On October 27, 2013 we entered into a settlement agreement with Valeant Pharmaceuticals International, Inc. (Valeant) in which Valeant agreed to pay us $142.5 million to settle all existing and future claims, including the recent arbitration with Valeant related to Dow Pharmaceutical Sciences (DPS), our dispute with Medicis Pharmaceutical Corporation and all other disputes between Anacor, Valeant and DPS related to Anacor’s intellectual property, confidential information and contractual rights. We received the payment on November 7, 2013.

Selected Third Quarter 2013 Financial Results

Revenues for the quarter ended September 30, 2013 were $3.6 million, compared to $2.5 million for the comparable period in 2012. The increase was due to revenue recognized for research services performed under the Gates Foundation agreement in the third quarter of 2013, partially offset by declines in revenues for research work performed under other research and development agreements, including our agreements with not-for-profit organizations for neglected diseases and with Medicis.

Research and development expenses were $12.5 million for the third quarter of 2013, compared to $13.6 million for the same quarter in 2012. Research and development expenses decreased from the same quarter in 2012 primarily due to a decrease in expenses for the tavaborole program, partially offset by an increase in expenses related to our AN2728 program and our new research agreement with the Gates Foundation.

General and administrative expenses for the third quarter of 2013 were $6.8 million, compared to $2.8 million for the comparable period in 2012. The increase in general and administrative expenses in the third quarter of 2013 compared to the same period in 2012 was primarily due to an increase in legal fees from our legal proceedings related to our disputes with Valeant and Medicis, as well as market research activities for tavaborole.

Cash, cash equivalents, short-term investments and restricted investments totaled $39.3 million, including restricted investments of $4.7 million, at September 30, 2013.

Financial Outlook

We anticipate ending 2013 with at least $160.0 million in cash, cash equivalents, short-term investments, and restricted investments, including the Valeant arbitration settlement proceeds of $142.5 million. We believe that these capital resources will be sufficient to meet our anticipated operating requirements for at least the next twelve months.

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