Investors Dump Anadys Shares on Report of Itchy Side Effect

4/23/09Follow @xconomy

Did three cases of skin rash prompt Anadys shareholders to act rashly? The company’s stock crashed today after investors interpreted the cases as a warning sign that the company’s hepatitis C drug might not be as safe as expected. The shares (NASDAQ: ANDS) fell 40 percent to $3.51, making it the biggest percentage decliner on the Nasdaq after the company disclosed the cases of rash at a medical meeting in Denmark.

Investors pressed the sell button after Anadys said three healthy volunteers out of 24 people who got ANA598 dropped out of the study after six to seven days when they developed Grade 2 rashes on a scale of 1 to 4, with 4 being the most severe. This overshadowed the other news Anadys reported, that the drug was effective at killing the virus in hepatitis C patients.

Anadys spent a lot of time explaining what the company meant by a Grade 2 rash on a conference call with analysts after the market closed. Essentially, it’s a rash that covers less than half of the body and involves some itchiness, said chief medical officer James Freddo. He emphasized that this happened in healthy volunteers, who have no reason to tolerate any side effects in a trial like this—unlike hepatitis C patients, who would have to calculate a trade-off between a moderate rash and the drug’s ability to kill hepatitis C virus. The rash was consistent with side effects caused by antibiotics and anti-convulsants, which start in the torso and can spread throughout the body. If the volunteers had stayed on the drug, it’s possible the rash may have gone away, which can happen with those drugs, Freddo said.

This data has been available to Anadys since late March and early April, said CEO Steve Worland, and it has been sharing it on a confidential basis with potential partners. He declined to say how partners have reacted to the reports of rash, and whether this might scotch any potential deals, although he did say “active discussions are continuing.”

Anadys will have to hope that partners aren’t as scared as investors. That’s because it had $20.8 million in cash left at the end of March, according to its first-quarter report. That’s not enough to take the next step alone, and get data from a mid-stage clinical trial that could show effectiveness for a full 28 days in combination with standard treatments, Worland says.

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