Anacor Knocking On The Door

| About: Anacor Pharmaceuticals, (ANAC)

Anacor Pharmaceuticals (NASDAQ:ANAC) hopes the data released on December 10, 2012 from a phase two trial in Atopic Dermatitis (AD) is the first in a series of positive data readouts over the next couple months.


The phase two, open label trial, AD-203, assessed the safety, efficacy, and pharmacokinetics of the company's topical ointment, AN2728 in adolescents with mild to moderate cases of the chronic skin disease. All 23 patients, ages 12 to 17, were given AN2728 twice daily for four weeks.

The trial was successful with 74% of patients achieving a 'clear' or 'almost clear' rating on the Investigator Static Global Assessment scale, a 5-point scale used by the FDA for recent approvals. Treatment was deemed safe and well tolerated with some instances of application site reactions. AN2728 has the potential to be more effective and safer with a shortened treatment period compared to other topical treatments like Elidel and Protopic. Before these treatments received black box warnings from the FDA in 2005 they combined for over $500 million in sales.

With AN2728, Anacor expects to: provide data from an ongoing phase two, dose-ranging, study in the first half of 2013; start another phase two trial in children under the age of twelve after the dose-ranging study; and then enter phase three trials sometime in Q3 2013.

The company's stock price did not move much on the AN2728 news though. The trial was open label and much larger phase three trials still need to be run. A promising future drug for the company to be sure but next up is pivotal phase three data from Tavaborole.


Tavaborole is Anacor's answer to onychomycosis, a condition characterized by fungal infections, predominantly of the toenails, but also of fingernails and all nail beds. Although roughly 35 million people in the US have onychomycosis only about half seek treatment and of those a small number actually get an FDA approved drug. Lamisil (oral) and Penlac (topical) captured very little of the market but still brought in roughly $2 billion dollars before going generic. Lamisil works well enough but is associated with liver problems. Penlac, on the other hand, is safe but not as effective and is tiresome to use. Patients must paint their nails, wait 15 to 20 minutes for it to dry, then remove it the next day before applying the next dose. Do this everyday for one year and you should achieve the FDA approved efficacy level of 5 to 8%. Little surprise most patients opt for debridement which improves the appearance of the nail but does not cure the condition.

Tavaborole is a clear, odorless liquid applied with an eyedropper. Treatment is once daily for 48 weeks but it dries in about one minute. While clearly easier to use than Penlac it is largely undifferentiated from a competing drug, IDP 108 by Valeant Pharmaceuticals (NYSE:VRX).

Valeant completed two phase three trials and reported mycologic cure rates of 55.2% (study 1) and 53.4% (study 2) after twelve months. Now, to grant a drug approval to treat onychomycosis the FDA needs to see two things:

1. Mycologic Cure - (actually a combination of two measures)

  • demonstration by culture that the fungus was killed
  • demonstration by a test called KOH that the fungus was killed. KOH is an inspection test where part of the nail is dissolved and inspected using a microscope.

2. Clear nail - done by examining the new nail growing in and replacing the old.

In phase two, Anacor achieved mycologic cure rates between 50% and 60% at only six months when the studies concluded. The expectation is these mycologic cure rates should actually improve when measured after twelve months because the KOH test is not great at distinguishing live fungus from dead fungus. So the added six months should provide additional time for the nail to grow out and shed more of the dead fungus thus improving the KOH numbers. How much better? I do not know, but what I take away from this is it seems there is less risk the mycologic cure rates worsen from what was posted in phase two. Additionally, these endpoints are objective. The risk of subjective analysis or placebo effects derailing the results are negligible. There is reason to expect data at least as good as seen previously in phase two.

In terms of safety things also look promising. There were no cases of systemic side effects in the phase two studies. The phase three patients are being exposed to treatment for a longer duration than in phase two but the company has revealed the dropout rate is only around 13%. Significantly lower than the 20% they planned for when designing the trial.

Management has stated they expect Tavaborole to be just as effective as IDP 108 and Valeant's management has guided they do not expect an advisory committee for their treatment because it is so safe.

Anacor expects to present data from Study 301 in mid January and data from a second phase three trial, Study 302, roughly six weeks after 301. Both studies have SPAs with the FDA and are double-blinded. Each has enrolled 600 patients randomized 2 to 1 (drug vs. vehicle) and uses a primary endpoint of complete cure (requires mycological cure and clear nail). Management is expecting to see efficacy close to Lamisil like Valeant displayed.

Anacor's stock price is currently not much higher than its 52-week lows. The company has a low float (~24 million) and not many outstanding shares (~35.5 million). They had $36.6 million in cash as of September 30, 2012 and raised another $24 million recently in October. Seeing Anacor's stock double assuming both phase three's are positive is within reason. That Valeant's IDP 108 will likely be approved first (their PDUFA should be mid May 2013) is not a concern. Remember both Penlac and Lamisil did very well despite their drawbacks. The market is underserved and would welcome multiple treatments that are safe, effective, and convenient.

Disclosure: I am long ANAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.