Anadys Pharmaceuticals ( ANDS) said Thursday that it has raised $16 million from investors in order pay for the next clinical study of its hepatitis C drug ANA598.

The news is disappointing because investors had hoped Anadys would push ahead with ANA598's development with a deep-pocketed drug company partner.

Thursday's announcement of a financing suggests that partnering discussions for ANA598 have fallen to the wayside, or are at least significantly delayed until more data on the drug can be collected.

Anadys had about $20 million in cash at the end of the first quarter, only enough for another two or three quarters of operation. A partnership for ANA598 would have brought much-needed money into the company in a non-dilutive fashion.

Anadys released phase I data on ANA598 in April, demonstrating the drug's antiviral activity at three different doses, but patient dropouts due to rash raised concerns about the drug's safety and sent Anadys shares tumbling.

Anadys shares were down 13 cents to $1.93 in early Thursday trading, below the $2.09 price for the 8.35 million stock units sold in its financing. Each unit consists of one share of common stock and one warrant to purchase 0.35 share of common stock.

In conjunction with the financing, Anadys announced a corporate restructuring that would eliminate 40% of its workforce and halt clinical development for another hepatitis C drug.

Anadys is reducing costs so that it can focus on ANA598. The upcoming phase II study will test the drug in combination with long-acting interferon and ribavirin, the two drugs used today to treat hepatitis C patients.

Anadys plans to begin the phase II study of ANA598 in the third quarter, pending FDA approval.

ANA598 is what is known as a non-nucleoside polymerase inhibitor. These drugs act directly against specific enzymes to prevent the hepatitis C virus from making copies of itself. That's different from current treatments for hepatitis C, namely long-acting forms of interferon and a drug called ribavirin, which work by stimulating the body's immune system to destroy the virus.

Pfizer ( PFE - Get Report), Vertex Pharmaceuticals ( VRTX - Get Report) and Merck ( MRK - Get Report) also are working on non-nucleoside polymerase inhibitors for hepatitis C.

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