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At Optimer Pharmaceuticals, FCPA and conflict problems topple top management and general counsel

San Diego-based Optimer Pharmaceuticals said this week that its CEO and general counsel resigned last month at the request of independent board members after a year-long internal investigation uncovered potential compliance problems.

Earlier, the board also removed Dr. Michael Chang as chairman. The board asked for his resignation but he has stayed on as a director.

The company’s disclosure in an SEC filing Monday said a share grant to Dr. Chang may have involved conflicts of interest. That grant and a $300,000 payment to a research laboratory may have also violated U.S. laws, including the FCPA.

In 2011, after learning of the share grant and lab payment, the board fired the company’s CFO and VP for clinical development.

The disclosure said outside counsel was hired for an internal investigation.

The company said it is cooperating with U.S. authorities and has strengthened its compliance program.

The pharma has lost money since its founding in 1998. It reported an accumulated deficit of $252 million through 2012.

Last month, Optimer’s board hired J.P. Morgan ‘to explore a full range of strategic alternatives, including a possible sale of the Company.’

Optimer Pharmaceuticals, Inc. trades in the Nasdaq green sheets under the symbol OPTR.


Here’s the full FCPA disclosure from Optimer’s Form 10-K filed with the SEC on March 18:

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

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

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

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

While we are continuing to cooperate with the investigations by the relevant U.S. authorities in their review of these matters and have already taken aggressive remedial steps in response to our ongoing internal investigation, these events could potentially result in lawsuits being filed against us and certain of our current or former employees and directors or we and our current or former employees and directors could be the subject of criminal or civil enforcement proceedings. In the event any such lawsuit is filed or enforcement proceeding is instigated there is no guarantee that we will be successful in defending it. Also, our insurance coverage may be insufficient and our assets may be insufficient to cover any amounts that exceed our insurance coverage, and we may have to pay penalties or damage awards or otherwise may enter into settlement arrangements in connection with such claims. A settlement of any such claims could involve the issuance of common stock or other equity, which may result in dilution to existing stockholders. Any payments or settlement arrangements could have material adverse effects on our business, operating results and financial condition. Even if any claims against us are not successful, any related litigation or enforcement proceeding, as well as the costs of investigation, could result in substantial costs and significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results and financial condition. In addition, any such lawsuit, investigation or proceeding could result in collateral consequences for our business including, among other things, making it more difficult to finance our operations, obtain certain types of insurance (including directors’ and officers’ liability insurance), enter into collaboration agreements and attract and retain qualified executive officers, other employees and directors. If we are unable to effectively manage these risks, our business, operating results or financial condition may be adversely affected.

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