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Anacor's Kerydin to Be Commercialized by Sandoz in the U.S.

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Anacor Pharmaceuticals, Inc. entered into an exclusive agreement with Sandoz, a Novartis (NVS - Free Report) company, for the distribution and commercialization of Anacor's Kerydin topical solution, 5% in the U.S. Kerydin was approved earlier this month for the topical treatment of onychomycosis of the toenails and is the first oxaborole antifungal treatment to receive FDA approval.

According to Podiatry Today, onychomycosis affects nearly 35 million people in the U.S. However, only 5−6 million patients are being treated.

Terms of the Deal

Under the deal, Anacor will supply Kerydin to Sandoz. While Sandoz has exclusive rights to sell Kerydin in the U.S., Anacor retains the rights to commercialize Kerydin in ex-U.S. markets. Kerydin will most likely be launched by Sep 2014.

Anacor will receive upfront payments of $40 million from Sandoz. Additionally, Sandoz will make a milestone of $25 million in Jan 2015. Under a long-term profit-sharing agreement, the companies will share gross profits equally (expected in the range of 90% − 95% of sales) on Kerydin sales. However, in 2015, the gross profit sharing arrangement will commence only after the first $50 million of gross profit accrues to Sandoz.

Meanwhile, from 2016 onwards, Anacor will be entitled to split gross profits equally with Sandoz. Moreover, Anacor will receive cumulative minimum gross profit-sharing payments of $45 million in 2016.

Anacor has the option to repurchase complete rights in Kerydin from Sandoz three years after the launch of the drug or on Dec 31, 2017, whichever occurs later. Anacor, which holds the new drug application (NDA) for Kerydin, will be responsible for future development of the drug.

With Sandoz now being responsible for Kerydin’s commercialization in the U.S., Anacor will not provide sales guidance for the product. However, the company said that it expects SG&A expenses to reduce in the third and fourth quarter of 2014.

Our Take

We are positive on Anacor’s collaboration with Sandoz. The agreement is beneficial for Anacor strategically as well as financially. Anacor is gaining a strong partner in the form of Sandoz − Sandoz’s commercial expertise in the field of branded dermatological and podiatric products bodes well for Kerydin’s commercialization.

Additionally, Sandoz’s experienced sales force (60 reps calling on 6,000 dermatologists and 1,500 −2,000 podiatrists) will ensure that Kerydin successfully reaches the specialty physicians who treat large numbers of patients suffering from onychomycosis. With the addition of Kerydin to its portfolio, Sandoz intends to increase its sales force by nearly 20 reps thereby significantly expanding their reach in the market for podiatric products.

Moreover, the financial terms of the deal look quite favorable – Sandoz will bear the selling, marketing, distribution, general and administration costs associated with the commercialization of Kerydin. Additionally, the company will receive at least $110 million through 2016 under this collaboration.

Anacor carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are Salix Pharmaceuticals Ltd. and Synergy Pharmaceuticals, Inc. (SGYP - Free Report) . Both stocks carry a Zacks Rank #1 (Strong Buy).




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