Onychomycosis is primarily caused by dermatophytes, which are fungi that infect the skin, hair or nails. The infection involves the nail plate, the nail bed and, in some cases, the skin surrounding the nail plate. Onychomycosis causes nails to deform, discolor, thicken, become brittle and split and separate from the nail bed. Toenails affected by onychomycosis can become so thick that routine trimming of the nails becomes difficult. The condition can also cause pain while individuals wear shoes, leading to difficulties walking. Onychomycosis can also lead to social embarrassment due to the unsightly appearance of the infected nails and because it may be perceived to be an active infection and contagious.

By addressing the limitations of current therapies, we believe AN2690 has a potential safety and efficacy profile that can make it a best-in-class therapy for the treatment of onychomycosis. In Phase 2 clinical trials, AN2690 demonstrated activity in treating onychomycosis and had no observed systemic side effects.

We have designed our topical AN2690 antifungal with three distinguishing characteristics:

• Enhanced nail penetration properties. We utilized our expertise in medicinal chemistry to design AN2690 with enhanced nail penetration properties, allowing for improved delivery of the compound through the nail plate to the nail bed, the site of onychomycosis infection. Preclinical studies indicate that AN2690 is able to penetrate the nail plate 250 times more effectively than Penlac.
• Novel mechanism of action with potent antifungal activity. We have utilized our expertise in boron based chemistry to design AN2690 with potent antifungal activity. AN2690 inhibits an essential fungal enzyme, leucyl transfer RNA synthetase, or LeuRS required for protein synthesis. The inhibition of protein synthesis leads to termination of cell growth and cell death, eliminating the fungal infection. We have shown that this inhibitory activity requires the presence of boron within the compound, as the replacement of the boron atom with a carbon atom in AN2690 inactivated the molecule. The unique boron based mechanism of action underlying AN2690 was detailed in the June 22, 2007 issue of the journal Science.
• No detected systemic side effects after topical dosing. We have conducted clinical trials to assess systemic absorption of AN2690. The results of these trials found that topical treatment with AN2690 resulted in little or no detectable levels of drug in the blood or urine. No treatment related systemic side effects have been observed in any of our clinical trials, and we believe it is unlikely that treatment of onychomycosis with AN2690 will result in significant systemic side effects.

AN2690 Phase 3 Clinical Development Program
In the second half of 2010, we plan to initiate Phase 3 trials for AN2690 in the Americas. The AN2690 Phase 3 program will consist of two double blind vehicle controlled trials enrolling 600 patients each. Vehicle refers to the formulation without the active ingredient. Patients will be randomized to receive AN2690 at the 5.0% concentration, or dose, compared to vehicle once daily for 48 weeks. The primary efficacy endpoint will be a composite endpoint measuring complete cure of the great toenail at week 52, which is consistent with the FDA requirement for Lamisil. Complete cure requires both a mycologic cure and a clear nail. The fungus present in the nail plate must be killed by treatment, which is known as mycologic cure. Achieving a clear nail requires the complete elimination of the diseased portion of the nail by replacement with new healthy growing nail and nail bed. Given the slow rate of nail growth, which is approximately one to two millimeters per month, the industry standard for conducting Phase 3 clinical trials of onychomycosis is to evaluate the nails over a twelve month period, in order to allow sufficient time for patients to grow a new nail. The End of Phase 2 meeting with the FDA has been completed, and we are currently conducting preparatory activities to initiate Phase 3 trials of AN2690 in the second half of 2010. We have also completed guidance meetings with the European Medicines Agency and regulatory authorities in Japan.

The following chart summarizes our AN2690 Phase 2 clinical trials to date:

According to Podiatry Today, 35 to 36 million people in the United States had onychomycosis in 2007. Over 95% of onychomycosis infections are of the toenail, according to a report in U.S. Dermatology Review. According to the manufacturer of Lamisil, 47% of those affected are not receiving treatment. For those who do seek treatment, options include debridement, oral or topical drugs or a combination of debridement and drug therapies. Debridement consists of scraping, cutting away or removal of the affected nail. Onychomycosis may persist or worsen if not treated. Onychomycosis often recurs in susceptible individuals because the fungi that cause onychomycosis are present in many common locations such as floors, the soil, socks and shoes. Consequently, the nail can be reinfected, and additional courses of treatment are frequently required even after successful treatment.