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  • 2014: The Year Anacor Pharmaceuticals Monopolizes A Billion Dollar Market

    Anacor Pharmaceuticals (ANAC) is a small cap biotechnology company which utilizes boron derived small molecule treatments for various pathological conditions. The company currently has a very promising product in their pipeline which may provide for a nice ROI in 2014.

    (click to enlarge)

    Kerydin (Tavaborole)

    The small boron based topical therapeutic molecule will be used to treat Onychomycosis, a fungal infection. Podiatry Today estimates that more than 30 million people have Onychomycosis. U.S. Dermatology Review indicates that more than 90% of these fungal infections occur around and on the toe nail. More than half of these individuals do not seek appropriate treatment, and suffer through this painful condition.

    (click to enlarge)

    Current treatments are either fairly invasive or inefficient. Debridement, which involves scraping or removing effected portions of the nail, can be a painful time consuming process with marginal improvements. The two drug therapies are Lamisil (oral administration) and Penlac (topical solution). Lamisil has proven 38% efficacy after a 12-week course of therapy. Unfortunately, this 3 month therapy does require patients to take sequential liver function tests due to the possibility of liver toxicity. Penlac is currently the only topical FDA approved therapy for Onychomycosis. The two clinical studies cited on the drugs label demonstrate only a 5-8% chance of 100% cure. This percentage also takes into account parallel debridement therapy. Even with all these risks and disadvantages, the two drugs monopolize a market worth over $1 billion in annual sales.

    ANAC's gold mine, Tavaborole, does not require parallel debridement treatment. Its boron composition allows easier penetration through the nail bed, while maintaining minimal systemic exposure and side effects. More details in regards to these effective therapeutic advantages can be seen below:

    "

    Phase III, Study 1 (301), utilized more than 500 patients with Onychomycosis. More than 80% of patients had a negative fungal culture after 52 weeks of treatment. The FDA, however, requires more than just a negative fungal culture. A mycological cure along with a completely "clear nail" are the endpoints which must be met. In study 301, roughly 25% of patients achieved this standard.

    (click to enlarge)

    In the second phase III 52 week study (302), which also consisted of more than 500 humans, 27.5% met FDA's standards for complete cure. This topical treatment demonstrated greater safety and efficacy relative to its sole competitor Penlac. Once released, ANAC plans on manufacturing and distributing this product on a global scale utilizing third parties which comply with current Good Manufacturing Practices ((cGMP)). An NDA for Tavaborole was accepted by the FDA in September 2013. According to the most recent 10K report, a Prescription Drug User Fee ACT (PDUFA) is planned to take place around August of 2014.

    Bear:

    As ANAC progresses in R&D so do other pharmaceutical companies. Tavaborole's biggest competitor right now is the topical therapeutic agent Efinaconazole (Jublia). This compound was developed by Dow Pharmaceuticals Science Inc. (DPS), which is a wholly owned subsidiary of Valeant Pharmaceuticals International, Inc. (Valeant). Under the same FDA guidelines, Efinaconazole has only demonstrated around a 16% total cure of Onychomycosis. Although promising, these phase III results don't pose much of a threat to ANAC. Valeant is hoping Efinaconazole will be approved sometime this year.

    Valeant Vs. ANAC

    Just last year, breach of contract, good faith, and other violations, initiated grounds for legal actions by ANAC against DPS and Valeant. The envied product, Tavaborole, forced the conglomerates to compensate ANAC more than $200 million.

    Financials:

    As you can see below, ANAC has much more in its pipeline than just Tavaborole:

    Collaboration with companies such as Eli Lilly (LLY) on animal health and GlaxoSmithKline (GSK) on systemic antibiotics, grant ANAC tiered loyalties on future sales and low R&D expenditures. These savings have been translated to the company's financials below:


    Since 2009, ANAC has generated a net income of $111 million USD, EPS has increased by $12.06, operating and free cash flows have grown to $118 million. Due to its partnerships, ANAC has a well-funded R&D department and zero capital expenditure.

    Valuation's

    ANAC Average

    Industry Average

    P/E (TTM)

    10

    184

    P/S

    40

    82

    P/B (MRQ)

    6

    9

    With a low D/E and an operating profit margin nearly 800% greater than the industries, ANAC has more than enough free cash flow to cover its interest expense and promising pipeline.

    Conclusion:

    As investors, we can recognize ANAC's positive headwinds from both a financial and pipeline perspective. Its leverage over current and future (Efinaconazole) Onychomycosis therapy options remain untouched. Tavaborole's commercial release forecasted to be in August 2014, might make now a good time to maintain positions in ANAC. A billion dollar market is about to be monopolized.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ANAC over the next 72 hours. 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.

    Additional disclosure: Always do your own thorough analysis before investing in an equity.I am not held accountable for any actions taken based on this article.

    Tags: DPS, GSK, LLY, ANAC
    Apr 16 8:37 AM | Link | 1 Comment
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