows, or results of operations.

In April 2008, the FASB issued FASB Staff Position, or FSP, FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. We do not expect the adoption of this standard to have a material impact on our financial position, cash flows, or results of operations.

In January 2009, the FASB FSP issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF 99-20. This new standard amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination, of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is prohibited. We adopted this standard in our fiscal year ended December 31, 2008.  The adoption did not have a material impact on our financial position, cash flows, or results of operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our cash and cash equivalents and short-term investments as of December 31, 2008 consisted primarily of money market funds, corporate debt securities, United States government instruments and other readily marketable debt instruments.  Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates.  The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk.  A hypothetical ten percent change in interest rates during the year ended December 31, 2008 would have resulted in approximately a $177,000 change in net loss. Accordingly, we do not expect that our operating results or cash flows would be affected to any significant degree a sudden change in market interest rates on 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.

51

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	53
Consolidated Balance Sheets	54
Consolidated Statements of Operations	55
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	56
Consolidated Statements of Cash Flows	57
Notes to Consolidated Financial Statements	58

52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and
Stockholders of Optimer Pharmaceuticals Inc.

We have audited the accompanying consolidated balance sheets of Optimer Pharmaceuticals, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Optimer Pharmaceuticals, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Optimer Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2009 expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
San Diego, California
March 11, 2009

53

Optimer Pharmaceuticals, Inc.

Consolidated Balance Sheets

	December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	16,778,880		$	3,191,814
Short-term investments	22,547,515			55,613,785
Research grant, contract and other receivables	211,299			95,184
Prepaid expenses and other current assets	533,371			872,810
Total current assets	40,071,065			59,773,593
Restricted cash	170,000			—
Property and equipment, net	694,183			705,374
Long-term investments	1,032,000			—
Other assets	328,250			306,573
Total assets	$	42,295,498		$	60,785,540
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,767,831		$	2,602,152
Accrued expenses	4,045,660			4,998,025
Total current liabilities	7,813,491			7,600,177
Deferred rent	251,504			281,894
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001, 10,000,000 shares and no shares authorized at December 31, 2008 and 2007, respectively	—			—
Common stock, $0.001 par value, 75,000,000 shares authorized, 29,716,751 shares and 27,903,705 shares issued and outstanding at December 31, 2008 and 2007, respectively	29,717			27,904
Treasury stock, at cost; no shares and 46,153 shares held December 31, 2008 and 2007, respectively	—			(100,000		)
Additional paid-in capital	167,544,806			150,681,519
Accumulated other comprehensive gain (loss)	38,088			(8,396		)
Accumulated deficit	(133,382,108		)	(97,697,558		)
Total stockholders’ equity	34,230,503			52,903,469
Total liabilities and stockholders’ equity	$	42,295,498		$	60,785,540

See accompanying notes.

54

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Operations

	Years Ended December 31,
	2008			2007			2006
Revenues:
Research grants	$	973,370		$	333,610		$	676,764
Collaborative research agreements	50,000			433,555			256,326
Total revenues	1,023,370			767,165			933,090
Operating expenses:
Research and development	29,035,828			41,569,067			10,480,924
Marketing	2,451,191			2,048,002			—
General and administrative	6,682,881			5,350,800			3,523,221
Total operating expenses	38,169,900			48,967,869			14,004,145
Loss from operations	(37,146,530		)	(48,200,704		)	(13,071,055		)
Interest income and other, net	1,561,934			2,061,527			1,169,160
Net loss	(35,584,596		)	(46,139,177		)	(11,901,895		)
Accretion to redemption amount of redeemable convertible preferred stock	—			—			(329,207		)
Net loss allocable to common stockholders	$	(35,584,596	)	$	(46,139,177	)	$	(12,231,102	)
Basic and diluted net loss per share attributable to common stockholders	$	(1.24	)	$	(2.12	)	$	(4.81	)
Shares used to compute basic and diluted net loss per share attributable to common stockholders	28,682,542			21,715,332			2,542,893

See accompanying notes.

55

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

						Stockholders’ Equity (Deficit)
	Redeemable Convertible																				Accumulated
	Redeemable Convertible Series B, C and																				other
	D Preferred Stock					Series A Convertible Preferred Stock					Common Stock			Treasury Stock				Additional paid-			comprehensive			Accumulated
	Shares		Amount			Shares		Amount			Shares	Amount		Shares		Amount		in capital			income (loss)			deficit			Total
Balance at December 31, 2005	8,525,784		$	65,078,437		1,569,204		$	1,569		2,414,236	$	2,414	—		—		$	4,558,456		$	(49,224	)	$	(39,656,486	)	$	(35,143,271.00	)
Issuance of common stock upon exercise of options	—		—			—		—			290,240	290		—		—		156,096			—			—			156,386
Accretion of redemption amount for Series B, C and D convertible preferred stock	—		329,208			—		—			—	—		—		—		(329,208		)	—			—			(329,208		)
Exercise of Series D warrants	6,666		51,998			—		—			—	—		—		—		—			—			—			—
Compensation expense related to grants of consultant stock options	—		—			—		—			—	—		—		—		158,850			—			—			158,850
Employee stock based compensation under FAS123(R)	—		—			—		—			—	—		—		—		553,181			—			—			553,181
Repurchase of common stock	—		—			—		—			—	—		(46,153	)	(100,000	)	—			—			—			(100,000		)
Retirement of Series A convertible preferred stock	—		—			(46,153	)	(46		)	—	—		—		—		(99,954		)	—			—			(100,000		)
Comprehensive loss:
Unrealized loss on short-term investment	—		—			—		—			—	—		—		—		—			(5,872		)	—			(5,872		)
Foreign currency translation adjustment	—		—			—		—			—	—		—		—		—			10,125			—			10,125
Net loss	—		—			—		—			—	—		—		—		—			—			(11,901,895		)	(11,901,895		)
Comprehensive loss	—		—			—		—			—	—		—		—		—			—			—			(11,897,642		)
Balance at December 31, 2006	8,532,450		65,459,643			1,523,051		1,523			2,704,476	2,704		(46,153	)	(100,000	)	4,997,421			(44,971		)	(51,558,381		)	(46,701,704		)
Issuance of common stock upon exercise of options	—		—			—		—			182,382	182		—		—		176,365			—			—			176,547
Issuance of common stock during the initial public offerings, net	—		—			—		—			7,000,000	7,000		—		—		43,612,117			—			—			43,619,117
Issuance of common stock through stock awards	—		—			—		—			17,500	18		—		—		148,208			—			—			148,226
Issuance of common stock pursuant to employee stock purchase plan						—		—			22,682	23		—		—		134,942			—			—			134,965
Issuance of common stock during private placement, net						—		—			4,600,000	4,600		—		—		33,550,388			—			—			33,554,988
Conversion of preferred stock to common stock	(8,532,450	)	(65,459,643		)	(1,523,051	)	(1,523		)	12,246,229	12,247		—		—		65,448,919			—			—			65,459,643
Issuance of common stock upon exercise of warrants						—		—			1,130,436	1,130		—		—		1,369,137			—			—			1,370,267
Compensation expense related to grants of consultant stock options	—		—			—		—			—	—		—		—		34,720			—			—			34,720
Employee stock based compensation under FAS123(R)	—		—			—		—			—	—		—		—		1,209,302			—			—			1,209,302
Comprehensive loss:
Unrealized loss on short-term investment	—		—			—		—			—	—		—		—		—			(31,923		)	—			(31,923		)
Foreign currency translation adjustment	—		—			—		—			—	—		—		—		—			68,498			—			68,498
Net loss	—		—			—		—			—	—		—		—		—			—			(46,139,177		)	(46,139,177		)
Comprehensive loss	—		—			—		—			—	—		—		—		—			—			—			(46,102,602		)
Balance at December 31, 2007	—		—			—		—			27,903,705	27,904		(46,153	)	(100,000	)	150,681,519			(8,396		)	(97,697,558		)	$	52,903,469

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

				Stockholders’ Equity (Deficit)
	Redeemable Convertible															Accumulated
	Redeemable Convertible Series B, C and															other
	D Preferred Stock			Series A Convertible Preferred Stock			Common Stock				Treasury Stock			Additional paid-		comprehensive			Accumulated
	Shares	Amount		Shares	Amount		Shares	Amount			Shares	Amount		in capital		income (loss)			deficit			Total
Issuance of common stock upon exercise of options	—	—		—	—		68,077	68			—	—		69,694		—			—			69,762
Issuance of common stock, net	—	—		—	—		1,743,396	1,743			—	—		14,738,332		—			—			14,740,075
Issuance of common stock pursuant to employee stock purchase plan		—		—	—		47,726	48			—	—		291,185		—			—			291,233
Compensation expense related to grants of consultant stock options	—	—		—	—		—	—			—	—		25,637		—			—			25,637
Employee stock based compensation under FAS123(R)	—	—		—	—		—	—			—	—		1,738,439		—			—			1,738,439
Retirement of treasury stock	—	—		—	—			(46		)	46,153	100,000		—		—			(99,954		)	—
Comprehensive loss:
Unrealized loss on short-term investment	—	—		—	—		—	—			—	—		—		(5,374		)	—			(5,374		)
Foreign currency translation adjustment	—	—		—	—		—	—			—	—		—		51,858			—			51,858
Net loss	—	—		—	—		—	—			—	—		—		—			(35,584,596		)	(35,584,596		)
Comprehensive loss	—	—		—	—		—	—			—	—		—		—			—			(35,538,112		)
Balance at December 31, 2008	—	$	—	—	$	—	29,762,904	$	29,717		—	$	—	$	167,544,806	$	38,088		$	(133,382,108	)	$	34,230,503

Optimer Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007			2006
Operating activities
Net loss	$	(35,584,596	)	$	(46,139,177	)	$	(11,901,895	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	219,878			285,515			496,211
Stock based compensation	1,764,076			1,244,022			712,031
Stock awards	—			148,226			—
Non-cash compensation related to forgiveness of note receivable from officer	—			—			262,500
Loss on disposal of assets	—			—			(45,339		)
Impairment of long-term securities	118,000			—			—
Deferred rent	(30,390		)	(10,490		)	12,970
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	339,439			676,252			(1,449,189		)
Research grant, contract and other receivables	(116,115		)	68,318			466,626
Restricted cash	(170,000		)	—			—
Other assets	(21,677		)	8,917			(2,894		)
Accounts payable and accrued expenses	213,314			2,536,584			2,943,357
Net cash used in operating activities	(33,268,071		)	(41,181,833		)	(8,505,622		)
Investing activities
Purchases of short-term investments	(31,306,561		)	(86,993,067		)	(10,478,237		)
Sales or maturity of short-term investments	63,250,000			46,610,000			5,190,000
Purchase of property and equipment	(208,686		)	(246,326		)	(46,173		)
Net cash provided by (used) in investing activities	31,734,753			(40,629,393		)	(5,334,410		)
Financing activities
Proceeds from sale of common stock	15,101,070			77,485,617			156,386
Proceeds from exercise of Series D warrants	—			1,370,267			51,998
Repurchase of common stock	—			—			(100,000		)
Repurchase of Series A preferred stock	—			—			(100,000		)
Net cash provided by financing activities	15,101,070			78,855,884			8,384
Effect of exchange rate changes on cash and cash equivalents	19,314			24,718			10,127
Net increase (decrease) in cash and cash equivalents	13,587,066			(2,930,624		)	(13,821,521		)
Cash and cash equivalents at beginning of year	3,191,814			6,122,438			19,943,959
Cash and cash equivalents at end of year	$	16,778,880		$	3,191,814		$	6,122,438
Supplemental disclosure of cash flow information:
Conversion of redeemable convertible preferred stock to common stock	$	—		$	65,461,166		$	—
Retirement of treasury stock	100,000			—			—

See accompanying notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Organization and Summary of Significant Accounting Policies

Optimer Pharmaceuticals, Inc. (“Optimer” or the “Company”) was incorporated in Delaware on November 18, 1998.  The Company has a wholly owned subsidiary, Optimer Biotechnology, Inc., which is incorporated and located in Taiwan.

Optimer is a biopharmaceutical company focused on discovering, developing and commercializing anti-infective products.  The Company currently has two anti-infective product candidates, fidaxomicin for the treatment of Clostridium difficile-infections, and prulifloxacin, for the treatment of infectious diarrhea. The Company is developing additional product candidates using its proprietary technology, including its OPoPS™ drug discovery platform.

Stock Split

In January 2007, the Company’s board of directors and stockholders authorized a 1-for-2.1667 reverse stock split for all outstanding preferred and common shares.  All share information has been retroactively restated to reflect the reverse stock split.

Principles of Consolidation

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

Use of Estimates

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

Cash, Cash Equivalents and Short-Term Investments

Investments with original maturities of less than 90 days at the date of purchase are considered to be cash equivalents.  All other investments are classified as short-term investments which are deemed by management to be available-for-sale and are reported at fair value with net unrealized gains or losses reported within other comprehensive loss in the consolidated statement of redeemable convertible preferred stock and stockholders’ equity.  Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income or interest expense.  The cost of securities sold is computed using the specific identification method.

Concentration of Credit Risk

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

Property and Equipment

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

Deferred Rent

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

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Foreign Currency Translation

The financial statements of foreign subsidiaries having the U.S. dollar as the functional currency, with certain transactions denominated in a local currency, are remeasured into U.S. dollars at their historical rates.  The remeasurement of local currency amounts into U.S. dollars creates translation adjustments that are included in net loss.  Transaction and translation gains or losses were not material to the Company’s financial statements for any periods presented.

Fair Value of Financial Instruments

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

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or the fair value less costs to sell, and are no longer depreciated.  Assets and liabilities that are part of a disposed group and classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.  Although the Company has accumulated losses since inception, the Company believes the future cash flows to be received from its long-lived assets will exceed the assets’ carrying value and, accordingly, the Company has not recognized any impairment losses through December 31, 2008.

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

Revenue Recognition

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

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.

When a payment is specifically tied to a separate earnings process, revenues are recognized when the specific performance obligation associated with the payment is completed.  Performance obligations typically consist of significant and substantive milestones pursuant to the related agreement.  Revenues from milestone payments may be considered separable from funding for research services because of the uncertainty surrounding the achievement of milestones for products in early stages of development.  Accordingly, these payments are allowed to be recognized as revenue if and when the performance milestone is achieved if they represent a separate earnings process as described in EITF 00-21.

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

Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with grants are recorded in compliance with EITF Issue 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, and EITF Issue 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred.  According to the criteria established by these EITF Issues, in transactions where the Company acts as a principal, with discretion to choose suppliers, bear credit risk and perform part of the services required in the transaction, the Company records revenue for the gross amount of the reimbursement.  The costs associated with these reimbursements are reflected as a component of research and development expense in the consolidated statements of operations.

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

Research and Development Expenses

The Company accounts for research and development costs in accordance with SFAS No. 2, Accounting for Research and Development Costs (“SFAS No. 2”).  SFAS No. 2 specifies that research and development costs should be charged to expense until technological feasibility has been established for the product.  Once technological feasibility is established, all product costs should be capitalized until the product is available for general release to customers.  The Company has determined that technological feasibility for its product candidates will be reached when the requisite regulatory approvals are obtained to make the product available for sale, or approval of the new drug application (“NDA”) for such product.  The Company’s research and development expenses consist primarily of license fees, salaries and related employee benefits, costs associated with clinical trials managed by the Company’s contract research organizations, or CROs, and costs associated with non-clinical activities and regulatory approvals.  The Company uses external service providers and vendors to conduct clinical trials, to manufacture supplies of product candidates to be used in clinical trials and to provide various other research and development-related products and services.

When nonrefundable payments for goods or services to be received in the future for use in research and development activities are made, the Company applies the criteria outlined in EITF issue No. 07-3 (“ EITF 07-3”),  Accounting for Non-Refundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities . In accordance with EITF 07-3, these types of payments are deferred and capitalized. The capitalized amounts are expensed when the related goods are delivered or the services are performed.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS No. 123(R) 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.  The Company used the modified prospective-transition-method when it adopted SFAS 123(R), and accordingly, the Company did not restate its results of operations for the prior periods. Compensation expense of $1.8 million, $1.2 million and $0.7 million was recognized in the years ended December 31, 2008, 2007 and 2006, respectively.

Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model and the fair value of its stock awards based on the quoted market price of its common stock.

Estimating the fair value for stock options requires judgment, including estimating stock-price volatility, expected term, expected dividends and risk-free interest rates. The expected volatility rates are based on the historical fluctuation in the stock price since inception. The average expected term is calculated using SAB No. 107, “Simplified Method for Estimating the Expected Term”. Expected dividends are estimated based on the Company’s dividend history as well as the Company’s current projections. The risk-free interest rate for periods approximating the expected terms of the options is based on the U.S. Treasury yield curve in effect at the time of grant. These assumptions are updated on an annual basis or sooner if there is a significant change in circumstances that could affect these assumptions.

Equity instruments issued to non-employees are recorded at their fair value as determined in accordance with SFAS No. 123(R) and EITF 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in

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Conjunction with Selling Goods and Services, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period.

Comprehensive Income (Loss)

The Company has applied SFAS No. 130, Reporting Comprehensive Income, which requires that all components of comprehensive income (loss), including net income (loss), be reported in the financial statements in the period in which they are recognized.  Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.  Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on investments, is required to be reported, net of their related tax effect, to arrive at comprehensive income (loss).

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.  Diluted net loss per share attributable to common stockholders is computed by dividing the net 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, convertible preferred stock, stock options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share attributable to common stockholders when their effect is dilutive.

	Years Ended December 31,
	2008			2007			2006
Historical
Numerator:
Net loss attributable to common stockholders	$	(35,584,596	)	$	(46,139,177	)	$	(12,231,102	)
Denominator:
Weighted average common shares outstanding	28,682,542			21,715,332			2,542,893
Net loss attributable to common stockholders per share — basic and diluted	$	(1.24	)	$	(2.12	)	$	(4.81	)
Historical outstanding anti-dilutive securities not included in diluted net loss per share calculation
Preferred stock (as converted)	—			—			12,223,548
Preferred stock warrants (as converted)	—			—			22,705
Common stock options	1,979,660			1,615,317			1,496,945
Common stock warrants	—			13,845			1,144,604
Total	1,979,660			1,629,162			14,887,802

Recent Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards, or SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS No. 160”).  SFAS No. 160 requires the recognition of a noncontrolling interest, sometimes called minority interest, as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of this standard to have a material impact on its financial position, cash flows, or results of operations.

In December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in connection with business combinations. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption of this standard to have a material impact on its financial position, cash flows, or results of operations.

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In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. This new standard requires enhanced disclosures for derivative instruments, including those used in hedging activities. It is effective for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect the adoption of this standard to have a material impact on its financial position, cash flows, or results of operations.

In April 2008, the FASB issued FASB Staff Position, (‘FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The Company does not expect the adoption of this standard to have a material impact on its financial position, cash flows, or results of operations.

In January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF 99-20. This new standard amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is prohibited. The Company adopted this standard in its fiscal year ended December 31, 2008. The adoption did not have a material impact on the Company’s financial position, cash flows, or results of operations.

2.Restricted Cash

In September 2008, the Company established a letter of credit as required under its lease related to a new office facility.  The letter of credit terminates 60 days after the lease expires (currently scheduled to occur on November 30, 2011) and is secured by a $170,000 certificate of deposit.

3.Fair Value of Financial Instruments

The Company adopted SFAS 157 effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. As defined in SFAS 157, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS 157 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurement be classified and disclosed in one of the following three categories:

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

The following table summarizes the Company’s assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 as of December 31, 2008:

	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	16,778,880	$	—	$	—	$	16,778,880
Marketable securities	22,547,515		—		—		22,547,515
Auction rate securities	—		—		1,032,000		1,032,000

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

	Auction Rate  Preferred Securities
Beginning balance at January 1, 2008	$	—
Total gains and losses
Realized net income	—
Unrealized gains/losses included in accumulated other comprehensive income	—
Unrealized gains/losses included in interest income and other, net	(118,000		)
Purchases, sales, issuances and settlements	—
Transfers in (out) of Level 3	1,150,000
Ending balance at December 31, 2008	$	1,032,000
Change in unrealized gains (losses) included in net loss related to assets still held	$	(118,000	)

All of the Company’s investments in available-for-sale securities are recorded at fair value based on quoted market prices. At December 31, 2008, the Company held two auction rate preferred securities valued at $1.0 million with perpetual maturity dates that reset every 28 days.  Since February 2008, the auctions for these securities have failed.  Although these auction rate preferred securities continue to pay interest according to their stated terms, the market to sell such securities continues to be illiquid and the decline in value was judged to be other than temporary. Based on valuation models on the individual securities, the Company has recognized in the consolidated statement of operations an unrealized loss of approximately $118,000 in investment income. These securities have been classified as long-term investments on the consolidated balance sheets as the Company does not believe it could  liquidate the securities in the near term.

4.             Short-Term Investments

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

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

	December 31, 2007
	Gross  Amortized Cost		Gross  Unrealized Gains		Gross  Unrealized Losses			Market Value
Certificates of deposits.	$	4,802,335	$	1,515	$	(2,234	)	$	4,801,616
Commercial paper	7,464,847		259		(650		)	7,464,456
Corporate debt securities	20,856,371		9,378		(43,527		)	20,822,222
Foreign debt securities	3,323,878		6,947		(3,479		)	3,327,346
U.S. securities and other government obligations	3,500,647		5,118		—			3,505,765
Taxable auction securities	14,200,000		—		—			14,200,000
Other securities	1,498,251		—		(5,871		)	1,492,380
Total investment securities	$	55,646,329	$	23,217	$	(55,761	)	$	55,613,785

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Investments in net unrealized loss positions as of December 31, 2008 are as follows:

		Less Than 12 Months of  Temporary Impairment					Greater Than 12 Months of  Temporary Impairment				Total Temporary  Impairment
	Number of  Investments	Fair Value		Unrealized  Losses			Fair Value		Unrealized  Losses		Fair Value		Unrealized  Losses
Corporate debt securities	16	$	11,156,015	$	(49,257	)	$	—	$	—	$	11,156,015	$	(49,257	)
Government debt securities	3	493,627		(2,136		)	—		—		493,627		(2,136		)
Total	19	$	11,649,642	$	(51,393	)	$	—	$	—	$	11,649,642	$	(51,393	)

The amortized cost and estimated fair value of securities available-for-sale at December 31, 2008, by contractual maturity, are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	22,552,889	$	22,547,515
Due after one year through two years	—		—
Total	$	22,552,889	$	22,547,515

The Company considered a number of factors to determine whether the decline in value in its investments is other than temporary, including the length of time and the extent of which the market value has been less than cost, the financial condition of the issuer and the Company’s intent to hold and ability to retain these short-term investments.  Based on these factors, the Company believes that the decline in value is temporary and primarily related to the change in market interest rates since purchase.  The Company anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a change in the market interest rate environment.

5.             Property and Equipment

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

	December 31,
	2008			2007
Equipment	$	3,089,953		$	3,016,275
Furniture and fixtures	291,665			279,923
Leasehold improvements	1,399,163			1,368,179
Computer equipment and software	308,144			224,802
	5,088,925			4,889,179
Less accumulated depreciation and amortization	(4,394,742		)	(4,183,805		)
Total property and equipment, net	$	694,183		$	705,374

Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which typically is five years.  Leasehold improvements and assets acquired under capital leases are amortized over their estimated useful life or the related lease term, whichever is shorter.  The depreciation of equipment under capital leases is included in depreciation expense.  As of December 31, 2008 and 2007, the Company did not have any capital leases.

6.Accrued Expenses

Accrued expenses consisted of the following:

	December 31,
	2008		2007
Accrued preclinical and clinical expenses	$	2,541,437	$	3,726,891
Accrued research services	215,490		172,754
Accrued legal fees	51,132		64,007
Accrued salaries, wages and benefits	1,199,338		980,448
Other accrued liabilities	38,263		53,925
Total accrued expenses	$	4,045,660	$	4,998,025

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7.     Revenue and Other Collaborative Agreements

Revenues from Research Grants

The Company has received several research grants from U.S. government agencies since 2003, all of which except for one were completed on or prior to December 31, 2008. The active grant was awarded from National Institute of Allergy and Infectious Diseases (“NIAID”) in September 2007. This grant is renewable for $1 million each year until August 2010 to a maximum of $3 million. The award will be used to conduct supplementary studies to the ongoing fidaxomicin trials to confirm narrow spectrum activity and potency of fidaxomicin against hypervirulent epidemic strains, to support additional toxicology and microbiological studies to demonstrate the safety and efficacy of the fidaxomicin compound and its major metabolite in CDI patients and to support a surveillance study of C. difficile isolates across North America to compare activity of fidaxomicin with existing CDI treatments.  For the years ended December 31, 2008, 2007 and 2006, the Company recognized  revenues related to research grants of $973,370, $338,735 and $493,960, respectively.

Other Collaborative Agreements

The Company holds worldwide rights to fidaxomicin.  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. Under the prospective buy-back agreement, the Company paid Par a one-time $20.0 million termination fee and $1.9 million for fidaxomicin clinical supply material and active pharmaceutical ingredient in 2007.  The Company is also obligated to pay Par a one-time $5.0 million milestone payment, a potential $3.0 million prepayment to Biocon, subject to future set-offs following the assignment, if any, by Par to the Company of its supply agreement with Biocon, 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.  The one-time $5.0 million milestone payment is required to be paid after the earliest to occur of (i) the successful completion by the Company of its second pivotal Phase 3 trial for fidaxomicin, (ii) the Company’s grant to a third party of the rights to fidaxomicin or (iii) the submission to the FDA of an NDA for fidaxomicin.  In addition, in the event the Company licenses its right to market fidaxomicin in the rest of the world, the Company will be required to pay Par a 6.25% royalty on net revenues received by it related to fidaxomicin.  The Company is obligated to pay each of these royalties, if any, on a country-by-country basis for seven years commencing on the applicable commercial launch in each such country.

In March 2006, the Company entered into a collaborative research and development and license agreement with Cempra Pharmaceuticals, Inc. (“Cempra”).  The Company granted to Cempra an exclusive worldwide license, except in Association of Southeast Asian Nations, or ASEAN countries, with the right to sublicense, the Company’s patent and know-how related to the Company’s macrolide and ketolide antibacterial program.  As partial consideration for granting Cempra the licenses, the Company obtained equity of Cempra and the Company assigned no value to such equity.  The Company may receive milestone payments as product candidates are developed and/or co-developed by Cempra, in addition to milestone payments based on certain sublicense revenue.  The aggregate potential amount of such milestone payments is not capped and, based in part on the number of products developed under the agreement, may exceed $24.5 million.  The Company will also receive royalty payments based on a percentage of net sales of licensed products.  The milestone payments will be triggered upon the completion of certain clinical development milestones and in certain instances, regulatory approval of products.  In consideration of the foregoing, Cempra may receive milestone payments from the Company in the amount of $1.0 million for each of the first two products the Company develops which receive regulatory approval in ASEAN countries, as well as royalty payments on the net sales of such products.  The research term of the agreement was completed on March 2008.  Subject to certain exceptions, on a country-by-country basis, the general terms of this agreement continue until the later of: (i) the expiration of the last to expire patent rights of a covered product in the applicable country or (ii) ten years from the first commercial sale of a covered product in the applicable country.  Either party may terminate the agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure.  Either party may also terminate the agreement for any reason upon 30 days’ prior written notice provided that all licenses granted by the terminating party to the non-terminating party will survive upon the express election of the non-terminating party.

In June 2004, the Company entered into a license agreement with Nippon Shinyaku, Co., Ltd. (“Nippon Shinyaku”).  Under the terms of the agreement, the Company acquired the non-exclusive right to import and purchase prulifloxacin, and the exclusive right (with the right to sublicense), within the United States, to develop, make, use, offer to sell, sell and license products suitable for consumption by humans containing prulifloxacin.  Under this agreement, the Company paid Nippon Shinyaku an up-front fee in the amount of $1.0 million and will be required to make one future milestone payment in the amount of $1.0 million upon filing, if any, its first NDA for prulifloxacin in the United States.  Under the agreement, the Company pays Nippon Shinyaku for certain materials.  If Nippon Shinyaku is unable to supply the Company with the contracted amount of prulifloxacin, then Nippon Shinyaku will grant to the Company a non-exclusive, worldwide license to make or have made prulifloxacin, in which event the Company will owe Nippon Shinyaku a royalty based on the amount of net sales of prulifloxacin generated by the Company and the Company’s subsidiary.  Additionally, the Company will owe Nippon Shinyaku certain royalties based on the amount of net sales of prulifloxacin less the

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amount of prulifloxacin the Company buys from Nippon Shinyaku.  Either party may terminate the agreement 60 days after giving notice of a material breach which remains uncured 60 days after written notice.  If not terminated earlier, the agreement will terminate upon the later of ten years from the date of the first commercial sale of prulifloxacin in the United States or the date on which the last valid patent claim relating to prulifloxacin expires in the United States.

In July 2002, the Company entered into a license agreement with Sloan-Kettering Institute to acquire, together with certain nonexclusive licenses, exclusive, worldwide licensing and sublicensing rights to certain patented and patent-pending carbohydrate-based cancer immunotherapies.  As partial consideration for the licensing rights, the Company paid to SKI a one-time fee consisting of both cash and 55,383 shares of its common stock.  Under the agreement, which was amended in June 2005, the Company owes SKI milestone payments in the following amounts for each licensed product: (i) $500,000 upon the commencement of Phase 3 clinical studies, (ii) $750,000 upon the filing of the first NDA, (iii) $1.5 million upon obtaining marketing approval in the United States and (iv) $1.0 million upon obtaining marketing approval in each and any of Japan and certain European countries, but only to the extent that the Company, and not a sublicensee, achieves such milestones.  The Company may also owes SKI royalties based on net sales generated from the licensed products and income the Company receives from its sublicensing activities, which royalty payments are credited against a minimum annual royalty payment the Company may owes to SKI during the term of the agreement.  The term of the agreement continues until the later of July 31, 2017, or the expiration of the last to expire of the patents licensed under this agreement, unless the agreement is earlier terminated.  The agreement can be terminated by SKI for a variety of reasons, including (i) upon 60 days’ notice in the event the Company fails to meet a development milestone specified in the agreement or (ii) upon 30 days’ notice, in the event the Company fails to pay any licensing fees, royalties or patent expenses due under the agreement within 30 days of the due date and thereafter fails to pay such deficit in-full within the 30-day notice period.

In July 1999, the Company acquired exclusive, worldwide rights to its OPopS technology from the Scripps Research Institute (“TSRI”).  This agreement includes the license to the Company of patents, patent applications and copyrights related to OPopS technology.  The Company also acquired, pursuant to three separate license agreements with TSRI, exclusive, worldwide rights to over 20 TSRI patents and patent applications related to other potential drug compounds and technologies, including HIV/FIV protease inhibitors, aminoglycoside antibiotics, polysialytransferase, selectin inhibitors, nucleic acid binders, carbohydrate mimetics and osteoarthritis.  Under the four agreements, the Company paid TSRI license fees consisting of an aggregate of 239,996 shares of its common stock with a deemed aggregate fair market value of $46,400, as determined on the dates of each such payment.  Additionally, under each agreement, the Company may owe TSRI royalties based on net sales by the Company, its affiliates and sublicensees of the covered products and royalties based on revenue the Company generates from sublicenses granted pursuant to the agreements.  For the first licensed product under each of the four agreements, the Company will also owe TSRI payments upon achievement of certain milestones.  In three of the four TSRI agreements, the milestones are the initiation of a Phase 2 trial or its foreign equivalent, the filing of an NDA or its foreign equivalent and government marketing and distribution approval.  In the remaining TSRI agreement, the milestones are the successful completion of a Phase 3 trial or its foreign equivalent, the filing 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 all four TSRI agreements is approximately $14.0 million.  Each TSRI agreement terminates in part as follows: (i) with respect to each product which utilizes patent rights licensed under the agreement, on a country-by-country basis concurrently with the expiration of the last to expire of the applicable patent rights, (ii) with respect to each product which utilizes technology licensed under the agreement but which does not utilize patent rights also licensed thereunder, 15 years after the date of the first commercial sale of the product in each country and (iii) with respect to software licensed under the 1999 OPopS agreement, 75 years after the date the applicable copyright is filed in the United States.

8.     Commitments

Leases

The Company leases office and research facilities under operating lease agreements that extend through November 2011.  The Company has recorded deferred rent of $251,504 and $281,894 as of December 31, 2008 and 2007, respectively, in conjunction with one of the lease agreements.

At December 31, 2008, annual minimum rental payments due under the Company’s operating leases are as follows:

Years ending December 31,
2009	$	855,722
2010	653,357
2011	589,961
Total minimum lease payments	$	2,099,040

Rent expense was $831,137, $768,854 and $837,551, for the years ended December 31, 2008, 2007, and 2006, respectively.

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Contract Research Organization Purchase Orders

The Company has contracted with a contract research organization (“CRO”), whereby the CRO agreed to provide clinical research services to the Company for the fidaxomicin Phase 3 clinical trials and prulifloxacin Phase 3 clinical trials.  At December 31, 2008, the Company had issued purchase orders totaling $42.4 million for these services, $8.4 million, $9.8 million and $20.4 million of which were issued in 2008, 2007 and 2006, respectively.  As of December 31, 2008, the Company had paid $28.6 million related to these purchase orders.  The Company can terminate the service agreement at any time upon 60 days’ prior written notice to the CRO.

9.     Stockholders’ Equity

Public Offering

In July 2008, the Company received approximately $14.8 million in gross proceeds from the sale of 1,743,396 million shares of its common stock at $8.48 per share in a registered direct offering to institutional investors. These shares were sold pursuant to a shelf registration statement relating to $100 million worth of common or preferred stock, debt securities, warrants or any combination of these securities.

Private Placement

On October 30, 2007, the Company completed a private placement in which it raised gross proceeds of approximately $35.9 million through the sale, at a price of $7.80 per share, of 4.6 million shares of its common stock. Pursuant to the terms of the private placement, the Company filed a registration statement with the SEC to register for resale the shares of common stock sold in the private placement. This registration statement became effective December 19, 2007.

Initial Public Offering

On February 14, 2007, the Company completed the initial public offering of 7.0 million shares of common stock at $7.00 per share in connection with the closing of our initial public offering resulting in aggregate proceeds of approximately $43.6 million, net of underwriting discounts and commissions and offering expenses.

Treasury Stock

The Company retired the 43,156 shares of common stock held in its treasury on September 3, 2008.  The Company recorded the retirement of the treasury shares at cost and the retired treasury shares became part of the Company’s authorized but unissued shares of common stock.

Warrants

In connection with the Company’s building lease agreement signed in 2000, the Company issued a warrant to purchase 13,845 shares of common stock at a purchase price of $10.83.  The estimated fair value of the warrant at the date of grant was not material using the Black-Scholes valuation model.  As of December 31, 2007, no shares had been issued pursuant to this warrant.  This warrant expired on February 9, 2008.

Equity Compensation Plans

Stock Options

In November 1998, the Company adopted the 1998 Stock Plan (the “1998 Plan”).  The Company terminated and ceased granting options under the 1998 Plan upon the closing of the Company’s initial public offering in February 2007.

In December 2006, the Company’s board of directors approved the 2006 Equity Incentive Plan (“2006 Plan”).  The 2006 Plan became effective upon the closing of the Company’s initial public offering. A total of 2,000,000 shares of the Company’s common stock were initially made available for sale under the plan.  the 2006 Plan provides for annual increases in the number of shares available for issuance thereunder on the first day of each fiscal year, beginning with the Company’s 2008 fiscal year, equal to the lesser of (i) 5% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; (ii) 750,000 shares; or (iii) such other amount as the board of directors may determine. Pursuant to this provision, 750,000 additional shares of the Company’s common stock were reserved for issuance under the 2006 Plan on January 1, 2008 and 2009.  Under the 2006 Plan, the exercise price of options granted must at least be equal to the fair market value of the Company’s common stock on the date of grant.

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Options granted under both the 1998 Plan and the 2006 Plan generally expire 10 years from the date of grant (five years for a 10% 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.  The 2006 Plan is administered by the compensation committee of the Company’s board of directors.  In September 2008, the Company’s board of directors established a New Hire Stock Option Committee consisting of the Chief Executive Officer and the Chief Financial Officer.

Following is a summary of stock option activity:

	Options		Weighted-  Average  Exercise Price
Balance as of December 31, 2005	1,455,022		$	0.78
Granted	367,517		$	2.08
Exercised	(279,163	)	$	0.52
Canceled	(46,431	)	$	0.71
Balance as of December 31, 2006	1,496,945		$	1.17
Granted	310,353		$	8.84
Exercised	(182,385	)	$	0.96
Canceled	(9,596	)	$	3.70
Balance as of December 31, 2007	1,615,317		$	2.65
Granted	452,250		$	6.95
Exercised	(68,078	)	$	1.02
Canceled	(19,829	)	$	7.66
Balance as of December 31, 2008	1,979,660		$	3.64

The aggregate intrinsic value of options exercised during the year ended December 31, 2008 was approximately $522,059.  The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2008 was approximately $16,774,766 and $12,390,043, respectively.

The following table summarizes information concerning outstanding and exercisable stock options as of December 31, 2008:

	December 31, 2008
	Options Outstanding				Options Exercisable
Exercise Price	Number of Shares  Subject to  Options  Outstanding	Weighted Average  Remaining  Contractual  Life (in years)	Weighted  Average  Exercise Price		Number of Shares  Exercisable	Weighted  Average  Exercise Price
$0.22 - $0.65	403,063	2.8	$	0.59	403,063	$	0.59
$1.08	518,747	6.3	$	1.08	477,060	$	1.08
$2.17 - $6.90	726,121	8.4	$	4.68	219,748	$	2.50
$7.10-$10.00	331,729	8.5	$	9.05	126,744	$	9.16
$0.22-$10.00	1,979,660	6.7	$	3.64	1,226,615	$	2.01

Of the options outstanding, options to purchase 1,226,615 shares were vested as of December 31, 2008, with a weighted average remaining contractual life of 5.6 years and a weighted average exercise price of $2.01 per share, while options to purchase 753,045 shares were unvested.

Share-Based Compensation

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.  In addition, the Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected stock price volatility.  The following table shows the assumptions used to compute stock-based compensation expense for the stock options granted during the years ended December 31, 2008, 2007 and 2006 using the Black-Scholes option pricing model:

Employee Stock Options	2008		2007		2006
Risk-free interest rate	2.41%-3.00	%	3.88%-4.80	%	4.75-4.80	%
Dividend yield	0.00	%	0.00	%	0.00	%
Expected life of options (years)	6.02-6.08		5.27-6.08		6.08
Volatility	64.95-67.00	%	60.47-65.82	%	65.82	%

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The risk-free interest rate assumption was based on the United States Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.  The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future.  The weighted average expected life of options was calculated using the simplified method as prescribed SAB No. 107, Share-Based Payment (“SAB No. 107”).  This decision was based on the lack of relevant historical data due to the Company’s limited history.  In addition, due to the Company’s limited historical data, the estimated volatility also reflects the application of SAB No. 107, incorporating the historical volatility of comparable companies whose share prices are publicly available.

Based on these assumptions, the weighted average grant-date fair values of stock options granted during the year ended December 31, 2008 was $6.95 per share.

As of December 31, 2008, the total unrecognized compensation expense related to stock options was approximately $15,919,623 and the related weighted-average period over which it is expected to be recognized is approximately 6.6 years.

Total stock-based compensation expense, related to all of the Company’s stock options, stock awards and employee stock purchases, recognized for the years ended December 31, 2008, 2007 and 2006 was comprised as follows:

	December 31,
	2008		2007		2006
Research and development	$	527,874	$	307,481	$	297,331
Marketing	309,635		257,218		—
General and administrative	926,567		679,323		414,700
Total stock-based compensation expense	$	1,764,076	$	1,244,022	$	712,031

Stock Awards

On September 12, 2007, the Company issued stock awards for 17,500 fully-vested shares of the Company’s common stock to its directors under the 2006 Plan.  The grant date fair value of the stock awards was $8.47 per share.

Employee Stock Purchase Plan

Concurrent with the Company’s initial public offering in February 2007, the Company’s board of directors adopted the employee stock purchase plan (“ESPP”) in December 2006, and the stockholders approved the plan in January 2007.  A total of 200,000 shares of the Company’s common stock were initially made available for sale under the plan.  In addition, the employee stock purchase plan provides for annual increases in the number of shares available for issuance under the purchase plan on the first day of each fiscal year, beginning with the Company’s 2008 fiscal year, equal to the lesser of (i) 3% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; (ii) 300,000 shares; or (iii) such other amount as may be determined by the Company’s board of directors. Pursuant to this provision, 300,000 additional shares of the Company’s common stock were reserved for issuance under the ESPP on January 1, 2008. The Company’s board of directors determined to reserve zero additional shares under the ESPP as of January 1, 2009.

As of December 31, 2008, there were 70,409 shares of common stock issued and 429,591 shares remained available for issuance under the ESPP.

The following table shows the assumptions used to compute stock-based compensation expense for the stock purchased under the ESPP during the year ended December 31, 2008 and 2007 using the Black-Scholes option pricing model:

Employee Stock Options	2008		2007
Risk-free interest rate	1.30%-2.19	%	3.58%-4.64	%
Dividend yield	0.00	%	0.00	%
Expected life (years)	6 months		6 months
Volatility	45.05%-143.12	%	45.33-50.66	%

For the years ended December 31, 2008 and 2007, the Company recorded stock-based compensation expense related to the ESPP of $147,712 and $63,681, respectively.

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10.  Income Taxes

On January 1, 2007, the Company adopted FASB Financial Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.  FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN No. 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

There were no unrecognized tax benefits as of the date of adoption and there were no unrecognized tax benefits included in the balance sheet at December 31, 2008 that would, if recognized, affect the effective tax rate. The adoption of FIN 48 did not impact the Company’s financial condition, results of operations or cash flows.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s balance sheets at December 31, 2008 and 2007 and has not recognized interest and/or penalties in the statement of operations for the year ended December 31, 2008.

The Company is subject to taxation in the United States, California and various foreign jurisdictions. The Company’s tax years for 1999 and forward are subject to examination by the Federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.

The Company has completed a Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards and had determined that the maximum amount federal and state net operating loss (“NOL”) and credit carryovers are available for utilization, subject to the annual limitation. Based on the analysis, the related deferred tax assets were reinstated in 2008 and the corresponding valuation allowance increased.  Any carryforwards that will expire prior to utilization as a result of future limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.  Due to the existence of the valuation allowance, future changes in the unrecognized tax benefits will not impact the effective tax rate.

At December 31, 2008, the Company had Federal, California and foreign income tax net operating loss carryforwards of approximately $120.5 million, $123.9 million and $2.6 million, respectively. The Federal and California tax loss carryforwards will begin expiring in 2020 and 2012 respectively, unless previously utilized. The foreign losses originate from the Company’s Taiwan subsidiary and expire five years after origination.  In addition, the Company has Federal and California research tax credit carryforwards of approximately $2.2 million and $1.5 million, respectively. The Federal research and development credit carryforwards will begin to expire in 2020 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized. The Company also has California state manufacturer’s investment tax credit carryforwards of $103,000 which will begin to expire in 2011 unless previously utilized.

Significant components of the Company’s deferred tax assets as of December 31, 2008 and 2007 are listed below. A valuation allowance of $52.6 million and $680,000 at December 31, 2008 and 2007, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. Amounts are shown as of December 31, of the respective years:

	2008			2007
Deferred tax assets:
Net operating loss carryforwards	$	48,196,000		$	—
Tax credits	3,282,000			—
Other, net	1,155,000			680,000
Total deferred tax assets	52,633,000			680,000
Valuation allowance for deferred tax assets	(52,633,000		)	(680,000		)
	$	—		$	—

11.  Employee Benefit Plans

Effective January 1, 2000, the Company established a 401(k) plan covering substantially all employees.  Employees may contribute up to 100% of their compensation per year (subject to a maximum limit prescribed by federal tax law).  The Company may elect to make a discretionary contribution or match a discretionary percentage of employee contributions.  As of December 31, 2008, 2007 and 2006, the Company had not elected to make any contributions to the 401(k) plan.

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

12.  Subsequent Event

In March 2009, the Company received approximately $32.9 million in gross proceeds from the sale of its securities in a registered direct offering to institutional investors. The Company sold 2,794,700 shares of its common stock to certain investors at a purchase price of $10.00 per share pursuant to common stock purchase agreements and sold 457,666 units to other investors at a purchase price of $10.925 per unit, pursuant to unit purchase agreements.  Each unit sold in the offering consisted of one share of common stock and one warrant to purchase 0.20 of a share of common stock at an exercise price of $10.93 per share.  The warrants are exercisable six months after the date of issuance and will expire five years from the date of issuance. These securities were sold pursuant to a shelf registration statement relating to $100 million worth of common or preferred stock, debt securities, warrants or any combination of these securities.  Following the March 2009 offering, approximately $52.4 million of the securities remain available for future issuance under this registration statement.

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

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (collectively, our “certifying officers”), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on their evaluation, our certifying officers concluded that these disclosure controls and procedures are effective in providing reasonable assurance that the information required to be disclosed by us in our periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and SEC reports.

We believe that a controls system, no matter how well designed and operated, is based in part upon certain assumptions about the likelihood of future events, and therefore can only provide reasonable, not absolute, assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

In addition, we have reviewed our internal controls over financial reporting and have made no changes during the quarter ended December 31, 2008, that our certifying officers concluded materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Internal Control Over Financial Reporting

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

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

Our internal control over financial reporting is supported by written policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of our assets’ provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board or Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

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

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. We based this assessment on criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. We reviewed the results of our assessment with the Audit Committee.

Based on this assessment, management determined that, as of December 31, 2008, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Ernst & Young LLP, the Independent registered public accounting firm that audited the Company’s consolidated financial statements included in this annual report, has issued its report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008.

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(b)Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and

Stockholders of Optimer Pharmaceuticals, Inc.

We have audited Optimer Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO criteria”). Optimer Pharmaceuticals, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, Optimer Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Optimer Pharmaceuticals, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2008 of Optimer Pharmaceuticals, Inc. and our report dated March 11, 2009 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
San Diego, California
March 11, 2009

73

Item 9B.  Other Information.

None.

PART III

Certain information required by Part III is omitted from this report because we will file a definitive proxy statement within 120 days after the end of our fiscal year ended December 31, 2008 pursuant to Regulation 14A (the “Proxy Statement”) for our annual meeting of stockholders to be held on May 6, 2009, and certain information included in the Proxy Statement is incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance

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

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

Item 11. Executive Compensation

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

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

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

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

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

Item 14. Principal Accountant Fees and Services

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

PART IV

Item 15. Exhibits and Financial Statement Schedules

1. Financial Statements

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

2. Financial Statement Schedules

None

74

3. Exhibits

Exhibit No.		Description of Document
3.1	(3)	Certificate of Incorporation of Optimer Pharmaceuticals, Inc., as amended and restated.
3.2	(7)	Bylaws of Optimer Pharmaceuticals, Inc., as amended.
4.1	(4)	Common Stock Certificate of Optimer Pharmaceuticals, Inc.
4.2	(1)	Investors’ Rights Agreement by and among Optimer Pharmaceuticals, Inc. and certain stockholders of the registrant dated November 30, 2005, as amended and restated.
4.3	(6)	Registration Rights Agreement, dated October 23, 2007, by and between Optimer Pharmaceuticals, Inc. and the purchasers listed on the signature pages thereto.
4.4	(11)	Form of Warrant.
10.1	(1)*	Master Service Agreement between Optimer Pharmaceuticals, Inc. and Advanced Biologics, LLC (subsequently INC Research, Inc.), dated November 16, 2005, as amended.
10.2	*	Collaboration Research and Development and License Agreement between Optimer Pharmaceuticals, Inc. and Cempra Pharmaceuticals, Inc., dated March 31, 2006, as amended.
10.3	(4)*	Agreement between Optimer Pharmaceuticals, Inc. and Sloan-Kettering Institute for Cancer Research dated July 31, 2002, as amended.
10.4	(3)*	License Agreement between Optimer Pharmaceuticals, Inc. and Nippon Shinyaku Co., Ltd., dated June 10, 2004.
10.5	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated July 23, 1999.
10.6	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated May 30, 2001.
10.7	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated May 30, 2001.
10.8	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated June 1, 2004.
10.9	(3)	Building Lease between Optimer Pharmaceuticals, Inc. and Pacific Sorrento Technology Park dated May 1, 2001, as amended by the First Amendment to Building Lease between Optimer Pharmaceuticals, Inc. and Pacific Sorrento Technology Park dated July 12, 2001.
10.10	(1)+	Form of Employee Proprietary Information Agreement of Optimer Pharmaceuticals, Inc.
10.11	+	Employment Agreement between Optimer Pharmaceuticals, Inc. and Michael N. Chang dated June 17, 2005, as amended on October 2, 2008.
10.12	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Sherwood L. Gorbach dated October 6, 2005.
10.13	+	Offer letter between Optimer Pharmaceuticals, Inc. and Kevin P. Poulos dated June 15, 2006, as amended on October 2, 2008.
10.14	+	Offer letter between Optimer Pharmaceuticals, Inc. and John D. Prunty dated May 10, 2006, as amended on October 2, 2008.
10.15	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Tessie M. Che dated August 30, 2001.
10.16	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Youe-Kong Shue dated February 18, 2000.
10.17	(1)+	Form of Indemnification Agreement between Optimer Pharmaceuticals, Inc. and its directors and officers.
10.18	(1)+	1998 Stock Plan of Optimer Pharmaceuticals, Inc.
10.19	(1)+	Stock Plan Stock Option Agreement of Optimer Pharmaceuticals, Inc.
10.20	(3)+	2006 Equity Incentive Plan of Optimer Pharmaceuticals, Inc.
10.21	(7)+	Employee Stock Purchase Plan of Optimer Pharmaceuticals, Inc., as amended.
10.22	(3)	Prospective Buy-Back Agreement between Optimer Pharmaceuticals, Inc. and Par Pharmaceutical, Inc. dated January 19, 2007.
10.23	(5)*	Supply Agreement with Biocon Limited dated August 29, 2005, as amended.
10.24	(5)*	Assignment letter between Par Pharmaceutical, Inc. and Biocon Limited dated January 16, 2007.
10.25	(8)+	Summary of Optimer Pharmaceuticals, Inc. 2009 Incentive Compensation Plan.
10.26	(9)	Office Lease, dated August 18, 2008, by and between Optimer Pharmaceuticals, Inc. and Trizec Sorrento Towers, LLC.
10.27	(10)+	Optimer Pharmaceuticals, Inc. Severance Benefit Plan
23.1		Consent of Independent Registered Public Accounting Firm.
31.1		Certification of principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a).
32		Certification by the Chief Executive Officer and the Chief Financial Officer of Optimer Pharmaceuticals, Inc., as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

75

+	Indicates management contract or compensatory plan.
*	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
(1)	Filed with Registrant’s Registration Statement on Form S-1 on November 9, 2006.
(2)	Filed with Registrant’s Amendment No. 2 to Registration Statement on Form S-1 on January 5, 2007.
(3)	Filed with Registrant’s Amendment No. 3 to Registration Statement on Form S-1 on January 22, 2007.
(4)	Filed with Registrant’s Amendment No. 4 to Registration Statement on Form S-1 on February 5, 2007.
(5)	Filed with the Registrant’s Current Report on Form 8-K on February 26, 2007.
(6)	Filed with the Registrant’s Current Report on Form 8-K on October 29, 2007.
(7)	Filed with the Registrant’s Current Report on Form 8-K on September 18, 2007.
(8)	Filed with the Registrant’s Current Report on Form 8-K on January 13, 2009.
(9)	Filed with the Registrant’s Current Report on Form 8-K on August 21, 2008.
(10)	Filed with the Registrant’s Current Report on Form 8-K on October 8, 2008.
(11)	Filed with the Registrant’s Current Report on Form 8-K on March 5, 2009.

76

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	OPTIMER PHARMACEUTICALS
Dated: March 12, 2009	By:	/s/ Michael N. Chang
	Name:		Michael N. Chang
	Title:		President and Chief Executive Officer

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

Signature	Title	Date
/s/ MICHAEL N. CHANG	President, Chief Executive Officer and Director (Principal Executive Officer)	March 12, 2009
Michael N. Chang
/s/ JOHN D. PRUNTY	Chief Financial Officer (Principal Accounting and Financial Officer)	March 12, 2009
John D. Prunty
/s/ ANTHONY E. ALTIG	Director	March 12, 2009
Anthony E. Altig
/s/ MARK AUERBACH	Director	March 12, 2009
Mark Auerbach
/s/ JOSEPH Y. CHANG	Director	March 12, 2009
Joseph Y. Chang
/s/ PETER E. GREBOW	Director	March 12, 2009
PETER E. GREBOW
/s/ ALAIN B. SCHREIBER	Director	March 12, 2009
Alain B. Schreiber

77

EXHIBIT INDEX

Exhibit No.		Description of Document
3.1	(3)	Certificate of Incorporation of Optimer Pharmaceuticals, Inc., as amended and restated.
3.2	(7)	Bylaws of Optimer Pharmaceuticals, Inc., as amended.
4.1	(4)	Common Stock Certificate of Optimer Pharmaceuticals, Inc.
4.2	(1)	Investors’ Rights Agreement by and among Optimer Pharmaceuticals, Inc. and certain stockholders of the registrant dated November 30, 2005, as amended and restated.
4.3	(6)	Registration Rights Agreement, dated October 23, 2007, by and between Optimer Pharmaceuticals, Inc. and the purchasers listed on the signature pages thereto.
4.4	(11)	Form of Warrant.
10.1	(1)*	Master Service Agreement between Optimer Pharmaceuticals, Inc. and Advanced Biologics, LLC (subsequently INC Research, Inc.), dated November 16, 2005, as amended.
10.2	*	Collaboration Research and Development and License Agreement between Optimer Pharmaceuticals, Inc. and Cempra Pharmaceuticals, Inc., dated March 31, 2006, as amended.
10.3	(4)*	Agreement between Optimer Pharmaceuticals, Inc. and Sloan-Kettering Institute for Cancer Research dated July 31, 2002, as amended.
10.4	(3)*	License Agreement between Optimer Pharmaceuticals, Inc. and Nippon Shinyaku Co., Ltd., dated June 10, 2004.
10.5	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated July 23, 1999.
10.6	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated May 30, 2001.
10.7	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated May 30, 2001.
10.8	(1)*	License Agreement between Optimer Pharmaceuticals, Inc. and The Scripps Research Institute dated June 1, 2004.
10.9	(3)	Building Lease between Optimer Pharmaceuticals, Inc. and Pacific Sorrento Technology Park dated May 1, 2001, as amended by the First Amendment to Building Lease between Optimer Pharmaceuticals, Inc. and Pacific Sorrento Technology Park dated July 12, 2001.
10.10	(1)+	Form of Employee Proprietary Information Agreement of Optimer Pharmaceuticals, Inc.
10.11	+	Employment Agreement between Optimer Pharmaceuticals, Inc. and Michael N. Chang dated June 17, 2005, as amended on October 2, 2008.
10.12	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Sherwood L. Gorbach dated October 6, 2005.
10.13	+	Offer letter between Optimer Pharmaceuticals, Inc. and Kevin P. Poulos dated June 15, 2006, as amended on October 2, 2008.
10.14	+	Offer letter between Optimer Pharmaceuticals, Inc. and John D. Prunty dated May 10, 2006, as amended on October 2, 2008.
10.15	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Tessie M. Che dated August 30, 2001.
10.16	(1)+	Offer letter between Optimer Pharmaceuticals, Inc. and Youe-Kong Shue dated February 18, 2000.
10.17	(1)+	Form of Indemnification Agreement between Optimer Pharmaceuticals, Inc. and its directors and officers.
10.18	(1)+	1998 Stock Plan of Optimer Pharmaceuticals, Inc.
10.19	(1)+	Stock Plan Stock Option Agreement of Optimer Pharmaceuticals, Inc.
10.20	(3)+	2006 Equity Incentive Plan of Optimer Pharmaceuticals, Inc.
10.21	(7)+	Employee Stock Purchase Plan of Optimer Pharmaceuticals, Inc., as amended.
10.22	(3)	Prospective Buy-Back Agreement between Optimer Pharmaceuticals, Inc. and Par Pharmaceutical, Inc. dated January 19, 2007.
10.23	(5)*	Supply Agreement with Biocon Limited dated August 29, 2005, as amended.
10.24	(5)*	Assignment letter between Par Pharmaceutical, Inc. and Biocon Limited dated January 16, 2007.
10.25	(8)+	Summary of Optimer Pharmaceuticals, Inc. 2009 Incentive Compensation Plan.
10.26	(9)	Office Lease, dated August 18, 2008, by and between Optimer Pharmaceuticals, Inc. and Trizec Sorrento Towers, LLC.
10.27	(10)+	Optimer Pharmaceuticals, Inc. Severance Benefit Plan
23.1		Consent of Independent Registered Public Accounting Firm.
31.1		Certification of principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a).
32		Certification by the Chief Executive Officer and the Chief Financial Officer of Optimer Pharmaceuticals, Inc., as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

+	Indicates management contract or compensatory plan.
*	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
(1)	Filed with Registrant’s Registration Statement on Form S-1 on November 9, 2006.
(2)	Filed with Registrant’s Amendment No. 2 to Registration Statement on Form S-1 on January 5, 2007.
(3)	Filed with Registrant’s Amendment No. 3 to Registration Statement on Form S-1 on January 22, 2007.
(4)	Filed with Registrant’s Amendment No. 4 to Registration Statement on Form S-1 on February 5, 2007.
(5)	Filed with the Registrant’s Current Report on Form 8-K on February 26, 2007.
(6)	Filed with the Registrant’s Current Report on Form 8-K on October 29, 2007.
(7)	Filed with the Registrant’s Current Report on Form 8-K on September 18, 2007.
(8)	Filed with the Registrant’s Current Report on Form 8-K on January 13, 2009.
(9)	Filed with the Registrant’s Current Report on Form 8-K on August 21, 2008.
(10)	Filed with the Registrant’s Current Report on Form 8-K on October 8, 2008.
(11)	Filed with the Registrant’s Current Report on Form 8-K on March 5, 2009.

EX-10.2

Exhibit 10.2

COLLABORATIVE RESEARCH AND DEVELOPMENT AND LICENSE AGREEMENT

THIS COLLABORATIVE RESEARCH AND DEVELOPMENT AND LICENSE AGREEMENT (the “Agreement”) is entered into as of March 31, 2006 (the “Effective Date”) by and between OPTIMER PHARMACEUTICALS INC., a Delaware corporation with its offices located at 10110 Sorrento Valley Road, Suite C, San Diego, California 92121 (“Optimer”), and CEMPRA PHARMACEUTICALS, INC., a Delaware corporation with its offices located at 170 Southport Drive, Suite 500, Morrisville, NC 27560. Optimer and Cempra may be referred to herein individually as a “Party” or collectively, as the “Parties.”

RECITALS

WHEREAS, Optimer is a biopharmaceutical company engaged in the discovery and development of pharmaceutical products using its proprietary carbohydrate synthesis technology;

WHEREAS, Cempra is a biopharmaceutical company engaged in the discovery and development of novel pharmaceutical products;

WHEREAS, Cempra and Optimer desire to enter into a relationship to identify, develop and commercialize pharmaceutical products comprising novel Macrolide Antibiotics to treat infectious diseases.

WHEREAS, Cempra and Optimer entered into a letter agreement dated November 10, 2005 wherein Optimer and Cempra agreed to execute a detailed agreement regarding the synthesis by Optimer of Macrolide Antibiotics for Cempra; and

WHEREAS, Optimer is willing to synthesize Macrolide Antibiotics using its proprietary carbohydrate synthesis technology, assist Cempra in the development thereof, and is prepared to grant Cempra a license under such technology to allow Cempra to develop and commercialize pharmaceutical products arising from this relationship;

NOW, THEREFORE, in consideration of the foregoing and the covenants and promises contained in this Agreement, the Parties agree as follows:

1.DEFINITIONS

1.1          “Affiliate” means a person, corporation, partnership, or other entity that controls, is controlled by or is under common control with a Party. For the purposes of this Section 1.1, the word “control” (including, with correlative meaning, the terms “controlled by” or “under the common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such entity, whether by the ownership of at least fifty percent (50%) of the voting stock of such entity, or by contract or otherwise.

1.2          “ASEAN Countries” means all member nations of the Association of Southeast Asian Nations as of the Effective Date.

1.3          “Cempra Know-How” means any Know-How which is developed or acquired and Controlled by Cempra or its Affiliates during the term of this Agreement that is necessary and useful for the research, development, manufacture, importation, use, or sale of Cempra Products.

1.4          “Cempra Patents” means any Patents, other than Optimer Patents, which are Controlled by Cempra or its Affiliates during the term of this Agreement and that claim the manufacture, importation, use or sale of Macrolide Antibiotics or Cempra Products.

1.5          “Cempra Product” means a pharmaceutical product (including but not limited to Combination Products or those comprised of one or more Test Products, Macrolide Antibiotics, or any analogs or derivatives of either of the foregoing) for which the use, sale, or manufacture thereof would, but for the licenses granted Cempra hereunder, infringe the Optimer Patents in the country in which such product is sold by Cempra, an Affiliate thereof, or a Third Party sublicensee of either of the foregoing.

1.6          “Collaboration” means all activities performed by or on behalf of Optimer or Cempra in the course of the Research Program with respect to the Development and Commercialization of Test Products and Cempra Products.

1.7          “Combination Product” means a pharmaceutical product (i) containing (x) in the case of Cempra, an active pharmaceutical ingredient for which, if included in a pharmaceutical product as the sole active pharmaceutical ingredient the use, sale, or manufacture thereof would, but for the licenses granted Cempra hereunder, infringe the Optimer Patents in the country in which such product is sold by Cempra, an Affiliate thereof, or a Third Party sublicensee of either of the foregoing, or (y) in the case of Optimer, an active pharmaceutical ingredient which (I) contains a Macrolide Antibiotic, Test Product, or derivative or analog of either of the foregoing, (II) is a Cempra Product, or (III) whose manufacture, sale, or use is covered in any ASEAN Country by a Valid Claim of any Cempra Patent, Joint Invention Patent, or foreign counterpart of any Optimer Patent; and (ii) one or more other pharmaceutically active ingredients for which rights are not included in the license granted to (x) Cempra under this Agreement, with respect to Cempra Products, or (y) Optimer, with respect to Optimer Products.

1.8          “Commence” or “Commencement”, when used to describe a Phase 1 Trial, Phase 2 Trial, Phase 3 Trial, or Phase 4 Trial, means the first dosing of the first patient for such trial.

1.9          “Commercialization” means all activities that are undertaken after Regulatory Approval of an NDA for a particular Product and that relate to the commercial marketing and sale of such Product including advertising, marketing, promotion, distribution, and Phase 4 Trials.

1.10        “Confidential Information” means all Information, and other information and materials, received by either Party from the other Party pursuant to this Agreement that: (i) is designated as confidential at the time of disclosure or promptly thereafter; (ii) under the circumstances surrounding disclosure should be treated as confidential by the receiving Party, or (iii) by reason of its nature would be treated as confidential by a reasonable receiving party, which would include, without limitation, trade secrets..

1.11        “Control” means, with respect to any intellectual property right, that a Party owns or has a license to such item or right, and has the ability to grant a license or sublicense in or to such right as set forth herein without violating the terms of any agreement or other arrangement with any Third Party.

1.12        “Develop” or “Development” means, with respect to a Test Product or Product, engaging in preclinical and clinical drug development activities, which may include but is not limited to research, pre-clinical, clinical and regulatory activities directed towards obtaining Regulatory Approval of a Product, including but not limited to the performance by Optimer of its obligations and Cempra of its responsibilities under the Research Program.

1.13        “Development Plan” has the meaning set forth in Section 4.1.

1.14        “Diligent Efforts” means the carrying out of obligations or tasks in a manner consistent with the efforts a Party devotes to research, development or marketing of a pharmaceutical product or products of similar market potential, profit potential or strategic value resulting from its own research efforts, taking into account technical and regulatory factors, target product profiles, product labeling, past performance, costs, economic return, the regulatory environment and competitive market conditions in the therapeutic area, all based on conditions then prevailing, and subject to and in consideration of, in each case, the resources available to such Party and within such Party’s organization for such efforts. Diligent Efforts requires that a Party, at a minimum, assign responsibility for such obligations to specific employees, sets and seeks to achieve specific and meaningful objectives for carrying out such obligations, and consistently makes and implements decisions designed and allocates resources reasonably sufficient to advance progress with respect to such objectives.

2

1.15“Fair Market Value” means the fair market value of Cempra capital stock on the date the relevant milestone is achieved under Section 6.2(a) or (b), as applicable, which shall be determined as follows:

(a)           if the Cempra capital stock to be issued under Section 6.2(a) or (b) is traded on a public securities exchange or through the Nasdaq National Market, the fair market value thereof shall be deemed to be the average of the closing prices of such security on such exchange over the 30-day period ending three (3) business days prior to the date such security was received;

(b)           if the Cempra capital stock to be issued under Section 6.2(a) or (b) is actively traded over-the-counter, the fair market value thereof shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 30-day period ending three (3) business days prior to the date such security was received; or

(c)           If there is no active public market for any Cempra capital stock issued under Section 6.2(a) or (b), the fair market value thereof shall be as determined in good faith by Cempra’s Board of Directors based on a reasonable consideration of all relevant factors.

1.16“FDA” means the United States Food and Drug Administration, or any successor federal agency thereto.

1.17“Field” means all human and animal diagnostic and therapeutic uses.

1.18“First Commercial Sale” means the first sale of commercial quantities of any Product sold to a Third Party by a Party, its Affiliate, or a sublicensee of either of the foregoing in any country after, if and as reasonably necessary or applicable, receipt of Regulatory Approval for such Product in such country. Sales for test marketing, sampling and promotional uses or clinical trial or research purposes or compassionate uses will not be considered to constitute a First Commercial Sale

1.19“FTE” means the equivalent of one person working full time for one 12-month period in a research, development, commercialization, regulatory or other relevant capacity, approximating 1800 hours per year. In the interests of clarity, though, a single individual who works more than 1800 hours in a single year shall be treated as one FTE regardless of the number of hours worked.

1.20“Good Clinical Practices” or “GCP” means current Good Clinical Practices as specified in the United States Code of Federal Regulations, at the time of testing, and all FDA and ICH guidelines, including the ICH Consolidated Guidelines on Good Clinical Practices.

1.21“Good Laboratory Practices” or “GLP” means current Good Laboratory Practices as specified in the United States Code of Federal Regulations at 21 CFR § 58 at the time of testing and all applicable ICH guidelines.

1.22“Good Manufacturing Practices” or “GMP” means current Good Manufacturing Practices and standards as provided for (and as amended from time to time) in European Community Directive 91/356/EEC (Principles and Guidelines of Good Manufacturing Practice for Medicinal Products) and in the Current Good Manufacturing Practice Regulations of the United States Code of Federal Regulations Title 21 (21 CFR §§ 210-211) in relation to the production of pharmaceutical intermediates and active pharmaceutical ingredients, as interpreted by ICH Harmonized Tripartite Guideline, Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients, and subject to any arrangements, additions or clarifications agreed from time to time between the Parties.

1.23“Governmental Authority” means any court, agency, department or other instrumentality of any foreign, federal, state, county, city or other political subdivision.

1.24“Human Clinical Trial” means any Phase 1 Trial, Phase 2 Trial, Phase 3 Trial or Phase 4 Trial the subject of which includes a Test Product or Product.

3

1.25        “IND” means an Investigational New Drug Application filed with the FDA or the equivalent application or filing filed with any equivalent agency or government authority outside of the United States (including any supra-national agency such as in the European Union) necessary to Commence human clinical trials in such jurisdiction, and including all regulations at 21 CFR § 312 et. esq., and equivalent foreign regulations.

1.26        “Information” means information, results and data of any type whatsoever, including without limitation, databases, inventions, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data including pharmacological, biological, chemical, biochemical, toxicological and clinical test data, analytical and quality control data, stability data, studies and procedures, and patent and other legal information or descriptions.

1.27        “Invention” means any discovery, invention, improvement, concept or idea, whether or not patentable, conceived or reduced to in the course of the activities conducted pursuant to this Agreement, together with all intellectual property rights relating thereto. Inventions may include, but not be limited to, processes, compounds, compositions, or methods.

1.28        “Know-How” means any non-public, proprietary Information and other data, instructions, processes, methods, formulae, techniques, compositions, materials, expert opinions and information, including without limitation, biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, clinical, safety, manufacturing and quality control data and information. Know-How does not include any rights under Patents.

1.29        “Letter Agreement” means the letter agreement between Optimer and Cempra dated November 11, 2005.

1.30        “Macrolide Antibiotics” means any macrolide or ketolide, including but not limited to any (i) [***] compound that incorporates, is based on, or is described in, or the synthesis of which is in whole or part based on or described in, the Optimer Technology, including but not limited to those synthesized by Optimer under this Agreement or the Letter Agreement, (ii) [***] (including but not limited to [***]), and (iii) any derivatives or analogs of any of the foregoing. For avoidance of doubt, the parties expressly agree that Macrolide Antibiotics shall not mean any 18-membered- lactone-ring-based compound (e.g., Optimer’s OPT-80).

1.31        “NDA” means a New Drug Application filed with the FDA or the equivalent application or filing filed with any equivalent Governmental Authority outside of the United States necessary for approval of a drug in such jurisdiction.

1.32        “Net Sales” means

(a)           with respect to a Product (subject to subsections (b) and (c) below), the amount received by a Party or its Affiliate or a Third Party sublicensee for sales of such Product to Third Parties, excluding reasonable sales returns, allowances and rebates actually paid, granted or accrued, including, without limitation, trade, quantity and cash discounts and any other reasonable adjustments actually allowed, including, but not limited to, those granted on account of price adjustments (including retroactive price adjustments), billing errors, rejected goods, damaged or defective goods, recalls, returns, rebates, chargeback rebates, reimbursements or similar payments granted or given to wholesalers or other distributors, buying groups, health care insurance carriers or other institutions, pharmacy benefit management companies, health maintenance organizations or other health care organizations, or any governmental or regulatory authority or agency (including their purchasers and/or reimbursers), adjustments arising from consumer discount programs, customs or excise duties, tariffs, sales tax, consumption tax, value added tax, and other taxes (except income taxes) or duties relating to sales, and similar payments respect to the United States government, any state government, any local government, or any foreign government, or to any governmental or regulatory authority in respect of sales, and freight, handling, and insurance; and

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(b)           in the case of Combination Products,

[***]

1.33        “Optimer Improvements” means any Other Sole Inventions of Optimer and, to the extent owned by Optimer, Other Joint Inventions that, in either case, constitute improvements, enhancements, or modifications of any Macrolide Antibiotics, Cempra Products, or other technology claimed in the Optimer Patents listed on Schedule 1.30, or which would be useful or necessary in the manufacture, use, or sale of Cempra Products.

1.34        “Optimer Know-How” means all Know-How Controlled by Optimer or its Affiliates as of the Effective Date, or which is developed or acquired by and Controlled by Optimer or its Affiliates during the term of this Agreement, including but not limited to any Know-How related to Optimer Improvements, that is necessary or useful for the research, development, manufacture, importation, use or sale of the Macrolide Antibiotics, Test Products or Cempra Products.

1.35        “Optimer Patents” means any Patents Controlled by Optimer or its Affiliates as of the Effective Date or which are developed and Controlled, or licensed to and Controlled, by Optimer or its Affiliates during the term of this Agreement, that are necessary or useful for the research, development, manufacture, importation, use or sale of Macrolide Antibiotics, Test Products, or Cempra Products, including without limitation, the Patents listed on Schedule 1.35 and any Patents (or, with respect to Patents jointly owned by the Parties, Optimer’s rights to any such Patents) claiming any Optimer Improvements.

1.36        “Optimer Product” means any product (including but not limited to Combination Products) developed and/or commercialized by Optimer in any ASEAN Country that (i) contains a Macrolide Antibiotic, Test Product, or derivative or analog of either of the foregoing, (ii) is a Cempra Product, or (iii) whose manufacture, sale, or use is covered in any ASEAN Country by a Valid Claim of any Cempra Patent, Joint Invention Patent, or foreign counterpart of any Optimer Patent. For avoidance of doubt, the parties expressly agree that, for purposes of this Agreement (including, but not limited to, Optimer’s royalty payment obligation set forth in Article 6), Optimer Products shall not include any product which incorporates an 18-membered-lactone-ring-based compound as an active pharmaceutical ingredient (e.g., Optimer’s OPT-80) unless such product incorporates an additional active pharmaceutical ingredient which itself (or the mechanism of action of which) independently renders such product an Optimer Product pursuant to the foregoing definition.

1.37        “Optimer Technology” means Optimer Patents and Optimer Know-How.

1.38        “Patent” means: (a) an issued unexpired United States or foreign patent (including inventor’s certificate) that has not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal or any like filing thereof; or (b) any pending United States or foreign patent application, including without limitation any continuation, division or continuation-in-part thereof and any provisional application.

1.39        “Phase 1 Trial” means a clinical trial that generally provides for the first introduction into humans of a Product with the primary purpose of determining safety, metabolism and pharmacokinetic properties and clinical pharmacology of the Product, and generally consistent with 21 CFR § 312.21(a).

1.40        “Phase 2 Trial” means a clinical trial of a Product on patients, including possibly pharmacokinetic studies, the principal purpose of which is to make a preliminary determination that such Product is safe for its intended use and to obtain sufficient information about such Product’s efficacy to permit the design of further clinical trials, and generally consistent with 21 CFR § 312.21(b).

1.41        “Phase 3 Trial” means a clinical trial that provides for a pivotal human clinical trial of a Product, which trial is designed to: (a) establish that a Product is safe and efficacious for its intended use; (b) define warnings, precautions and adverse reactions that are associated with the Product in the

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dosage range to be prescribed; (c) support Regulatory Approval of such Product; and (d) generally consistent with 21 CFR § 312.21(c).

1.42“Phase 4 Trial” means clinical trial of a Product Commenced in a particular country after Regulatory Approval for such Product in such country in order to support commercialization of the Product.

1.43“Product” means an Optimer Product or Cempra Product, as appropriate.

1.44“Regulatory Approval” means any and all approvals (including supplements, amendments, pre- and post-approvals, pricing and reimbursement approvals), licenses, registrations or authorizations of any national, supra-national (e.g., the European Commission or the Council of the European Union), regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, that are necessary for the manufacture, distribution, use or, in the Commercializing Party’s reasonable judgment, sale of a Product in a regulatory jurisdiction.

1.45“Regulatory Authority” means any Governmental Authority with responsibility for granting any licenses or approvals necessary for the marketing and sale of pharmaceutical products including, without limitation, the FDA and any drug regulatory authority of countries of the European Union, and Japan, and where applicable any ethics committee or any equivalent review board.

1.46“Regulatory Filing” means the NDA, biologic license application (“BLA”), IND, or any foreign counterparts thereof and any other filings required by regulatory authorities relating to the study, manufacture or commercialization of any Product.

1.47“Research Program” means the activities conducted by Optimer and Cempra pursuant to the obligations and responsibilities set forth in a Work Plan and Budget established by the Parties pursuant to this Agreement.

1.48“Research Term” means the period commencing on the Effective Date and continuing until the earlier of (i) completion by Optimer of the tasks assigned to Optimer in the Work Plan and Budget or (ii) the second anniversary of the Effective Date, subject to any extensions thereof agreed to by the Parties in writing.

1.49“Royalty Term” means, on a country-by-country and Product-by-Product basis:

(a)           For Cempra Products, the period commencing on the First Commercial Sale thereof in a particular country and continuing until the later of (a) the last to expire Valid Claim of an Optimer Patent covering the manufacture, use or sale of such Cempra Product in such country or (b) ten (10) years following the First Commercial Sale of such Cempra Product in such country; and

(b)           For Optimer Products, the period commencing on the First Commercial Sale thereof in a particular country and continuing until the later of (a) the last to expire Valid Claim of a Cempra Patent covering the manufacture, use or sale of such Optimer Product in such country or (b) ten (10) years following the First Commercial Sale of such Optimer Product in such country.

1.50“Sublicensing Revenue” means net revenue received from Third Party sublicensees, other than royalties or other payments calculated on the basis of sales of Cempra Products, directly and solely as consideration for Cempra’s or its Affiliates’ sublicensing to Third Parties (other than Cempra Affiliates) of the rights to Optimer Patents licensed to Cempra and its Affiliates under this Agreement, including but not limited to upfront and milestone payments, but excluding (i) [***]

1.51“Term” has the meaning assigned to it in Section 9.1.

1.52“Territory” means worldwide, excluding ASEAN Countries.

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1.53        “Test Product” means a Macrolide Antibiotic or derivative or analog thereof that has been designated by Cempra to be the subject of Development pursuant to Section 3.4.

1.54        “Third Party” means any entity other than (a) Optimer, (b) Cempra or (c) an Affiliate of either of them.

1.55        “Valid Claim” means a claim of any pending patent application or any issued, unexpired United States or granted foreign patent within any Patent that has not been dedicated to the public, disclaimed, abandoned or held invalid or unenforceable by a court or other body of competent jurisdiction from which no further appeal can be taken, and that has not been explicitly disclaimed, or admitted by the Party Controlling such Patent in writing to be invalid or unenforceable or of a scope not covering Products through reissue, disclaimer or otherwise.

1.56        “Work Plan and Budget” has the meaning set forth in Section 3.1.

1A.JOINT STEERING COMMITTEE

1A.1       Joint Steering Committee.  Promptly after the Effective Date, the Parties shall establish a “Joint Steering Committee” as described in this Section 1A. The Joint Steering Committee shall exist during the Research Term. The Joint Steering Committee shall, subject to applicable provisions of this Agreement concerning the Research Program, Work Plan, and Budget, (i) develop, review, approve, and establish all aspects of the Work Plan and Budget and, once the initial Work Plan and Budget have been established, (ii) monitor and oversee the Parties’ progress thereunder, advise the Parties with respect thereto, and develop, review, and approve any changes or amendments to the Work Plan and Budget, such changes and amendments to be effective upon approval thereof by the Joint Steering Committee and agreement by (i) Optimer with respect to obligations of Optimer (such agreement not to be unreasonably withheld) or (ii) Cempra with respect to responsibilities of Cempra, provided that, notwithstanding the foregoing, the Joint Steering Committee shall have no authority to amend the body of this Agreement. Each party shall indicate in writing within five (5) business days of approval by the Joint Steering Committee whether or not it agrees to its proposed obligations or responsibilities, and, if not agreeing to its proposed obligations or responsibilities, provide its reasonable objections thereto. In the absence of such written notice within such five (5) business day period, a party shall be deemed to have rejected its proposed obligations or responsibilities, and, in the event Optimer rejects its proposed obligations or responsibilities (whether by written notice or the absence thereof), Cempra shall be free to pursue alternative solutions therefor. Notwithstanding anything to the contrary in this Agreement, the Joint Steering Committee shall have no rights or responsibilities, and Cempra shall have no obligations with respect to the Joint Steering Committee, following the Research Term.

1A.2       Membership.  The Joint Steering Committee will be comprised of an equal number of representatives from each Party. The exact number of such representatives shall be as agreed upon by the Parties, but no event shall such number be less than two (2) nor more than five (5) for each Party. Each Party shall provide the other with a list of its initial members of the Joint Steering Committee promptly after the Effective Date. Each Party may replace any or all of its representatives on the Joint Steering Committee at any time upon written notice to the other Party. Any member of the Joint Steering Committee may designate a substitute to attend and perform the functions of that member at any meeting of the Joint Steering Committee. Each Party may, in its reasonable discretion, invite non-member representatives of such Party to attend meetings of the Joint Steering Committee.

1A.3       Meetings.  During the Research Term, the Joint Steering Committee shall meet at least twice per calendar year, or more frequently as the Parties deem appropriate, on such dates, and at such places and times, as provided herein or as the Parties shall agree, provided, however, that (i) the first meeting shall be held within 30 days of the Effective Date and (ii) the Joint Steering Committee and the Parties shall use best efforts to draft, review, and approve the initial Work Plan and Budget as soon as reasonably practicable following the Effective Date. Meetings of the Joint Steering Committee shall

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alternate between the offices of the Parties or their respective Affiliates, or such other place as the Parties may agree. The members of the Joint Steering Committee also may convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate, provided that the Parties hold at least one face-to-face meeting each year. Each Party shall bear all costs and expenses relating to its members’ attendance at meetings of the Joint Steering Committee.

1A.4       Decision-Making.  The Joint Steering Committee shall use good faith efforts to operate and make decisions by consensus, provided that in the event the Joint Steering Committee is unable to reach consensus regarding any matter before the Joint Steering Committee within a reasonable period of time not to exceed ten (10) business days, Cempra shall have the tie-breaking vote to resolve such deadlock and determine the Joint Steering Committee’s final decision regarding such matter, including but not limited to approval of any Work Plan and Budget, or any changes thereto, consistent with the parameters described below, provided that no Work Plan or Budget shall be effective without the written agreement of (i) Optimer with respect to any obligations of Optimer thereunder (such agreement not to be unreasonably withheld) and (ii) Cempra with respect to any responsibilities of Cempra thereunder (such agreement not to be unreasonably withheld). Each party shall indicate in writing within five (5) business days of approval by the Joint Steering Committee whether or not it agrees to its proposed obligations or responsibilities, and, if not agreeing to its proposed obligations or responsibilities, provide its reasonable objections thereto. In the absence of such written notice within such five (5) business day period, a party shall be deemed to have rejected its proposed obligations or responsibilities, and, in the event Optimer rejects its proposed obligations or responsibilities (whether by written notice or the absence thereof), Cempra shall be free to pursue alternative solutions therefor.

2.MANAGEMENT OF THE RESEARCH PROGRAM

2.1          General.  The general purpose of the Collaboration described in Sections 2 and 3 of this Agreement is to synthesize, develop and commercialize Macrolide Antibiotics for sale as Cempra Products. If and as determined by the Joint Steering Committee, Optimer shall synthesize Macrolide Antibiotics and conduct preliminary research and biological testing on such Macrolide Antibiotics according to a Work Plan and Budget that has been developed and approved by the Joint Steering Committee and agreed upon by Optimer and Cempra (such agreement not to be unreasonably withheld). Each party shall indicate in writing within five (5) business days of approval by the Joint Steering Committee whether or not it agrees to the Work Plan or Budget approved by the Joint Steering Committee and, if not agreeing thereto, provide its reasonable objections thereto. In the absence of such written notice within such five (5) business day period, a party shall be deemed to have agreed to such Work Plan and Budget. Cempra shall, as determined by the Joint Steering Committee, conduct (or have conducted by Third Parties) preclinical and animal testing on such Macrolide Antibiotics synthesized by Optimer. Based on the results of such research, the Joint Steering Committee may designate certain Macrolide Antibiotics as Test Products for preclinical testing and further development by Cempra. Cempra shall be solely responsible, at its expense, for animal testing, preclinical and clinical development of such Test Products, including as may be provided for in a Work Plan and Budget approved by the Joint Steering Committee and agreed upon (i) by Optimer with respect to Optimer’s obligations thereunder (such agreement not to be unreasonably withheld) and (ii) Cempra with respect to Cempra responsibilities thereunder. Each party shall indicate in writing within five (5) business days of approval by the Joint Steering Committee whether or not it agrees to its proposed obligations or responsibilities, and, if not agreeing to such obligations or responsibilities, provide its reasonable objections thereto. In the absence of such written notice within such five (5) business day period, a party shall be deemed to have rejected its proposed obligations or responsibilities, and in the event Optimer rejects its proposed obligations or responsibilities (whether by written notice or the absence thereof), Cempra shall be free to pursue alternative solutions therefor. For so long as Cempra retains its license hereunder, and except as provided for performance by

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Optimer under any Work Plan and Budget, Cempra shall be responsible for the research, Development, manufacturing, marketing and Commercialization of Cempra Products, subject only to the terms and conditions of this Agreement, including without limitation the payments owed to Optimer for such Cempra Products as set forth in Article 6.

2.2          Information Exchange.  During the Research Term, Optimer and Cempra shall keep the Joint Steering Committee fully and regularly informed of their activities (and the activities of their Affiliates and/or sublicensees) in connection with their conduct of the Research Program and the Development and Commercialization of Test Products and Cempra Products, and shall diligently respond to any other reasonable requests by the Joint Steering Committee or the other Party for information. Each Party will provide the Joint Steering Committee (during the Research Term) and the other Party (during the entire term of this Agreement) with formal written progress reports of its activities under this Agreement, no less than twice per year.

2.3          Independence.  Subject to the terms of this Agreement and any applicable Work Order and Budget, the activities and resources of each Party shall be managed by such Party, acting independently and in its individual capacity. The relationship between Optimer and Cempra is that of independent contractors and neither Party shall have the power to bind or obligate the other Party in any manner, other than as is expressly set forth in this Agreement.

3.CONDUCT OF THE RESEARCH PROGRAM

3.1          Work Plan and Budget.  The Research Program shall be carried out by Optimer and Cempra according to a written work plan setting forth the obligations of Optimer and responsibilities of Cempra (the “Work Plan”) and budget providing for Cempra’s funding of Optimer’s obligations thereunder (the “Budget”). The Work Plan shall set forth in reasonable detail the obligations of Optimer and responsibilities of Cempra with respect to the Research Program, including the identity and number of Macrolide Antibiotics that Optimer shall endeavor to synthesize and formulate for animal testing, and shall include the desired quantities of such Macrolide Antibiotics, timeframe for delivery, technical specifications (the “Specifications”), and the Budget shall set forth the budget for such synthesis and formulation work by Optimer. The Joint Steering Committee shall develop an initial Work Plan and Budget and shall submit such plan to Optimer and Cempra for review and approval, such approval not to be unreasonably withheld, within thirty (30) days following the execution of this Agreement. In the absence of a party’s written approval of or reasonable objection to the Work Plan and Budget within five (5) business days of its submission to the parties by the Joint Steering Committee, a party shall be deemed to have agreed to such Work Plan and Budget. The Work Plan and Budget may be amended from time to time by the Joint Steering Committee during the Research Term, based upon the data obtained in the Research Program or from Cempra’s independent activities, provided such amendments do not violate or contradict any provision of this Agreement. In the event of an inconsistency or disagreement between the Work Plan and Budget and this Agreement, the terms of this Agreement shall prevail.

3.2          Work Performed to Date.  The Parties acknowledge that initial research and Macrolide Antibiotics synthesis activities have been conducted by the Parties pursuant to the Letter Agreement (the “Initial Research”). All Initial Research, including any Macrolide Antibiotics, Information, inventions, know-how, data, information, or other intellectual property rights created pursuant to the Initial Research, is deemed included within the scope of this Agreement. No amounts shall be due Optimer by Cempra for the conduct of the Initial Research.

3.3          Synthesis of Macrolide Antibiotics and Biological Testing.  The Joint Steering Committee shall, during the Research Term, determine the Macrolide Antibiotics designated for synthesis and Development under this Agreement, and Optimer shall provide its advice and comment with respect thereto. The Joint Steering Committee shall determine which Macrolide Antibiotics will be the subject of synthesis and Development as part of Optimer’s performance under the Research Program, and

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Optimer shall provide its advice and comment with respect thereto, provided that Optimer shall have no obligation to perform such synthesis and Development without its consent (such consent not to be unreasonably withheld). Optimer shall indicate in writing within five (5) business days of approval by the Joint Steering Committee whether or not it consents, and, if not consenting, provide its reasonable objections to such obligations. In the absence of such written consent or reasonable objection within such five (5) business day period, Optimer shall be deemed to have rejected such obligations and Cempra shall be free to seek alternative solutions therefor. The Joint Steering Committee shall, during the Research Term, designate the initial number of Macrolide Antibiotics for synthesis under this Agreement, provided Optimer shall provide its advice and comment with respect thereto. Optimer shall, if and as included in the Work Plan and Budget, use Diligent Efforts to synthesize Macrolide Antibiotics that have been designated by the Joint Steering Committee for synthesis, to conduct biological testing on such Macrolide Antibiotics, and to provide such Macrolide Antibiotics in reasonable quantities to Cempra as determined by the Joint Steering Committee. If and as included in the Work Plan and Budget, Optimer shall use Diligent Efforts to synthesize and conduct biological testing with respect to each Macrolide Antibiotic according to applicable Specifications for such Macrolide Antibiotics, and to produce and provide to Cempra a sufficient quantity of each Macrolide Antibiotic to allow Cempra to conduct further Development of such Macrolide Antibiotics. Optimer shall use Diligent Efforts to provide additional quantities of each Macrolide Antibiotics to Cempra at Cempra’s reasonable request on an as needed basis. The reasonable, documented direct expense of manufacturing additional quantities of Macrolide Antibiotics will be paid for by Cempra as set forth in the Work Plan and Budget.

3.4          Preclinical Testing and Human Clinical Testing.  Cempra may perform, in its sole discretion and at its own expense, after, during the Research Term, providing reasonable opportunity for advice and comment by the Joint Steering Committee, preclinical testing on Macrolide Antibiotics that have been synthesized by Optimer or any other Cempra Products of Cempra’s choosing. Based on the results of any such preclinical testing, the Joint Steering Committee may, subject to the advice and comment of Cempra and Optimer, determine whether additional Macrolide Antibiotics should be synthesized or developed by Optimer for preclinical testing, or whether any existing Macrolide Antibiotics should be reformulated by Optimer (or a Third Party) for further testing. The Joint Steering Committee may, subject to Optimer’s and Cempra’s approval (such approval not to be unreasonably withheld), amend or revise the applicable Work Plan and Budget accordingly to allow for such additional synthesis or reformulation activities. Each party shall indicate in writing within five (5) business days of approval by the Joint Steering Committee whether or not it approves of such amendment or revision, as applicable, and, if not approving thereof, provide its reasonable objections thereto. In the absence of such a written response from a particular party within such five (5) business day period, a party shall be deemed to have rejected such amendment or revision to the extent it proposes additional obligations or responsibilities for the objecting party, and, in the event Optimer rejects its proposed obligations or responsibilities (whether by written notice or the absence thereof), Cempra shall be free to pursue independent solutions with respect to the subject matter of the rejected amendment or revision. Cempra shall, after, during the Research Term, providing reasonable opportunity for advice and comment by the Joint Steering Committee, have the right to designate one or more of such Macrolide Antibiotics as Test Products for human clinical testing. In the event that Cempra enrolls a patient for human clinical testing of any Macrolide Antibiotics prior to formal designation of such Macrolide Antibiotics as a Test Product, such Macrolide Antibiotics shall be deemed to have been designated as a Test Product upon enrollment of the first such patient. If a Test Product does not achieve desirable results during Phase 1 Trials, then, if and as requested by the Joint Steering Committee, subject to Optimer’s consent (such consent not to be unreasonably withheld), Optimer shall use Diligent Efforts to reformulate such Test Product according to specifications established by the Joint Steering Committee. Any such reformulation activities shall be reflected in a revised Work Plan and Budget to be developed and approved by the Joint Steering Committee, negotiated in good faith, and agreed

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upon by the Parties (such agreement not to be unreasonably withheld), and the reasonable, documented, direct costs incurred by Optimer for such reformulation and related additional testing of a Test Product by Optimer shall be borne by Cempra pursuant to such Budget. Each party shall indicate in writing within five (5) business days of approval by the Joint Steering Committee whether or not it agrees to such revised Work Plan and Budget, and, if not agreeing to its proposed additional obligations or responsibilities contained therein, provide its reasonable objections thereto. In the absence of providing such written notice within such five (5) business day period, a party shall be deemed to have rejected its proposed obligations or responsibilities, and, in the event Optimer rejects its proposed obligations or responsibilities (whether by written notice or the absence thereof), Cempra shall be free to seek alternative solutions therefor. In the event that Cempra enrolls a patient in a Phase 2 Trial or in a Phase 3 Trial, or obtains Regulatory Approval, for any Macrolide Antibiotics or Test Product prior to formal designation of such Macrolide Antibiotics or Test Product as a Cempra Product, such Macrolide Antibiotics or Test Product shall be deemed to have been designated as a Cempra Product upon the first such event to occur with respect to such Macrolide Antibiotics or Test Product.

3.5          Pre-Clinical and Clinical Supply.  As may be provided in any Work Plan and Budget established by the Joint Steering Committee and agreed upon by Optimer, Optimer shall use Diligent Efforts in accordance with such Work Plan and Budget to produce, or have produced, a sufficient quantity of each Test Product to enable Cempra to conduct preclinical testing of such Test Products, and to cooperate with Cempra in preparing formulations, conducting feasibility studies, and facilitating such testing. Optimer shall not have any obligation or responsibility for providing clinical supplies of Test Products or Cempra Products.

3.6          Research and Supply Costs.  Cempra shall reimburse Optimer for Optimer’s reasonable, documented internal costs associated with Optimer’s work under the Work Plan and Budget, which shall equal the pro-rated cost of full-time equivalent employees to the extent used by Optimer in performing its portion of the Research Program. Such cost shall (1) be commercially reasonable based on the applicable employees’ role in performing Optimer’s portion of the Research Program, job title and responsibilities with Optimer, training, education, and expertise, which shall, in each case, be reasonably appropriate for the tasks performed thereby, and (2) not exceed US$[***] on an annual basis in any event. Cempra shall reimburse Optimer for the purchasing of key intermediates from Third Parties at Optimer’s cost, which cost shall be commercially reasonable and included in the Budget. Cempra shall also reimburse Optimer for commercially reasonable and documented external out-of-pocket expenses consistent with the Work Plan and Budget that Optimer incurs for performing such work, including without limitation commercially reasonable and documented payments to any Third Party manufacturer for production of Macrolide Antibiotics, Test Products and/or Cempra Products. At the end of each calendar quarter, Optimer shall submit to Cempra an invoice that sets forth in reasonable detail the internal costs and external expenses Optimer has incurred in performing its obligations under the Work Plan and Budget. Cempra shall remit payment to Optimer within thirty (30) days following Cempra’s receipt of such invoice. Any disputes arising between the Parties related to the amounts invoiced under this Section 3.6 shall be resolved in accordance with Article 12. Notwithstanding anything to the contrary, (i) Cempra shall not be obligated to pay Optimer any amounts with respect to Optimer’s performance of its obligations under the Research Program except as specifically described in any Budgets established by the Joint Steering Committee, (ii) Optimer shall not incur any Third Party costs in performing under the Research Program, and Cempra shall not be responsible for the reimbursement of any such Third Party costs, except as approved in advance by the Joint Steering Committee, and (iii) Cempra shall not be obligated to reimburse any costs of Optimer incurred in performing its obligations under the Research Program to the extent such costs are covered by any grant funding provided to Optimer (including but not limited to any SBIR or other government grants).

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3.7          Conduct of Research.  The Parties shall use Diligent Efforts to conduct their tasks and responsibilities under the Work Plan and Budget throughout the Research Program. In addition, the Parties shall conduct their tasks and responsibilities under the Research Program in compliance in all material respects with the requirements of applicable laws, rules and regulations and all applicable GLP to attempt to achieve their objectives consistent with industry standards. Optimer shall use commercially reasonable efforts to (i) perform in accordance with, maintain, and obtain any awarded, active, or future grants (including but not limited to any SBIR or other government grants) concerning research or development related to the research and development of Macrolide Antibiotics, Test Products, and/or Cempra Products (collectively, such grants, “Subject Grants”), (ii) ensure payment and receipt of all funds to be provided to Optimer under Subject Grants to the extent covering any of Optimer’s costs of performing of Optimer’s portion of the Research Program, and (iii) ensure that (a) all Optimer Improvements, Optimer Know-How, and results generated, in each case, under the Subject Grants, and all intellectual property rights appurtenant to the foregoing (including but not limited to Optimer Patents) shall be owned by Optimer and included in the licenses granted to Cempra hereunder, subject to any nonexclusive rights the United States government may have in any of the foregoing, by operation of law pursuant to the terms of such Subject Grants.

3.8          Acceptance.  If, as set forth in the Work Plan, Cempra has responsibility for performing quality control and/or quality assurance testing on Macrolide Antibiotics and/or Test Products supplied by Optimer, Cempra shall have thirty (30) business days following its receipt of a shipment to confirm that such shipment meets the applicable Specifications. If, as set forth in the Work Plan, Optimer has responsibility for performing quality control and/or quality assurance testing on Macrolide Antibiotics and/or Test Products supplied by Optimer, Cempra shall be deemed to have accepted any delivery of Macrolide Antibiotics and/or Test Products supplied by Optimer unless Cempra gives Optimer written notice of its rejection within fifteen (15) business days of delivery, unless any defect in the Macrolide Antibiotics and/or Test Products could not have been identified by reasonable visual examination, in which event Cempra shall not be deemed to have accepted such Macrolide Antibiotics and/or Test Products until fifteen (15) business days after the date when such defect could first have been reasonably identified by Cempra. If Cempra reasonably rejects in whole or in part any nonconforming shipment at any time following its receipt thereof, Cempra shall provide Optimer written notice of such rejection within the applicable time period described above. If nonconforming Macrolide Antibiotics or Test Products are delivered to Cempra by Optimer in the course of the Research Program, Optimer shall, if and as elected by Cempra in its sole discretion (i) use commercially reasonable efforts to replace in a timely manner the nonconforming Macrolide Antibiotics or Test Products at no additional cost to Cempra or (ii) refund to Cempra any amounts paid to Optimer with respect to the manufacture or supply of such Macrolide Antibiotics or Test Products.

4.             DEVELOPMENT AND COMMERCIALIZATION

4.1          Development Plan; Reports.  The Development of Cempra Products shall be governed by a development plan developed by Cempra, in consultation with the Joint Steering Committee, subject to amendment at any time by Cempra, that describes the proposed overall program of Development (the “Development Plan”). Cempra shall engage, at its sole expense, a Scientific Advisory Board, which shall, during the Research Term, include one representative of Optimer, initially to be Yoshi Ichikawa, Ph.D., to review and comment on the Development Plan. During the Research Term, Optimer and the Joint Steering Committee shall have the right to comment and make suggestions with respect to the Development Plan; provided, however, that Cempra shall have the sole right and responsibility for determining the Development Plan for Cempra Products. Each Party shall conduct its Development of Products in compliance in all material aspects with the requirements under all applicable laws, rules and regulations, including without limitation applicable GLP, GCP and GMP. Each Party shall keep the other Party and, during the Research Term, the Joint Steering Committee regularly informed on a semiannual basis via summary updates with respect to its material Development and Commercialization

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activities and those of its Affiliates and Third Party sublicensees. Such reports shall be the Confidential Information of a Party and subject to applicable provisions set forth in Article 8.

4.2          Regulatory Matters.  Cempra shall have control of and be responsible for all regulatory applications, filings and communications with regulatory authorities regarding Cempra Products, including obtaining Regulatory Approval of Cempra Products, in any jurisdiction in the Territory. Cempra shall keep Optimer regularly informed of its efforts and progress with respect to regulatory matters and approvals on a semiannual basis. Cempra shall own all the Regulatory Filings it makes and Regulatory Approvals it obtains. Optimer shall have the right of access to such regulatory documents and material for its use in obtaining Regulatory Approval in ASEAN Countries (subject to any payment obligations under Sections 6.6 and 6.7). Optimer shall cooperate with Cempra in all such regulatory efforts as reasonably requested by Cempra and provide all reasonable assistance to Cempra. If and as requested by Cempra, Optimer shall be responsible, at the expense of Cempra, which expense shall be reasonable, documented, and agreed upon in advance by the parties, for preparing and providing to Cempra in a timely manner all documents and submissions that relate directly to the manufacturing of Cempra Product, as reasonably required for Regulatory Filings and Regulatory Approval of the Cempra Product in the Territory, including the CMC of any IND or NDA in electronic format, for filing by Cempra.

4.3          Manufacture and Supply.  With respect to the Territory, and except as may otherwise be specified in the Work Plan and Budget, Section 3.5, or any separate clinical supply agreement entered into by the Parties, Cempra shall, as between the Parties, be responsible for the manufacture of clinical materials for each Cempra Product, and for the commercial supply of each Cempra Product, and for all costs associated therewith. Cempra shall use Diligent Efforts to make necessary Regulatory Filings to obtain, or cause a Third Party manufacturer to obtain, Regulatory Approval in the Territory for the manufacture of Cempra Products.

4.4          Development and Commercialization Costs.  Cempra shall be responsible for all costs associated with its Development and Commercialization of the Cempra Products, including the manufacture, marketing and commercialization of such Cempra Products in the Field and in the Territory, provided that, notwithstanding the foregoing, Cempra’s only obligations to Optimer with respect to any such costs shall solely be as provided for in Section 3 and 4.2, or as otherwise agreed to by the parties in writing.

4.5          Third Party Commercialization.  Subject to the terms and conditions set forth in Section 5.2, Cempra may utilize, at its discretion, Third Party contractors, distributors, marketing organizations, agents or sublicensees to research, develop, manufacture, supply, promote, market, distribute, and/or sell Cempra Products in one or more countries or jurisdictions in the Territory.

4.6          Pricing.  Cempra shall be solely responsible for pricing and other terms of sale for Cempra Products.

4.7          Diligent Efforts; Decision Not to Develop.

(a)           Cempra shall, itself and/or through its Affiliates and Third Party sublicensees, use Diligent Efforts to Develop and Commercialize Cempra Products in the Territory. In the event that Cempra makes a determination not to Develop and Commercialize at least one Cempra Product hereunder, Cempra shall promptly notify Optimer in writing of such determination in writing. If Cempra (itself or through its Affiliates or Third Party sublicensees) does not use Diligent Efforts as set forth in this Section 4.7(a), or if Cempra makes a determination not to further Develop and Commercialize at least one Cempra Product hereunder, then Optimer may terminate this Agreement in accordance with Section 9.3(a) below; provided, however, that if Cempra has notified Optimer in writing of a determination not to Develop and Commercialize at least one Cempra Product, then the cure period set forth in Section 9.3(a) shall not apply.

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(b)           Optimer shall, itself and/or through its Affiliates and Third Party sublicensees, use Diligent Efforts to develop and commercialize Products in ASEAN Countries. In the event that Optimer makes a determination not to Develop and Commercialize at least one Product hereunder in ASEAN Countries, Optimer shall promptly notify Cempra in writing of such determination in writing. If Optimer (itself or through its Affiliates or Third Party sublicensees) does not use Diligent Efforts as set forth in this Section 4.7(b), or if Optimer makes a determination not to further Develop and Commercialize at least one Product in ASEAN Countries hereunder, then Cempra may terminate this Agreement in accordance with Section 9.3(a) below; provided, however, that if Optimer has notified Cempra in writing of a determination not to Develop and Commercialize at least one Product in ASEAN Countries, then the cure period set forth in Section 9.3(a) shall not apply.

5.             LICENSES AND RELATED RIGHTS

5.1          License to Cempra.  Optimer hereby grants to Cempra and its Affiliates an exclusive license, with the right to sublicense as set forth in Section 5.2, under the Optimer Technology and the Optimer Improvements to make, have made, use, sell, offer for sale and import Macrolide Antibiotics, Test Products, and Cempra Products in the Field in the Territory. It is understood and agreed that Optimer retains the right under the Optimer Technology to conduct activities allocated to Optimer in the Research Program.

5.2          Cempra Sublicensing.  Cempra and its Affiliates shall have the right to sublicense their rights under Section 5.1 to one or more Third Parties. Cempra shall promptly provide Optimer a written copy of each such sublicense (and each amendment thereto, if any), and in no event more than ten (10) days following its execution, provided that Cempra may redact any portions of such sublicenses (or amendments) disclosing sublicensees’ proprietary information, technology, or research and development plans as reasonably necessary to comply with any confidentiality provisions of such sublicense. Each sublicense shall be consistent with the terms and conditions of this Agreement. For purposes of this Agreement, a Third Party to whom Cempra or its Affiliate grants exclusive rights to market one or more Cempra Products in a given territory shall be deemed a “sublicensee” of Cempra hereunder for such territory.

5.3          [***] Intellectual Property.  If Optimer licenses any rights to any Macrolide Antibiotics from [***] or any affiliate thereof during the term of this Agreement, it shall provide prompt written notice thereof to Cempra, identifying such licensed intellectual property, and, if and as elected by Cempra in writing its sole discretion, (i) Patents to which Optimer obtains rights under such a license shall be deemed included in Optimer Patents for purposes of this Agreement and (ii) Know-How to which Optimer obtains rights under such a license shall be deemed include in Optimer Know-How.

5.4          Optimer Rights in ASEAN Countries.  Cempra hereby grants to Optimer and its Affiliates an exclusive license, with the right to sublicense as set forth in Section 5.5, in the Field under Cempra Patents and Cempra Know-How to make, have made, use, sell, offer for sale and import Optimer Products in ASEAN Countries, which license shall include a right of reference to all Regulatory Filings, Regulatory Approvals, and supporting data and documentation of Cempra with respect to Cempra Products.

5.5          Optimer Sublicensing.  Optimer and its Affiliates shall have the right to sublicense their rights under Section 5.4 to one or more Third Parties. Optimer shall promptly provide Cempra a written copy of each such sublicense (and each amendment thereto, if any), and in no event more than ten (10) days following its execution, provided that Optimer may redact any portions of such sublicenses (or amendments) disclosing sublicensees’ proprietary information, technology, or research and development plans as reasonably necessary to comply with any confidentiality provisions of such sublicense. Each sublicense shall be consistent with the terms and conditions of this Agreement. For purposes of this Agreement, a Third Party to whom Optimer or its Affiliate grants exclusive rights to

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market one or more Optimer Products in a given territory shall be deemed a “sublicensee” of Optimer hereunder for such territory

5.6          Bankruptcy.  All rights and licenses granted under or pursuant to any section of this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(35A) of the U.S. Bankruptcy Code. The Parties shall retain and may fully exercise all of their respective rights and elections under the U.S. Bankruptcy Code. The Parties agree that a Party that is a licensee of such rights under this Agreement shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code, and that upon commencement of a bankruptcy proceeding by or against the licensing Party (such Party, the “Involved Party”) under the U.S. Bankruptcy Code, the other Party (such Party, the “Noninvolved Party”) shall be entitled to a complete duplicate of or complete access to (as such Noninvolved Party deems appropriate), any such intellectual property and all embodiments of such intellectual property, provided the Noninvolved Party continues to fulfill its payment or royalty obligations as specified herein in full. Such intellectual property and all embodiments thereof shall be promptly delivered to the Noninvolved Party (a) upon any such commencement of a bankruptcy proceeding upon written request therefore by the Noninvolved Party, unless the Involved Party elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of the Involved Party upon written request therefor by the Noninvolved Party. The foregoing is without prejudice to any rights the Noninvolved Party may have arising under the U.S. Bankruptcy Code or other applicable law.

5.7          Disclosure of Information.  Upon execution of this Agreement and thereafter during the term hereof, each party shall disclose to the other party, in confidence under the terms of Article 8 hereof, (a) all relevant Information as shall become available to it relating to the Macrolide Antibiotics, Test Products and Cempra Products, and (b) all relevant Information as shall become available to it relating to the safety and efficacy of each Macrolide Antibiotic, Test Product, and Cempra Product to the extent necessary or useful to develop or manufacture a Cempra Product. Optimer will use reasonable efforts to disclose to Cempra or, if and as requested by Cempra, to the FDA all relevant Information in its possession required for Cempra to register for sale or obtain approval for sale of each Cempra Product.

5.8          No Implied Licenses.  Other than those rights and licenses expressly granted herein, no other rights or licenses are granted or shall be deemed granted under this Agreement by either Party.

6.             FINANCIAL TERMS

6.1          Upfront Payment.  Cempra shall issue Optimer [***] [***] [***] shares of Cempra common stock ([***]% of total number of outstanding shares as determined on a fully-diluted basis as of the Effective Date), within thirty (30) after the Effective Date of this Agreement. The Cempra common stock issued to Optimer pursuant to this Section 6.1 shall not be subject to dilution until after Cempra closes on an Equity Investment (as defined below). Upon closing of an Equity Investment, Cempra shall issue Optimer additional shares of Cempra common stock sufficient to ensure that the total number of shares of Cempra common stock held by Optimer immediately following such Equity

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Investment equals the percentage of Cempra’s total number of outstanding shares (as calculated on a fully-diluted basis immediately following the Equity Investment) noted below:

Gross Proceeds to Cempra in Equity Financing	Percentage of Cempra Common Stock to be Held by Optimer
$[***] to $[***]	[***]%
$[***] to $[***]	[***]%
$[***] to $[***]	[***]%
$[***] to $[***]	[***]%
$[***] or more	[***]%

Following the first such issuance of additional shares, all shares issued to Optimer will be subject to dilution on a pari passu basis with the Cempra common stock held by other holders of Cempra common stock and Optimer shall not be entitled to any further shares of stock under this Section 6.1. For purposes of this Agreement, an “Equity Investment” shall mean Cempra’s issuance and sale of equity securities to venture capital, institutional, corporate, or private investors resulting in aggregate gross proceeds to Cempra of at least [***] [***]. The issuances of stock to Optimer under this Section 6.1 shall be done pursuant to separate Subscription Agreements, a form of which is attached hereto as Schedule 6.1(1), and the Cempra common stock held by Optimer shall be subject to a shareholders agreement, which shall initially be in the form of set forth at Schedule 6.1(2). Optimer agrees to enter into reasonable or customary agreements required by any future equity investors regarding subjecting Optimer’s shares of Cempra common stock to rights of first refusal and co-sale, such rights to terminate on an initial public offering of Cempra stock pursuant to a registration statement filed pursuant to the Securities Act of 1933, as amended.

6.2          Milestone Payments to Optimer.

(a)           Cempra shall pay to Optimer a milestone payment (the “[***] Milestone Payment”) in the amount of $[***] upon Cempra’s, its Affiliate’s, or their sublicensee’s [***] (the “[***] Milestone”), and the [***] Milestone Payment shall be payable in cash or Cempra capital stock, as further described below. Cempra shall notify Optimer within thirty (30) days of its determination that a [***] Milestone has occurred. Optimer shall indicate in writing, within ten (10) business days of such notice from Cempra, whether it elects the [***] Milestone Payment to be paid in cash or shares of Cempra capital stock having a Fair Market Value, as calculated as of the date the [***] Milestone is achieved, equal to the [***] Milestone Payment; in the absence of such election within such ten (10) business day period, Cempra shall be entitled to make such election in its sole discretion. The [***] Milestone Payment shall be paid (or, if to be paid in Cempra capital stock, such stock shall be issued) no later than twenty (20) days after the earlier of (i) the date on which Optimer provides its written election, as described above, or (ii) the expiration of the ten (10) business day period referenced above. Only one [***] Milestone Payment shall be payable by Cempra under this Agreement, regardless of the number of Cempra Products or indications therefor developed by Cempra, its Affiliates, or their sublicensees under this Agreement.

(b)           Cempra shall pay to Optimer a milestone payment (each, a “[***] Milestone Payment”) in the amount of $[***] upon Cempra’s, its Affiliate’s, or their sublicensee’s completion of the first [***] Trial of each Cempra Product resulting in data reasonably sufficient to support the conduct of a [***] Trial with respect to such Cempra Product (the “[***] Milestone”), and the initial [***] Milestone Payment shall be payable in cash or Cempra capital stock, as further described below. Cempra shall notify Optimer within thirty (30) days of its determination that a [***] Milestone has occurred. Optimer shall indicate in writing, within ten (10) business days of the initial such notice from Cempra, whether it elects the initial [***] Milestone Payment to be paid in cash or shares of Cempra capital stock having a Fair Market Value, as calculated as of the date the initial [***] Milestone is achieved, equal to the

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[***] Milestone Payment; in the absence of such election within such ten (10) business day period, Cempra shall be entitled to make such election in its sole discretion. The initial [***] Milestone Payment shall be paid (or, if to be paid in Cempra capital stock, such stock shall be issued) no later than twenty (20) days after the earlier of (i) the date on which Optimer provides its written election, as described above, or (ii) the expiration of the ten (10) business day period referenced above; all other [***] Milestone Payments shall be paid in immediately available funds, pursuant to Section 6.9 below, no later than thirty (30) days following the achievement of such [***] Milestone. Only one [***] Milestone Payment shall be payable by Cempra under this Agreement with respect to each Cempra Product, regardless of the number of indications therefor developed by Cempra, its Affiliates, or their sublicensees under this Agreement.

(c)           In addition to the Phase 2 Milestone Payments, in the event that (i) Cempra or an Affiliate thereof sublicenses rights for Development and Commercialization of a Cempra Product to a Third Party sublicensee and (ii) Cempra, an Affiliate, or such sublicensee completes a Phase 3 Trial of such Cempra Product resulting in data sufficient to support Regulatory Approval of such Cempra Product (the date upon which both of the foregoing have been achieved, the “Sublicensee Milestone”), then Cempra shall pay to Optimer (a) the following amounts with respect to each of the first two (2) Cempra Products to achieve the Sublicensee Milestone: (1) $[***] within thirty (30) days after each such Cempra Product achieves the Sublicensee Milestone (the “Initial Sublicensee Milestone Payments”) and (2) [***] percent ([***]%) of all Sublicensing Revenue, if any, received in excess of $[***] with respect to each such Cempra Product from the Third Party sublicensee(s) for such Cempra Product (to be paid to Optimer within thirty (30) days of Cempra’s receipt of each applicable payment of Sublicensing Revenue from such sublicensee(s)) (“Trailing Sublicensee Milestone Payments”) and, with respect to each of the subsequent two Cempra Products to achieve the Sublicensee Milestone, (b) $[***] within thirty (30) days after the date upon which such subsequent Cempra Product achieves the Sublicensee Milestone (“Subsequent Sublicensee Milestone Payments”; collectively, with all of the foregoing payments described in this subsection (c), the “Sublicensee Milestone Payments”). Cempra shall notify Optimer within thirty (30) days of each of the first four occurrences of the Sublicensee Milestone.

Notwithstanding anything to the contrary, (i) the Initial Sublicensee Milestone Payment shall only be payable by Cempra [***] under this Agreement, (ii) an Initial Sublicensee Milestone Payment shall not be due or payable under this Agreement with respect to a particular Cempra Product if the Initial Cempra Milestone Payment (as defined in Section 6.2(d) below) becomes due for such Cempra Product prior to the date upon which the applicable Initial Sublicensee Milestone Payment becomes due for such Cempra Product, (iii) the aggregate, combined, total number of Subsequent Sublicensee Milestone Payments and Subsequent Cempra Milestone Payments due under this Agreement shall be [***] (regardless of the number of Cempra Products or indications therefor), and (iv) a Subsequent Sublicensee Milestone Payment shall not be due or payable under this Agreement with respect to a particular Cempra Product if the Subsequent Cempra Milestone Payment (as defined in Section 6.2(d) below) becomes due with respect to such Cempra Product prior to the date upon which the Subsequent Sublicensee Milestone Payment becomes due with respect thereto. Except with respect to Trailing Sublicensee Milestone Payments, and notwithstanding anything to the contrary in this Agreement, the total possible combined aggregate amount due Optimer under this Section 6.2(c) and Section 6.2(d) below shall not exceed, and Cempra shall not be obligated to pay Optimer any amounts in excess of, $[***].

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(d)           In addition to the [***] Milestone Payments, if, prior to the occurrence of a Sublicensee Milestone with respect to a Cempra Product, an [***] is obtained (the “Cempra Milestone”), Cempra shall pay Optimer (i) $[***] with respect to each of the first [***] Cempra Products to achieve the Cempra Milestone (the “Initial Cempra Milestone Payments”) and (ii) $[***] with respect to each of the subsequent two Cempra Products to achieve the Cempra Milestone (the “Subsequent Cempra Milestone Payments”; collectively, with the Initial Cempra Milestone Payment, the “Cempra Milestone Payments”) within, in each case, thirty (30) days of the first anniversary of such Cempra Product’s achievement of the Cempra Milestone.

Notwithstanding anything to the contrary, each Cempra Milestone Payment (i) shall only be payable by Cempra once under this Agreement with respect to a particular Cempra Product, regardless of the number of indications therefor, (ii) an Initial Cempra Milestone Payment shall not be due or payable under this Agreement with respect to a particular Cempra Product if an Initial Sublicensee Milestone Payment (as defined in Section 6.2(c) above) becomes due with respect to such Cempra Product prior to the date upon which the Initial Cempra Milestone Payment becomes due with respect to such Cempra Product, (iii) the aggregate, combined, total number of Subsequent Sublicensee Milestone Payments and Subsequent Cempra Milestone Payments due under this Agreement shall be [***] (regardless of the number of Cempra Products or indications therefor), and (iv) a Subsequent Cempra Milestone Payment shall not be due or payable under this Agreement with respect to a particular Cempra Product if the Subsequent Sublicensee Milestone Payment (as defined in Section 6.2(c) above) becomes due with respect to such Cempra Product prior to the date upon which the Subsequent Cempra Milestone Payment becomes due with respect thereto.

(e)           As a condition to the issuance(s) of Cempra capital stock to Optimer pursuant to Sections 6.2(a) and/or 6.2(b), as applicable, Optimer shall enter into reasonable or customary agreements (including but not limited to subscription or purchase agreements) substantially consistent with those entered into by other holders of such shares of stock, including but not limited to investors, as applicable, and which may concern the issuance of such stock, voting provisions, and/or rights of first refusal and co-sale with respect to such shares.

6.3          Royalty Payments to Optimer.  For the duration of the applicable Royalty Term for each Cempra Product, Cempra shall pay to Optimer the following royalty payments, subject to adjustment as described in Sections 6.4 and 6.5, based on Net Sales of Cempra Products sold in the Territory by Cempra, its Affiliates, and their Third Party sublicensees:

(i)            [***] percent ([***]%) of Net Sales for the first $[***] of aggregate worldwide Net Sales of Cempra Products sold by Cempra, its Affiliates, and their Third Party sublicensees in a particular calendar year; and

(ii)           [***] percent ([***]%) of Net Sales for the portion, if any, of aggregate worldwide Net Sales of Cempra Products sold by Cempra, its Affiliates, and their Third Party sublicensees exceeding $[***] in a particular calendar year.

As an example of the royalty calculation contemplated above, if aggregate worldwide Net Sales of Cempra Products by Cempra, its Affiliates, and their Third Party sublicensees in a particular calendar year total $[***], Cempra shall owe Optimer $[***] under this Section 6.3 ([***]% × $[***] = $[***]; [***]% of $[***] = $[***]; $[***] + $[***] = $[***]).

6.4          Third Party Royalties on Cempra Products.  In the event that:

(a)           a Cempra Product is deemed by a final, unappealable decision of a court of competent jurisdiction to infringe a claim of a patent(s) owned or controlled by a Third Party in any given country of the Territory, and Cempra, an Affiliate thereof, or any sublicensee thereof licenses such patent(s) in settlement of such claims (“Cempra Infringement License”),

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(b)           Cempra, an Affiliate thereof, or any sublicensee of either of the foregoing determines that it is commercially, reasonably necessary or advisable to pay royalties to a Third Party to obtain a license to practice any Third Party’s rights in order to manufacture, use, Commercialize or Develop a Cempra Product in any given country of the Territory (“Cempra Necessary License”), or

(c)           it would be useful to obtain a license to practice any Third Party’s rights that could improve, enhance, or modify a Cempra Product in any given country of the Territory (“Cempra Improvement License”), as determined reasonably and in good faith by Cempra, an Affiliate thereof, or any sublicense of either of the foregoing,

then Cempra may deduct any fees, milestones or royalties paid for Cempra Infringement Licenses, Cempra Necessary Licenses and Cempra Improvement Licenses due to such Third Parties (or such amounts paid by Cempra, its Affiliate, or any sublicensee of either of the foregoing in settlement of such infringement action) (collectively, all of the foregoing, “Third Party Royalties”) from the royalties otherwise due to Optimer with respect to Net Sales; provided, however, that, notwithstanding the foregoing, the total amount due to Optimer under this Agreement with respect to Net Sales for Cempra Products sold by Cempra and its Affiliates any particular calendar quarter shall not be reduced by more than [***] percent ([***]%) as a result of any such deduction, and any amounts not deducted in a calendar quarter shall be carried forward for deduction in the subsequent calendar quarter(s), subject to such [***] percent ([***]%) limitation in each case.

6.5          Cempra Compulsory Licenses.  Should a compulsory license be granted, or be the subject of a possible grant, to a Third Party under the applicable laws of any country in the Territory under the Optimer Patents and/or Optimer Know-How, or to any Cempra Product, the Party receiving notice thereof or otherwise becoming aware thereof shall promptly notify the other Party thereof, including any material information concerning such compulsory license, and the applicable royalty rate payable hereunder for sales of Cempra Products in such country will be adjusted to match any lower royalty rate granted to such Third Party for such country with respect to the sales of such Cempra Products, subject to any adjustments pursuant to Section 6.4 above.

6.6          Milestone Payments to Cempra.  For each of the first [***] Optimer Products to achieve the Optimer Milestone (as defined below), Optimer shall, within two (2) years of the earlier of (i) the [***] of an Optimer Product in any ASEAN Country by Optimer, an Affiliate thereof, or any sublicensee of either of the foregoing or (ii) [***] of an Optimer Product in any ASEAN Country, pay Cempra $[***] with respect to such Optimer Product (the first to occur of the foregoing with respect to an Optimer Product, the “Optimer Milestone”). Such payment shall be due with respect solely to each of the first [***] (2) Optimer Products to achieve the Optimer Milestone. Optimer shall notify Cempra in writing within thirty days of each occurrence of the Optimer Milestone.

6.7          Royalties to Cempra.  For the duration of the applicable Royalty Term for each Optimer Product, Optimer shall pay to Cempra the following royalty payments based on Net Sales of Optimer Products in ASEAN Countries by Optimer, its Affiliates, and their Third Party sublicensees:

(iii)          [***] percent ([***]%) of Net Sales for the first $[***] of aggregate worldwide Net Sales of Optimer Products by Optimer, its Affiliates, and their Third Party sublicensees in a particular calendar year; and

(iv)          [***] percent ([***]%) of Net Sales for the portion, if any, of aggregate worldwide Net Sales of Optimer Products by Optimer, its Affiliates, and their Third Party sublicensees exceeding $[***] million in a particular calendar year.

As an example of the royalty calculation contemplated above, if aggregate Net Sales of Optimer Products in a particular calendar year total $[***], Optimer shall owe Cempra $[***] under this Section 6.7 ([***]% × $[***] = $[***]; [***]% of $[***] = $[***]; $[***] + $[***] = $[***]).

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6.8          Third Party Royalties on Optimer Products.  In the event that:

(a)           a Optimer Product is deemed by a final, unappealable decision of a court of competent jurisdiction to infringe a claim of a patent(s) owned or controlled by a Third Party in any given country of the Territory, and Optimer, an Affiliate thereof, or any sublicensee thereof licenses such patent(s) in settlement of such claims (“Optimer Infringement License”),

(b)           Optimer, an Affiliate thereof, or any sublicensee of either of the foregoing determines that it is commercially, reasonably necessary or advisable to pay royalties to a Third Party to obtain a license to practice any Third Party’s rights in order to manufacture, use, Commercialize or Develop an Optimer Product in any given country of the Territory (“Optimer Necessary License”), or

(c)           it would be useful to obtain a license to practice any Third Party’s rights that could improve, enhance, or modify a Optimer Product in any given country of the Territory (“Optimer Improvement License”), as determined reasonably and in good faith by Optimer, an Affiliate thereof, or any sublicense of either of the foregoing,

then Optimer may deduct any fees, milestones or royalties paid for Optimer Infringement Licenses, Optimer Necessary Licenses and Optimer Improvement Licenses due to such Third Parties (or such amounts paid by Optimer, its Affiliate, or any sublicensee of either of the foregoing in settlement of such infringement action) (collectively, all of the foregoing, “Third Party Royalties”) from the royalties otherwise due to Cempra with respect to Net Sales; provided, however, that, notwithstanding the foregoing, the total amount due to Cempra under this Agreement with respect to Net Sales for Optimer Products sold by Optimer and its Affiliates any particular calendar quarter shall not be reduced by more than [***] percent ([***]%) as a result of any such deduction, and any amounts not deducted in a calendar quarter shall be carried forward for deduction in the subsequent calendar quarter(s), subject to such [***] percent ([***]%) limitation in each case.

6.9          Optimer Compulsory Licenses.  Should a compulsory license be granted, or be the subject of a possible grant, to a Third Party under the applicable laws of any country in the Territory under the Cempra Patents and/or Cempra Know-How, or to any Optimer Product, the Party receiving notice thereof or otherwise becoming aware thereof shall promptly notify the other Party thereof, including any material information concerning such compulsory license, and the applicable royalty rate payable hereunder for sales of Optimer Products in such country will be adjusted to match any lower royalty rate granted to such Third Party for such country with respect to the sales of such Optimer Products, subject to any adjustments pursuant to Section 6.8 above.

6.10        Payments and Payment Reports.  Except as otherwise provided herein, all royalties and payments due under this Section 6 shall be paid within ninety (90) days of the end of the relevant calendar quarter for which the applicable Net Sales occur and/or revenues are received, subject, with respect to Net Sales, as applicable, by Third Party sublicensees, to any longer reporting periods which may be reasonably agreed to by Cempra, Optimer, or their Affiliates with respect to such sublicensees. Each royalty payment shall be accompanied by a statement stating (as applicable) the number, description, and aggregate Net Sales, by country, of each Product sold during the relevant calendar quarter by Cempra or Optimer, as applicable, and their respective Affiliates and Third Party sublicensees and detailing the calculation of royalties due for such calendar quarter, as well as, with respect to Cempra’s reporting obligations, an accounting of Sublicense Revenues received in the applicable calendar quarter.

6.11        Payment Method.  Except with respect to any milestone payments due under Sections 6.2 (a) and (b) that are paid in Cempra stock in accordance therewith, all payments due under this Agreement shall be made by bank wire transfer in immediately available funds to an account

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designated by the Party owed such payments. All payments hereunder shall be made in the legal currency of the United States of America.

6.12Taxes.   It is understood and agreed between the Parties that any payments made under Section 6.1, 6.2, or 6.6 of this Agreement are inclusive of any value added or similar tax imposed upon such payments. In addition, in the event any of the payments made by either Party (the “Paying Party”) pursuant to Article 6 become subject to withholding taxes under the laws of any jurisdiction, such amounts payable or, in the case of stock to be issued to Optimer pursuant to Sections 6.2(a) or (b), as applicable, shares issuable to the other Party (the “Paid Party”) shall be reduced by the amount of taxes deducted and withheld, and the Paying Party shall pay the amounts of such taxes to the proper Governmental Authority in a timely manner and promptly transmit to the Paid Party an official tax certificate or other evidence of such tax obligations together with proof of payment from the relevant Governmental Authority of all amounts deducted and withheld sufficient to enable the Paid Party to claim such payment of taxes. Any such withholding taxes required under applicable law to be paid or withheld shall be an expense of, and borne solely by, the Paid Party. The Paying Party will provide the Paid Party with reasonable assistance to enable the Paid Party to recover such taxes as permitted by law.

6.13Blocked Currency.   In each country where the local currency is blocked and cannot be removed from the country under such country’s applicable law, royalties accrued in that country shall be paid to a Party in the country in local currency by deposit in a local bank designated by such Party, unless the Parties otherwise agree.

6.14Sublicenses.   For avoidance of doubt, the Parties agree that in the event that a Party grants licenses or sublicenses to Third Parties to sell Products, the licensing (or sublicensing) Party shall use commercially reasonable efforts to include in such licenses or sublicenses an obligation for the licensee or sublicense to account for and report its sales of Products on a basis reasonably sufficient to enable payment of royalties hereunder with respect to such sales as if such sales of the licensee or sublicensee were Net Sales of the applicable Party.

6.15Foreign Exchange.   Conversion of a Party’s Net Sales recorded in local currencies to U.S. dollars will be performed by such Party in a manner consistent with such Party’s normal practices used to prepare its audited financial statements for external reporting purposes, provided that such practices use a widely accepted source of published exchange rates. Each Party shall notify the other of the conversion method(s) used by it for such purposes.

6.16Interest.   If either Party fails to make any payment when due to the other Party under this Agreement, then interest shall accrue on a daily basis at a rate equal to the thirty (30) day U.S. dollar LIBOR rate effective for the date that payment was due, as published by The Wall Street Journal. The obligation to pay interest on such late payments set forth herein shall not be construed to limit or restrict a Party’s right to terminate this Agreement in accordance with the terms and conditions of Section 9.3.

6.17Records; Audits.   Each Party shall keep or cause to be kept such records as are required to determine, in a manner consistent with generally accepted accounting principles in the United States, the sums or credits due under this Agreement, including, but not limited to Net Sales. At the request (and expense) of either Party, the other Party and its Affiliates and sublicensees shall permit an independent certified public accountant appointed by such Party and reasonably acceptable to the other Party, at reasonable times not more than once a year and upon reasonable notice, to examine only those records as may be necessary to determine, with respect to any calendar year ending not more than three (3) years prior to such Party’s request, the correctness or completeness of any royalty report or payment made under this Agreement. The Party requesting the audit shall bear the full cost of the performance of any such audit, unless such audit discloses a variance adverse to the Party requesting the audit of more than five percent (5%) from the amount of the original invoice, report, royalty or

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payment calculation, in which case the Party being audited shall bear the reasonable, documented cost of the performance of such audit. Each Party shall promptly pay to the other Party the amount of any underpayment of royalties revealed by an examination and review. Any overpayment by a Party of royalties or any other amount paid to the other Party revealed by an examination and review shall, in the overpaying Party’s sole discretion, (i) be fully-creditable against future payments under this Agreement or (ii) refunded to the overpaying Party within sixty (60) business days of its request.

7.Intellectual Property

7.1General Principles.

(a)The Optimer Technology existing as of the Effective Date shall, subject to the rights granted under this Agreement, remain the sole property of Optimer and may be licensed by Optimer for any purpose that is not inconsistent nor in conflict with this Agreement.

(b)All right, title, and interest in any and all Know-How or Inventions generated, conceived or reduced to practice by employees, agents or independent contractors of Optimer or its Affiliates, solely or jointly with employees, agents or independent contractors of Cempra or any Affiliate thereof, in connection with the performance of Optimer’s obligations under this Agreement, or that relate to Cempra Products in any manner, except any such Know-How or Inventions that are generated using grant monies provided by the United States government to Optimer and which are, therefore, subject to the limitations and requirements of such grants with respect to such intellectual property (collectively, all of the foregoing, “Optimer Inventions”), and all right, title, and interest in all intellectual property rights appurtenant thereto, shall vest in Cempra, subject to the terms of the license grant set forth in Article 5 and Optimer’s ownership of the Optimer Technology and sole or joint ownership (as applicable) of Optimer Improvements. Optimer shall notify Cempra promptly in writing and in reasonable detail of any Optimer Inventions. Optimer hereby assigns all right, title, and interest to Optimer Inventions and all intellectual property rights appurtenant thereto to Cempra, and agrees to take all actions and execute all documents, and to cause its Affiliates, employees, agents, and independent contractors to execute all documents and take all actions, requested by Cempra to effect the purposes of the foregoing. Optimer hereby appoints Cempra as it attorney to effect on its behalf any assignment of the Optimer Inventions which Optimer has failed to make to Cempra within 7 days in accordance with the terms of this Section with the right but not the obligation to do any and all acts and things reasonably necessary to effect unconditionally such assignment including the right for Cempra to execute all deeds, documents or instruments and swear any oaths or declarations in the name of and on behalf of Optimer necessary for such purpose. Cempra’s appointment as attorney under this Section is given to secure Cempra’s interest in the Optimer Inventions and intellectual property rights appurtenant thereto and to secure the performance of Optimer’s obligations to assign the Optimer Inventions and intellectual property rights appurtenant thereto in the event of termination and such appointment shall be perpetual and irrevocable, notwithstanding Optimer entering into liquidation, being wound-up or dissolved or having a receiver, manager, administrator, administrative receiver or similar person appointed over any of its assets.

(c)Subject to Section 7.1(d) below, Optimer and Cempra shall each own any inventions conceived solely by its own employees or agents, other than those inventions that are Optimer Inventions (“Other Sole Inventions”), including but not limited to (i) Know-How, conceived or reduced to practice during the term of this Agreement or (ii) such inventions generated using grant monies provided by the United States government to Optimer and which are, therefore, subject to the limitations and requirements of such grants with respect to such intellectual property. Subject to Section 7.1(d) below, Cempra and Optimer shall each own an undivided one-half interest in any inventions conceived jointly by employees or agents of both Cempra and Optimer, other than those inventions that are Optimer Inventions (“Other Joint Inventions”),

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including but not limited to (i) Know-How conceived or reduced to practice during the term of this Agreement and (ii) such inventions generated using grant monies provided by the United States government to Optimer and which are, therefore, subject to the limitations and requirements of such grants with respect to such intellectual property. Subject to Sections 7.1(d), 7.2, and 7.3 below, each Party may use, protect, license and enforce its own Other Sole Inventions in its discretion. The determinations of inventorship, and each Party’s rights and interests with respect to Other Joint Inventions and jointly created Know-How relating to such Other Joint Inventions, shall be the same as provided with respect to patents under United States law, and in particular, subject in all cases to the provisions of this Agreement, either Party may exploit or grant licenses under such Other Joint Inventions and jointly created Know-How without a duty of accounting to the other Party.

(d)Notwithstanding anything to the contrary, the exclusive license granted in Section 5.1 above shall include rights to Optimer Improvements, Optimer’s rights in Other Joint Inventions and Other Sole Inventions, Optimer’s rights in all Patents claiming any of the foregoing, and Optimer’s rights in all Know-How related to all of the foregoing, subject to any nonexclusive rights the United States government may have in any of the foregoing, by operation of law pursuant to the terms of any applicable grants.

(e)Notwithstanding anything to the contrary, the exclusive license granted in Section 5.4 above shall include rights to Cempra’s rights in Other Joint Inventions and Other Sole Inventions, Cempra’s rights in all Patents claiming any of the foregoing, and Cempra’s rights in all Know-How related to all of the foregoing.

7.2Patent Prosecution and Maintenance of Optimer Patents.   Optimer shall be responsible for, and be obligated to the extent it is commercially reasonable to diligently pursue, or to cause Optimer’s licensors to diligently pursue, the preparation, filing, prosecution (including but not limited to, by conducting interferences, oppositions and reexaminations or other similar proceedings), maintenance (by timely paying all maintenance fees, renewal fees and other applicable fees and costs), and extension of Patents within the Optimer Patents (including but not limited to those claiming Optimer’s Other Sole Inventions). Optimer will regularly advise Cempra of the status of all pending Optimer Patent applications, including any related hearings or other proceedings, and, at Cempra request, will provide Cempra with copies of all documentation concerning such applications, including all correspondence to and from any Governmental Authority. Optimer shall consult with and obtain written consent from Cempra prior to abandoning any Optimer Patent, which consent shall not be unreasonably withheld, delayed, or conditioned. Optimer will solicit Cempra’s advice and review of such applications and important prosecution matters related thereto in reasonably sufficient time prior to filing thereof, and will take into account Cempra’s reasonable comments related thereto. The costs of prosecution and maintenance of Optimer Patents shall be borne by Optimer.

7.3Patent Prosecution and Maintenance of Cempra Patents.   Cempra shall be responsible for, and be obligated to the extent it is commercially reasonable to diligently pursue, or to cause Cempra’s licensors to diligently pursue, the preparation, filing, prosecution (including but not limited to, by conducting interferences, oppositions and reexaminations or other similar proceedings), maintenance (by timely paying all maintenance fees, renewal fees and other applicable fees and costs), and extension of Patents within the Cempra Patents (including but not limited to those claiming Cempra’s Other Sole Inventions). Cempra will regularly advise Optimer of the status of all pending Cempra Patent applications, including any related hearings or other proceedings, and, at Optimer’s request, will provide Optimer with copies of all documentation concerning such applications, including all correspondence to and from any Governmental Authority. Cempra shall consult with and obtain written consent from Optimer prior to abandoning any Cempra Patent, which consent shall not be unreasonably withheld, delayed, or conditioned. Cempra will solicit Optimer’s advice and review of such applications and important prosecution matters related thereto in reasonably sufficient time prior to

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filing thereof, and will take into account Optimer’s reasonable comments related thereto. The costs of prosecution and maintenance of Cempra Patents shall be borne by Cempra.

7.4Patent Prosecution and Maintenance of Patents Claiming Other Joint Inventions.   Subject to Sections 7.7 and 7.8, for Patents claiming Other Joint Inventions (“Joint Invention Patents”), Cempra will have, without prejudice to ownership, the first right to prepare, file and prosecute such Patent applications and maintain any resulting Patents; provided, however, that Cempra may request that Optimer undertake such responsibilities upon written notice to Optimer, and Optimer may agree to do so, in its sole discretion. If Optimer does not agree to undertake such responsibilities within ten (10) days of such request with respect to any such Patents, Cempra shall not have any further obligations to prosecute or maintain such Patents. Within nine (9) months after the filing date of a Patent application in respect of an Other Joint Invention, the Party filing such application will request that the other Party identify those non-priority, non-PCT (“foreign”) countries in which the other Party desires that the filing Party file corresponding Patent applications. Within thirty (30) days after receipt of such request, the other Party will provide to the filing Party a written list of such foreign countries in which the other Party wishes to effect corresponding foreign patent application filings. The Parties will then attempt to agree on the particular countries in which such applications will be filed, provided that in the event agreement is not reached, the issue shall be resolved pursuant to Section 12.3 (“Designated Foreign Filings”). Thereafter, the filing Party will effect all such Designated Foreign Filings in a timely manner. It is presumed unless otherwise agreed in writing by the Parties, that a corresponding PCT application will be filed designating all PCT member countries. Should the Party filing the priority application not agree to file or cause to be filed a Designated Foreign Filing, the other Party will have the right to effect such Designated Foreign Filing.

Regardless of which Party is responsible for preparation, prosecution and maintenance of a Joint Invention Patent, the Parties shall share equally all reasonable, documented costs and expenses incurred in connection with procuring Joint Invention Patents (including entering national phase in all agreed countries), including application preparation, filing fees, prosecution, maintenance and all costs associated with reexamination, oppositions and interference proceedings. The filing Party shall invoice the other Party for such costs and expenses, and the other Party will pay such invoices within thirty (30) days after receipt.

7.5Cooperation.   The Parties agree to cooperate in the preparation and prosecution of all Joint Invention Patent applications filed under Section 7.3, including obtaining and executing necessary powers of attorney and assignments by the named inventors, providing relevant technical reports to the filing Party concerning the Other Joint Invention disclosed in such Joint Invention Patent applications, obtaining execution of such other documents which will be needed in the filing and prosecution of such Joint Invention Patent applications, and, as requested, updating each other regarding the status of such Joint Invention Patent applications. The Parties will reasonably cooperate to obtain any export licenses that might be required for such activities.

7.6Disclosure.   Each party shall make available to the other party in confidence all information in its possession necessary or expedient for the filing of Patents arising out of such party’s performance under this Agreement in all countries of the world.

7.7Infringement.   If in the opinion of either Party any issued Patent contained in the Optimer Patents has been infringed by a Third Party, such Party shall give to the other Party prompt written notice of such alleged infringement.

(a)Optimer Patents.  With respect to any alleged infringement of any Optimer Patents with respect to the rights granted to Cempra under this Agreement, Cempra shall have the first and primary right, but not the obligation, to, in its sole discretion, to initiate, prosecute, and control any action or legal proceedings, and/or enter into a settlement, including any declaratory judgment action, on its behalf or in Optimer’s name, if necessary, with respect to such alleged infringement.

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If, within [***] months of the notice above, Cempra (i) shall have been unsuccessful in persuading the alleged infringer to desist, (ii) shall not have brought and shall not be diligently prosecuting an infringement action, or (iii) has not entered into settlement discussions with respect to such infringement, or if Cempra notifies Optimer that it has decided not to undertake any of the foregoing against any such alleged infringer, then Optimer shall then have the right to bring suit to enforce such Optimer Patents at its own expense. In any such litigation brought by Cempra, Cempra shall have the right to use and sue in Optimer’s name, and Optimer shall cooperate reasonably, as requested by Cempra and at Cempra’s expense (which expense shall be reasonable).

(b)Cempra Patents.   With respect to any alleged infringement of any Cempra Patents with respect to the rights granted to Optimer under this Agreement, Optimer shall have the first and primary right, but not the obligation, to, in its sole discretion, to initiate, prosecute, and control any action or legal proceedings, and/or enter into a settlement, including any declaratory judgment action, on its behalf or in Cempra’s name, if necessary, with respect to such alleged infringement. If, within [***] months of the notice above, Optimer (i) shall have been unsuccessful in persuading the alleged infringer to desist, (ii) shall not have brought and shall not be diligently prosecuting an infringement action, or (iii) has not entered into settlement discussions with respect to such infringement, or if Optimer notifies Cempra that it has decided not to undertake any of the foregoing against any such alleged infringer, then Cempra shall then have the right to bring suit to enforce such Cempra Patents at its own expense. In any such litigation brought by Optimer, Optimer shall have the right to use and sue in Cempra’s name, and Cempra shall cooperate reasonably, as requested by Optimer and at Optimer’s expense (which expense shall be reasonable).

(c)Procedure.   The Party pursuing or controlling any action against an alleged infringer pursuant to the foregoing (the “Controlling Party”) shall be free to enter into a settlement, consent judgment, or other voluntary disposition of any such action, provided, however, that (i) the Controlling Party shall consult with the other Party (the “Secondary Party”) prior to entering into any settlement thereof and (ii) any settlement, consent judgment or other voluntary disposition of such actions which (1) materially limits the scope, validity, or enforceability of any Optimer Patents (if Optimer is the Secondary Party) or Patents Controlled by Cempra (if Cempra is the Secondary Party), (2) subjects the Secondary Party to any non-indemnified liability or obligation, or (3) admits fault or wrongdoing on the part of Secondary Party must be approved in writing by Secondary Party, such approval not to be unreasonably withheld. Secondary Party shall provide the Controlling Party notice of its approval or denial of such approval within ten (10) business days of any request for such approval by the Controlling Party, provided that (i) in the event Secondary Party wishes to deny such approval, such notice shall include a written description of Secondary Party’s reasonable objections to the proposed settlement, consent judgment, or other voluntary disposition and (ii) Secondary Party shall be deemed to have approved such proposed settlement, consent judgment, or other voluntary disposition in the event it fails to provide such notice within such ten (10) business day period. Any recovery or damages received by the Controlling Party with respect to the infringement of a Party’s rights under this Agreement shall be used first to reimburse the Parties for unreimbursed reasonable, documented expenses incurred in connection with such action, and the remainder shall be split [***] ([***]%) to Controlling Party and [***] percent ([***]%) to Secondary Party. Notwithstanding the foregoing, the Secondary Party, at its expense, shall have the right to be represented by counsel of its choice in any such proceeding.

7.8Infringement of Third Party Rights.

(a)If a claim is brought by a Third Party alleging patent infringement by Cempra, Optimer, their Affiliates, or their sublicensees with respect to the manufacture, use, sale, offer for sale or importation of Macrolide Antibiotics, Test Products, Cempra Products, or Optimer Products or any third party

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challenges the validity of any claims of any Optimer Patents or Cempra Patents, each Party will give prompt written notice to the other Party of such claim.

(b)As between the parties to this Agreement, Cempra shall have the first and primary right at its own expense to defend, control the defense of, and/or settle any such claim against Cempra, its Affiliates, or its sublicensees in the Territory, using counsel of its own choice. Cempra shall be free to enter into a settlement, consent judgment, or other voluntary disposition of such action, provided that any settlement, consent judgment or other voluntary disposition of such actions which (i) materially limits the scope, validity, or enforceability of patents included in the Optimer Patents, (ii) subjects Optimer to any nonindemnified liability, or (ii) admits fault or wrongdoing on the part of Optimer must be approved in writing by Cempra, such approval not being unreasonably withheld. Optimer shall provide Cempra notice of such approval or denial of such approval within ten (10) business days of any request for such approval by Cempra, provided that (i) in the event Optimer wishes to deny such approval, such notice shall include a written description of Optimer’s reasonable objections to the proposed settlement, consent judgment, or other voluntary disposition and (ii) Optimer shall be deemed to have approved of such proposed settlement, consent judgment, or other voluntary disposition in the event it fails to provide such notice within such ten (10) business day period. Optimer agrees to cooperate with Cempra in any reasonable manner deemed by Cempra to be necessary in defending any such action. Cempra shall reimburse Optimer for any out of pocket expenses incurred in providing such assistance. Any recovery or damages received by Cempra in any action or settlement under this Section 7.7(b) with respect to the rights licensed to Cempra under this Agreement shall be used first to reimburse the Parties for unreimbursed reasonable, documented expenses incurred in connection with such action, and the remainder shall be split [***] percent ([***]%) to Cempra and [***] percent ([***]%) to Optimer. Notwithstanding the foregoing, either Party, at its expense, shall have the right to be represented by counsel of its choice in any such proceeding controlled by the other Party.

(c)As between the parties to this Agreement, Optimer shall have the first and primary right at its own expense to defend, control the defense of, and/or settle any such claim against Optimer, its Affiliates, or its sublicensees in any ASEAN Countries, using counsel of its own choice. Optimer shall be free to enter into a settlement, consent judgment, or other voluntary disposition of such action with respect to any ASEAN Countries, provided that any settlement, consent judgment or other voluntary disposition of such actions which (i) materially limits the scope, validity, or enforceability of any Patents owned or Controlled by Cempra, (ii) subjects Cempra to any nonindemnified liability, or (ii) admits fault or wrongdoing on the part of Cempra must be approved in writing by Cempra, such approval not being unreasonably withheld. Cempra shall provide Optimer notice of such approval or denial of such approval within ten (10) business days of any request for such approval by Optimer, provided that (i) in the event Cempra wishes to deny such approval, such notice shall include a written description of Cempra’s reasonable objections to the proposed settlement, consent judgment, or other voluntary disposition and (ii) Cempra shall be deemed to have approved of such proposed settlement, consent judgment, or other voluntary disposition in the event it fails to provide such notice within such ten (10) business day period. Cempra agrees to cooperate with Optimer in any reasonable manner deemed by Optimer to be necessary in defending any such action. Optimer shall reimburse Cempra for any out of pocket expenses incurred in providing such assistance. Any recovery or damages received by Optimer in any action or settlement under this Section 7.7(c) with respect to the rights licensed to Optimer under this Agreement shall be used first to reimburse the Parties for unreimbursed reasonable, documented expenses incurred in connection with such action, and the remainder shall be split [***] percent ([***]%) to Optimer and [***] percent ([***]%) to Cempra. Notwithstanding the foregoing, either Party, at its expense, shall have the right to be represented by counsel of its choice in any such proceeding controlled by the other Party.

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7.9Reimbursement.  Each Party shall invoice the other Party for any reasonable, documented costs incurred that are to be borne by the other Party pursuant to this Article 7. Each Party shall pay the other Party such amounts within thirty (30) days of its receipt of any such invoice.

7.10Trademarks.  Cempra may, in its sole discretion, select trademarks for Cempra Products and shall own all such trademarks world-wide. To the extent Cempra pursues trademarks for Cempra Products, as between the parties, Cempra shall have the sole responsibility for the filing, prosecution and maintenance of registrations of product trademarks for Cempra Products, at its sole expense. Optimer shall not have any rights to any trademarks of Cempra under this Agreement; provided that, if it is commercially reasonable to do so, Cempra shall, at Optimer’s request, license such trademarks under a separate agreement to Optimer for use in the ASEAN Countries. Optimer may, in its sole discretion, select trademarks for Optimer Products and shall own all such trademarks world-wide. To the extent Optimer pursues trademarks for Optimer Products, as between the parties, Optimer shall have the sole responsibility for the filing, prosecution and maintenance of registrations of product trademarks for Optimer Products, at its sole expense. Cempra shall not have any rights to any trademarks of Optimer under this Agreement; provided that, if it commercially reasonable to do so, Optimer shall, at Cempra’s request, license such trademarks under a separate agreement to Cempra for use in the Territory.

8.CONFIDENTIALITY

8.1Treatment of Confidential Information.  The Parties agree that during the Term, and for a period of five (5) years after the end of the Term, a Party receiving Confidential Information of the other Party will (a) maintain in confidence such Confidential Information to the same extent such Party maintains its own proprietary industrial information of similar kind and value (but at a minimum each Party shall use commercially reasonable efforts), (b) not disclose such Confidential Information to any Third Party without prior consent of the other Party, and (c) not use such Confidential Information for any purpose except those permitted by this Agreement.

8.2Exceptions.  A Party shall not have the obligations set forth in Section 8.1 with respect to any portion of such Confidential Information that it can show by adequate documentation:

(a)is publicly disclosed by the disclosing Party, either before or after it becomes known to the receiving Party;

(b)was known to the receiving Party, without obligation to keep it confidential, prior to when it was received from the disclosing Party, as demonstrated by receiving Party’s written records;

(c)is subsequently disclosed to the receiving Party without obligation of confidentiality or limitation on use by a Third Party lawfully in possession thereof without obligation to keep it confidential;

(d)has been published by a Third Party; or

(e)has been independently developed by the receiving Party without the aid, application or use of Confidential Information.

8.3Authorized Disclosure.  Notwithstanding Section 8.1, a Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is necessary in the following instances:

(a)filing or prosecuting Patents pursuant to Article 7;

(b)Regulatory Filings;

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(c)prosecuting or defending litigation relating to Macrolide Antibiotics, Test Products or Products;

(d)complying with applicable laws and governmental regulations; and

(e)disclosure, in connection with the performance of this Agreement or exercise of the licenses or rights conveyed herein, to Affiliates, licensees, sublicensees, employees, consultants, or agents of either Party, each of whom prior to disclosure must be bound by substantially similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 8.

8.4Terms of the Agreement.  The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties. Such terms may be disclosed by a Party to individuals or entities covered by 8.3(e) above, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 8. Disclosure of the terms of this Agreement (but not other Confidential Information received from the other Party) may also be made, under obligations of confidentiality and non use at least equivalent in scope to those set forth in this Article 8, to actual or potential bankers, lenders, investors, acquirors, acquisition targets, and strategic partners of either Party.

8.5Publicity.  The public announcement of the execution of this Agreement is set forth on Schedule 8.5 hereto. Each Party shall be entitled, in its sole discretion, to make public announcements regarding its Development and Commercialization of Products, subject to the other Party’s opportunity to review and comment with respect thereto provided below. In addition, either Party may make a public statement, including in analyst meetings, concerning the Agreement or the progress of the Test Products or Products where such statement is required by law, applicable stock exchange regulation or legal proceedings. In connection with any filing described in the foregoing sentence, such Party shall use commercially reasonable efforts to obtain confidential treatment of economic and trade secret information. In any event, the Parties agree to take all reasonable action to avoid disclosure of Confidential Information except as permitted hereunder, and shall cooperate with each other with respect to all such disclosures. The Party that is required to or has otherwise decided to make a public statement pursuant permitted under this Section 8.5 will give the other Party reasonable advance notice of the text of any proposed statement so that the other Party will have the opportunity to comment upon the statement. Either Party may disclose any matter that has previously been publicly disclosed in accordance with this Section 8.5. Except as described above, neither Party will make any public announcement regarding the terms of or events related to the Agreement without the prior consent of the other Party.

8.6Publications.  Neither Optimer nor its employees, contractors or investigators shall publish or present any information, including without limitation the results of the Research Program or preclinical or clinical studies, with respect to any Macrolide Antibiotic, Test Product or Cempra Product without Cempra’s prior consent (which may be withheld in Cempra’s sole and final discretion), except as permitted under Section 8.3(d) or this Section 8.6. Optimer agrees to provide Cempra a copy of any such proposed publication or presentation at least 60 days prior to its submission for publication, and Cempra shall have 60 days in which to review the proposed publication or presentation for the purposes described below. Cempra may request in writing, and the Optimer shall agree to, (i) the deletion of any of Cempra’s Confidential Information, (ii) any reasonable changes requested by Cempra, consistent with scientific practice, or (iii) a delay of such proposed submission for an additional period, not to exceed ninety (90) days, in order to protect the potential patentability of any technology described therein. Cempra, at its election, shall be entitled to receive in any such publication an acknowledgment of its support of and involvement in the Research Program and its rights to Optimer Technology.

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9.TERM AND TERMINATION

9.1Term.  This Agreement shall become effective on the Effective Date and shall continue on a Product-by-Product (Cempra Product or Optimer Product, as applicable) and country-by-country basis until the earlier of (1) the expiration of the Royalty Term with respect to the applicable Product (Cempra Product or Optimer Product, as applicable) in the applicable country; or (2) the effective date of termination pursuant to Section 9.2 or 9.3 (the “Term”). Upon expiration of this Agreement pursuant to clause (1) above with respect to a particular Product in a particular country, the Parties and their Affiliates shall have the perpetual, unrestricted, fully-paid, royalty-free world-wide right, with rights of sublicense, to make, use, sell, offer for sale, and import such Product in such country.

9.2Termination by Cempra or Optimer.  Cempra may terminate this Agreement at any time upon thirty (30) days prior written notice to Optimer. At any time following the end of the Research Term, Optimer may terminate this Agreement upon thirty (30) days prior written notice to Cempra. In either case, the effects of such termination shall be as further described in Section 9.4 below.

9.3Mutual Termination Rights.  Either Party will have the right to terminate this Agreement upon the following:

(a)It believes that the other Party is in material breach of this Agreement, in which case the non-breaching Party may deliver written notice of such material breach to the other Party, such notice to describe in detail the nature of such breach. The allegedly breaching Party shall have [***] days from receipt of such notice to cure such breach. Any such termination shall become effective at the end of such [***] period unless the breaching Party has cured any such breach or default prior to the expiration of such [***] period (or, if such default is capable of being cured but cannot be cured within such [***]-day period, the breaching Party has commenced and diligently continued actions to cure such default provided always that, in such instance, such cure must have occurred within [***] days after notice thereof was provided to the breaching Party by the non-breaching Party to remedy such default); or

(b)the other Party is generally unable to meet its debts when due, or makes a general assignment for the benefit of its creditors, or there shall have been appointed a receiver, trustee or other custodian for such Party for or a substantial part of its assets, or any case or proceeding shall have been commenced or other action taken by or against such Party in bankruptcy or seeking the reorganization, liquidation, dissolution or winding-up of such Party or any other relief under any bankruptcy, insolvency, reorganization or other similar act or law, and any such event shall have continued for sixty (60) days undismissed, unstayed, unbonded and undischarged. In such circumstances, the other Party may, upon notice to such Party, terminate this Agreement, such termination to be effective upon such Party’s receipt of such notice.

9.4Effects of Termination.

(a)Except as set forth in Sections 9.1, 9.4(b), 9.4(c), and 9.4(d), upon any termination of this Agreement, all licenses granted under this Agreement shall terminate, Cempra and its Affiliates shall cease Development and Commercialization of all Macrolide Antibiotics, Test Products and Cempra Products, and Optimer and its Affiliates shall cease development and/or commercialization of Optimer Products, provided that, notwithstanding the foregoing, each Party and its Affiliates shall have the privilege, subject to the payment of royalties as required under Section 6, of (i) completing the manufacture of any Products in the process of manufacture as of the effective date of such termination (the “Termination Date”), (ii) selling such Products and all finished Products in their possession or under their control as of the Termination Date for a period of one year following the Termination Date upon commercially reasonable conditions, and (iii) completing performance of all contracts entered into with third parties prior to the Termination Date (1) for the marketing, sale, or manufacture of Products or (2) requiring the use of Products or technology claimed in the Optimer Patents or Cempra Patents,

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as applicable, for a period of one year following the Termination Date. Notwithstanding any provision herein to the contrary, no termination of this Agreement by either Party shall be construed as a termination of any valid sublicense granted by the other Party, its Affiliates, or its sublicensees with respect to the rights granted under this Agreement. Upon termination of this Agreement by a Party each sublicense of rights granted to a Third Party by the other Party shall, to the extent not imposing obligations on the other Party in excess of those contained herein, be automatically assigned to such Party.

(b)If a Party terminates this Agreement in accordance with Section 9.2, then, at the other Party’s express election upon notice of termination, all licenses granted by the terminating Party to the non-terminating Party shall survive, in which event, the non-terminating Party’s obligations set forth in Article 4 and in Article 6 (including without limitation the obligation to pay to the terminating Party any milestone and/or royalty payments set forth in Article 6 and provide the reports set forth therein), the non-terminating Party’s rights under Section 7, and al other provisions of this Agreement applicable to the foregoing, other than Sections 1A, 2, and 3 (which shall terminate), shall survive. It is understood and agreed that following such a termination, the terminating Party shall retain the right to terminate the other Party’s remaining licenses and rights in accordance with Section 9.3, and the non-terminating Party shall retain the right to subsequently terminate its remaining licenses and rights under this Agreement pursuant to Section 9.2, in which event the applicable provisions of Section 9.4(a) shall apply.

(c)If Cempra terminates this Agreement in accordance with Section 9.3, then at Cempra’s express election upon notice of termination, all licenses and rights granted by Optimer to Cempra shall survive, in which event Cempra’s obligations set forth in Article 4 and in Article 6 (including without limitation the obligation to pay to Optimer the royalty and milestone payments set forth in Article 6 and provide the reports set forth therein), Cempra’s rights under Section 7, and all other provisions of this Agreement applicable to the foregoing, other than Sections 1A, 2, and 3 (which shall terminate), shall survive. It is understood and agreed that following such a termination, Optimer shall retain the right to terminate the remaining licenses and rights of Cempra in accordance with Section 9.3, and Cempra shall retain the right to subsequently terminate its remaining licenses and rights under this Agreement pursuant to Section 9.2, in which event the applicable provisions of Section 9.4(a) shall apply.

(d)If Optimer terminates this Agreement in accordance with Section 9.3, then at Optimer’s express election upon notice of termination, all licenses and rights granted by Cempra to Optimer shall survive, in which event Optimer’s obligations set forth in Article 4 and in Article 6 (including without limitation obligation to pay to Cempra the royalty and milestone payments set forth in Article 6 and provide the reports set forth therein), Optimer’s rights under Article 7, and all other provisions of this Agreement applicable to the foregoing, other than Sections 1A, 2, and 3 (which shall terminate), shall survive. It is understood and agreed that following such a termination, Cempra shall retain the right to terminate the remaining licenses and rights of Optimer in accordance with Section 9.3, and Optimer shall retain the right to subsequently terminate its remaining licenses and rights under this Agreement pursuant to Section 9.2, in which event the applicable provisions of Section 9.4(b) shall apply.

(e)Termination of this Agreement shall not terminate the obligations of a Party to make any payments then owing through the date of termination or the obligations of confidentiality imposed on either Party.

(f)The remedies set forth in this Article 9 are not exclusive, and shall not limit any other legal or equitable remedies that are available to the parties.

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9.5Survival.  The following provisions shall survive any expiration or termination of this Agreement: Sections 5.6, 6.15, 7, 8, 9, 10, 11, 12 and 13, together with any sections referenced in such surviving provisions or necessary to give them effect.

10.REPRESENTATIONS AND WARRANTIES

10.1General Representations and Warranties.  Each Party represents and warrants to the other that, as of the date hereof:

(a)it is duly organized and validly existing under the laws of its state or country of incorporation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof;

(b)it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action;

(c)this Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material law or regulation of any Governmental Authority having jurisdiction over it;

(d)it is aware of no action, suit or inquiry or investigation instituted by any governmental agency that questions or threatens the validity of this Agreement;

(e)all necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such Party to enter into, or perform its obligations under, this Agreement have been obtained (provided, however, that the foregoing shall not be construed as a representation or warranty concerning governmental authorizations and non-infringement of intellectual property rights of Third Parties disclaimed in Section 10.3 below).

(f)it has not granted, and will not grant during the Term of the Agreement, any right to any Third Party that would conflict with the rights granted to the other Party hereunder. It has (or will have at the time the performance is due) maintained and will maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder;

(g)all products, materials and Information created by the Parties under this Agreement is current and accurate, is such Party’s original work (except for identified third-party materials), and, to such Party’s knowledge, will not infringe upon, violate or misappropriate any intellectual property right of any third party; and

(h)to the extent any third-party materials are incorporated in the products, such Party has obtained from such third party rights (if any) reasonably sufficient to enable the such Party to comply with this Agreement.

10.2Optimer Representations and Warranties.  Optimer represents, warrants, and covenants that:

(a)Optimer has not, and during the term of the Agreement will not, grant any right to any Third Party relating to Optimer Technology which conflicts with the rights granted to Cempra hereunder;

(b)During the Term, Optimer will not, without the prior written consent of Cempra, encumber the Optimer Patents or Optimer Know-How, respectively, with liens, mortgages, security interests or another similar interest that would give the holder the right to convert the interest into ownership, unless the encumbrance is expressly subject to the licenses herein;

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(c)Optimer has (or will have at the time performance is due) maintained and will maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder;

(d)Optimer does not have any present knowledge from which it would reasonably conclude that the Optimer Patents are invalid or that their exercise would infringe patent rights of any Third Party;

(e)The Optimer Patents listed on Schedule 1.30 are, as of the Effective Date, the only patents or patent applications owned, controlled, or licensed by Optimer claiming Macrolide Antibiotics, Test Products, Cempra Products, Optimer Technology, or the manufacture, use or application of any of the foregoing.

(f)To the best of Optimer’s knowledge, each item included in the Optimer Patents that is registered, filed or issued under the authority of an appropriate governmental authority is and at all times has been in compliance with all legal requirements applicable thereto, and all filings, payments, and other actions required to be made or taken to maintain such item of Optimer Patents in full force and effect have been made by the applicable deadline. Furthermore, (1) no patent application or patent included in the Optimer Patents has been abandoned or allowed to lapse and (2) no provisional patent application included therein has expired without the filing of a nonprovisional patent application that claims the benefit of such provisional patent application.

(g)Optimer has, to the knowledge of Optimer’s executive management, furnished to Cempra all tangible manifestations of the Optimer Technology which Optimer owns or possesses as of the Effective Date;

(h)Optimer has taken commercially reasonable measures, using its good faith business judgment, to protect the confidentiality of the Optimer Know How;

(i)None of the Optimer Patents is the subject of any pending interference, opposition, cancellation or other protest proceeding;

(j)Optimer has no knowledge of any claim pending, threatened, or previously made alleging infringement or misappropriation of any patent, trade secret, or other intellectual property right of any Third Party relative to the Optimer Patents, the technology claimed therein, Optimer Know How, Test Products, Macrolide Antibiotics, or Cempra Products; and

(k)Optimer is not aware of any third party activities which would constitute misappropriation or infringement of the Optimer Technology (including but not limited to Optimer Patents);

(l)Optimer owns all right, title, and interest to all Optimer Technology, free and clear of any liens, claims, and encumbrances of any party, and none of the Optimer Technology has been obtained by Optimer pursuant to any license or other agreement with any third party;

(m)Optimer does not presently own or Control any rights to any trademarks, service marks, trade dress, or similar intellectual property rights with respect to Cempra Products or Macrolide Antibiotics.

10.3Cempra Representations and Warranties.  Optimer represents, warrants, and covenants that:

(a)Cempra has not, and during the term of the Agreement will not, grant any right to any Third Party relating to Cempra Patent, Cempra Product, or Cempra Know-How which conflicts with the rights granted to Optimer hereunder;

(b)During the Term, Cempra will not, without the prior written consent of Optimer, encumber the Cempra Patents or Cempra Know-How, respectively, with liens, mortgages, security

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interests or another similar interest that would give the holder the right to convert the interest into ownership, unless the encumbrance is expressly subject to the licenses herein; and

(c)Cempra has (or will have at the time performance is due) maintained and will maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder.

10.4Disclaimer Concerning Technology.  EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, EXCEPT FOR THOSE SET FORTH IN THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, (A) BOTH PARTIES ACKNOWLEDGE AND AGREE THAT THE ACTIVITIES TO BE CONDUCTED UNDER THE RESEARCH PROGRAM ARE INHERENTLY UNCERTAIN AND, PROVIDED THAT EACH PARTY ENGAGES IN DILIGENT EFFORTS TO PERFORM ITS OBLIGATIONS HEREUNDER, THAT THERE ARE OTHERWISE NO ASSURANCES THAT THE PARTIES WILL SUCCESSFULLY SYNTHESIZE MACROLIDE ANTIBIOTICS MEETING THE SPECIFICATIONS SET FORTH BY CEMPRA AND OPTIMER JOINTLY OR IDENTIFY A TEST PRODUCT, OR SUCCESSFULLY CONDUCT OTHER ACTIVITIES CONTEMPLATED TO BE PERFORMED IN THE RESEARCH PROGRAM, OR THAT ANY MACROLIDE ANTIBIOTICS OR TEST PRODUCT WILL BE SUCCESSFULLY DEVELOPED AND COMMERCIALIZED BY CEMPRA AS A LICENSED PRODUCT, OR THAT REQUIRED GOVERNMENTAL APPROVALS IN CONNECTION WITH THE MANUFACTURE, CLINICAL DEVELOPMENT AND/OR COMMERCIALIZATION OF MACROLIDE ANTIBIOTICS, TEST PRODUCTS AND/OR LICENSED PRODUCTS CAN OR WILL BE OBTAINED; AND (B) EACH PARTY EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, TO THE CONTRARY.

11.INDEMNITIES

11.1Mutual Indemnification.  Subject to Section 11.2, each Party hereby agrees to indemnify, defend and hold the other Party, its Affiliates, its licensees, and its and their officers, directors, employees, consultants, contractors, sublicensees and agents (collectively, “Representatives”) harmless from and against any and all damages or other amounts payable to a Third Party claimant, as well as any reasonable attorneys’ fees and costs of litigation arising out of any such Claim (as defined in this Section 11.1), (collectively, “Damages”) resulting from claims, suits, proceedings or causes of action (“Claims”) brought by a Third Party against a Party or its Representatives based on: (a) material breach by the indemnifying Party of this Agreement, (b) breach of any applicable law, rule, or regulation by such indemnifying Party in connection with the performance of its obligations hereunder or the exercise of licenses or rights conveyed hereunder, (c) gross negligence or willful misconduct by such indemnifying Party, its Affiliates, or their respective employees, contractors or agents, (d) the indemnifying Party’s Development, Commercialization, manufacture, use or sale of Macrolide Antibiotics, Test Products, or Products, except, in each case, to the extent such Damages are subject to indemnification by the other Party under this Section 11.1.

11.2Notification.  In the event that any Third Party asserts a claim with respect to any matter for which a Party (the “Indemnified Party”) is entitled to indemnification hereunder (a “Third Party Claim”), then the Indemnified Party shall promptly notify the Party obligated to indemnify the Indemnified Party (the “Indemnifying Party”) thereof; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then only to the extent that) the Indemnifying Party is prejudiced thereby. Indemnifying Party may assume the complete control of the defense, compromise or settlement of any Third Party Claim (provided that any settlement of any Third Party Claim that (i) subjects Indemnified Party to any non-indemnified liability or (ii) admits fault or wrongdoing on the

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part of Indemnified Party will require the prior written consent of such Indemnified Party, provided such consent will not be unreasonably withheld), including, at its own expense, employment of legal counsel, and at any time thereafter Indemnifying Party will be entitled to exercise, on behalf of Indemnified Party, any rights which may mitigate the extent or amount of such Third Party Claim; provided, however, that if Indemnifying Party has exercised its right to assume control of such Third Party Claim, Indemnified Party (i) may, in its sole discretion and at its own expense, employ legal counsel to represent it (in addition to the legal counsel employed by Indemnifying Party) in any such matter, and in such event legal counsel selected by Indemnified Party will be required to reasonably confer and cooperate with such counsel of Indemnifying Party in such defense, compromise or settlement for the purpose of informing and sharing information with Indemnifying Party; (ii) will, at Indemnifying Party’s own expense, make available to Indemnifying Party those employees, officers, contractors, and directors of Indemnified Party whose assistance, testimony or presence is necessary or appropriate to assist Indemnifying Party in evaluating and in defending any such Third Party Claim; provided, however, that any such access will be conducted in such a manner as not to interfere unreasonably with the operations of the businesses of Indemnified Party; and (iii) will otherwise fully cooperate with Indemnifying Party and its legal counsel in the investigation and defense of such Third Party Claim.

11.3Exclusion of Damages.  IN NO EVENT SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT, UNLESS SUCH DAMAGES ARE DUE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LIABLE PARTY. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE FOREGOING SHALL NOT BE CONSTRUED TO LIMIT THE INDEMNITY OBLIGATIONS SET FORTH IN SECTION 11.1 ABOVE OR EITHER PARTY’S LIABILITY FOR PATENT INFRINGEMENT OR BREACH OF SECTIONS 8 (CONFIDENTIALITY), 7 (INTELLECTUAL PROPERTY), 5.1 (WITH RESPECT TO CEMPRA’S BREACH THEREOF), OR 5.4 (WITH RESPECT TO OPTIMER’S BREACH THEREOF).

12.DISPUTE RESOLUTION

12.1Disputes.  The Parties recognize that disputes as to certain matters may from time to time arise during the Term that relate to either Party’s rights and/or obligations hereunder. It is the objective of the Parties to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation or arbitration. To accomplish this objective, the Parties agree that, in the event of any disputes, controversies or differences that may arise between the Parties, out of or in relation to or in connection with this Agreement, or for the breach thereof, upon the request of either Party, the Parties agree to meet and discuss in good faith a possible resolution thereof. If the matter is not resolved within thirty (30) days following the request for discussions, either Party may refer the matter to arbitration in accordance with Section 12.3 below. Notwithstanding the foregoing, each Party shall be entitled to seek appropriate injunctive relief in any court of competent jurisdiction (i) to preserve such Party’s rights pending resolution of arbitration proceedings under this Agreement, (ii) to avoid irreparable damages, or (iii) with respect to any matters concerning intellectual property rights or confidentiality.

12.2Governing Law.  Resolution of all disputes arising out of or related to this Agreement or the performance, enforcement, breach or termination of this Agreement and any remedies relating thereto, shall be governed by and construed under the substantive laws of the State of California, without regard to conflicts of law rules that would provide for application of the law of a jurisdiction outside California.

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12.3Arbitration.  Except as otherwise expressly provided herein, the Parties agree that any dispute not resolved internally by the Parties, within thirty (30) days after meeting pursuant to Section 12.1, shall be finally resolved, upon notice to the other Party by either Party, by binding arbitration in accordance with the provisions of this Section 12.3. The arbitration shall be conducted by the Judicial Arbitration and Mediation services, Inc. (“JAMS”) under its rules of arbitration then in effect, except as modified in this Agreement. Each Party shall select one (1) independent, neutral arbitrator experienced in the biotechnology/pharmaceutical industry, and the two (2) arbitrators so selected shall choose a third independent, neutral arbitrator experienced in the biotechnology/pharmaceutical industry. In the event a Party fails to select its such arbitrator within fifteen (15) business days of its receipt of the notice provided above, the other Party shall be entitled to select such arbitrator. The arbitrators shall use their best efforts to rule on each disputed issue within sixty (60) calendar days after completion of hearings on the matter(s) in dispute, and the arbitration decision(s) shall be rendered in writing to the Parties and must specify the basis(es) on which the decision(s) was(were) made. Such decision(s) shall be binding and not be appealable to any court in any jurisdiction. Unless otherwise mutually agreed upon by the Parties, the arbitration proceedings shall be conducted in New York, New York. One or more of the Parties to any arbitration proceeding commenced under this Agreement shall be entitled, as a part of the arbitration award, to the costs and expenses (including reasonable attorneys fees and interest on any award) of investigating, preparing and pursuing an arbitration claim to the extent that the arbitrators award such costs and expenses, provided that, notwithstanding the foregoing, the Parties shall bear the costs and expenses incurred in connection with an arbitration under this section in inverse proportion to the award granted to each of them by the arbitrators.

13.MISCELLANEOUS

13.1Entire Agreement; Amendment.  This Agreement, including the exhibits attached hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and supersedes and terminates all prior agreements and understandings between the Parties, including the Letter Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.

13.2Force Majeure.  Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall include conditions beyond the control of the Parties, including without limitation, an act of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe; provided, however, the payment of invoices due and owing hereunder shall not be delayed by the payer because of a force majeure affecting the payer, unless such force majeure specifically precludes the payment process.

13.3Notices.  Any notices, approvals, or consents required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage

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prepaid, or by internationally recognized express delivery service or personally delivered. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below:

For Optimer:	Optimer Pharmaceuticals, Inc. 10110 Sorrento Valley Rd., Suite C San Diego, CA 92121 FEIN: 33-0830300 Fax: (858) 909-0737 Attention: Michael N. Chang, President/CEO
For Cempra:	Cempra Pharmaceuticals Inc. 170 Southport Drive, Suite 500 Morrisville, NC 27560 Fax: (919) 467-1716 Attention: Dr. Prabha Fenandes, President/CEO

13.4United States Dollars.  References in this Agreement to “Dollars” or “$” shall mean the legal tender of the United States of America.

13.5No Strict Construction.  This Agreement has been prepared jointly and shall not be strictly construed against either Party.

13.6Assignment.  Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior consent of the other; provided, however, that a Party may make such an assignment without the other Party’s consent (a) to an Affiliate or in conjunction with a merger, acquisition, or sale of all or substantially all of the business or assets of such Party to which this Agreement pertains, or (b) if such Party or its Affiliates is required to, or reasonably believes that it will be required to, divest any Product or a competing product in order to comply with law or the order of any Governmental Authority as a result of a merger or acquisition. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment or attempted assignment by either Party in violation of the terms of this Section 13.6 shall be null and void and of no legal effect.

13.7Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

13.8Further Actions.  Each Party agrees to execute, acknowledge and deliver such further instruments (including without limitation patent assignments), and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

13.9Severability.  If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, or in arbitration proceedings between the Parties as set forth in Article 12 of this Agreement, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering into this Agreement may be realized.

13.10Headings.  The headings for each article and section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular article or section.

13.11No Waiver.  Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future

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enforcement of its rights under this Agreement, excepting only as to an express written and signed waiver as to a particular matter for a particular period of time.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

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IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their proper officers as of the date and year first above written.

CEMPRA PHARMACEUTICALS INC.	OPTIMER PHARMACEUTICALS, INC.
BY:	BY:
NAME:	NAME:
TITLE:	TITLE:

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Schedule 1.35

Optimer Patents

Macrolide Patent Estate

“Macrolides and Process for Their Preparation” 8024-006-PR	(3/10/2003)	Lapsed	Provisional	The application has converted to PCT application, 8024-006-WO.
“Novel Antibacterial Agents”, 8024-006-WO	WO2004080381/ 23-Sep-04 (3/5/2004)	Published	PCT	The application claims composition of matter comprising 14 membered macrolide triazole compounds and/or 14 membered macrolide compounds with novel suger or sugar mimic moieties at C5 position. The PCT application was published and has entered national phase in US, Europe and Canada.
8024-006-US	(9/9/2005)	Pending	US	Notice of Acceptance and Filing Receipt received on 1/12/06. Projected publication date 5/11/06.
8024-006-CA	(12/19/2005)	Pending	Canada
8024-006-EP	(1/11/2006)	Pending	Europe

Schedule 6.1(1)

Subscription Agreement

Schedule 6.1(2)

Shareholders Agreement

Schedule 8.5

Press Release

December 31, 2008

Optimer Pharmaceuticals, Inc.

10110 Sorrento Valley Road, Suite C

San Diego, California 92121

Attention:  John Prunty, Chief Financial Officer

Cempra Pharmaceuticals, Inc. (the “Company”) and Optimer Pharmaceuticals, Inc. (“Optimer”) are parties to that certain Collaborative Research and Development and License Agreement dated March 31, 2006 (the “License Agreement”).  Pursuant to Sections 6.2(a) and 6.2(b) of that License Agreement, Optimer may elect, upon written request to the Company, that it be paid certain milestone payments in shares of Cempra capital stock (“Cempra Capital Stock”) rather than in cash, such Cempra Capital Stock having a Fair Market Value calculated as of the date the respective milestone is achieved equal to the value of the milestone payments, as the case may be.  All capitalized terms not otherwise defined in this Letter Agreement shall have the meanings ascribed to them in the License Agreement. 

As you may be aware, the Company plans to engage in a reorganization whereby the Company will merge with Cempra Merger Corp. (“MergeCo”), a Delaware corporation and wholly-owned subsidiary of Cempra Holdings, LLC, a Delaware limited liability company (the “Holding Company”).  Upon such merger, the separate corporate existence of MergeCo will terminate, the Company will remain as the surviving entity and the stockholders of the Company will receive units of the Holding Company (“Holding Company Units”) in exchange for their shares of Cempra Capital Stock (the “Reorganization”).  The rights belonging to each respective class or series of Holding Company Units will be essentially the same as those of the corresponding class or series of Cempra Capital Stock.  Subsequent to the Reorganization, the Company will distribute its shares of CEM-102 Pharmaceuticals, Inc., the Company’s wholly-owned subsidiary that holds assets unrelated to the technology licensed under the License Agreement, to the Holding Company (the “Spin-Off”).

As a result of the Reorganization and Spin-Off, it is currently intended that the equity holdings for the combined company will be held, and the ultimate liquidity for that equity will be realized, at the Holding Company level.  Therefore, the parties find it necessary to modify Sections 1.15, 6.2(a), 6.2(b) and 6.2(e) of the License Agreement, which refer to Cempra Capital Stock in the context of milestone payments described in Sections 6.2(a) and 6.2(b) of the License Agreement, to refer to Holding Company equity.  This letter agreement reflects the parties’ mutual intent to modify those Sections so as to use the term “Holding Company Units” in lieu of “Cempra Capital Stock” in each phase where used or referenced.  Except as specifically modified herein, the License Agreement shall remain in full force and effect as originally executed.

By their execution below, the parties agree that, upon the completion of the Reorganization, the references to “Cempra Capital Stock” in Sections 1.15, 6.2(a), 6.2(b) and 6.2(e) of the License Agreement will be modified to become “Holding Company Units” (as defined in this Letter Agreement).  By its execution below, the Holding Company agrees to issue Holding Company Units to Optimer when, if and as required under the terms of the License Agreement, as modified by this Letter Agreement.

[THE NEXT PAGE IS THE SIGNATURE PAGE]

CEMPRA PHARMACEUTICALS, INC.		OPTIMER PHARMACEUTICALS, INC.
By:	/s/ Prabhavathi Fernandes	By:	/s/ John Prunty
	Prabhavathi Fernandes, Ph.D.		John Prunty
	Chief Executive Officer and President		Chief Financial Officer
CEMPRA HOLDINGS, LLC
By:	/s/ Prabhavathi Fernandes
	Prabhavathi Fernandes, Ph.D.
	Chief Executive Officer and President

EX-10.11

Exhibit 10.11

MICHAEL N. CHANG

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) dated as of June 17, 2005, is between OPTIMER PHARMACEUTICALS, INC., a Delaware corporation (“Company”), and MICHAEL N. CHANG (“Executive”). Together, Executive and Company are the “parties” and each is a “party” hereto.

WHEREAS, the Company and the Executive previously entered into an employment agreement dated March 1, 2001 (the “Prior Agreement”).

WHEREAS, THE Company wishes for Executive to continue in his role as Chief Executive Officer and President of the Company.

NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:

1.EFFECTIVENESS OF AGREEMENT

1.1General.  This Agreement shall become effective as of the date hereof and shall replace, void, and supersede any section of the Prior Agreement that conflicts with this Agreement.

2.EMPLOYMENT AND DUTIES

2.1General.  The Company hereby employs the Executive, and the Executive agrees to serve, as President and Chief Executive Officer of the Company, upon the terms and conditions herein contained. In such capacity, Executive shall report directly to the Board of Directors of the Company (“Board”). The Executive shall perform such other duties and services for the Company as may be reasonably designated from time to time by the Company and as are consistent with Executive’s title. The Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Company.

2.2Exclusive Services.  Except as may otherwise be approved in advance by the Board, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, the Executive shall devote his full working time throughout the Employment Term (as defined below) to the services required of him hereunder. The Executive shall render his services exclusively to the Company during the Employment Term, and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position. Executive may participate in charitable and philanthropic activities so long as they don’t interfere with his duties hereunder. However, the foregoing shall not prevent Executive from providing services as a member of the Board of Directors of another third party or parties nor consulting services to Pharmanex, provided that the total of all such services to such entities cumulatively shall not exceed four days per month.

2.3Term of Employment.  The Executive’s employment under this Agreement (the “Employment Term”) shall commence as of the effective date hereof and shall terminate on the earlier of (a) the forth year anniversary of the date hereof, or (b) the termination of the Executive’s employment pursuant to this Agreement. Executive may terminate his employment with the Company at any time and for any reason upon thirty (30) days’ prior written notice to the Company.

2.4Reimbursement of Expenses.  The Company shall reimburse the Executive for reasonable travel and other business expenses incurred by him in the fulfillment of his duties hereunder upon presentation by the Executive of an itemized account of such expenditures, such reimbursement to be in accordance with the Company’s policies and procedures.

3.SALARY

3.1Base Salary.  From the date hereof, the Executive shall receive a base salary (“Base Salary”) at a rate of $271,695.35 per annum, payable twice monthly in arrears in equal installments in accordance with the Company’s payroll practices.

3.2Annual Review.  The Executive’s Base Salary shall be reviewed for potential increase by Company, based upon the Executive’s performance, not less often than annually. Any positive adjustments in Base Salary effected as a result of such review shall be made by Company in its sole discretion.

4.LONG-TERM INCENTIVE COMPENSATION

The Company will provide the Executive with the following long-term incentive compensation arrangement.

4.1Subject to the approval of the Board, the Executive will be granted a stock option to purchase up to 570,744 shares o the Company’s Common Stock at a price per share equal to the fair market value per share of the Common Stock on the date of grant (the “Option”). Subject to Section 4.2 below, 25% of the shares subject to the Option shall vest 12 months after the date of Executive’s vesting begins and the remaining shares shall vest monthly over the following 36 months in equal monthly amounts subject to Executive continuing eligibility.

4.2Notwithstanding the foregoing, upon (i) the occurrence of a change of control (the “Change of Control Transaction”) of the Company (defined as the Company’s being merged with or into or combined with a third party such that the security holders of the Company prior to such transaction do not hold at least 50% of the securities of the resulting entity after such transaction by virtue of such transaction), and (ii) within twelve (12) months thereafter Executive’s employment is terminated by the Company (or its successor in interest), then all unvested shares subject to the Option shall immediately vest and be exercisable (and, in the case of shares already purchased with the Company maintaining a right of repurchase, the Company shall cease to have the right to repurchase any such unvested shares); provided that the Executive is employed by the Company on such transaction date.

5.EMPLOYEE BENEFITS

The Executive shall, during his employment under this Agreement, be included to the extent eligible thereunder in all employee benefit plans, programs or arrangements (including, without limitation, any plans, programs or arrangements providing for retirement benefits, profit sharing, disability benefits, health and life insurance, or vacation and paid holidays) that shall be established or adopted by the Company for, or made available to, the Company’s senior executives. In addition, the Company shall furnish the Executive with the following benefits during his employment under this Agreement:

(a)In connection with the Prior Agreement, Executive received a relocation and housing assistance loan (the “Loan”) in the principal amount of $300,000. 25% of the Loan shall be forgiven each year after the date hereof, such that the Loan shall be fully forgiven on the four year anniversary of the date hereof, subject to the Executive being an employee of the Company on such anniversary dates. Notwithstanding the foregoing, subject to the Executive being an employee of the Company immediately prior to a Change of Control Transaction, the Loan shall be forgiven immediately prior to the close of a Change of Control Transaction.

(b)Four (4) weeks vacation per annum.

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6.TERMINATION OF EMPLOYMENT

6.1Termination Without Cause.

6.1.1Severance.  Subject to the provisions of Sections 6.1.3 and 6.1.4, if, prior to the expiration of the Employment Term, the Executive’s employment is terminated by the Company without Cause (as defined below), the Company shall continue to pay the Executive the Base Salary (at the rate in effect on the date of such termination) for twelve (12) months (such period being referred to hereinafter as the “Severance Period”), at such intervals as the same would have been paid had the Executive remained in the active service of the Company. The Executive shall have no further right to receive any other compensation or benefits after such termination or resignation of employment, except as determined in accordance with the terms of the employee benefit plans or programs of the Company or as provided in this Agreement.

6.1.2Accelerated Vesting.  To the extent that any of the shares would have vested at the end of the twelve months after Executive is terminated under Section 4 of this Agreement but for the termination of the Executive without Cause, all such shares which would have vested within the twelve months had Executive remained employed shall vest at the Company’s declared termination date, and Executive shall have ninety (90) days from the Company’s declared termination date to exercise the Option. The Company shall notify Executive within ten days after the necessary calculations under Section 4 have been completed (which calculations shall be made no later than thirty (30) days after the termination date in question) as to whether any of the shares have vested. This provision shall survive termination of the Agreement.

6.1.3Conditions Applicable to the Severance Period.  (a) If, during the Severance Period, the Executive breaches any of his obligations under Section 8, the Company may, upon written notice to the Executive, terminate the Severance Period and cease to make any further payments or provide any benefits described in Section 6.1.1. (b) If, during the Severance Period, the Executive obtains other employment, then the Base Salary payments due shall be reduced by an amount equivalent (dollar for dollar) to what Executive receives from such other employment. Executive shall promptly notify Company of such employment and other payments.

6.1.4Death During Severance Period.  In the event of the Executive’s death during the Severance Period, payments of Base Salary under Section 6.1.1 shall continue to be made during the remainder of the Severance Period to the beneficiary designated in writing for this purpose by the Executive or, if no such beneficiary is specifically designated, to the Executive’s estate.

6.1.5Date of Termination.  The date of termination of employment without Cause shall be the date specified in a written notice of termination to the Executive as the last day of the Executive’s employment.

6.1.6Constructive Termination.  The term “Constructive Termination” means:

(a)the continued assignment to Executive of any duties or the continued material reduction in Executive’s duties, either of which is materially inconsistent with Executive’s position with the Company, for thirty (30) calendar days after Executive’s delivery of written notice to the Company objecting to such assignment or reduction; or

(b)the relocation of the principal place for the rendering of Executive’s services hereunder to a location more than thirty (30) miles from the Company’s business offices in the San Diego Area; or

(c)a material reduction in compensation and benefits under this Agreement, which remains in effect for thirty (30) calendar days after Executive delivers written notice to the Company of such material reduction which reduction is not applicable to all Company’s senior executive employees.

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None of the foregoing will constitute a Constructive Termination to the extent mutually agreed upon in advance of the occurrence thereof by the Executive and the Company. A Constructive Termination will be treated as a termination of the Executive by the Company without Cause for all purposes within this Agreement.

6.2Termination for Cause: Resignation.

6.2.1General.  If, prior to the expiration of the Employment Term, the Executive’s employment is terminated by the Company for Cause, or the Executive resigns from his employment hereunder, the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of termination or resignation. The Executive shall have no further right to receive any other compensation or benefits after such termination or resignation of employment, except as determined in accordance with the terms of the employee benefit plans or programs of the Company or as provided in this Agreement.

6.2.2Date of Termination.  The date of termination for Cause shall be the date specified in a written notice of termination to the Executive as the last day of the Executive’s employment. The date of resignation shall be the date specified in the written notice of resignation from the Executive to the Company as the last day of the Executive’s employment, which shall be no more than three months and no less than thirty (30) days in advance, or if no date is specified therein, receipt by the Company of written notice of resignation from the Executive.

6.3Cause.  Termination for “Cause” shall mean termination of the Executive’s employment because of:

(a)any act or omission that constitutes a material breach by the Executive of any of his obligations under this Agreement or his failure to discharge the duties lawfully assigned to him by the Board;

(b)the willful and continued failure or refusal of the Executive to substantially perform the duties required of him in his position with the Company, which failure is not cured within twenty (20) days following written notice of such failure;

(c)any willful violation by the Executive of any material law or regulation applicable to the business of the Company or any of its subsidiaries or affiliates, or the Executive’s conviction of, or a plea of nolo contendere to, a felony, or any act by the Executive of common law fraud or its equivalent, or any Executive violation of a Company policy applicable to all employees which is materially detrimental to the Company, all as determined by a disinterested majority of the Board of Directors; or

(d)any other misconduct by the Executive that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or any of its subsidiaries or affiliates.

7.DEATH OR DISABILITY

In the event of termination of employment by reason of death or Disability (as hereinafter defined), the Executive (or his estate, as applicable) shall be entitled to Base Salary through the date of termination. Other benefits shall be determined in accordance with the terms of the benefit plans maintained by the Company, and the Company shall have no further obligation hereunder. In addition, the Executive (or his estate or the person or persons to whom the Options may have been transferred by will or by the laws of descent and distribution, as applicable) may, but only within twelve months after Executive ceases to be an employee, exercise Executive’s Options to the extent Executive was entitled to exercise such Options on the date of his death or on the date he is terminated by the Company by reason of Disability. To the extent that the Executive was not otherwise entitled to

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exercise the Options on such date, or if he (or his estate or the person or persons to whom the Options may have been transferred by will or by the laws of descent and distribution, as applicable) fails to exercise the Options within the time specified in the preceding sentence, such Options will terminate. For purposes of this Agreement, “Disability” means a physical or mental disability or infirmity of the Executive, as determined by a physician of recognized standing selected by the Company, that prevents (or, in the opinion of such physician, is reasonably expected to prevent) the normal performance of his duties as an employee of the Company for any continuous period of 180 days, or for 180 days during any one 12-month period.

8.CONFIDENTIALITY AND NONSOLICITATION

8.1Key-Employee Covenants.  The Executive agrees to perform his obligations and duties and to be bound by the terms of the Key-Employee Covenants attached hereto as Appendix A which are incorporated by reference and which shall be in force unless otherwise expressly modified by this Agreement.

8.2Certain Remedies.  Without intending to limit the remedies available to the Company, the Executive agrees that a breach of any of the covenants contained in the Key-Employee Covenants will result in material and irreparable injury to the Company or its subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Executive from engaging in activities prohibited by the Key-Employee Covenants or such other relief as may be required specifically to enforce any of the covenants in the Key-Employee Covenants. Such injunctive relief in any court shall be available to the Company in lieu of, or prior to or pending determination in, any arbitration proceeding.

9.ARBITRATION

Any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties hereto shall be settled exclusively by arbitration pursuant to the rules of the American Arbitration Association in San Diego before one arbitrator of exemplary qualifications and stature with experience in such similar disputes. The parties shall choose an independent arbitrator meeting such qualifications within thirty (30) business days after demand for arbitration is made; if they cannot so agree, then an arbitrator meeting such qualifications shall be selected by the American Arbitration Association in accordance with its then current commercial.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction. The arbitrator shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. No discovery shall be permitted in arbitration, other than an exchange of documents, and the number of hearing days shall be limited to five (5) in total, all consecutive. The party that prevails in any arbitration hereunder shall be reimbursed by the other party hereto for its reasonable legal fees and out-of-pocket expenses directly attributable to such arbitration, and such other party shall bear all expenses of the arbitrator. The arbitration award shall specify the factual and legal basis for the award and issue a written decision for same.

10.MISCELLANEOUS

10.1Communications.  All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or on the fifth business day after mailed if delivered personally or mailed by registered or certified mail (postage prepaid, return receipt requested) to the party at the following addresses (or at such other

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address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt):

(a)if to the Company:

c/o Optimer, Inc.

10130 Sorrento Valley Rd.,

Suite C

San Diego, CA 92121

(b)if to the Executive:

[address]

10.2Waiver of Breach: Severability.  (a) The waiver by the Executive or the Company of a breach of any provision of this Agreement by the other party hereto shall not operate or be construed as a waiver or any subsequent breach by either party.

(b)The parties hereto recognize that the laws and public policies of various jurisdictions may differ as to the validity and enforceability of covenants similar to those set forth herein. It is the intention of the parties that the provisions hereof be enforced to the fullest extent permissible under the laws and policies of each jurisdiction in which enforcement may be sought, and that the un-enforceability (or the modification to conform to such laws or policies) of any provisions hereof shall not render unenforceable, or impair, the remainder of the provisions hereof. Accordingly, if at the time of enforcement of any provision hereof, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope, or geographic area reasonable under such circumstances will be substituted for the stated period, scope or geographical area and that such court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and geographical area permitted by law.

10.3Assignment; Successors.  No right, benefit or interest hereunder shall be assigned, encumbered, charged, pledged, hypothecated or be subject to any setoff or recoupment by the Executive. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company; provided, however that the Company may not assign this Agreement without Executive’s consent.

10.4Entire Agreement.  This Agreement and the Appendices attached hereto, (collectively the “Agreement”) which are incorporated herein by this reference, contain the entire agreement of the parties with respect to the subject matter hereof, and on and after the Effective Time, and except as otherwise set forth herein, supersedes all prior agreements, promises, covenants, arrangements, representations and warranties between them, whether written or oral, with respect to the subject matter hereof.

10.5Withholding.  The payment of any amount pursuant to this Agreement shall be subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company’s employee benefit plans, if any.

10.6Governing Law.  This Agreement shall be governed by, and construed with, the law of the State of California.

10.7Headings.  The headings in this Agreement are for convenience only and shall not be used to interpret or construe any of its provisions.

10.8Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed, has agreed and accepted terms hereof, and the Executive has hereunto set his hand, as of the day and year first above written.

Optimer Pharmaceuticals, Inc.
By:	/s/ Chi-Huey Wong
	Name: Chi-Huey Wong
	Title:

Agreed and accepted as to its duties pursuant to this Agreement:

By:	/s/ Michael N. Chang
	Michael N. Chang

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APPENDIX A

KEY-EMPLOYEE COVENANTS

Optimer Pharmaceuticals, Inc. (the “Company”) operates in a highly competitive industry competing for product market share as well as recruitment and retention of key talent. The success of the Company depends on maintaining a competitive edge in this industry through the introduction of innovative products and attracting and retaining talents. Accordingly, as a condition of and in consideration of employment or continued employment with the Company pursuant to the Agreement to which this Appendix A is attached, the parties to such Agreement acknowledge and agree as follows (for purposes hereof, “Employee” shall be the “Executive” identified in the Agreement):

1.Confidential Information:  The Employee acknowledges that during the term of employment with the Company he or she may develop, learn and be exposed to information about the Company and its business, including but not limited to formulas, business plans, financial data, vendor lists, product and marketing plans, distributor lists, and other trade secrets which information is secret, confidential and vital to the continued success of the Company (“Confidential Information”). The term “Confidential shall not include, and the obligations set forth in this Section shall not apply to, any information that (a) is publicly available, (b) becomes publicly available without breach of this Agreement by the Employee, (c) the Employee already possess without obligation of confidentiality, (d) the Employee develops independently, or (e) the Employee rightfully receives without obligation of confidentiality from a third party. The Employee agrees that he or she will not, without the express written consent of the Company or except as required by law or court order disclose, copy, retain, remove from the Company’s premises or make any use of such Confidential Information except as may be required in the course of his employment with the Company.

2.Conflict of Interest:  During employment with the Company, the Employee shall not engage in any transaction which involves a conflict of interest with the Company without the Company’s consent. The Employee must discharge his responsibility solely on the basis of what is in the best interest of the Company and independent of personal considerations or relationships. Although it is difficult to identify every activity that might give rise to a conflict of interest, and not by way of making an all inclusive list, some of the more common circumstances and practices that might result in such conflicts are set forth below. Should the Employee have any questions regarding this matter, the Employee should consult with and receive written permission from the Company’s Board of Directors.

a.While employed by the Company, the Employee shall maintain impartial business relationships with vendors, suppliers and distributors.

b.While employed by the Company, the Employee shall not have a direct or indirect ownership interest in vendors of the Company nor any company doing or seeking to do business with the Company unless such ownership interest is owned by the Employee at the time his employment with the Company commences or unless such ownership is in the form of (a) securities in a company with publicly traded securities (provided that the securities held by the Employee represent less than 1% of the total outstanding securities of the company) or (b) and interest in investment vehicles, limited partnerships, hedge funds or stock funds where the Employee is a passive investor.

c.While employed by the Company, unless approved by the Company in writing, the Employee shall not have a direct or indirect ownership in any company which competes with the Company in any product category, unless such ownership interest is owned by the Employee at the time his employment with the Company commences or unless (a) such company’s securities are publicly traded and the Employee’s ownership interest is less than 1% of the

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total outstanding securities of such company, or (b) except for any ownership interest held as of the date of this Agreement, or (c) such company’s securities are held by an investment vehicle, limited partnership, hedge fund or stock fund where the Employee is a passive investor in such funds.

d.While employed by the Company, the Employee shall not perform services of any kind for any entity doing or seeking to do business with the Company. As to employment with or service to another company while employed by the Company, the Employee shall not allow any such activity to detract from his job performance, use the Company’s time, resources, or personnel, or require such long hours to affect his physical or mental effectiveness.

e.The Employee shall disclose to the Board of Directors of the Company any and all areas posing a potential or actual conflict of interests. Said disclosure shall be made as promptly as possible after such conflict arises.

3.Work Product:  The Company shall have the sole proprietary interest in the work product of the Employee during his employment with the Company (“Work Product”), and the Employee expressly assigns to the Company or its designee all rights, title and interest in and to all copyrights, patents, trade secrets, improvements, inventions, sketches, models and all documents related thereto, manufacturing processes and innovations, special calibration techniques, software, service code, systems designs and any other Work Product developed by the Employee, either solely or jointly with others, where said Work Product relates to any business activity or research and development activity in which the Company is involved or plans to be involved at the time of or prior to the Employee’s creating such Work Product or if such Work Product is developed with the use of the Company’s time, material, or facilities; and the Employee further agrees to disclose any and all such Work Product to the Company without delay. This provision shall relate to Work Product created prior to the date of the Employee’s execution of this Agreement as well as Work Product developed after execution of the Agreement.

4.Ethical Standards:  The Employee agrees to maintain the highest business ethical and legal standards in his conduct, to be scrupulously honest and straight-forward in all of his business dealings and to use his best efforts to avoid all situations which might project the appearance of being unethical from a business standpoint or illegal.

5.Product Resale:  As an employee of the Company, the Employee may receive Company products and materials either at no charge or at discount as specified from time to time by the Company in its sole discretion. Employee agrees that the products received from the Company are strictly limited to the Employee’s personal use and that of the Employee’s immediate family and may not be resold, given or disposed of to any other person or entity in a manner inconsistent with the personal use herein described.

6.Gratuities:  The Employee shall neither seek nor retain gifts, gratuities, entertainment or other forms of compensation, benefit, or persuasion from suppliers, distributors, vendors or their representatives without the consent of the Company’s Board of Directors with the exception of meals provided in the ordinary course of business on an infrequent basis.

7.Non-Solicitation:  The Employee shall not in any way, directly or indirectly, at any time during employment or within two (2) years after either a voluntary or involuntary employment termination: (a) solicit, divert, or take away the Company’s distributors or resellers: (b) solicit in any manner the Company’s employees for employment with a third party or encourage any such employee or refer any such employee (by identifying such employee or otherwise) to a third party for employment purposes, or (c) assist any other person in any manner or persons in an attempt to do any of the foregoing.

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8.Acknowledgment:  The Employee acknowledges that his position and work activities with the Company are “key” and vital to the on-going success of the Company’s operation in each product category and in each geographic location in which the Company operates. In addition, the Employee acknowledges that his employment or involvement with any other multi- level marketing company would create the impression that the Employee has left the Company for a “better opportunity,” which could damage the Company by this perception in the minds of the Company’s employees or independent distributors. Therefore, the Employee acknowledges that his confidentiality and non-solicitation covenants hereunder are fair and reasonable and should be construed to apply to the fullest extent possible by applicable laws. The Employee has carefully read the Agreement, has consulted with independent legal counsel to the extent the Employee deems appropriate, and has given careful consideration to the restraints imposed by the Agreement. The Employee acknowledges that the terms of the Agreement are enforceable of the manner in which the Employee’s employment is terminated, whether voluntary or involuntary.

THESE COVENANTS HAVE BEEN READ, UNDERSTOOD AND FREELY ACCEPTED BY:

/s/ MICHAEL N. CHANG

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Optimer Pharmaceuticals, Inc.

10110 Sorrento Valley Road, Suite C

San Diego, CA  92121

October 2, 2008

Michael N. Chang, Ph.D.

Optimer Pharmaceuticals, Inc.

10110 Sorrento Valley Road, Suite C

San Diego, CA  92121

Re:Amendment to Employment Agreement

Dear Michael:

This Amendment (the “Amendment”) to your Employment Agreement with Optimer Pharmaceuticals, Inc. (the “Company”) dated June 17, 2005 (the “Agreement”) amends the terms and conditions of the Agreement to the extent provided herein.  The Company is proposing to adopt a Severance Benefit Plan under which you will be eligible to participate (the “Plan”).  In exchange for the potential benefits you may receive under the Plan, by your acknowledgement below, you will forego your severance benefits currently set forth in the Agreement as they pertain to your termination by the Company without cause.

Contingent and effective upon the Company’s Compensation Committee or Board of Directors duly adopting the Plan, the Agreement shall be amended as follows:

1.Section 6 of the Agreement shall be amended and restated in its entirety to read as follows:

“6.TERMINATION OF EMPLOYMENT

6.1Date of Termination.    The date of termination shall be the date specified in a written notice of termination to the Executive as the last day of the Executive’s employment. The date of resignation shall be the date specified in the written notice of resignation from the Executive to the Company as the last day of the Executive’s employment, which shall be no more than three months and no less than thirty (30) days in advance, or if no date is specified therein, receipt by the Company of written notice of resignation from the Executive.

6.2Severance Benefits.

6.2.1General.    If, prior to the expiration of the Employment Term, the Executive’s employment terminates for any reason, the Executive shall be entitled to payment of his Base Salary as then in effect through and including the date of termination or resignation. Except as otherwise expressly provided herein, the Executive shall have no further right to receive any other compensation or benefits under this Agreement after such termination of employment, but may be

eligible for other benefits in accordance with the terms of the employee benefit plans or programs of the Company.

6.2.2Severance Benefit Plan.  During the Employment Term, Executive shall be eligible to participate in the Company’s Severance Benefit Plan dated October 2, 2008, and as may be amended thereafter (the “Severance Plan”), in accordance with its terms.  Notwithstanding anything to the contrary set forth in the Severance Plan, in the event of Executive’s Constructive Termination (as such term is defined below) Executive will be deemed to have had a “Covered Termination” as such term is defined in the Severance Plan for all purposes of the Severance Plan, and thereby entitled to severance benefits thereunder, subject to the conditions set forth therein.

6.2.3Constructive Termination.    The term “Constructive Termination” means the occurrence of one or more of the following events, provided that Executive has first provided written notice to the Company within 90 days of the first such occurrence of such condition specifying the event(s) constituting Constructive Termination and specifying that Executive intends to terminate employment not earlier than 30 days after providing such notice, and the Company (or surviving corporation) has not cured such event(s) within 30 days (or such longer period as may be specified by Executive in such notice) after such written notice is received by the Company (the “Cure Period”), and Executive resigns within thirty (30) days following the end of the Cure Period:

(a)a material diminution in Executive’s authority, duties or responsibilities; or

(b)the relocation of the principal place for the rendering of Executive’s services hereunder to a location that requires a one-way increase in Executive’s driving distance of more than thirty (30) miles; or

(c)a material reduction by the Company of the Executive’s annual base compensation, which reduction is not applicable to all Company’s senior executive employees.

However, none of the foregoing will constitute a Constructive Termination to the extent mutually agreed upon in advance of the occurrence thereof by the Executive and the Company.”

2.Section 10.4 of the Agreement shall be amended and restated in its entirety to read as follows:

 “10.4    Entire Agreement.    This Agreement, the Severance Plan, and the Appendices attached hereto, (collectively the “Agreement”) which are incorporated herein by this reference, contain the entire agreement of the parties with respect to the subject matter hereof, and on and after the Effective Time, and except as otherwise set forth herein, supersedes all prior agreements, promises,

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covenants, arrangements, representations and warranties between them, whether written or oral, with respect to the subject matter hereof.”

Except as specifically amended by this Amendment, the terms and conditions of the Agreement shall remain in full force and effect.  This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.  Please sign this Amendment and return it to the Company at your earliest convenience.

Sincerely,

OPTIMER PHARMACEUTICALS, INC.
By:	/s/ John D. Prunty
	John D. Prunty
	Chief Financial Officer
ACCEPTED AND AGREED:
/s/ Michael N. Chang, Ph.D.
Michael N. Chang, Ph.D.

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EX-10.13

Exhibit 10.13

June 15, 2006

Kevin Poulos

[address]

Dear Kevin:

It is with great pleasure that I offer you the position of Vice President, Marketing and Sales with Optimer Pharmaceuticals, Inc. reporting to Dr. Michael N. Chang.

Associated with this opportunity, we offer the following compensation and benefits:

1.Annual Salary: $180,000 US Dollars, paid semi-monthly.

2.Optimer offers a competitive benefit package to you and your eligible dependents that includes Medical, Dental, 401(k), Vision, and Group Term Life Insurance.

3.Stock Options: The Company will provide the Executive with the following long-term incentive compensation arrangement in accordance with the terms of Company’s 1998 Incentive Stock Option Plan (“Stock Option Plan”).

Following commencement of your employment and pending approval by Optimer’s Board of Directors, you will be granted an Option to purchase 160,000 shares of Optimer Pharmaceuticals, Inc. Common Stock at the current fair market value as determined by the Board. The vesting schedule for this Option is over a four year period with a one-year cliff and monthly thereafter.

4.Optimer has 11 official holidays. In addition, you will begin accruing paid vacation at a rate of 17 days per year (5.67 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.

5.Severance/Acceleration:

a.If your employment is terminated by the Company without Cause (as defined below) (other than by reason of death or Disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended)), then you shall be entitled to receive, subject to your execution of a general release of claims containing customary provisions and reasonably acceptable to the Company and your continued compliance with the provisions of your Employee Proprietary Information Agreement, continued payment of your then current base salary pursuant to the Company’s standard payroll policies and subject to applicable withholding for a three month period following the date of such termination.

b.If your employment is terminated by the Company without Cause (other than by reason of death or Disability) within 12 months after a Change of Control (as defined below), then you shall be entitled to receive, subject to your execution of a general release of claims containing customary provisions and reasonably acceptable to the Company and your continued compliance with the provisions of your Employee Proprietary Information Agreement, continued payment of your then current base salary pursuant to the Company’s standard payroll policies and subject to applicable withholding for a six month period following the date of such termination, and all of your unvested options shall become immediately fully vested.

c.If you are terminated without Cause, you shall only be entitled to the benefits set forth in either Section 5(a) or Section 5(b).

d.For purposes herein, “Cause” shall mean (i) failure to perform your assigned duties or responsibilities as a service provider (other than a failure resulting from the your Disability) after notice thereof from the Company describing your failure to perform such duties or responsibilities; (ii) your engaging in any act of dishonesty, fraud or misrepresentation; (iii) your violation of any federal or state law or regulation applicable to the business of the Company or its affiliates; (iv) your breach of any confidentiality agreement or invention assignment agreement between you and the Company (or any affiliate of the Company); or (v) your being convicted of, or entering a plea of nolo contendere to, any crime or committing any act of moral turpitude.

e.For purposes herein, “Change of Control” shall mean (i) a sale, lease or disposition of all or substantially all of the assets of the Company, or (ii) a merger or consolidation (in a single transaction or a series of related transactions) of the Company with or into any other corporation or corporations or other entity, or any other corporate reorganization, where the stockholders of the Corporation immediately prior to such event do not retain more than fifty percent (50%) of the voting power of and interest in the successor entity (excluding any transactions if the primary purpose of the transaction is to obtain financing from new or existing investors).

6.Relocation and housing search in San Diego.      Optimer will reimburse you for reasonable costs associated with moving your household goods to San Diego. Optimer will arrange and pay for your travel to San Diego on up to two occasions to assist with your search for a new residence and for your airfare when you travel to San Diego to move. In addition, if needed, Optimer will reimburse you for up to 30 days temporary housing in San Diego. You may have a taxable event for funds reimbursed towards temporary living expenses. It is recommended you seek the advice of a tax professional.

7.Bonus Program. Currently Optimer does not have a bonus program, but we will be recommending a Company wide annual bonus program for approval by Optimer’s Board of Directors in 2006. For Vice President level positions, approval will be requested for a cash bonus of up to 20% (twenty percent) of Executive’s annual salary at that time. The Compensation Committee will be asked to waive pro-ration calculation for your first year bonus.

Start date is scheduled for on or before July 17, 2006.

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.

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 within 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 regulations. 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 handbook. You will also be expected to sign and comply with an Employee Proprietary Information Agreement, which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company and non-disclosure of proprietary information. You will receive an electronic copy of both our employee handbook and our Employee Proprietary Information Agreement for your review with this employment offer.

We look forward to working with you as part of the Optimer team. If you accept the position, please sign and return your acceptance letter to Diane McCarty, no later than June 20, 2006, If you have any questions, please e-mail or call me or Diane at your convenience.

Best Regards,

Michael Chang

Chief Executive Officer

I accept the offer as stipulated above:	/s/ Kevin P. Poulus	6/15/06
	Signature	Date

Optimer Pharmaceuticals, Inc.

10110 Sorrento Valley Road, Suite C

San Diego, CA  92121

October 2, 2008

Kevin Poulos

Optimer Pharmaceuticals, Inc.

10110 Sorrento Valley Road, Suite C

San Diego, CA  92121

Re:Amendment to Agreement Regarding Employment Terms

Dear Kevin:

This Amendment (the “Amendment”) to your Letter Agreement with Optimer Pharmaceuticals, Inc. (the “Company”) dated June 15, 2006 (the “Agreement”) amends the terms and conditions of the Agreement to the extent provided herein.  The Company is proposing to adopt a Severance Benefit Plan in which you may be eligible to participate (the “Plan”).  In exchange for the potential benefits you may receive under the Plan, by your acknowledgement below, you will forego your severance benefits currently set forth in the Agreement.

Contingent and effective upon the Company’s Compensation Committee or Board of Directors duly adopting the Plan, Section 5 of the Agreement shall be deleted in its entirety and of no further force or effect.

Except as specifically amended by this Amendment, the terms and conditions of the Agreement shall remain in full force and effect.  This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.  Please sign this Amendment and return it to the Company at your earliest convenience.

Sincerely,

OPTIMER PHARMACEUTICALS, INC.
By:	/s/ John D. Prunty
	John D. Prunty
	Chief Financial Officer
ACCEPTED AND AGREED:
/s/ Kevin Poulos
Kevin Poulos

EX-10.14

Exhibit 10.14

May 10, 2006

John Prunty

[address]

Dear John:

It is with great pleasure that I offer you the position of Chief Financial Officer with Optimer Pharmaceuticals, Inc. reporting to Dr. Michael N. Chang.

Associated with this opportunity, we offer the following compensation and benefits:

1.Annual Salary: $210,000 US Dollars, paid semi-monthly.

2.Optimer offers a competitive benefit package to you and your eligible dependents that includes Medical, Dental, 401(k), Vision, and Group Term Life Insurance.

3.Stock Options: The Company will provide the Executive with the following long-term incentive compensation arrangement in accordance with the terms of Company’s 1998 Incentive Stock Option Plan (“Stock Option Plan”).

Following commencement of your employment and pending approval by Optimer’s Board of Directors, you will be granted an Option to purchase 220,000 shares of Optimer Pharmaceuticals, Inc. Common Stock at the exercise price equal to the fair market value per share of the Common Stock on the date of grant, as determined by the Board of Directors. The vesting schedule for this Option is over a four year period with a one-year cliff and monthly thereafter.

4.Optimer has 11 official holidays. In addition, you will begin accruing paid vacation at a rate of 17 days per year (5.67 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.

5.Severance/Acceleration:

a.If your employment is terminated by the Company without Cause (as defined below) (other than by reason of death or Disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended)), then you shall be entitled to receive, subject to your execution of a general release of claims containing customary provisions and reasonably acceptable to the Company and your continued compliance with the provisions of your Employee Proprietary Information Agreement, continued payment of your then current base salary pursuant to the Company’s standard payroll policies and subject to applicable withholding for a three month period following the date of such termination.

b.If your employment is terminated by the Company without Cause (other than by reason of death or Disability) within 12 months after a Change of Control (as defined below), then you shall be entitled to receive, subject to your execution of a general release of claims containing customary provisions and reasonably acceptable to the Company and your continued compliance with the provisions of your Employee Proprietary Information Agreement, continued payment of your then current base salary pursuant to the Company’s standard payroll policies and subject to applicable withholding for a six month period following the date of such termination, and all of your unvested options shall become immediately fully vested.

c.If you are terminated without Cause, you shall only be entitled to the benefits set forth in either Section 5(a) or Section 5(b).

d.For purposes herein, “Cause” shall mean (i) failure to perform your assigned duties or responsibilities as a service provider (other than a failure resulting from the your Disability) after notice thereof from the Company describing your failure to perform such duties or responsibilities; (ii) your engaging in any act of dishonesty, fraud or misrepresentation; (iii) your violation of any federal or state law or regulation applicable to the business of the Company or its affiliates; (iv) your breach of any confidentiality agreement or invention assignment agreement between you and the Company (or any affiliate of the Company); or (v) your being convicted of, or entering a plea of nolo contendere to, any crime or committing any act of moral turpitude.

e.For purposes herein, “Change of Control” shall mean (i) a sale, lease or disposition of all or substantially all of the assets of the Company, or (ii) a merger or consolidation (in a single transaction or a series of related transactions) of the Company with or into any other corporation or corporations or other entity, or any other corporate reorganization, where the stockholders of the Corporation immediately prior to such event do not retain more than fifty percent (50%) of the voting power of and interest in the successor entity (excluding any transactions if the primary purpose of the transaction is to obtain financing from new or existing investors).

Please call to discuss a start date.

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.

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 within 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 regulations. 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 handbook. You will also be expected to sign and comply with an Employee Proprietary Information Agreement, which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company and non-disclosure of proprietary information. You will receive an electronic copy of both our employee handbook and our Employee Proprietary Information Agreement for your review with this employment offer.

We look forward to working with you as part of the Optimer team. If you accept the position, please sign and return your acceptance letter to Diane McCarty, no later than May 15, 2006. If you have any questions, please e-mail or call me or Diane at your convenience.

Best Regards,

Michael Chang

Chief Executive Officer

I accept the offer as stipulated above:	/s/ John Prunty	5/11/06
	Signature	Date

2

Optimer Pharmaceuticals, Inc.

10110 Sorrento Valley Road, Suite C

San Diego, CA  92121

October 2, 2008

John D. Prunty

Optimer Pharmaceuticals, Inc.

10110 Sorrento Valley Road, Suite C

San Diego, CA  92121

Re:Amendment to Agreement Regarding Employment Terms

Dear John:

This Amendment (the “Amendment”) to your Letter Agreement with Optimer Pharmaceuticals, Inc. (the “Company”) dated May 10, 2006 (the “Agreement”) amends the terms and conditions of the Agreement to the extent provided herein.  The Company is proposing to adopt a Severance Benefit Plan in which you may be eligible to participate (the “Plan”).  In exchange for the potential benefits you may receive under the Plan, by your acknowledgement below, you will forego your severance benefits currently set forth in the Agreement.

Contingent and effective upon the Company’s Compensation Committee or Board of Directors duly adopting the Plan, Section 5 of the Agreement shall be deleted in its entirety and of no further force or effect.

Except as specifically amended by this Amendment, the terms and conditions of the Agreement shall remain in full force and effect.  This Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.  Please sign this Amendment and return it to the Company at your earliest convenience.

Sincerely,

OPTIMER PHARMACEUTICALS, INC.
By:	/s/ Michael Chang
	Michael Chang
	Chief Executive Officer
ACCEPTED AND AGREED:
/s/ John D. Prunty
John D. Prunty

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-140739) pertaining to Optimer Pharmaceuticals, Inc.’s 1998 Stock Plan, 2006 Equity Incentive Plan and Employee Stock Purchase Plan, in the Registration Statement (Form S-3 No. 333-147706) and related prospectus pertaining to the registration of 4,600,000 shares of common stock and in the Registration Statement (Form S-3 No. 333-149935) and related Prospectus pertaining to the registration of $100 million of common stock, preferred stock, debt securities, warrants and units of our reports dated March 11, 2009, with respect to the consolidated financial statements of Optimer Pharmaceuticals, Inc., and the effectiveness of internal control over financial reporting of Optimer Pharmaceuticals, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2008.

	/s/ Ernst & Young LLP
San Diego, California
March 11, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael N. Chang, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2009

/s/ Michael N. Chang

Michael N. Chang

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John D. Prunty, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 12, 2009

/s/ John D. Prunty

John D. Prunty

Vice-President and Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Michael N. Chang, the Chief Executive Officer of Optimer Pharmaceuticals, Inc. (the “Company”), and John D. Prunty, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1.The Company’s Annual Report on Form 10-K for the year ended December 31, 2008, to which this Certification is attached as Exhibit 32 (the “Annual Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

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

Dated: March 12, 2009
/s/ Michael N. Chang	/s/ John D. Prunty
Michael N. Chang	John D. Prunty
Chief Executive Officer	Chief Financial Officer
(Principal Executive Officer)	(Principal Financial and Accounting Officer)

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

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