After Pulling IPO, Anacor Raises $50 Million In Equity Financing

Boron compound-focused biotech says proceeds should fund two years of operations.

After realizing the current financial environment was ill-suited to an initial public offering, Anacor, which develops boron-based topical drugs and anti-infectives, managed to raise the cash it was seeking through a private equity financing with four venture capital funds and two Big Pharma partners.

Based in Palo Alto, Calif., the biotech announced Jan. 6 that it had raised $50 million in a private stock placement with GlaxoSmithKline, Schering Corp. and four of its existing VC investors: Rho Capital Partners, Venrock Associates, Care Capital Investors and Aberdare Ventures.

In an interview, CEO David Perry would not disclose the pricing or the amounts of stock distributed to each investor, but did confirm that "the valuation was a significant step-up to our last round, so we're happy with the price."

Both GSK and Schering held options to make $10 million equity investments in Anacor as part of previously inked collaborations with the biotech, but had not exercised them until now.

GSK and Schering invested different amounts, but together, the two pharmas own less than 20 percent of Anacor's outstanding shares, according to Perry. Although he declined to specify which company made the bigger investment, he did confirm that GSK now has the right to nominate someone to Anacor's board.

Anacor filed to go public in August 2007 and was prepared to price its shares that same year, but market conditions made the offering impossible (¹ [See Deal]).

"During the majority of the time that we were on file, the market essentially was closed for biotech IPOs," he said. "We ultimately concluded that it was going to be closed for some time."

Equity deal equals anticipated IPO yield

The biotech's goal was to net about $50 million from the IPO. Having obtained that amount privately, Perry says his company should have cash sufficient to fund two years of operations. In addition to its lead program, anti-fungal AN2690, which now is being funded by Schering, Anacor is developing systemic anti-infectives for four targets under its deal with GSK.

Perry said one of those programs has moved into the preclinical stage, while the others remain in the research stage. Anacor has not identified the program's targets, other than hepatitis C, which is not the program that has reached preclinical development. GSK paid Anacor $12 million upfront under the deal, which also includes potential milestones that could reach $2 billion, plus tiered double-digit royalties (² (Also see "GlaxoSmithKline Invests In Anacor’s Boron-Based Anti-Infectives" - Pink Sheet, 8 Oct, 2007.)).

Besides '2690, Anacor's pipeline includes four other clinical candidates including AN2728, a Phase II anti-inflammatory for psoriasis and atopic dermatitis. Last March, Anacor reported that '2728 hit its primary endpoint and all secondary endpoints in the Phase II psoriasis trial (³ (Also see "Anacor’s Topical Psoriasis Candidate Produces Strong Showing In Phase II" - Pink Sheet, 26 Mar, 2008.)

Anacor no longer has any spend related to '2690, which it licensed to Schering in 2007 for $40 million upfront plus milestones that could reach $505 million and tiered royalties that would top out at 20 percent (⁴ [See Deal]). Schering plans to bring '2690 into Phase III this year, with data expected by the end of 2010.

Under the Schering partnership, Anacor holds U.S. co-promotion rights for '2690. Perry said the firm's ongoing goal is to launch a U.S.-only dermatology sales force for that product and its other in-house clinical candidates. But building that force is still years away and Perry didn't want to be specific about its scope.

"We could look at other dermatology companies as examples, and usually a new dermatology company launches a produce with a sales force of about 75," he said. "And then a mature dermatology company might have 150 people."

Anacor isn't focused at the moment on adding new development partners, Perry added, preferring to keep its other programs in-house for now. "We're always interested in having discussions, but it's not a priority for us at the moment," he said.

Market advantage expected in onychomycosis

If '2690, intended to treat onychomycosis, an infection of the toenails that affects an estimated 35 million to 36 million Americans, reaches market, Anacor believes it will enjoy significant advantages over current therapies. Novartis' oral drug Lamisil (terbinafine), has been associated with liver damage, while Sanofi-Aventis' topical drug Penlac (ciclopirox) is safer but less effective than Lamisil (⁵ (Also see "Lessons Learned: David Perry, from Chemdex to Anacor" - Scrip, 1 Jun, 2006.)).

Preclinical studies indicated that '2690 penetrates the human nail plate 250 times more effectively than Penlac, Anacor says, while Phase II study demonstrated efficacy in treatment of onychomycosis without the systemic side effects than can be caused by oral therapies. The side effect most common in clinical trials was a reversible skin irritation, the biotech says.

Boron-based drugs offer the opportunity to hit targets that are difficult to reach with carbon-based drugs, Perry explained. Boron has one less electron in its outer shell than carbon.

"That changes the reactivity of a molecule," Perry said. "If you insert boron in a molecule, that change in electron is going to make the molecule react differently and have a little different shape."

Other companies tried unsuccessfully for years with carbon-based candidates to reach the target '2690 addresses, leucyl-transfer RNA synthetase, Perry noted. "No carbon-based drugs emerged from those efforts, but with a boron-based compound, we're able to hit that target."

-Joseph Haas ([email protected])