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Anacor Pharma Remains Over-Valued on Development of Inferior Drugs

Anacor Pharmaceuticals (ANAC - Get Report) shares are down 35% since the middle of March when biotech stocks starting selling off, but the company's $600 million-plus market value is still bloated. Anacor is waiting to hear from the FDA on an approval decision (expected July 29) for the toenail fungus drug tavaborole. If approved, tavaborole is likely to be a commercial disappointment for reasons I've outlined previously. In this column, I want to explain why Anacor's second pipeline product, the experimental psoriasis/atopic dermatitis drug AN2728, also faces commercial risk from competitors Regeneron Pharmaceuticals (REGN - Get Report) and Celgene (CELG - Get Report).

In general, both Regeneron's dupilumab and Celgene's apremilast (recently approved for psoriatic arthritis and marketed as Otezla) generate robust decreases in the severity of atopic dermatitis, although neither company conducted particularly large studies. If we define treatment benefit as a 50% decrease in the Eczema Area and Severity Index (EASI), the success rate for dupilumab was 86%. Apremilast was a little less effective with only about 62% of the patients achieving a greater than 50% decrease in the EASI score. While trial size differences make the error bar around these estimates large, dupilumab appears to have an efficacy edge over apremilast. How do these results compare to Anacor's AN2728?

Anacor measured the benefit of AN2728 in atopic dermatitis using an endpoint known as the Investigator's Static Global Assessment (ISGA), which makes a comparison to the dupilumab and apremilast data more difficult. For argument's sake, I'm going to equate the achievement of an ISGA score of 0 or 1 with at least a two-point improvement as similar to a 50% decrease in EASI score.

Across two studies, the AN2728 results appear less robust than what was reported in the Regeneron and Celgene studies. In Anacor's AD-203 trial, treatment with AN2728 generated a 35% success rate. AN2728 did better in the AD-102 trial where treatment was successful in about 47% of the atopic dermatitis patients. Again, these cross-trial and cross-endpoint comparisons are not precise, but AN2728 appears to be less effective than apremilast and dupilumab. It should also be noted that Celgene is currently testing a higher dose of apremilast in atopic dermatitis, so the drug's efficacy could improve even further. 

AN2728 is a topical medication, so more convenient than the injectable dupilumab but without much advantage over the oral apremilast. On the safety front, neither dupilumab nor apremilast have generated any safety signals, where severe adverse events were numerically fewer in the dupilumab arm and all of the adverse events in the apremilast study were grade 1. This essentially means that commercial success will likely be driven by efficacy differences and perhaps convenience, where AN2728 appears disadvantaged on efficacy but may have a convenience benefit versus dupilumab.

Anacor recently moved AN2728 into phase III studies for atopic dermatitis. Like with toenail fungus drug tavaborole, existing data suggest AN2728 is an inferior drug relative to the competition. The significant risks inherent with both of Anacor's lead drugs are not yet reflected in the company's over-valued stock price.

Sobek is long Celgene and no positions in Regeneron or Anacor. 

David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.

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