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Anacor's Q2 Loss Narrower than Expected, Kerydin in Focus - Analyst Blog

Anacor Pharmaceuticals Inc. 's ( ANAC ) shares gained 1.1% immediately after the company reported its second-quarter 2014 results. Shares further increased 2.9% in the following trading session. Overall shares are up 4.2% since the announcement.

In the reported quarter, Anacor reported second-quarter 2014 loss of 58 cents per share, narrower than the Zacks Consensus Estimate of a loss of 63 cents but wider than the year-ago loss of 32 cents.

Revenues were $2.9 million, down 14.4% from the year-ago quarter. Revenues were a tad shy of the Zacks Consensus Estimate of $3 million.

The Quarter in Detail

Anacor's revenue consisted solely of contract revenues. The downside in revenues in the quarter was mainly driven by a decline in research funding from Anacor's collaborations with other companies and not-for-profit organizations for its neglected-disease programs.

In Jul 2014, Anacor's Kerydin (tavaborole) topical solution, 5% was approved in the U.S. for the topical treatment of onychomycosis of the toenails. Kerydin is the first approved drug for the company and also the first oxaborole antifungal to receive FDA approval for this indication. Anacor entered into an exclusive agreement with Sandoz, a Novartis ( NVS ) company, for the distribution and commercialization of Kerydin in the U.S.

While Sandoz has exclusive rights to sell Kerydin in the U.S., Anacor retains the rights to commercialize Kerydin in ex-U.S. markets. Kerydin will most likely be launched by Sep 2014.

Research and development (R&D) expenses surged 89.8% year over year to $19.3 million primarily due to clinical expenses for the development of pipeline including AN2728, initiation of two phase III studies, costs related to manufacturing of drugs and certain regulatory activities.

General and administrative (G&A) expenses increased 39.5% year over year to $7.1 million. This increase was due to stock-based compensation expenses, salaries and benefits, and pre-launch sales and marketing expenses for Kerydin.

Pipeline Update

Anacor is currently working on the development of AN2728 for the treatment of mild-to-moderate atopic dermatitis. In Mar 2014, Anacor initiated two pivotal phase III studies on AN2728 in this indication. Patients (≥2 years) who have at least 5% of their treatable body surface area affected by the disease will be enrolled in this studies. Top-line data from both the studies are expected in the second half of 2015.

2014 Guidance

With Sandoz now responsible for Kerydin's commercialization in the U.S., Anacor has not provided sales guidance for the product. Anacor continues to expect contract revenue of $3 million in each of the remaining quarters of 2014.

The company has increased the R&D expenditure guidance for 2014. R&D spend is now expected in the range of $20 million − $22 million (previous guidance: $19 million − $21 million) per quarter. This rise in the R&D expense guidance takes into account the ongoing pivotal phase III studies of AN2728.

The company has decreased its G&A expense guidance following the out-licensing of Kerydin commercialization rights to Sandoz in the U.S. Anacor now expects G&A spend to be nearly $9 million in each of the remaining quarters of 2014.

Our Take

Anacor performed decently in the second quarter of 2014. We believe that investor focus will remain on the commercialization of Kerydin following its launch. Anacor's collaboration with Sandoz for Kerydin's commercialization is encouraging since it will benefit Anacor strategically as well as financially.

Anacor carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the health care sector are Endo International ( ENDP ) and Gilead Sciences ( GILD ). Both stocks hold a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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