AN2728 is our lead topical product candidate for the treatment of psoriasis, which we believe has the potential to combine the effect of injectable biologics that inhibit the production of TNF-alpha and other cytokines with a better safety profile than existing therapies. We believe AN2728 has the potential to be a safe and effective therapy for the majority of psoriasis patients with mild to moderate disease as well as those patients with severe disease who utilize combination topical and systemic treatment. If approved, AN2728 would be the first topical non-steroidal treatment that inhibits TNF-alpha release.

Inhibition of cytokines such as TNF-alpha is a well-validated approach used by injectable biologic agents such as Enbrel, Humira and Remicade to effectively treat psoriasis. AN2728, a small-molecule compound, works by inhibiting phosphodiesterase 4, or PDE4, an enzyme that is critical to the production of TNF-alpha and other cytokines, which results in the suppression and reduction of the inflammatory response associated with psoriasis. Given that AN2728 is applied topically, the potential for systemic side effects is anticipated to be relatively low compared to the systemically administered biologics.

In the first half of 2007, we completed a Phase 1b microplaque clinical trial in Germany for AN2728 in patients with psoriasis. The study enrolled twelve patients for a twelve-day treatment. Each patient had their psoriatic lesions divided into six test areas to which one of the following was applied: AN2728 5.0% ointment, AN2728 5.0% cream, commercially-available psoriasis therapies betamethasone (Betnesol-V) and tacrolimus (Protopic), vehicle cream and vehicle ointment. Evaluations of the treatment sites were made at days one, eight and twelve. The primary endpoint of the study was the change in thickness of the psoriatic lesion as measured by sonography, and the secondary endpoint was improvement based on clinical score as evaluated by a physician. This study demonstrated that AN2728 caused a significant reduction in the thickness of psoriatic lesions compared to vehicle, at a p-value of 0.025. The mean percent reduction in infiltrate thickness for AN2728 was 54%, as compared to 48% for Protopic ointment and 72% for Betnesol-V cream. The secondary endpoint results of the clinical assessments paralleled the primary endpoint results of the sonographic assessments.

In December 2007, we completed a second Phase 1b clinical trial for AN2728 in patients with psoriasis. This study differed from the first study in that it was a dose-ranging study designed to compare 0.5%, 2.0% and 5.0% AN2728 ointment to the ointment vehicle. Based on the primary endpoint, which was the change in the thickness of the inflammatory infiltrate, all three concentrations were significantly better than the ointment vehicle (p-values less than 0.003). The mean percent reductions for 0.5%, 2.0% and 5.0% AN2728 ointment were 36%, 35% and 26% respectively. The percent reduction for the positive controls were 59% and 34% for betamethasone and protopic, respectively. The final study report will be available in the first half of 2008. No treatment-related adverse events were observed in either trial.

In March 2008, we completed a Phase 2a trial of AN2728 to characterize the safety profile and to assess efficacy with patient self-application. This Phase 2a trial of AN2728 was a double-blind bilateral trial. Psoriasis by definition is often bilateral and symmetrical, meaning that patients with psoriasis commonly have similar areas of psoriasis on their left and right or front and back sides. The bilateral study takes advantage of this characteristic of psoriasis. In this trial, patients, in a double-blinded fashion, treated one of their areas of psoriasis with AN2728 5% ointment and a matching area on the opposite site with the vehicle alone. The trial treated 35 patients. The primary endpoint was the proportion of patients in whom the AN2728-treated area improved more than the vehicle-treated area based on the target plaque severity score. Based on the overall target plaque severity score after four weeks, AN2728 achieved its primary endpoint, with 69% of the AN2728 treated plaques demonstrating a lower score as compared to 6% of the vehicle treated plaques (p-value less than 0.001). Significant differences were also noted after two weeks and three weeks and in multiple secondary endpoints. In addition to no serious adverse events, there were no treatment related adverse reactions or application site reactions.

In the first half of 2008, we also initiated a third Phase 1b microplaque trial to assess safety and clinical potency of a cream formulation. We anticipate that the results of that trial will be available in the first half of 2008. We are planning additional preclinical toxicology studies to assess dermal and systemic safety and tolerability. The complete Phase 2 and Phase 3 clinical development plan to confirm safety and efficacy in the intended population will involve several additional studies, which will require many more patients compared to the Phase 1b clinical trials.

Psoriasis is a chronic inflammatory skin disease that affects approximately 10 million people worldwide, according to Decision Resources. Psoriasis is characterized by thickened patches of inflamed, red skin covered with thick, silvery scales typically found at the elbows, knees, scalp and genital area. Patients can be categorized as mild, moderate or severe, with approximately 80% of patients having mild to moderate forms of the disease. The disorder ranges from a single, small, localized lesion in some patients to a severe generalized eruption. The recent introductions of new systemic biologic therapies for moderate to severe psoriasis has provided new treatment options for patients with moderate to severe disease and greatly expanded amounts spent on drugs to treat psoriasis. According to IMS Health, sales of psoriasis drugs in the United States were nearly $1 billion in 2006.