Anacor Pharmaceuticals Reports 2013 Fourth Quarter and Year-End Financial Results

  Anacor Pharmaceuticals Reports 2013 Fourth Quarter and Year-End Financial
  Results

Business Wire

PALO ALTO, Calif. -- March 13, 2014

Anacor Pharmaceuticals (NASDAQ:ANAC) today announced its financial results for
the fourth quarter and year ended December 31, 2013.

“2013 was a transformational year for Anacor, as we advanced our two
late-stage programs and successfully resolved our arbitration with Valeant,
which led to a significant cash settlement,” said David Perry, Chief Executive
Officer of Anacor Pharmaceuticals. “We expect continued progress for Anacor in
2014, with the potential approval and commercial launch of our lead compound,
tavaborole, and the initiation of Phase 3 clinical trials of AN2728 in
mild-to-moderate atopic dermatitis patients.”

Fourth Quarter 2013 Highlights and Recent Developments

Clinical Update and Anticipated Milestones

  *Tavaborole – our lead topical antifungal investigational product candidate
    for the potential treatment of mild-to-moderate toenail onychomycosis.
    Onychomycosis is a fungal infection of the nail and nail bed that affects
    approximately 35 million people in the United States.

       *On October 1, 2013, we announced that our New Drug Application (NDA)
         for tavaborole was accepted for filing by the U.S. Food and Drug
         Administration (FDA) indicating that the application was sufficiently
         complete to permit a substantive review. The Prescription Drug User
         Fee Act (PDUFA) V goal date is July 29, 2014.
       *In January 2014, we presented a poster at the Winter Clinical
         Dermatology Conference with results from an in vitro nail penetration
         study conducted with ex vivo fingernails to measure the penetration
         of tavaborole topical solution, 5% through nail polish. The study
         demonstrated that tavaborole topical solution, 5% was able to
         penetrate through one coat of a commercial brand nail polish.
       *Subject to FDA approval, we anticipate launching tavaborole in the
         second half of 2014.

  *AN2728 – our lead topical anti-inflammatory product candidate for the
    treatment of mild-to-moderate atopic dermatitis and psoriasis. Atopic
    dermatitis is a chronic rash characterized by inflammation and itch and
    affects approximately 40 million people in the seven major pharmaceutical
    markets, including 10% to 20% of infants and young children. The majority
    of atopic dermatitis cases are mild-to-moderate.

       *In November 2013, we reported results from a MUSE (maximal use
         systemic exposure) study in pediatric and adolescent patients with
         atopic dermatitis. The results of this study demonstrate that AN2728
         ointment, 2% appears to be safe, well-tolerated, and efficacious when
         applied twice daily to patients, ages two to 18 years with atopic
         dermatitis affecting a very large percentage of their body surface
         area. Detailed results of this study were reported in a press release
         we issued on November 12, 2013.
       *In December 2013, we completed a TQT (thorough QT) Phase 1 cardiac
         safety study for AN2728 in approximately 180 healthy volunteers. The
         primary endpoint of this study was the assessment of change from
         baseline ECG (specifically QT/QTc interval) following multiple doses
         of AN2728 ointment, 2% as compared to vehicle ointment at Day 9.
         Study results indicate that AN2728 ointment, 2% did not have any
         significant effect on the primary endpoint and was, therefore,
         acceptable from a cardiac safety perspective. AN2728 ointment, 2% was
         generally safe and well-tolerated with the most common adverse events
         being application site reactions.
       *In February 2014, we completed a clinical drug-drug interaction study
         that demonstrated AN2728 does not interact with cytochrome P450
         subtype 2C9.
       *In February 2014, we successfully completed an End of Phase 2 meeting
         with the FDA for the topical treatment of mild-to-moderate atopic
         dermatitis with AN2728 ointment, 2%. We reached agreement on all
         major parameters of the Phase 3 trial design.
       *We plan to initiate two Phase 3 studies of AN2728 in mild-to-moderate
         atopic dermatitis patients within the next 45 days and a long-term
         safety trial to evaluate the safety of intermittent use of AN2728
         ointment, 2% for up to 12 months. Further details concerning these
         Phase 3 and long-term safety studies were included in a press release
         we issued on February 27, 2014.

Research Agreement

On October 16, 2013, we entered into a research agreement with the United
States Department of Defense, Defense Threat Reduction Agency (DTRA) to design
and discover new classes of systemic antibiotics over a three and a half year
period. The work of a consortium, including Anacor, the University of
California, Berkeley and Colorado State University, is funded by a $13.5
million award from DTRA's R&D Innovation and Systems Engineering Office, which
was established to search for and execute strategic investments in innovative
technologies for combating weapons of mass destruction. The $13.5 million
award is available to fund $2.7 million of research reimbursements for the
eleven month period through September 30, 2014, and an additional $5.0 million
and $5.7 million will become available upon DTRA exercising their options to
fund the subsequent twelve- and nineteen-month periods, respectively.

Corporate

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 $142.5
million payment on November 7, 2013.

On March 10, 2014, we announced the appointment of Vince Ippolito as Executive
Vice President and Chief Commercial Officer. Mr. Ippolito has over 25 years of
experience leading specialty medical sales and marketing efforts at Valeant,
Medicis and Novartis AG. Mr. Ippolito recently served as Senior Vice
President, General Manager, Aesthetics at Valeant following its acquisition of
Medicis in December 2012. Mr. Ippolito joined Medicis in 2003 as General
Manager of Dermatology products, became Senior Vice President of North
American Sales in 2006 and served as Executive Vice President, Sales and
Marketing from 2008 until Medicis was acquired.

Selected Fourth Quarter and Full Year 2013 Financial Results

  *Revenues for the quarter ended December 31, 2013 were $8.5 million,
    compared to $3.3 million for the comparable period in 2012. The increase
    was primarily due to the recognition of the remaining $4.8 million of
    deferred revenue under the Medicis agreement as a result of the
    termination of that agreement in October 2013. The remaining increase was
    due to revenue recognized for research services performed under the Bill
    and Melinda Gates (Gates) Foundation and DTRA agreements, partially offset
    by declines in revenues and earned milestones for research work under
    other research and development agreements, including those with
    not-for-profit organizations for neglected diseases and Eli Lilly and
    Company (Lilly). Revenues for 2013 were $17.2 million, compared to $10.7
    million in 2012. The increase in revenues was primarily due to research
    work performed under our agreements with the Gates Foundation and DTRA and
    the recognition of the remaining deferred revenue under the Medicis
    agreement. Revenue and earned milestones from our neglected diseases
    programs and our collaboration with Lilly decreased in 2013 as compared
    with 2012.
  *Research and development expenses for the fourth quarter of 2013 were
    $12.8 million, compared to $12.0 million for the comparable period in
    2012. Research and development expenses for 2013 were $46.6 million,
    compared to $52.3 million in 2012. Research and development expenses
    increased in the fourth quarter 2013 as compared with the same quarter in
    2012, primarily due to an increase in clinical trial activity in our
    AN2728 program and increases in expenses related to our research
    agreements with the Gates Foundation and DTRA. These increases were
    partially offset by decreases in expenses relating to our clinical trial
    activity for our tavaborole program and decreases in our research
    activities for our neglected diseases programs. The decrease in expenses
    for 2013 compared to 2012 was mainly due to lower clinical trial activity
    for our tavaborole program and a net decrease in our other research
    collaboration activities, partially offset by increases related to
    clinical trial activities for our AN2728 program and research activities
    under our new agreements with the Gates Foundation and DTRA.
  *General and administrative expenses for the fourth quarter of 2013 were
    $4.0 million, compared to $2.8 million for the comparable period in 2012.
    General and administrative expenses for 2013 were $20.7 million compared
    to $11.6 million in 2012. The increases in the fourth quarter of 2013,
    compared to the same period in 2012 were due to increases in salaries,
    pre-commercialization activities for tavaborole, recruiting activities and
    stock-based compensation. The increase for the year ended 2013 as compared
    to the same period in 2012 resulted primarily from an increase in legal
    fees related to our legal proceedings with Valeant and Medicis,
    pre-commercialization activities for tavaborole, salaries and stock-based
    compensation.
  *Litigation settlement gain of $142.5 million was recorded in the fourth
    quarter of 2013 as a result of our settlement agreement with Valeant.
  *Cash, cash equivalents and investments totaled $166.8 million at December
    31, 2013, compared to $45.7 million at December 31, 2012. Balances at
    December 31, 2013 and 2012 include short-term and long-term investments
    and also include $4.6 million and $0.2 million of restricted investments,
    respectively.

Conference Call and Webcast

Anacor will host a conference call at 5:00 p.m. ET / 2:00 p.m. PT today,
during which management will discuss Anacor’s financial results and recent
developments. The call can be accessed by dialing (877) 291-1367 (domestic)
and (914) 495-8534 (international) five minutes prior to the start of the
call. The call will also be webcast live and can be accessed on the Events and
Presentations page, under Investors, on Anacor’s website at www.anacor.com and
will be available for three months following the call.

About Anacor Pharmaceuticals

Anacor is a biopharmaceutical company focused on discovering, developing and
commercializing novel small-molecule therapeutics derived from its boron
chemistry platform. Anacor has discovered eight compounds that are currently
in development. Its two lead product candidates are topically administered
dermatologic compounds — tavaborole, an antifungal for the treatment of
mild-to-moderate onychomycosis, and AN2728, an anti-inflammatory PDE-4
inhibitor for the treatment of mild-to-moderate atopic dermatitis and
psoriasis. In addition to its two lead product candidates, Anacor has
discovered three other wholly-owned clinical product candidates — AN2718 and
AN2898, which are backup compounds to tavaborole and AN2728, respectively, and
AN3365, an antibiotic for the treatment of infections caused by Gram-negative
bacteria. Anacor has also discovered three other compounds that have been
out-licensed for further development — one is licensed to Eli Lilly and
Company for the treatment of an animal health indication, the second compound,
AN5568, also referred to as SCYX-7158, is licensed to Drugs for Neglected
Diseases initiative, or DNDi, for human African trypanosomiasis (HAT, or
sleeping sickness) and the third compound is licensed to GlaxoSmithKline, LLC
for tuberculosis. Anacor also has a pipeline of other internally discovered
topical and systemic boron-based compounds in earlier stages of research and
pre-clinical development. For more information, visit http://www.anacor.com.

Forward-Looking Statements

This release contains forward-looking statements, including statements
regarding the potential FDA approval of tavaborole, our planned commercial
launch of tavaborole, our potential initiation of Phase 3 studies of AN2728
and other milestones and our clinical plans. Our actual results may differ
materially from those indicated in these forward-looking statements due to
risks and uncertainties, including the timing of the initiation of the Phase 3
studies for AN2728; risks relating to patient accrual and execution on
clinical plans; the timing for potential approval of tavaborole by the FDA;
the potential for success of tavaborole and our AN2728 compound; and other
matters that are described in Anacor’s Annual Report on Form 10-K for the year
ended December 31, 2012, and subsequent Quarterly Reports on Form 10-Q filed
with the Securities and Exchange Commission, including the risk factors set
forth in those filings. Investors are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
release and we undertake no obligation to update any forward-looking statement
in this press release except as required by law.

ANACOR PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

                   Three Months Ended                Year Ended
                                                  
                   December 31,                      December 31,
                   2013            2012             2013            2012
                   (unaudited)
Revenues:
Contract revenue   $ 8,485         $ 3,288         $ 17,228        $ 10,740     
Total revenues       8,485            3,288            17,288           10,740
                                                                      
Operating
(income)
expenses:
Research and         12,796           11,999           46,561           52,318
development (1)
General and
administrative       4,039            2,762            20,650           11,614
(1)
Litigation          (142,500   )    ––             (142,500   )    ––         
settlement gain
Total operating
(income)            (125,665   )    14,761         (75,289    )    63,932     
expenses
                                                                      
Income (loss)        134,150          (11,473    )     92,517           (53,192    )
from operations
Interest income      12               19               55               72
Interest expense     (1,102     )     (1,006     )     (4,051     )     (2,914     )
Loss on early
extinguishment       ––               ––               (1,381     )     ––
of debt
Other expense       (606       )    (16        )    (669       )    (53        )
Income (loss)
before provision     132,454          (12,476    )     86,471           (56,087    )
for income taxes
Provision for       1,706          ––             1,706          ––         
income taxes
Net income         $ 130,748       $ (12,476    )   $ 84,765        $ (56,087    )
(loss)
Net income
(loss) per
common share:
Basic              $ 3.19           $ (0.36      )   $ 2.16           $ (1.76      )
Diluted            $ 3.01           $ (0.36      )   $ 2.10           $ (1.76      )
Weighted-average
number of common
shares used in
calculating net
income (loss)
per common
share:
Basic                40,935,760       34,618,080       39,178,289       31,901,966
Diluted              43,462,725       34,618,080       40,320,187       31,901,966
                                                                                   
(1) Includes the
following
noncash,
stock-based
compensation
expenses:
                                                                                   
Research and
development        $ 860            $ 489            $ 2,770          $ 1,973
expenses
General and
administrative     $ 570            $ 378            $ 1,963          $ 1,629
expenses
                                                                                   

ANACOR PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEET DATA

(in thousands)
                                            December 31,
                                             2013         2012 (1)
                                             
Cash, cash equivalents and investments (2)   $ 166,815      $ 45,713
Total assets                                   172,165        51,071
Notes payable                                  28,018         25,667
Accumulated deficit                            (130,446 )     (215,211 )
Total stockholders’ equity                     121,432        4,811

(1) Derived from the audited financial statements included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2012

(2) Balances at December 31, 2013 and 2012 include short-term and long-term
investments and also include $4.6 million and $0.2 million of restricted
investments, respectively.

Contact:

Anacor Pharmaceuticals, Inc.
Geoff Parker, 650-543-7516
Chief Financial Officer
DeDe Sheel, 650-543-7575
Senior Director
Investor Relations and Corporate Communications
 
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