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Anadys Axes Lead Candidate for Hepatitis, Cuts Third of Work Force

Anadys Pharmaceuticals Inc. has axed its lead drug candidate for hepatitis C and a third of its employees, but that’s not a “death sentence” for the company, say analysts and company executives.

The firm, which focuses on hepatitis C and cancer, referred to itself as “the new Anadys” in an Aug. 1 conference call announcing second quarter earnings.

Anadys stock fell more than 11 percent on the news to close at $2.11, but bounced back in after hours trading by 7 percent.

The company cut 30 from its 90-strong workforce and faces an $800,000 charge for severance payments and related costs.

Jason Kolbert, at New York’s Susquehanna Financial Group, said the company’s $69 million in cash should be plenty until “someone decides to believe in them again.”

“Companies don’t just go bankrupt if a drug fails , they come back,” Kolbert said.

Anadys expects to burn more than $20 million in 2007.

“The new Anadys” said it will focus on ANA598, an anti-viral that could treat hepatitis C, and ANA773, which could be used to treat cancers of the blood, bladder or others.

The drug that failed in preclinical trials, ANA975, was also a TLR. TLR receptors reside inside the body, and TLR drugs activate them to fight off disease. To date, 10 TLRs have been discovered in the body.


Conference Call

During the conference call, analysts asked how ANA773 will be different from the now discontinued ANA975.

“It has improved potency and a different metabolic profile,” said Chief Executive Officer Larry Fritz.

In late July, the company, along with big pharma partner Novartis, discontinued development of Anadys’ lead compound ANA975 after it had trouble finding an effective dosage.

The discontinuation was preceded in June by the failure of another toll-like-receptor, or TLR, drug for cancer that was being studied by Wellesley, Mass.-based Coley Pharmaceutical Group Inc.

Fritz said Coley’s discontinuation is unrelated to Anadys’ halting of its ANA975 program. And he said that Anadys’ TLR drug candidate for cancer, ANA773, is unlike Coley’s failed TLR drug for cancer because they target different TLR receptors.

“We’re targeting very different types of cancers,” he added.

Anadys executives said they’ve learned from the trials with ANA975, and plan to seek Food and Drug Administration permission to begin human clinical trials, for ANA773 this year and for ANA598 by the first half of 2008.

Both drugs, Fritz said, could find success when taken in combination with other drugs. The company’s scientists believe ANA598 might be useful when taken in combination with other anti-virals, while ANA773 might work well when combined with therapeutic antibodies, Fritz said.


Development Stopped

The company also announced in its earnings call that it would stop development of ANA380, a drug that could treat hepatitis B that the firm was developing with a Korean firm.

Anadys reported $1.3 million in revenue for the second quarter, compared to $1.6 million for the same period in 2006.

Most of the revenue, the firm said, was from its partnership with Novartis. The firm posted operating expenses of $9.3 million this quarter compared with $9.8 million in the second quarter of 2006.

“We believe the toll-receptor drugs will have utility in oncology, virology and immunology,” Kolbert said. “So while the failure of ANA975 is disappointing, it’s not a death sentence for the company.”

Kolbert called the stock a “good buy.”

“If you’re a savvy investor and have time, these stocks always come back,” he said. “This is absolutely the nature of biotech.”

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