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Anadys Pharmaceuticals Inc. (NASDAQ: ANDS)

Anadys Pharmaceuticals Inc. (ANDS) is a biopharmaceutical company focused to develop medicines in the areas of hepatitis C and oncology. The Company is developing ANA598, a small-molecule, non-nucleoside inhibitor of the NS5B polymerase for the treatment of hepatitis C and ANA773, an oral Toll-like receptor 7 (TLR7) agonist prodrug for the treatment of hepatitis C and cancer. Both ANA598 and ANA773 were discovered at ANDS and are wholly owned assets of ANDS. With ANA598 the Company is focused on developing a direct antiviral, meaning a product candidate that acts by directly interacting with, and blocking the function of, a component of the virus. With ANA773, ANDS is stimulating the patient’s own immune system to block cells infected with the hepatitis C virus from further amplifying the infection by producing more virus particles.

Anadys Pharmaceuticals was founded in 1992 and is headquartered in San Diego, California.

Share Statistics (17-Dec-09)			FY 2007	FY 2008	% Chg	Q3 2008	Q3 2009	% Chg
Symbol	ANDS	Revenue, $Mn	24.12M	0.0M	100.0%	0.0	0.0	0.0%
Current price	$2.59	Gross marg.	100.0%	n/a	n/a	n/a	n/a	n/a
52wk Range:	$1.44-8.43	Oper. margin	-52.9%	n/m	n/a	n/m	n/m	n/a
Avg Vol (3m):	597,497	Net margin	-38.2%	n/m	n/a	n/m	n/m	n/a
Market Cap.	96.6M
Dil. Shares Outst.	37.3M	EPS, $	-0.32	-1.13	253.1%	-0.32	-0.21	34.3%

Source: Reuters.com, SEC Filings.

Financial Summary

As of September 30, 2009, the Company’s cash, cash equivalents and securities available-for-sale totaled $25.4 million compared to $27.9 million as of December 31, 2008. The decrease in cash, cash equivalents and securities available-for-sale is the result of year-to-date cash utilization partially offset by proceeds received from a “registered direct” offering of common stock and warrants in early June 2009. Research and development expenses were $4.0 million for the third quarter of 2009, compared to $7.6 million for the third quarter of 2008. The $3.6 million decrease was primarily attributable to a $1.8 million decrease in ANA598 development costs and a $1.5 million decrease in ANA773 development costs and to a lesser extent cost savings associated with strategic restructuring initiated in June 2009.

During the third quarter of 2008, ANDS incurred a significant increase in development costs associated with the ANA598 program related to the then on-going phase I healthy volunteer clinical trial, the initiation of long-term chronic toxicology studies and the manufacturing of additional drug substance to support the long-term chronic toxicology studies. ANA598 development costs during the third quarter of 2009 were primarily related to the initiation of the Phase II combination study. ANA773 development costs during the third quarter of 2008 were primarily driven by costs associated with the initiation of the Company’s phase I clinical trial for the treatment of hepatitis C. During the third quarter of 2009, ANA773 development costs were primarily related to close-out costs associated with this trial.

General and administrative expenses were $2.0 million for the third quarter of 2009, compared to $2.1 million for the third quarter of 2008. The $0.1 million decrease primarily resulted from cost savings associated with the strategic restructuring initiated in June 2009.

Operating expenses were $6.0 million for the third quarter of 2009, compared to $9.7 million for the third quarter of 2008. Included as a component of ANDS’ operating expenses were non-cash, share-based expenses of $0.6 million and $0.7 million for the third quarter of 2009 and 2008, respectively.

The net loss was $7.7 million for the third quarter of 2009, compared to a net loss of $9.3 million for the third quarter of 2008. Included in the net loss for the third quarter of 2009 is a $1.9 million loss resulting from an increase between June 30, 2009, and September 30, 2009, in the liability associated with common stock warrants issued in conjunction with the Company’s “registered direct” financing in early June 2009. Basic and diluted net loss per common share was $0.21 in the third quarter of 2009, compared to $0.32 in the third quarter of 2008. Non-cash share-based expense resulted in a $0.02 and $0.03 increase in basic and diluted net loss per share for the third quarter of 2009 and 2008, respectively.

For the nine months ended September 30, 2009, ANDS reported a net loss of $23.0 million, compared to $23.9 million for the same period last year. Basic and diluted net loss per common share was $0.71 and $0.83 for the nine months ended September 30, 2009, and 2008, respectively.

Financial Strength (17-Dec-2009)	Company	Industry	Sector	S&P 500
Quick Ratio (MRQ)	2.95	6.43	2.58	0.93
Current Ratio (MRQ)	2.95	6.85	3.07	1.10
Long-Term Debt to Equity (MRQ)	0.00	24.80	26.43	124.02
Total Debt to Equity (MRQ)	0.00	29.71	34.01	184.27

Source: Reuters.com, SEC Filings.

Analyst Consensus

Source: www.ft.com

	# of Estimates	Mean	High	Low	1 Year Ago
SALES (in millions)
Quarter Ending Dec-09	9	0.00	0.00	0.00	0.12
Quarter Ending Mar-10	3	0.17	0.50	0.00	–
Year Ending Dec-09	9	0.00	0.00	0.00	4.40
Year Ending Dec-10	10	3.77	20.00	0.00	2.00
EARNINGS (per share)
Quarter Ending Dec-09	11	-0.20	-0.15	-0.45	-0.31
Quarter Ending Mar-10	4	-0.21	-0.17	-0.26	–
Year Ending Dec-09	11	-0.90	-0.75	-1.30	-1.18
Year Ending Dec-10	10	-0.83	-0.42	-2.43	-1.39

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=ANDS.W

Investment Highlights

ANDS yesterday announced preliminary results from a planned interim analysis of data at four weeks for the first dose cohort, 200 mg bid, in an ongoing phase II study of ANA598 in combination with pegylated interferon and ribavirin (SOC) in HCV patients. 56% of patients receiving ANA598 plus SOC achieved undetectable levels of virus (<15 IU/ml) at week 4, known as Rapid Virological Response or RVR, compared to 20% of patients receiving placebo plus SOC. ANA598 was well tolerated through four weeks, with no serious adverse events reported. An independent Data Monitoring Committee (DMC) has endorsed escalating to the second dose level, 400 mg bid, and this cohort is now open for enrollment. ANDS expects to initiate dosing in this cohort in January 2010.

ANDS announced earlier this year that dosing has begun in a phase II trial of ANA598 in patients chronically infected with hepatitis C virus (HCV). The study will evaluate ANA598 over 12 weeks, taken in combination with pegylated interferon-alpha and ribavirin, in treatment naïve HCV patients. ANA598 is an investigational, oral, nonnucleoside polymerase inhibitor. In the phase II study, naïve genotype 1 patients will receive ANA598 or placebo in combination with Pegasys® (peginterferon alfa-2a) and Copegus® (ribavirin, USP) (a current standard of care, or SOC) for 12 weeks at dose levels of 200 mg or 400 mg twice daily (bid), each with a loading dose of 800 mg bid on day one. After week 12, patients will continue to receive SOC. Patients who achieve undetectable levels of virus at weeks four and 12 will be randomized to stop all treatment at week 24 or 48.

The primary endpoint of the study is the proportion of patients with undetectable virus at week 12 (defined as complete Early Virological Response, or cEVR). Additional endpoints include safety and tolerability as well as the proportion of patients with undetectable virus at week 4 (defined as Rapid Virological Response, or RVR), weeks 24 and 48, and 24 weeks after stopping all treatment (defined as Sustained Virological Response, or SVR). Ninety patients are planned to be enrolled in this study – 30 patients receiving ANA598 and 15 receiving placebo at each dose level. The study will be managed by the Duke Clinical Research Institute (DCRI) under the leadership of John McHutchison, M.D. and will be conducted at a number of clinical sites in the United States.

Source: http://www.anadyspharma.com/

Technical Analysis

Source: http://stockcharts.com

ANDS is trading above its 50-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

ANDS’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, ANDS is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

The MACD for ANDS currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

Comparative Analysis

Company Name	Ticker	Price per	Mrkt. Cap.	P/E		P/S
Dec-17-2009	symbol	Share, $	$ Mn	2009	2010	2009	2010
Dynavax Technologies Corp.	DVAX	1.43	59.44M	20.57	n/a	1.25	n/a
Gilead Sciences Inc.	GILD	42.79	38.51B	16.55	n/a	6.07	n/a
Human Genome Sciences Inc.	HGSI	27.55	4.55B	n/a	n/a	19.83	n/a
Biotech & Drug Median			14.37B	18.56	n/a	9.05	n/a
Anadys Pharmaceuticals Inc.	ANDS	2.59	96.6	n/a	n/a	n/a	n/a

Source: Thomson Financial

Insider Trading Activity

NET SHARES PURCHASE ACTIVITY Inside Purchases – Last 6 Months
	Shares	Transaction
Purchases	n/a	0
Sales	n/a	0
Net Shares Purchased (Sold)	n/a	0
Total Insider Shares Held	2.65M	n/a
% Net Shares Purchased (Sold)	0.0%	n/a

Net Institutional Purchases — Prior Qtr to Latest Qtr
	Shares
Net Shares Purchased (Sold)	(5,102,040)
% Change in Institutional Shares Held	(28.7%)

Source: Yahoo Finance

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