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Anacor Pharmaceuticals: Underappreciated Asset With 2 Lilly Products In The Clinic

 December 06, 2012 01:25 PM


(By Mani) All eyes are focused on the pending clinical results for Anacor Pharmaceuticals Inc.'s (NASDAQ: ANAC) late-stage compounds – Phase 3 onychomycosis candidate tavaborole and Phase 2 AN2728 atopic dermatitis program – in the coming weeks.

Anacor is a biopharmaceutical company focused on discovering, developing and commercializing novel small-molecule therapeutics derived from its boron chemistry platform. Anacor has discovered eight compounds that are currently in development.

Its two lead product candidates are topically administered dermatologic compounds — tavaborole, a topical anti-fungal for the treatment of onychomycosis, and AN2728, a topical anti-inflammatory inhibitor for the treatment of atopic dermatitis and psoriasis.

Anacor said it achieved its second development candidate in its animal health collaboration with Eli Lilly and Co. (NYSE:LLY). Anacor's research collaboration with Lilly is focused on the use of Anacor's boron chemistry to discover products for a variety of animal health applications.

Under the terms of the collaboration, Anacor will receive a $1 million payment for achieving this milestone. Anacor and Lilly achieved the first development candidate under this collaboration in August 2011.

Both of these product candidates are focused on large market opportunities that could result in a significant economic return for Anacor if these therapies are approved.

Pursuant to the terms of the agreement, Lilly has funded the research that resulted in this compound and will be responsible for future development and commercialization. Anacor is eligible to receive additional development and regulatory milestones, as well as tiered royalties from the high single digits to low double digits on future sales.

"We increasingly believe that the company's animal healthcare collaboration with Lilly (LLY) remains very much an underappreciated asset – effectively representing zero value in Anacor's valuation," Deutsche Bank analyst David Steinberg wrote in a note to clients.

If successfully developed, it appears that this second candidate could reach the market in the 2016-2018 timeframe – or 1-2 years behind the first Lilly compound.

Previously, Anacor disclosed its first milestone attained as part of this animal health collaboration with Lilly in August 2011. While the exact stage of development and disease has not been disclosed, Anacor has indicated in the recent past that this product if successfully developed, could potentially be introduced by Lilly in 2015-2016 – similar to the company's commercialization timeline for its key onychomycosis and atopic dermatitis assets. Moreover, the animal health collaboration could potentially achieve peak sales in excess of $500 million.

"And if this peak sales level is achieved, the product could represent $40-60M in annual royalties to Anacor, or a fully-taxed EPS contribution of $0.55-0.80 – which does not appear to be in any current Street models (including ours)," Steinberg noted.

Yet historically, there has been a significantly shorter clinical/regulatory pathway for animal healthcare products as well as generally higher probabilities of successful clinical outcomes than for human pharmaceuticals. Moreover, several brands have achieved peak sales of $500 million or more in veterinary medicine.

"We look forward to several important, potentially value creating milestones in a very short period of time– including Ph 3 data for tavaborole (first trial in January 2013, second study "approximately six weeks later") and Ph 2b data in atopic dermatitis (4Q12/1H13)," Steinberg added.

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