Anadys' bubble burst by lack of partner

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Anadys Pharmaceuticals’ bubble has burst, leaving the biotech’s management and investors to rue a massive opportunity missed. Anadys’ shares rose nearly five-fold in the first two months of the year to $7.48 with positive phase Ib data for ANA598 in the treatment of hepatitis C, prompting significant optimism and speculation that the company would either be acquired outright by a big pharma player, or at the very least secure a lucrative licensing deal (Anadys surges on early hepatitis C data, January 12, 2009).

However, safety concerns over ANA598 reared its ugly head in April and started to erode these share price gains, raising doubts over takeout and partnering opportunities. Yesterday’s news that Anadys is cutting 40% of its workforce and raising $16m all but confirms that a partnership over ANA598 is unlikely until phase II data becomes available in the first half of 2010. Anadys’ shares now trade at $1.90, valuing the company at $55m, having gained and lost $160m within the space of five months.

Missed financing and partnering opportunities

The timing of the decision to raise $16m through the sale of common stock and warrants to institutional investors at around $2 is curious given that Anadys’ stock has slumped significantly in the last six weeks, from $5.89 at the end of April, before the safety concerns for ANA598 were revealed.

The norm in these circumstances, when small biotechs in need of cash receive an unexpected and significant boost to their share price, is for the company to strike while the iron is hot and seek an equity offering to raise as much cash as possible to bolster rapidly dwindling reserves.

However, the natural downside of an instant equity offering on the back of significant share price gains is the negative message it sends to the market that a takeout or major licensing deal is unlikely.

As such, it seems that Anadys’ management was hopeful a deal over ANA598 could be signed, providing significant upfront fees and avoiding the need for dilutive finance.

In the same week that Anadys reported its initial positive data for ANA598, Bristol-Myers Squibb paid $85m upfront for ZymoGenetics’ lambda interferon hepatitis C phase I candidate, indicating the size of the partnering opportunity for hep C assets (Bristol-Myers, Zymo deal shows interest in hep C remains high, January 13, 2009).

Therefore Anadys has suffered a double-whammy, in failing to secure a partner which would have provided a significant cash injection and then being forced to conduct an equity offering when the company’s share price has lost all its previous gains.

Cold shoulder

Whilst Anadys probably attracted a decent amount of interest from potential partners, the apparent failure to clinch a deal could have stemmed from the safety concerns raised when the final phase Ib data was published.

Although the efficacy of ANA598 confirmed the preliminary positive data in January which generated such excitement, the full data set also revealed that three healthy volunteers developed a rash severe enough to cause them to discontinue treatment and drop out of the study.

This revelation no doubt significantly raised the risk profile of ANA598, either scaring off some partners altogether until at least phase II data is available, or forcing some partners to negotiate much tougher licensing terms which may have become unacceptable to Anadys’ management.

Either way, a partner for ANA598, currently valued at $198m on a risk-adjusted basis according to EvaluatePharma’s NPV Analyzer, now seems unlikely to materialise before the phase II data is published. Anadys expects to initiate these trials in the third quarter this year and data should be available in the first half of 2010.

Alongside the $16m raised from the sale of common stock, Anadys is suspending further development of its second phase I candidate, ANA773, and expects to make annual savings of $4m-5m from the reduction in workforce.

All of which means the company’s cash runway should now extend from the end of 2009 well in to the middle of next year, when Anadys will be hoping for second-time lucky in securing a partner for ANA598. Investors will be hoping the delay is worth it.

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