Earnings Preview: Anadys

San Diego-based biopharmaceutical company Anadys Pharmaceuticals Inc. (ANDS - Snapshot Report) is expected to release its second-quarter earnings on July 30, 2009. We expect the company to post a net loss of $6.9 million. Basic and diluted net loss per common share is expected to be $0.22. The company is still in the development stage, with products unlikely to hit the market in the next few years and therefore has no revenue. Therefore, we feel that the earnings report is a non-event for Anadys. Investors are more concerned about its cash position and its clinical program developments. 

The cash position is indeed a matter of concern. Anadys exited the first quarter of 2009 with a cash balance of $20.8 million, inclusive of marketable securities, which will last only two to three quarters. With a view to conserve cash, the company recently announced a strategic restructuring to focus its operations on the development of ANA598, its lead anti hepatitis C drug candidate. It has also reduced its work-force by 40%. The company raised $16 million from investors in an effort to finance future studies for ANA598, whose Phase I results were declared earlier this year. 

The upcoming mid-stage study, which is expected to commence in the third quarter of this year pending FDA approval, will test the drug in combination with long-acting interferon and ribavirin, the two drugs used currently for treating hepatitis C patients. 

Even if ANA598 is able to navigate through the clinical and regulatory hurdles smoothly, it will 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 through the sale of Pegasys/Copegus and Schering-Plough (SGP) through the sale of Peg-Intron/Rebetrol. 

In view of the above events, we can safely conclude that the cash position and the future development course of ANA598 will be the main focus for investors and the second-quarter earnings to be released next week is merely a side-show. 

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