Anadys Pharmaceuticals Inc. suspended dosing of its lead Toll-like receptor-7 agonist - ANA975 - in a Phase Ib hepatitis C virus trial, resulting in a 48 percent stock drop.

The San Diego-based company decided with its partner, Novartis AG, of Basel, Switzerland, late Friday to halt the trial after data from a preclinical toxicology study showed "intense immune stimulation in animals" treated with ANA975, an oral prodrug of isatoribine. Anadys' management declined to describe the findings in any more detail, except to say that they have not seen any serious adverse events in humans treated in two clinical trials, a Phase I in 90 healthy volunteers, and the Phase Ib study in 17 HCV patients. At least two of the HCV patients were on placebo.

Anadys' stock (NASDAQ:ANDS), which has traded as high as $16.60 in the last year, fell by $3 Monday to end the day at $3.69.

The news came less than two weeks after the company's president and CEO, Kleanthis Xanthopoulos, announced he would resign at the end of this year. He is joining San Diego-based Enterprise Partners Venture Capital as a managing director.

"While this is unfortunate timing," he said in a conference call Monday, "I want to assure you, at the time I announced my resignation, I did not have any knowledge of the information that led to the suspension of the dosing. The two events are completely unrelated."

Xanthopoulos will continue to serve as a board member at Anadys.

Andrew McDonald, an analyst with San Francisco-based ThinkEquity Partners LLC, said in a research note that Xanthopoulos' resignation and the suspension of dosing are "two key negative events [that] remove any compelling reason to place any technical value in this company."

While he maintained a "sell" rating on the stock, analyst Eric Schmidt, of New York-based SG Cowen & Co., maintained an "outperform" rating "as shares appear to be pricing in a worst case scenario for ANA975 and the rest of Anadys' pipeline."

The company also is developing ANA380, which has completed Phase II trials for hepatitis B virus; ANA773, a TLR7 agonist for cancer with an investigational new drug application filing expected later this year; and ANA025-1, an HCV polymerase inhibitor with an IND filing expected in 2007.

Xanthopoulos said there is "obviously a possibility" the intense immune response in animals is related to the TLR7 mechanism and not specifically the compound, which means it also would affect any development plans for ANA773.

A recent Science article suggested there is a potential link between TLR7 activation and certain autoimmune diseases, such as lupus, Sjogren's syndrome and scleroderma, Schmidt said. While Anadys gave no information on the nature and severity of the immune stimulation, Schmidt said "such stimulation would be consistent with ANA975's mechanism of TLR7 activation" and is, therefore, "potentially worrisome."

The decision made late Friday by Novartis and Anadys to suspend the Phase Ib trial was not prompted by the FDA, the company said. The agency was notified of the decision after it was made.

The Phase Ib ANA975 trial began in the first quarter. The 28-day study was a placebo-controlled, multiple-dose trial to evaluate safety, tolerability and viral load reduction. Anadys had planned to start a Phase II study later this year, assuming the Phase Ib would have viral load data by the end of August, but that is not expected to happen now.

While it would give no timelines, Anadys intends to further analyze the findings of the preclinical studies and gather additional data, possibly exploring different doses of ANA975.

"Ironically, this might be a much more potent compound than we originally anticipated it to be," Xanthopoulos said, later adding that the company and Novartis continue to believe that ANA975 is a "promising agent" to treat HCV.

Anadys signed the $570 million TLR7 deal with Novartis just more than a year ago. (See BioWorld Today, June 3, 2005.)

As part of that agreement, Novartis has an option to pick up rights to ANA380, a product that earlier this year achieved greater than 99.9 percent clearance of the hepatitis B virus in plasma at week 12 in a Phase II trial that dosed 59 patients. Anadys licensed the product from Seoul, South Korea-based LG Life Sciences in April 2004. (See BioWorld Today, Feb. 16, 2006.)

But McDonald said he has never assigned any value to the ANA380 program. "We believe tenofovir and entecavir are best-in-class and adequately satisfy the market opportunity."

As of March 31, Anadys had cash, cash equivalents and securities of $99.8 million.

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