Zacks_Analysts' Blog : Anadys Reports Narrower Loss - Analyst Blog

The slightly lower net loss is attributable to the 4% decrease in operating expenses in the reported quarter. Research and development expenses decreased 15.5% mainly due to reduction in expenses associated with the development of ANA773.

As a reminder, Anadys had announced a restructuring plan in June to focus resources on developing its more promising Hepatitis C candidate, ANA598. All development programs for its other candidate, ANA773, have been suspended. General and administrative expenses, however, increased 28.2% due to the severance costs associated with the strategic restructuring, whereby the company laid off 40% of its employees.

Anadys exited the quarter with a cash balance of $30.6 million compared to $27.8 million at the end of 2008. The cash balance increased due to the stock offering announced in June under which the company raised roughly $16 million. This should help in funding operations into 2011.

However, we think earnings report is a non-event for Anadys. Investors are more concerned about its clinical developments. Currently all eyes are focused on the development path of ANA598.

FDA OKs ANA598 Progress

On the same day, Anadys received clearance from the U.S. FDA to conduct a mid-stage trial (n=90) with ANA598 in combination with interferon-alpha and ribavirin (current standard of care) in hepatitis C patients. Anadys intends to initiate the trial shortly.

Even if ANA598 can navigate the clinical and regulatory hurdles smoothly, it will still face tough competition in the anti-Hepatitis C market. This market is dominated by two players: Roche (RHHBY), which commands a majority of the U.S. and global pegylated interferon market with Pegasys/Copegus and Schering-Plough's (SGP) Peg-Intron / Rebetrol.

Additionally, Vertex Pharma (VRTX) and Valeant Pharma (VRX) are developing candidates for Hepatitis C and are well ahead of ANA598 in terms of development. Hence, we believe competition will remain a challenge for Anadys in the years to come.

We remain neutral on Anadys until we gain more visibility on the ANA598 program.